reuters.com Fri March 7, 2003 10:44 AM ET

NEW YORK, March 7 (Reuters) - PepsiCo Inc. PEP.N , the maker of Frito-Lay snacks, Pepsi-Cola drinks and Quaker cereals, said on Friday it expects pension and retiree medical costs to jump this year and that foreign currency fluctuations could hurt its results in the future.

The company also said there was no assurance it would be able to pass price increases on items such as ingredients, packaging materials and fuel along to its customers in the future. PepsiCo, in its annual filing, added, however, that when it decided to pass along price increases in the past, it has done so successfully.

The company said operations outside of the United States generate 34 percent of its net sales, of which Mexico, Britain and Canada contribute 19 percent.

Last year, the impact of declines in the Mexican peso "were substantially offset by increases in the British pound and the euro," the company said in its filing.

"If future declines in the Mexican peso are not offset by increases in the British pound and the euro, our future results would be adversely impacted," PepsiCo said in the filing with the U.S. Securities and Exchange Commission.

PepsiCo, like many other companies, is facing increased benefit costs. The company said it estimated pension expense for 2003 will be about $160 million, up from $111 million in 2002. It forecast retiree medical expense at about $120 million in 2003, up from $88 million last year.

The Purchase, New York-based company, which bought Quaker Oats Co. in August 2001, also said it expects to incur additional costs of about $50 million in 2003 to complete the integration of the two companies.

PepsiCo said that in 2002 it recorded a net loss of $5 million on the sale of the Quaker Foods North America bagged cereal business and the Frito-Lay International food businesses in Colombia and Venezuela.

PepsiCo said its pension assets include about 5.5 million shares of PepsiCo common stock with a market value of $202 million in 2002. In 2001, it had 4.7 million shares with a market value of $227 million. The company said its investment policy limits the investment in PepsiCo stock to 10 percent of the fair value of plan assets.

Shares of PepsiCo fell 10 cents to $37.50 Friday morning on the New York Stock Exchange, after falling as low as $37.02 earlier in the session. The shares hit a 52-week low of $35.15 in July 2002.

cbs.marketwatch.com By Myra P. Saefong, CBS.MarketWatch.com Last Update: 3:29 PM ET March 7, 2003

NEW YORK (CBS.MW) -- Crude and petroleum-product futures prices Friday closed the week around 3 percent higher, with concerns over U.S. supplies high on traders' minds amid war preparations.

Traders also sought to anticipate what OPEC's next move, if any, might be on production. The Vienna-based organization of oil exporters will meet to discuss the state of oil supplies and prices.

Crude for April delivery rose by 78 cents to close at $37.78 a barrel on the New York Mercantile Exchange session. A week ago, it closed at $36.60.

Concerns weighing on the energy markets this week included a possible interruption in Kuwait's oil output as the neighbor of Iraq prepares its northern oil fields for a possible outbreak of war.

"Crude oil and the energy complex will continue to remain hostage to higher prices as inventory levels are at three-decade lows, and there seems to be no chance for immediate relief as OPEC is at the upper end of their production limits," said John Person, head financial analyst at Infinity Brokerage Services.

At the same time, Grady Garrett, chief trading strategist at EnergyTrendAlert.com, said it couldn't be ruled out that OPEC won't be willing to "step in the production gap" as the start of a military conflict appears to grow nearer.

"Not only must the bulls deal with crude trading at these rarified levels, but also with the knowledge that the Bush administration could open the tap to the Strategic Petroleum Reserve," he noted.

There certainly was more than enough for commodities traders to chew over as the week wound down.

On Thursday, President Bush said he's prepared to order U.S. troops into Iraq to topple Saddam Hussein even without the backing of the United Nations.

And earlier Friday, wire services reported that two of Osama bin Laden's sons had been arrested in Afghanistan in a joint operation involving U.S. forces. But U.S. sources disputed the report arrests. "We have no information to substantiate that report," said White House spokesman Ari Fleischer in a Friday afternoon briefing.

At the United Nations, chief weapons inspector Hans Blix requested more inspectors and said many question remained answered in regard to Iraq. However, he also reported some grudging progress in the destruction of banned weapons. See full story.

Person noted that Blix confirmed that individual Iraqi scientists are requesting private interviews, which "supports the view that they are under duress." It's also "supporting evidence that Saddam's 'iron hand' and deceptiveness is still at work," he said.

