Costco's decision to not raise prices affects shares
NEW YORK — Costco Wholesale Corp. said yesterday that its earnings for the current quarter will be lower than expected as it delays raising prices on items from food to patio sets amid soaring energy costs that have accelerated in recent weeks.
Shares in the nation's No. 1 warehouse club operator — which had been one of the few bright spots in retailing — plummeted almost 12 percent yesterday. The reduced profit outlook from Costco reflects a dilemma that retailers, particularly low-price operators, face as the economy struggles: whether to raise prices on products — which could cost them customers — or resist price hikes from suppliers as long as possible, a move that depresses profits as they absorb higher costs.
Costco, which sells items in bulk and features gas stations at most locations, has attracted crowds of shoppers as they seek cheaper options. But Costco, like many retailers, can resist for only so long. Most ultimately are passing along the higher prices, which Costco officials said are being pushed by suppliers at a faster and higher rate in recent weeks than before.
That means more financial pain for shoppers. Costco is one of the top retailers in Hawai'i, with a half dozen stores in the state.
"I think the consumer is just starting to see, not only with us, rising commodity costs and rising general merchandise costs in a much bigger way than they've seen other than with gasoline itself," said Richard Galanti, Costco's chief financial officer, during a conference call yesterday.
Soaring fuel costs are having a wide impact on Costco's business, including weakness in its gas operations. That's because Costco typically gets its gas deliveries on a daily basis — compared with traditional gas station operators who can get better deals since they buy in advance.
Higher energy costs also are affecting the freight costs of distributing merchandise, Galanti said. As a result, Costco now expects profits for the fourth quarter ending Aug. 31 to be "well below" Wall Street estimates. Analysts polled by Thomson Financial expected Costco to earn $1 per share for the fourth quarter.
AMAZON RAISES REVENUE FORECAST
NEW YORK — Amazon.com Inc. reported second-quarter earnings that more than doubled and surpassed analysts' expectations. The Internet retailer also raised its full-year revenue projections.
Sales were strong in several sections of Amazon's massive marketplace, and the company was helped substantially by a $53 million noncash gain from the sale of European DVD rental assets.
For the quarter that ended June 30, Amazon earned $158 million, or 37 cents per share. Amazon earned $78 million, or 19 cents per share, in the same quarter last year.
The company's revenue climbed 41 percent to $4.06 billion, including a 35 percent leap in North American sales.
PHARMACEUTICALS STRONG OVERSEAS
TRENTON, N.J. — Profits by Pfizer Inc. and Wyeth show a common theme among pharmaceutical companies — nearly all the growth they're seeing these days is overseas, driven by emerging markets and the weak dollar.
New York-based Pfizer, the world's biggest drugmaker, said its profit more than doubled due to the exchange-rate benefit, sharply higher foreign sales and lower restructuring charges. It posted net income of $2.78 billion, or 41 cents per share, compared with $1.27 billion, or 18 cents, a year ago.
Sales rose 9 percent — 7 percent from exchange rates — to $12.13 billion.
Wyeth, based in Madison, N.J., said its profit fell 6.3 percent on charges for severance and other costs related to ongoing job cuts, but the drug developer still raised its full-year outlook.
The company's profit fell to $1.12 billion, or 83 cents per share, compared with $1.2 billion, or 87 cents, a year earlier. Excluding charges for workforce reductions, the company said it earned 91 cents per share — 4 cents more than expected. Revenue rose 5 percent to $5.95 billion.
BREAKFAST, CHICKEN BOOST MCDONALD'S
NEW YORK — Consumers helped bring McDonald's Corp. back to profitability in the second quarter by spending on breakfast biscuits, chicken sandwiches and drinks despite the tough economy in the U.S.
McDonald's earned $1.19 billion in the second quarter, including a gain from the sale of its stake in sandwich chain Pret A Manger, solidly besting Wall Street estimates. A year earlier, the company posted a loss of $711.7 million stemming from charges on the sale of its Latin America and Caribbean businesses.
The Oak Brook, Ill.-based company said revenue rose 4 percent to $6.08 billion, also beating analysts' predictions. McDonald's specifically credited its breakfast items, new chicken offerings and beverages.
SNACKS GIVE PEPSICO LIFT
NEW YORK — American consumers shying away from bottled water and soft drinks hurt PepsiCo's bottom line, but growth in its international and Frito-Lay snack businesses led the company to a 9 percent rise in second-quarter profit.
For the three-month period ending June 14, the Purchase, N.Y.-based company earned $1.7 billion, or $1.05 a share, compared with $1.56 billion, or 94 cents a share, during the same period last year. Revenue rose 14 percent to $10.95 billion.
Excluding one-time items, the company earned $1.03 per share. Analysts surveyed by Thomson Financial had expected earnings of $1.02 per share on revenue of $10.55 billion.
LATE DELIVERIES, COSTS HURT BOEING
Delays hurt Boeing Co.'s second-quarter profit, which fell 19 percent because of late delivery of military aircraft and rising costs from the postponed introduction of its 787 jetliner.
But the Chicago-based company, the world's second-largest commercial airplane maker after Europe's Airbus, reaffirmed its forecasts for 2008 and 2009, saying productivity gains would overcome the quarter's setbacks.
Boeing posted profits of $852 million, or $1.16 per share, for the three months ended June 30, compared with $1.05 billion, or $1.35 per share, a year earlier. Revenue remained essentially flat at $17 billion.
NORTHWEST TAKES ANOTHER CHARGE
MINNEAPOLIS — Northwest Airlines Corp. reported a second-quarter loss of $377 million yesterday as it took another large accounting charge and fuel expenses continued to rise sharply.
The Eagan, Minn.-based carrier lost $1.43 per share on revenue of $3.58 billion. During the same period last year, when Northwest emerged from bankruptcy protection, it made a profit of $2.15 billion, including $1.94 billion in bankruptcy items. It would have made $273 million a year ago without bankruptcy items.
Northwest said it would have earned $170 million for the most recent quarter if not for a non-cash accounting charge of $547 million. It also benefited from a $250 million fuel hedging gain.
HERSHEY MOVES SWEETEN RESULTS
HARRISBURG, Pa. — A price increase and streamlined production lines helped Hershey to a dramatically higher second-quarter sales and profit, the company said yesterday, as the nation's largest candy maker absorbs spiraling commodity costs and puts new emphasis on marketing muscle.
The Hershey Co. said it earned $41.5 million, or 18 cents a share, for the three months ended June 29, compared with last year's second-quarter gain of $3.6 million, or a penny per share, as it spent heavily to transform its production lines.
Sales rose 5 percent to $1.1 billion, slightly above analyst estimates.
The figure was boosted by a price increase and growth in some key brands, while Hershey reaffirmed its 2008 guidance of sales growth of 3 to 4 percent and earnings of $1.85 to $1.90 per share.