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Wall St. earnings estimates may not foretell currency impact

(Reuters) – Wall street analysts may be inadequately accounting for the dollar’s sharp rise in the first quarter, setting up a scenario in which some multinationals may miss already low consensus estimates – and their shares sell off as a result.

    Equity analysts admit they have had trouble keeping up with the dollar’s rapid 9 percent rise so far this year. While companies have issued forecasts mentioning “currency headwinds,” most Wall St. analysts are not updating their estimates to reflect those rapidly moving exchange rates.

That could hurt. North American public companies could give up more than $25 billion in revenues and 7 cents per share in earnings in the first quarter alone because of currency-related volatility, said Wolfgang Koester, chief executive of FiREapps, a foreign exchange data analytics firm in Phoenix, Arizona.

An early example to watch is Monsanto Co(MON.N), which reports results on Wednesday, April 1 for its fiscal quarter ended Feb. 28. On Jan 7, before the dollar’s biggest moves of the quarter, the company said currency issues would reduce its 2015 earnings by between 15 cents and 20 cents, similar to 2014, when the dollar rose 12.8 percent against a basket of major currencies.

Yet only five of 25 analysts covering Monsanto have changed their outlooks for the firm since it closed the books at the end of February, according to Thomson Reuters data.

“The chance of U.S. earnings coming through lower (than estimates) is noticeably high,” said Chris Faulkner-MacDonagh, market strategist at Standard Life Investments in Edinburgh, a global asset manager with $383.6 billion under management. “You’re going to really feel it this quarter and next.”

To be sure, not every analysis that fails to update for the dollar’s rise will miss its mark. At Monsanto, for example, other factors such as an improving outlook for corn planting may help offset currency losses, said Paul Massoud, analyst at Stifel.

But even some companies that meet expectations find the lack of currency-based analysis disturbing. Investor relations experts at software firm Red Hat Inc (RHT.N) told Reuters that consensus forecasts are “dubious at best” because of the lack of revisions, and the company’s chief financial officer used its March 25 conference call to complain.

“The rapid devaluation of nearly every foreign currency versus the U.S. dollar is not news, yet surprisingly only about 30 percent of the sell-side analysts who follow Red Hat have updated their models at current rates,” said Charles Peters, the CFO.

For their part, analysts say it can be near impossible to quantify currency headwinds if companies give little detail about their hedging strategies or the expected revenue and earnings break-down for different currency regions.

“Currency moves faster than the Street’s ability to publish updated estimates,” said Ed Maguire, an analyst at CLSA in New York.

He and other analysts, such as Daniel Ives, covering software for FBR Capital Markets in New York, mentioned the challenges to their models posed by the dollar’s volatility.

“Analysts are trying to play a game of darts with a blindfold depending on the granularity provided by a respective management team,” said Ives. “The massive volatility has made this a difficult situation for both analysts and management teams.”

(Reporting By Sinead Carew; Editing by Linda Stern)

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Wall St. retreats but S&P, Nasdaq post quarterly gains

NEW YORK (Reuters) – U.S. stocks ended down on Tuesday in a retreat from the previous session’s sharp rally as energy shares declined and the dollar edged up, but the SP 500 and Nasdaq registered their ninth straight quarterly rise.

The SP’s 500 quarterly winning streak was its longest since 1998, while the Nasdaq’s was its longest ever. The Dow registered a slight loss for the quarter.

In the day’s action, energy shares were among the biggest drags as crude oil CLc1 fell. The SP Energy index .SPNY declined 0.9 percent, while shares of Exxon Mobil Corp (XOM.N) fell 0.7 percent to $85.

Oil was pressured as Iran and six world powers continued talks on a nuclear deal that could see the energy-rich country increase oil exports.

The dollar added to its sharp gains for the quarter, stoking worries about earnings for U.S. multinationals. SP 500 earnings are expected to have declined by 2.8 percent in the first quarter from a year ago, Thomson Reuters data showed.

“Today’s price action is a reflection of all the bad in the quarter – the stronger dollar, weaker oil – and in some respects just a snapback from yesterday’s outsized gains,” said John Canally, chief economic strategist for LPL Financial in Boston.

“Tomorrow’s a new quarter and there’s a new batch of people ready to take some risks, so I wouldn’t be surprised if we see an up day.”

