Monday, October 26, 2009

“Beating the Street an easy feat for companies - Arizona Daily Sun” plus 4 more

“Beating the Street an easy feat for companies - Arizona Daily Sun” plus 4 more

Beating the Street an easy feat for companies - Arizona Daily Sun

Posted: 26 Oct 2009 06:34 AM PDT

Beating the Street an easy feat for companies


Monday, October 26, 2009

CHICAGO (AP) -- More than 80 percent of major companies reporting third-quarter results this month have beaten Wall Street expectations. So is business that good? No. Are companies gaming the system? Yes.

Corporate America has a habit of low-balling the earnings forecasts used by analysts to determine their estimates. That way, the bar is lower, and companies can easily jump over when the quarter's results are announced -- even if profits and revenues have fallen off a cliff. "Over the last decade, there's been a distinctive tendency for companies to underpromise and overdeliver," says Dirk van Dijk, chief equity strategist of Zacks Investment Research. "Lately companies are being even more cautious. They realize investors can very harshly punish any company that disappoints."

Beating expectations generally gives share prices a quick lift, but the news can mislead investors about the real state of the business -- and just how far this economic recovery has to go. In fact, of the companies reporting third-quarter results so far, 60 percent have posted lower net income compared with a year ago.

Still, the recession has, if anything, accelerated the flow of positive earnings "surprises" as companies play it safe and issue more conservative earnings forecasts. Over the past two years, 65 percent of earnings reports have beaten estimates. Even after last fall's financial crisis, the following two quarters produced nearly twice as many beats as misses.

And this quarter, 81 percent of the first 199 companies listed on the Standard & Poor's 500 index that reported earnings came in above expectations.

The expectations game works like this.

Corporation X announces weeks or months ahead of time that it expects to earn, say, 55 to 60 cents per share. Analysts look at various measures of the company's financial and operating performance while compiling forecasts, but rely heavily on guidance from management. The resulting consensus forecast might be around 57 cents a share.

On earnings day, the company then reports 61 cents per share. It can rightfully say it beat analyst expectations, and shares rise. Other investors jump on the bandwagon.

The company has some ability to control the number since analysts and most media focus on the so-called adjusted earnings, which can leave out huge one-time charges such as write-offs for restructuring expenses that otherwise could drag down overall results.

The expectations game has been played since the 1990s, when analysts' aggregate predictions became widely available on the Internet.

But the focus on expectations can distract investors from more meaningful numbers. This past summer, earnings stories trumpeted how banks did better than expected. But in stressing the surprise factor, many investors lost sight of the fact that earnings were down considerably for most banks and that troubles still shadow the sector.

In the last 15 years, 61 percent of earnings reports by the nation's largest publicly traded companies -- those listed on the S&P 500 -- have surpassed Wall Street's consensus estimates. Only 21 percent fell short, while 18 percent matched estimates, according to Thomson Reuters data.

There has never been a single quarter during that period when more companies have missed earnings than beat the Street.

Some companies are more blatant about managing expectations than others.

Apple Inc. is notorious for lowballing its outlooks. The computer maker topped analysts' estimates on Monday for the 27th quarter in a row. It has not come up short on earnings day since the first quarter of 2001. Apple declined to comment on the trend.

Then there's Cisco Systems Inc., which once beat forecasts by exactly 1 cent per share for 13 straight quarters, from 1998-2001. Coming within a penny so many times during that period merely shows the company was "conservative and transparent in communicating quarterly business conditions to investors," according to spokesman Terry Alberstein.

Stock analysts cannot automatically be blamed for consistently erring on the low side. Until results become public, they must depend in large part on what companies disclose about their performance. A company may deliberately give low guidance so it can top expectations, but that's hard for analysts to counter without evidence.

Brian Marshall, a technology analyst for the brokerage firm Broadpoint AmTech, says Apple's guidance is "almost absurdly low" but there's only so much analysts can do.

"The funny part is, people, including myself, try to see through it," he says.

He inputs hundreds of numbers into his forecast model each quarter, such as gross profit margin, average selling price for various products, the company's past guidance and earnings, and data from other manufacturers and suppliers. Analysts also weigh whether a company has a history of issuing earnings results that do not include special accounting charges.

