THE DISTILLERY: Woolies wilt

More profits, more blood confirmed spilt at Leighton Holdings, Woolies' shares caned as the retail giant came back to the profit pack and the competition regulator loses a key case. Another busy day yesterday. Overnight in the US, Warren Buffett was dragged in to support the struggling Bank of America and give it credibility. Today an old favourite, that trusty steed Rate Rise Looms, will be left in the spelling paddock and instead it will be Rate Cut Now, a newish contender, that will appear at the public examination of Reserve Bank governor, Glenn Stevens, this morning. 
 
The Financial Review reports this morning: "The RBA's belief in the country's solid growth prospects is to be challenged today as job losses and the divide between the resources sector and the rest of industry fuel concerns it has badly misread the economy."
 
And the Herald Sun's John Beveridge wrote this morning: "Paul Howes' knee-jerk attack on the independence of the Reserve Bank, the level of the Australian dollar and even the Chinese currency is as dangerous as it is predictable. As national secretary of the Australian Workers Union, his narrow focus is not just on jobs but on jobs within certain industries. But as RBA governor Glenn Stevens faces questions from the parliamentary economics committee today, there is no doubt his call to action coming after 1400 job losses in the steel industry was timed to exert maximum pressure."
 
And the AFR paper reported this morning: "Billionaire Warren Buffett has thrown a lifeline to Bank of America, announcing he will invest $US5 billion in the beleaguered US banking giant, a move that has sent its stock price soaring."
 
The Financial Times pointed out the great deal Buffett had extracted from the struggling Bank of America: "As in those transactions, he has extracted a handsome price for his support. Berkshire is investing $5 billion in BofA preferred stock that pays a fixed dividend of 6 per cent. The bank can buy it back at any point – for a 5 per cent premium. Berkshire will also receive warrants to buy 700 million common shares of BofA at an exercise price of $7.14, a $5 billion potential purchase that would already have made Berkshire money on Thursday morning as BofA shares jumped more than a 10th to about $8 a share." While the deal helped the bank, it didn't help the stockmarket which finished in the red. 
 
The Herald Sun's John Beveridge also looked at the market's unkind reception of the Woolworths result yesterday: "The 5.6 per cent fall in Woolworths shares after the big retailer brought down a profit rise of a similar magnitude shows two things. The first, that no company is immune from a whack at the slightest hint of disappointment and secondly, that the battle between the two supermarket giants promises to get even hotter. As the reigning retailing champion, Woolies has the most to lose and with soft consumer sentiment, particularly for discretionary purchases, the pitch could not be more difficult."
 
Fairfax's Malcolm Maiden wrote yesterday: "Woolies has been beaten by its big rival Coles in the June year on key growth metrics, but it is still the aspirational icon for the so-called ''non-discretionary'' end of the retail industry that sells more of the things you need, including food. Woolies said this morning that it boosted earnings before interest and tax by 6.3 per cent to $3.27 billion in the June year, and that looked pretty pedestrian beside the 21.2 per cent EBIT rise that its biggest rival, Coles, unveiled inside the profit its parent, Wesfarmers announced last week. One key though is that the Coles business is catching up after being a long way behind. It's still got a long way to go before it catches up with Woolies on profitability aisle by aisle."
 
Meanwhile, Michael Pascoe wrote: "While most attention focuses on Woolworths' supermarket performance and its marketing war with Wesfarmers' Coles, there's an equally fascinating battle being played out between the two companies' department stores – and it's being won by an old hamburger flipper. And it's not just a Big W/Kmart/Target battle. Myer and David Jones, for whatever pretensions they might have, are being made to look second rate. Kmart and Big W are Australia's department stores of choice... the department store war winner arguably is Kmart – a chain that previous management tried to close twice and was only prevented from doing so by the cost of its shopping centre leases. Kmart has had a string of retailer CEOs who failed to turn it around – and then Wesfarmers talked Guy Russo into coming out of semi-retirement."
 
Tim Boreham looked at the Woolies result on the Australian's website yesterday: "The do-no-wrong retailer has served up one of the biggest disappointments of the profit reporting season to date, with an earnings outlook statement that falls well short of the market's expectations – and shy – of the company's lofty historic standards. Departing Woolies chief Michael Luscombe today said investors could expect earnings growth this year of 2 per cent to 6 per cent, short of the double-digit stuff that's been routinely generated from the grocery powerhouse. In the difficult 2010-11 period, Woolies recorded a 5.1 per cent net profit rise to $2.12 billion, on a 4.1 per cent sales uptick. Exclude Mother Nature's trans-Tasman 'wobblies' and earnings grew 6.4 per cent. Luscombe says poor consumer sentiment seen in May and June had continued into the new financial year. "In the absence of a great deal of good news, the outlook is difficult to predict."
 
