Continuing to ride a wave of improvement in its credit card business, Sears, Roebuck and Co. reported a strong third-quarter performance Thursday, but the retail giant also warned that profits in the critical fourth quarter could fall below last year’s.
The nation’s second-largest retailer, after Wal-Mart, said its third-quarter net income rose nearly 18 percent, to $278 million, or 81 cents per diluted share, exceeding analysts’ expectations, as tracked by First Call/Thomson Financial, by a penny.
Revenue rose 4.7 percent, to $9.63 billion, as domestic same-store sales rose by 3.5 percent and Sears Canada revenue rose 6.9 percent.
Although clothing sales remained sluggish, Sears shoppers loaded up on home appliances, consumer electronics and sporting goods, company executives said. The strong showing comes at a time when once-hot retailers such as Gap Inc. and Eddie Bauer are floundering.
Last year, Sears’ results were hurt by a one-time charge of $29 million, or 7 cents a share, related to layoffs at its Hoffman Estates headquarters and the exit from some automotive retail markets.
Sears’ third-quarter earnings per share soared 31 percent, from 62 cents per share, fueled by an aggressive stock buyback program that reduced the number of outstanding shares by 11 percent from a year earlier. Excluding the charge, year-earlier earnings were 69 cents a share.
Alan Lacy, Sears’ incoming chief executive, told analysts the retailer still believes it can meet its plan of growing 2000 earnings per share by a percentage in the low- to midteens.
But he added, “Given our strong performance year-to-date, this implies the potential for a down fourth quarter.” Last year, Sears posted record fourth-quarter earnings as it cut back on sale promotions to boost its bottom line even as revenue declined.
Investors reacted badly to the outlook, with Sears’ stock falling $2.34 a share, or 7 percent, to close at $30.86 on the New York Stock Exchange.
Sears said it is still expecting a strong retail showing in the fourth quarter as it moves to capitalize on Circuit City’s exit from the appliance business.
Lacy promised that Sears plans to be more aggressive in holding sales events this December. Still, he warned that the credit business, which has fueled Sears’ earnings recovery in recent quarters because of lower provisions for bad debt, would likely fare worse in the fourth quarter as delinquencies began to creep up again.
For the first nine months, Sears reported net income rose 26 percent, to $901 million, or $2.57 per diluted share. Earnings per share increased by 38.2 percent, from $1.86 per share. Excluding the year-earlier charge, earnings per share rose 33 percent, from $1.93.
Revenue rose 4.3 percent, to $28.68 billion.
In other results:
– A big drop in catastrophe losses helped Allstate Corp. report a 31 percent jump in third-quarter earnings.
The Northbrook insurer had net income of $644 million, or 87 cents a diluted share, up solidly from the year-ago quarter’s $490 million, or 62 cents a share, when more shares were outstanding.
Allstate’s revenue rose 13.6 percent, to $7.44 billion from $6.55 billion.
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Allstate’s net results included $129 million in realized gains from investments, up from $99 million a year earlier.
Operating income, which excludes investment gains but includes a $12 million after-tax restructuring charge in the most recent quarter, was $525 million, or 71 cents a diluted share, up 31 percent from $401 million, or 51 cents a share.
In the latest quarter, catastrophe losses trimmed earnings by a modest $62 million, or 9 cents a share, versus the year-earlier quarter’s $172 million, or 22 cents a share.
Allstate’s results topped Wall Street’s expectations by 2 cents a share. Shares climbed $2.25, or 6.9 percent, to $34.94, on the NYSE.
– Oak Brook-based McDonald’s Corp. said third-quarter net income rose 1 percent, meeting analysts’ expectations.
The fast-food giant reported net income of $548.5 million, or 41 cents a diluted share, up from $540.9 million, or 39 cents a diluted share, a year earlier. Revenue rose 9 percent, to $3.75 billion from $3.44 billion. Systemwide sales rose 5 percent, to $10.5 billion from $10.0 billion. U.S. sales rose 4 percent, to $5.05 billion, because of expansion and higher same-store sales.
For the nine months, McDonald’s net income rose 4 percent, to $1.52 billion, or $1.12 a diluted share, from $1.46 billion, or $1.04 a share. Revenue rose 8 percent, to $10.65 billion from $9.89 billion; systemwide sales climbed 5 percent, to $30.3 billion from $28.7 billion. U.S. sales for the nine months rose 3 percent, to $14.7 billion.
