Archive for January, 2009

Russia’s S7 cancels Boeing 787 order (Reuters)

Thursday, January 29th, 2009 | Finance News

NEW YORK (Reuters) –
Russia's S7 has become the first airline to cancel a major contract for Boeing Co's (BA.N) 787 Dreamliner, as the country's airlines face their worst-ever financial crisis.

The order for 15 787s, due to be delivered in 2014, was worth about $2.4 billion at list prices. The cancellation is a blow for Boeing, whose new, lightweight jetliner has not yet left the ground and is about two years behind schedule.

S7, the main domestic rival to Russia's flag carrier Aeroflot (AFLT.MM), will seek to lease the planes instead, the company said on Thursday.

"S7 retains interest in using the Dreamliner and at the moment is looking into receiving the planes under a leasing scheme at an earlier date, for which it is in negotiations with several leasing companies," it said, without naming the leasing company.

Russia's airlines were hit hard by high oil prices and global economic turmoil, which left about a dozen of them unable to fly last year.

The resulting crisis prompted Russia's government to create a new state giant, Russian Airlines, to absorb crippled carriers.

Boeing, which has faced a series of production problems on the 787 and a two-month strike last year by its assembly workers, is expecting more cancellations from airlines this year as the demand for flights wanes.

The plane maker warned on Wednesday that an airline had canceled a 787 order, but did not say which.

Boeing shares were down 4.5 percent to $41.30 in late morning trade on the New York Stock Exchange.

(Reporting by Melissa Akin and Bill Rigby; Editing by Tim Dobbyn)

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Amazon.com shares soar on rosy outlook, holiday sales (Reuters)

Thursday, January 29th, 2009 | Finance News

SAN FRANCISCO (Reuters) –
Amazon.com Inc (AMZN.O) posted higher fourth quarter earnings on robust holiday sales, outshining results from other retailers, and forecast first-quarter sales above expectations, pushing its shares 13 percent higher.

Amazon's upbeat outlook and sales performance signaled at least temporary relief for investors who have endured a stream of disappointing forecasts from major consumer companies in past weeks, from Wal-Mart Stores Inc (WMT.N) to eBay Inc (EBAY.O).

Amazon's 18-percent revenue jump in the fourth quarter came in at the high end of the online retailer's own expectations, and Chief Executive Jeff Bezos cited "unusually strong demand" for its "Kindle" electronic reader.

Seattle-based Amazon acknowledged a gloomy economic environment that has hurt its brick-and-mortar and online rivals -- and eroded its own profit margins -- and declined to provide a full-year outlook due to the uncertainty.

"On the one hand, Amazon is doing incredibly well, but on the other, sentiment was very negative going into results," said Cowen & Co analyst Jim Friedland, explaining the rise in shares.

"The reality is that even though growth is slowing and Amazon is being impacted by the economy, particularly in the U.S., things are not as dire as expectations were."

Analysts have crowned Amazon the online winner of the holiday spending season, at a time when consumers dramatically cut back purchases. Executives cited its lowered prices and discount shipping program, Amazon Prime, that helped boost sales and encourage repeat purchases.

"It looks like they took a lot of market share and made substantial gains," said Jeffrey Lindsay of Sanford C. Bernstein. "The good thing is that Amazon hasn't had to discount to the extent that people feared to achieve this."

Still, profit margins stood below year-ago levels, due to a hyper-competitive environment that spurred discounts.

Gross profit margins were 20.1 percent of total sales compared with 20.6 percent of sales a year earlier, while operating margins fell to 4.1 percent from 4.8 percent.

"Gross margin wasn't as great as we would have liked it, but it was still decent enough and you can't dispute that the company did very well on the top line," said Hamed Khorsand, an analyst at BWS Financial.

Friedland said that while some analysts will be raising their revenue expectations for the company, the pressure on margins could mean that profit expectations remain unchanged.

CONSERVATIVE OUTLOOK?

Amazon's net income in the fourth quarter ended December 31 rose 9 percent to $225 million, or 52 cents per share, from $207 million, or 48 cents per share, a year earlier. Revenue rose to $6.7 billion.

That surpassed the 39 cents and $6.4 billion expected, respectively, according to Reuters Estimates.

Amazon, which posted quarterly operating income of $272 million, had been expecting a range of $145 million and $305 million on sales growth of 6 percent to 23 percent.

In North America, total sales rose 18 percent -- less than the 40 percent growth seen a year ago. They rose 19 percent internationally. Excluding the negative impact of currency rate fluctuations, overall sales rose 24 percent.

Amazon gave what it called an "appropriately conservative" first-quarter operating income range of $125 million and $210 million, on revenues ranging from $4.53 billion to $4.93 billion. Wall Street, on average, had been expecting first-quarter revenues of $4.51 billion.

Bezos said the environment was now ripe for Amazon to begin discussing providing web services for larger companies. Amazon provides a cloud computing platform that offers far-flung users access to storage and computing power in Amazon's data center.

"People in this macro environment, they're looking for ways to save money and cloud computing does that. There's a lot that can be done there," Bezos said, calling it a "silver lining" in the grim economic environment.

