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SEATTLE (AP) — Starbucks (SBUX) said Wednesday its fiscal second-quarter profit fell 28% as U.S. consumers responded to rising food and gas prices by making fewer latte runs.

For the quarter ended March 30, Starbucks’ net income sank to $108.7 million, or 15 cents a share, from $150.8 million, or 19 cents a share in the same period last year.

Revenue rose 12% to $2.53 billion from $2.26 billion in the year-ago quarter, the company said Wednesday.

Starbucks warned last week that results would fall short of Wall Street’s expectations. Analysts, on average, had forecast a profit of 21 cents a share on $2.63 billion in sales, according to a Thomson Financial survey.

“We continue to come under very heavy consumer pressure due to the economy,” said Chairman and Chief Executive Officer Howard Schultz in an interview. “Most retailers, restaurants, certainly other premium brands are facing similar headwinds.”

Charges for closing a few stores and not moving forward with some planned openings, as well as costs associated with Starbucks’ plan to reinvigorate U.S. sales, such as added benefits for loyalty card holders, cut earnings by about 3 cents a share.

U.S. same-store sales, a key measure of retail health, fell in the mid-single digits as traffic declined. Starbucks’ past guidance called for 3% to 5% growth in same-store sales, or sales at locations open at least a year.

Starbucks added 266 U.S. stores in the quarter, and 470 outside the country, bringing the worldwide total to 16,226.

Starbucks brought Schultz back as CEO in January after a year of sinking share prices, as the company’s rapid U.S. growth outpaced demand and sapped stores of their charm, making it easier for chains like McDonald’s to compete.

So far, his moves have included a new signature coffee available in every U.S. store every day. Schultz said the new Pike Place Roast is “driving incremental customers to stores.”

The CEO also told The Associated Press that the company would launch three new types of drinks in the U.S. this summer: a health-conscious smoothie-style line, an icy Italian coffee-based drink and an energy drink that adds extra kick to the existing Starbucks DoubleShot, which is sold in cans.

Starbucks baristas will start mixing up fresh DoubleShot with Energy drinks at the same time the new cans appear on shelves, Schultz said.

For the full fiscal year, Starbucks said earnings would fall below the 87 cents a share it earned in 2007, and that revenue will grow 13% to 14%. Previously, it had said fiscal-year profit would grow year-over-year, albeit in the low double digits.

Starbucks’ shares slipped to $16.22 in after-hours trading, after ending the day up 3 cents at $16.23.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. To report corrections and clarifications, contact Reader Editor Brent Jones. For publication consideration in the newspaper, send comments to letters@usatoday.com. Include name, phone number, city and state for verification.

International business drove first-quarter sales growth for diversified industrial manufacturer Ingersoll-Rand and engine maker, Cummins, on Wednesday.

Overseas business accounted for 57.0% of Cummins’ $3.5 billion first-quarter sales and helped to offset both rising commodity prices and lagging U.S. markets.

The engine-and-electric-power-systems manufacturer said demand for commercial generators surged in India, Britain, Asia and the Middle East while turbochargers and exhaust after-treatment products were hot items in North America and Europe.

Net income rose 33.0%, to $190.0 million, or 97 cents a share, from $143.0 million, or 71 cents a share, in the prior year. Sales rose 23.0%, to $3.5 billion from $2.8 billion in 2007’s first quarter. The company’s distribution business, which grew considerably in Europe, the Middle East and Asia, posted the largest growth, of 44.0%, followed by a 25.0% sales increase in its engine and components segment and 17.0% growth in sales of power-generation systems.

The results surpassed analysts’ expectations for earnings of 89 cents a share and sales of $3.3 billion.

“While we are monitoring the U.S. economy closely, we intend to continue investing in opportunities around the world to fuel further growth in the future,” said Chairman Tim Solso.

Ingersoll-Rand also credited higher international demand for the quarter’s 9.5% sales growth. Net earnings, however, fell 16.5%, to $181.6 million, or 66 cents a share, from $217.5 million, or 70 cents a share, a year ago.

