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Exxon profit beats expectations on refining, output

(Reuters) – Exxon Mobil Corp (XOM.N) reported a smaller-than-expected drop in quarterly profit on Thursday as oil and gas output and refining results grew even as lower crude prices ate into earnings at the world’s largest publicly traded oil company.

“It was a strong quarter,” said Brian Youngberg, analyst at Edward Jones in Saint Louis. “Their diversified model tends to hold up better in a weaker oil market and that is seen in this quarter.”

Shares of Exxon jumped nearly 2 percent to $89.36 in premarket trading.

A glut in global oil supplies amid waning demand has caused a nearly 50 percent decline in crude prices since June. Lower oil prices also mean that feedstock for refiners is cheaper.

The Irving, Texas company earned a first-quarter profit of $4.9 billion, or $1.17 per share, down 46 percent from $9.1 billion, or $2.10 per share, a year earlier.

Still, that was better than analysts’ expectations of a profit of 83 cents per share, according to Thomson Reuters I/B/E/S.

Oil and natural gas output was 4.2 million barrels oil equivalent per day (boed), up 2 percent from a year earlier.

Exxon’s refining business had a profit of $1.7 billion in the first quarter, up $854 million from the same period a year earlier, boosted by its international operations.

(Reporting by Anna Driver; Editing by Alden Bentley and Bernadette Baum)

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Warren Buffett losing some mojo on his economic ‘moats’

NEW YORK (Reuters) – Warren Buffett has carved out a core stock-picking strategy of investing in companies with strong economic “moats,” businesses that have built, fortified and generated success from well-known brands that make it difficult for them to succumb to competitive forces.

But for a number of holdings in his stock portfolio, the moats may be drying up and the walls could be breached.

Stalwarts like International Business Machines (IBM.N), Coca-Cola Inc (KO.N), Procter Gamble Co (PG.N) to name a few have showed declining revenue trends in recent years, and face competition that may make it more difficult for them to outperform the market in the way they did in the past.

When Berkshire Hathaway Inc (BRKa.N), the conglomerate Buffett has run since 1965, releases quarterly results on Friday – which will follow with his annual gathering in Omaha, Nebraska – it is likely to show that his largest equity-market positions trailed the broad-market Standard Poor’s 500 Index.

On average, the 15 biggest positions he owned at the end of 2014 have gained 7.8 percent in the last 12 months, compared with a 13.1 percent rise for the SP.

Buffett supporters – and there are many – would say that the 84-year-old investor is hardly looking at the short term, but what stands out about some of the larger holdings are weakening revenue trends that augur for concern about the long-term, not just the short term.

“The moats are not as deep and unimpenetrable as in the past,” said Doug Kass, who runs Seabreeze Investment Partners in Palm Beach, Florida, and has questioned Buffett’s investments in the past. He currently has no position in the stock.

That is not to say Buffett is any kind of a slouch. Those 15 holdings, over the last five years, on average, are ahead of the SP, with an average gain of 85 percent, compared with the SP’s 78 percent rise.

And he can still be opportunistic, as in the aftermath of the financial crisis when he acquired a $750 million position in Goldman Sachs Group Inc that’s now worth $2.5 billion, and an option to buy 700 million shares in Bank of America Corp (BAC.N) for $5 billion – now worth $11.2 billion.

What’s less clear, however, is whether these previously unassailable franchises are facing competitive pressures that will continue to hurt sales growth. Buffett owns 76.9 million shares of IBM that as of last year had cost him $13.2 billion, and that position is underwater; IBM is trying to reverse 12 straight quarters of year-over-year revenue declines as it plays catch-up in the cloud computing space.

Two other large positions, Coca-Cola and Wells Fargo Co (WFC.N), are also struggling. Wells Fargo has had three straight quarters of year-over-year revenue growth, but that followed 18 quarters of decline. Revenue growth has fallen for Coke in 8 of the last 9 quarters as the company deals with changing consumer tastes.

But of course, Buffett’s total cost for his 400 million shares of Coke was $1.3 billion. As of Wednesday, it was worth $16.2 billion.

“Since he bought it in the 1980s, his return from stock price appreciation and dividends received has been terrific, and will likely continue compounding for years to come,” said Ken Stein, founder and portfolio manager at Spencer Capital Management.

Berkshire did not respond to requests from Reuters for comment.

It remains to be seen whether Buffett’s portfolio sees a greater shift with the increased influence of Ted Weschler and Todd Combs, the two men handling portfolio management for the last few years.

Berkshire’s annual letter lists only the 15 largest positions in the portfolio – many of which predate the two executives – so it is possible that there are other, smaller positions that are big winners. Weschler and Combs are credited with buying DirecTV for Berkshire, which has a 54 percent gain for them. On the other hand, last year Berkshire sold U.K. food retailer Tesco, which Berkshire took a $444 million loss.

Kass even acknowledges that Buffett’s ability to hunt for unknowns now would not be easy given the firm’s size and stature, in the way he did early in his investing career.

