In a big shift, U.S. export and import prices decrease in February

Monthly prices for import and export prices declined in February. For imports, it was the first decline in seven months, whereas for exports, it was the first decline in five months.

Both import and export prices have been growing in the past year, with both indices rising considerably after July 2009.

by Anjana Sundaram
March 16, 2010

The price of both imported and exported goods fell in February, according to a report released by the U.S. Department of Labor Tuesday. The downward trend of prices, coupled with the dollar’s recent appreciation, indicates low inflationary pressures from abroad.

The U.S. Import Price Index fell 0.3 percent in February, more than the anticipated decline of 0.2 percent from analysts surveyed by Bloomberg LP. The monthly drop in import prices, which was the first since last July, was driven by a decline in fuel prices.

“The reduction in the price of imports is driven primarily by what happened to the price of oil. Consumers are sensitive to the price of oil, as the recession is still in people’s minds and they are cautious about increasing prices and cutting back demand,” said Stephen Parente, an economist at the University of Illinois.

Despite last month’s decline, the overall import price for the year ended Feb. 28 increased 11.2 percent, compared with a decrease of 12.7 percent in the year-earlier period.

Fuel import prices decreased 1.9 percent in February, a swing from a 4.9 percent rise in January. The two main factors impacting fuel prices were petroleum and natural gas. This month, the 2.6 percent increase in natural gas prices offset the 2.2 percent decline in petroleum prices. Over the past year, petroleum increased by 81.3 percent and natural gas rose by 16.3 percent.

Prices for nonfuel imports rose for the seventh consecutive month due to higher prices for industrial supplies such as metals and lumber. However, prices for food, animal feed and beverages declined during the month. “We had seen ex-fuel prices pick up a little bit with the strength of the dollar in the recent months. Broadly speaking, a lot of prices outside of energy are trending lower,” said Julia Coronado, an economist at BNP Paribas SA.

Export prices also unexpectedly fell in February by 0.5 percent after a 0.7 percent rise in each of the prior two months, marking the first price decline in five months. Lower agricultural prices comprised 65 percent of the overall decline. In the past 12 months, overall exports rose 3.1 percent.

“Agricultural prices have been on a very strong upward trend and now it is being moderated. A lot of the prior strength was driven from Asia…there were some concerns that China might have an inflation problem and end up tightening policy which led those prices to ease back a little bit,” said Coronado.

Prices for agricultural exports fell by 3.8 percent in February, a dramatic swing from the 1.3 percent advance in January. Prices for soybeans, corn and wheat contributed the most to the price decline. For the overall year ended Feb. 28, agricultural prices still rose by 2.3 percent because of a 33 percent rise in nut prices and a 29 percent increase in cotton prices.

Economists seem to agree that imports and exports should eventually rise in the long term as the economy recovers. “The trend will continue to see both rise and we will see an increase in the U.S. trade deficit. The trend seems to show that both have been increasing since July,” said Parente.

However, the short term tells a different story. “I think that energy prices are going to bounce around. I don’t think they are going to go up a whole lot just because of the weakness in the global economy. Other prices outside of energy will be under downward pressure because the weakness in the economy will reduce purchasing power,” said Coronado.

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Career Education seeks renewed growth

Career Education has a historically volatile valuation, with larger price movements than the market. The company's recent upsurge in P-E ratio over the S&P 500 exemplifies a high earnings growth potential compared to the market.

by Anjana Sundaram
March 02, 2010

After three years of declining revenue, Career Education reversed course and reported an 11 percent increase in revenue in 2009 compared with 2008.

Career Education has been enjoying an increase in profits due to high enrollment numbers and efficient operations.

Career Education Corp. has made it clear it is ready to grow in 2010. At a presentation last Monday, Chief Financial Officer Michael J. Graham succinctly said: “This has been a turn-around company, that’s gone. This is a growth company.”

The Hoffman Estates-based higher education provider announced a bold outline of financial goals for 2010, to increase student population and revenue by more than 15 percent. It also aims to grow operating income by $80 million to $100 million, to a total of $350 million to $370 million. By 2014, Career Education hopes, its firm value will be $3 billion compared with its current $2 billion, and its number of cumulative graduates will surpass 1 million.