Analysts expected earnings of 73 cents a share and sales of $2.1 billion.

Ingersoll-Rand has been working to transform itself from being dependent on its capital-intense heavy machinery business to creating a more diverse product mix and a greater international presence. The compnay is currently finalizing its acquisition of Trane, a heating and air conditioning company.

Ingersoll-Rand expects robust growth in developing economies to offset flat performance in North America for mid-single-digit full-year sales growth.

Cummins (nyse: CMI - news - people )’ stock gained $5.06, or 8.8%, to $44.91, and Ingersoll-Rand (nyse: IR - news - people ) added $2.35, or 5.5%, to $44.91, during afternoon trading on Wednesday.

Street Fades After Fed Cut

On The Move: Citigroup

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General Motors didn’t manage any miracles this quarter–and it didn’t have to. Investors rallied after the company posted an in-the-red report card that wasn’t as bad as the Street expected.

The company surged 13.5% Wednesday after posting smaller losses than analysts had expected. GM (nyse: GM - news - people ) reported a $3.3 billion first-quarter loss Wednesday due to a weakening U.S. market, a factory strike and tanking sales in its sport utility vehicles and truck offerings.

It looks like a terrible earnings report was built into the stock price. GM added 9.4%, or $2.00, to close at $23.20. GM shares have plunged 23.1% in the last 12 months and 33.0% in the last five years from when it traded in May 2003 for $35.80.

In February, GM posted its largest annual loss ever, $39 billion, most of it due to a previously announced $38.6 billion write-down of deferred tax assets. (See “GM Limps Toward Recovery.”)

“We continue to leverage our global product portfolio to take advantage of tremendous growth in key emerging markets, while at the same time taking the appropriate actions to deal with the challenging economic conditions in the U.S.,” said Chief Executive Officer Rick Wagoner.. GM had a tough act to follow. American rival Ford Motor (nyse: F - news - people ) blasted its critics Monday, posting a $100 million quarterly profit. (See: “Ford Gets Back In Gear.”)

The quarterly loss was $5.74 per share. Excluding special items, GM posted an adjusted net loss of $350.0 million, or 62 cents per diluted share, in the quarter. Without the charges, GM managed to beat Wall Street expectations of $1.60 in losses per share.

GM’s sales were down 1.6%, at $42.7 billion, from $43.4 billion a year earlier.

After posting billions in losses, GM lowered its U.S. sales outlook for 2008. It now expects total U.S. sales to be in the high 15-million vehicle range, down from the low 16-million range forecast earlier this year.

“We want to run our business conservatively. We want to be realistic,” said Ray Young, GM’s chief financial officer.

Young also said Wall Street might be underestimating GM’s international growth. GM reported continued strong results in emerging markets. Sales were up 20.0% outside North America, largely due to strong growth in China, Russia, Brazil and India.

In addition, he said GM is confronting diminished U.S. demand by cutting costs in North America, adding, “The North American turnaround is occurring.”

“Rationalizations abound, but we are left wondering: Where is the bottom in North America?” Calyon Securities Mark Warnsman said in a note. “For a company in turnaround, cash flow is the ultimate test–a test on which GM is failing to achieve a passing grade.”

GM reported a negative cash flow of $3.8 billion in the quarter.

The Detroit-based company had to weather $1.5 billion in charges related to noncash losses from its investment in financial services outfit GMAC (nyse: GJM - news - people ). The automotive and residential loan handler has been battered by subprime troubles, reporting a $589.0 million loss on Tuesday. (See “GMAC Far From A-OK.”)

It also reported charges of $731.0 million to help out its costly millstone, bankrupt auto parts maker Delphi.

GM said a two-month strike at American Axle and Manufacturing Holdings (nyse: AXL - news - people ) has negatively impacted 30 of its factories, costing it $800 million and 100,000 vehicles.

GM lost $276.0 million in the first quarter due to its minority stake in GMAC. The company lost $812.0 million in North America, compared with a loss of $208.0 million in the year-ago quarter.

