Archive for April, 2007

30 April, 2007 | No comments

Home Depot’s Newfound Austerity

If a chief executive’s resignation prompts workers to gleefully text-message each other and take a “happy hour” break at noon to celebrate, something clearly must have gone awry in labor-management relations. And when it happens at a major company such as Home Depot (http://www.businessweek.com/ticker/)—as it did on Jan. 3 when CEO Robert Nardelli resigned—it reflects just how far morale has dipped.

But it’s a new era at Home Depot when it comes to executive compensation. Directors of the home-improvement retailer took pains Jan. 24 to highlight how much they have changed, appearing cognizant of the public outcry that followed their free-spending ways with Nardelli. Pay Tied to Performance

In what could mark the first major step toward reversing oversize executive payouts, Home Depot set new CEO Frank Blake’s base salary at $975,000 and his bonus target at 200%, or $1.95 million. Of the target bonus, 70% is based on achievement of financial goals and 30% on achievement of individual performance measures, the company said in a filing with the Securities & Exchange Commission.

Blake’s pay package stands in sharp contrast to ousted CEO Nardelli’s $2.25 million base salary and $7 million cash bonus in 2005, none of it tied to performance. Most dramatic is that Blake’s deal has no provisions for severance pay, compared to the $210 million retirement package with which Nardelli decamped. “It’s fair to say that Nardelli’s pay package, among others, was the high-water mark of CEO pay excess,” says Nell Minow, editor and co-founder of governance adviser the Corporate Library. “The pendulum is swinging very drastically now.” (See BusinessWeek.com, 1/4/07, )

Nardelli’s huge pay package caused heartburn among Home Depot’s shareholders, who had to deal with a stock that had barely budged from $40 since Nardelli took over in December, 2001. Shareholders are still enraged and some are vowing to fight Nardelli’s severance package. Led by the Pontiac (Mich.) retirement system for public employees, shareholders have already sued to stop Nardelli from receiving his large sum. On Jan. 22, a state judge in Georgia refused to grant a restraining order on Nardelli’s severance, but asked the plaintiffs to gather more information.

Clearly, Home Depot directors are extending an olive branch in the shareholders’ direction. “Fulfilling the trust placed in the Home Depot by our associates, customers, and shareholders is a vision that Frank shares with the board of directors,” Home Depot’s board said in a statement. “Both Frank and the board of directors agreed to construct a compensation agreement that closely links his success with that of our associates and shareholders.” Mea Culpa

Some view Blake’s pay package as the company’s admission of error. “This is a clear mea culpa on the board’s part—the package is such a radical departure that it shows a recognition that what they gave Nardelli was a mistake and it comes as close to saying ‘we’re sorry, we blew it,’ without overtly saying it,” says Greg Taxin, CEO of shareholder advisory firm Glass, Lewis & Co.

But if Nardelli’s compensation angered shareholders, it was the source of even deeper resentment among Home Depot’s 355,000 employees. His cost-cutting program led to thousands of job losses among full-time employees, many of whom were replaced by part-timers. Embittered employees watched their colleagues depart as Nardelli continued to take home millions. No wonder the shopping environment deteriorated and Home Depot customers started complaining about the lack of service.

Bob Moore, a customer in Minnetonka, Minn., can testify to the erosion of service standards—last year, he spent $10,000 for a washer, dryer, and cabinets to remodel his laundry room. But he was taken aback when he had to fight tooth and nail just to get a $49 rebate on the appliances. “I couldn’t believe that they would make it so difficult for a little amount like that,” says Moore, who ultimately resolved the problem. “I’m just upset as a matter of principle and I think that kind of attitude is a reflection of the corporate headquarters.” (See BusinessWeek.com, 1/4/07, ) Getting the Point

Of course, an olive branch is hardly adequate to placate angry employees who have seethed through the six years of Nardelli’s tenure. But at least it sends a conciliatory signal and lays the groundwork for new CEO Blake as he begins to mend employee morale and customer service at the Atlanta chain’s 2,127 stores.

