Automakers grab loans, look to Obama White House

The long-term fate of the auto industry rests with Barack Obama now that President George W. Bush has given car companies $17.4 billion in emergency rescue loans.
Simply letting the Big Three collapse was not an option amid a recession, housing slump and financial credit crunch, Bush said in announcing the short-term loans and demanding tough concessions from the automakers and their employees.
"By giving the auto companies a chance to restructure, we will shield the American people from a harsh economic blow at a vulnerable time," the president said in his Saturday radio address. "And we will give American workers an opportunity to show the world once again that they can meet challenges with ingenuity and determination, and emerge stronger than before."
The Detroit companies pledged to rebuild their once-mighty industry, though they acknowledged it would be tough to fight their way back from the brink of bankruptcy. If the carmakers fail to prove viability — a positive cash flow and ability to make good on the loans — by March 31, they will be required to repay the government loans.
That's something they would find all but impossible to do.
Bush said the loans will give automakers three months to institute plans to restructure into viable companies "which we believe they are capable of doing." He said if restructuring cannot be done outside bankruptcy, the loans will provide time for companies to make the legal and financial preparations needed for an "orderly" Chapter 11 bankruptcy.
"This restructuring will require meaningful concessions from all involved in the auto industry — management, labor unions, creditors, bondholders, dealers and suppliers," he said. "If a company fails to come up with a viable plan by March 31, it will be required to repay its federal loans. Taken together, these conditions send a clear message to everyone involved in American automakers: The time to make the hard decisions to become viable is now — or the only option will be bankruptcy."
The autoworkers union complained the deal was too harsh on its members, while Bush's fellow Republicans in Congress said it was simply bad business to bail out the industry using money from the $700 billion rescue program for financial institutions.
Obama, who takes office a month from Saturday, praised Bush's action but said the companies "must not squander this chance to reform bad management practices and begin the long-term restructuring" absolutely necessary.
Obama will be free to reopen the arrangement from the government's side if he chooses, and the head of the United Auto Workers said the union would be appealing to the new president and the strongly Democratic new Congress on that subject.
Some $13.4 billion of the rescue money will be available this month and next — $9.4 billion for General Motors Corp. and $4 billion for Chrysler LLC, which have said they could be facing bankruptcy soon without government help. GM is set to receive the remaining $4 billion in loans after more money is released from the financial rescue account. Ford Motor Co. says it doesn't need federal cash now but would be badly damaged if one or both of the other two went under.
Under terms of the loans, the government will have the option of becoming a stockholder in the companies, much as it has with major banks, in effect partially nationalizing the industry. Bush said the companies' workers should agree to wage and work rules that are competitive with foreign automakers by the end of next year.
And he called for elimination of a "jobs bank" program — negotiated by the UAW and the companies — under which laid-off workers can receive about 95 percent of their pay and benefits for years. This month, the UAW agreed to suspend the program.

Passenger jet goes off Denver runway; 38 hurt

A Continental Airlines jet taking off from Denver veered off the runway into a ravine and caught fire Saturday night, forcing passengers to evacuate on emergency slides and injuring nearly 40 people, officials said.
No deaths were reported, but 38 people were taken to hospitals, said Kim Day, Denver International Airport manager of aviation. No one was reported in critical condition.
The cause of the accident was not immediately known. The weather in Denver was cold but not snowy when Continental Flight 1404 took off from Denver International Airport for Houston around 6:20 p.m.
The plane veered off course about 2,000 feet from the end of the runway and did not appear to be airborne, Day said.
It was not known when the plane caught fire, but ground crews put out the flames quickly, said airport spokesman Jeff Green. The 112 people on board made it out on through slides on the Boeing 737.
The plane was carrying 107 passengers and five crew members, said Continental spokeswoman Mary Clark.
Denver Health spokeswoman Kalena Wilkinson said seven people were taken to her hospital with injuries that were not life-threatening. Seven people were at the University of Colorado hospital, but no one had life-threatening injuries, a spokeswoman said.

