>>> What to look at today - 23rd of October 2014

US Market Closed lower after four days bounce, Five of six cyclical sectors ended behind the broader market with energy (-1.7%) showing the largest decline. The growth-sensitive sector displayed intraday strength, but slumped in the afternoon amid weakness in crude oil. The energy component spent the morning near its flat line, but plunged in the afternoon to end lower by 2.4% at $80.49/bbl. Greenback strength acted as a bit of a headwind with the Dollar back on the 1,2638, Industrials were pressured by BA -4,46% mid concerns about increasing production costs for its Dreamliner jet. Tech was still the OP (-0,6%), BRCM +5,5% on better numbers, AAPL +0,5%, GOOGL+0,9%. On the upside, countercyclical consumer staples (+0.1%) and utilities (+0.6%) displayed relative strength throughout the session. The utilities sector extended its October gain to 4.6%. Volume were in line with average @ 779mil shares, VIX @ 17,87 +11,13%...US After Hours SCSS +11.7%, TSCO +10.9%, ALB +2.3%, AIRM -19.8%, YELP -13.2%, WYY -8.1%, CLB -7.9% following earnings/guidance...In Asia, The keenly awaited China Flash manufacturing PMI for October did not disappoint but also did not offer much to get excited about. Although the headline hit a 3-month high, remained above the expansion threshold, and also topped estimates, the Output index hit a 5-month low of 50.7 v 51.3 prior, Japan prelim manufacturing PMI painted a brighter picture with a 6-month high at a more than a point above consensus. Here, output component was also lower, but New Orders, Export backlog, and Employment all showed incremental progress. Markit economist did note that the political debate surrounding the next consumption tax increase over the next few months will be significant...Nikkei -0,3% Hang Seng -0,36% Shanghai -0,90%

Eur$ 1,2639 S&P +0,07% EuroStoxx -0,67% FTSE -0,56% DAX-0,60% SMI -0,39%

Macro
- HSBC China Oct. Flash Manufacturing PMI 50.4; Est 50.2, outout index to 5month low 50,7 vs 51,3 prior
- JAPAN OCT PRELIM MARKIT/JMMA MANUFACTURING PMI: 52.8 V 51.7E (5th straight month of expansion, highest since March)- Output 52.3 v 53.4 prior
- EU May Tell France to Add EU6 Bln in Spending Cuts: Les Echos

