Kraft quarterly results could make a case to Cadbury

CHICAGO (Reuters) - Kraft Foods Inc (KFT.N) will need to show progress in cutting costs and improving organic revenue when it reports earnings on Tuesday, in a bid to convince Cadbury (CBRY.L) shareholders it is a viable deal partner.

Lower commodity prices and cost controls helped other consumer-staples companies beat analyst estimates in recent weeks, including Kellogg Co (K.N), Clorox Co (CLX.N) and General Mills Inc (GIS.N). They also came in slightly ahead of muted revenue expectations.

If that trend holds for Kraft -- which is due to present a formal takeover bid for UK confectioner Cadbury by November 9 -- it could boost the company's shares and make for a more compelling offer.

"The trend has been for food companies across the board to beat the number," Edward Jones analyst Matt Arnold said. "I haven't seen many companies in consumers staples post a miss lately."

Kraft is likely to stick by its initial cash and stock proposal to Cadbury shareholders that was disclosed on September 7, sources familiar with the situation told Reuters.

That deal was valued at 745 pence a share, or 10.2 billion British pounds ($16.7 billion), at the time. The proposed bid was worth 733.4 pence, or 10.06 billion pounds ($16.5 billion) Monday afternoon based on the decline in Kraft shares.

The world's No. 2 foodmaker is scheduled to post third-quarter earnings after the New York Stock Exchange closes at 4 p.m. EST.

LETTING THE NUMBERS DO THE TALKING

Kraft Chief Executive Officer Irene Rosenfeld is not expected to take questions about the Cadbury bid when she talks to analysts about earnings on Tuesday, a spokesman said.

But the results will help set the stage for Kraft's bid.

The maker of Velveeta cheese and Oreo cookies is expected to post earnings of 48 cents a share in the quarter, according to Thomson Reuters I/B/E/S, up from 44 cents a year earlier, with lower commodity costs and its own cost-cutting measures helping boost profits.

But revenue is expected to fall to $10.32 billion from $10.46 billion, hurt by divestitures and strength in the dollar compared with a year earlier.

Cadbury chairman Roger Carr dubbed Kraft a "low growth conglomerate" in his letter to Rosenfeld rejecting the initial offer and analysts say Kraft will need to show sustainable growth prospects to overcome that perception.

In the past three quarters, Kraft has actually disappointed analysts in terms of revenue, with sales coming in 2 percent, 3 percent and 4.6 percent below expectations, according to Thomson Reuters I/B/E/S.

Earnings per share have been better, with the company reporting earnings of 4.4 percent more than analysts expected in the second quarter and 13.3 percent more than expectations in the first quarter.

Kraft's earnings' report comes almost two weeks after Cadbury reported a 7 percent rise in underlying sales for the third quarter, beating even the most bullish forecasts.

(Reporting by Brad Dorfman; editing by Carol Bishopric)

BMW 3Q net income falls 74 percent to euro78 million

FRANKFURT (AP) -- German carmaker BMW AG said Tuesday its net income fell 74 percent in the third quarter as it continued to be affected by the global economic downturn.

AP - FILE - In this March 18, 2008 file photo the company sign of German car manufacturer BMW is ...

BMW, the world's biggest luxury car company by sales, said net income for the period amounted to euro78 million ($115 million), down from euro298 million in the July-September period of 2008.

BMW's share price slid 7.1 percent to euro31.20 in Frankfurt after the earnings announcement as net income came in well below the consensus estimate of around euro150 million.

The Munich-based company said it delivered 7.2 percent fewer cars during the July-September period and that its revenue fell 6.6 percent to euro11.8 billion from euro12.6 billion in the July-September period of 2008.

"Although there are some emerging signs that the lowest point of the current economic downturn has been passed, the BMW group only expects the situation to stabilize at a low level during the last quarter of 2009," BMW said in its report.

"For the time being at least, it cannot be assumed that an enduring recovery has taken hold. Nevertheless the BMW group has performed well despite the difficult business environment," the company said.