The bullish outlook comes as Career Education revels in a strong 2009 after three years of weak revenues and the closing of nine branches of its underperforming colleges.The company now has 105,000 active students enrolled in its programs, up an impressive 19 percent from 87,900 in 2008. In the fourth quarter its revenue increased an impressive 19.4 percent to $507.8 million and its net income jumped to $30.7 million. While analysts’ earnings consensus was 32 cents per diluted share according to Zacks Investment Research Inc., Career Education more than doubled that with 72 cents per diluted share.

Dubious analysts became believers. “We were among the doubters at the 2008 Analyst Day where management outlined its 2010 milestones – many of which CECO reached a year early,” stated Jeffrey Silber of BMO Capital Markets Corp.  But after the company’s strong 2009 performance and its announcement of 2010 goals, Silber gave the stock an outperform rating and raised his target price to $35. It’s now around $28.

Career Education’s forecast is deemed reasonable by analysts because the company had posted comparable results in 2009. Student enrollment grew by more than 15 percent and operating income swelled by $100 million to more than $250 million. The stock’s ratings are seven buys, eight holds and three sells, according to a Bloomberg LP survey.

The analysts’ earnings consensus for 2010 is $2.35 per diluted share, according to Zacks Investment Research Inc., compared with earnings of 94 cents per diluted share in 2009.  Analysts expect revenue to be $2.06 billion in 2010, compared with the $1.84 billion in 2009, according to Thomson Reuters.

By and large, most analysts have revised their estimates upwards, crediting the company’s success in building traction this past year as well as its distinctive niche in the education sector. The company has differentiated itself by offering a broad range of degrees, from Ph.D.s to certificates. In addition, coursework is geared towards working adults rather than high school and college students. “Traditional schools don’t typically target working adults or trade-based programs, two areas Career Education focuses on,” stated Todd Young, an analyst at Morningstar Inc. who has raised his “fair value” estimate of the stock to $38 per share.

The stock market has reacted favorably to Career Education’s recent announcements, with the stock price steadily climbing from $23.31 to $28.41 year-to-date. The stock is close to its 52-week high of $29.44, far above its 52-week low of $17.94. Career Education stock sells at a lofty price-earnings ratio of 30.2, far above the 20.6 of Standard & Poor’s 500 Stocks.

Career Education has a three-pronged business model consisting of University, Career Focused and International segments. Reaching the company’s 2010 goals means focusing on the university and career segments. The University business is the largest of the three, focusing on technical and design training, whereas the Career Focused segment offers a heath business track which company officials say its the fastest growing institution.

For the Health Education track, the company opened seven new campuses in 2009 and hopes to venture into new markets by opening an additional six to eight new campuses in 2010. “The value of the healthcare business is about $600 million based on recent acquisition multiples, [and] the total operations combined could be valued at $2.7 billion — well above the current market cap of $1.9 billion,” stated Robert Craig, analyst at Stifel & Nicolaus. CFO Michael Graham said in an earnings teleconference last week that the company will spend $30 million in opening the new campuses.

Career Education has also outlined how it will manage its operational costs from 2010 to 2014. It plans to consolidate its Chicago-area real estate holdings and invest in educational services and facilities. Its bad debt ratio, which was 3 percent for 2009, will modestly increase due to growth in the culinary segment. “As of the end of December, we only have $44 million on our balance sheet of student loan balances, despite a 30 to 40 percent growth in population and starts on the Culinary business,” said Graham in the teleconference.

Some analysts worry about the company’s bad debt expense, especially since it will likely increase next year because the company is planning on providing internal lending to students. Bad debt has become a hot topic among for-profit educational companies, partly because credit markets have dried up in the recession and partly because of the Department of Education’s proposed “gainful employment” regulations on vocational programs. The provision states that graduates whose annual debt repayment loads exceed 8 percent of the average incomes in the field will lose eligibility to gain federal financial aid. The department reasons that for-profit institutions should be held to the debt-to-income limit to ensure they prepare students for jobs where they make enough income to repay their student loan debt in ten years. Many institutions, like Career Education, are considering taking on the debt themselves to avoid regulatory inefficiencies, which makes them financially more risky.

“While 2010 goals appear achievable, the longer-term target requires more optimistic assumptions than we can make with conviction…We remain concerned about the company’s vulnerability to gainful employment regulations given the high-priced tuition of some programs,” stated Susanne Stein, analyst at Morgan Stanley & Co. Inc, who remains “underweight” on Career Education stock.