Nike shares rise on strong 2Q sales overseas

Shoe and apparel company Nike Inc. said Wednesday that, despite weak domestic sales, its profit grew 9 percent in the second quarter on strong sales overseas.
The Beaverton, Ore.-based company reported its net income rose to $391 million, or 80 cents per share, compared with net income of $359.4 million, or 71 cents per share, in the same quarter last year.
The company said its total revenue grew 6 percent to $4.6 billion, from $4.3 billion last year. Changes in currency exchange rates boosted revenue by 1 percentage point for the quarter.
The results slightly exceeded Wall Street's expectations. Analysts polled by Thomson Reuters expected the company to earn 79 cents per share on sales of $4.73 billion.
Nike president and Chief Executive Officer Mark Parker said the results demonstrate the strength of the brand. He said the current state of the industry and the world offer opportunities for Nike to become a stronger leader.
"In challenging times like these, it's especially important to stay focused on what we do best — delivering the most innovative and relevant product, strengthening our relationship with consumers and driving excellence into every area of our business," Parker said in a statement. "That's how we continue to lead the industry, take market share from competitors and grow our business."
The company saw strong sales growth in Asia and other foreign markets. Revenue in Asia jumped 22 percent for the quarter. But domestic sales were weak. Total revenue in the U.S. decreased 1 percent, with significant drops in equipment sales.
Nike said sales at six of its top 10 accounts in the U.S. were essentially flat. And comparable-store sales for Nike-owned stores dropped nearly 20 percent, because the company had little promotional activity compared to the rest of the marketplace and many of its stores are in tourist areas, which are among those hit hardest by the economic downturn. Comparable-store sales are considered a key indicator of a retailer's health.
Footwear and athletic goods analyst John Shanley at Susquehanna Financial Group said Nike is feeling pressure from the recession. But he is pleased with the company's ability to perform in tough times and said Nike's leadership is focused on how to cope with the uncertainty of the future.
"They are cautiously optimistic and rightly so," Shanley said.
Nike's orders for product to be delivered between December and April dropped 1 percent below the same period last year. Excluding the effect of changes in foreign currency exchange rates, reported orders grew 6 percent.
But company leaders said they are prepared to thrive under the continued macro-economic pressures and will tightly control inventory, which some analysts were concerned was fattening, and focus on investments that sustain long-term growth.
The company already has taken some steps to control costs, implementing a hiring freeze and cutting travel and other operating expenses.
Shares of Nike fell $1.39 to $49.25 in after-hours trading Wednesday following the announcement.

FedEx profit up, but cuts pay and costs

Package delivery giant FedEx Corp (FDX.N) reported a higher profit for its fiscal second quarter, meeting expectations, but announced a 20 percent pay cut for CEO Fred Smith and said it was suspending retirement plan contributions as the U.S. economy's outlook looks bleak.
FedEx said it has a hiring freeze in place and has cut staff levels at its FedEx Freight and FedEx Office units.
FedEx said new measures include a 20 percent base salary decrease for Smith and pay cuts of between 7.5 and 10 percent for other senior executives as of January 1. All other U.S. salaried personnel will have a 5 percent pay cut.
According to a company filing with the U.S. Securities and Exchange Commission in July, Smith's base salary for the company's fiscal 2009 year was set at around $1.48 million.
The company also announced the suspension of matching contributions to FedEx's 401(k) retirement plan for a minimum of one year as of February 1.
FedEx said the cost-cutting measures would reduce expenses by $800 million by the end of its fiscal 2010 year.
"Our financial performance is increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history," Smith said in a statement.
FedEx also gave a broad earnings outlook range for the second half of its fiscal 2009 year and said it would not provide an outlook for the third quarter because of "significant economic uncertainty."
"It's tough, but it's a sign of the times," Al Meyers, portfolio manager of the AHA Diversified Equity Fund, which owns FedEx shares, said of the pay cuts. "The fact that executives including Fred Smith are taking pay cuts sends a message to employees that 'we're all in the same boat,' which is a positive."
"As long as we have confidence in the management at FedEx and in the overall business model, we'll stick with them," he added.
The Memphis, Tennessee-based company, which like United Parcel Service Inc (UPS.N) is considered a bellwether of U.S. economic health, reported that net income for its fiscal second quarter ended November 30 rose to $493 million, or $1.58 per share.
That compared with the $479 million, or $1.54 per share, the company reported a year earlier.
FedEx said falling fuel prices had lifted profits, which offset lower package volumes due to global economic weakness.
"I am very pleased with the results," said Dan Ortwerth, a research analyst at Edward Jones. "FedEx is getting better and better at managing its cost structure."
Edward Jones has a "buy" rating for both FedEx and UPS.
The company reported revenue for the quarter of $9.54 billion, compared with $9.45 billion a year earlier. Analysts expected $9.78 billion.
FedEx gave a broad profit range of between 69 cents and $1.94 per share for the second half of its fiscal 2009 year and said that apart from economic uncertainty, the recently announced departure of DHL from the United States made it difficult to provide a forecast for the third quarter.
"FedEx has been taking action for some time to offset the effects of a downturn," said Sandeep Kar, a transportation analyst at consulting company Frost & Sullivan. "They have done the right things to navigate them through these troubled waters."
Deutsche Post AG (DPWGn.DE) said in November that its DHL express unit would end U.S. domestic service on January 30 with the loss of 9,500 jobs, citing the U.S. slowdown and DHL's uphill struggle to compete against FedEx and UPS on their home turf.
FedEx and UPS have seen package volumes hit by the slowing U.S. economy. UPS said in November the uncertain economic environment had made it too difficult to give its usual peak-season package volume forecast.
FedEx shares were down 58 cents or 0.9 percent at $63.39 on Thursday afternoon on the New York Stock Exchange, after rising as much as 2 percent earlier in the day.

