What’s the German word for spin? Oh dear, more spin for an average result from Bertelsmann, the giant German-owned media group which is number four globally behind News Corp, Disney and TimeWarner. 2008 net profit dropped a third to 270 million euros ($US365 million) after it was forced to make write-downs on investments including UK television’s stuttering Channel Five (just like News and Time Warner had to make huge write-downs). And how did the press release start?
“Bertelsmann recorded a solid business performance in 2008.”
And the company’s CEO, Hartmut Ostrowski said 2009 would be a challenging year across the group’s businesses and operating profit and sales were likely to come in below last year’s levels. Will that make 2009 another “solid year?”
German growth looking grim: Bertelsmann dominates German media, and its forecast of a tougher 2009 should be read against the backdrop of an expected deepening in the country’s recession. Yesterday Crikey reported on suggestions from the country’s second biggest bank, Commerzbank, that the economy could slide by up to 7% this year. Today there are reports that the official 2.25% slide forecast by the Government, is about to be replaced with a gloomier outlook. Bild newspaper reported overnight that German gross domestic product will contract by 4.0%- 4.5% in 2009, according to an internal economy ministry report seen by the paper. A new estimate is due from the Ministry next month. A 4% plus contraction for the year would see German growth sink by as much as growth in the UK, but not as much as in Japan which has been stricken by a 6%-plus slump.
More deals for air travellers? 2009 looks like being another very tough year for the world’s airlines: IATA, the industry association has sharply increased its loss forecast for carriers to $US4.7 billion ($A6.6 billion) for 2009 because of a “rapid deterioration of the global economic conditions“. The new forecast is substantially above the $US2.5 billion in losses predicted in December. But it will be a lot better than the new estimate for 2008’s losses of a huge $US8 to $US8.5 billion.
“Industry revenues are expected to fall by 12.0% (US$62 billion) to US$467 billion. By comparison, the previous revenue decline, after the events of 11 September 2001, saw industry revenues fall by US$23 billion over the period of 2000 to 2002 (approximately 7.0%),” IATA forecast. The increased 2008 estimate was blamed on a “very sharp fall in premium travel and cargo travel.” And Giovanni Bisignani, IATA’s director general, said “Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago … There is little to indicate an early end to the downturn.”
Cruise lines are sinking. It’s not just airlines that are doing it tough. Cruise lines are, especially the world’s biggest, Carnival, which operates ships under the Carnival, Princess and Cunard flags, as well as a few others. Carnival said first-quarter profit rose on cost cuts, cheaper fuel and discounts that filled berths. But that wasn’t enough and the discounts and falling cash flows have forced the company to cut its 2009 profit forecast. Net earnings rose to $US260 million in the quarter from $US236 million in the first quarter of the previous year. Sales fell more than 9% to $US2.86 billion in the three months ended February 28, which is the peak sailing season in the northern winter. Americans are paying 10%-15% less for cruises on lines like those operated by Carnival which have to keep their ships working, otherwise the costs escalate if they are laid up. But the more they cut fares, the greater the downward pressure on income and cash flow, even allowing for the impact of lower fuel costs. The 2009 earnings forecast was cut by around 20% by the company. Carnival sails 89 ships under its own name, as well as P&O, AIDA, Costa Cruises, Ibero and Ocean Village. It has started concentrating on Australia this summer.
Read the fine print on housing news: Last week we saw a surprise pick up in US new home starts and permits, driven mainly by a rise in starts on multi-family dwellings (Home units in Australia). As one analysts said, more new homes to put pressure on sales. Well, this week another surprise, a 5% rise lift in sales of existing homes in February. It was the fastest rate of increase for six years as sales of previously owned homes hit an annual rate of 4.72 million-units. It was the biggest rise since July 2003 and led some analysts to call the bottom of the housing slump. But analysts said the rise was due to a surge in the sale/purchase of foreclosed homes. In fact, the National Association of Realtors reckons about 45% of sales in February were foreclosure or short-sale transactions.
Despite the rise in January, the figure was down 4.6% from February 2008, so it’s not really an ‘out of the woods’ moment for housing. The Realtors Association said the median national home price fell 15.5% in February from a year ago to $US165,400, the second biggest decline on record. That has to steady before an end can be called, while the stockpile of existing homes for sale had to fall. It rose 5.2% to 3.80 million from the 3.61 million overstock reported in January.
How do you solve a problem like Japan? In Japan it’s not so much falling home prices that’s the problem, but the tumbling price of residential land. That’s something many international surveys don’t get. Japanese houses are built to last around 30 years: it’s a hangover from former times when home building has to be as cheap as possible because of the dangers from fire and earthquakes. Land is scarce in Japan and as we saw in the great Japanese bubble of the 1980’s it can soar, only to fall dramatically. That ushered in two decades of sluggish growth, rising unemployment, poor performance by the country’s banks and financial groups and deflation that lingers today.