Marshall's estimates for Apple's latest quarter were the highest on Wall Street. Yet the company topped his expectations by 16 cents per share and $200 million in sales. Its stock jumped 5 percent on the news.

Analysts also may have their reasons for wanting to stay on management's good side.

Companies are required to disclose material information to all investors at the same time. But their top executives can still show up at a firm's annual conference or talk about the industry, notes David Weild, senior adviser at accounting firm Grant Thornton.

"It's pretty widely known that the big-cap companies who are highly sought after can withhold access to get the results they're looking for, and that includes managing down expectations," Weild says.

Carefully managed by companies or not, expectations matter.

A study of stock returns from 1994-2007 concluded that analyst forecasts were the second-most influential force on price movements. Management forecasts topped the list, according to Beverly Walther, an accounting professor at Northwestern University's Kellogg School of Management who co-authored a newly released report.

Estimates by analysts carry particular impact when results do not match up. A company's stock price tends to fall much more on a "negative surprise," or miss, than it rises on a positive surprise. Either way, the momentum from beating or missing an estimate can affect a company's stock price for weeks afterward, Walther said.

But the market impact may be a bit more muted than it was before last year's meltdown. Failing to meet expectations still moves the market, but "it's not as dramatic now," says Matt Lloyd, chief investment strategist for Advisors Asset Management, an investment advisory firm.

"There's a lot of cynicism right now toward estimates -- among investors, among everybody," Lloyd says. Because so many economists and analysts failed to see the financial crisis coming, he says, "there's a little more paranoia and distrust."

AP Technology Writer Jessica Mintz in Seattle contributed to this report.

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AP IMPACT: Immigration agents mishandle informants - Connect

Posted: 26 Oct 2009 06:34 AM PDT

By ALICIA A. CALDWELL
Monday, October 26, 2009 at 8:38 a.m.

EL PASO, Texas (AP) — One immigration agent was accused of running an Internet pornography business and enjoying an improper relationship with an informant. Another let an informant smuggle in a group of illegal immigrants. And in a third case, an agent was investigated for soliciting sex from a witness in a marriage fraud case.

These troubling misdeeds are a sampling of misconduct by federal Immigration and Customs Enforcement personnel as the agency seeks to carve out a bigger role in the deadly border war against Mexican drug gangs.

According to documents obtained by The Associated Press under the Freedom of Information Act, ICE agents have blundered badly in their dealings with informants and other sources, covering up crimes and even interfering in a police investigation into whether one informant killed another.

At least eight agents have been investigated for improper dealings with informants since ICE was created in 2003, and more than three dozen others have been investigated for other wrongdoing, the records show.

The heavily redacted documents detail how one agent failed "to report murders ... to her supervisor" and how another failed "to properly document information received from a confidential source in violation of ICE policy and procedure."

In the case involving one informant charged with murdering another, Jose Daniel Gonzalez Galeana, a smuggling manager for the Juarez cartel, was gunned down this spring in his upscale El Paso neighborhood. El Paso police say ICE delayed its investigation, steering detectives away from the man now charged with arranging the contract hit.

Kelly Nantel, an ICE spokeswoman in Washington, said in an e-mailed statement that the agency "works with confidential informants in accordance with established best practices and guidelines of federal law enforcement agencies."

The statement noted that ICE fired an agent last year for "negligence in performing his duties, misdirecting funds and submitting false documents" in relation to his work with an informant. Also, an agent in Miami was sentenced to two years in federal prison and resigned from ICE earlier this year as part of a plea deal for accepting gifts from an informant.

ICE officials in El Paso have repeatedly declined to comment on the Gonzalez case, but John Morton, Homeland Security's assistant secretary for ICE in Washington, said, "I'm aware of that situation and it is under review." He declined to answer other questions.

Problems with ICE informants are not a new phenomenon. According to a Feb. 24, 2004, letter from the head of the DEA office in El Paso to the head of the ICE office there, a man described as "a homicidal maniac" was allowed to continue working as an ICE snitch even after he "supervised the murder" of an associate of the Juarez cartel.

In a recent AP interview, the informant, Guillermo "Lalo" Ramirez Peyro, now confined to an ICE detention facility, denied participating in any homicides.

Even when not working with informants, ICE agents have gotten in trouble. The documents show that agents in field offices all over the country, and in several foreign posts, have been investigated for offenses including drunken driving in government cars, lying to other investigators in ongoing cases, and misusing their position for personal gain.