Stocks finish lower amid lingering economic fears

Wall Street extended its losses Thursday, as a negative ratings outlook on financial and industrial powerhouse General Electric Co. shook an already fragile investor psyche and sent stocks tumbling.
After moving within a narrow trading range for much of the session, the Dow Jones industrial average dropped about 220 points. The broader Standard & Poor's 500 index lost more than 2 percent.
Stocks struggled to find a direction in the early going Thursday as investors sifted through a number of economic indicators, including more layoffs and dismal earnings forecasts.
But a negative ratings outlook on GE from Standard & Poor's added further pressure on the market.
The ratings service lowered its outlook on GE and its GE Capital finance arm to negative from stable. S&P affirmed their Triple-A ratings, but said there is a one-in-three chance they could lose them because of the ongoing financial struggles at GE Capital.
GE shares fell $1.43, or 8.2 percent, to close at $15.96.
At the same time, energy stocks tumbled as oil prices plunged. Crude briefly dropped below $36 a barrel Thursday on worries of a drastic pullback in energy spending, even after a record production cut from OPEC earlier this week. The price settled at $36.22 a barrel in trading on the New York Mercantile Exchange.
Oil prices have been on a downward march since reaching a high of near $150 a barrel in July.
"The fear is that if oil does fall down to $25 or $30 a barrel, that could indicate that the economy is even weaker than market perception and that obviously is negative," said Peter Cardillo, chief market economist for Avalon Partners.
Chevron Corp. fell $3.79, or 4.9 percent, to $73.03, while Exxon Mobil Corp. dropped $4.06, or 5 percent, to $77.
Thursday's news reinforced the belief that the economy's troubles are far from over. The market remains unsure how steep and prolonged the recession will be.
The expiration Friday of some options contracts for December added to the downward pressure, Cardillo said.
The Dow fell 219.35, or 2.49 percent, to 8,604.99. The Standard & Poor's 500 index fell 19.14, or 2.12 percent, to 885.28, while the Nasdaq composite index fell 26.94, or 1.71, to 1,552.37.
The Russell 2000 index of smaller companies fell 7.42, or 1.52 percent, to 479.17.
Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where consolidated volume came to 5.46 billion shares, up from 5.18 billion shares on Wednesday.
Wall Street's sharp decline late Thursday overshadowed some of investors' earlier enthusiasm over a potential economic stimulus package. President-elect Barack Obama's aides are working on assembling a two-year plan that could cost $850 billion and include new jobs, middle-class tax relief and expanded aid for the poor and the unemployed.
Further weighing on the market were lackluster economic data and mixed corporate earnings reports.
The Labor Department reported that initial jobless claims fell by more than economists anticipated to 554,000 last week. The claims remain near last week's 26-year high, and the four-week moving average for claims is up, but investors had been bracing for a gloomier reading.
Meanwhile, a private research group's measure of the economy's health fell again in November and its six-month rate of decline hit the worst level since 1991.
"Most of the data was better than the market expected, but showed that the economy is still contracting," Cardillo said.
FedEx Corp. reported a 3 percent rise in quarterly earnings, but announced further cost cuts as demand continues to wane. Ingersoll-Rand Co. cut its fourth quarter earnings forecast by more than half, and motor home maker Winnebago Industries Inc. swung to a loss.