BMW said that total car sales would likely be between 10-15 percent lower than in 2008 provided there are no further economic setbacks. The company's brands include its namesake BMW cars, the Mini compact and the super-luxury Rolls-Royce brands. The company also builds BMW motorcycles.

Despite the likely sales decline, BMW said it expected to report a positive result for the financial year 2009 and to maintain its leading position in the premium segment.

BMW said net income for the first nine months of the year fell 96 percent to euro47 million from euro1.3 billion in the January-September period of 2008 as the company saw a large pretax loss on its automobile business during the period.

Revenue for the first nine months declined 10 percent to euro36.2 billion from euro40.4 billion.

Automobile group production for the first nine months of the year was 21 percent lower at 907,429 compared to almost 1.2 million cars in the same period a year ago.

Motorcycle production was also 21 percent lower during the first nine months of 2009 at 65,909 from 83,845.

The company said it had also reduced its work force by 5.3 percent to 98,358 employees at September 30, compared with 103,850 employees at the end of September 2008.

Observers are looking forward to the group's new models including a Mini coupe and a new Rolls Royce model called the Ghost, which should add to future revenue.

BMW has said the order book on the new super-luxury Ghost -- which is a step below the top of the line Phantom -- is developing well. It hopes to start selling that new car next year.

UBS won't stem withdrawals soon as Q3 disappoints

ZURICH (Reuters) - Swiss bank UBS (UBSN.VX)(UBS.N) does not expect to win back assets from rich clients any time soon as it struggles to rebuild its reputation after a bitter U.S. tax row even as its underlying performance improves.

Higher-than-expected accounting charges pushed UBS into its fourth consecutive quarterly loss as it reported disappointing total net withdrawals of 36.6 billion Swiss francs ($35.81 billion) at its key wealth and asset management divisions.

UBS's results contrast with stellar profits seen at European peers Credit Suisse (CSGN.VX) and Deutsche Bank (DBKGn.DE) which both took advantage of a rebound in investment banking at the time UBS was slashing its own operations.

"The performance at the investment bank shows signs of recovery, but significant questions remain on the wealth management front as outflows were larger than anticipated," said Sebastien Lemaire, an analyst with Natixis Securities.

UBS shares fell 7.2 percent to 16.11 Swiss francs by 1059 GMT, their lowest level since the bank settled a U.S. tax lawsuit on August 19, helping dampen sentiment on European bourses, with the DJ Stoxx European banking index .SX7P down 3.3 percent.

For a graphic showing UBS profit and share price, click here: here

UBS's net loss of 564 million Swiss francs was narrower than 1.4 billion Swiss francs in the second quarter but larger than average analyst forecasts for 207 million.

"We do not expect an immediate recovery in client net new money flows," Chief Executive Oswald Gruebel and Chairman Kaspar Villiger, both appointed earlier this year to turn around the Swiss bank, said in a letter to shareholders.

But they noted that pretax operating profit excluding charges nearly doubled to 1.6 billion francs, signaling the crisis-hit bank was gradually on the mend.

"UBS expects to see further progress in restoring the underlying profitability of the business in future quarters, particularly in 2010. However, this progress will depend on market and other factors," they said.

Former Credit Suisse CEO Gruebel is expected to give more details on his strategy for UBS at an Investor Day on November 17.

UBS's Tier 1 ratio, a measure of a bank's financial strength, rose to a better-than-expected 15 percent at the end of the third quarter against 13.2 percent the previous quarter.

UBS Chief Financial Officer John Cryan told an analyst call the core wealth management unit would be under pressure as long as the bank reported losses and also noted UBS was under greater scrutiny than rivals amid a global clampdown on tax havens.

TROUBLE IN AMERICA

During the quarter, UBS settled the U.S. lawsuit, in which Washington accused it of helping rich Americans hide money in Switzerland, but still saw client withdrawals at the troubled Americas wealth management division accelerate to nearly 10 billion francs, almost twice as much as in the previous quarter.

