Earnings Reports for Oct. 23

Lucent Ousts Chairman as Profits Fall

Lucent Technologies fired Chairman and Chief Executive Rich McGinn today, posted a 22-percent drop in fourth-quarter profits, and slashed its sales and profit outlook for the first quarter of 2001.

McGinn’s ouster follows several quarters of disappointing profits at the world’s largest telecommunications equipment maker, as well as manufacturing constraints and late introductions of new optical-networking products.

Lucent said its fourth-quarter profits from continuing operations fell to $600 million, or 18 cents a share, down from $768 million, or 24 cents a share a year ago. Revenues for the quarter, which ended Sept 30, rose 14.6 percent to $9.4 billion, up from $8.2 billion.

The results were in line with Wall Street analysts’ reduced expectations of 17 cents a share, according to research firm First Call/Thomson Financial.

Lucent’s problems have been widespread. It cut its growth forecasts four times this year, fell behind rivals Nortel Networks Corp. and Cisco Systems Inc. in introducing new products, and failed to keep up with booming customer demand for optical networking products.

The stock has fallen about 70 percent so far this year, erasing about $180 billion in market value. The stock closed at $22-1/16, down 9/16, on the New York Stock Exchange.

Murray Hill, N.J.-based Lucent cited several reason for its disappointing fourth-quarter performance. Its sales and gross margins in the optical business were lower than expected, due primarily to the late development of new products.

Sales of its traditional telephone switching products were lower than expected. It also faced pricing pressure in its key product areas, including optical, switching and wireless, Lucent’s Chief Financial Officer Deborah Hopkins said.

Lucent’s board decided on Sunday to fire McGinn after it became clear that the problems would linger into 2001, pushing its revenues down 7 percent and wiping out any hopes of a profit in the first fiscal quarter ending Dec. 31.

Analysts had expected the company to post a profit of 23 cents a share in the first quarter, compared with 33 cents a year ago. Lucent expects results from operations will improve sequentially each quarter for the rest of fiscal 2001, but it did not provide specifics.

Tom Lauria, an analyst with ING Barings, said he was surprised by the extent of the company’s expected first-quarter profit shortfall. “How do you have zero profit on $8 billion in revenues?” Lauria asked.

Lucent also warned that it does not expect a significant increase in sales of its optical products. Its weak performance comes even as the rest of the industry has experienced the biggest boom in demand for optical and data networking equipment.

Some analysts speculated that Lucent had lower sales to key customers such as its former parent company AT&T Corp., which may have turned to other manufacturers.

AT&T bought about $4 billion in equipment and services last year, representing about 13 percent of Lucent’s revenues. This year, sales to AT&T may drop to about $3 billion, or about 10 percent of Lucent’s total sales, Lauria said.

Rumours of McGinn’s demise have swirled for months. Lucent has been working to rebuild investor confidence, catch up to rivals, and restructure operations. Although McGinn had said the company’s problems were “fixable,” investors and analysts had said a bold management shake-up was needed.

In addition to firing McGinn, Lucent needs to cut about 12,000 workers, or about 10 percent of its workforce, reduce its product-development times, and boost its manufacturing capacity, analysts said.

Lucent said it may cut some workers, but it declined to provide specifics. In an effort to stop the streak of profit shortfalls, Lucent is reviewing its product portfolio, realigning marketing and sales resources, improving supply chain management, and adding a new customer ordering system.

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3M’s Profits Rise on Solid Sales

Minnesota Mining and Manufacturing, the diversified manufacturer better known as 3M, said today its third-quarter net income climbed 8 percent, beating the average analyst forecast by a penny, helped by solid sales growth in Asia.

The maker of products ranging from Post-It Notes to telecommunications equipment also said it expects to meet earnings expectations for the fourth quarter and next year.

The St. Paul, Minnesota-based conglomerate said it earned $499 million, or $1.25 diluted per share, in the quarter ended Sept. 30, compared with $462 million, or $1.14 a diluted share, in the same period a year ago.

Analysts on average had expected 3M to earn $1.24 a share, according to First Call/Thomson Financial, which tracks earnings data.

“3M continues to deliver solid, top-line-driven earnings growth,” L.D. DeSimone, 3M chairman and chief executive, said in a statement.

Third-quarter net sales rose 6.4 percent to $4.25 billion.

The company said sales momentum was particularly strong in the Asia Pacific region, where it continues to expand its product offerings.

However, currency translation reduced global sales by 3 percent.

The company said its strong international presence, flow of new products and diversified portfolio helped to cushion it from disruptions in any single market or region.

“We’re confident in our ability to continue to deliver solid, consistent earnings growth,” DeSimone said.

The manufacturer’s range of products spans medical equipment, pharmaceuticals and electronics to such familiar consumer brands as Scotch tape and O-Cel-O sponges. BACK TO TOP

Corning More than Doubles Earnings

Fiber optics maker Corning said today its third-quarter profits more than doubled amid surging demand for optical fiber and components used in communications networks, and that it expects earnings to grow about 25 percent next year.

Corning’s third-quarter pro forma earnings rose to $317 million, or 35 cents a share, compared with $148.1 million, or 19 cents a share, a year ago.

Earlier this month Corning said it expected earnings in the range of 34-35 cents a share. Analysts had expected the company to earn 34 cents a share, according to research firm First Call/Thomson Financial.