Keep an eye on :
- AALB NA : Aalberts Says 3Q Result Up Y/y, Expects Further Progress in 2014
- ALV GY : Allianz May Shift Investments to Stocks, Boersen-Zeitung Says, has increased to 10%, could go higher
- ARL GY : Aareal May Lift Forecast on Strong Business, CFO Tells Handelsbl
- BAYN GY : Bayer Plastics Unit Attracts Interest From PE Cos.: Reuters
- BC8 GY : Bechtle 3Q Sales Rise 10.6%, Pretax Up 19%
- CEZ PW : CEZ Receives Safety Approval for New Nuclear Reactors at Temelin
- CRDA LN : Rumors that Solvay is studying a 2900p bid
- CSGN VX : Credit Suisse 3Q Net CHF1.03b; Est. CHF808.6m
- DAI GY : Daimler 3Q Profit, Rev. Beat Ests.; Reiterates FY Ebit Outlook, Raises 2014 Cash Flow Forecast
- DECB BB : Deceuninck 3Q Rev. Misses Ests. as German, French Markets Shrink
- DNB NO : DNB Net Beats est., Says Will Reach Capital Targets by Deadline
- DSY FP : Q3 Rev. E580 vs Est. E569
- FNAC FP : Groupe Fnac 3Q Rev. Up 2.2% to EU863m
- GTO NA : Gemalto 3Q Rev. EU626m vs Est. EU657m, CEO Says Apple Products Are Opportunity, Not Threat
- HUH1V FH : Huhtamaeki 3Q Sales Beat, Profit Misses Ests.; Keeps Forecast
- HURGZ TI : Dogan denies it is holding talks to sell Hurriyet
- IPR PL : Impresa 3Q Loss Narrows to EU384,743 vs EU586,313 Y/y
- KRN GY : Krones 3Q Sales Rise 11%; Says on Track to Achieve 2014 Targets
- LI FP :Klepierre Confirms Outlook for Full-Yr Net Current Cash Flow
- LOGN SW : Logitech Confirmed Outlook for 2015 About $2.16b in Sales, May ‘Materially Adjust’ Results After Audit
- LUX IM : Luxottica Said to Name P&G’s Mehboob-Khan Co-Chief Executive
- ML FP : Michelin 3Q Rev. Misses Est.; Volume Growth Outlook Cut, Cuts Capex Forecasts Through 2017
- MOR GY : Morphosys Sees Full-Yr Ebit Loss EU5m-EU8m
- NESN VX : Nestle CEO Says Frozen Food Lost Some Luster in U.S.
- NOK1V FH : Nokia 3Q Net Sales EU3.3 Billion vs Est. EU3 Billion, Net Income E474 vs est E212, Raises Low End of Margin Target as 3Q Adj. EPS Beats
- NOVN VX : Novartis Meets Primary Endpoint in Two Phase 3 Spine Studies
- ORA FP : Orange 3Q Sales Beat, Reaches 2014 Cost Cutting Target Early, CFO Says Cost Cutting Efforts to Continue in 4Q
- PTI PL : Portucel 3Q Net EU42.5m, down 15% Y/y
- PUB FP : Publicis 3Q Rev. In Line, CEO Says Doesn’t Meet Expectations
- RI FP : Pernod 1Q Organic Sales Beat Ests., FY Forecast Below Ests.
- ROG VX : Roche CEO Expects Basel Hiring, Says Outlook Is Good: Aargauer
- SAF FP : Safran 3Q Rev. EU3.59b vs Est. EU3.5b
- SBRY LN : +5,1% Yest. on more spec of Takeover, SBRY one of most FTSE 100 shorted stock, 28 per cent of its free float on loan to short sellers, up from 6 per cent at the start of the year.
- STMN SW : Straumann 3Q Rev. Misses Est.; Reiterates FY Forecast
- SUNE US : Solar Modules Extend Gain on China Demand; Polysilicon Unchanged
- TEL2B SS : Tele2 3Q Ebitda Beats Est.; Outlook Unchanged
- TNET BB : Telenet 3Q Ebitda Beats Ests. as Rev. Growth Quickens to 5.4%
- TIE1V FH : Tieto 3Q Sales Miss, Adjusted Ebit Beats Ests.; Keeps Outlook
- TSCO FP : Tesco Considers Replacing Chairman, Investors Say: FT
- TSCO LN : Tesco Half-Year Shortfall Slightly Higher Than GBP250m, Sky Says
- UCG IM : UniCredit in Exclusive Talks With Fortress for UCCMB, Sole Says
- UMI BB : Umicore Keeps Forecast for Adj. Ebit EU265-EU280m; Est. EU259.9m
- WCH GY : Wacker ChemTo raise prices for dispersible polymer powder in Europe
- WFT US : Weatherford 3Q Non-Gaap EPS $0.32 vs Est $0.33, -5,6% after hours
- WRT1V FH : Waertsilae 3Q Sales Miss, Ebit Beats Ests.; Orders Grow 21%

>>> Brokers Upgrades & Downgrades - 23rd of October 2014

>>> Up
*BERKELEY GROUP RAISED TO EQUALWEIGHT VS UNDERWEIGHT AT BARCLAYS
*GAMESA RAISED TO OVERWEIGHT VS NEUTRAL AT HSBC
*INFINEON RAISED TO OVERWEIGHT VS NEUTRAL AT HSBC
*LSE RAISED TO OVERWEIGHT VS NEUTRAL AT HSBC
*NORDEX RAISED TO NEUTRAL VS UNDERWEIGHT AT HSBC
*UBM RAISED TO BUY FROM HOLD AT PEEL HUNT
*VESTAS WIND SYSTEMS RAISED TO OVERWEIGHT VS NEUTRAL AT HSBC

>>> Down
*CHR HANSEN CUT TO NEUTRAL VS OVERWEIGHT AT HSBC
*GJENSIDIGE CUT TO EQUALWEIGHT VS OVERWEIGHT AT BARCLAYS
>>> PT Changes