However, it will be especially difficult to engineer a performance turnaround given the ongoing housing slowdown. In the third quarter of 2006, same-store sales at Home Depot declined 5.1% and the average sale per customer declined 1% from the previous year, to $58.33. And Blake will be doing this for the first time—he’s a lawyer by training, has never held the top job at a company, and has little retail experience (see BusinessWeek.com, 1/4/07, ).

Still, Blake has support from at least one corner. A. Leigh Baier, an Atlanta attorney and Home Depot shareholder, recalls a conversation he had last year with Nardelli. “I told Bob that you may be rich, but you are not wealthy because wealth is measured by the good jobs you create, the good things you do for your customers, and the ways you make the world a better place,” Baier says. “Nardelli had this look like he didn’t quite understand what I was talking about, and my sense from the little I know of Frank is that he gets it.”

Shareholders and employees are certainly hoping Baier’s instincts are right.

30 April, 2007 | No comments

Poultry banned in Indonesian residential areas

Indonesia has announced plans to ban all poultry in residential areas over the next few weeks in an effort to stop the spread of the virulent H5N1 strain of bird flu to humans.

Four Indonesians have died already this year from the disease and another was recently confirmed as infected.

The governor of Jakarta says the ban, which is voluntary at the moment, will become compulsory in two weeks’ time.

The ban will cover all domestic birds in the city, including chickens, ducks and pigeons.

The Health Minister says local governments will issue regulations and owners will be compensated for each bird culled.

30 April, 2007 | No comments

March 2007

Investors should keep looking for big-yielding stocks even as market turmoil takes a breather, Jim Cramer said Thursday on CNBC’s “Stop Trading!” segment.

Cramer said T. Rowe Price (TROW) and Polo Ralph Lauren (RL) are good buys because they just reported “good quarters,” while Alliant Techsystems (ATK) and Heinz () are fine investments because each posted an “unbelievable quarter.”

Cramer also likes Coke (KO) , which has just benefited from three Wall Street upgrades, and IAC/InterActiveCorp (IACI) , which is buying back stock.

30 April, 2007 | No comments

GDP Growth Slows to 1.3%, the Worst Showing in 4 Years

WASHINGTON—Economic growth slowed to a near crawl of 1.3 percent in the first three months of 2007, the worst performance in four years. The main culprit: the housing slump.

The fresh reading on , released by the on Friday, was even weaker than the 2.5 percent growth rate logged in the final three months of last year. The new figures underscored just how much momentum the economy has been losing as it copes with the strain of the troubled housing market, which has made some businesses more cautious in their spending.

http://www.foxnews.com/business/personalfinance/investing/index.html

The first-quarter GDP figure was the weakest since a 1.2 percent pace registered in the opening quarter of 2003. GDP measures the value of all goods and services produced within the United States and is considered the best barometer of the country’s economic fitness.

“This was tepid activity in the first quarter. The economy was taking a breather,” said Ken Mayland, president of .

The performance was even weaker than what economists expected; they had forecast a growth rate of 1.8 percent.

Still, Chairman Ben Bernanke and other economists don’t expect the economy to fall into a recession this year. Former Fed chief Alan Greenspan has put the odds at one in three, however.

Even though the economy slowed in the first quarter, inflation picked up Д a development that will complicate the Fed’s work.

An inflation gauge tied to the GDP report and closely watched by the Fed showed that core prices Д excluding food and energy Д rose at a rate of 2.2 percent in the first quarter, up from a 1.8 percent pace in the fourth quarter. Another measure tracking all prices jumped by 3.4 percent in the first quarter, compared to a 1.0 percent decline, on an annualized basis in the fourth quarter.

Federal Reserve policymakers say the biggest danger to the economy is if inflation doesn’t recede as they currently predict.

