Week in Review
Economy Grows Slower Than Expected
The nation’s economy grew at a slower-than-expected rate in the second quarter, renewing concerns about whether more-modest growth might persist and damp job creation.
Pulled down primarily by consumers reining in their spending amid surging gasoline prices, the U.S. gross domestic product grew at a 3.0% annualized rate in the April-June period, the Commerce Department reported.
That was down from an upwardly revised 4.5% pace in the first quarter and from 7.4% in last year’s third quarter. Economists had expected a 3.7% gain in the latest quarter.
The disappointing growth, if it continues, could have significant ramifications for the presidential election.
Shrugging off the surprisingly weak tally of economic growth and the latest new high for oil prices, investors bid stocks higher Friday. The major indexes finished the week higher for the first time in more than a month, but ended July with steep losses.
For the week, the Dow gained 1.8%, ending at 10,139.71, after five weeks of losses. The broader S&P; 500 rose 1.4%, to 1,101.72, after six losing weeks. And the Nasdaq was up 2.1%, to 1,887.36, after four down weeks.
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Russian Oil Worries Send Prices Soaring
Crude oil prices twice set records last week after Russia’s largest oil exporting company said it might have to halt production, jolting markets already fearful about the stability of global supplies.
The benchmark U.S. grade of crude shot up $1.06 to $42.90 a barrel Wednesday. Gasoline also climbed, charting its biggest gain in three weeks.
The surge in oil prices was sparked by concern about exports from Yukos, which produces about 1.7 million barrels a day. Yukos said Russian court bailiffs, enforcing a $3.4-billion tax judgment, had ordered it to halt “property sales” at three key production facilities.
On Friday, Russia said the company’s oil-producing subsidiaries could continue production and sales, but its property and other fixed assets remain frozen. But oil prices rose to another record, up $1.05 to $43.80.
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United Workers Sue Company Over Pensions
The questions about United Airline’s employee pension funds spilled into federal court in Chicago when the International Assn. of Machinists sued UAL Corp. and its top executives, alleging that they broke their fiduciary duty to retirees.
The union represents 37,000 active and retired United baggage handlers, ramp workers and other ground employees.
The pension plans cover about 58,000 retirees and current and former United employees who are vested, United said. UAL has missed a $72.4-million payment scheduled for July 15.
United called the union lawsuit “baseless” and said it stopped the pension-fund contributions “to preserve our liquidity and flexibility.”
Officials of the Pension Benefit Guaranty Corp., the federally chartered agency that insures corporate pension plans, met with United executives to discuss the airline’s strategy.
Meanwhile, UAL reported a second-quarter loss of $247 million, compared with a year-earlier loss of $623 million.
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Google’s IPO May Approach $2 Billion
Google Inc. said it expected its shares to sell for $108 to $135 each in its much-anticipated initial public offering, placing the top-ranked search-engine provider shoulder to shoulder with other Internet giants.
Google said in a Securities and Exchange Commission filing that it expected to raise as much as $1.9 billion by selling 14.1 million shares in its IPO. That would give Google a market value of $29 billion to $36 billion.
Investors will set Google’s share price through an unusual auction process for an expected offering in mid-August, when its stock will trade on Nasdaq under ticker symbol GOOG.
Mountain View, Calif.-based Google annually sells billions of dollars in advertisements that typically run beside search-engine results on Google.com and partner sites owned by Time Warner Inc.’s America Online, EarthLink Inc. and Ask Jeeves Inc., which renewed its deal to run Google ads through 2007.
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Comcast Posts Profit, but Subscribers Fall
Comcast Corp. said it lost more subscribers and signed up fewer high-speed Internet subscribers in the second quarter than analysts had predicted.
Comcast reported net income of $262 million, or 12 cents a share, contrasted with a net loss of $22 million, or 1 cent, a year earlier. Revenue rose 10% to $5.1 billion from $4.6 billion.
During the second quarter, Comcast lost about 96,000 basic cable subscribers, about 0.4% of its total of 21.5 million subscribers. The company added 327,000 high-speed Internet subscribers, compared with 351,000 in the same quarter last year.
“We lost a little bit more than we anticipated,” said Comcast Chief Operating Officer Steve Burke in a conference call with analysts. “Part of that is because we’ve had such a focus on driving margins and launching new products.”
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Safeway Profit Falls 4% in Aftermath of Strike
Safeway Inc., saying its Central and Southern California sales haven’t fully recovered from a lengthy strike that ended in February, posted a 4% drop in fiscal second-quarter profit.
Although the strike ended before the quarter began, Safeway, which owns Vons and Pavilions, said the labor dispute pulled profit down by $50 million as it cut prices and stepped up promotions to woo back customers.
In the quarter ended June 19, Safeway’s net income fell to $155.2 million, or 35 cents a share, from $161 million, or 36 cents, a year earlier. Wall Street had expected 37 cents a share, according to analysts surveyed by Thomson First Call.
Safeway, which has 1,812 stores, said its second-quarter sales edged up 1.3% to $8.36 billion from $8.25 billion.
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Sales of Military Gear Boost Northrop Profit
Northrop Grumman Corp. posted a 44% jump in second-quarter profit, bolstered by higher sales of military electronics and surveillance equipment.
The Century City-based company said net income climbed to $295 million, or 81 cents a share, from $205 million, or 54 cents, a year earlier. Revenue increased 11% to $7.4 billion.
Northrop also raised its sales and profit forecasts for the year.
Revenue grew across all Northrop businesses, with the biggest jump in Mission Systems, which designs battlefield-management computer software and equipment.
Northrop said it now expects 2004 sales of $29 billion, up about $1 billion from previous forecasts, and for earnings of $2.90 to $3 a share, up about 10 cents.
Northrop’s second-quarter per-share profit bested Wall Street estimates by 4 cents.
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Money Sent Back to Mexico Hits Record
The amount of money sent by Mexican emigrants worldwide to relatives in their homeland surged in the first six months of the year, reflecting poor employment prospects in Mexico and lower fees for sending funds.
The emigrants, many of them working in California, sent a record $7.9 billion to Mexico in the January-June period, according to a report released by the Bank of Mexico. That was up 26% from the first half of 2003 and on pace to break last year’s record tally of $13.4 billion.
Remittances are now second only to petroleum as Mexico’s largest source of foreign exchange.
Experts said the growing sums reflected burgeoning Mexican immigration -- legal and illegal -- into the United States, falling transaction fees and the anemic job creation in the Mexican economy.
The central bank projected that 2004 remittances would hit $16.3 billion this year, up 22% over 2003.
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Anthem Vows to Sue Garamendi Over Deal
Anthem Inc. said that it would sue California Insurance Commissioner John Garamendi within days, seeking to overturn his decision to block part of its planned $17-billion acquisition of WellPoint Health Networks Inc. of Thousand Oaks.
“We simply believe very strongly that we’ve met all the statutory requirements and that Garamendi has really abused his discretion,” Anthem Chief Executive Larry Glasscock told Wall Street analysts.
Garamendi rejected the proposed sale to Anthem of WellPoint’s Blue Cross Life & Health subsidiary, saying it would be “lousy” for consumers.
The Blue Cross subsidiary represents about 4% of the total Anthem-WellPoint deal, but Garamendi’s decision threw the whole sale into doubt.
Glasscock said Anthem remained committed to completing the deal, which would create the nation’s largest health insurer, with more than 27 million customers. He said Anthem was considering several options beyond the Garamendi suit but declined to describe them.
For a preview of this week’s business news, please see Monday’s Business section.
