Safeway’s Earnings Report Will Give Glimpse of Strike’s Impact

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Safeway’s Earnings Report Will Give Glimpse of Strike’s Impact

WALL STREET WEST

For weeks, the strain being felt by striking and locked-out grocery store workers has dominated coverage of the four-month-long contract dispute.

This week, investors will get a glimpse of its toll on the supermarket chains, when Vons and Pavilions parent company Safeway Inc. releases fourth quarter results.

Analysts expect Pleasanton-based Safeway to report between $70 million and $100 million in losses directly related to the lockout, which has been in place at 328 of its stores since Oct. 12.

“Any reasonably informed investor should not be surprised to see a negative impact on Safeway’s results,” said Charles Cerankowsky, managing director of research for Cleveland-based McDonalds Investments Inc. “Everybody knows Safeway’s fourth quarter covered the bulk of the strike. The stock is basically where it was when the strike began.”

As of Feb. 5, Safeway shares closed at $22.81, down 4.3 percent from their closing price of $23.83 on Oct. 10, the last trading day before the strike began. During the same period, Cincinnati-based Kroger Co.’s shares have fallen 1.9 percent while Boise, Idaho-based Albertsons Inc. shares have risen 13 percent.

For the fourth quarter ended Dec. 31, Safeway is expected to report net income of 58 cents a share, according to the average estimate of analysts polled by I/B/E/S.

In the like year-ago quarter, Safeway reported a loss of $1.1 billion, or $2.36 a share, including $708.4 million for discontinued operations. Revenues were $10 billion.

Albertsons and Kroger ended their respective fiscal years on Jan. 31. Each reported quarterly results in December that included the first three weeks or so of the strike.

Albertsons plans to report its fourth quarter results on March 9, and Kroger’s report is due out in the first week of March.

Even if the chains’ losses are larger than expected, they could be seen by investors as worth the sacrifice if the strike/lockout results in significant concessions in pay, pension and health care coverage, analysts and labor lawyers said.

Any cost reductions in Southern California, where Safeway has 15 percent of its stores, would ultimately be extended nationwide, said Mark Theodore, a partner in the Los Angeles office of Proskauer Rose LLP, a labor and employment law firm representing management.

“Like any other investment, it’s an investment in the future,” he said.

UFCW negotiators have taken aim at Safeway Chief Executive Steven Burd, whom they view as the architect of the chains’ hard-line negotiating stance.

“His complete disregard for the valuable contributions of the workers might undermine his goal of running a successful company in the future,” said Ellen Anreder, spokeswoman for the UFCW. “There’s no question that the workers are a major reason that the consumers elect to shop where they do.”

Last week, the chains rejected an offer by the union to end the strike and enter binding arbitration. But with Safeway’s stock losing nearly two-thirds of its value since peaking in 2001, Burd has come under criticism for other reasons such as bad acquisitions.

“He is coming under fire less for this situation than his overall track record, which has been less than stellar,” said Theodore.

David Greenberg

Rewriting History

MDB Capital Group, a Santa Monica investment bank and research firm, has come up with a way to bang the drumbeat of its favored niche, nanotechnology, which involves developing new processes or products at the molecular level.

In a research report, MDB compared the impact of the “science of small things” to the breakthrough in the Middle Ages of metal stirrups. Yes, the kind that the Lone Ranger put his boots in when he rode Silver.

“Before stirrups, a fighter trying to lance an enemy would be knocked off his horse,” wrote Peter Conley, MDB Capital’s director of equity research. “With stirrups, a small force of cavalry could utilize the horses’ speed and leverage to outmaneuver and defeat larger enemy forces of foot soldiers.”

It certainly sounds impressive.

The government is pouring impressive amounts of money into nanotechnology research, and as Conley pointed out, advances by companies such as IBM have led to developments such as digital photography, which has eaten into the value of unprepared firms such as Eastman Kodak Co.

Hundreds of millions of dollars are being spent at institutions such as UCLA and UC Santa Barbara, in hopes of developing small technologies with grand applications.

Two companies MDB follows: Capstone Turbine Corp. of Chatsworth, and Nanogen Inc. of San Diego.

Shares of Capstone have risen 175 percent in the past year to $2.34 a share, while Nanogen’s shares have skyrocketed 706 percent to $11.28 a share in the same period.

Of course Capstone, which makes on-site power generators for commercial buildings, peaked near $100 a share back in 2000.

But that’s history.

Kate Berry

Do Ethics Pay?

When Freddie Mac, the semi-public mortgage finance institution, ran into accounting problems last year, it turned to Marla Bradley, principal of Los Angeles-based consulting and training firm Bradley/Lambert Inc.

Not to straighten out its books, but for guidance on ethics.

Bradley worked with Freddie Mac’s legal and internal auditors to create a three-hour class detailing the company’s code of ethics and Sarbanes Oxley legislation.

The No. 2 mortgage firm’s 4,500 employees recently completed the course.

Much of the discussions involved conflicts-of-interest and general ethical questions, such as whether an employee is allowed to accept gifts or take vendors out to dinner, Bradley said.

“Not everyone has a common understanding of what is expected of them,” Bradley said, adding that many companies believe ethics classes are a substitute for an ethical culture.

While the class was mandatory even Freddie Mac’s senior vice presidents attended the classes the company is still under the gun for agreeing to pay former chief executive Leland Brendsel a retirement package of $53.7 million.

Brendsel admitted violating accounting rules when he was ousted from the company last June. Now regulators want him to forfeit half his pay package in fines.

Bradley won’t say whether he should or not.

Kate Berry

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