March 26, 2023

Earnings Throw Water on S.&P. 500’s Party

A string of lackluster earnings reports weighed on the stock market on Tuesday, ending an eight-day winning streak for the Standard Poor’s 500-stock index.

Coca-Cola, the world’s largest beverage maker, fell after the company said it sold less soda in its home market of North America and its earnings declined 4 percent. Charles Schwab, the retail brokerage firm, dropped after it reported disappointing second-quarter earnings. And Marathon Petroleum, the fuel refiner, declined after it forecast weak earnings and said its business was being hurt by renewable-fuels laws.

“The expectations out there for earnings over all, they’re pretty modest,” said Scott Wren, a senior equity strategist at Wells Fargo. “Earnings season is not going to be what drives the market from here.”

The Dow Jones industrial average fell 32.41 points, or 0.2 percent, to close at 15,451.85. The S. P. 500 declined 6.24 points, or 0.4 percent, to 1,676.26. The Nasdaq composite dropped 8.99 points, or 0.3 percent, to 3,598.50.

Eight of the 10 industry groups in the S. P. 500 fell. The declines were led by materials companies. Phone and technology companies were the two groups that gained.

Coke dropped 78 cents, or 1.9 percent, to $40.23 after the company reported that its second-quarter profit fell 4 percent. Charles Schwab fell 71 cents, or 3.3 percent, to $21 after its earnings came in short of analysts’ expectations as expenses rose and its interest margins fell. Marathon Petroleum fell $3.17, or 4.3 percent, to $69.93.

“Expectations for earnings growth this quarter are fairly subdued,” said Michael Sheldon, chief market strategist for the RDM Financial Group. “However, the important thing for investors is to look ahead to the second half of the year, where earnings are supposed to pick up significantly.”

Overall S. P. 500 earnings are expected to grow by 3.4 percent in the second quarter from the same period a year ago, according to data from SP Capital IQ. The rate of earnings growth is predicted to rise in the third and fourth quarters, reaching 11.6 percent in the final three months of the year.

The stock market has climbed back to record levels after a brief slump in June, when the S. P. 500 logged its first monthly decline since October on concerns that the Federal Reserve would ease back on its economic stimulus too quickly. The S. P. 500 rose for eight consecutive trading sessions through Monday, its longest winning streak since January. The index is up 4.4 percent in July, putting it on track to log its biggest monthly gain since January, when it rose 5 percent.

Stocks rose last week when Ben S. Bernanke, the Fed’s chairman, said the central bank would not ease its stimulus efforts before the economy was ready. On Wednesday, Mr. Bernanke is scheduled to give his semiannual testimony to Congress on the economy.

Esther L. George, president of the Federal Reserve Bank of Kansas City and a voting member of the Fed’s monetary policy committee, said on Tuesday that the central bank should cut back on its stimulus as the labor market begins to recover. The central bank is currently buying $85 billion of Treasury and mortgage securities a month to keep interest rates low and to encourage borrowing and hiring.

“It is time to adjust those purchases,” Ms. George told Fox Business Network.

In government bond trading, the 10-year Treasury note rose 3/32, to 93 8/32, while its yield slipped to 2.53 percent, from 2.54 percent late Monday. The 10-year Treasury yield has retreated since surging as high as 2.74 percent on July 5.

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Mendrisio Journal: In Mendrisio, Switzerland, Gold Can Be Solid and Liquid

The real gold is here because four of the world’s major gold refineries are on Swiss soil, three of them here in Mendrisio, turning roughly one-third of the world’s gold into bars and ingots. The wine is here because over the past several decades this Italian-speaking region has emerged as the largest wine-growing area in Switzerland, and the local merlot has carved a big place in the Swiss wine market.

Merlot, said Luigi Zanini Jr., 40, whose father began making wine here in the 1980s after importing Italian wines for decades, “is king, queen, prince and all of the nobility.” The company he and his father run, Vinattieri Ticinesi, is now Switzerland’s largest winemaker, producing about 500,000 bottles a year.

If Mr. Zanini deals in bottled gold, across town, at a sprawling factory with gray concrete walls seven feet high, Erhard Oberli handles the real thing, as the chief executive of Argor-Heraeus, a major refiner processing hundreds of tons of gold every year.

Gold refining flourished here, Mr. Oberli said, because of the proximity to Italy, where jewelry is a major industry and labor is cheap. “Italy, traditionally, was by far the biggest consumer of gold, taking about 800 tons a year, half legally and half illegally,” he said. The illegal part has largely been cleaned up, but Italy remains a big customer, as do makers of jewelry and watches in Swiss cities like Geneva.

The price of gold is now hovering at nearly $1,700 an ounce, compared with less than $300 a dozen years ago. That is not a direct benefit to Mr. Oberli, because his company is a processor of gold, not a trader. But the demand for melted-down gold and fresh ingots from raw gold has soared, so he now has a new $32 million enlargement of his factory to go along with the growth in the number of employees, to 229 from 152 five years ago.

Both the gold and the wine are feeding a prosperity here that contrasts sharply with the slump in surrounding regions, most notably northern Italy, long a powerhouse of the European economy.

