World financial news

Kellogg Co.’s fourth-quarter net income climbed 7 percent despite falling volumes as the world’s biggest cereal maker lowered costs and raised prices.

It was a difficult and disappointing year for Kellogg, which struggled with intense competition, lower cereal sales and major food recalls. But there were signs that 2011 may be better for Kellogg, and its shares rose in trading Thursday.

Kellogg, which makes Frosted Flakes, Pop Tarts and other foods, is increasing its investment in new product development by 25 percent after scaling back during the recession. It also will spend more on auditing suppliers and testing raw materials to avoid a repeat of a major cereal recall and problems with its Eggo waffle distribution that hammered its results.

It is also increasing prices on some of its products to offset higher ingredient costs. The company already put some increases in place during 2010 but those are expected to continue through the year as the cost for corn and wheat soar.

Many businesses are deciding to boost prices to contend with higher costs. Whirlpool Corp. and Swedish rival Electrolux AB both said Wednesday that they were increasing prices because their raw material costs are on the rise. And consumer product makers Colgate-Palmolive Co. and Procter & Gamble Co. both said last week that they are likely to increase prices to cope with higher commodity costs.

Kellogg’s price increases also helped make up for softer sales volume during the period.

The company reported that its fourth-quarter revenue dipped 1 percent to $2.86 billion but that still topped the average forecast of analysts surveyed by FactSet for revenue of $2.85

Kellogg earned $189 million, or 51 cents per share, during the period, meeting analyst expectations. This compares with $176 million, or 46 cents per share, a year earlier.

“We lost some of our momentum in 2010, we’re trying to get that back,” said John Bryant, Kellogg’s new CEO.

Bryant, a 13-year Kellogg veteran, took over as CEO at the beginning of the year when former CEO David Mackay retired. Mackay, also Kellogg’s president and a board member, is staying through March to aid the transition.

Kellogg reaffirmed its outlook for 2011, saying it expects to earn $3.39 to $3.46 per share, including the anticipated effects of currency fluctuations. Analysts predict $3.47 per share for the year.

Shares of Kellogg, based in Battle Creek, Mich., rose $1.60 _ roughly 3 percent _ to $51.96 by midday.

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A small St. Louis start-up company has been riding high since Best Buy included its products in a national rollout of health and fitness products to the big box retailer’s stores.

Yurbuds’ earphones are now being sold in 560 Best Buy stores alongside somewhat well-known brands in the fitness world such as Gaiam, GoFit and Polar.

“It’s a big step forward for the venture,” said Seth Burgett, the chief executive of Yurbuds. “It is very exciting for us.”

The company’s “Ironman Series” earphones, which retail for $49.99, have a large 4-foot by 5-foot display in many Best Buy stores that proclaims: “Earphones that won’t fall out cash advance in one hour.”

Yurbuds, a business that is a little more than a year old, has 12 employees and is housed at the Center for Emerging Technologies, a business incubator in midtown.

When the Post-Dispatch first profiled the firm in February, Yurbuds was making custom-fitted, rubber-tipped caps that go over earphones, which also are called earbuds. The $20 earbud attachments were designed for comfort and so they would not fall out.

Since then, Yurbuds has expanded into complete earphone sets. Burgett said he realized that consumers wanted a complete solution

China’s biggest electricity provider, State Grid, says it has invested $989 million to acquire seven Brazilian power companies and their transmission facilities.

A notice by State Grid on the website of the government agency that manages state assets says the investment includes a 30-year concession to operate the Brazilian power grids that can be renewed in 20-year contracts once it expires payday loan lenders.

The deal marks a further expansion of State Grid into overseas markets following a similar investment in the Philippines.

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Irish Finance Minister Brian Lenihan won the backing of lawmakers in the first votes on his 6 billion-euro budget ($8 billion) to tackle what he called the “worst crisis in our history.”

Lawmakers late yesterday passed an initial series of votes on the budget in parliament in Dublin. Lenihan said the spending and tax plan for 2011 was the first step to get Ireland “back firmly on our own feet.”