Including one-time items, Corning’s net income totaled $254 million, or 28 cents a share, compared with $142 million, or 18 cents a share a year ago.

Revenues rose 54 percent to $1.9 billion, compared with $1.25 billion a year ago. Excluding the impact of acquisitions, sales increased 37 percent.

The Corning, N.Y.-based company said its solid third-quarter performance was driven by strong demand for high-data-rate optical fiber and cable, optical amplifiers, and flat-panel display glass. Sales of photonic technologies grew 113 percent, led by optical amplifier demand.

Optical fiber and components allow information to be sent across glass cables using beams of light. Fiber optics allow more data to be sent at faster speeds than traditional copper networks.

Corning and rivals such as JDS Uniphase and Nortel Networks have benefited from the surging demand for optical fiber as telephone and Internet companies race to upgrade their networks to handle increasing amounts of data, voice and video traffic.

Due to this booming demand, Corning recently raised its growth outlook for 2000. It reiterated on Monday that it expects full-year pro forma earnings per share in the range of $1.15 to $1.17, an increase of about 70 percent over last year’s earnings of 67 cents a share.

It also expects its 2001 growth to exceed Wall Street expectations.

“We believe our key growth businesses will lead the way for strong revenue and earnings growth throughout 2001. Consistent with our long-term growth objectives, we expect earnings to grow next year at a rate of about 25 percent,” said Corning Chairman Roger Ackerman.

Its pending acquisition of Pirelli SpA’s optical-components business will dampen growth by somewhat less than 5 percent, resulting in expected 2001 pro forma earnings per share in the range of $1.40 to $1.43.

Analysts currently expect Corning to earn $1.38 a share, compared with $1.17 a share in 2001, according to First Call/Thomson Financial.

Last month Corning said it would acquire a 90 percent stake in optical components maker Optical Technologies from Italian cable and tire company Pirelli SpA for $3.6 billion in an effort to expand its product mix.

The deal will give Corning gets access to new products such as speciality fibers, which manage light signals as they travel across networks, or fiber gratings, which help manipulate or redirect light wavelengths. The equipment helps glass fiber networks carry more data at faster speeds.

Separately, communications Level 3 Communications Inc. said Corning will be its worldwide supplier of optical fiber and cable for at least the next four years and will supply more than 10 million kilometers of fiber.

Under the agreement, Level 3 and Corning will cooperatively research, develop and deploy new and more cost effective generations of optical fiber.

The deal builds on the two companies existing relationship. In August, Corning agreed to supply more than 2 million kilometres of an enhanced generation optical fiber.

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SBC’s Earnings Fall

Local telephone company SBC Communications said today its third-quarter operating profits fell 0.7 percent but beat Wall Street expectations as results were driven by strong growth in wireless and data operations.

San Antonio-based SBC’s third-quarter profits, excluding one-time items, fell to $1.96 billion, or 57 cents a share, compared with $1.97 billion, or 57 cents a share, a year ago. The results beat analysts’ consensus estimate of 56 cents a share, according to research firm First Call/Thomson Financial.

Including one-time items, SBC’s profits were $3 billion, or 88 cents a share, compared with $1.1 billion, or 33 cents a share, a year ago. Revenues rose 8 percent to $13.5 billion.

SBC, which has 53 million customers from Ohio to California, said its data revenues increased 46.1 percent to $2 billion. Wireless subscriber revenues jumped 20 percent to $1.7 billion as it added 486,000 subscribers in the quarter. SBC added 117,000 digital subscriber line (DSL) subscribers, bringing the total to 516,000.

“We are confident in our ability to deliver our targeted double-digit revenue growth and mid-teens earnings growth beginning in 2001,” Chairman and Chief Executive Edward Whitacre said.

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Radio Shack’s Profits Jump 29 Percent

Consumer electronics retailer Radio Shack reported today a 29 percent increase in third-quarter earnings that beat Wall Street forecasts, as sales of digital products such as wireless phones helped results.

Net income in the third quarter ended September 30 rose to $77.1 million, or 39 cents a diluted share, compared with $59.8 million, or 29 cents, in the same quarter a year ago.

Analysts on average had expected the Fort Worth, Texas-based retailer to report a third-quarter profit of 38 cents a share, according to First Call/Thomson Financial.

RadioShack, which has more than 7,100 stores and dealers, reported sales of $1.14 billion, up from $960.3 million in the year-ago quarter.

“All year long, consumer demand for digital products has driven RadioShack’s business, enabling us to achieve solid top line and bottom line growth in all three quarters of the year,” Leonard Roberts, chairman, president and chief executive of RadioShack, said in a statement.

RadioShack is faring better than rival Circuit City Stores, which warned on Friday of a third-quarter loss due to a significant decline in sales during the past four weeks.

Analysts said that although consumer electronics sales have slowed from last year’s pace, Circuit City’s problems are exacerbated by the fact that the chain is undergoing an ambitious three-year plan to remodel all of its stores, a process that can disrupt store traffic.

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American Express Meets Expectations

Financial services company American Express said today its third-quarter profits rose 14 percent, as its customers all over the world spent more money with their charge cards.

The New York-based company, known for its signature green charge cards and travelers checks, earned $737 million, or 54 cents per diluted share, in the quarter, compared with $648 million, or 47 cents, a year ago.

