Unit Labor Costs Rise

Elena
04 May, 2006
New York City

Stock futures indicated a higher start, supported by data showing stronger-than-expected rise in Q1 unit labor costs, falling oil, and positive earnings. Tyco International Ltd. reported higher-than-expected Q1 net income and announced a $2 billion buyback. Wal-Mart Stores Inc., Costco Wholesale Corp., Pacific Sunwear of California Inc. and Limited Brands Inc. released stronger-than-expected April sales.

[R]9:00 AM Stock futures indicated a positive market opening.[/R]
U.S. stock futures pointed to a higher opening Thursday after government data showed a stronger-than-expected rise in unit labor costs in the first quarter. The market advance followed a weak close yesterday on strong data, renewed interest rate concerns and a couple of disappointing key earnings reports. Economic news will be also in focus today with the Labor Department scheduled to report on first-quarter productivity and the monthly employment data due out on Friday. Positive pre-market sentiment was also generated by retreating oil prices and strong earnings from companies like diversified manufacturer Tyco International Ltd. ((TYC)) which reported higher-than-expected net income. Tyco also announced a $2 billion buyback. Among other key stocks, Starbucks Corp. ((SBUX)) is seen in the spotlight after the company reported a 27% rise in quarterly earnings, above analyst estimates, but disappointing April sales. In after-hours trading on Wednesday shares of Starbucks were traded down 1.5%.

At the same time, major retailers began reporting April sales figures. Of the 28 retailers that have reported results so far, 88% beat estimates while 12% missed. Wal-Mart Stores Inc., Costco Wholesale Corp., Pacific Sunwear of California Inc. and Limited Brands Inc. released better-than-expected results. Standard & Poor''s 500 futures were up 2.4 points, above fair value. Dow Jones industrial average futures were up 19 points, and Nasdaq 100 futures were up 6.25 points.

[R]First-quarter productivity growth beat expectations.[/R]
Thursday morning, the Department of Labor released its preliminary report on first quarter productivity, showing growth that exceeded analyst estimates. The report also showed a bigger than expected increase in unit labor costs. The Labor Department said that productivity in the non-farm business sector rose at an annual rate of 3.2 percent in the first quarter compared to a 0.3 percent decline in the fourth quarter. Economists had expected first quarter productivity growth of 3.0 percent. The productivity growth in the first quarter came as an increase in output outpaced an increase in hours. The report showed that output rose 5.8 percent in the quarter while hours increased by a more modest 2.5 percent. At the same time, the report showed that unit labor costs rose by 2.5 percent in the first quarter after increasing at a 3.3 percent rate in the fourth quarter. The increase in unit labor costs exceeded economist estimates of a 1.3 percent increase. The bigger than expected increase in unit labor costs is likely to raise some concerns about the pace of inflation, which may add to recent interest rate worries.

Crude oil prices dropped below $72 on gasoline inventories increase. Light sweet crude June delivery fell $1.01 to $71.27 a barrel. London Brent dropped $1.06 to $71.59. European gold futures retreated from 25-year highs. In London the precious metal rose to $664.65 per troy ounce, up from $664.60. In Zurich gold fell to $666.45 from $668.05. Silver opened at $13.30, down from $13.80. The U.S. dollar rose in European trading. The euro traded at $1.2587, down from $1.2625. The dollar bought 113.93, up from 113.64 yen. The British pound was quoted at $1.8379, down from $1.8411.

BJ's Wholesale Club Inc, ((BJ)), off-price retailer, announced same-store sales advanced 1.2% in April, topping analysts’ estimate for a rise of 0.5% for the month. Total sales for the period rose 5.5% to $599.8 million from $568.5 million in the same period a year ago.

Revlon, ((REV)), cosmetics maker, announced its Q1 net loss grew to 15 cents a share, against 13 cents a share in the year-earlier period. Sales advanced 8% to $326 million from $300.9 million. Adjusted earnings before interest, taxes, depreciation and amortization dropped to $15 million, including $9 million in restructuring expense, from $21.6 million in the year-ago period. The company missed analysts’ estimates for a loss of 12 cents a share.

