March 21, 2023

UnitedHealth’s Profit Increases, Beating Estimates

Net income climbed 21 percent, to $1.26 billion, or $1.17 a share, compared with $1.04 billion, or 94 cents a share, a year earlier.

Earnings were 13 cents higher than the average estimate of 20 analysts surveyed by Bloomberg. UnitedHealth reiterated a 2012 forecast for a profit of $4.55 to $4.75 a share.

Profit for UnitedHealth, which is based in Minnetonka, Minn., has exceeded the average estimate of analysts for 12 consecutive quarters, according to data compiled by Bloomberg. UnitedHealth, in the first full year after President Obama signed the health care overhaul into law, continued to save money on medical costs and enroll more people for care.

“United demonstrated excellence in growth and operating costs control,” said Sheryl Skolnick, an analyst with the CRT Capital Group in Stamford, Conn.

Fourth-quarter revenue rose 7.9 percent, to $25.9 billion, as the company added 175,000 members, UnitedHealth said. The higher membership was driven by increases in enrollment for Medicaid and Medicare, and growth in commercial membership, the company has said.

“They’re setting themselves up with a strong membership base for 2012,” Ms. Skolnick said. “To show any growth at all in either of those commercial business lines in the fourth quarter is impressive.”

UnitedHealth is expanding services including mobile technology and consulting. Last November, the company bought the XL Health Corporation, a provider of managed care for chronically ill Medicare members, to gain customers as insurers face heavier regulation.

Shares of UnitedHealth fell $1.62, or 3 percent, to $52.32.

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Data Show Euro Area Downturn Deepened at Year-End

Europe’s worsening sovereign debt crisis and the tough cost-cutting response by many governments appear to be driving the 17-nation currency bloc back into recession following the 2008-2009 global financial crisis, while the number of people out of work is rising.

“This data has recession written all over it,” said Martin van Vliet, a euro zone economist at ING. “It is all but guaranteed that we are going to see a contraction in the euro zone in the fourth quarter.”

Economists are divided over how deep the recession — defined by two consecutive quarters of economic contraction — will be, after a free fall in industrial sentiment appeared to stabilize in December.

But it is clear the euro zone, which accounts for about 16 percent of the world economy, will struggle to grow in 2012 and could contract by as much as 1 percent, with its impact reverberating to the United States and Asia.

Retail sales for the bloc fell 0.8 percent in November from October, data released Friday by the European Union’s statistics office Eurostat showed. Economists polled by Reuters had forecast a monthly fall of just 0.2 percent.

The volume of sales fell by 0.9 percent in Germany, the euro zone’s top economy, and was down 0.4 percent in France and 0.7 percent in Spain.

Pointing to the cautiousness of European households even in the run-up to Christmas, the busiest shopping time of the year, the European Commission said Friday that in December, consumer confidence fell 0.7 points in the 17 countries sharing the euro.

In its overall reading of economic sentiment in the euro zone, the commission said its indicator fell 0.5 points to 93.3, its lowest level since November 2009.

A rise in the purchasing managers’ indices for both manufacturing and services in December had been a cause for optimism, but the commission’s figure may dampen that.

One bright spot in the data was the improvement in the commission’s business climate indicator, which increased for the first time in 10 months as factory managers showed optimism about future production plans and export order books.

That indicator was -0.31 points in December, compared to -0.42 points in November and better than the -0.50 point reading seen by economists polled by Reuters for the month.

Unlike the euro zone’s economy, which is expected to contract in the fourth quarter of 2011 and the first quarter of 2012, the U.S. economy is expected to grow about 2 percent in 2012, helping to increase export demand in Europe.

But Christoph Weil, an economist at Commerzbank, cautioned that it was too early to say things had turned around. “With the debt crisis still unsolved, we are reluctant to predict an end to the recession this spring,” he said.

The rate of the deterioration in confidence lost some pace, however, as German economic sentiment improved and returned to September levels. But Italy and Spain, the euro zone’s third- and fourth-largest economies respectively, saw confidence slip.

The sovereign debt crisis has swept to Rome and Madrid, and investors are watching to see if the two countries can raise the billions of euros they need to finance their economies in the first quarter.

Concerns about a possible euro zone break-up subsided over the end-year holiday period, but the focus is still on the European Central Bank’s willingness to help boost growth, such as by taking interest rates to below 1 percent for the first time.

High unemployment is also afflicting the euro zone, hurting consumers. Eurostat said the bloc’s joblessness rate was 10.3 percent of the working population in November, the same as October and up slightly from a year ago, when it was 10 percent.

That compared with an unemployment rate of 8.6 percent in the United States, Eurostat said.

The number of unemployed increased for the seventh consecutive month by 45,000 people to 16.37 million out of work, while hiring intentions fell further in December.

But while unemployment fell in Germany to 5.5 percent, the increase in Spanish and Portuguese unemployment rates to 22.9 percent and 13.2 percent respectively were the largest rises recorded, according to Eurostat.