>>> Initiation
*FOLLI FOLLIE RATED NEW NEUTRAL AT CITI
*GLOBALTRANS INVESTMENT RATED NEW OVERWEIGHT AT HSBC, PT $10.4

>>> Call
>> Stock
*IAG ADDED TO CREDIT SUISSE EUROPEAN FOCUS LIST

(BFW) EU May Tell France to Add EU6 Bln in Spending Cuts: Les Echos

EU May Tell France to Add EU6 Bln in Spending Cuts: Les Echos
2014-10-23 05:23:20.89 GMT


By Mark Deen
Oct. 23 (Bloomberg) -- The European Commission may ask
France to plan additional spending cuts in its 2015 budget, Les
Echos newspaper reported without citing anyone.
* The Commission may ask for between 4 billion euros and 6
billion euros of cuts on top of the 21 billion euros in cuts
already planed, the newspaper says
* The Commission is watching for changes to the budget in
parliamentary debate, the newspaper says

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markdeen@bloomberg.net

To contact the editor responsible for this story:
Mark Deen at +33-1-5365-5066 or
markdeen@bloomberg.net

>>> Asian Update

Asian Market Update: China HSBC Flash PMI hits 3-month highs, though Output component slows; Kiwi falls 1% on slower CPI growth

***Economic Data*** - (CN) CHINA HSBC OCT FLASH MANUFACTURING PMI: 50.4 V 50.2E (3-month high) - (JP) JAPAN OCT PRELIM MARKIT/JMMA MANUFACTURING PMI: 52.8 V 51.7E (5th straight month of expansion, highest since March) - (AU) AUSTRALIA Q3 NAB BUSINESS CONFIDENCE: 6 V 6 PRIOR - (NZ) NEW ZEALAND Q3 CPI Q/Q: 0.3% V 0.5%E; Y/Y: 1.0% (5-quarter low) V 1.2%E

***Index Snapshot (as of 02:30 GMT)*** - Nikkei225 -0.3%, S&P/ASX -0.1%, Kospi -0.3%, Shanghai Composite -0.4%, Hang Seng -0.4%, Dec S&P500 flat at 1,923

***Commodities/Fixed Income*** - Dec gold -0.2% at $1,243, Dec crude oil -0.1% at $80.11/brl, Dec copper +0.1% at $3.02/lb - GLD: SPDR Gold Trust ETF daily holdings fall 2.1 tonnes to 749.9 tonnes; Lowest level since Nov 2008 - (CN) PBoC to drain CNY20B in 14-day repos (24th consecutive drain); Net zero position this week (2nd week of neutral position); Offered yield at 3.4% (in-line with previous yield) - USD/CNY: (CN) PBoC sets yuan mid point at 6.1459 (weakest Yuan setting since Oct 9th) v 6.1437 prior setting - (JP) Japan investors sold net ¥1.17T in foreign bonds v bought ¥784.2B in prior week; Foreign investors sold net ¥412.6B in Japan stocks v sold ¥254.6B in prior week

***Market Focal Points/Key Themes/FX*** - The keenly awaited China Flash manufacturing PMI for October did not disappoint but also did not offer much to get excited about. Although the headline hit a 3-month high, remained above the expansion threshold, and also topped estimates, the Output index hit a 5-month low of 50.7 v 51.3 prior. Other notable components were also mixed - Employment deteriorated but at a slower rate, while Export Orders increased at a slower rate and Input Prices decreased at a faster rate. HSBC chief economist acknowledged the troubling price trends, noting "disinflationary pressures intensified", and adding the overall PMI picture "warrants further policy easing and we expect more easing measures on both the monetary as well as fiscal fronts in the months ahead." Shanghai Composite briefly popped into positive territory on the release but turned negative again going into midday break.

- Japan prelim manufacturing PMI painted a brighter picture with a 6-month high at a more than a point above consensus. Here, output component was also lower, but New Orders, Export backlog, and Employment all showed incremental progress. Markit economist did note that the political debate surrounding the next consumption tax increase over the next few months will be significant.

