November 14, 2024

Bits Blog: Google Reaches Settlement on Illegal Ads

12:48 p.m. | Updated to include official announcement.

The government announced Wednesday that Google will pay $500 million to settle government charges that it has shown illegal ads for online Canadian pharmacies in the United States.

The fine, which the Justice Department said is one of the largest such penalties ever, covers revenue that Google earned from the illegal advertisers and revenue that the Canadian pharmacies received from United States customers.

As part of the settlement, Google acknowledged that it improperly aided the Canadian pharmacies — which operate illegally by failing to require a prescription or selling counterfeit drugs — in advertising through its AdWords program.

Since 2010, after Google became aware of the investigation, it has required that all Canadian online pharmacy advertisers be certified by the Canadian International Pharmacy Association and has specified that they can advertise only to Canadian customers. United States pharmacy advertisers must be certified by the National Association of Boards of Pharmacy.

The investigation was first revealed in May, when Google said in a government filing that it set aside $500 million for the potential settlement of a Department of Justice investigation into its advertising practices. The move decreased its quarterly profit by 22 percent.

Google has said in the past that regulating these pharmacies on its site is a cat-and-mouse game, because when it introduces rules to prevent them from advertising, they find new ways to appear on Google.

Web sites are liable for ads on their sites from advertisers that break federal criminal law.

“We banned the advertising of prescription drugs in the U.S. by Canadian pharmacies some time ago,” Google said in a statement Wednesday. “However, it’s obvious with hindsight that we shouldn’t have allowed these ads on Google in the first place. Given the extensive coverage this settlement has already received, we won’t be commenting further.”

In a statement issued by the Justice Department, James M. Cole, a deputy attorney general, said: “The Department of Justice will continue to hold accountable companies who in their bid for profits violate federal law and put at risk the health and safety of American consumers. This settlement ensures that Google will reform its improper advertising practices with regard to these pharmacies.”

The investigation was led by officials from the United States attorney’s office for the District of Rhode Island and the Food and Drug Administration’s Office of Criminal Investigations.

Article source: http://feeds.nytimes.com/click.phdo?i=b37ac02753711bf603a388b8c4b483c5

Wal-Mart Frets as U.S. Shoppers Buy Food and Little Else

The poorer customers who shop at the nation’s biggest retailers are still on tight budgets. They wait inside the store at the end of each month with full shopping carts until the clock strikes midnight. Then, their electronic-benefit transfers from the government go through, and they pay for their groceries and other staples. They buy items in small packages, which cost less than big ones.

And while they are spending more on food at Wal-Mart than they did a year ago, they are buying less in most other categories.

Same-store sales, or sales at stores open at least a year, fell by 1.1 percent in the quarter in the United States, the company said on Tuesday. It was the eight quarterly drop in a row, one of the worst streaks in Wal-Mart’s history.

Over all, however, earnings beat analyst expectations, helped by sales strength in international stores and at its Sam’s Club unit. The company said its quarterly profit was $3.4 billion, or 97 cents a share, up from $3.3 billion, or 87 cents a share, a year earlier. Wal-Mart had forecast a profit of 91 to 96 cents a share for the quarter, and analysts expected a 95-cent-a-share profit on average.

Sales in the period, which ended April 30 and was the first quarter of Wal-Mart’s fiscal year, rose 4.4 percent, to $103.4 billion.

Low prices on groceries during an inflationary period helped sales, Wal-Mart executives said. Same-store sales in grocery were up in the single digits for the quarter in the United States. Wal-Mart said food prices rose about 1 percent in the quarter as a result of inflation.

Yet Wal-Mart had some trouble getting shoppers into the rest of the store.

In apparel, for instance. “We’re simply not converting enough of our grocery customers to shop apparel,” said William S. Simon, the president and chief executive of Wal-Mart’s United States division, in a conference call with investors.

After flirting with fashion-forward items, Wal-Mart decided to focus on basic clothes, but company executives said they did not perform well.

“It’s something that we’ve stumbled with over the last several quarters and we’re not happy with,” Charles M. Holley Jr., the chief financial officer, said in a conference call with reporters. “It does start with basics, and for us to be able to sell anything that’s fashionable at all, we really have to get basics down first.”

While “we had a fairly good quarter” with items like T-shirts and underwear, he said, “where we’re still not executing is in the kids’ and the women’s business.”

In other departments, Wal-Mart is piling merchandise in its aisles to signal value, and is stocking items in smaller packages that someone on a budget can afford, in an effort to take market share from dollar stores.

“You see customers that are running out of money at the end of the month going to the smaller pack sizes — they are not necessarily a better value,” Mr. Holley said, but “we have been continuing to work on that, so we have the smaller pack sizes.”

Wal-Mart said this strategy had been successful with products like air fresheners and fishing products, so far. “These modular changes focused on bringing back assortment, ensuring opening price points were available in all categories, and increased the holding power on the shelf,” Mr. Simon said.

Same-store sales were all in negative territory in categories like entertainment, including electronics; hard lines, which are items like hardware and crafts; apparel; and home.

In the United States, Wal-Mart has been making a number of changes to revive same-store sales. Michael T. Duke, chief executive of Wal-Mart, said on Tuesday that “comp sales growth remains the greatest priority for me and the entire Wal-Mart U.S. team.”

Wal-Mart said it would continue with its expansion plans in the United States, particularly with smaller stores. Its grocery-only stores, which are called Neighborhood Markets and are about one-third the size of a typical Wal-Mart, performed well in the quarter. There, same-store sales were up 4 percent as visits by customers rose. Wal-Mart said that because of those results, it would open another 30 to 40 Neighborhood Markets this year.