Also Friday, the U.S. and Great Britain set a March 17 deadline for Saddam Hussein to comply with requests to destroy or surrender its weapons of mass destruction.

OPEC meeting on tap

At Tuesday's meeting, the OPEC cartel will have to decide the best way to balance the potential loss of Iraqi oil, in the event of war, with the usual falloff in demand for oil seen during the second quarter.

OPEC has said it will focus on the state of worldwide inventories, which currently stand at low levels, as well as the possibility of an oil glut during its meeting, according to an Energy Department report.

Most analysts believe the cartel will hew to its official production quota of 24.5 million barrels per day, with Saudi Arabia unofficially boosting its output to make up for oil lost during Venezuela's ongoing oil strike and for the possible loss of Iraqi oil. Although Iraq belongs to OPEC, its output isn't counted against members' aggregate daily production.

Saudi Arabia produces some 9 million barrels per day and claims it can raise output to 10.5 million barrels if absolutely necessary.

But as Kevin Kerr, analyst at Weiss Research, pointed out, it would take "at least three months to do so -- and that's nowhere near enough to satisfy the market."

Heating fuels gain

Also on Nymex, April heating oil added 5.29 cents to close at $1.1085 a gallon and April natural gas added 14.9 cents to $6.993 per million British thermal units after dropping around 3 percent Thursday.

A week ago, heating oil settled at $1.0721, while natural gas stood at $8.101.

While the calendar says spring is two weeks away, traders and suppliers "have a hard time seeing a relief in the weather when there is a current disruption in deliveries and an immediate demand in heating fuels," said Infinity's Person.

On Thursday, the Energy Department said natural-gas inventories fell by 176 billion cubic feet during the week ended Feb. 28 -- smaller than many analysts' expectations. By the same token, total stocks of 838 billion cubic feet are 981 billion cubic feet below the year-ago level and 602 billion below the five-year average.

"Most believe this week's draw could be last of the winter's most sizeable pulls," said Michael Fitzpatrick, an analyst at Fimat USA.

However, he said the market is still coming to terms with the fact that gas in storage may hit a record low under 600 billion cubic feet by the end of the winter heating season.

"Although many do not expect an extreme shortage of gas, most foresee a tight supply situation this summer, when gas-fired generation for cooling loads competes with injections for next winter's heating season," Fitzpatrick explained.

Distillate supplies, which include heating oil, stand at their lowest level for this time of year since 1963 -- nearly 26 percent below the level seen a year ago, according to an Energy Department report issued Wednesday. See full story.

Gasoline soars

Prices for unleaded gasoline also continued to climb. The nation's inventories of the commodity stand at around 6 percent below their year-ago level.

April unleaded gasoline added 5.07 cents to close at $1.1567 a gallon on Nymex -- up from last Friday's close at $1.1045.

And at the retail level, average gasoline prices averaged $1.684 a gallon, up 45 percent from the $1.16 they were at a year ago, according to AAA's Daily Fuel Gauge Report.

Prices thus are nearing their all-time high of $1.718 that they reached in May 2001. In California, the average price for regular unleaded stood at $2.057 a gallon.

Meanwhile, gold for April delivery sank as much as $10 an ounce amid the flurry of reported developments surrounding Iraq and the war on terror. See Metals Stocks.

In the equities arena on Friday, oil-services companies traded mostly lower, as the Philadelphia Oil Service Index ($OSX: news, chart, profile) chalked up loss of more than 1 percent. See Energy Stocks.

And the Reuters/CRB Index, a broad-based measure of the commodity futures market, closed at the 247.2 level, up 0.8 percent amid strength in the energy futures. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

sg.biz.yahoo.com Friday March 7, 6:30 AM By Gaston F. Ceron Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--U.S. stocks retreated among concerns about the economy and with the shadow of Iraq still hanging over the market.

Worries about corporate results continued to weigh on investors, who were faced with poor retail-sales reports and an earnings warning from Raytheon. Shares of Raytheon fell 5.5%.

The Dow Jones Industrial Average shed 101.61, or 1.31%, to end at 7673.99. The Nasdaq Composite Index fell 11.48, or 0.87%, to 1302.92. The Standard & Poor's 500-stock index dropped 7.75, or 0.93%, to 822.10.

