Friday, September 4, 2015

POSTED: Friday, August 28, 2015, 12:59 PM

Richest American Warren Buffett and Brazilian billionaire Bernardo Hees agree: There are even more food workers to be laid off, plants to be closed, production lines to be consolidated, suppliers and shippers to be squeezed, at Kraft Heinz Co. and other big, old U.S. supermarket brands.

Buffett's Berkshire Hathaway and Hees' 3G each own about one-quarter of Kraft Heinz, which is implementing 3G's "zero-based budgeting" concepts to cut unneeded costs and presumably boost profits. Investors are buying it, so far: Kraft Heinz has been trading at a fat 21 times earnings, nearly 15 times cash flow (enterprise value/EBITDA).

But there's a big problem: "Fewer people are eating their food," warns veteran food analyst Jonathan P. Feeney, now at Athlos Research's Berwyn outpost. Feeney worries the billionaire squeezers and other "strategic investors" who hope to drain more billions from America's fast-consolidating food factories won't be able to find enough additional stuff to cut, to justify today's inflated share prices.

POSTED: Friday, August 28, 2015, 9:25 AM
Bank of New York Mellon Corp. headquarters. (Photo by Mario Tama (Getty Images)

Four Philadelphia employers plan to cut a total of more than 800 jobs this fall, according to reports filed with the state Department of Labor (see UPDATE to St. Joseph's item):

  - Bank of NewYork Mellon is cutting 280 tech support positions in the old Lits building at 701 Market St., by Oct. 9. (Follows 120 back-office bank job cuts here by Wells Fargo & Co. last winter.)
  - Atkore International, a Harvey, Ill.-based electrical manufacturer , is cutting 217 and "closing" its Northeast Philadelphia plant, 11350 Norcom Rd., by Oct. 5. Atkore, part of Tyco International before its 2010 sale to buyout investor Clayton Dubilier & Rice, announced the closing, plus cutbacks at its Phoenix and Harvey, Ill., factories here. (Tough year for Northeast Philly manufacturing. See also the recent shutdown by Mondelez (ex Nabisco/Kraft) and the pending closure at Perfecseal, each idling hundreds).
  - Amoroso's Baking Co. has confirmed long-delayed plans to close its West Philadelphia plant (as my colleague Harold Brubaker reported earlier this month) and move baking to South Jersey, idling 200 here, by Oct. 6.
  - Saint Joseph's University plans to cut 172 jobs as of Sept. 30. UPDATE: Spokesman Joe Lunardi says this does NOT affect SJU permanent staff but rather "150 part-time student employees and 20 prospective student employees of the Telephonic Research Operation (TRO) in Alumni House that the University’s contract with Marketing Systems Group (MSG) is expiring and the TRO will cease operations on September 30, 2015.") (See also 23 job cuts by that other Catholic college in the city's outer rim, LaSalle University.)

Also, in West Chester, Flextronics International USA says it's cutting 90 jobs in a facility closing by the end of this year. Read the sad list of Pa. layoffs announced this month, here.

POSTED: Wednesday, August 26, 2015, 2:49 PM

Richard Vague, the Philadelphia marketing mogul (Chase credit cards, EnergyPlus) turned investor (Gabriel Investments), political donor (to prominenti of both parties), philanthropist (Penn medical research, Haiti development), and global policy wonk, argued in The Next Economic Disaster, a book I reviewed in the Inquirer last year, that high private debt -- not government spending -- marks economies in decline.

Last winter, while the China stock market was still at record highs, Vague said China's debt-fueled, government-led development had already stalled what had lately been the world's growth economy -- and predicted other countries will slow, too. See my March summary of his article in Democracy Journal here.

On Tuesday, after U.S. stock markets followed China's down for six days, I took Vague to lunch near his Center City home and asked him about China, credit, the threats and opportunities the market slide creates, and why U.S. politicians all sound so backward about what to do. Highlights:  

POSTED: Wednesday, August 26, 2015, 1:05 PM

With corporate headquarters still fleeing Philadelphia  -- Cigna to Connecticut, Destination Maternity to New Jersey, and chemical makers Arkema, Dow Advanced Materials and Sunoco to the Pennsylvania suburbs, to name five publicly-traded companies that have moved their bosses out in the past couple of years -- it's a good time to ask whether Pennsylvania's business tax rates are as unfriendly as critics claim.

Yes -- and no, according to a new report by the Tax Foundation and auditing firm KMPG LLC -- Location Matters: The State Tax Costs of Doing Business. Reviewing firms and facilities 10+ years old (and past the temporary-incentive stage), the report lists Pennsylvania, among the 50 states, as charging the nation's:
  - SECOND-HIGHEST effective state tax rate for corporate headquarters: 23.1%
  - #3 for an independent retail store: 22.9%
  - #5 for a distribution center: 41%
  - #17 for a call center: 22.3%
  - #21 for a research and development facility: 12.5%
But also the: 
  -  FOURTH-LOWEST state tax rate on capital-intensive manufacturers: 4.2%
  - 11th lowest for a labor-intensive manufacturer: 6.6%

In sum: Pennsylvania charges some of the highest taxes to companies based here, warehouses, and local retailers -- but also some of the lowest rates to companies that employ and invest in factory production. (Though the recent Mondelez/Kraft and Hostess bakery closings, and the pending departures of Perfecseal and Amoroso's, all from Philadelphia, each with hundeds of jobs, raise questions about whether we can keep a lot of factory jobs here, either.)

