Manufacturing picks up, sentiment falls

www.nj.com Saturday, February 15, 2003

Factories were humming in January, but consumer anxiety deepened in early February, according to reports that showed a modest economic pick-up overshadowed by the prospect of war.

Manufacturing activity at the nation's factories rebounded by a stronger-than-expected 0.7 percent, as automakers cranked up production and utilities boosted output to cope with an unusually cold winter. But prospects for future growth were clouded by a drop in consumer sentiment to a nine-and-a-half year low as the nagging threat of war ate away at consumers' outlook for the economy. The University of Michigan's preliminary February sentiment index fell to 79.2 from 82.4, below analysts' expectations.

The sour confidence numbers were the first downbeat reading after several positive reports on the economy in recent days that have had economists revise higher their expectations for growth both late last year and in the first quarter.

Oil rallies Oil prices set fresh two-year highs yesterday after Chief U.N. Inspector Hans Blix said Iraq still had failed to account for weapons of mass destruction, fueling war concerns. U.S. crude futures hit a high of $36.85 a barrel and ended up 39 cents at $36.75. The U.S. price is now within $5 of 1990-1991 Gulf War highs. London Brent futures gained 7 cents, to $32.53 a barrel.

Hours before Blix's statement, Iraqi President Saddam Hussein decreed a ban on weapons of mass destruction, meeting a U.N. demand for Iraq to adopt such national legislation. Gold prices fell on that news.

Thin fuel stocks in the United States, a strike in Venezuela and the looming threat of war in the Middle East have pumped prices up by 45 percent in three months. Oil industry analysts said a stock release may be needed to cap prices in the $40s if war starts on Iraq, the world's eighth largest oil exporter, within a month.

Merrill research director quits Merrill Lynch said Deepak Raj, deputy director of global securities research and economics, has resigned, a week after his boss, Robert McCann, head of global securities research and economics, announced his own resignation.

The changes come as the firm is trying to get past the investigations into conflicts of interest between its investment banking and stock research units. New York State Attorney General Eliot Spitzer last year accused Merrill analysts, including former Internet star Henry Blodget, of misleading investors by issuing biased research geared to win investment banking deals. Spitzer won a $100 million settlement from Merrill. The firm has had a number of high-level defections recently within its research department, including media analyst Neil Blackley, bank and brokerage analyst Judah Kraushaar, and software analyst Chris Shilakes.

Justice asks ADP for more Automatic Data Processing Inc. said the Department of Justice requested more information about its proposed acquisition of ProBusiness Services Inc., which will extend the waiting period for the deal between the payroll-processing companies.

ADP said it and ProBusiness plan to respond promptly to the request, made in connection with the Department of Justice's review of the proposed $500 million acquisition.

ADP and ProBusiness said in early January that they had entered into an agreement on the acquisition. ADP said it would buy ProBusiness Services for $17 per share in cash.

General Mills ups cost- cutting goal General Mills Inc. is increasing its goal for cost savings through productivity gains as it absorbs Pillsbury by an additional $300 million, raising its 10-year savings goal to $1 billion. Eighty percent of the savings will come through innovations, while 20 percent will result from cost-cutting.

General Mills, the nation's No. 2 cereal maker behind Kellogg, acquired Pillsbury from Diageo in 2001. Since then, the company has taken a hard look at the Pillsbury supply chain and determined more savings can be achieved, it said.

The company is raising its productivity savings target at a time when it's under pressure to raise its stock price. Under the $10.5 billion deal with Diageo, General Mills must make an additional payment if the average price of General Mills stock is below $49 per in April share, a payment capped at $395 million if the average is $44. General Mills closed at $45.27, up $1.12, down from a 52-week high of $50.40 in April.

S&P dings Revlon Revlon Consumer Products Corp., the cosmetics maker controlled by financier Ronald Perelman, was downgraded by Standard & Poor's on concern about its "weak" operating performance, ability to raise cash and $1.74 billion debt load.

The credit rating agency cut Revlon's credit rating one notch to CCC+, its fifth-lowest junk grade other than default, from B-. It also cut its credit rating for REV Holdings one notch to CC, three levels below CCC+. Revlon is an indirect unit of REV, which S&P said has $80.5 million of debt.

S&P's outlook for both entities is "negative," meaning another cut is more likely than an upgrade.

S&P took action after Revlon accepted an $150 million cash infusion from MacAndrews & Forbes, a Perelman-controlled entity. MacAndrews is also making a $65 million credit line available to the company.

Revlon is trying to return to profitability by boosting advertising spending, with celebrities like Halle Berry, and eliminating some products. The company faces fierce competition from Procter & Gamble's Cover Girl and Max Factor brands and L'Oreal's Maybelline.

Revlon shares took a 6 percent hit on the news.

And finally ... Warren Buffett, the Oracle of Omaha, has acquired a stake in PNC Financial , according to Berkshire Hathaway's latest SEC filing. ... Wal-Mart formed an office that will help the retailer get U.S.-manufactured products into its stores overseas. There are nearly 1,300 Wal-Mart stores abroad. ... J.M. Smucker Co. , the country's largest maker of jams and jellies, said its profit surged in the latest quarter as sales more than doubled on the strength of its newly acquired Jif and Crisco brands. It raised its outlook for fiscal 2003. ... Krispy Kreme Doughnuts Inc. shot up after it said earnings in the current fiscal year would jump 35 percent in the coming year. It will report Q4 earnings and fiscal 2003 earnings March 18. ... Graphics chip maker Nvidia share's surged 17 percent after the company handily beat fourth-quarter expectations. -- Star-Ledger wire services