- Down under, Australia Q3 NAB confidence index was unchanged, as bank economists pointed to caution in consumption despite low interest rates balanced by robust residential construction. New Zealand Q3 CPI came in at more than a 1-year low and at the very bottom of RBNZ's 1-3% target range for inflation. Lower than expected CPI has also prompted several major banks to further push back expectation for the next RBNZ rate hike deeper into 2015, with fixed income markets now pricing in a more than 80% chance of cash rates remaining unchanged over the next 12-months. RBNZ Gov Wheeler, speaking before the data, hinted that housing loan limits have reduced inflation pressure.

- NZD/USD fell over 80pips to session low around 0.7830 in the wake of the soft CPI print. AUD/USD eased about 30pips from the highs below 0.8750 following the mixed China PMI. EUR/USD and USD/JPY were locked in 15- and 25-pip ranges above 1.2630 and 107.10 respectively, with little follow-through from USD strength in US hours.

***Equities*** US markets: - CYTX: Receives FDA approval to resume ATHENA trial enrollment; +47.1% afterhours - SCSS: Reports Q3 $0.44 v $0.40e, R$323.4M v $292Me; +13.3% afterhours - TSCO: Reports Q3 $0.55 v $0.51e, R$1.36B v $1.32Be; +11.8% afterhours - INFN: Reports Q3 $0.11 v $0.07e, R$173.6M v $171Me; Guides Q4 $0.11 +/- a couple pennies v $0.05e, R$175-185M v $160Me - conf call; +11.2% afterhours - PH: Increases quarterly dividend 31% to $0.63/shr (implied yield 2.3%); Authorizes repurchase of up to 35M Shares (23.5% of outstanding); +4.5% afterhours - ORLY: Reports Q3 $2.06 v $1.96e, R$1.88B v $1.85Be; +3.9% afterhours - NXPI: Reports Q3 $1.35 v $1.31e, R$1.52B v $1.50Be - V: Increases dividend 20% to 0.48 from $0.40 (implied yield 0.9%); +1.0% afterhours

- T: Reports Q3 $0.63 v $0.64e, R$33.0B v $33.3Be; -1.5% afterhours - LRCX: Reports Q1 $0.96 v $0.93e, R$1.15B v $1.15Be, guides Q2 $1.05-1.19 v $1.20e, R$1.23B +/- $50M v $1.26Be; -3.3% afterhours - VAR: Reports Q4 $1.02 v $1.21e, R$812.1M v $838Me; -4.3% afterhours - CTXS: Reports Q3 $0.75 v $0.73e, R$759M v $772Me, guides FY14 $3.22-3.25 v $3.23e, Cuts Rev $3.12-3.14B v $3.19Be (prior $3.20-3.25, Rev +8.5-10%); -5.1% afterhours - CAKE: Reports Q3 $0.48 v $0.57e, R$499.1M v $497Me; Guides initial FY15 $2.35-2.45 v $2.58e; -5.3% afterhours - CLB: Reports Q3 $1.53 v $1.51e, R$276M v $285Me, guides lower Q4 $1.53-1.56 v $1.61e, R$275-280M v $293Me (prior $1.56-1.61, R$285-295M); -7.9% afterhours - YELP: Reports Q3 $0.05 v $0.03e, R$102.5M v $98.7Me, guides Q4 adj EBITDA $24-25M, Rev $107-108M v $111Me; -13.1% afterhours - AIRM: Guides Q3 $0.83-0.87 v $1.12e; -20.5% afterhours

- Financials: 8356.JP Juroku Bank Ltd. +6.3% (raises H1 guidance) - Industrials: Takata Corp. 7312.JP -5.8% (US regulators expand air bag recall); IHI Corp. 7013.JP +1.0% (press reports on H1 results); Boart Longyear Ltd. BLY.AU +36.7% (Q3 results); Asciano Limited AIO.AU +2.3% (Q1 production results); Leighton Holdings LEI.AU % (9-month results); CSR Corp 601766.CN +6.2% (awarded orders) - Consumer staples: Daio Paper Corp. 3880.JP +2.9% (press reports on H1 results) - Materials: Atlas Iron AGO.AU +1.4% (raises FY15 production guidance)