Fairfax's Insider Ian McIlwraith spotted a badly needed $170 million earner for Macquarie last night: "Word last night was that Macquarie Capital was being offered the chance to quit most of its 34 per cent stake in oil and gas ship specialist Miclyn Express Offshore. UBS was rumoured to be in the market offering $1.86 a share for a minimum 10 per cent in Miclyn. That is a 30 per cent premium on yesterday's $1.405 closing price for the lightly-traded Miclyn, and only a bee's wing-width below the $1.90 float price last year. The question is whether Macquarie wants to take a haircut on its investment."
 
John Durie wrote yesterday on The Australian's website: "The Federal Court has issued a reminder call to the competition regulator to forget theoretical economics and get into the real world, which means a stronger Metcash would provide better competition to Woolies and Coles. The Australian Competition and Consumer Commission issued a standard statement expressing disappointment at the result. It will think long and hard before appealing this. The law is not the issue just the narrow market definition used by the ACCC and its long shot alternate buyers. In other words, the new chair Rod Sims may well conclude this was simply a dumb case to take and one flowing from the commission's perceived bias against Metcash."
 
The Australian's Bryan Frith wrote this morning: "Rod Sims, the new boy in the ACCC chair, faces a difficult choice in deciding whether to appeal the Federal Court's decisive rejection of its attempt to prevent Metcash Trading's $215 million acquisition of the Franklins supermarket chain. The ACCC would no doubt like to appeal because the court rejection calls into question the way the ACCC scrutinises proposed mergers, both in the selection of the relevant market and in considering what would be likely to happen in the marketplace if it blocked an acquisition – the counterfactual."
 
And Business Spectator's Stephen Bartholomeusz wrote: "The Australian Competition and Consumer Commission's rather embarrassing defeat in the Federal Court today could have implications well beyond Metcash's ability to go ahead with the $215 million acquisition of Pick n Pay's Franklin stores. While each case always rests on its own set of facts, as lawyers are fond of saying, and with only a summary of the judgement available until tomorrow, it isn't possible to be definitive about its implications. The core reason for Justice Emmett's dismissal of the ACCC's attempt to block the acquisition, however, does appear to have wider ramifications."
 
The AFR said this morning: "The resignation of Apple's Steve Jobs and turmoil in the senior ranks of Leighton Holdings are a timely reminder of the dangers of "key man risk”."
 
Fairfax's Elizabeth Knight wrote this morning: "Two of the world's top 10 companies, BHP Billiton and Apple, delivered major announcements this week. The resources giant delivered a staggering $US23.6 billion ($22.5 billion) profit and Apple gutted its investors with the news that its founder and mastermind, Steve Jobs, would step down as chief executive. Both these companies deserve their spots on the market capitalisation ladder, but they have nothing in common other than the fact that what they produce is in high demand. The immediate response to the resignation of Jobs was a more than 5 per cent fall in the Apple share price - this despite the fact that people had been waiting for this shoe to drop for a year. Jobs has been extremely ill and during the past few months has kept the CEO's title but has rarely been seen." Interesting idea, but a bit off the pace.

Fairfax's Adele Ferguson caught up with all the changes at Leighton and blamed the men who have gone for their own departures: "It isn't everyday that a top 20 company gets a new chairman and chief executive, but in the case of construction giant Leighton Holdings the disposal of David Mortimer and David Stewart was swift, brutal and totally unexpected – from their perspective. Whatever the case, the board met last night and decided that Stewart's time was up and that Tyrwhitt would be his replacement and Stephen Johns would be the new chairman. Tyrwhitt has a good relationship with Dieter Adamsas, a highly regarded former deputy chairman of Leighton, Wal King, Bill Wild and David Savage, who have all left the company during the past year. It would not surprise if all came back in some way. King is on the books as a consultant to Leighton but has never been asked for advice. This will undoubtedly change. Wild has opened his own consulting firm, and would no doubt be available to give advice during these rocky times, and Adamsas is considered a mentor of Tyrwhitt." Ah, Wal King, the man at the helm when all the financial mess at Leighton appeared.
 
But The Australian's John Durie had a more accurate call on the Leighton changes: "David Mortimer's worst fears were confirmed this week when Hochtief's Frank Stieler told him he had no confidence in chief executive David Stewart and wanted Hamish Tyrwhitt to be the new boss. All his attempts to ensure the board would represent all shareholders and not just the ACS-controlled Hochtief collapsed in a heap, and from now on Leighton is another part of the ACS empire. The message to minority shareholders is to play in the stock with your eyes wide open, because it is being run by – and arguably for the benefit of – 54 per cent shareholder ACS-Hochtief. While this was being played out, former boss Wal King was on a pig-shooting jaunt in the Northern Territory with friend and former CFO Dieter Adamsas, but it was no coincidence that he and Stieler took the same view of Stewart and Tyrwhitt. The latter was King's chosen heir. Now he has his wish – and the head of the man who pushed him out the door, David Mortimer." Got it in one.