Wall Street had expected American Express to earn 54 cents a share, according to a consensus of analysts’ estimates compiled by tracking service First Call/Thomson Financial.

American Express’s profits rose as it gained new customers, its cardholders rang up larger shopping bills on their charge and credit cards, and more retailers accepted the cards.

Consumers continue to spend even as the U.S. Federal Reserve put brakes on fast-paced U.S. economic growth through six interest rate increases between June last year and May this year.

The credit card industry also has become slightly less competitive lately, as big players like Chicago-based Bank One have been sidelined by internal troubles.

American Express customers charged about 6 percent more on their credit cards in the third quarter than they did in the prior-year period. Card-holders charged an average of $2,041 each in the quarter, up from $1,935 a year ago.

The number of its cards in circulation rose to 50.4 million from 44.8 million in the quarter.

The company’s revenues rose to $5.55 billion in the third quarter from $4.92 billion last year. Its total billed business rose to $74.8 billion, up from $64.1 billion a year ago.

At its travel-related services unit, which includes its charge card business, American Express earned a record $507 million in the quarter, up 14 percent from a year ago. Card rewards program encouraged spending, and expanded merchant acceptance of its cards also helped, the company said.

Its Minneapolis-based investment advisory arm, American Express Financial Advisers, reported $269 million in profits, up 12 percent from last year. An increase in assets under management boosted fee revenues, American Express said. BACK TO TOP

Analysts on average had estimated the company — which said on Sept. 28 it would divest its Clairol beauty products unit and its Zimmer orthopedic device division in the next six to 12 months — would earn 61 cents per share, according to First Call/Thomson Financial.

The company said total pharmaceutical sales for the period rose 12 percent to $3.6 billion, driven by an 18 percent jump in U.S. prescription drug sales. Pravachol sales climbed 16 percent to $446 million, breaking out of a trend in recent quarters of relatively flat growth. Sales of Glucophage rose 25 percent to $435 million, while sales of its Taxol drug for breast cancer rose 11 percent to $417 million.

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EBay Surpasses Estimates

The popular Internet auction site eBay Inc. reported third quarter earnings that surpassed Wall Street expectations.

The San Jose-based company earned $15.2 million, or 5 cents per share, for the three months ended Sept. 30, compared with $1.2 million, or 1 cent per share, in the same period last year.

The earnings consensus of analysts polled by First Call/Thomson Financial was 4 cents per share.

During a conference call with analysts, eBay executives said they expected eBay’s robust growth to continue in the months ahead.

The company said it is comfortable with Wall Street’s expectation for a fourth quarter profit of 6 cents per share and forecast 2001 revenue of $630 million, roughly 50 percent higher than the projected amount for this year.

EBay is promising $3 billion in annual revenues by 2005.

“The best has yet to come,” eBay CEO Meg Whitman told analysts.

In the third quarter, eBay’s revenues totaled $113.4 million, a 94 percent improvement from $58.5 million in the prior year.

Through the first nine months of the year, eBay earned $24.4 million, or 9 cents per share, on revenue of $297.4 million. That compared to a profit of $5.8 million, or 2 cents per share, on revenue of $150.8 million in the comparable 1999 period.

EBay’s growth is being propelled by its steadily growing population of online traders. As of Sept. 30, eBay boasted 18.9 million registered users, up from 16 million as of June 30 and a 146 percent increase from the 7.7 million users signed up for the auction service in September 1999.

The service has become so pervasive that the eBay has become a piece of popular culture, getting almost daily mention in a wide range of media, from specialty publications to prime-time network TV dramas. eBay is now negotiating to broadcast its own TV show.

Perhaps the biggest danger facing eBay is that people will become bored with online auctions, warned Prudential Securities analyst Mark J. Rowen in a recently released report.

“While early indications appear to signal that the online auction format is here to stay, it is possible that in hindsight, we will view it as a passing fad,” Rowen wrote.

Rowen doubts that will happen though. He is recommending that investors buy the stock with a price target of $125.

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Eli Lilly’s Net Income Up 15% Pharmaceutical giant Eli Lilly, whose stock tumbled in August after it lost a patent battle over its antidepressant Prozac, reported today a 15 percent rise in third-quarter net income on strong sales of drugs for schizophrenia, cancer and osteoporosis.

The Indianapolis-based company said net income rose to $778.8 million, or 71 cents per diluted share, excluding a one-time gain.

Analysts on average had predicted Lilly would earn 71 cents per share, according to First Call/Thomson Financial. The company said on Aug. 9 that it expects single-digit earnings growth in 2001 and 2002, primarily because of a court ruling that would trigger expiration of patent protection over Prozac in mid-2001, opening the way to generic competition.

Lilly reported a 9 percent increase in third-quarter revenues, to $2.812 billion, led by sales of the schizophrenia drug Zyprexa, the cancer drug Gemzar, and the osteoporosis drug Evista. Separately, Sepracor said Lilly had terminated a licensing deal involving the drug R-fluoxetine, closely related to the active ingredient in Prozac, and had returned the rights to the product to Sepracor.

Shares of Lilly, which were trading at a year high of $108-15/16 in August before falling 31 percent on a federal judge’s ruling on Prozac, closed at $89-1/4 Wednesday on the New York Stock Exchange. Lilly’s 52-week low is $54.