Retail-sales figures for the month of February weren't encouraging, as stores were hampered by the big blizzard that hit the East Coast last month. Shares of Sears Roebuck fell 3.5%, while shares of May Department Stores dropped 2.2%.

Regarding the overall market environment, "after all is said and done, what this is all about is the economy and earnings," said Hugh Johnson, chief investment strategist at First Albany in Albany, N.Y. "And the outlook for the economy and earnings is deteriorating. Oil prices remain so high, and as a result the outlook for the economy is getting gloomier."

A worse-than-expected report on weekly jobless claims also spooked investors, suggesting that employment conditions are weakening, Johnson added. But the economic picture remains muddy, as data on productivity and factory orders painted a more positive picture.

The strategist noted that all the attention that has been given to the Iraqi situation may be masking other problems for the market. "The buzz on Wall Street is that if Iraq gets put behind us the stock market . . . will do well," he said.

But even if the Iraqi standoff is resolved, "there is still North Korea and terrorism, there is still Venezuela," Johnson said.

On the New York Stock Exchange, there were 1,226 issues advancing, 2,027 declining and 189 unchanged.

NYSE volume totaled 1,287,877,770 shares, compared with 1,302,704,190 Wednesday.

The NYSE Composite Index was 4626.02, down 47.73. The average price per share fell 21 cents.

Raytheon shares fell 1.49, or 5.5%, to 25.42. After the end of Wednesday's trading session, the Lexington, Mass., defense contractor confirmed its earlier expectations for 2003 earnings, but it also issued a 2004 profit forecast that was below what Wall Street had been expecting.

After being down as much as 5.7%, shares of Schering-Plough ended down 0.9%, or 15 cents, at 16.45. The Kenilworth, N.J., drug maker's stock was hurt by continued negative reaction to the company's lowered expectations for 2003 earnings, which were released during Wednesday's trading session. On Wednesday, Schering-Plough shares fell 3.1%.

Aegon fell 1.53, or 15%, to 8.42. The Dutch insurer said it will cut its dividend and reported a 35% drop in 2002 net income.

Shares of Tyson Foods shed 83 cents, or 9.7%, to 7.70. Late Wednesday, the Springdale, Ark., chicken and meat company said it expects to report break-even results from ongoing operations for the second fiscal quarter ending in March.

Retailers were hurt by poor sales reports for the month of February. Sears' domestic same-store sales fell by 9.4% from the previous year, a steeper decline than Wall Street had been expecting. Shares of the Hoffman Estates, Ill., company fell 70 cents to 19.30.

May Department Stores, parent of Lord & Taylor, saw its same-store sales fall 8.9% in February. Shares of the St. Louis company dropped 2.2%, or 41 cents, to 18.45.

Gap fared better. The San Francisco parent of Gap, Banana Republic and Old Navy reported an 8% increase in same-store sales, better than Wall Street had forecasted. Shares of Gap rose 33 cents, or 2.6%, to 13.18.

Michaels Stores, Irving, Texas, reported a 4% same-store sales decline. The company's shares dropped 43 cents, or 2%, to 21.37.

US Late Market Comment -5: Pfizer Gains On Patent Win

Pfizer and Pharmacia saw their stocks rise after the pharmaceutical companies - and merger partners - scored a victory, announced late Wednesday, in a patent dispute with the University of Rochester. The university is appealing.

Shares of New York-based Pfizer climbed 20 cents, or 0.7%, to 29.39. Pharmacia, Peapack, N.J., rose 16 cents, or 0.4%, to 40.71.

-By Gaston F. Ceron, Dow Jones Newswires; 201-938-5234; gaston.ceron@dowjones.com

sg.biz.yahoo.com Friday March 7, 5:49 AM By Gaston F. Ceron Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--U.S. stocks retreated among concerns about the economy and with the shadow of Iraq still hanging over the market.

Worries about corporate results continued to weigh on investors, who were faced with poor retail-sales reports and an earnings warning from Raytheon. Shares of Raytheon fell 5.5%.

The Dow Jones Industrial Average shed 101.61, or 1.31%, to end at 7673.99. The Nasdaq Composite Index fell 11.48, or 0.87%, to 1302.92. The Standard & Poor's 500-stock index dropped 7.75, or 0.93%, to 822.10.