But Discover Financial Services swung to a profit and homebuilder Lennar Corp.'s quarterly loss was smaller than last year's.
In recent weeks, the market has moved away from the wild 300-point swings of September, October and early November, leading some analysts to believe that Wall Street is beginning to show some stability.
"People in general are less pessimistic," said Bernie McGinn, chief executive of Alexandria, Va.-based McGinn Investment Management. "They are still not optimistic, but they are less pessimistic, and I think the market reflects that."
Since the S&P 500 and the Dow hit multiyear lows on Nov. 20, the Dow is still up 13.9 percent, while the S&P 500 is up 17.7 percent.
But Thursday's decline, which extended a 100-point drop in the Dow on Wednesday, showed just how fragile the market still is. Because stocks are up so much from their Nov. 20 lows, the market is more sensitive to news, said Chris Hensen, senior portfolio manager with MFC Global Investment Management in Toronto.
"News like this out of General Electric would make the market roll over," he said.
The Dow fell on Wednesday as enthusiasm over the Federal Reserve's historic rate cut the day before dampened on news of a larger-than-expected loss at Morgan Stanley and layoffs at Cooper Tire and Rubber Co. and Newell Rubbermaid Inc. The Dow and the S&P 500 are still down more than 30 percent for the year.
Also Thursday, Obama named three veteran regulators to round out his economic team and vowed to overhaul regulatory rules to prevent a repeat of the financial and economic turmoil the country is currently suffering.
Mary Schapiro, who currently heads a nongovernment regulatory group for securities firms, is Obama's pick to lead the Securities and Exchange Commission.
The SEC faces mounting criticism for its failure to protect investors and detect trouble on Wall Street. Its latest blemish comes from the fraud investigation of prominent money manager Bernard L. Madoff, who is accused of running a $50 billion Ponzi scheme.
General Motors Corp. was the biggest loser Thursday among the 30 stocks that make up the Dow, plunging 16 percent, or 71 cents, to $3.66 as the Bush administration said it is seriously considering "orderly" bankruptcy as a way of dealing with the struggling U.S. auto industry. Ford Motor Co. shares fell 30 cents, or 9.6 percent, to $2.84. Chrysler LLC is not publicly traded.
Long-term Treasury prices soared, sending yields down to new record lows. The yield on the benchmark 10-year Treasury note fell to 2.07 percent late Thursday from 2.19 percent late Wednesday. The yield on the popular three-month T-bill — whose yield has at times gone negative due to frenzied buying — remained flat at zero.
The strong surge in buying has been stoked by the Fed's decision Tuesday to lower its federal funds rate target to a range of zero to 0.25 percent, and express an interest in buying long-term government debt.
The dollar rose against the euro and the British pound, but fell against the Japanese yen. Gold prices declined.
The January contract for light, sweet crude, which closes on Friday, fell 9 percent, or $3.84, to settle at $36.22 a barrel on the New York Mercantile Exchange after dropping as low as $35.98, levels not seen since June 2004.
In Asia, Japan's Nikkei stock average rose 0.64 percent, and Hong Kong's Hang Seng index rose 0.24 percent. Britain's FTSE 100 rose 0.15 percent, Germany's DAX index rose 1.02 percent, and France's CAC-40 fell 0.24 percent.