(BFW) Tesco Half-Year Shortfall Slightly Higher Than GBP250m, Sky Says

BN 10/23 04:52 *SKY NEWS REPORTER MARK KLEINMAN COMMENTS IN POST ON TWITTER
BFW 10/23 04:52 *TESCO HALF-YR SHORTFALL SLIGHTLY HIGHER THAN GBP25OM, SKY SAYS
Tesco Half-Year Shortfall Slightly Higher Than GBP250m, Sky Says
2014-10-23 04:57:45.508 GMT


By Colin Keatinge
Oct. 23 (Bloomberg) -- “Latest I’m hearing on Tesco ahead
of 7am announcement: contrary to my expectation, half-year
profit shortfall is slightly higher than £250m,” Sky News City
Editor Mark Kleinman says in post on Twitter.
* Link to Twitter feed: http://goo.gl/ef5X3E
* NOTE: Tesco scheduled to report 1H earnings today
* NOTE: Tesco Said to Weigh Spinning Off Asian Operations:
Telegraph {NSN NDV7K26KLVRA <go>}
* NOTE: Tesco Considers Replacing Chairman, Investors Say: FT
{NSN NDUYTD6S972M <go>}


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(TheGuardian) PHC LN : Micro Cap maybe one to keep an eye on...

Entrepreneur and major 17 per cent shareholder Richard Griffiths pulled off a coup when he installed Chris Richards as non-executive chairman of Plant Health Care in August 2012. He’d already enjoyed a distinguished career in the global agrochemical industry and was instrumental in transforming Arysta LifeScience into a global agrochemical company with one of the fastest growth rates in the industry with sales above £1billion. His appointment escaped the market’s notice, that is until yesterday.
Dealers heard that Arysta LifeScience had succumbed to an agreed £2.24billion offer from Platform Specialty Products backed by London-based private equity firm, Permira. The news prompted hopes that Richards will now weave his magic at Plant Health Care and transform it into an attractive takeover target. Buyers piled in and the close was 6.6p or 9 per cent higher at a year’s peak of 81.5p.
Richards put his money where his mouth is in April when he bought another 5,000 shares at 59p which increased his shareholding to 61,500. His buying will probably not stop there as he builds the company up into an attractive takeover target.

FT : Long wait ahead for eurozone earnings growth

Long wait ahead for eurozone earnings growth

Concern as markets are factoring in no growth for about 20 years
Onwards we go, but not upwards. Call it moderation or stagnation, but the near future appears set to remain much like the present arrangement of modest economic growth and scarce investment income. So the right question to ask may not be ‘what happens next’, but rather ‘when will something, anything, change?’
There are a few ways to answer. Short-term interest rate futures give a sense of market expectations for the timing of the first hikes by central banks. In recent weeks, the trade has been to bet on further stasis, catching up to what the Bank of England’s chief economist has called the “drip, drip, drip of slightly below par news”. After the release on Wednesday of minutes from the most recent Monetary Policy Committee, the market view is for no change until well into the third quarter of next year. In the US, where inflation has softened, futures markets suggest a rate rise from the Federal Reserve is more than a year away. For the European Central Bank, think about 2017.

That last year is also suggested by another forecasting approach, using corporate earnings. On current forecasts, it will not be until 2017 that listed European companies produce as much profit in aggregate as they did at the peak of the last economic cycle, in 2007.
European stock prices provide further perspective. The equity risk premium is the return that investors demand over and above that available from safe government bonds. Over time, the average equity risk premium has been 3.5 per cent, and Goldman Sachs uses that figure to estimate the long term rate of earnings growth embedded in stock prices. Historically, earnings grew by 5 per cent a year, but the implied rate of real growth for earnings has fallen steadily, and is now negative. On that basis, stock prices imply that earnings for European companies will decline substantially over the long term.
Perhaps the equity risk premium is higher, to compensate for the very low return available from government bonds – or increased risk of investing in stocks compared to the past. But, even if you assume it is 5 per cent, that implies no real growth in earnings at all for the next 20 years. Stasis may have become familiar, but that seems like a very long time to assume that nothing will change.

FT : Dow chief responds to Loeb pressure

Dow chief responds to Loeb pressure

Dow Chemical’s management team are “going to be great listeners” to ideas from shareholders on improving the company’s performance, its chief executive Andrew Liveris has promised.
Speaking as the company reported better than expected earnings for the third quarter, Mr Liveris said on Wednesday that he had been continuing to speak with Dan Loeb of Third Point Capital and other shareholders about how to raise Dow’s share price.