"The brand has been more hit by reputation issues than expected -- especially in the Americas," Vontobel analyst Teresa Nielsen said in a client note.

UBS hired Merrill Lynch veteran Robert McCann last week to try to rebuild its U.S. franchise.

Net client withdrawals at the Wealth Management and Swiss Bank division, were as large as in the previous quarter, with UBS losing net money also among Swiss clients.

In asset management, UBS did better than in the previous quarter, but outflows were still worse than analyst forecasts.

UBS has suffered total net client withdrawals of 91 billion Swiss francs in asset and wealth management this year.

Profitability at UBS's investment bank improved to break even, but was overshadowed by accounting charges.

These included an own credit charge of 1.436 billion Swiss francs and a net loss of 409 million on its sale of it Brazilian Pactual business and charges related to the conversion of the notes issued to the Swiss government after the bank got state aid.

Switzerland sold its UBS stake in August.

Cryan said he expected the investment bank to continue to improve into 2010, but said UBS risked another big charge on its own credit in the fourth quarter as spreads tighten further.

"The investment bank is on the definitive road to recovery but it will be a bit of a wobbly road," UBS's Cryan added.

UBS said its cost reduction program was on track and said it had adjusted its headcount target for 2010 to 65,000 from a previous 67,500 to reflect divestments it announced in 2009. UBS had 69,000 staff at the end of September 2009.

A year earlier, UBS turned a small quarterly profit, mainly due to tax credits, but still ended 2008 with the biggest annual loss in Swiss corporate history.

($1=1.021 Swiss francs)

(Additional reporting by Rupert Pretterklieber and Emma Thomasson; Editing by Mike Nesbit)

Australia lifts interest rate to 3.5 percent

SYDNEY (AP) -- Australia's central bank raised its key interest rate Tuesday by a quarter percentage point for the second month in a row, declaring the global downturn over and warning that inflation was set to rise.

The decision to hike rates was widely expected by analysts and moves Australia further away from most economies, which have yet to respond to signs that the financial crisis has eased by raising lending rates.

The Reserve Bank of Australia board decided at its monthly meeting to raise the cash rate by 25 basis points to 3.5 percent. A month earlier, Australia became the first major economy to raise interest rates since the outbreak of the crisis when the bank hiked its key rate by a quarter point from a 50-year low.

Gov. Glenn Stevens said in a statement explaining the decision that inflation "will probably not fall as far as earlier thought" and "will probably rise somewhat over the coming year."

"With the risk of serious economic contraction in Australia now having passed, the board view is that it is prudent to lessen gradually the degree of monetary stimulus that was in place when the outlook appeared to be much weaker," Stevens said.

Australia has survived the downturn better than many countries thanks to strong demand from China for its mineral resources and huge government stimulus spending.

Stevens said the global economy has resumed growing. While the expansion was expected to be modest in most countries, "prospects for Australia's Asian trading partners appear to be noticeably better," he said.

China's strong growth was having a significant impact on other economies in the region, he added.

Fed to mull recovery, financial stability at policy meeting

WASHINGTON (Reuters) - Federal Reserve officials meeting this week must weigh improving economic data against the risk, reinforced by a persistently weak job market, that a burgeoning recovery remains on shaky ground.

A 3.5 percent annualized jump in third quarter gross domestic product revived debate between analysts who believe a sustainable turnaround is under way, and those who think growth will falter once a heavy dose of stimulus fades.

The uncertainty is evident within the Fed itself, with many policymakers emphasizing the hazards in their outlook, even as they vow to vigorously fight any early signs of inflation.

With inflationary warning signals largely absent, an immediate shift in the central bank's ultra-easy policy stance, including any tinkering with its pledge to keep interest rates low for an "extended period," appears unlikely.