POSTED: Tuesday, August 25, 2015, 12:27 PM

Setting aside its failed Time Warner Cable merger bid, Comcast since 2012 has shifted focus from investing in "traditional cable, satelite and broadcasting" toward "Internet, software and media investments" in an effort to "broaden Comcast's audience base" among viewers and focus on online video, targeted ads and multi-play technology, writes analyst Amy Yong in a report to clients at Macquarie Capital USA. 

After Comcast's recent acquisitions of "high-growth opportunities" This Technology, Buzzfeed, Vox Media, Visible World and FreeWheel, investors are "wondering the next move on the M&A front" by Comcast, Yong adds. The company is well-armed for future deals with a relatively fat balanced sheet, "impressive acquisition track record" and new CFO Michael J. Cavanagh, a longtime member of empire-building JPMorgan CEO Jamie Dimon's inner circle. 

What will Comcast buy next? "We are not boxing out a potential T-Mobile merger," but a long-in-coming Comcast return to mobile telephony will more likely mean more deals with wireless companies "on the fringes" of its markets. Comcast could focus on "extending NBCU franchises globally, particularly in films and parks" where Comcast has made more money than expected. 

POSTED: Tuesday, August 25, 2015, 8:51 AM

MARKET CLOSE: After rising earlier in the day, U.S. stocks fell again Tuesday, adding to losses last week and Monday. Dow-Jones 30 Industrials closed down 205 points at 15666, off 1.29%. Standard and Poor's 500 closed down 26 points, at 1868, down 1.35%.

Among stocks of local interest, Exelon dropped 7 percent and Pepco Holdings fell 16% after the Washington DC utilty regulator rejected their merger plan; multinational chemical maker FMC dropped 7% to $40.26, its lowest since 2012; multinational computer services provider Unisys fell to $12.93, its lowest since 2009. Nationally, Best Buy rose 13% on higher-than-expected sales.

EARLIER: U.S. stocks traded higher Tuesday, with the Dow-Jones 30 Industrials up more than 300 points in early trading and passing 16,000 again.

POSTED: Monday, August 24, 2015, 4:13 PM
A trader works on the floor of the New York Stock Exchange (NYSE) on August 21, 2015 in New York City. The Dow fell over 500 points in trading today as global markets continue to react to economic events in China. (Spencer Platt/Getty Images)

How should investors respond to the past week's sharply falling stock prices? Consider doing "nothing," Vanguard Group, which has boosted assets above $3 trillion in the recent market run-up, urged investors in a note posted today, quoting chief executive Bill McNabb. "Swings in the financial market are normal -- and relatively insignificant" over time, McNabb added. Still worried about losing 3 cents of every dollar from your S&P 500 fund on Friday and again Monday? Learn to live with volatility: "Save more," McNabb suggested. 

Does the falling stock market mean anything to the U.S. economy? "Economic fundamentals still look pretty good in the U.S.," Patrick Kaser, who manages large-company value stocks for clients at Brandywine Global Asset Management in Philadelphia, told me. "There is weakness in China, Malaysia, Brazil," and other large economies; but in the U.S., "housing looks strong, we have an auto sales report that looked strong, employment looks strong," at least "for people who can pass a drug test and don't have a criminal record."

And weak demand from Asia means key U.S. commodities are getting cheaper: Gas prices appear headed below $2 a gallon, Kaser noted, "which is fantastic for consumers." Beef and pork, as Jonathan Feeney, Berwyn-based food analyst now with Athlos Research noted, are headed lower, "which is a benefit to lower income consumers, in particular," Kaser added. Won't poor profits for China-focused multinationals like DuPont Co. hurt the U.S. economy? "What they're seeing is the absence of growth. That puts (downward) pressure on prices. But it's not the same as a shrinking economy," Kaser said. "It's a disappointment, it's a scare. As opposed to a global recession.

POSTED: Monday, August 24, 2015, 4:25 PM
People watch trading boards at a private stock market gallery in Kuala Lumpur, Malaysia on Monday, Aug. 24, 2015. Stocks tumbled across Asia on Monday as investors shaken by the sell-off last week on Wall Street unloaded shares in practically every sector. (AP Photo/Joshua Paul)

4:15 p.m.: "Having declined more than 10% since the peak on May 19, the market is now officially in 'correction' territory," David Roccato, president of $95 million asset Quaker Wealth Mangement LLC, Moorestown, NJ, told clients in a note just after the U.S. stock markets closed today, with the S&P 500 falling 3.9% to close below 19,000 for the first time since last October and wiping out 2015 stock market returns to date. The Dow fell 588 points (3.5%).

Beyond the "correction," biotech stocks and some other sectors "hit bear market territory," dropping 20% from highs earlier this year, said Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co., which has been hand-holding some nervous clients.  The Dow ended down 588 points, with Nasdaq off nearly 180 points in the course of the day's trading.

What's spooking stock traders? "The rigged Chinese market," where prices have fallen below year-ago levels after a surge early this year; selective declines in U.S. stocks like market-leading Apple Computer, which gets one-sixth of it sales from China; falling fuel, meat and other commodity prices -- which is good for U.S. consumers; uncertainty over Federal Reserve interest-rate targets; and the popular suspicion that three-year bull market may have been goin gon too long. "We actually prefer a violent, sudden drop" to a steady decline, concluded Quaker's Roccato, who also teaches economics at Rutgers.

About this blog

PhillyDeals posts drafts, transcripts and updates of Joseph N. DiStefano's columns and stories about Philly-area business, which he's been writing since 1989.

DiStefano studied economics, history and a little engineering at Penn and taught writing at St. Joseph's. He has written thousands of columns and articles for the Inquirer, Bloomberg and other media, wrote the book Comcasted, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com, distefano251@gmail.com, 215.854.5194 or 302.652.2004.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
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