The government is under pressure to pass the legislation to secure an 85 billion-euro bailout as the fiscal squeeze threatens to prolong a slump that has seen the economy shrink 11 percent over the past three years. The budget, the fourth since October 2008, adds to austerity measures of about 14 billion euros as the government seeks to reduce the country’s deficit.

“The Irish situation is pretty drastic,” Charles Dumas, research director at London-based Lombard Street Research Ltd., said in a Bloomberg Television interview. “They won’t get the deficit improvement they’re hoping for because they are hammering the economy.”

Lenihan said he’ll cut the salaries of government ministers by 10,000 euros and cap state salaries at 250,000 euros. Internet gambling will be taxed, child benefit payments will be cut by 10 euros per child.

Under the budget changes, a married couple with two children earning a combined 92,000 euros will lose 2,830 euros a year, or 4 percent of their income. A single person earning 52,000 euros loses 1,295 euros, also 4 percent of their income quick cash.

‘Everybody Pays’

“Over the next four years, further reductions in social welfare spending are unavoidable if we are to reduce the budget deficit,” Lenihan said in his budget speech to lawmakers. “Everybody pays, and those who can pay most, will pay most.”

The government faces at least three more votes, including a separate ballot on cuts in welfare payments before the budget is approved.

Cowen has said he will hold national elections as early as February, once he’s secured support for the budget. His Fianna Fail party is set to lose power after 14 years, and Fine Gael and Labor will probably form the next government, opinion polls show.

Both parties have said they’ll seek to re-open the aid deal that Ireland agreed with the European Union and the International Monetary Fund on Nov. 28. Ireland sought help after its borrowing costs soared on investor concern the cost of rescuing lenders including Anglo Irish Bank Corp. would swamp the state.

The budget “needed to have credibility,” said Eoin Fahy, an economist at Kleinwort Benson Investors in Dublin. “It seems to have met that objective although the banking system and the political system remain the great unknowns.”

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The biggest slump in copper inventories in six years is compounding shortages as prices head toward record highs, making the metal a top pick for Goldman Sachs Group Inc. and Morgan Stanley.

Demand will outpace supply by 367,500 metric tons next year, enough for wires, pipes and appliances in about 1.8 million U.S. homes, according to the median forecast of 12 analysts surveyed by Bloomberg. Stockpiles may drop to an all-time low of less than one week’s usage, said Michael Widmer, a London-based metals analyst at Bank of America Merrill Lynch. Global exchange inventories have dropped 22 percent this year, heading for the largest slide since 2004, data compiled by Bloomberg show.

Prices advanced 34 percent since June 30 even as the International Monetary Fund predicted slower world growth, U.S. unemployment stuck near its highest level in more than a quarter century and China, which uses two in every five tons of copper, curbed lending and raised interest rates. Now, banks from Credit Suisse Group to Barclays Capital are predicting higher prices, with the median in the Bloomberg survey at a record average of $8,542 a ton for 2011, 15 percent more than this year.

“Copper is the most attractive” of the base metals, said Ian Henderson, who manages about $8 billion in assets at JPMorgan Chase & Co. in London, including shares of Freeport- McMoRan Copper & Gold Inc. and BHP Billiton Ltd., the second and third-biggest miners. “I don’t expect any decline in copper demand in 2011 and there is little in the way of new mines coming on stream.”

Smart Phones

Prices climbed 18 percent this year, reaching $8,725 a ton on the London Metal Exchange today. That compares with a 6.5 percent advance in the MSCI World Index of equities, a 6.9 percent return on Treasuries and a 16 percent gain for the Standard & Poor’s GSCI Index of 24 raw-material futures. Prices reached a record $8,966 a ton on Nov. 11.

Demand for the metal, used in everything from smart phones to brake pads, will increase 4.2 percent next year, compared with a 2.6 percent gain in production, Barclays Capital said in a report Nov. 11. Supplies fell 363,000 tons short of demand in the first eight months of this year, the Lisbon-based International Copper Study Group said in a report Nov. 23.