Figures out this week show that Japanese residential land prices fell to a 24-year low in 2008, thanks to the sliding economy late in the year and rising unemployment. That means residential land prices are now well below their peak of 1988-89. The Japanese Government said prices fell 3.2% in 2008 on average to the lowest level since 1984 and average commercial land prices fell 4.7%. Overall property prices fell 3.5% in Japan last year, ending two years of rising prices. Forecasters in Tokyo say residential land values will continue falling this year as the recession deepens and puts more people out of work. The fall in commercial property is expected to intensify as well, and will be concentrated in the major cities. Commercial land prices last year fell in Japan’s three major metro areas: a 6.1% drop in Tokyo, 5.9% in Nagoya and 3.3% in Osaka. Bloomberg pointed out that the fall in property prices and tighter lending by banks led to bankruptcy filings by 25 publicly traded real estate and construction companies in Japan last year, with a further seven property companies going bust in the first two and a bit months of 2009.
Chock biscuits sales fall, Big pizzas up: Retailing results from the US continue to flow in and they make uncomfortable reading. With the recession in full swing, there’s this notion that Americans (and Australians) are retreating to their homes and cocooning. Instead of eating and going out, they are staying at home, watching TV, the internet and dining at home.
Well maybe: US cable TV companies are losing subscribers (but not the satellite operator, Direct TV); Free To Air TV viewing is down, DVD sales have plunged and rental chains, like Blockbuster, are heading for oblivion. Food sales are not soaring and if there’s any trend apparent, it’s trading down and going for more carbs for the dollar, so bigger pizzas, bigger bags of pasta and bigger amounts of rice and other bulk foods. Soups sales static to falling, except for basic canned products (not fancy, chunky styles) and dried mixes which are cheaper. Chocolate biscuit sales have fallen and it seems no one has time, or the money to cook at home.
Williams Sonoma is an iconic American retailer of cookware and other household items; it has just reported a fall in sales and profits that were better than expectations because it kept a tight eye on costs and stocks of unsold products. Revenue fell 27% to $US1.01 billion in the three months ended February 1. The company sacked 1,400 jobs, or 18% of its full-time employees in January and cut its inventory 17%. Profit fell 90% to just $US12.2 million in the quarter, from $US124.6 million the previous year. The company did poorly, given that its latest quarter included Thanksgiving and Christmas, two of the biggest selling periods of the year for its products. Shares rose on the day and are up 40% for the year so far (they fell 70% in 2008) as investors punt on a better year. The company expects to eke out a small profit for 2009-10. And, a company that makes some of the products sold through outlets like Williams Sonoma is Newell Rubbermaid, whose major products include Calphalon cookware and Papermate pens. It has cut its dividend and forecast lower sales. But it expects to maintain reduced profit forecasts through cost controls and falling raw material prices. The quarterly dividend is being halved to 5 US cents a share and revenues will fall by “mid to high teens’. It has to repay a $US750 million debt that’s due later this year. Gulp!
Oroton shows them how it’s done: The one factor linking those results is the inability of American companies to sell more products to consumers because of the recession, the slump in income, falling house prices, foreclosures and of course, the soaring tide of unemployment. It’s common to most retailers, with the exception of Wal-Mart and several smaller chains operating in niches. Cost controls, sackings and other control measures are the way these groups are staying in business. That makes the effort of Australia’s listed luxury retailer, OrotonGroup, look pretty good. The company posted a 20% lift in first-half profit and said it has a healthy foundation for future growth. The sharp improvement is in contrast to the gloomy news coming from other companies in the same retail sector in offshore economies, such as Tiffany’s which reported a 76% slump in quarterly profit this week. The clothing and accessories company (Oroton, Polo, Ralph Lauren are the main brands) said net profit was $12.5 million for the half year to January 24, compared with $10.4 million in the prior corresponding period. Revenue was up 11.4% to $74.36 million after being ahead 10% in the first few of months of the year when the AGM was held in early December.
CK suffers: Calvin Klein is a big competitor for Oroton’s range of menswear products here. It’s doing it tough in the US, like so many companies in the clothing business, especially at the top end. US group, Phillips-Van Heusen Corp is the company behind Calvin Klein, Izod, Van Heusen and other brands. It recorded a fourth-quarter loss due to one-time restructuring costs and sales missed company and analyst predictions as demand for Calvin Klein fragrances fell away.
The loss for the quarter ended February 1 was $US37.9 million, compared with a profit of $US30.3 million, in the same quarter of last year. Phillips Van-Heusen — which also operates its own retail outlets (like OrotonGroup here) — closed 175 stores and cut 400 jobs in January. “The Company’s outlet retail comparable stores sales declined 9% in the fourth quarter. Partially offsetting the revenue decreases was revenue generated by the new Timberland wholesale men’s sportswear business and additional Calvin Klein retail stores that were opened in 2008,” the company said in the profit statement.