Posted on: Sunday, June 20, 2004
Iraq war blamed for poor revenues in 2003
By James Cox
USA Today
Hundreds of companies blame the Iraq war for poor financial results in 2003, many warning that continued U.S. military involvement there could harm this year's performance.
In recent regulatory filings at the Securities and Exchange Commission, airlines, home builders, broadcasters, mortgage providers, mutual funds and others say the war was directly to blame for lower revenue and profits last year.
Many list ongoing hostilities between U.S. forces and Iraqi insurgents as a "risk factor" threatening their 2004 performance.
The war led to sharp decreases in business and leisure travel, say air carriers, travel services, casino operators, restaurant chains and hotel owners.
Delta Air Lines, JetBlue, Northwest Airlines and Alaska Airlines blame the war for a decline in air travel. KLM says the likelihood of a U.S. invasion last year prompted it to postpone delivery of new aircraft.
Steakhouse proprietor Morton's says the war contributed to weak results. Rival Smith & Wollensky says the conflict could hurt profits.
Online travel services Orbitz and Priceline.com say the war hurt earnings. Airline reservation system Sabre Holdings says the fighting lowered bookings for flights. Also damaged: Superclick, provider of hotel room Internet systems; and World-span, which processes travel agency transactions.
Worldspan blamed the war, the severe acute respiratory syndrome virus known as SARS and a weak economy for its decision to lay off 200 workers. Falling first-quarter revenue was "due primarily to the impact of both the Iraq war and SARS on air travel," it said.
Hoteliers Jameson Inns, Uptowner Inns, Fairmont Hotels & Resorts and Host Marriott either blame the war for disappointing performance or caution it could dampen 2004 results. When the U.S.-led invasion geared up, casino traffic declined, say gaming operators and developers Atlantic Coast Entertainment, CSNO and Waterford Gaming.
The SEC has been pressing companies to be more explicit about the reasons for variations in financial performance from one reporting period to the next. But many companies plainly are using external events — war, terror attacks, the SARS virus, Y2K — as a crutch to explain poor results, says Greg Taxin, CEO of Glass Lewis, an independent proxy advisory firm.
"They can divert attention from what may, in fact, be bad management, bad planning, bad performance," Taxin says. "For some companies, (the war) was no doubt an important cause for a change in results. For others, it's something thrown in as part of a laundry list."
Particularly blunt are fund managers, many of whom traditionally share their views with shareholders in annual letters.
"The war in Iraq created a quagmire for corporations," David J. Galvan, a portfolio manager for Wayne Hummer Income Fund, says in his letter to shareholders.
Vintage Mutual Funds concludes that "the price of these commitments (in Iraq and Afghanistan) may be more than the American public had expected or is willing to tolerate."
War hasn't been hell for all.
Several companies have reported a boost from sales to the military or contracts stemming from the Iraqi reconstruction effort. The war has lifted sales of: gas masks from Mine Safety Appliances; bio-weapons detection kits and training from Response Biomedical; air cargo from Atlas Air; port dredging by JDC Soil Management; packaging by TriMas; body armor and vehicle protection kits from Armor Holding; telecom services and communications gear from Globalnet, CopyTele and I-Sector.
"Since the situation in Iraq does not seem to be improving, Kroll expects the demand for its security services in the Middle East, Africa and Europe to increase," says Kroll, which trains and supplies bodyguards and offers security advisory services.