Mining companies have failed to keep pace with demand because new reserves are getting harder to find and the quality of ore is declining, meaning less metal is extracted from each ton of earth. Average grades declined to about 1.1 percent this year from 1.6 percent in 1990, according to Guildford, England- based researcher Brook Hunt, a Wood Mackenzie company.

Biggest Mine

Production at Escondida, the world’s largest copper mine, will drop as much as 10 percent in the 12 months ending in June because of lower grades, Melbourne-based BHP Billiton, the largest shareholder, said in a statement Aug. 25.

Freeport-McMoRan, the largest listed producer, said Oct. 21 that its copper sales from North America would drop to 1.1 billion pounds this year from 1.2 billion pounds in 2009. Sales from Indonesia will probably decline to 1.2 billion pounds from 1.4 billion, the Phoenix-based company said.

“The major copper reserves that are being produced today come from 100 year-old mines, with few exceptions,” Freeport Chairman James R. Moffett said in a conference call on Nov. 17.

Analysts’ forecasts for shortages may not yet be reflected in futures markets. Copper for delivery in December 2011 traded at $8,555 on Dec. 3 on the LME, 1.9 percent below than the benchmark contract for delivery in three months.

Goldman predicts prices of $11,000 by then and buying the December 2011 contract is one of its seven recommendations in commodities, according to a report Dec. 1.

Banking Bailout

The forecast gains could be stunted by slowing growth. Prices slumped 7.7 percent in three days last month on concern China’s steps to control inflation may curb demand for metals and that Ireland would need a banking bailout.

Prices now may also be skewed by who owns metal. One unidentified company held 50 percent to 79 percent of the LME’s deliverable stockpiles as of Dec. 1, bourse data show. Buyers that day paid the largest premium in two years for immediate supply, relative to the three-month contract. Deliverable inventories total 324,375 tons, the exchange said Dec. 6.

Record prices could encourage users to substitute cheaper materials. Global consumption may be 100,000 tons less than expected in 2011, and 250,000 tons below predictions in 2012, because of replacement by plastics in plumbing and aluminum alloys in air-conditioners, Credit Suisse said Oct. 20.

Hybrid Cars

Substitution may take out 3 percent of demand this year and next, according to London-based Rio Tinto Group. New uses in electric and hybrid cars should make up for some of that, Andrew Harding, chief executive officer of Rio’s copper business, said Nov. 26. The average North American car contains about 23 kilograms (51 pounds), while an electric car uses about 75 kilograms, he said.

The tripling of prices since December 2008 is also spurring use of scrap metal, alleviating shortages signaled by this year’s 22 percent drop in stockpiles monitored by exchanges in London, Shanghai and New York. The supply of metal from wires and electronic goods jumped 25 percent in the first eight months, the International Copper Study Group reported in November.

The biggest threats to higher prices are China tightening its monetary policy and a worsening European debt crisis, said Bank of America Merrill Lynch’s Widmer, whose March prediction for this year’s average price is accurate to within 2 percent.

China Economy

China may raise bank reserve requirements to counter capital inflows and a possible jump in lending at the start of 2011, Li Daokui, an adviser to the central bank, said Dec. 3. The bank pushed the one-year lending rate to 5.56 percent in October, the first increase since 2007.

Still, manufacturing grew at a faster pace for a fourth straight month in November, according to the nation’s logistics federation. China’s economy will expand 9 percent in 2011, compared with 10 percent this year, according to the median of 18 economists surveyed by Bloomberg. That would still be more than three times the speed of the U.S., the second-biggest copper user, the survey shows.

Consumption in China, India, Brazil and the Middle East will expand at an average annual rate of 7 percent per capita through 2015, according to Barclays Capital.

“Where is all the new copper going to come from?” said Tom Patton, chief executive officer of Quaterra Resources Inc., a Vancouver-based company developing mines in North America. “New deposits take 10 to 15 years to start up.”