In one case, an agent was probed for having an inappropriate relationship with the target of an ICE investigation. Another agent was investigated for using his government position to ask questions from Texas about his mother-in-law's eviction in New Mexico.

El Paso, which sits on the Rio Grande across from the virtually lawless Ciudad Juarez, Mexico, is populated with numerous law enforcement agencies that try to work together on stopping the northbound flow of drugs, immigrants and violence and the southbound flow of weapons and cash.

ICE was spun off from the Immigration and Naturalization Service to become the investigative arm of the Department of Homeland Security when DHS was created after the Sept. 11, 2001, attacks. ICE also handles the processing and detention of illegal immigrants and miscellaneous tasks like oversight of security at federal buildings.

The agency has long been interested in joining the border drug war, and has been stepping up its efforts as drug-related violence has killed more than 13,500 people in Mexico and threatens to spill into the United States.

Some local and federal authorities in El Paso are hesitant to work closely with ICE because of the way it operates, said law enforcement officers who spoke to the AP on condition of anonymity because they weren't authorized to discuss the issue.

In the 2004 DEA letter, inaction by ICE officials was blamed for "allowing at least 13 other murders to take place in Ciudad Juarez" and for endangering the lives of DEA agents and their families.

The murder of informant Gonzalez is another example of concern.

"It is interesting that an agency like ICE would be handling a cartel hit man, especially when you consider the other types of agencies in El Paso," said Stephen Meiners, a senior analyst for Stratfor, an Austin-based global intelligence company. "There's probably more than 50 agencies there who might be the more natural handler for that type of informant."

Law enforcement officers say agents follow general rules on informants: Federal investigators are supposed to keep close tabs on informants, approve any criminal activity that might be necessary to complete an investigation, and cut loose an informant who gets caught violating his agreement with the agency.

But it's not always easy, considering the kind of people involved in organized crime.

"You are automatically dealing with bad guys," said Phillip Lyons, a criminologist at Sam Houston State University. "It's a dirty business from the outset."

In the Gonzalez case, El Paso police were outraged by what appeared to be a deliberate attempt to steer them away from the prime suspect. They laid out their complaint in an interview with the AP.

As Gonzalez bled to death on the cul-de-sac in front of his house, his wife, Adriana Solis, made two phone calls, as her husband had instructed her to do if anything happened to him. First, she called ICE, then 911, said Lt. Alfred Lowe, the lead investigator.

Gonzalez, a Mexican national, had been living in the U.S. on an ICE-issued visa given to him as a perk for his informant work.

The ICE official his wife called, who remains unidentified, called El Paso police a bit later to tell them their murder victim worked for the Juarez cartel, but also was an ICE informant. They promised to help.

Solis told police that her husband believed a Juarez cartel assassin nicknamed "El Dorado" was hunting him down.

According to Lowe, the ICE official didn't contact police again for three days. When he did, he gave police a photo array of Gonzalez's known associates. A Texas Ranger noticed that the array contained one less photo than the last time he'd seen it. The ICE agent said he couldn't explain the discrepancy, Lowe said.

A few days later, the agent said the missing person was a man he called "Mayer," an ICE informant who might have information about the Gonzalez killing.

But ICE had given the police a false name and a false lead.

Mayer was really Ruben Rodriguez "El Dorado" Dorado, a twist police discovered when the man was arrested along with a U.S. Army solider and two other teenagers trying to steal a trailer full of televisions. Lowe said police recognized the photo of Rodriguez in the El Paso Times as that of the man identified to them as Mayer.

Nearly two months later, they charged informant Rodriguez with arranging the hit on informant Gonzalez. The soldier, the alleged triggerman, the teens and another man also are charged in the case.

Neville Cramer, a retired INS special agent, said ICE was obligated to turn over Rodriguez to police as soon as they thought he might be a murder suspect.

"If ICE knew ... this individual was involved in any manner whatsoever, they had better not have kept the information from the police, no matter what the circumstances were," Cramer said.

Added Lowe: "Some agencies don't take murder as seriously as drugs."

__

Associated Press writer Eileen Sullivan contributed to this report from Washington.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Barrington Broadcasting is a member of the AP Network.