He said the company would be trying to improve communication of its financial performance with an investor presentation next month. “We are very motivated to have the share price go northwards,” Mr Liveris said.
He added that Dow was close to reaching a “running rate” of earnings before interest, tax, depreciation and amortisation of $10bn per year “in the near term”. The company first set the objective in 2009.
Third Point, an activist hedge fund, in January revealed it had taken a stake in Dow and called for the group to be broken up, saying it “woefully underperformed” over the past decade.
That proposal was emphatically rejected by Mr Liveris, but Mr Loeb raised the pressure with a detailed critique of Dow’s strategy sent to investors in May.
Third Point’s original proposal was for Dow to be split into two, with a petrochemical business making products such as ethylene and propylene, and another company manufacturing speciality chemicals.
Its subsequent analysis argued that Dow’s “integrated strategy does not maximise profits”, and criticised the company for a lack of disclosure over how its profits were earned.
On Wednesday Mr Liveris denied that he had an “adversarial” relationship with Mr Loeb or other investors, and promised to listen to their analysis, but said he sometimes had to point out to them where they were wrong.
He agreed that the company needed to “show where we’re making money”, and suggested the investor day next month would offer greater clarity.
He added that there were “no sacred cows” in terms of businesses that could be sold. The company has set a target of raising up to $6bn from disposals.

Dow’s underlying earnings per share for the third quarter, excluding one-off costs associated with the planned sale of its chlorine and epoxy business, were 72 cents, up 44 per cent from the equivalent period of 2013.
The star performance came from Dow’s plastics division, which in the US benefits from cheap feedstocks such as natural gas liquids stemming from the North American shale revolution. Its ebitda was up 31 per cent at $1.275bn.
Mr Liveris said the global economic outlook remained “persistently slow and volatile”, but Dow was raising margins through “self-help” to improve efficiency.
He added he expected continuing benefit from Dow’s low-cost position in the US and from its Sadara joint venture with Saudi Aramco in Saudi Arabia, which is scheduled to start production next year.
Other chemicals companies have also faced calls for a break-up.
At DuPont, Nelson Peltz’s Trian has accused the group of “destroying shareholder value” and recommended it split itself into two separate companies.

WSJ : Clouds Darken for America’s Blue-Chip Stocks

Clouds Darken for America’s Blue-Chip Stocks
Coke, IBM, Others Find Once-Reliable Formulas Leave Them Too Big to Change Direction Quickly

The approach was time-tested and hard to beat: Put your money in blue chips, decades-old companies that could be counted on to perform through thick and thin.

But now the market’s stalwarts are showing their age. Steady has become stagnant as companies once considered among the market’s most reliable post poor growth, quarter after woeful quarter.

The list of stumbling stars is remarkable: AT&T Inc., which on Wednesday lowered its revenue forecast; Coca-Cola Co. , which posted flat sales; International Business Machines Corp. , which threw out its profit forecast; Wal-Mart Stores Inc., whose same-store sales haven’t increased in the U.S. since 2012; General Electric Co. , whose stock price hasn’t topped $30 since the financial crisis.

A third of the companies in the Dow Jones Industrial Average have posted shrinking or flat revenue over the past 12 months, according to data from S&P Capital IQ. Revenue growth for nearly half the industrials didn’t outpace the U.S. inflation rate of 1.7%.

Each company has its own idiosyncratic problems—changing consumer tastes at Coke, for example, or technology-industry shifts at IBM—and each is taking steps to address them.

But underlying it all is a sense of malaise for companies whose once powerful formulas for success left them too big to switch tack quickly when market conditions changed.

“None of these are pathological companies,” says Anil Gupta, a professor of strategy and entrepreneurship at the University of Maryland. Instead, they had adopted what he calls “sticky” resources, not only technological systems, but employees and business processes that are geared to be successful in a particular range of circumstances.

“That’s what makes you successful. That also essentially locks you into the current paradigm,” Prof. Gupta says. “You become big, but you become trapped.”

The term “blue chips” was coined by Dow Jones reporter Oliver Gingold in the early 1920s and enshrined in the Dow Jones Industrial Average, which comprises 30 of the country’s leading companies.