The company will also open 15 to 20 Wal-Mart Express stores by the end of the year in urban and rural areas. At about 15,000 square feet, they will sell groceries “along with key general merchandise categories,” Mr. Simon said. They will also function as a depot of sorts for Walmart.com’s items. Customers can order something from the extended online inventory, and pick it up at the store.

Analysts noted that drops in Wal-Mart’s same-store sales were at least easing.

“Top-line results came in somewhat ahead of expectations, reflecting a more moderate decline in U.S. comps,” Colin McGranahan, an analyst at Sanford C. Bernstein Company, wrote in a note to clients.

Wal-Mart said it expected same-store sales to range from down 1 percent to up 1 percent in its second quarter.

Separately, Home Depot also reported earnings on Tuesday. Although its profit beat Wall Street expectations, its same-store sales in the United States declined because of the harsh winter, Craig A. Menear, its merchandising chief, said in a call with investors.

Home Depot’s revenue was $16.82 billion, down from $16.86 billion in the same period a year earlier. But because of aggressive cost-cutting, its net income was up 12 percent to $812 million, or 50 cents a share, versus analyst expectations of 49 cents a share.

“It’s all weather,” Home Depot’s chief financial officer, Carol B. Tomé, said in an interview. “It’s not an assortment issue. It’s just when it’s cold and snowing and raining, people aren’t going to do the outdoor products.”

Shares of Wal-Mart fell 52 cents, or about 1 percent, to $55.54 a share. Shares of Home Depot rose 1.14 percent, or 42 cents, to $37.40.

Article source: http://feeds.nytimes.com/click.phdo?i=fb73e15f411d72df449ccafa06900416

DealBook: Morgan Stanley Profit Falls 48%

Morgan Stanley, which like its peers is still feeling the aftereffects of the financial crisis, posted first-quarter earnings on Thursday of $736 million, down 48 percent from the period a year earlier, and it recorded a $655 million loss from a Japanese joint venture.

While Morgan Stanley’s quarterly profit of 50 cents a share is down from the first quarter of 2010, when the company earned 99 cents a share, it beat analysts’ expectations of 35 cents, according to Thomson Reuters.

Morgan Stanley’s chief executive, James P. Gorman, said he was “disappointed” with the loss in the Japanese unit, but emphasized in a statement that the company “continued to strengthen our client franchise and delivered solid results across many of our businesses.”

A number of its major units, including global wealth management, experienced a rise in net revenue. In fixed income and commodities sales and trading, however, net revenue fell to $1.8 billion from $2.7 billion in the period a year earlier.

The firm’s return on equity, an important measure of profitability, was 6 percent in the quarter compared with 16 percent in the period a year earlier. This number has fallen sharply across the industry in recent years.

In the aftermath of the financial crisis, Wall Street banks are required by regulators to limit leverage and keep more capital on hand in case of another economic shock — all of which is weighing on profit in a sluggish economic environment.

Morgan Stanley’s results come just two days after Goldman Sachs posted profit of $1.56 a share, which was down 21 percent from the period a year earlier but nearly double analysts’ expectations. Citigroup and JPMorgan Chase have also recently reported earnings, and both lamented a tough economic environment.

Like its rivals, Morgan Stanley has had a difficult time recovering from the financial crisis. Mr. Gorman, who moved into the bank’s top spot in January 2010, has tried to retool the business, with a flurry of management changes and a hiring spree to bolster its trading business. Even so, the company’s stock price is lower than when Mr. Gorman took over.

Morgan’s stock closed at $26.04 on Wednesday. Shares of the investment bank moved up in premarket trading on news of better-than-expected results.

Mr. Gorman has been weighed down by a number of issues, many of which he inherited. Among the biggest: a dividend that the firm must pay to the Mitsubishi UFJ Financial Group of Japan. Morgan Stanley’s relationship with Mitsubishi UFJ was struck during the credit crisis, when Morgan accepted a $9 billion lifeline from the bank. The bank just renegotiated its stake with Mitsubishi, a move that will cuts its $800 million dividend payments, but dilute shareholders.

At the same time, Morgan Stanley set up two joint ventures with Mitsubishi to increase its presence in Japan. One of those initiatives, the one Morgan Stanley does not control, took a loss for the quarter.

The results in fixed income and commodities were clearly a disappointment, too, with net revenue down 33 percent. Morgan said the weak performance reflected a drop in credit products, which was partly offset by a jump in interest rate products. That helped drag down the overall institutional securities group, where revenue fall to $3.59 billion from $5.34 billion in the period a year earlier.

The one bright spot in institutional securities was investment banking, which reported first-quarter revenue of $1.2 billion, up 15 percent from the period a year earlier.

Asset management posted net revenue of $626 million for the period, down 4 percent.

In the global wealth management division, which includes Morgan Stanley Smith Barney, revenue increased to $3.4 billion from $3.1 billion in the period a year earlier.

In the first quarter, the firm set aside $4.3 billion for compensation, 56 percent of its net revenue. This number is widely watched on Wall Street, as Morgan Stanley has come under fire in recent years from shareholders for its compensation levels. In 2010, Morgan Stanley paid 51 percent of its revenue to employees, down from 62 percent in 2009.

Article source: http://feeds.nytimes.com/click.phdo?i=4f4aabd7fd5e88eaacfa56911d00f733