Archive for April, 2011

Venezuela oil tax to net billions before Chavez vote

Tuesday, April 26th, 2011 | Finance News

CARACAS (Reuters) – New Venezuelan taxes on windfall oil revenue will let socialist President Hugo Chavez boost spending on popular social programs by billions of dollars ahead of his re-election bid next year.

They set a top rate of 95 percent on some oil income and are Chavez's latest move to increase the state's share of the OPEC member's main export. During 12 years in power he has nationalized most of the South American nation's oil industry.

His government predicted on Tuesday the new tax rates will bring in between $9 billion and $16 billion this year if oil prices keep rallying. Chavez has earmarked the money for a social spending fund and is already splashing it around.

"This is justice," he said as he unveiled pay rises of up to 66 percent for public sector workers. "It will create consciousness and look after the country's wealth more."

The tax hike was the latest example of resource nationalism by the leftist leader who is increasingly confident of winning another six-year term at a ballot due in December 2012.

Brightening economic prospects have boosted Chavez's popularity after a hard couple of years, and the conflict in Libya has given him a chance to flex his oratory muscles as Latin America's leading critic of U.S. foreign policy.

But more than anything, oil prices well over $100 a barrel are bringing money into Venezuela ahead of the election campaign -- and Chavez has decided to increase his government's take.

"What defines our government's political position is who captures the oil revenue and how is it used," Oil Minister Rafael Ramirez told reporters at the headquarters of state oil company PDVSA -- the financial engine of his revolution.

"The oil revenue should be captured by the Venezuelan state as the representative of the collective interest ... and distributed in a revolutionary way for our people's benefit."

Chavez announced the top tax of 95 percent last week on "exorbitant" income when crude goes above $100 a barrel.

A further rate will take 20 percent from oil income between $40 and $70 per barrel.

COMPANIES UNDER PRESSURE

Analysts cautioned the moves could have a chilling effect on foreign investment and limit the ability of PDVSA to fund more production.

"Chavez's main motivation is likely to have more direct and arbitrary control over oil revenue ahead of the 2012 presidential elections," said Daniel Kerner of Eurasia Group.

Chavez plans to launch a new government housing project at the weekend and this week revealed big increases to minimum wages and pensions.

Ramirez told Reuters the new tax rates would not apply to planned new output from existing fields, or to projects to tap the country's vast Orinoco extra heavy crude belt, until the joint ventures had recouped their investments.

All this comes at a time when Venezuela is putting pressure on companies including Chevron, Repsol, BP and Shell to boost production at joint venture projects in South America's biggest crude exporter.

Chevron and Repsol are among a number of companies, including companies from Russia and China, involved in plans to develop the Orinoco belt, one of the biggest mostly untapped hydrocarbon reserves left in the world.

(Writing by Daniel Wallis; Editing by Frank Jack Daniel and Philip Barbara)

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Lost Japan sales hurt U.S. company profits

Tuesday, April 26th, 2011 | Finance News

NEW YORK (Reuters) – The Japan disaster and aftermath are cutting into the sales and profits of U.S. companies that serve Japanese consumers, from Coca Cola (KO.N) to Coach Inc (COH.N) and 3M Co (MMM.N), even though shoppers are showing some resilience.

Japan, the world's third-largest economy, was stagnating economically before the March 11 earthquake and tsunami, but it remains a major market for many companies, particularly consumer product makers and store chains.

Coach, known for its fancy leather handbags, generates nearly one-fifth of its sales in Japan. The aftermath of last month's earthquake and the nuclear disaster could reduce current-quarter earnings by 2 to 3 cents per share, or roughly 5 percent of Wall Street's profit forecast.

Coke's results disappointed Wall Street in part because of lost revenue in Japan. The soft-drink maker said disruptions to its supply chain are hampering bottlers' ability to produce beverages in time for the summer.

"Overall, I think the supply chain is still stressed in Japan in terms of being able to supply the market," Coke Chief Executive Muhtar Kent told analysts on a conference call.

Coke said the events could cut earnings per share by another 2 to 4 cents this year. Wall Street is expecting Coke profit of $3.01 per share in the year's three remaining quarters, according to Thomson Reuters I/B/E/S.

"I think there will be a period of time where I think people will have a higher demand for packaged beverages," Kent told Reuters in an interview. He said he expects Coke's sales in Japan to normalize in the fourth quarter after getting hit during the second and third quarters.

Other companies are seeing signs of a rebound, or have the benefit of growth elsewhere to offset any slump in Japan.

Sales of luxury goods in Japan are likely to recover to levels seen before the crisis, Christian Dior (DIOR.PA) CEO Sidney Toledano told Reuters on Tuesday.

Amazon.com (AMZN.O) Chief Financial Officer Thomas Szkutak on Tuesday told reporters that the Japan disasters hit international sales growth by 5 percentage points.