Other analysts believe the regulations being drafted are still being revised and it’s too early to say what the impact of the decision will be on Career Education. The threat of increased debt does not bother some analysts who believe the company is in good financial health. “The company had less than $5 million in debt compared with $284 million in cash and cash equivalents and another $200 million in other investments,” stated Young.

Career Education hopes its bold new growth approach will position itself as an agile and scalable institution for the future. “The employee-focused approach has enabled us to reduce turnover by 68% since 2007 and it’s our collective student incentive approach coupled with the adaptability we have shown as an organization that are behind the strong financial performance we’re reporting,” CEO Gary McCullough said of the company’s strategy.

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Priceline.com Inc. stock rises 9.4 percent after huge profit gain in fourth quarter

Priceline's stock rose 9.4 percent after a dramatic increase in profits during its fourth quarter.

by Anjana Sundaram
February 18, 2010

William Shatner’s jingle seems to be working.

Priceline.com Inc. stock rose 9.4 percent Thursday after the company more than doubled its profits in the fourth quarter compared to a weak quarter a year ago, handily beating analyst expectations.

The Norwalk, Conn.-based company, which provides discount travel, hotel and rental car bookings, posted a profit of $78.5 million, or $1.55 per diluted share, more than double the $34.1 million, or 75 cents per diluted share, in the same period a year ago. The firm credited its big profit gain to growth in international operations and the global recession, which dragged down results in 2008.

Wall Street’s consensus estimate was for $1.50 per diluted share, according to Zacks Investment Research Inc.

Revenues in the fourth quarter increased by 33.4 percent to $541.8 million, from $406 million in the year-earlier quarter. International operations contributed $222.9 million to total revenues, a 75 percent increase from the year-earlier quarter.

“Worldwide gross travel bookings growth accelerated in the fourth quarter due to strong underlying fundamentals,” said Boyd in a statement.

Analysts were also bullish about the company after its strong earnings announcement.  “In addition to this remarkable revenue growth, Priceline kept its operating costs in check by decreasing offline advertising, sales and marketing expenses,” stated Warren Miller, analyst at Morningstar Inc. in a note.

“We view this strong performance as a clear sign that Priceline is continuing to execute its international growth plan, and we expect the firm’s profitability to continue to increase as a result of the fragmented international supplier industry.”

Looking forward, Priceline projects its first quarter 2010 net income to be between $1.04 and $1.14 per diluted share, compared with 53 cents per diluted share in the year-earlier quarter.  Analysts are estimating earnings per diluted share to be $1.26 for the first quarter and $9.68 for the full year, according to Zacks.

Priceline also expects its year-over-year revenue to increase by 23 percent to 27 percent in the first quarter. Analysts expect its revenues to grow by an average of 22.18 percent in the next quarter.

For the full year, Priceline more than doubled its earnings to $489.5 million, or $9.88 per diluted share, from $182.25 million, or $3.74 per diluted share, in 2008. Revenues increased 24 percent for the full year to $2.34 billion from 1.9 billion a year earlier.

Priceline’s stock closed at $232.95, up $20.08.

Planned job cuts in January rose to five-month high

Data from Challenger, Gray & Christmas Inc. Job-cut announcement report.

by Anjana Sundaram
February 23, 2010

Planned job cuts rose to a five-month high in January, according to outplacement firm Challenger, Gray & Christmas Inc. Employers surveyed by the Chicago firm announced plans to reduce headcount by 71,482 in January with retail and telecommunications sectors downsizing the most.

The layoff total in January marked a dramatic shift, spiking 59 percent higher than December. January’s figure was the largest monthly layoff total since August. The three main reasons for job cuts reported to Challenger were restructuring, cost-cutting and economic conditions.

“The increase in January is not necessarily a sign of a recession relapse. It is not uncommon to see a surge in job-cut announcements to begin the year,” said CEO John A. Challenger in a press release.

The silver lining is that the planned job cuts in January have actually declined 70 percent compared with the same month last year. The decline in job-cut totals this month was led by a decrease in losses from the retail sector.

“We are certainly starting 2010 on better footing than a year ago. The fact that January job cuts did not exceed 100,000 bodes well for much lighter downsizing this year,” Challenger said.