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Verizon Revenue Up Slightly in Third Quarter - CIO

Posted: 26 Oct 2009 07:24 AM PDT

Mon, October 26, 2009 — IDG News Service — Verizon Communications reported revenue of US $27.3 billion for the third quarter of 2009, up 10.2 percent from a year earlier, but up only 0.6 percent if revenue from the January acquisition of competitor AllTel is taken out.

Verizon's net income for the quarter was $2.9 billion, down from $3.2 billion in the third quarter of 2008. Adjusted earnings per share were $0.60, beating analyst expectations of $0.59, according to Thomson Reuters.

Gains in the quarter were largely driven by growth in mobile customers and subscribers for Verizon's Fios fiber-based broadband and television service. Verizon CEO and Chairman Ivan Seidenberg cited free cash-flow growth that is 16 percent higher in 2009 than in 2008 as a highlight of the quarter.

Free cash flow for the quarter was $10.7 billion, up by $3.3 billion from the third quarter of 2008.

"Verizon continues to generate strong cash flow, which we have used in building the foundation for sustainable, long-term share-owner value," he said in a statement. "Even through the worst of the recession, we have continued to raise our dividend and to add new customers, expand markets and grow revenues based on the power and innovation of Verizon's wireless, broadband and global networks."

Verizon reported 89 million mobile customers at the end of the quarter, with 1.2 million net additions, excluding acquisitions and adjustments.

Verizon Wireless revenue was $15.8 billion for the quarter, up 24.4 percent over last year, or 4.9 percent on a pro forma basis. Wireless data revenue grew to $4.1 billion, up 28.9 percent on a pro forma basis.

Verizon's wireline division added 198,000 new Fios Internet customers and 191,000 new Fios television customers. The company now has 3.3 million Fios Internet customers, up 49.2 percent over a year ago, and 9.2 million broadband subscribers, including DSL (Digital Subscriber Line).

Wireline revenue overall was $11.6 billion, down 4.8 percent from the third quarter of 2008.

Verizon also saved money by cutting about 5,000 employee and contractor jobs, 4,000 in its wireline division, during the quarter, said John Killian, executive vice president and chief financial officer. The company expects to cut another 4,000 jobs in the fourth quarter, he said.

The bad U.S. economy "continues to create headwinds" for the company, but Verizon is taking steps to keep costs down, Killian added.

"I'm confident that when the economy gets better, we will see improvement in our results," Killian said during a conference call.

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Behind NY's Small-Business Drop - New York Post

Posted: 26 Oct 2009 06:12 AM PDT

DOING business in Gotham has rarely been easy for the nearly 200,000 small firms that form the local economy's backbone. But in the last few years, small businesses' woes have worsened, say entrepreneurs and business groups. Taxes, fees and fines are higher than ever; city departments have stepped up inspections; and commissioners have promoted social policies that have added to their burdens.

In an election year, the costs of New York's tough-on-business regime have started to grab headlines. Mayor Bloomberg and the City Council have agreed to set up a commission to cut business regulations, and the administration is rolling out initiatives aimed at helping small businesses. But while this (rare) attention to their problems is welcome, the city really needs lower taxes, more manageable fines and a more responsive bureaucracy.

Government-imposed barriers to doing business raise prices, narrow choices and inhibit job growth for all New Yorkers, owners point out.

Bloomberg's tenure has been surprisingly tough on them. Owners got a glimpse of what was ahead right after Bloomberg took office, when the city began vigorously enforcing an obscure 1962 ordinance that limited the inscriptions on a store's awning. Aggressive inspectors smacked shops with $400 fines until media attention and a public outcry prompted the City Council to rewrite the outdated law.

Far harder for businesses to survive, however, are steep recent tax hikes, especially the mayor's 2003 $1.9 billion property-tax increase, which fell disproportionately on businesses. Along with aggressive reassessments of building values, the levies have almost doubled the city's real-estate tax bite, from $8.6 billion in 2002 to $16.1 billion this year, with business paying half the toll.

One result: Many more instances of businesses shuttering, owing tens of thousands of dollars in property taxes. Bills like these have helped push up retail vacancy rates, now projected to hit double digits in the city by the year's end.

The mayor defended his 2003 tax hike by calling the city a "luxury product" for which businesses were willing to pay a premium. While that might be true of the financial industry from which Bloomberg came, far more common are businesses like supermarkets that typically earn only 1 to 2 percent of sales.