The Associated Press contributed to this story.

Street Fades After Fed Cut

On The Move: Citigroup

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There’s no snap, crackle and pop in the profits of cereal makers these days.

Battling rising commodity prices on staples such as wheat, oats and corn, Kellogg found it hard to stir up profits in its first quarter. Kellogg (nyse: K - news - people ) raised prices across many of its brands in January to help offset soaring costs. Revenues increased but not fast enough to account for the input inflation.

Still, the overall result beat expectations, and the Battle Creek, Mich.-based food company remained positive-minded. Chief Executive David Mackay said the company “posted strong results, despite the impact of higher commodity inflation as well as increased advertising and up-front investments.” Innovation, recent price increases and effective brand building drove the quarter’s results, the company said.

Branded food companies like Kellogg, as well as competitors Kraft (nyse: KFT - news - people ) and General Mills (nyse: GIS - news - people ), have been able to maintain or increase market share, even while raising prices. All food companies, including lower-cost private-label manufacturers, have had to raise prices to cover commodity prices. The questionis whether the price increases can cover the rising costs.

Deutsche Bank North America analyst Eric Katzman said he expected investors to pay close attention to the company’s volumes in the quarter to determine whether consumers have been willing to keep buying products despite the higher prices. He said he believed consumers would swallow Kellogg’s increases and that cost-saving measures and productivity initiatives would help protect profit.

Kellogg also said it completed a share repurchase program where it bought back $650.0 million worth of its stock, which aided a slight lift in earnings per share to 81 cents, compared with 80 cents in the year-earlier quarter. Still, overall profits were down 1.9%, to $315.0 million on sales of $3.3 billion from $321.0 million on sales of $3.0 billion last year.

Analysts polled by Thomson Financial had predicted Kellogg would earn 76 cents per share on sales of $3.2 billion for the quarter.

Kellogg affirmed its guidance for full-year earnings in the range of $2.92-$2.97 per share, and announced plans to increase the quarterly dividend by 10.0% beginning in the third quarter. The company last paid a 31 cent dividend at the end of February.

Shares of Kellogg traded down 81 cents, or 1.6%, to close at $51.17, on the day’s news.

The Associated Press contributed to this article.

Fed Cuts

On The Move: Citigroup

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Despite rising commodity costs, decreased production volume in North America, and a downturn in the U.S. auto market, TRW Automotive Holdings sees a strong 2008 ahead.

TRW Automotive Holding (nyse: TRW - news - people ) reported a surprisingly strong first-quarter profit Wednesday, driven by strong sales growth in China and South America, which partially helped to offset price cuts it offered to customers and a decline in North American vehicle production. TRW also said it lost $55 million in sales because of a nine-week strike at supplier American Axle & Manufacturing, which has at least partly idled about 30 General Motors (nyse: GM - news - people ) plants.

TRW’s first-quarter net profit jumped 9.3% to $94 million, or 92 cents per share, compared with a net loss of $86 million, or 87 cents per share, a year ago, well above analysts estimates of 60 cents per share. Revenue rose 13.9% to $4.1 billion, up from $3.6 billion in the prior year, partly boosted by foreign currency translation resulting from a weak dollar.

TRW shares fell 0.3%, or 8 cents, to $25.57 in afternoon trading.

The company, which produces safety equipment including airbags and electronic stability controls, raised its full-year financial targets after first-quarter earnings beat Wall Street’s forecasts. It now expects to earn $2.30 to $2.60 per share on sales of $16.2 billion to $16.6 billion, including second-quarter sales of $4.5 billion. Its previous sales forecast was $15.6 billion to $16.0 billion. Analysts polled by Thomson Financial project 2008 earnings at $2.22 per share on sales of $15.9 billion.

The company previously issued a forecast in February of between $2.15 and $2.45 per share.

Some 70.0% of TRW’s sales are from Europe, Asia and South America in contrast to other U.S.-based auto parts suppliers that have heavy exposure to U.S.-based automakers.