Richard Kaye, an economist at the Illinois Department of Employment Security, thinks the trends in Chicago employment may not necessarily follow the same patterns indicated in the report.  “That [Challenger report] mainly concerns large-scale job cuts. Employment in Chicago is characterized by a slow attrition. I don’t expect the attrition to worsen, but I do expect it to continue,” Kaye said.

Kaye also noted that while the report states telecommunications was one of the hardest hit sectors, Chicago has been more severely impacted by job losses in the manufacturing and construction sectors. In fact, according to a national employment report released Wednesday by ADP, the payroll processing company, construction employment dropped 37,000, marking the third straight year of monthly construction employment declines.

The Challenger report projects that layoffs will slow in spring and summer. “Many human resources professionals will be turning their focus from the workforce reduction strategies of a year ago towards workforce retention strategies,” Challenger said. 

The top two industries hiring for January are entertainment and government. The entertainment and leisure sector plans to fill 13,425 jobs, whereas the government and non-profit sector has 10,000 job openings.

In spite of earnings drop, Manpower stock is optimistic

Manpower Inc. stock price rose 4 percent Tuesday.

by Anjana Sundaram
February 02, 2010

Manpower Inc. stock rose 4 percent Tuesday as lower fourth-quarter earnings still beat downbeat analyst expectations.

The Milwaukee-based staffing company’s profit dropped by 62 percent to $29.1 million, or 37 cents per diluted share, in the quarter ended Dec. 31, compared with $76 million, or 97 cents per diluted share, in the year-earlier quarter. 

Wall Street’s consensus estimate was 24 cents per diluted share, according to Zacks Investment Research.

Manpower’s fourth quarter results included a $12.7 million pre-tax reorganization charge related to office closures and consolidations, as well as severance costs for laid-off workers. The charge reduced earnings by 5 cents per diluted share.

Revenues decreased by 4 percent, to $4.4 billion from $4.6 billion in the year-earlier quarter.

“Overall, the fourth quarter 2009 was still a difficult quarter for us. The trends, however, are encouraging as we move into 2010,” said CEO Jeffrey A. Joerres in a conference call.

Company officers announced they are in the process of acquiring Comsys IT Partners Inc., described as the third-largest technology staffing firm in the U.S. Manpower has agreed to offer $17.65 per share through a tender offer expected to start in March. The equity value of the deal is $378 million. Manpower is also assuming $53 million in debt.

“We are adding real scale and additional know-how to put us in the position of being one of the leaders in the IT, engineering, and accounting and finance sectors,” said Joerres in the conference call.

Kelly Flynn, analyst at Credit Suisse Group AG, increased Manpower’s target price from $59 to $63 after the earnings announcement. “Despite the uncertain near term earnings outlook, we think recent improvements in employment-related economic data will cause investors to afford MAN shares a higher peak earnings multiple than they have in recent quarters,” Flynn said in an analyst note released Wednesday.

Looking forward, Manpower said it projects first-quarter loss in the range of 5 to 15 cents per diluted share, compared with a loss of 62 cents in the year-earlier quarter. Analysts are estimating losses of 5 cents per share in the first quarter and $1.11 for all of 2010. 

But the company expects revenues to rise. “We are anticipating positive year-over-year revenue growth for the company as a whole, which is the first time since the third quarter of 2008,” said Joerres.

For the full year, Manpower lost $9.2 million, or 12 cents per diluted share, down from a profit of $205.5 million, or $2.58 per diluted share, in 2008. Sales decreased by 26 percent to $16 billion from $21.5 billion a year earlier.

Manpower’s stock closed at $55.17, up $2.01.

Chicago businesses give new Obama tax credit mixed reviews

by Ben Humphrey, Anjana Sundaram and Malathi Nayak,
Jan 28, 2010

The new tax break proposed by President Obama in Wednesday’s State of the Union address has garnered a mixed reaction from Chicago small business owners.  Many interviewed in an informal survey were enthusiastic about its potential benefits, but some expressed uncertainty in the absence of any details on how the program will work.

“From my perspective the biggest thing is payroll,” said Lisa Farrell, owner of Highland Park boutique Ooh La La.  “The [tax] credit would really help with that.”   

President Obama’s new tax credit would apply to more than one million small businesses that boost hiring or increase wages.  Although a broad outline of the tax credit was proposed by Obama in his speech, the White House has not set a specific date to release details. 