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Equifax Up 11% on Revenue

Equifax, a provider of consumer credit information, said today third-quarter net income rose 11 percent as revenues from payment services increased.

Equifax reported net income of $64.3 million, or 47 cents per diluted share, compared with $58.1 million, or 42 cents, in the year-earlier period. The results edged ahead of analysts’ average expectations of 46 cents a share, according to market research firm First Call/Thomson Financial.

Total revenues rose 17 percent to $517.9 million. North American payment services revenues rose 11 percent to $194.2 million.

Equifax, which on Oct. 2 said it would spin off its payment services division to shareholders, also said it has sold its collection services businesses in the United States, Canada and England for about $150 million. The company said it will use the net cash proceeds of the deal, about $100 million, to pay down debt.

Equifax said it sold the U.S. unit of Equifax Risk Management Services to Atlanta-based Risk Management Alternatives Parent Inc. IntelliRisk Management Corp., based in Columbus, Ohio, bought the Canadian and British operations, Equifax said. BACK TO TOP

First Union Tops Estimates

First Union, the No. 6 U.S. bank holding company, said today its third-quarter profits rose 6 percent, topping estimates, as it turns around its operations after prior unwieldy acquisitions.

The Charlotte, N.C.-based bank, which has about $260 billion in assets and more than 2,200 branches, earned $852 million, or 86 cents a diluted share in the quarter, compared with $802 million, or 84 cents a share, a year ago. Excluding gains and restructuring charges, the company earned $702 million, or 71 cents a share, in the quarter.

Wall Street had expected the bank to earn 69 cents a share in the quarter, according to First Call/Thomson Financial, which tracks analysts’ consensus earnings forecasts.

First Union is in the midst of a $3 billion restructuring plan, announced at the end of June, to revive revenue growth after troubles integrating a string of acquisitions. Its stock has tumbled about 40 percent from its 52-week high of $44-5/16 hit last November.

Many U.S. regional banks face slower revenue growth after a series of interest rate increases that have put pressure on lending profits. Higher rates make it more costly for banks to borrow to fund loans and sometimes make borrowers default.

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UAL Posts $64 Million Loss

UAL, parent of United Airlines, the world’s largest airline, said today it lost a greater-than-expected $64 million in the third quarter, before one-time items, as flight cancellations, delays and higher costs for jet fuel and wages hurt results.

Chicago-based UAL said the $64 million loss amounted to $1.29 a share, compared with a profit of $359 million, or $2.89 a share, a year earlier. The last time the company lost money was in 1993.

Analysts on average had forecast a loss of 54 cents, according to First Call/Thomson Financial, with estimates ranging from a loss of $1.15 to a loss of 20 cents.

Including a loss on warrants the company owns in Priceline.com, a charge for planned early retirement of four leased aircraft and a loss associated with the early retirement of debt, UAL lost $116 million, or $2.30 a share.

Revenues rose 1.2 percent to $4.91 billion from $4.85 billion a year earlier.

UAL, which has agreed to acquire US Airways Group Inc. for $4.3 billion, had warned twice during the third quarter that its results would fall short of analysts’ earnings forecasts for the second half of the year. Prior to the last warning in September, analysts had expected the company to earn 97 cents a share for the quarter.

UAL said reduced capacity levels to address operational problems will continue to hurt its fourth-quarter performance. Additional costs from its new pilot contract, expected to be ratified this month, and from other labor contracts being negotiated and higher fuel prices, will likely cause it to lose money in the fourth quarter, the company said. BACK TO TOP

E*Trade Profitable in Q4

E*Trade, the No. 2 U.S. Internet broker, posted today a quarterly profit compared to a loss in the year-ago period as it sold investment assets and kept a lid on advertising spending.

The Menlo Park, Calif.-based company, which has 3.3 million customers, reported a net profit of $47.7 million, or 15 cents per share, for the fiscal fourth quarter ended Sept 30. That compared with a net loss of $28.0 million, or a loss of 10 cents per share, in the same period last year. Net revenue rose 76 percent to $340 million.

Excluding merger costs and other items, E*Trade posted a profit of $7.2 million, or 2 cents per share. The operating results beat Wall Street’s lowered expectations calling for the brokerage to break even with zero cents per share. Analysts have cut their profit forecasts for Web brokers because of a decline in the Nasdaq stock market and an estimated 10 percent drop in share trading volumes during the quarter.

E*Trade opened 337,000 new brokerage and banking accounts in the period, similar to the 340,000 accounts it opened a year-ago and the 330,000 it opened in the fiscal third quarter. The company spent $91.8 million on advertising and marketing in the quarter, up a nominal 5 percent from $87.0 million last year, but sharply lower than the $115 million it spent in the fiscal third quarter.

The company said it processed an average of 150,000 trades per day during the period, up 84 percent from 81,000 in the year-ago period but down from 169,000 last quarter. Total customer assets more than doubled to $66 billion from $28 billion a year ago, helped by E*Trade’s purchase of the brokerage accounts of Wit Capital.

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McDonald’s In Line with Estimates

No. 1 restaurant company McDonald’s said today its third-quarter profit rose 1 percent, meeting expectations, as a weakened euro continued to hurt results.

The global fast-food restaurant chain said its net income rose to $548.5 million, or 41 cents a share, from $540.9 million, or 39 cents, in the year-earlier period.