The Federal Reserve hasn’t moved a key interest rate since August. Before that it had steadily lifted rates to ward off inflation. Many economists predict the Fed will continue to leave rates alone when it meets next month. The Fed’s goal is to slow the economy sufficiently to key inflation in check, but not so much as to provoke a recession.

In other economic news, employers’ costs to hire and retain workers grew by 0.8 percent in the first quarter, down slightly from a 0.9 percent increase in the fourth quarter, the Labor Department reported.

Wages and salaries went up 1.1%, the fastest since 2001. Benefit costs, however, edged up 0.1%, the slowest since the first quarter of 1999. The Fed keeps close tabs on labor costs for clues about inflation.

The reports come as President Bush continues to cope with mediocre ratings from the public on his economic stewardship, according to AP-Ipsos polls. Democrats, who have accused Bush of not doing enough to close the widening gap between high- and low-paid workers, are advocating a boost to the federal minimum wage and policies to help unions.

The biggest factor behind the first-quarter’s slowdown was the crumbling housing market. Investment in home building was cut by 17 percent, on an annualized basis. That came after such investment was slashed at an even deeper 19.8 percent pace in the fourth quarter.

Weak investment by businesses in inventories also held back first-quarter GDP. However, business investment in equipment and software edged up at a 1.9 percent pace in the first quarter. That was lackluster but nevertheless marked an improvment from the 4.8 percent cut in the fourth quarter.

The country’s bloated trade deficit also weighed on first quarter economic growth, shaving 0.52 percentage point off GDP.

Another factor holding back GDP in the first quarter was a 6.6 percent drop, on an annualized basis, in federal defense spending. That was the biggest cut since the final quarter of 2005.

Consumers whose shopping is indispensable to a booming economy boosted their spending at a 3.8 percent pace in the first quarter. That was a solid showing although it was slightly weaker than the 4.2 percent growth rate logged in the fourth quarter.

A key reason why consumers have remained resilient, even in the face of the painful housing slump, is that the jobs markets has managed to stay in good shape. The nation’s unemployment rate dropped in March to 4.4 percent, matching a five-year low.

http://www.foxnews.com/business/personalfinance/investing/index.html

30 April, 2007 | No comments

Terasen Gas sold to Fortis in $3.7B deal

Much of Terasen Inc. the utility formerly known as BC Gas looks to be returning to Canadian ownership following news that its U.S. owner has sold thenatural gas part of the businessto Newfoundland-based power producer Fortis Inc.

Fortis will pay Houston-based Kinder Morgan Inc.$3.7 billion for the natural gas distribution business of Terasen. Terasen Gas owns and operates 44,100 kilometres of natural gasdistribution pipelines and 4,300 kilometres of natural gas transmission pipelines.

“These are high-quality utility assets located in a region with strong economic growth,” said Fortis CEO Stan Marshall in a statement.

“Terasen Gas is a well-run utility which will give Fortis a platform for further growth in the natural gas distribution business,” Marshall said.

Kinder Morgan had bought all of Terasen in 2005 for $6.9 billion. Terasen’s chief attractiveness to Kinder Morgan was considered to be its oil pipeline business, which has links to Alberta’s oilsands region. The company has lines inBritish Columbia,northern Alberta and the U.S. Kinder Morganwill hang on tothe company’s oil pipeline business.

Terasen Gas delivers natural gas and piped propane to900,000 customers in British Columbia 95 per cent of the province’s gas customers.

Following the acquisition, Fortis said itscustomer base would almost double to1,900,000. After the deal is completed, Fortis said its total assets wouldincrease by94 per cent to $8.9 billion.

This is just the latest acquisition for Fortis, which also owns 18 hotels. The company, which trades on the Toronto Stock Exchange, was founded in the 1980s as the parent company of Newfoundland Power, the primary distributor of energy in Newfoundland and Labrador. It now owns 12 hydroelectric generating stations in North America.

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