Nelson Eusebio, who ran a supermarket in Brooklyn for 20 years and now represents other supermarket owners, estimates that 300 city supermarkets have gone bust since 2000. The Bloomberg administration, in its own study, acknowledges that New York is probably losing $1 billion a year in retail food sales to the suburbs because of a shortage of markets.

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CA-BUSINESS Summary - ReportonBusiness.com

Posted: 26 Oct 2009 06:55 AM PDT

Bank of Canada raps financial industry over pay

MONTREAL (Reuters) - Bank of Canada Governor Mark Carney delivered a blunt rebuke to the global financial industry on Monday, saying it had shown insensitivity over high compensation and calling on it to get on board with reforms. "Relief is in danger of giving way to hubris," he said in the prepared text of a speech. He said the clear priority of the public sector was for banks to conserve their earnings to boost capital and expand credit formation.

Canada mulling tax reforms to aid pension funds: report

(Reuters) - A bill to overhaul Canadian tax law to promote bigger pension fund surpluses would be introduced this autumn to bolster the country's ailing pension regime, The Globe and Mail reported on its website. A bill is expected to be introduced by December, Ted Menzies, parliamentary secretary to Finance Minister Jim Flaherty and Ottawa's point man on pensions, told the paper.

Magna's Opel buy inches closer as Spain gives go-ahead

BRUSSELS/ZARAGOZA, Spain (Reuters) - Canada's Magna on Monday inched closer to clinching its Opel buy with approval from Spanish plant workers as the clock ticks down to a November 3 board meeting at which GM is set to decide on the deal.

Iamgold increases 2009 gold production forecast

TORONTO (Reuters) - Canadian precious metals miner Iamgold Corp increased its 2009 gold production forecast on Monday, primarily due to increased productivity at its Rosebel mine in Suriname and the extended life of its Doyon mine in Quebec. Toronto-based Iamgold now projects 2009 production at 940,000 to 950,000 ounces of gold, an increase of 30,000 ounces over its previous outlook issued in June.

Macquarie to acquire Blackmont Capital

TORONTO (Reuters) - Australian investment bank Macquarie Group said on Monday it plans to acquire Blackmont Capital from CI Financial for $C93.3 million ($88.6 million), in a bid to expand its wealth management business and product portfolio in Canada. Toronto, Ontario-based Blackmont, which employs over 450 people, is one of the largest independent, full service investment dealers in Canada.

Spain's Opel workers vote to accept Magna plan

ZARAGOZA, Spain (Reuters) - The workers at Opel's Spanish plant voted on Monday to accept Canadian parts maker Magna's industrial plan for the Figueruelas plan in northern Spain, according to a union assembly vote witnessed by Reuters. (Reporting by Feliciano Tisera; writing Judy MacInnes)

TSX follows energy shares to higher open

TORONTO (Reuters) - Toronto's main stock index opened broadly higher on Monday with firm oil prices pushing up Canadian Natural Resources and its oil company peers. The S&P/TSX composite index rose 41.64 points, or 0.37 percent, to 11,423.77 at the open.

C$ edges lower, commodity prices cushion drop

TORONTO (Reuters) - Canada's dollar added to recent losses and was slightly lower versus the U.S. currency early on Monday, but lofty prices for key Canadian exports like oil and goldits cushioned its pullback. The Canadian currency took a hit last week after the Bank of Canada and Governor Mark Carney warned the currency's rally toward parity with the greenback is a risk to growth and discussed the possibility of intervention.

ING to split in two, launch rights issue

AMSTERDAM (Reuters) - Dutch bancassurer ING Group NV will split in two, shrinking itself into a smaller Europe-focused bank, in the most striking example yet of the deep changes the EU wants to force on banks that received state aid. The company also said it would pay back 50 percent of its aid from the Dutch state early and launch a 7.5 billion euro ($11.25 billion) rights issue.

Oil falls to around $80 on recovery concerns

LONDON (Reuters) - Oil fell for a third day to around $80 a barrel on Monday, extending its retreat from last week's one-year high, on renewed concerns about the strength of the global economy. Weak U.S. industrial sector earnings last week pushed down stock markets and underscored concerns about the pace of the U.S. economic recovery and its impact on energy demand.

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