On average, analysts polled by research firm First Call/Thomson Financial had expected earnings of 41 cents a share.

Sales at the company’s systemwide restaurants, which include company-operated and franchised units, rose to $10.512 billion from $9.998 billion in 1999.

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Sluggish Sales Cost Hasbro Hasbro, the No. 2 U.S. toy maker, reported today that its profits fell 84 percent due to sluggish sales and mounting losses in its interactive operations.

Hasbro said net income fell to $13.8 million, or 8 cents a diluted share, compared with $85.2 million, or 43 cents, for the same quarter a year ago.

Analysts lowered their expectations to 7 cents a share for the quarter, according to market research firm First Call/Thomson Financial. Hasbro warned last week that its performance would fall well short of previous estimates largely because of a sharp slowdown in sales of Pokemon and Star Wars products. It also said it was slashing its work force by about 5 percent.

Worldwide net revenues dropped to $1.07 billion from $1.10 billion in the year-ago period.

“Even with challenging comparisons against last year’s record results, I’m not pleased with our third-quarter performance,” Hasbro Chairman Alan Hassenfeld said in a statement.

Hasbro’s most recent outlook for full-year 2000 earnings per share was 40 cents to 50 cents, before $140 million to $170 million in pretax charges.

Hassenfeld said the company was evaluating the fourth quarter before providing a revenue and earnings outlook for 2001.

Earnings in the third-quarter included a pretax loss of $6 million from Internet games operation Games.com. Its interactive division did not live up to already-reduced expectations, and Hasbro said last week it was exploring strategic alternatives for the business.

Pokemon toy demand in the U.S. was soft, but strong internationally, the company said. Revenues from Star Wars toys are expected to be minimal in 2000.

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U.S. Bancorp Meets Estimates

Regional bank U.S. Bancorp said today its third-quarter operating earnings rose 0.5 percent, in line with expectations, as loan volume increased but expenses did too.

Minneapolis-based U.S. Bancorp, which this month announced it was being bought by rival Firstar Corp. in a stock deal worth almost $20 billion, earned $410.9 million, or 55 cents a diluted share, in the third quarter, excluding one-time merger charges and profits from securities sales. That compares with $409 million, or 56 cents a share, in the year-earlier period.

Results met Wall Street forecasts of 55 cents a share, according to market research firm First Call/Thomson Financial.

The bank’s net profits, including $9.6 million in merger charges and one-time securities transactions, rose to $401.3 million, or 54 cents per share, from $396.4 million, also 54 cents per share.

U.S. Bancorp’s provision for loan losses in the third quarter rose 22 percent to $173 million. Net interest income, which includes the profit the bank makes from loans, rose 4.5 percent to $883 million as loan volume continued to grow despite higher interest rates.

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Quaker Oats Q3 Profit Up 16%

Quaker Oats, maker of hot and cold cereals, said today its third-quarter earnings rose 16 percent, beating the average analyst forecast, on continued robust demand for its Gatorade sports drink.

The company also said it expects full-year 2000 earnings per share growth before items in the range of 20 percent or slightly better.

The Chicago-based food company, whose stable of products includes breakfast bars, Rice-A-Roni side dishes and Aunt Jemima pancake mixes and syrup, said earnings rose to $159.2 million, or $1.15 per diluted share, in the quarter. That compares with $137.3 million, or $1.01 a diluted share, excluding unusual items in the same period a year ago.

Analysts on average had expected the company to earn $1.11 a share, according to First Call/Thomson Financial, which tracks earnings data.

Third-quarter net sales rose to $1.48 billion from $1.38 billion a year ago.

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Gillette’s Profits Fall; Names New CEO

Gillette today reported its third-quarter earnings fell 1 percent, meeting Wall Street’s estimates, as currency problems plagued the consumer products giant.

The Boston-based maker of razors and blades, Oral B toothbrushes and Duracell batteries, also said Chairman and Chief Executive Michael Hawley was retiring immediately. Edward Degraan was named acting chief executive and Richard Pivirotto was named non-executive chairman of the board.

Gillette posted third-quarter earnings of $350 million, or 33 cents a share, from continuing operations, compared with earnings of $355 million, or 32 cents per diluted share for the same period in 1999.

Analysts surveyed by First Call/Thomson Financial had estimated Gillette would earn 33 cents a share in the third quarter.

The company has had a string of disappointing earnings reports dating back to 1999, blaming a combination of foreign exchange rates and proper inventory stocking.

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AHP’s Profits Rise 18% Before Charge

American Home Products posted today a steep rise in quarterly operating profits, matching analyst expectations, but the No. 5 U.S. drug maker said it would have to set aside additional funds for its diet drug settlement for which it has already paid billions in the “fen-phen” case.

The Madison, N.J.-based maker of Advil, Robitussin and the oestrogen replacement drug Premarin reported net income of $762 million, or 58 cents per share, in the third quarter vs. a net loss of $2.87 billion, or $2.20 cents, in the year-ago period.

The year-ago loss mainly reflected a $4.75 billion litigation charge for a settlement related to the diet drugs Redux and Pondimin. Excluding this charge from the 1999 third-quarter results, income from continuing operations in the latest quarter increased 18 percent to $762 million from $645 million.

Analysts on average had estimated that the company, whose Wyeth-Ayerst unit will pay the U.S. government $30 million for violations at two plants, would post earnings of 58 cents per share, according to research firm First Call/Thomson Financial.