– Chicago-based Quaker Oats Co. reported third-quarter net income rose 16 percent. Quaker reported net income of $159.2 million, or $1.15 a diluted share, up from $137.3 million, or 98 cents a share, a year earlier. The year-earlier period included one-time items of $3.8 million, or 3 cents a share.
The results exceeded analysts’ expectations of $1.11 per share. Revenue rose 7 percent, to $1.5 billion from $1.4 billion.
For the nine months, Quaker’s earnings fell 27 percent, to $312.1 million, or $2.26 a share, from $396 million, or $2.81 a share. Excluding one-time items, Quaker had income of $3.03 a share, up from $2.47 a share. Revenue rose 7 percent, to $4.04 billion from $3.78 billion.
Robert Morrison, Quaker Oats chairman and chief executive, attributed a large portion of the sales growth to its popular sports drink, Gatorade, and grain-based snacks.
– FMC Corp.’s operating earnings firmed in the third quarter, but a hefty charge linked to a recent legal settlement pushed the Chicago company into the red.
The machinery- and chemicals-maker reported a net loss of $10.2 million, or 32 cents a diluted share, compared with the year-ago quarter’s net income of $64.1 million, or $1.98 a share.
Sales slipped to $919.2 million, from $1.03 billion last year.
Net results for the latest quarter were blighted by an after-tax charge of $66.7 million, almost all of it linked to FMC’s recent $80 million settlement of a longstanding legal dispute, which amounted to $65 million after taxes; the year-ago period also had restructuring charges and other items.
Excluding such special items, FMC said, earnings would have risen 31 percent, to $56.5 million, or $1.79 a share, from last year’s $43.1 million, or $1.33 a share.
FMC’s operating earnings topped analyst estimates by 2 cents a share; shares rose $1, to $67.50, on the NYSE.
– Boosted by strong sales of larger boats and fitness products, Brunswick Corp. said third-quarter earnings from continuing operations rose 12 percent.
Excluding unusual items, the Lake Forest-based maker of pleasure boats, marine engines and exercise and bowling equipment had earnings from continuing operations of $57.7 million, or 66 per diluted share, for the quarter, up from $51.5 million, or 55 cents per diluted share, a year earlier. Analysts had expected earnings of 60 cents a share, according to First Call.
Including losses from discontinued operations of $110 million in the most recent quarter–up from $3 million a year earlier–and other unusual items, Brunswick had a net loss of $92.3 million, or $1.05 per share, compared with net income of $17.8 million, or 19 cents per share, a year earlier.
Revenue rose 9 percent, to $939.1 million from $861.9 million.
– Fortune Brands Inc. , maker of Jim Beam bourbon, Moen faucets and Titleist golf balls, reported a 52 percent rise in third-quarter profits with results buoyed by strong demand for kitchen and bath products and spirits.
The company also projected “solid double-digit earnings per share growth” for the full year.
Net income was $73.3 million, or 46 cents a diluted share, up from $48.2 million, or 28 cents a share, a year earlier. The most recent quarter had pretax restructuring and other one-time items of $12.3 million; they totaled $37.5 million a year earlier.
Excluding one-time items, income from operations was 51 cents a share, matching analysts’ forecasts, up from 42 cents a year ago.
Revenue rose 4 percent, to a record $1.40 billion from $1.34 billion.
– Diamond Technology Partners Inc., a Chicago-based Internet consulting company, reported that its fiscal second-quarter net income increased 131 percent, to $8.35 million, or 28 cents per diluted share, from $3.62 million, or 14 cents per share, a year earlier, when fewer shares were outstanding.
The company beat analysts’ expectations of 26 cents per share, according to First Call.
The company said revenue increased 96 percent, to $59.9 million from $30.5 million.
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– USG Corp., the Chicago-based manufacturer of gypsum products, reported third-quarter net income fell 44 percent, to $65 million, or $1.48 a diluted share, from $116 million, or $2.32 a share, a year earlier. Revenue fell 6 percent, to $895 million from $952 million.
The company cited lower prices for gypsum wallboard, and higher energy and raw materials costs.
For the nine months, the company reported net income fell 14 percent, to $264 million, or $5.66 a share, from $306 million, or $6.09 a share, a year earlier. Revenue rose 4 percent, to $2.77 billion from $2.67 billion.