Struggling home accessories retailer Pier 1 Imports Inc. said Thursday its fiscal third-quarter loss widened amid a free fall in consumer spending, ra

Research In Motion delivered a quarterly profit in line with forecasts and a rosier-than-expected outlook on Thursday that reflects strong holiday sales of its BlackBerry smartphones even as the global economy slows.
Investors were prepared for the fiscal third-quarter results, most of which RIM disclosed earlier this month. More important was the outlook for the current fourth quarter, which includes the crucial December holiday shopping season.
The fourth-quarter forecast has extra importance this year. RIM has a range of new BlackBerries on the market, while the mood for consumer and business spending is uncertain at best. The company has trimmed prices and benefited from heavy promotion from wireless carriers offering its products.
"In order to drive sales RIM has had to lower prices, but the sales growth is phenomenal in this market," Canaccord Adams analyst Peter Misek said of the results. "In the midst of a severe consumer recession, this is incredible."
Waterloo, Ontario-based RIM said it expects fourth-quarter revenue of $3.3 billion to $3.5 billion, and earnings per share of 83 to 91 cents.
The outlook topped analyst expectations for revenue of $2.97 billion and earnings per share of 83 cents, as compiled by Reuters Estimates.
The results, released after the market's regular close, initially pushed RIM's shares up 6 percent to $40.75 in after-hours trading, but they soon dropped back to near their Nasdaq close at $38.44.
RIM said it earned $396.3 million, or 69 cents a share, in the third quarter ended November 29. That was up from a profit of $370.5 million, or 65 cents, a year earlier.
Revenue rose to $2.78 billion from $1.67 billion.
Nick Agostino, an analyst at Research Capital, said RIM's outlook is "suggesting that the product portfolio is certainly starting to have the traction that was hoped for."
The company has recently launched a series of handsets -- a flip phone BlackBerry, the touchscreen Storm and the high-end Bold -- in hopes of capturing a broader swath of subscribers. It said it currently has about 21 million users.
However, the product rollout has also come precisely at a time when big companies and retail consumers alike are cutting costs to conserve cash. This made analysts worried that BlackBerry upgrades and sales could slump.
"Things could've been a lot worse, all things considered," Agostino said. "I think these numbers were, for the most part, a little bit of a relief for me."
RIM co-Chief Executive Jim Balsillie said that besides product-launch delays, the weak economy affected results in the third quarter.
However, the "strong" holiday sales and brisk new product sales "are laying the groundwork for a record number of shipments in the fourth quarter," he said during a conference call with analysts.
"Despite the current turmoil in the economy, we believe RIM is well positioned to take advantage of the industry shift to smartphones that is occurring and to grow its share in this market segment."
RIM's introduction of consumer-aimed devices such as the flip-phone BlackBerry and the touch-screen Storm are part of an aggressive push to diversify its client base beyond the executives, politicians and other professionals who have been its sales mainstay.
Meanwhile, Palm Inc., the California smartphone maker, had a wider-than-expected loss of 73 cents per adjusted share, against Wall Street expectations of 43 cents.
The company said its smartphone revenue was $171 million, down 39 percent from the year-ago period. It said that consumers had purchased only 599,000 units, down 13 percent compared to a year earlier.
(Additional reporting by David Lawsky in San Francisco; ; Editing by Peter Galloway)

Pier 1 3Q loss widens amid spending free fall

Struggling home accessories retailer Pier 1 Imports Inc. said Thursday its fiscal third-quarter loss widened amid a free fall in consumer spending, raising some questions about its ability to weather the economic slowdown.
The company's loss for the quarter ended Nov. 29 grew to $36.9 million, or 41 cents per share, from $10 million, or 11 cents per share, a year earlier. Revenue fell 20 percent to $300.9 million.
Analysts surveyed by Thomson Reuters, on average, expected a smaller loss of 26 cents per share on revenue of $309.6 million.
Pier 1 has struggled with weak results for more than five years, as bigger merchants such as Bed Bath & Beyond Inc. and Target Corp. entered the furnishings business and as the home decor market went into a slump.
Forth Worth, Texas-based Pier 1 has reported only one profitable quarter over the past two years. When Chief Executive Alex Smith came aboard in 2007, he devised a restructuring aimed at improving merchandise, cutting costs and returning to profitability. But that plan was hijacked by a faltering economy and consumer spending drop-off this fall.
Smith called the results Thursday "extremely disappointing, but not a surprise."
He said that while the company still planned to return to profitability in 2010, the recession has "slowed our speed and increased our timeline."
The company also said its liquidity remained strong. It has $150 million available for borrowing under its secured credit facility for total liquidity of $282 million as of the end of the quarter.
Pali Research analyst Stacey Widlitz agreed the company has enough liquidity to get through the near term, she said, but said, "obviously, their sales have to move in the right direction to avoid the same fate as many other retailers we've seen."
Rival Linens 'n Things filed for bankruptcy protection in May. It announced liquidation sales at its stores in October after failing to find a buyer that wanted to operate the company.
"If they keep going at the rate they are now, (bankruptcy) is a risk," she said of Pier 1.
The company could not immediately be reached for comment.
Widlitz said the results weren't a surprise after the company announced last month that it expected sales in stores open at least one year, a key retail metric known as same store sales, to drop 16 to 18 percent in most recent quarter.
"The issue now is how they can get their stock back above a dollar," she said.
Shares, which have closed below $1 since Nov. 17, fell 10 cents to close at 33 cents. The New York Stock Exchange has warned the company was facing delisting if its share price does not have an average price of $1 over a consecutive 30-day trading period within the next six months.
Widlitz said Circuit City Stores Inc. received a similar warning from the NYSE before it filed for bankruptcy protection in November.