Looking forward, AHP said it expects additional reserves will be required in the diet drug settlement. It said that though it is still unclear how much that will amount to, AHP expects it to be lower than the $4.75 billion recorded in the 1999 third quarter.

A spokesman for the company declined to specify a range of the amount of reserves that would be used.

Patients typically combined either Pondimin or Redux with another diet suppressant called phentermine to make the “fen-phen” diet cocktail. AHP recalled Pondimin and Redux in 1997 after some of the 6 million Americans who had taken fen-phen developed heart problems, including leaky valves.

Overall net sales increased 13 percent from the same quarter last year.

Worldwide pharmaceutical sales increased 14 percent for the quarter, sparked by higher revenues from recently approved pneumococcal vaccine Prevnar, meningitis treatment Meningitic, arthritis treatment Enbrel and ulcer medicine Protonix. Sales of Effexor XR, for which American Home Products received an expanded indication, also showed strong growth.

Excluding the negative impact of foreign exchange rates, worldwide pharmaceutical sales increased 17 percent for the 2000 third quarter.

Global consumer health care sales increased 7 percent for the quarter, as sales of the Centrum family of vitamin products rose. However, the company experienced a sales slowdown for cold, cough and allergy products, as well as for pain reliever Anacin.

Excluding the effect of weak foreign currencies, worldwide consumer health care sales increased 8 percent for the quarter.

“The double-digit sales and earnings growth through the first three quarters of 2000 have been driven by increased demand for franchise products and enhanced by an impressive number of new products introduced into the marketplace,” said Chairman and Chief Executive Officer John Stafford in a statement. BACK TO TOP

Raytheon Meets Expectations

Raytheon’s third-quarter earnings met Wall Street’s expectations, reversing a loss from the year-ago period, helped by an increase in aircraft deliveries.

For the three months ended Sept. 30, Raytheon earned $105 million, or 31 cents per share, up from a loss of $163 million, or 48 cents per share in the year-ago period.

Earnings from continuing operations were $133 million, or 39 cents per share, in line with a consensus estimate from analysts surveyed by First Call/Thomson Financial.

The Lexington, Mass.-based aerospace and defense company lost $89 million, or 26 cents per share, from continuing operations in the year-ago period, in part due to charges of $464 million, or 84 cents per share.

Revenue rose to $4.16 billion, up from $4.12 billion a year ago.

Sales in most divisions were similar to a year ago. The Electronic Systems division reported sales of $1.9 billion, down from $2.0 billion.

Raytheon Aircraft Company, a division the company is reportedly trying to sell to reduce its debt burden, recorded sales of $749 million, up 6 percent from a year ago due to higher aircraft deliveries.

For the nine months ending Oct. 1, Raytheon recorded net sales of $12.56 billion, down 4 percent from $13.02 billion over the same period last year. Raytheon has a net loss for the first nine months of the year of $23 million, compared with earnings of $332 million in the year-ago period.

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Mattel’s Profits Fall

Mattel, in the midst of a restructuring and under new leadership, said its profit fell 22 percent in the third quarter because of declining sales.

The company said today it earned $174.3 million, or 41 cents per share, from continuing operations in the quarter ended Sept. 30 as compared with profits of $222.2 million, or 52 cents per share in the same period last year.

The results were in line with estimates of analysts surveyed by First Call/Thomson Financial.

Sales increased by 2 percent in the United States, but fell 5 percent in international markets, the company reported. Sales of the company’s two largest brands — Barbie and Fisher-Price — increased during the quarter.

Mattel reported its earnings the day after the sale of its money-losing interactive toy division, The Learning Co.

Mattel took a one-time charge of $441 million as the result of the sale, but said the sale would save it $1 million a day in operating losses.

The company’s disastrous experience with The Learning Co. cost former chief executive Jill Barad her job. Barad was replaced in May by chief executive Robert A. Eckert.

The company also took a restructuring charge of $74 million, or 18 cents per share. Including one-time charges, the company lost $336.8 million, or 79 cents per share, in the quarter.

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U.S. Airways Loses $30 Million in Q3

U.S. Airways, the No. 6 U.S. airline, said today it lost $30 million in the third quarter, more than expected, amid tough competition and fuel costs 75 percent higher than a year earlier.

Arlington, Va.-based US Airways, which has agreed to be bought by United Airlines parent UAL for $4.3 billion, said it lost 45 cents a share, compared with a loss of $85 million, or $1.19 a share, in the period a year earlier, when the carrier suffered from a high degree of cancellations because of bad weather and a slowdown by mechanics.

Analysts had on average forecast that US Airways would lose 19 cents a share in the recent quarter, according to First Call/Thomson Financial.

Revenues rose 13 percent, to $2.38 billion from $2.10 billion a year earlier.

US Airways shares closed at $32-1/4 on Tuesday, down 9/16, despite the $60 a share offer price in the UAL deal, amid widespread doubts that regulators will allow the deal to close as envisioned.

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Wachovia Will Cut Jobs Southeast U.S. regional bank Wachovia reported today a 20 percent drop in third-quarter net income because of merger costs and charges related to a sweeping restructuring plan, but operating results met Wall Street expectations.