But as many of its members hit tough times, the so-called leading industrials aren’t leading anymore. The industrial average is down 0.7% this year. Meanwhile, the broader S&P 500 index is up 4.3%.

Coke is the latest big company to rattle investors. Chief Executive Muhtar Kent had promised that 2014 would be a “year of execution” after the company fell short of its volume and revenue growth targets last year.

But when the soda maker unveiled its third-quarter results on Tuesday, it had failed in nearly every category. Coke fell short of its volume goal for the second time in three quarters and lowered its long-term revenue target. The company said that it expected to miss its year-end earnings goal and that next year wouldn’t be much better.


The company used to have a secret formula, and it wasn’t just how to make Coke. The company also knew how to sell it to bottlers—a lucrative strategy for decades.

Not lately.

U.S. soda-industry volume has fallen for 10 straight years as Americans have scaled back on sugary drinks. Zero-calorie Diet Coke and Coke Zero helped ease the downturn, for a while, but diet-soda sales have been falling twice as fast as full-calorie sales as consumers fret about artificial sweeteners. Sales in formerly fast-growing overseas markets including China, Brazil and Russia have slowed or reversed since last year. Soda consumption fell in Mexico after the government in January began taxing sugary beverages.

Mr. Kent blames the downturn mainly on weak consumer spending and economic volatility across much of the world. “I don’t see that improving overnight. It’s the new normal,” he said in a Tuesday conference call.

Coke is expanding cost cuts, restructuring its global supply chain and looking for new areas for growth. Bernstein analyst Ali Dibadj suggested on the call that Coke should focus on returning earnings to shareholders instead of pouring more money into a struggling business.

Mr. Kent said he remained confident that Coke has the brands and distribution necessary to return to faster growth.

Whether to invest in an aging enterprise or send money back to investors is one choice, but it is a tough one.

IBM has been buying its own shares for decades. It currently has fewer than one billion outstanding, compared with 2.3 billion in 1993. And yet the company’s stock fell sharply Monday after IBM reported its 10th straight quarter of flat or declining revenue and ditched its long-term profit forecast. That left the stock down 14% this year, making it the worst performer in the Dow industrials. The shares IBM repurchased for $11.2 billion early this year were valued at $10 billion at Wednesday’s close.

Big Blue’s current problem was a solution two decades ago. IBM moved into services and away from hardware, in a transformation that saved the company. But today, customers increasingly are choosing simpler services in which software and computing power is rented over the Internet. IBM is in that field, but the shift means less work for IBM’s legions of consultants and the company’s new cloud business isn’t large enough to compensate.

IBM continues to produce a lot of cash—nearly $11 billion from its operations in the first nine months of this year—providing the firepower to make another major transformation.

Significant growth is always a challenge for very large companies, which long have had to shift gears to contend with smaller, more-agile competitors. It gets harder still when the economy is sluggish.

“Large-cap companies are constantly reinventing themselves,” says Gina Martin Adams, a strategist at Wells Fargo Securities. “The trick today is that global growth is slower than it was in the last two decades, and the result is an intensely competitive environment that forces companies to be more nimble, highly efficient and more productive.”

Some big businesses avoid transformational moves, like a breakup. Splitting in two can shrink top executives’ paychecks, which depend heavily on comparisons to peer companies with similar revenue.

“This issue often divides the management from the shareholders,’’ says turnaround specialist Robert S. “Steve” Miller , who has helped steer companies including Waste Management Inc. and American International Group Inc. through trouble spots.“There’s a lot of resistance,” he says, speaking of companies generally.

Tech company Symantec Corp., where Mr. Miller is a board member, this month announced plans to split into a publicly traded company focused on data security and another targeting information management.

Symantec had been under pressure from activist investors to break up for five years, Mr. Miller says.

Such pressures are affecting many companies, even huge ones, as activist hedge funds have amassed more capital, drawn support from mutual funds and successfully taken on bigger and bigger targets.Companies have been spinning off or selling business units at near-record rates this year.

Activist investor William Ackman last year successfully pushed for a change at Procter & Gamble Co. , which replaced CEO Bob McDonald as investors complained of slow growth. Mr. McDonald was succeeded by A.G. Lafley , who emerged from retirement to retake the reins at the company he ran from 2000 to 2009.