"The Federal Reserve is unlikely to change its assessment significantly," said Marc Chandler, global currency strategist at Brown Brothers Harriman.

The Federal Open Market Committee, the central bank's policy setting group, meets on November 3 and November 4.

RECOVERY'S ARRIVAL

The third quarter GDP report on Friday signaled the end of the worst U.S. recession since the Great Depression, but government stimulus, including the "cash for clunkers" incentive for auto purchases and a $8,000 tax credit for first time homebuyers, helped prop the economy up.

The Institute for Supply Management's manufacturing index, a widely watched barometer of industrial strength, suggested activity remained robust in October. The measure jumped to 55.7 last month, its highest level since April 2006. It has held above the 50 line that separates expansion from contraction for three straight months.

Even the ISM employment index, long in contraction territory, turned positive, indicating the first inklings of a willingness to hire.

"Given the fairly good performance of this indicator in predicting the performance of the U.S. economy more generally, it is pointing to further upward momentum in U.S. economic activity," said Millan Mulraine, economics strategist at TD Securities.

THE UNEMPLOYMENT PROBLEM

Despite signs factory activity is picking up, the U.S. consumers who normally account for around 70 percent of the economy's growth, are facing major challenges.

Chief among them is a jobless rate currently hovering at a 26-year high just below 10 percent, which is expected to continue climbing into next year.

Coupled with three years of declines in home values, the unfavorable labor market has dampened consumers' appetite to spend. Even for those who have managed to hold onto their jobs, incomes largely remain stagnant or have lost ground.

The grim employment outlook raises doubts about whether growth can be sustained when the effects of the government's stimulus program fade.

FINANCIAL STABILITY

The banking sector, which has regained some of its swagger but remains relatively fragile, is another important consideration for Fed officials.

Some banks, like JPMorgan and Goldmans Sachs, have returned solidly to profitability and have, controversially, set aside vast sums for bonus payouts.

But much of this largess, say analysts, is the product of the government's implicit -- and sometimes explicit -- backing. The perception, cemented after Lehman Brothers' disastrous bankruptcy, that the public sector will not allow a major financial institution to fail, has lowered the cost of borrowing for banks.

Losses in the commercial real estate sector, which have been flagged loudly by Fed Governor Daniel Tarullo and a host of regional central bank presidents, suggest the perils of the credit crunch are not yet over for banks.

This should make the Fed leery of any sudden policy movements that might unhinge gains made thus far.

ap Air New Zealand to replace Boeing jets with Airbus

PARIS (AP) -- Air New Zealand has ordered 14 Airbus single-aisle A320 aircraft worth $1.07 billion at catalog prices to replace Boeing jets, the European plane maker said Tuesday.

Airbus said in a statement that New Zealand's national carrier has also placed purchase options for a further eleven A320s.

Airlines often negotiate discounts to the list prices.

The single aisle A320 is larger than the Boeing 737-300s it will replace, enabling the carrier to increase capacity, Airbus said.

After several bumper years, planemakers are seeing fewer orders this year as airlines cope with persistently high fuel prices, weak demand and falling fares.

Airbus is ahead of its American rival in net orders this year because Boeing has a higher number of cancellations. As of Sept. 30, Airbus had captured 123 net jet orders, compared with Boeing's Oct. 27 tally of 84

US stock futures follow global markets down

NEW YORK (AP) -- U.S. stock futures are down sharply, following selloffs in Asia and Europe, as concerns mount about the sustainability of an economic rebound.

Safe-haven investments like the dollar and Treasurys are rising, while most commodities are falling.

Investors around the globe have been jittery in recent weeks, wary of whether the economic recovery can maintain the same pace once government stimulus measures are removed.

On Tuesday, investors will get data on factory orders, as well as monthly sales reports from major automakers.

Ahead of the market's open, Dow Jones industrial average futures are down 94 at 9,641. Standard & Poor's 500 index futures are down 11 at 1,027, and Nasdaq 100 index futures are down 17 at 1,650.