The Dow Jones industrial average .DJI fell 200.19 points, or 1.11 percent, to 17,776.12, the SP 500 .SPX lost 18.35 points, or 0.88 percent, to 2,067.89 and the Nasdaq Composite .IXIC dropped 46.56 points, or 0.94 percent, to 4,900.88.

The day’s decline in stocks followed gains of more than 1 percent on each of the major indexes on Monday.

All three indexes also posted losses for the month, with the Dow down 2 percent, SP 500 down 1.7 percent and the Nasdaq down 1.3 percent.

For the first quarter, the Dow declined 0.3 percent, the SP 500 gained 0.4 percent and the Nasdaq gained 3.5 percent.

Endurance Specialty Holdings Ltd (ENH.N) agreed to buy reinsurer Montpelier Re Holdings Ltd (MRH.N) for about $1.83 billion, while Charter Communications Inc (CHTR.O) agreed to acquire Bright House Networks in a roughly $10 billion deal.

Charter rose 5.3 percent to $193.11 while Montpelier rose 0.8 percent to $38.44. Endurance fell 4.9 percent to $61.14.

March payrolls data are due Friday, when the stock market is closed for the Good Friday holiday. If the report is strong, investors could view the U.S. Federal Reserve as more likely to raise rates earlier than currently expected.

NYSE decliners outnumbered advancers 1,794 to 1,247, for a 1.44-to-1 ratio; on the Nasdaq, 1,649 issues fell and 1,090 advanced, for a 1.51-to-1 ratio.

The SP 500 posted 22 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 72 new highs and 42 new lows.

About 6.2 billion shares changed hands on U.S. exchanges, below the 6.7 billion daily March average, according to BATS Global Markets.

(Editing by Nick Zieminski)

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Berkshire’s Buffett says Grexit ‘may not be bad’ for euro zone: CNBC

NEW YORK (Reuters) – Warren Buffett, the billionaire chief executive officer and chairman of Berkshire Hathaway Inc, said Tuesday that an exit by Greece from the euro zone could be constructive for the region.

“If it turns out the Greeks leave, that may not be a bad thing for the euro,” Buffett told cable television network CNBC. He said a Greek exit from the euro zone could lead member countries to come to better agreement about fiscal policy.

“If everybody learns that the rules mean something and if they come to general agreement about fiscal policy among members or something of the sort, they mean business, that could be a good thing,” Buffett said.

Buffett also said there would be no “finish line” to deals like Kraft Foods Group Inc’s announced merger with H.J. Heinz Co.

“We would hope it would not be the last major transaction,” Buffett said. “There is no finish line.”

He said that Berkshire and private equity firm 3G Capital have not discussed other potential targets. Heinz and Kraft, backed by Berkshire and 3G, last week said they would combine in a $46 billion deal.

(Reporting by Sam Forgione; Editing by Leslie Adler and Cynthia Osterman)

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Oil deepens loss on Iran talks; Brent ends March down 12 percent

NEW YORK (Reuters) – Oil fell for a third straight session on Tuesday, with Brent crude tumbling 12 percent for the month, as world powers entered into intense negotiations with Iran for a nuclear deal that could bring more of its oil to an oversupplied market.

The tumble was proof of the hurdles oil faced in establishing a bottom for prices since the selloff that began in June on worries of a supply glut. U.S. crude fell 11 percent for the quarter.

In Tuesday’s session, prices ended off the day’s lows as the United States, Britain, France, Germany, Russia and China faced difficulty in reaching a preliminary nuclear accord with Iran before a Tuesday midnight deadline at the talks in Lausanne, Switzerland.

Brent oil LCOc1 settled down $1.18, or 2.1 percent, at $55.11 a barrel, after falling to $54.72 during the session.

U.S. crude CLc1 finished down $1.08, or 2.2 percent at $47.60, off its earlier low at $47.28.

In the past three sessions, oil lost more than 7 percent on heightened fears that a nuclear deal for Iran would raise the global glut in crude.