Mendrisio, with its charming old downtown streets ringed by state-of-the-art factories, embedded in steep valleys ringed with vineyards, has long been a magnet for Italians in search of work. In recent years as Europe’s borders have grown increasingly porous, and Italy suffers the effects of a debt crisis, the numbers have soared.

Every day more than 7,500 Italians clog the roads, making the trek across the border in their Hyundais and Toyotas and the occasional Fiat, coming to jobs in Mendrisio, where the local population is only 11,600. About a decade ago, before Switzerland began joining various European agreements to eliminate border controls, most were unskilled workers in farming or construction, but they are now increasingly skilled people — engineers, chemists, accountants.

Meinrad Perler is the son of a farmer in western, French-speaking Switzerland who went into banking. When that career soured, he turned to his passion, winemaking, settling in Mendrisio in the 1980s. “It’s not the ideal location, too much rain in the wrong seasons, and hot, dry summers,” he said, steering his sport utility vehicle through steep vineyards.

Still, the climate has not prevented Mr. Perler, 75, from building an annual production of 210,000 bottles a year, mostly merlot. Of his 14 full-time employees, 8 are Italians, including his chief oenologist. When he recently advertised for an accountant, 132 letters came in, more than two-thirds from Italians.

“They’ll accept a job that is lower than their qualification,” he said, and for less money.

Over at the Zanini winery, of 72 employees, about half are cross-border Italians. “The tendency is to try and find people from Ticino,” the region Mendrisio lies in, Mr. Zanini said. “But maybe there’s more desire in Italy.”

At Argor-Heraeus, Mr. Oberli badly needs engineers, chemists and metallurgists, and cannot find them locally. “In Italy now it’s a catastrophe, and given the unemployment, you easily find young, well-trained people,” he said, turned out by schools like the Technical University in Milan. About two-thirds of his employees are Italians, who drive back to their homes in Italy when the workday is done.

Of course there are benefits to employing Italians, like lower pay. The Swiss federal statistical office released figures recently showing that while the average disposable income of a Swiss is roughly $55,000, that of cross-border workers like the Italians is about $48,000.

While this gap annoys Swiss employees, who see the foreigners as competitors, employers say the difference is justified. “Taxes are less in Italy than in Switzerland,” said Marco Nauer, 49, a metals expert at Argor-Heraeus who is responsible for hiring. The cost of living is lower in Italy as well, so earnings in Swiss francs go further.

Behind Mendrisio’s neo-Classical town hall, a large parking garage is being built. The dozen or so cars of the construction workers all have Italian plates. “With the crisis in Italy, there just isn’t any work,” said Davide Grassi, 33, a cement mason from Milan who in July began driving the 40 minutes to work here every day.

For some, it is more than money. Last September, Roberta Pellin, who lives in Olgiate Comasco, Italy, a 20-minute drive across the border, opened a little vaulted flower shop along Corso Bello, a pedestrian street in Mendrisio’s old town center, after working for 25 years in the flower business in Italy.

“I evaluated the situation in Italy and decided it’s far easier in Switzerland,” said Ms. Pellin, 44. The Italian bureaucracy is crushing, she said, and the professionalism is greater in Switzerland. Moreover, Swiss laws require stores to close Sundays, unlike in Italy, where they stay open seven days a week.

“I have two kids,” she said. “It’s about quality of life.”

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DealBook: Exxon Mobil to Sell Its Japanese Arm for $3.9 Billion

Exxon Mobil said on Sunday that it had agreed to sell its Japanese subsidiary to TonenGeneral Sekiyu, a major refinery operator in Japan, for about $3.9 billion, as part of a revamping of the oil giant’s operations in that country.

Under the terms of the deal, Exxon will sell a 99 percent stake in the subsidiary, ExxonMobil Yugen Kaisha, to TonenGeneral. Exxon will in turn shed most of its controlling stake in TonenGeneral, keeping a 22 percent interest in the Japanese refiner.

The deal represents the latest move by Exxon and other major oil companies to shift their focus from refining operations to higher-margin businesses like exploration and development of new sources of oil and natural gas.

There is surplus refinery capacity in many parts of the world in large part because of the economic downturn, which has sliced into demand for gasoline and other petroleum products.

Meanwhile, high oil prices and relatively low gasoline prices have squeezed refinery profits. Royal Dutch Shell and BP are selling refineries in Western Europe and the United States. Several refiners have closed a handful of refineries on the East Coast in recent years, and a few are up for sale. ConocoPhillips plans to separate its refinery operations from oil and gas exploration and production.

TonenGeneral will also streamline its operations in light of what it says is declining demand for oil in Japan, which has put pressure on the company’s profit margins.

“The company will be able to more effectively execute locally driven investments and other business decisions that will help the company adapt to the challenging operating environment,” TonenGeneral said in a statement.

TonenGeneral will continue to have exclusive use of Exxon brands like Esso, Mobil and General in Japan. Exxon will also provide technology and supply services to TonenGeneral.

The Japanese refiner plans to finance the transaction with some of its 100 billion yen ($1.3 billion) in cash on hand and with bank debt. The deal is expected to close by June 1.

TonenGeneral was advised by Nomura Securities and the law firm Nishimura Asahi.

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