Asked whether fewer customers were subscribing to Amazon Prime in the recession, Chief Financial Officer Tom Szkutak said Amazon was "very pleased" with the service, which charges a flat fee of $79 for a year's shipping.

"We have very good subscriber growth and customers like it. That was evidenced further in Q4 during the holiday season," he said.

As for Kindle device, which launched last year and racked up a backlog of orders during the holidays, Bezos said its users continued to buy physical books even while purchasing digital versions.

"We had anticipated strong demand and what we saw was stronger than that," he said.

Amazon is valued at 35 times projected 2009 earnings, at a premium to competitor eBay Inc (EBAY.O) and Internet giants like Google Inc (GOOG.O) or Yahoo Inc (YHOO.O) at 8, 16 and 29 times forward-looking earnings, respectively.

Its shares rose 13 percent in after-hours trade to $56.50 after closing at $50 on the Nasdaq.

(Additional reporting by Lisa Baertlein and Sue Zeidler in Los Angeles; Editing by Edwin Chan)

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Obama, Congress seek deal on economic stimulus (Reuters)

Thursday, January 29th, 2009 | Finance News

WASHINGTON (Reuters) –
Republicans in the U.S. Senate accepted on Thursday President Barack Obama's offer to search for a compromise on an economic stimulus bill that could end up costing around $900 billion, as long as tax cuts play a large role.

The Senate is expected to start considering the massive bill next week, following passage on Wednesday in the House of Representatives of a slightly smaller bill, without the support of a single Republican.

Vice President Joe Biden, in a possible bow to Republicans, said there could be changes in some of the bill's spending and tax provisions once House and Senate negotiators meet to work out a compromise bill next month.

If the U.S. fiscal picture was not bad enough, with budget deficits running rampant, there was yet another dark cloud on the horizon.

Sen. Charles Schumer, a senior member of the Senate Banking Committee, said that if Washington undertakes an effort to buy up bad assets from struggling U.S. banks, it could cost taxpayers up to $4 trillion.

But for now, the economic stimulus was center stage on Capitol Hill. "We look forward to offering amendments to improve this critical legislation," Senate Republican Leader Mitch McConnell said.

For example, Sen. Charles Grassley of Iowa told reporters: "We're going to try to make a case for more investment" while aiming to delete what he and fellow Republicans think would be wasteful spending.

Democratic amendments are expected as well. Senate Banking Committee Chairman Christopher Dodd said he might try to insert a 90-day moratorium on home foreclosures, which have been skyrocketing.

Another senior Democrat, Senate Budget Committee Chairman Kent Conrad, told reporters, "I would have a very hard time voting for this package as it is." Among changes he'd like is a broader tax credit to encourage homebuyers.

Congress is rushing to meet a mid-February deadline set by Obama for enacting the legislation aimed at lifting the economy out of a 13-month-long recession.

Obama said the economic stimulus bill will not be his only salve for the sick economy. He said he will soon move to thaw credit markets and overhaul financial regulations.

Despite talk of the two parties working together, tensions were obvious.

Senate Democratic Leader Harry Reid said he was "confident that we are going to get Republican support on the bill," but added that Republicans could "sit back and nit-pick" the legislation. If there is not a bipartisan vote, "it's not our fault," he said.

One top Senate Republican left the door open to slowing down the bill next week.

"Whatever we can do -- whether that is offer an amendment, whether it's voting against the bill because it could not be amended, whatever parliamentary opportunities are available to us, we will explore," said Senator Jon Kyl of Arizona, the number-two Republican.

The House bill was touted as costing $825 billion, but might be closer to $819 billion when accounting for its future impact on the deficit. The Senate bill, with different tax components, would come close to $900 billion.

Obama says he wants to work with Republicans not only as he promotes the stimulus package but looks ahead to other major initiatives, such as expanding health care, stemming global warming and revamping the Social Security retirement program.

MORE TAX CUTS

McConnell said a main goal for the Senate Republicans will be to increase the amount of tax cuts in the package so they amount to 40 percent of the overall measure, with the rest emergency spending.

The House-passed bill is closer to 33 percent being devoted to tax cuts -- not hugely different from McConnell's goal.

The Senate Republican leader's formula contrasted with what many House Republicans sought: only tax cuts and no new spending at all.

The Senate will begin its debate next week with fresh statistics that likely will underscore the dire shape of the U.S. economy.

On Friday, the government will issue its latest estimate of U.S. gross domestic product. Many economists think it will show that the economy suffered a 5.4 percent contraction last year, which would be the worst performance since 1982.

Data released on Thursday showed the number of U.S. jobless claiming benefits jumped to a record in mid-January, and new orders for durable goods fell for a fifth straight month in December, while sales of newly built single-family homes slumped to their lowest levels since records started in 1963.

U.S. stocks fell on Thursday on the bleak economic news.

(Additional reporting by Jeremy Pelofsky, Susan Cornwell, Tabassum Zakaria and Thomas Ferraro, editing by Patricia Zengerle and Eric Walsh)

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