U.S. crude inventories were expected to have hit record highs for a 12th straight week after a build of 5.2 million barrels last week, the American Petroleum Institute said on Tuesday. Official stockpile data is due on Wednesday at 10:30 a.m. (1030 ET). [API/S] [EIA/S]

Tehran is required to accept restrictions on its nuclear program aimed at preventing it from making a bomb, in exchange for the removal of sanctions on its exports. Aside from the preliminary pact they sought on Tuesday, negotiators have set a June 30 deadline for a full agreement specifying conditions Iran had to meet.

White House spokesman Josh Earnest said the United States was willing to continue talks beyond Tuesday to reach the interim agreement, but stressed that discussions had to be productive.

“If we’re not able to reach a political agreement, then we’re not going to wait … until June 30 to walk away,” Earnest told reporters in Washington.

Iranian oil exports have been limited to around 1 million barrels per day by the U.S.-led sanctions.

Tehran could raise output by around 500,000 bpd within six months without the sanctions, and another 700,000 bpd within another year, according to estimates by Facts Global Energy.

Oil was also pressured by a Reuters survey showing producer group OPEC’s crude supplies at five-month highs in May.

(Additional reporting by Ron Bousso in London and Jacob Pedersen in Singapore; Editing by Marguerita Choy and Chris Reese)

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RadioShack co-branding of stores with Sprint wins court approval

(Reuters) – A plan to salvage RadioShack Corp’s RSHCQ.PK business by co-branding most of its 1,740 surviving stores with cellular phone provider Sprint Corp (S.N) earned U.S. bankruptcy court approval on Tuesday, ending four days of contested court hearings.

The stores are what survived of more than 4,000 outlets after RadioShack went bankrupt in February. Founded in 1921, the chain was a go-to retailer for electronics before becoming increasingly irrelevant in the digital age.

Judge Brendan Shannon, in Delaware bankruptcy court, approved a sale of the stores to the Standard General hedge fund, which plans to keep most of them open under a deal in which Sprint will occupy one-third of each space.

The sale could preserve about 7,500 jobs, and allow RadioShack to stay in business, a big challenge for retailers who file for Chapter 11 bankruptcy protection.

The deal had been in doubt when RadioShack’s largest lender, Salus Capital Partners, on Friday said it would make a more lucrative bid over the weekend.

The bid never came, but Salus still fought the proposed Standard General deal, alleging this week that the auction was a sham in which RadioShack chose Standard General despite Salus’ better, $271 million, all-cash offer.

RadioShack insisted that Standard General’s bid was worth $56 million more than Salus’, even though most of it would be paid in the form of debt forgiveness rather than cash.

Time was of the essence, with RadioShack saying it needed to finalize a deal by Wednesday to avoid paying April rent.

On Tuesday, Shannon sided with RadioShack, calling Standard General’s bid “economically superior” even before accounting for the “terribly important benefit of saving more than 7,000 jobs and saving a century-old American retail icon.”

RadioShack also faced protest from a separate lender group demanding indemnification from a $129 million lawsuit against it related to RadioShack’s bankruptcy. RadioShack agreed to set aside $12 million in reserve to help the group defend that lawsuit, though Shannon denied other protections sought by the group.

Federal bankruptcy rules give companies in Chapter 11 only a few months to decide whether to keep or break leases, making restructuring particularly tough for retailers. Chains like Borders Group, Loehmann’s Inc and Coldwater Creek all went out of business after filing for bankruptcy in recent years.

(Reporting By Nick Brown and Tom Hals; Editing by Chris Reese and Christian Plumb)

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Wells Fargo gets U.S. approval to use internal models for capital

WASHINGTON (Reuters) – Wells Fargo won regulatory approval on Tuesday from federal banking regulators to use its own tailored risk models for determining its capital requirements.

The sign-off by the Federal Reserve and the Office of the Comptroller of the Currency comes about one year after the regulators gave similar approvals to other big banks. [ID: nL2N0LQ1M7]

(Reporting by Sarah N. Lynch; Editing by Sandra Maler)

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Vivendi employees back Bollore against activist challenge

PARIS (Reuters) – Vivendi (VIV.PA) employees have come out in support of chairman and largest shareholder Vincent Bollore and have opposed a call by a U.S. hedge fund to sell one of the French media group’s two remaining businesses.

Activist investor P. Schoenfeld Asset Management (PSAM), which says it owns 0.8 percent of Vivendi, has urged Vivendi to consider spinning off Universal Music Group, one of its two remaining businesses alongside Canal Plus.