TRW cut its estimates for 2008 North America vehicle production by 300,000 units to approximately 14.2 million vehicles, which it says will be partly offset by higher volumes in emerging markets and Europe.

Chief Executive John Plant said he was concerned that soaring commodity costs and low production volume in North America will weaken the company’s supply base further.

Rising steel prices have taken a toll on auto parts companies, as steel companies pass through the 65.0% increase in iron ore prices. (See ” Rising Iron Costs Spell Tough Year For Steel Makers”)

The company has expanded in lower-cost regions overseas to reduce costs and diversify its operations as well as refinance its debt.

“We have consistently pursued business strategies that improve TRW’s long-term competitiveness, which has helped the company overcome difficult industry conditions and is reflected in our solid first quarter performance,” said CEO Plant.

Reuters contributed to this article.

Fed Cuts

On The Move: Citigroup

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With more than half of its revenue now coming from outside the U.S., Symantec ended its fiscal year on a high note on Wednesday.

The security software company posted earnings of US$309 million, or $0.36 per share, for the fourth quarter of fiscal 2008, which ended March 28. That was up 50 percent from last year's results and better than analyst expectations. In a poll of 27 estimates by Thomson Financial, financial analysts forecast earnings to be $0.34 per share, on average.

Analysts expected revenue of $1.53 billion; Symantec reported $1.54 billion.

After struggling to manage its 2005 acquisition of storage giant Veritas software, Symantec performed well during its 2008 fiscal year. A weakening U.S. currency and strong growth outside of the U.S. have helped the company's bottom line.

Symantec said that 53 percent of its revenue now comes from outside of the U.S., where the company saw a 15 percent growth rate, year-over-year. Asia is the fastest-growing region, with revenue growing at 19 percent. In Europe, the Middle East and Africa, the growth rate was 17 percent.

The company didn't do as well in the U.S., Latin America and Canada, where revenue was up 10 percent over the same period.

In a statement, Symantec CEO John Thompson called the company's current offerings "the strongest product portfolio we've had in years."

Shareholders of Sucampo Pharmaceuticals were anything but irritable on Wednesday when the company received extended approval from the U.S. government for a drug used to treat digestive disorders.

The Bethesda, Md.-based biotech company, in conjunction with its partner Takeda Pharmaceuticals (other-otc: TKPHY - news - people ), gained approval from the U.S. Food and Drug Administration for a supplemental new drug application on Amitiza, an anticonstipation drug that can now be prescribed for the treatment of irritable bowel syndrome in women.

Shares of Sucampo Pharmaceuticals (nasdaq: SCMP - news - people ) rose 15.3%, or $1.85, to $13.98, on Wednesday.

Amitiza was approved for the treatment of chronic constipation in January 2006 and can now be used in adult women who suffer irritable bowel syndrome with constipation, a condition that causes bloating and abdominal pain. More than 58.0 million Americans have the affliction. Amitiza has brought in $200.0 million annually and Leerink Swann analyst Gary Nachman forecasts the drug will now bring in about $500.0 million annually.

“We were pretty optimistic going into this event. The data seems to be very clean, and there is an unmet need,” said Nachman. “This is a very important growth driver for the Amitiza franchise.”

Sucampo and Takeda plan to begin promotion of the new use of Amitiza during Digestion Disease Week, May 17 through May 22. “Digestion Disease Week is the perfect place for them to launch this drug,” said Nachman. “They will be able to make a big splash there.”

Novartis (nyse: NVS - news - people )’ Zelnorm, previously prescribed for this condition, was pulled from the market last year due to safety concerns of increased cardiovascular risk. There are no other unrestricted products for this indication.

Fed Cuts

On The Move: Citigroup

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Wall Street had expected General Motor’s first-quarter earnings report to be a train wreck. It wasn’t. Or at least not enough of one.

