Business briefs for August 5, 2003

Tuesday, Aug. 5, 2003 | 11:07 a.m.

Service sector up in July

NEW YORK -- Service-sector activity surged in July, growing at the most rapid pace in nearly six years, according to data released today.

The Institute for Supply Management said that its non-manufacturing index moved to 65.1 from 60.6 in June and 54.5 in May. Readings above 50 indicate growth in activity, while those below point to contraction.

The July reading, which marked the fourth straight month of growth and the best reading since July 1997, was considerably better than the 59.0 reading predicted by economists.

Duracell fuels earnings

BOSTON -- Gillette Co., the world's largest razor maker, said second-quarter profit climbed 15 percent as it sold more Duracell batteries and Sensor3 disposable shavers. A decline in the U.S. dollar boosted overseas revenue.

Net income rose to $338 million, or 33 cents a share, from $293 million, or 28 cents, a year earlier, Gillette said. Earnings beat the 29 cents expected by Wall Street. Sales surged 11 percent to $2.25 billion.

Demand for the Mach3Turbo led to a 14 percent gain in sales of razors and blades, while Gillette cut prices to spur battery sales. In the U.S., the company is losing market share to Energizer Holdings Inc., which will introduce a four-blade Schick razor. Chief Executive James Kilts is stepping up ad spending, which may hurt profit at Gillette's biggest business this year.

Airline adding East Coast flights

US Airways will add Saturday service between Las Vegas and two East Coast destinations beginning Nov. 1. The Arlington, Va.-based airline plans flights to and from Boston and New York's LaGuardia Airport.

Retailer warns of falling profits

ISSAQUAH, Wash. -- Costco Wholesale Corp., the largest U.S. warehouse-club chain, said fourth-quarter earnings will fall because of higher costs for health-care benefits, workers' compensation and customer service. The shares plunged as much as 17 percent.

Profit will decline to as little as 46 cents a share from 52 cents a year earlier, the company said in a statement. The retailer had expected profit of as much as 56 cents in the three months ending Aug. 31. Costco lowered its full-year forecast to as little as $1.48 a share from as low as $1.56.

Costco spent more to improve customer service as competition increased from Wal-Mart Stores Inc.'s Sam's Club and supermarkets including Safeway Inc. Higher workers' compensation costs in California hurt profit, Costco said. Shares of Costco fell $6.31 to $30.65 in morning trading on the Nasdaq Stock Market.

Firm says AT&T allegations solely for competitive gain

NEW YORK -- Accusations by AT&T Corp. that rival WorldCom Inc. routed long-distance calls through Canada to avoid paying access fees are groundless and were made only for competitive gain, WorldCom said Monday.

AT&T made the accusations simply to "delay and derail" the efforts of WorldCom to emerge from bankruptcy, WorldCom said in a filing in federal bankruptcy court in Manhattan.

In a court filing last week, AT&T claimed it had evidence WorldCom was shifting calls to carriers in Canada, which sent them back to the United States on AT&T lines -- forcing AT&T to pay access fees that WorldCom should have paid.

AT&T said some of the shifted calls had been placed by the State Department and other government agencies, and accused WorldCom of playing "fast-and-loose with our national interests."

WorldCom -- brought down by an $11 billion accounting scandal -- is doing business under the brand name of its MCI long-distance division in a bid to clean up its image. It is asking the bankruptcy court for permission to change the company name to MCI and move its headquarters to Virginia, from Mississippi.

Plan to issue debt canceled

FORT WORTH, Texas -- AMR Corp., the parent of American Airlines, canceled a plan to raise $250 million by issuing new debt, saying it doesn't need the cash immediately.

AMR stock fell more than 10 percent Monday after the company announced the debt offering, which would have allowed institutional investors to convert the notes to stock. The company canceled the offering late Monday, and the shares rebounded this morning, gaining 56 cents, or 7 percent, to $8.60 each on the New York Stock Exchange.

AMR had planned to use the money for working capital and general purposes. The company said last month it had $2.4 billion in cash, up from $1.8 billion at the end of March.

Settlement of $47.5 million reached with TeleCorp

REDMOND, Wash. -- AT&T Wireless Services Inc., the biggest publicly traded U.S. mobile-phone company, agreed with other defendants to pay $47.5 million to settle a suit claiming it shortchanged investors when it bought TeleCorp PCS Inc.

AT&T Wireless and eight former TeleCorp executives agreed to pay the money to avoid a trial in Delaware Chancery Court in Wilmington, according to court papers. About a dozen TeleCorp shareholders said in the suit that the Redmond, Washington, wireless company secretly paid TeleCorp officials $140 million last year to win support for the $4.6 billion buyout.

Chief executive named

NEW YORK -- Tommy Hilfiger Corp., whose sales have been little changed for three years, named former Lands' End chief executive David Dyer as the clothing maker's president and chief executive.

Dyer, 54, succeeds Joel Horowitz, who remains chairman of Tommy Hilfiger, the company said in a statement. Dyer had served since 1998 as chief executive of Lands' End and oversaw the sale of the catalog retailer to Sears, Roebuck & Co. in June 2002. His resignation from Sears was announced Friday.

Tommy Hilfiger, known for its red, white and blue logos, has been searching for a replacement for Horowitz since October.

Profit rises 58 percent

NEW YORK -- MetLife Inc., the second-biggest U.S. life insurer, said second-quarter profit rose 58 percent on gains from an accounting change in its Mexican unit and a legal settlement over allegations of racial discrimination.

Net income climbed to $611 million, or 84 cents a share, from $387 million, or 53 cents, a year earlier, according to a company statement. Earnings excluding investment losses totaled $651 million, or 89 cents, beating a Thomson Financial analyst survey of 70 cents. Total premiums and fees rose 9 percent to $5.69 billion.

MetLife's expansion in Mexico, following last year's $962 million purchase of the country's biggest life insurer, Aseguradora Hidalgo SA, reflects the New York-based company's search for revenue as U.S. profit growth slows. In 2001, it moved into China and India.

Company to pay government $49 million

LAFAYETTE, La. -- Shell Oil Co. agreed to pay the federal government $49 million to settle claims stemming from the unauthorized venting and flaring of natural gas in the Gulf of Mexico, the Justice Department said Tuesday.

The Justice Department had filed suit claiming that Shell, one of the largest offshore oil operators in the Gulf, has improperly vented and flared gas from its offshore leases and failed to report or pay royalties on the gas involved. The lease are controlled by the federal government.

This was the third case settled by Shell in the last four years alleging underpayment of royalties to the federal government.

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