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Bucks Blog: Early Holiday Spending Comes Despite Tight Consumer Budgets

Courtesy of CredAbilityA survey by a consumer counseling agency found that the average consumer in the states shaded red or orange is in financial distress.

Continued housing distress and rising prices for food and gas are weighing heavily on American families’ finances as the holiday shopping season begins, a quarterly analysis shows.

The CredAbility Consumer Distress Index, a measure of household financial stability, fell sharply in the third quarter, largely erasing improvements made over the prior three quarters. An uptick in late mortgage and rental payments and higher prices at the grocery store and gas pumps were the chief culprits.

CredAbility, a nonprofit consumer counseling agency based in Atlanta, crunches national data in five different categories — employment, housing, credit, household budget and net worth — to compile the index. A score below 70 indicates financial distress.

In the latest analysis, United States households scored 66.7 on the index’s 100-point scale, a “significant” drop from 69.2 in the second quarter, and the largest drop since the third quarter of 2008, the agency found. The nation’s consumers have now been in financial distress for 12 consecutive quarters, according to the index. (The analysis also measured consumer distress in individual states and found that only 19, as well as the District of Columbia, had scores above 70.)

“The average American family is feeling significant distress,” said Mark Cole, chief operating officer of CredAbility and the index’s author. The unemployment rate hasn’t changed, but the rate of “under-employment,” in which people are working part-time rather than full-time for economic reasons, increased in the quarter.

Despite the gloomy index numbers, indications are that retail sales were up significantly over the bellwether Thanksgiving holiday weekend. Mr. Cole said he did not think that sort of spending could continue, given that the average family has shrinking savings and less left over at the end of the month. People fatigued by living within tight budgets may be looking for bargains, he said, but “It’s hard for me to imaging there’s that much spending power left.”

“The only way those gains are sustainable is if they borrow money,” he said, noting that consumers have been doing better at managing debt. “My hope is they’re not going to borrow money to buy holiday gifts.”

What are your plans for holiday spending? Does your budget allow for gifts, or do you plan to borrow to buy presents?

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Wal-Mart’s Profit Slips

The strategy did enable Wal-Mart to break a run of nine consecutive quarters where sales at stores open at least a year in the United States had declined. Wal-Mart said its domestic same-store sales increased by 1.3 percent, above its prior projections. That compared to a 1.3 percent decline in the same quarter a year ago.

However, profit fell 2.9 percent from a year ago to $3.3 billion, making earnings per share come in at $0.96, two cents below analyst expectations.

Excluding the effects of inflation, Wal-Mart’s domestic same-store sales would have increased by 0.6 percent in the quarter, said Jeff Davis, senior vice president and treasurer, in a call with reporters.

Executives said that while visits to Wal-Mart’s stores in the United States fell from the same quarter a year ago, people were spending more per visit. Net sales for the country increased 2.7 percent to $63.8 billion.

The improving sales do not reflect a rebounding American consumer, though. Executives said the low- and middle-income shoppers Wal-Mart goes after are still under heavy budget pressure. They said Wal-Mart was bringing in a wide assortment of merchandise and keeping prices down to try to get them to spend.

“Our core customer was still impacted by high unemployment and continued uncertainty over the economy, leading to declining consumer confidence,” said William S. Simon, president and chief executive of Wal-Mart United States, in a recorded message, and that helped define Wal-Mart’s tactics.

“Cost increases in numerous categories were not passed on to our customers in the form of increased prices,” he said. “Our customers are still feeling pressured to reduce expenses wherever they can.”

A few indications of that pressure: Mr. Simon noted that layaway, which Wal-Mart began offering in October for certain holiday items, had been more popular than the retailer expected.

“Customer feedback on the return of layaway has been overwhelmingly positive and layaway transaction volume continues to exceed plan,” he said. “It’s a great way to help families on a budget shop for Christmas.”

Also, the retailer has seen some shoppers simply stop buying in categories that had gotten too expensive, such as produce, dairy and meat.

Mr. Simon said that inflation in those categories had risen about 4 percent during the quarter, though Wal-Mart had not passed on the full amount to its shoppers.

“In areas of higher price inflation, if a customer does not have a trade-down opportunity, they might just trade out,” Mr. Davis said.

Mr. Davis said Wal-Mart continued to see shoppers spending as soon as they received their paychecks, and to decrease spending as they got farther away from the paycheck dates. That suggests the shoppers do not have a lot of savings to help them out.

“Going forward we really would not expect anything different,” Mr. Davis said.

Michael T. Duke, the chief executive of Wal-Mart, said in prepared remarks that “customers remain concerned about jobs, and only one in 10 Wal-Mart moms that we surveyed view the state of the U.S. economy as good.  They want to save money.  They’re juggling credit cards, using coupons, and skipping restaurants and vacations. There is a real sense that the economic strain is taking its toll.”

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Square Feet: Industrial Real Estate Is Attracting Investors and Builders

Developers and investors are starting to make big bets on industrial real estate, following signs that consumers may be starting to spend again. Sales of such properties have jumped nearly threefold from last year, according to figures from commercial real estate companies, and the vacancy rate has fallen for three consecutive quarters.