Paulo Cardoso, who represents employees on the Vivendi board, said in a letter dated March 30 that such a move would amount to a “dismantling and break-up of Vivendi”.

“We are vehemently opposed to such a proposal,” he wrote. “We are confident that our group can become an international player in media and content generating strong job creation through a long-term strategy.”

Vivendi employees own 3.1 percent of the company’s shares, according to Thomson Reuters data.

PSAM is trying to rally other shareholders to vote for two resolutions at an April 17 meeting that would require Vivendi to boost returns to shareholders to 9 billion euros ($9.8 billion) after asset sales left it with a pile of cash.

The fund has also criticised Vivendi’s governance and the role of Bollore, who recently bought 632 million euros worth of Vivendi shares to take his stake to 10 percent of the company.

The French tycoon has overseen a radical slimming down of the company in the past two years, in which time it has sold four of six divisions, exited telecoms and amassed a cash pile which stood at 4.6 billion euros at the end of 2014.

Vivendi said in April it planned to pay out 5.7 billion euros to shareholders in dividends and buy backs by 2017, but wanted to keep some cash to build itself into a stronger media company via organic growth and acquisitions.

PSAM believes the money should be returned to shareholders instead and that it makes little sense to try to build up Vivendi into a bigger media company when its two businesses, music and pay-TV, have little in common.

(The story corrects date of letter to March 30 from March 20 in third paragraph)

(Reporting by Leila Abboud; editing by Susan Thomas)

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EU regulators query Luxembourg on McDonald’s tax deals: source

BRUSSELS (Reuters) – European Union antitrust regulators have asked Luxembourg for information on its tax rulings for McDonald’s after labor unions accused the U.S. fast food chain of avoiding taxes, a person involved in the issue said on Tuesday.

The move, which neither the EU nor Luxembourg would immediately confirm, falls well short of the proceedings the EU has instigated against other U.S. multinationals in Luxembourg and elsewhere, where Brussels believes unfairly low taxation may have distorted competition. It does, however, put the hamburger restaurant group’s financial arrangements into the spotlight.

Unions from the United States and Europe and British-based charity War on Want last month urged the European Commission to investigate what they said involved about 1 billion euros ($1.07 billion) in tax between 2009 and 2013.

“The Commission has sent a letter to Luxembourg asking them to clarify the facts,” the source told Reuters.

McDonald’s did not immediately respond to a request for comment. A spokesman for the Luxembourg government said he was not aware of the letter. A Commission spokesman declined comment on whether a letter was sent to Luxembourg about McDonald’s.

The Commission’s competition authority last year launched four investigations into whether deals struck with three national taxation authorities in the EU — known as tax rulings — constituted illegal state aid for the firms concerned.

If proven, those could mean Amazon and FIAT paying back large sums in back-taxes to Luxembourg as well as Starbucks to the Netherlands and Apple to Ireland. Belgian tax rulings are also being probed.


A spokesman for Competition Commissioner Margrethe Vestager said: “Combating tax evasion and avoidance is a top priority … The Commission is taking a structured approach when using its state aid enforcement powers to investigate where it believes that selective tax advantages distort fair competition.”

The Commission, headed since November by Jean-Claude Juncker, has moved to insist on all 28 member states making tax arrangements with multinational firms more transparent. It says it plans further regulation this year to prevent what critics say have been schemes that benefit global firms and some small states at the expense of government revenues in other countries.

Juncker himself, who was finance minister and prime minister of Luxembourg for a quarter-century, has deflected criticism for his country’s use of tax rulings to attract foreign businesses and says his priority is a level playing field across Europe.

(Additional reporting Lisa Baertlein in Los Angeles; Editing by Alastair Macdonald and Susan Thomas)

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Berkshire Hathaway Automotive looks to expand in U.S.: chairman

DETROIT (Reuters) – Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) wants to purchase more U.S. auto dealerships to expand the company’s automotive dealer venture, Larry Van Tuyl, chairman of Berkshire Hathaway Automotive, told CNBC on Tuesday.

Van Tuyl, who appeared on CNBC with Buffett, said that the group will look for high-volume dealerships to add to the 81 dealerships it owns in 10 states.

(Reporting by Bernie Woodall; Editing by Meredith Mazzilli)

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