Excluding merger costs and restructuring charges, the Winston-Salem, N.C.-based bank’s earnings were up about 4 percent to $270.2 million, or $1.32 a share. Including the charges, Wachovia earned $205.3 million, or $1.00 a diluted share, in the third quarter. That compares with reported net income of $257.5 million, or $1.25 a share, a year ago.

Wall Street was expecting the company to post operating earnings of $1.32 a share, according to market research firm First Call/Thomson Financial. Wachovia, which is the process of cutting 1,800 jobs as it revamps its operations, said pre-tax restructuring charges and merger-related costs totalled $99.8 million in the third quarter. The bank said the rest of the restructuring charges, about $30 million, will be taken in the next two quarters.

Wachovia’s provision for loan losses in the third quarter was $124 million, up from $76.8 million during the same period last year. Net interest income, after the provision for loan losses, fell 6 percent to $506.8 million.

The bank holding company in June warned investors that rising interest rates would hurt second-quarter and full-year profits. In September it said its president and chief operating officer, G. Joseph Prendergast, would retire after the end of this year.

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Visteon Earnings Fall

Third-quarter earnings at auto parts supplier Visteon Corp. fell 69 percent due to price and production cuts by its former parent, Ford Motor Co.

Visteon said its earnings totaled $48 million, or 37 cents a share, for the three months ended Sept. 30, compared with $155 million, or $1.19 a share, in the year-ago period.

The results equaled Wall Street expectations that Visteon had lowered in August, according to analysts surveyed by First Call/Thomson Financial.

Revenues fell 4 percent, from $4.6 billion to $4.4 billion.

Visteon attributed the earnings decline to a 5 percent price cut given to Ford before being spun off as a separately traded company. Ford accounted for 83 percent of Visteon’s business in the third quarter, Visteon’s first full quarter on its own since the spinoff in June.

Visteon also was hurt by the shutdown at three Ford factories to shift tires from new cars to replacing 6.5 million recalled Firestone tires. The parts maker also said the weakness of the euro against the dollar dragged on profits as well.

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The U.S. Federal Reserve raised rates six times from June last year to May this year to keep inflation at bay. But banks may have some relief because the Fed appears to be done increasing rates further for now.

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Knight Ridder Falls Flat

Newspaper publisher Knight Ridder reported today flat third-quarter net income amid slower advertising demand and rising newsprint prices.

The publisher of the San Jose Mercury News and the Miami Herald said in a statement its net income was off slightly at $76.1 million compared with $76.2 million a year before — although diluted earnings per share rose to 87 cents from 78 cents as shares outstanding fell. Knight Ridder said it bought back 2 million of its shares during the quarter and was left with 86 million shares at Sept. 30.

Analysts on average had expected the San Jose, Calif.-based company to post earnings of 84 cents a share, according to research firm First Call/Thomson Financial.

Revenues were up 3.4 percent at $617.3 million from $596.9 million, amid soft demand for advertising,particularly in retail and classified.

Looking ahead,the company said it expected to post earnings per share of between $1.05 and $1.10 in the fourth quarter, which includes the costs of its purchase of job search Internet site Career Builder Inc. with publisher Tribune Co. for about $190 million. For the full year, it said it is comfortable with estimates of $3.65 to $3.70 per share

Knight Ridder’s shares closed at $44-1/4 on the New York Stock Exchange on Monday, much closer to their 52-week low of $44-1/8 than to their 52-week high of $65. BACK TO TOP

Coca-Cola Bottles Solid Profits

Coca-Cola Enterprises, posted a third-quarter profit today that beat Wall Street targets despite weakness in the soft drink bottler’s North American and European markets.

Atlanta-based Coca-Cola Enterprises earned $130 million, or 30 cents a share, in the third quarter of 2000, which included a $20-million gain from an insurance recovery related to a product recall from the 1999 contamination scare in Europe.

Excluding the gain, Coca-Cola Enterprises earned 27 cents a share in the third quarter, compared to a profit of $103 million, or 24 cents a share, in the same period last year.

Analysts had on average expected Coca-Cola Enterprises to earn 26 cents a share in the third quarter, according to First Call/Thomson Financial, which tracks consensus data.

The bottler said unit consolidated physical case bottle and can volume, a key measure of health in the soft drink bottling industry, fell 1.5 percent on a comparable basis in the quarter. Volumes dipped 1.5 percent in the company’s North American and European markets.

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Philip Morris Meets Expectations

Tobacco and food giant Philip Morris reported today a 6.8 percent rise in underlying third-quarter earnings, meeting analysts’ expectations, despite the negative impact of overseas currencies, particularly the euro.

New York-based Philip Morris, the world’s largest cigarette maker with the top-selling Marlboro brand, said profits rose to $2.24 billion, or 99 cents per diluted share, from $2.10 billion, or 87 cents, a year ago.

“Philip Morris’ business outlook remains robust,” Chairman and Chief Executive Officer Geoffrey Bible said in a statement. “Despite the current adverse rates of foreign exchange, principally the euro, we project that underlying earnings per share for the full year 2000 will be $3.71, up 12.4 percent versus 1999.”

Underlying earnings exclude unusual items. Analysts on average expected the company, which also operates Kraft Foods Inc. and the Miller Brewing Co., to earn 99 cents per share, according to First Call/Thomson Financial. Analysts expect Philip Morris to earn $3.71 for the full year.