General Motors (nyse: GM - news - people ) surged 13.5% Wednesday after posting smaller losses than analysts had expected. GM reported a $3.3 billion first-quarter loss Wednesday due to a weakening U.S. market, a factory strike and tanking sales in its sport utility vehicles and truck offerings.

It looks like a terrible earnings report was built in the stock price. GM added $2.80 to trade for $23.97 during midday trading New York. GM shares have plunged 23.1% in the last 12 months and 33.0% in the last five years from when it traded in May 2003 for $35.80.

“We continue to leverage our global product portfolio to take advantage of tremendous growth in key emerging markets, while at the same time taking the appropriate actions to deal with the challenging economic conditions in the U.S.,” said Chief Executive Officer Rick Wagoner. GM had a tough act to follow. American rival Ford Motor (nyse: F - news - people )blasted its critics Monday posting a $100 million quarterly profit. (See: “Ford Gets Back In Gear”)

The quarterly loss was $5.74 per share. Excluding special items, GM posted an adjusted net loss of $350.0 million, or 62 cents per diluted share, in the quarter. Without the charges, GM managed to beat Wall Street expectations of $1.60 in losses per share.

GM’s sales were down 1.6%, at $42.7 billion, from $43.4 billion a year earlier.

After posting billions in losses, GM lowered its U.S. sales outlook for 2008. It now expects total U.S. sales to be in in the high 15-million vehicle range, down from the low 16-million range forecast earlier this year.

“We want to run our business conservatively. We want to be realistic,” said Ray Young, GM’s chief financial officer.

Young also said Wall Street might be underestimating GM’s international growth. GM reported continued strong results in emerging markets. Sales were up 20.0% outside North America, largely due to strong growth in China, Russia, Brazil and India.

He also said GM is confronting diminished U.S. demand by cutting costs in North America. “The North American turnaround is occurring,” Young said.

Calyon Securities analyst Mark Warnsman said GM started the year too optimistically and didn’t properly address production issues.

“It has become increasingly clear that GM is caught in a quagmire of its own making in North America,” Warnsman said in a note to investors.

The Detroit-based company had to weather $1.5 billion in charges related to noncash losses from its investment in financial services outfit GMAC (nyse: GJM - news - people ). The automotive and residential loan handler has been battered by subprime troubles, reporting a $589.0 million loss on Tuesday. (See “GMAC Far From A-OK”)

GM also reported charges of $731.0 million to help out its costly millstone, bankrupt auto parts-maker Delphi.

GM said a two-month strike at American Axle and Manufacturing Holdings (nyse: AXL - news - people ) and has negatively impacted 30 of its factories costing it $800 million and 100,000 vehicles.

GM lost $276.0 million in the first quarter due to its minority stake in GMAC. GM lost $812.0 million in North America, compared with a loss of $208.0 million in the year-ago quarter.

The Associated Press contributed to this story.

Fed Cuts

On The Move: Citigroup

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Although International Paper tried to increase prices in the first quarter to boost profits, its efforts were hampered by significantly higher raw material costs and declining earnings from land sales. As a result, the company’s first-quarter results missed the Street’s expectations on Wednesday.

And it looks like it won’t see much relief in its second-quarter. The Memphis, Tenn.-based company reported in a regulatory filing that it expects its second-quarter results to include an increased impact from maintenance outages in its printing papers and packaging businesses.

International Paper’s shares dropped 4.7%, or $1.29, to $26.02 in afternoon trading. Its shares have fallen 19.7% since the beginning of the year.

“We are prepared to work through the weakness of the U.S. economy,” said the firm’s chairman John Faraci. “Our business outside of North America continues to demonstrate healthy growth and solid pricing.”

The paper and forest products company’s results were also hurt as its uncoated paper shipment volumes fell 7.0% in North America and 1.0% in Europe.

Net income plummeted 69.4% to $133 million, or 31 cents a share, from $434 million, or 97 cents a share, a year earlier. Earnings from continuing operations, excluding one-time items, fell to 41 cents a share from 45 cents, far short of analysts’ estimates of 51 cents a share. Net sales rose 8.6% to $5.7 billion, slightly higher than analysts’ forecasts of $5.6 billion.