MedCatch Corp, ((MDTH)), provider of caridovascular disease treatment services, reported a Q2 loss of 10 cents a share, reversing from a profit of 20 cents a share a year-ago. Q2 includes stock option expensing of 33 cents a share, a $1 million reduction in revenue related to prior period contract adjustments, and a $635,000 rise in interest expense. Revenue advanced to $208.5 million in Q2 from $192 million in the same period a year ago. The company missed analysts’ forecasts for a profit of 12 cents a share.

International Paper Co, ((IP)), paper, packaging and lumber company, reported it swung to heavy Q1 loss of $2.52 a share, from net profit of 16 cents a share in the year-ago period. Discontinued operations constituted $2.68 a share of the loss, the company announced, missing analyst forecasts for earnings of 15 cents a share before special items and sales of $6.08 billion.

Dillard's Inc, ((DDS)), department store chain, announced same-store sales advanced 10% compared with year-ago levels. The company beat analysts’ expectations fro same-store sales growth of 1.6%. Total sales for the four weeks ended April 29 rose 10% to $563 million from $514 million.

Wild Oats Markets Inc, ((OATS)), natural foods retailer, reported that that it reversed to Q1 net income of 10 cents a share, from a loss of 4 cents a year-ago. Sales for Q1 rose to $298.4 million from $278.1 million last year. The company topped analysts' estimates for earnings of 4 cents a share.

Williams Co, ((WMB)), oil and gas producer, reported that Q1 net income dropped to 22 cents a share, from 34 cents a share in the year-ago period. After adjustments, company added that income would have been 26 cents a share, compared to 22 cents a share in the year-ago period. The company topped analyst estimate by a penny.


[R]8:15AM European markets advanced at mid-day on strong earnings.[/R]
European markets advanced at mid-day trading, lifted by gains in oil and chemicals companies. Shares of oil giants Royal Dutch Shell and Total rose by 1% and 1.3% respectively, reflecting stronger-than-expected earnings. Upbeat Q1 results from chemicals company BASF sent the stock up 1.8% to provide support to the market sentiment. Investors were somewhat cautious ahead of interest-rate decisions by the Bank of England and the European Central Bank. The euro fell 0.2% to $1.2595. Among decliners, Swiss bank UBS fell 1%, Anglo-Dutch Unilever dropped 2.4%, and French advertising group Publicis lost 1.7%. The German DAX 30 rose 0.6%, the French CAC 40 gained 0.3%, and London FTSE 100 added 0.2%.


[R]7:30AM Taiwan index rose on tech stocks, but Asian markets finishes mixed.[/R]
Asian markets finished mixed. Taiwan benchmark ended 1.4% higher, at 7345.04, continuing its rally since April. Being the most heavily weighted share on the stock index, Taiwan Semiconductor Manufacturing was the market leader, closing up 1%. United Microelectronics advanced 0.9% and telephone handset maker, High Tech Computer was up 3%. Financial stocks were led by Chinatrust Financial Holdings, which gained 6% on better consumer credit outlook. Hong Kong’s Hang Seng shed 0.2% to close at 16989.76, gaining only in utilities and property stocks. China Mobile, the country’s top cellular service, reversed the trend to advance 0.8%. Beijing Enterprise Holdings dropped 2.9% after an agreement of the principal shareholder to $826.5 million worth of old shares. HSBC declined slightly 0.1%, after hitting an all-time high on Wednesday. Seoul’s benchmark Kospi advanced 0.4% to close at 1441.02. Singapore’s benchmark, Straits Times Index, shed 0.56% and New Zealand’s benchmark dropped 2% and was the big decliner in the region. The dollar stood at 113.92 yen, gaining as much as 0.4% from the level in New York at close.