Szkutak said sales growth outside North America would have been 32 percent in the first quarter rather than 27 percent if it had not been for the Japanese earthquake. But he said, business there has stabilized.

Reaching out to shoppers early on may help boost sales in the long run. Wal-Mart Stores Inc (WMT.N) has imported water from Canada and shipped food and other goods from the United States to meet demand at more than 400 stores.

"That's really helping the customer in Japan to recover at a time like this," Wal-Mart President and Chief Executive Mike Duke said at a Barclays conference on Tuesday.

Wal-Mart has reopened all but about five of its Japanese stores and its distribution network is running. Wal-Mart's efforts should translate into more strength in Japan on a longer-term basis, Duke said.

INDUSTRIAL PRESSURE

Companies that produce relatively few items sold directly to people in Japan are feeling the impact as Japanese manufacturing output has taken a hit.

Conglomerate 3M has a higher exposure to Japan than most of its industrial peers, with 9 percent of its sales generated there.

The company sells to auto and electronics businesses in Japan that have experienced production disruptions since the March disasters.

3M, the maker of Scotch tape, Post-It notes, industrial abrasives and healthcare and electronics products, said the Japan crisis cut first-quarter earnings by about 3 cents a share and will reduce full-year profit by 10 cents to 13 cents a share.

Wall Street analysts expect a full-year profit of $6.22 per share.

Delta Air Lines Inc (DAL.N) expects to lose about $75 million in Japanese business in the current quarter.

The reduced profit forecasts on Tuesday from Coach, Coke and 3M echoed those in recent weeks from jeweler Tiffany & Co (TIF.N) and clothing store chain Gap Inc (GPS.N), which still get the bulk of their Asian sales in Japan even as they eye fast-growing China.

Yet, for all the disruption, the damage has been relatively contained.

"We don't see any long-term damage. In fact our business has rebounded in our full-price locations," Coach CEO Lew Frankfort told Reuters. "We believe Japan will return to normal."

(Additional reporting by Martinne Geller and Nick Zieminski in New York, Karen Jacobs in Atlanta, Jessica Wohl in Chicago and Lisa Baertlein in Los Angeles. Editing by Robert MacMillan, Gary Hill and Steve Orlofsky)

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Gasoline rises a penny to $3.87 per gallon

Tuesday, April 26th, 2011 | Finance News

NEW YORK – Gas pump prices have climbed for 35 straight days even though industry surveys show Americans have started to drive less.

The national average rose by a penny to hit $3.87 per gallon on Tuesday, more than a dollar higher than it was last year. Experts say prices should keep rising for the next few weeks before weaker consumer demand forces prices to drop. "We're going to see prices keep bumping up for three, maybe four weeks," energy analyst Jim Ritterbusch said. Eventually less travel will take its toll, Ritterbusch said.

"They're going to cut back on spending, and that will push gas prices down," he said. "All that should kick in by June."

Retail gasoline prices have become a growing burden for consumers this year. They've risen 32.2 cents per gallon since March 22 and are averaging above $4 per gallon in California, New York, Michigan, Illinois, Connecticut, Washington D.C., Alaska and Hawaii.

Gasoline futures got another boost on Tuesday after three Texas refineries lost power. Authorities are still looking for the cause of the outage at the Valero, BP and Marathon Oil refineries in Texas City. A Dow Chemical plant also lost power.

Gasoline futures rose 2.87 cents to settle at $3.3072 per gallon on the New York Mercantile Exchange. Earlier in the day, the contract hit $3.3226 per gallon, the highest price since July 2008.

Oil analyst Tom Kloza said the refinery shutdowns may have halted 300,000 barrels of daily gasoline production. It'll take time to get those refineries back online Kloza said. "Refineries are finicky. It's not like turning the lights back on."

Kloza thinks gas will fall as more consumers drive less and demand falls. But the news will probably get worse before it gets better. He expects pump prices will soon hit a national average of $4 per gallon.

MasterCard SpendingPulse said again Tuesday that motorists have cut back on gasoline purchases. SpendingPulse estimated that the four-week consumption average has dropped for five straight weeks, when compared with the same period a year ago. Americans bought about 386 million gallons per day last week, down 2 percent from last year, SpendingPulse said in its weekly survey.

Meanwhile, benchmark crude for June delivery was little changed. It lost 7 cents to settle at $112.21 per barrel on the Nymex.

Investors are waiting to hear what the Federal Reserve will have to say about the nation's economy and interest rates. The Fed meets Tuesday and Wednesday. The expectation is that the central bank will keep interest rates where they are now, near zero.

In other Nymex trading for May contracts, heating oil gained 2.84 cents to settle at $3.2273 per gallon and natural gas was nearly unchanged, settling at $4.387 per 1,000 cubic feet.

In London, Brent crude rose 48 cents to settle at $124.14 per barrel on the ICE Futures exchange.

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