Meanwhile, International Paper (nyse: IP - news - people ) expects maintenance outages to cut second-quarter results by $113 million, compared with a $53 million impact it reported in the first quarter.

The company expects maintenance outages to reduce third- and fourth-quarter earnings as well by $36 million and $44 million, respectively.

In March, International Paper agreed to purchase Weyerhaeuser (nyse: WY - news - people )’s containerboard packaging and recycling unit for $6 billion, making it the world’s largest corrugated box maker. The deal frees Weyerhaeuser to concentrate on its downtrodden timberland business. (See “ International Paper Shredded By Moody’s On Buy”)

The deal comes amid consolidation and reduction of production capacity within the paper and packaging industry in North America and Europe. The industry has been hit with steadily increasing prices for raw materials, coupled with weakening demand for paper, since the advent of the Internet and the so-called paperless office.

Reuters contributed to this article.

Fed Cuts

On The Move: Citigroup

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The U.S. Federal Reserve gave itself plenty of leeway on Wednesday to do whatever it wants with interest rates in the coming months, but after sending its target on overnight money down to 2.0%, the central bank is pretty much out of the game.

Conforming to market expectations, the Fed reduced its federal funds rate target by a quarter of a percentage point from 2.25%. What was more interesting than the cut was what the central bank said about the future. There, it was a little less hawkish than might have been expected, indicating it was increasingly worried about inflation but still concerned about a weak U.S. economy.

The Fed said it exepects “inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization.” But, it added, “uncertainty about the inflation outlook remains high.”

On the flip side of the coin, the Fed indicated it has likely done all it can do to help the economy since starting on an easing campaign in September: “The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity.”

This is not to say that all is well. “Recent information indicates that economic activity remains weak,” the central bankers said. “Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.

One way to look at it is that absent a crisis, the central bank cannot afford the inflationary risk of another rate cut, but it is months away from being able to tighten.

Since September, the Fed has slashed the key rate from 5.25% as it sought to combat the slowing U.S. economy and thaw a freezing world financial system. Both problems reflect, in large part, the U.S. subprime mortgage crisis, which was born of the Fed’s deep rate cuts from 2001 to 2003 and its subsequent reversal from 2004 to 2006.

The Fed accelerated its easy-money policy in the winter, slashing the federal funds in three moves from Jan. 22 to March 18.

Because monetary policy takes time to show its effect on the economy–six to 18 months, roughly–it is sensible to expect the Fed to at least pause its rate cuts, which are not without cost. By reducing interest rates, the Fed discourages investors from holding dollars, since they can get much better returns in other currencies. The rate corresponding to fed funds in Europe is 4.0%; in Britain, 5.0%; and in the inflation-wary antipodes 7.25% in Australia and 8.25% in New Zealand.

While the dollar has been fast to react–it is down 11.2% against the euro since the Fed started cutting rates in September–bond yields have shown a less obvious reaction. This is likely due to large purchases by China and Japan, which have bought U.S. bonds to slow the dollar’s decline and encourage Americans to keep buying imported goods. But that is not a sustainable strategy, and it seems to have had the effect of sending commodity costs, particularly oil, soaring, as speculators abandon currencies altogether and put their faith in hard assets.

Since the Fed began cutting rates, a barrel of oil has risen to $113.42 from $78.09. The yield on the 10-year Treasury bond, however, has been falling until recently: the bellwether for the world’s credit markets yielded 4.64% in September and it fell as low as 3.31% in March, as investors were evidently more fearful of a weakening economy than of inflation. That seems to have changed in recent weeks, however, and the 10-year issue was returning 3.82% shortly after the Fed announcement.

Financial markets in general showed little immediate reaction to the move. Stocks held onto sizable gains, while bonds, commodities and the dollar were little changed. (See “Big Ben Does It Again”)

U.S. Economy Expands

On The Move: Citigroup

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