In Business This Week
Edited by Anne Newman
HEADLINER
Ted Waitt: Gateway to Nowhere?
Ted Waitt's desperate effort to turn around Gateway (GTW
), the company he launched from his parents' Iowa farm in 1985, is failing. On Jan. 7, the Poway (Calif.)-based PC maker warned that fourth-quarter revenues fell 12% short of expectations, at just $1.06 billion. Blaming weak holiday sales, Gateway also said it will post a net loss of about $58 million--38% greater than anticipated.
The bad news came just one day after Waitt unveiled plans for Gateway's second restructuring in as many years. Closings are likely for some of its 272 Gateway Country stores, which have been faltering despite heavy price promotions and a host of new products, including digital cameras and TVs. Still, Waitt--chairman and CEO--insists the stores will remain the cornerstone of Gateway's strategy. In December, the stores even began offering computer-processing services.
Wall Street clearly doesn't believe Waitt's survival strategy has legs. In the three days following the restructuring news, Gateway shares fell 14%, to $2.96--a far cry from its 12-month high of $10.60.
By Arlene Weintraub
Alcoa: Aluminum Foiled
In a sign that the factory sector has not yet pulled out of its protracted recession, Alcoa (AA
) reported on Jan. 8 that it lost $223 million in the fourth quarter on flat sales of $5 billion. The fix? Alcoa said it would dismiss 8,000 employees, out of 127,000 worldwide, and divest itself of underperforming assets that generated some $1.3 billion in sales in 2002. Investors seemed unimpressed by the latest restructuring: Alcoa shares slid 10.49%, to $21.85. There's good reason for the skepticism: After reporting a $142 million quarterly loss a year ago, the Pittsburgh aluminum giant said it would can 6,500 employees and close plants to bolster its bottom line. Even so, yearly profits fell 54%. Among Alcoa's doubters: Merrill Lynch (MER
), which downgraded Alcoa's shares to "neutral" and cut its earnings forecast by 12%, to $1.27 billion, in 2003.
Bank of New York's Bigger Back Office
Bank of New York's (BK
) Jan. 8 pact to buy Pershing (CSR
), the stock-clearing arm of Credit Suisse First Boston (CSR
), is further proof it aims to become a top back-office player. The business lacks the glamour of investment banking but produces solid revenues. Third-quarter income from securities servicing rose 14% from last year, to $480 million--two-thirds of the bank's income. The $2 billion cash deal is Bank of New York's 60th such acquisition in five years. Credit Suisse got Pershing in its much-criticized 2000 deal for Donaldson, Lufkin & Jenrette.
A Wider Avenue of the Americas
Five central american trade ministers were in Washington on Jan. 8 to open talks with the U.S. over a free-trade agreement like the one with Chile. The U.S. wants lower tariffs on its farm and capital-goods exports. But by cutting deals with smaller Latin nations individually, Washington seeks to pressure much-larger Brazil into supporting a hemispheric free-trade agreement. Most exports from Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua now enter the U.S. duty-free. The five nations are interested in wooing U.S. investment and in the $47 million in direct aid serving as an inducement to the talks.
J.P. Morgan Clears One Hurdle
J.P. Morgan Chase (JPM
) CEO William Harrison must have been relieved when his bank settled with insurers suing it over $1 billion in bonds backed by an off-balance-sheet partnership tied to Enron (ENRNQ
). The bank will regain 60 cents on the dollar. Harrison had long said the bank would win, and some say his job was on the line. But J.P. Morgan and its CEO are hardly out of the woods. It will take $900 million in charges in the fourth quarter for severance and litigation costs. On Jan. 8, UBS Warburg (UBS
) downgraded the bank's stock to hold (or sell, in analyst speak) because it expects lower capital-market revenue and even more corporate loan write-offs in 2003.
Relief of Anxiety at Bristol-Myers
Bristol-Myers Squibb (BMY
) looks ready to resolve one of its many legal headaches. On Jan. 7, the New York drugmaker said it had reached an agreement in principle to pay $670 million to settle lawsuits that it had improperly delayed the introduction of generic rivals to its anti-anxiety drug, BuSpar, and the anticancer drug Taxol. While analysts expressed some relief about the deal, SG Cowen Securities' Stephen Scala described the price tag as "astoundingly large." Still, Bristol has plenty of challenges, including a probe by the U.S. Attorney's Office in New Jersey into inflated wholesale inventories that will force the company to restate several years of sales and earnings.
Et Cetera...
-- Intel (INTC
) said global tech spending would be slow in the first half.
-- The SEC proposed new rules to strengthen independent audit committees.
-- New York Governor George Pataki will follow California's lead on motor-vehicle emissions.
CLOSING BELL
All Lemons
Casino stocks came up losers after a slow holiday season. Mandalay Resort Group (MBG
) said profits for the quarter ending Jan. 31 would be less than half the 22 cents expected. Also hit hard: MGM Mirage (MGG
), down 11.4%, to $28.89, after a profit warning. Analysts downgraded the group, citing economic fears among high rollers.
CLOSING BELL
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Copyright 2003, Bloomberg L.P.
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