Higher Demand

Aurubis AG, Europe’s largest smelter, is also predicting higher demand next year.

“We presently see a very positive order flow for next year,” Bernd Drouven, chief executive officer of the Hamburg- based company, said by e-mail. “Every copper price dip is recognized by customers as an opportunity for new orders.”

Demand from Asia helped Santiago-based Codelco, the biggest producer, increase the surcharge on sales to China next year by 35 percent, more than the 23 percent increase for Europe, industry officials said last month. Buyers pay the fee on top of the price of LME copper for immediate delivery.

The gain is driving shares of mining companies. Freeport- McMoRan climbed 36 percent in New York trading this year, beating the 9.8 percent gain the S&P 500 Index.

Demand may also be boosted if JPMorgan, BlackRock Inc. and ETF Securities Ltd. start exchange-traded products backed by the metal. Such funds could hold as much as 250,000 tons, Aurubis said in a report Nov. 15. Similar products backed by gold accumulated 2,098 tons since they started in 2003, equal to nine years of U.S. mine output.

“The real story is metals and we’ve dubbed this the metals decade,” Mari Kooi, chief executive officer of Wolf Asset Management International LLC, said at the Bloomberg Link Hedge Fund and Investor Briefing in New York on Dec. 2. “What we have is a set up of shortages in the metals.”

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The Jacksonville Jaguars have announced the team will lift the blackout on the Monday night game against the Tennessee Titans — although enough tickets haven’t been sold to satisfy National Football League rules.

The National Football League requires that the Jaguars sell 50,957 tickets 72 hours before kickoff to avoid a television blackout. As of 3 p.m., there were around 1,100 tickets left to go, not including 385 tickets that were returned by the Titans which do not count against the blackout, said Macky Weaver, senior vice president of sales and marketing.

“If they don’t get sold, we’ll have to buy them,” Weaver said. “But I’m confident we’ll easily be there by Monday.”

The Jaguars have managed to avoid blackouts for their three home games so far this season. In 2009, only two home games were televised.

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Google Inc. will help fund a $5 billion offshore wind power project that will run from New Jersey to Virginia.

Google (NASDAQ: GOOG) said in a blog post Tuesday that the Atlantic Wind Connection project will stretch 350 miles from New Jersey to Virginia and will be able to connect 6,000 megawatts of offshore wind turbines.

That is the equivalent to 60 percent of the wind energy installed in the country last year, Google said, and enough to serve approximately 1.9 million households.

The project will connect offshore power hubs that will collect power from offshore wind farms. It will deliver the power via sub-sea cables, acting as a "superhighway for clean energy."

The project is led by the independent transmission company Trans-Elect. It is financed by Google, Good Energies and Marubeni Corp.

Google is investing 37.5 percent of the equity in the initial development stage, with the goal of obtaining all the necessary approvals to finance and begin constructing the line.

Google said the mid-Atlantic region was chosen as its "shallow waters make it easier to install turbines 10 to 15 miles offshore, meaning wind projects can take advantage of stronger winds and are virtually out of sight from land."

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The U.S. Navy has awarded Niking Corp. a $6.1 million contract to extend the rifle range at the Puuloa Training Facility in Ewa Beach.

The contract calls for Wahiawa-based Niking to construct a 400-yard extension to the existing 600-yard rifle range. The work also will include the installation of two 925-foot side-containment structures.

The project will provide a raised-earth firing line with 12 firing lanes from 700 to 1,000 yards long. The work is to be completed by August.

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Drummond Co. is looking to sell its Colombian mining operations, according to a report from Reuters.

The international news agency is reporting that Drummond is seeking up to $8 billion to selling the operations and the deadline is next week.

The company, which has mining and real estate development operations, is the largest private business in Birmingham, with $2 guaranteed personal loan approval.8 billion in revenue last year.