Third-quarter underlying operating revenues rose 1.1 percent to $20.03 billion from $19.81 billion a year earlier, despite a negative currency impact of $630 million, Philip Morris said. Its U.S. cigarette shipment volume in the second quarter slipped 1.3 percent to 54 billion cigarettes versus an industrywide decline of 3.5 percent to 107.2 billion cigarettes, Philip Morris said.

Schwab’s Net Earnings Down

Charles Schwab, the No. 1 U.S. discount and Internet broker, said today its third-quarter revenue jumped 30 percent but that profits fell slightly due to acquisition related charges and a seasonal slowdown in stock trading volumes.

San Francisco-based Schwab, which has 7.4 million brokerage accounts and more than $1 trillion in assets, reported a net income of $142.3 million, or 10 cents per share, in the third quarter compared with a proforma profit of $144.2 million, or 11 cents, in the same period last year. Revenue rose 30 percent to $1.32 billion.

Excluding $23 million in acquisition and other charges, Schwab’s quarterly profit rose 15 percent to $165.7 million, or 12 cents per diluted share.

The operating results matched Wall Street’s lowered expectations calling for the company to earn 12 cents per share, according to data compiled by market research firm First Call/Thomson Financial.

Schwab added $41 billion in assets during the quarter, up from $25 billion last year, propelling the brokerage’s total client assets past the $1 trillion mark. The firm said it opened 281,000 new accounts during the quarter, about the same as the 282,000 it opened last year but down from 400,000 in the second quarter.

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Revenues at FleetBoston Up 59 Percent

FleetBoston Financial, the No. 8 U.S. bank holding company, posted today a 10 percent rise in third-quarter operating earnings, meeting Wall Street estimates, due to a rise in capital markets revenues.

Fleet, which has operations ranging from consumer banking to share dealing, has been buying banking and securities firms to expand its business offerings and keep up with a recent wave of consolidation in the financial services sector. Revenues from capital markets operations grew 59 percent to fuel its profit gain.

Fleet, which owns brokerage firm Quick & Reilly, reported operating earnings of $782 million, or 84 cents a diluted share. That compares with profits of $711 million, or 74 cents a share, a year ago.

Including the gains related to the sales of certain deposits, loans and merger-related expenses, the company posted net income of $841 million, or 90 cents a share. Operating earnings were in line with consensus analyst estimates of 84 cents a share, according to market research firm First Call/Thomson Financial.

“Our overall franchise is very well-positioned, given the growth nature of our underlying businesses, coupled with a strong balance sheet,” president Chad Gifford said in a statement.

Fleet’s noninterest income, excluding one-time gains, grew 17 percent to $2.0 billion, driven by the 59 percent growth in capital markets revenues. Revenues from capital markets activities increased to $749 million, while investment services revenue increased 10 percent to $399 million.

Noninterest revenues made up 55 percent of total revenues, up from 50 percent of total revenues a year ago. Fleet’s operations range from buying and selling shares on stock exchanges to its Robertson Stephens investment banking arm.

Net interest income, which include revenues from traditional banking practices like lending, slipped nearly 6 percent to $1.6 billion. Fleet blamed the decline on the loss of business stemming from the sales of deposits and loans. It sold about $5 billion of deposits and $2 billion of loans in the third quarter.

Nonperforming assets as of Sept. 30 were $1.0 billion, or 0.92 percent of total loans, compared with $950 million, or 0.84 percent of loans as of June 30. The provision for credit losses grew to $300 million, up from $228 million in the year-ago quarter.

Fleet on Oct. 2 agreed to buy regional bank Summit Bancorp in a deal that would create New Jersey’s largest bank and expand its reach in the U.S. Northeast. In July Fleet agreed to buy New York Stock Exchange specialist firm M.J. Meehan & Co. LLC, which would expand its market-making capabilities to the common stock of 433 companies.

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Caterpillar’s Flat Third-Quarter

Caterpillar, the world’s largest maker of earth-moving equipment, said today it expected slight rises in revenue in 2000 and 2001 and reported its third-quarter per share profit narrowly beat recently lowered estimates after softness in key markets, higher costs and unfavorable currency translations took their toll.

Peoria, Ill.-based Caterpillar, which warned analysts two weeks ago that it would not meet third-quarter profit forecasts at the time, said it earned $216 million, or 62 cents per share, on revenue of $4.78 billion in the latest quarter. That compares with $219 million, or 61 cents, on revenue of $4.72 billion in the year-ago period.

According to a First Call/Thomson Financial survey, the mean estimate was for a 58 cent profit per share. Analysts trimmed their estimates by 10 cents after the company issued its warning last month.

In addition to weakness in some of its key markets, Caterpillar said its performance also was undermined by unfavorable currency impact and costs related to selling, general and administrative, and research and development. The favorable impacts of a tax adjustment, improved price realization (excluding currency) and higher sales volume largely offset the unfavorable items.

In a statement, Caterpillar’s chairman and chief executive Glen Barton said, “In response to these conditions, we have redoubled efforts to reduce costs to ensure we deliver acceptable results for the full year.”

For 2000, analysts on average were forecasting a profit of $2.88 per share, up from $2.63 per share in 1999.

Barton added, “...Our geographic and product diversity is a major strength, and we continue to benefit from the unprecedented demand for electric power and energy development applications.”

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The Associated Press and Reuters contributed to this report.