Retail-sales figures for the month of February weren't encouraging, as stores were hampered by the big blizzard that hit the East Coast last month. Shares of Sears Roebuck fell 3.5%, while shares of May Department Stores dropped 2.2%.

Regarding the overall market environment, "after all is said and done, what this is all about is the economy and earnings," said Hugh Johnson, chief investment strategist at First Albany in Albany, N.Y. "And the outlook for the economy and earnings is deteriorating. Oil prices remain so high, and as a result the outlook for the economy is getting gloomier."

A worse-than-expected report on weekly jobless claims also spooked investors, suggesting that employment conditions are weakening, Johnson added. But the economic picture remains muddy, as data on productivity and factory orders painted a more positive picture.

The strategist noted that all the attention that has been given to the Iraqi situation may be masking other problems for the market. "The buzz on Wall Street is that if Iraq gets put behind us the stock market . . . will do well," he said.

But even if the Iraqi standoff is resolved, "there is still North Korea and terrorism, there is still Venezuela," Johnson said.

On the New York Stock Exchange, there were 1,226 issues advancing, 2,027 declining and 189 unchanged.

NYSE volume totaled 1,287,877,770 shares, compared with 1,302,704,190 Wednesday.

The NYSE Composite Index was 4626.02, down 47.73. The average price per share fell 21 cents.

cbs.marketwatch.com

By Dr. Irwin Kellner, CBS MarketWatch.com Last Update: 10:05 AM ET March 4, 2003

NEW YORK (CBS.MW) -- This could well prove a pivotal month for investors as they try to figure out what's hot and what's not.

From business, there'll be hints about how first-quarter earnings are doing, what with March as the last month of the quarter. Most firms will soon have a pretty good idea whether they are going to make their numbers or not.

It's one thing to know this internally, of course, and it's another to communicate it to investors. In this Sarbanes-Oxley era, many firms are reluctant to provide the precise financial updates they used to.

Where companies do speak out, they will be more likely to forecast earnings per share in fairly broad ranges, rather than just the penny or two that they used to.

Still, considering how earnings have been under pressure for the better part of the past three years, investors will be happy to see any sign -- no matter how small -- that the worst is over.

Even then, it's going to be a tough sell to get people back into stocks. Besides the fact that the market is mired in what would be its fourth down year in a row, most stocks remain overvalued.

The Standard & Poor's 500 Index today trades at close to 30 times its earnings for the trailing 12 months -- about twice its long-run average.

Only when you compare the S&P 500's dividend yield with the yield on the 10-year Treasury ($TNX: news, chart, profile) does the market even begin to look reasonably valued. But it's certainly not a screaming buy even on this basis; that's why first-quarter earnings will be so important.

Away from the market, another development likely to come to a head this month -- with important implications for investors -- is the situation in Iraq. One way or another, we should know within the next few weeks whether or not the United States will go to war, and if so, with a broad-based international coalition or not. See our Countdown to War.

With each passing day, we're rapidly passing through the best conditions for mounting an attack. The new moon has already occurred and pretty soon the average desert temperature will rise rapidly, making it difficult for our troops to do battle while wearing protective gear.

Bubbles, bubbles everywhere

Then there are the bubbles. If you thought the drop in stock prices and the breaking of the investment bubble (see my column of Feb. 25) meant that all bubbles were popped, you are wrong.

For one thing, there's the double bubble of debt (see my column of Feb. 18). Both consumer and corporate debts are at record levels, susceptible to any rise in interest rates.

Speaking of which, there also appears to be a bond bubble. Because interest rates are so low, bond prices are very high.

This could reverse rapidly, with prices poised to fall at the first sign of inflation and/or under pressure of increased supply from both the private as well as the public sector. See the latest Bond Report.

Any rise in rates would, in turn, threaten to pop another bubble -- the one in home prices.

Notwithstanding assertions by several Federal Reserve officials, the fact remains that housing prices have gone up much faster than family incomes for a number of years. See the full story on Federal Reserve chief Alan Greenspan's comments on housing.

Finally, there's the oil bubble. Oil prices have shot up because of concerns over Iraq, Venezuela, and the unusually cold winter. Read the latest on Futures Movers.

All three price bubbles -- bonds, homes and oil -- could be history by the end of this month.

Dr. Irwin Kellner, chief economist for CBS.MarketWatch.com, is the Weller professor of economics at Hofstra University and chief economist for North Fork Bank.