The industrial market is often a leading indicator for commercial real estate, improving before the office market. This is because when companies begin seeing increased demand from consumers their first steps are to increase production and ramp up inventory. “Only then do they hire new employees and look to grow their offices,” said Robert C. Kossar, a managing director and the head of the industrial real estate group for New York and New Jersey at Jones Lang LaSalle.

Signs of the market’s growth are apparent in the New York metro area. On a brownfield site in Edison, N.J., the J. G. Petrucci Company is building a 570,000-square-foot warehouse even though the developer has not lined up a single tenant. It is one of the first industrial properties built on spec in New Jersey since the recession.

“The timing is right because while rents are still low, there are clear signs that the market is tightening,” said James G. Petrucci, the company’s president. “I am confident that there will be any number of companies wanting this space by the time it is completed.”

In the first half of this year, the vacancy rate declined to 9.7 percent, its third quarterly decline and its lowest level since the first quarter of 2009, according to Cushman Wakefield. During the same period, a total of 70 million square feet traded hands, an increase of nearly 160 percent, the brokerage firm said. And year-to-date, leasing activity has risen more than 27 percent to 205 million square feet, compared with the same period last year, the company’s research showed.

“If you look at the fundamentals over the past six months or so, there is very strong leasing, declining vacancies and positive net absorption,” said Tim Wang, a senior vice president at Clarion Partners, which last month purchased 2.8 million square feet in industrial properties from Prologis Inc. for $118 million and is looking for other acquisitions. In addition, “industrial properties are very simple to operate,” Mr. Wang said. Even large buildings typically have only one or two tenants; they are less capital-intensive because landlords do not offer tenant improvement allowances or other terms common in office leases; and the cash flow from the rent is mostly stable and predictable.

Clarion Partners is one of several companies that have been increasing their industrial properties. Among the biggest buyers is Blackstone, which had meager holdings in the sector before spending $2 billion to acquire 275 industrial buildings earlier this year. Other companies that are buying aggressively include Terreno Realty Corporation, Morgan Stanley, the Cabot Group and CenterPoint Properties, according to Jones Lang LaSalle.

Matrix Development Group, a private company with offices in New Jersey and Pennsylvania, recently joined with Morgan Stanley to acquire a 265,000-square-foot warehouse in Robbinsville, N.J. The company is also constructing a 150,000-square-foot industrial building for the beverage distributor Ritchie Page, also in Robbinsville.

“We are at the inflection point in the market,” said Alec Taylor, a principal of Matrix Development. “Building values are still low, but rental activity and absorption rates are improving. Now is the time to buy buildings and in six months to a year, lease them up and improve their value.”

Ports also play a role in industrial real estate, and in New Jersey investors are making big bets that port business will increase. This is in part because of a $5.25 billion project to widen the Panama Canal by 2014. The widening will allow large cargo ships that currently anchor in California and use trucks or the railroad to move goods to the East Coast to sail directly to New Jersey.

The widening of the canal could mean big business for Port Newark-Elizabeth, and to prepare for an influx of larger ships the Port Authority of New York and New Jersey plan to raise the Bayonne Bridge by 2016.

“There is a growing need for shipping that is not showing signs of abating anytime soon,” said Dave Adams, the president of Port Newark Container Terminal, one of five major terminals at Port Newark. The terminal is positioning itself to take advantage of the improving market conditions. This summer, it extended its lease with the Port Authority, which owns the port, to 2050 and agreed to invest $500 million in capital improvements.

“Our goal is to be able to double the capacity of our facility from about 650,000 shipping containers a year to 1.2 or 1.3 million,” Mr. Adams said.

But while the market for larger properties, usually 300,000 square feet or more, that cater to the biggest beverage or food distributors or major retailers is showing improvement, the market for spaces of 50,000 square feet and under is still struggling.

“There is a disconnect in the market,” said John Huguenard, a managing director and head of national industrial investment sales at Jones Lang LaSalle. “Entrepreneurial businesses haven’t come back the way big business has.”

In Long Island, for example, where the industrial market mostly serves local businesses, “the vacancy rate is around 6.2 percent, which sounds good,” said Jack O’Connor, a principal and director of the national industrial practice group at Newmark Knight Frank in Long Island. “But that is because none of the firms track buildings under 20,000 square feet. If they looked at the smaller industrial spaces, they would see a vacancy rate of 10 percent to 11 percent.” Prices also have dropped: in 2007, smaller warehouses sold for $125 a square foot, but today the price would be closer to $75 a square foot, Mr. O’Connor said.

Smaller properties are languishing, Mr. O’Connor said, “because banks aren’t lending, and people have no equity in their homes to take out second mortgages to finance new businesses.”

And even the growth in the market for large industrial properties comes with cautions, experts say. “The volatility in the financial markets and the picture of a slow recovery, especially with employment, is having a guarded effect,” Mr. Kossar said. “The signs are trending in the right direction, they are all pointing toward a recovery, but it is a cautious optimism.”

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