Jonathan Swain,  a Washington, D.C.-based spokesman for the  U.S. Small Business Administration said Thursday,  “We want to build on the success of last year’s [American Recovery and Reinvestment Act].  In the next two weeks we’ll learn more about it all.”

Meanwhile, many business owners are unsure of who will qualify for the tax break or how it will be structured. 

And, regardless of Obama’s tax credit proposal, a number of business owners don’t plan to hire workers or raise wages until other priorities are addressed. “First, I need capital to grow my business,” said Matthew Holowinski, 40, owner of Greenberg Rent A Car, located on Chicago’s Northwest Side. “I need to purchase cars so I can make more revenue…from the revenue I can hire more people.”

Some companies are still reeling from the economic downturn and are simply unable to add headcount in order to qualify for the credit. 

“Currently, my business is treading water,” said Byron Collins, owner of BDC Capital Enterprises LLC, located in north suburban Schaumburg.  “It’s tough keeping the doors open everyday, so I can’t see that as any kind of incentive.  Any tax break I received would be offset by what I’d spend hiring someone.” 

Obama’s plan would also expand small business loans by community banks using $30 billion of repaid Wall Street bailout money. It would eliminate capital gains taxes on small business investments and extend an expense policy allowing businesses to expense or immediately deduct initial investments in machinery or equipment.  The Stimulus Act of 2008 raised the program’s expensing limit to $250,000 from $100,000, but this extension expired at the end of last year.   

Despite the current ambiguity surrounding the program’s details, business owners like Holowinski said they are hoping for the best. “I am really counting on it. I hope it will go through, and we will be able to obtain the credit and move forward.”

DeVry’s profit soars 69 percent higher in second quarter

DeVry's stock price rose 13 percent today, after second quarter earnings beat analyst's expectations.

by Anjana Sundaram
January 27, 2010

DeVry Inc., a global for-profit provider of educational services, reported a sharp increase in profit during its second-quarter, handily beating Wall Street expectations.

DeVry’s profit increased 69 percent compared with the second quarter last year. DeVry earned a hefty $72.5 million, or $1.00 per diluted share, in the period ended Dec. 31, up from $42.9 million, or 59 cents per diluted share a year earlier. The positive results were attributed to growth in enrollment and retention in the schools DeVry operates. 

Analysts surveyed by Zack’s Investment Research Inc. projected earnings per share would come in at 83 cents for the current quarter.

Sales also rose from $370 million to a record $473 million, a 28 percent increase from the year-earlier quarter. The strong sales were attributed to acquisitions made during the past year. The sales from the business, technology and management segment, which comprise nearly 66 percent of total revenue, rose by 26 percent compared to the year-earlier quarter. The medical and healthcare segment, which comprises about a quarter of total revenue, increased by 28.4 percent in the same period. However, the sales from the professional education segment, which comprise only 4 percent of total revenue decreased 6.3 percent compared to the year-earlier quarter.

“Earnings per share were $1 in the quarter, marking the first time we’ve broken through the dollar threshold,” Rick Gunst, chief financial officer said Tuesday in the conference call. Of DeVry’s record sales, he said, “This is primarily organic growth.”

CEO Daniel Hamburger announced that DeVry plans to invest more than $100 million this year in capital expenditures for program services and facilities to aid long-term growth. DeVry’s long-term financial objective is to grow earnings by roughly 20 percent per year. “Our strong first half performance puts us in a position to exceed this goal as we believe earnings will continue to grow in excess of 20 percent over the balance of this fiscal year,” Gunst said.

“We always expected DeVry to see significant improvement in its profitability, especially for the BT&M [Business, Technology and Management] segment,” said Morningstar Inc. analyst Todd Young in an analyst’s report released Wednesday.  But he added, “We did not anticipate seeing this level of improvement so quickly, and our margin forecasts look too conservative in light of recent results.”

Analysts’ third-quarter earnings estimate is 93 cents per diluted share and $3.23 for all of 2010.

Earnings for the first half ended Dec. 31 increased by 64 percent to $904 million, from $673 million in the same six-month period last year. Diluted earnings per share rose from $1.07 to $1.76.

Six-month revenues increased by 34 percent, from $673 million to $904 million compared with the same period last year.

DeVry shares rose 13 percent, closing at $63.32, up $7.15.