Under Mr. Lafley, sales rose 1% in the fiscal year through June, or 3% excluding the impact of acquisitions, asset sales and currency-exchange rates. He responded by saying P&G would shift course and jettison dozens of brands to focus more sharply on those that account for most of its profit and sales.

Sydney Finkelstein, a strategy and leadership professor at Dartmouth College’s Tuck School of Business, says today’s blue chips face difficult challenges, such as globalization, rapid technological change and complex operations. Some have run out of new global locations in which to sell their consumer products. “They are too big to succeed right now,” Mr. Finkelstein says. “Size is an advantage until it becomes a disadvantage.”

FT : China’s outbound investment set to eclipse inbound for first time

China’s outbound investment set to eclipse inbound for first time

China’s outbound direct investment is for the first time set to exceed investment into the country, highlighting the ongoing shift of global economic influence to the east.
Outbound direct investment rose 21.6 per cent in the first nine months compared with last year to $75bn and on Wednesday a senior Chinese official said that on current trends it would probably exceed inbound investment by the end of the year.

“This is just a matter of time; if it doesn’t happen this year then it will happen in the very near future,” said Zhang Xiangchen, China’s assistant minister of commerce. “China is already a capital exporting country and it is now poised to become a net exporter of capital.”
From Africa and Latin America to the US and Europe, cash-rich Chinese investors are already snapping up real estate, companies and other assets while growth at home is poised to fall to its slowest annual pace in nearly two and a half decades.
This month a Chinese insurance company bought the iconic Waldorf Astoria Hotel in Manhattan for nearly $2bn while in the same week China’s state-owned Bright Food Group, which bought Britain’s Weetabix two years ago, took a majority stake in Italian olive oil maker Salov Group.
But with $4tn in government-administered foreign exchange reserves and Beijing’s active policy of supporting offshore acquisitions, there is enormous potential for a much larger flow of investment abroad.
The rise in outbound investment over the past decade has already been meteoric. In 2002 Chinese investors spent just $2.7bn on acquisitions and greenfield projects abroad but by 2013 the total had increased 40-fold to $108bn.
In the first half of this year there was a rare drop in outbound Chinese investment, according to alternative data published by the US think-tank the Heritage Foundation, which compiles its own numbers.
Analysts blamed the drop largely on the country’s vociferous anti-corruption campaign, which discouraged offshore deals since these are often used to skim off cash and assets and stash them beyond the reach of the Chinese authorities.
But there was a surge in deals in the third quarter, according to the Ministry of Commerce, as investment into China from abroad registered its worst performance since the depths of the financial crisis.
In July and August, investment into China dropped 14 per cent and 17 per cent respectively from the same months a year earlier.
China investment
Inbound FDI recovered somewhat in September but total investment into China of $87.4bn in the first nine months of the year was still down 1.4 per cent from the same period a year ago.
Apart from a drop during the global financial crisis, FDI inflows to China have grown steadily since the country joined the World Trade Organisation in 2001 and reached a record $118bn last year.
At current rates of growth, inbound FDI will be lucky to reach that level again this year, while outbound investment could come in at close to $130bn for 2014.
China still maintains tight restrictions on cross-border financial and portfolio investments and the renminbi is still not fully convertible, but the outward flow of direct investment is being facilitated by looser Chinese regulations.
While companies still need to consult several ministries and government agencies before they are able to invest abroad, many formal approval procedures have been simplified this year.
The Ministry of Commerce this month adopted new measures that mean it no longer approves every single outbound investment deal over $100m, although it still requires all deals to be “registered” and approvals from several other agencies are needed for most deals.
“It is expected that [the looser regulations] will further accelerate the flow of outbound capital from China, in particular into favoured markets like Australia, the US and the UK,” said Alistair Meadows, head of international capital in Asia-Pacific for JLL, the real estate investment consultancy.
The slowing domestic economy is another powerful factor pushing Chinese companies to hunt for acquisitions abroad.
The world’s second-largest economy is suffering from chronic over-investment and overcapacity after a five-year credit boom and is on track this year to post its slowest annual growth rate since 1990.