For the Birmingham Business Journal's Birmingham 100 listing earlier this year, Drummond reported 1,370 local employees and 6,300 total employees.

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Estate planning attorneys may worry that their persistent headaches are a sign of something more serious. But once they remember what they do for a living, the headaches start to make perfect sense.

That’s because they are operating in a kind of weird estate tax limbo. The federal estate tax was here, now it’s gone for a year. It’s probably coming back soon, although no one can say exactly what it will look like.

Unless Congress acts, the estate tax will be back next year and no more than $1 million of a person’s estate would be exempt from it. That’s well below the $3.5 million exemption in place last year. And the top estate tax rate would be 55%, up from 45% in effect last year.

Oh, and just because there is no federal estate tax this year doesn’t mean heirs of someone who dies in 2010 have no federal tax liability on their inheritance. They very well may, but it can be hard to tell them in some instances what it will be because of ambiguities in the law.

So what’s an estate planner to do?

"You try to do as little as possible," [[for the estate of] someone who died in 2010," said Steve Hartnett, associate director of education at the American Academy of Estate Planning Attorneys.

And when you absolutely have to do something, he said, you make your best guess and hope it turns out to be the right one when Congress gets around to clarifying the estate tax rules of the road.

One potential minefield is how to deal with the change in "step up" rules for heirs.

Under the old regime, heirs who wanted to sell inherited assets had to pay the capital gains tax on the gains accrued since the day they inherited the asset. In other words, the "cost basis" of the asset was essentially stepped up to present day. Those rules go back into effect next year.

This year, however, when heirs sell appreciated assets they will owe capital gains tax on all the gains since the deceased bought the asset. But the first $1.3 million in gains is treated as tax free. And for surviving spouses, another $3 million is as well.

Say an estate’s assets with $5 million of gains are sold. Non-spousal heirs would only pay the capital gains tax on $3.7 million. A widow who is sole beneficiary would only owe tax on $700,000.

As a result of the new step-up rules, estate planners face an array of new complexities. One of them is advising clients when to sell an asset to minimize the tax bite. For instance, if the heirs of someone who dies this year don’t sell an appreciated asset until 2011 or beyond, which step-up rules will they be subject to? Hartnett says how the law will be applied isn’t clear.

Equally confusing is how best to cook up an estate plan for someone who is living now and plans on doing so at least until 2011.

The ‘who knows?’ factor

The only good news is that generally speaking relatively few taxpayers are affected by the federal estate tax itself.

At most, only an estimated 1.76% of estates would be affected in 2011 if the estate tax is resurrected with a $1 million exemption, according to a recent report by the Congressional Research Service.

Then again, every estate of someone who died this year, no matter how small, will be affected by changes to rules governing heirs’ step-up in cost basis.

Optimists still hold out hope Congress will offer clarity before 2011, but the smart money says it won’t come before the mid-term elections in November.

Then again, who knows?

Lawmakers shocked the death rattle out of people by actually letting the estate tax lapse this year. Soon after, there was talk that they would reinstate the estate tax retroactively. Wrong again. Now halfway through the year, few expect that will happen.

Next expectation? Lawmakers absolutely, positively will come up with a more lenient version of the federal estate tax for 2011 than the one slated for currently.

Several key senators have been trying to cut a deal for months. Negotiations have stalled on more than one occasion.

"We’re almost half a year away from a tax policy that a super majority of senators say they don’t support. Yet, we’re stuck," Sen. Charles Grassley, R-Iowa, said earlier this week. "This time-sensitive issue has taken a back seat to everything else."

Anne Mathias, director of research at Concept Capital’s Washington Research Group, thinks it’s a fair bet to assume the new exemption level will fall somewhere between $3.5 million to $5 million.

But she also said if Republicans sweep the mid-term elections, and win at least 60 seats in the Senate, they may push to extend the repeal of the tax.

When Hartnett was asked what he thinks will happen with the estate tax next year, he gave the only answer he and his colleagues can give for many estate tax questions these days: "I don’t know." 

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