Other investors believe that for Buffett to change his approach would be foolish at this stage of the game.

“His shareholders, I think, would get unnerved if he woke up one day and said, ‘Yeah, you know, I’m wrong, let’s buy Apple,'” said Jeff Matthews, who runs Ram Partners, a Naples, Florida-based hedge fund, owns Berkshire shares in his personal account, and has written several books about Buffett.

“When you compound at 20 percent a year for 50 years and that’s better than anybody, how do you start picking that apart just because he didn’t own Apple?”

(Reporting By David Gaffen and Jennifer Ablan; Editing by Bernard Orr)

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U.S. labor costs rise solidly; wage growth picks up

WASHINGTON, (Reuters) – U.S. labor costs rose solidly in the first quarter as wages in the private sector increased, which could keep the Federal Reserve on track to raise interest rates this year.

The Employment Cost Index, the broadest measure of labor costs, advanced 0.7 percent – the largest gain since the third quarter of 2014 – after an unrevised 0.5 percent rise in the fourth quarter, the Labor Department said on Thursday.

Economists polled by Reuters had forecast the employment cost index rising 0.6 percent in the January-March period.

The ECI is widely viewed by policymakers and economists as one of the better measures of labor market slack.

Unlike the average hourly earnings (AHE) measure in the employment report, the ECI covers a broad range of workers and is weighted to eliminate composition effects, which economists say have distorted the AHE.

The ECI is seen as a better predictor of core inflation.

Wages and salaries, which account for 70 percent of employment costs, rose 0.7 percent in the first quarter. They had increased 0.6 percent in the fourth quarter.

Private sector wages and salaries increased 0.7 percent, the largest rise since the third quarter of 2014, after gaining 0.5 percent in the prior quarter.

In the 12 months through March, labor costs jumped 2.6 percent, the largest rise since the fourth quarter of 2008. That is still below the 3 percent threshold that economists say is needed to bring inflation closer to the Fed’s 2 percent target.

Labor costs increased 2.2 percent in the 12 months through December.

Private sector wages and salaries were up 2.8 percent in the 12 months through March, the biggest gain since the third quarter of 2008, after rising 2.2 percent in the 12 months through December.

Benefit costs increased 0.6 percent in the first quarter.

They increased 2.7 percent in the 12 months through March after rising 2.6 percent in the 12 months through December.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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Shell pushes on with Arctic exploration as it awaits U.S. permit

LONDON (Reuters) – Royal Dutch Shell is pushing ahead with plans to explore for oil in the Arctic Ocean near Alaska this summer despite opposition from environmental groups.

The Anglo-Dutch oil major is preparing “an armada of 25 vessels” to begin a two-year program to explore two to three wells in the Chukchi Sea off the coast of Alaska, Chief Financial Officer Simon Henry said on Thursday.

“We are currently on track. Some of the permits are issued at the last moment,” he told reporters.

Although Shell had to pull out of the region in 2012 after an oil rig ran aground, the Arctic oil reserve “remains a massive value opportunity,” Simon said.

Shell has submitted plans to explore the Arctic to the U.S. Interior Department after the Obama administration last month upheld a 2008 Arctic lease sale, clearing an important hurdle for Shell.

The Department of the Interior will now consider the company’s drilling plan, which could take 30 days.

Shell has lined up the necessary equipment and vessels to deal with any mishaps, which Henry said are of a “very low probability”.

Environmental organizations fear that an oil spill would be destructive for an ecologically sensitive region and extremely hard to clean up in a remote area with rough and frigid seas.

(Editing by Keith Weir)

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U.S. data, Fed caution keep pressure on stocks, dollar

LONDON (Reuters) – World stock markets and the dollar remained in sharp sell-off mode on Thursday, having been jolted sharply lower by weak U.S. growth data and cautious comments from the Federal Reserve.

Asian and European stocks continued a two-day decline for equity markets worldwide, with Europe’s FTSEurofirst 300 down 0.3 percent and heading for its worst week of the year. [.EU]

The slide of more than 3 percent is being compounded by this week’s jump in bond yields and a surge of more than 2 percent in the euro to above $1.12, all of which are threatening to dampen the region’s recovery prospects.

Benchmark German Bund yields kept on climbing, having posted their biggest daily rise in two years on Wednesday on robust German inflation and a pick-up in ECB bank lending figures.

While inflation data for the euro zone showed the currency bloc ended four months of deflation in April, with consumer prices unchanged from year-ago levels, removing the threat of persistent price declines as energy costs pushed higher, some cautioned that the spectre of deflation was not entirely gone.

“A flat print is far from a sufficient reason to pop the champagne corks,” RBC Capital Markets economist Timo del Carpio said in a note to clients. “There are still real risks associated with a prolonged period of low-but-positive inflation rates across the euro area.”

U.S. stock index futures were 0.2 percent lower, a day after data showed that U.S. economic growth slowed to a crawl in the first quarter, and ahead of earnings from Coca-Cola, ConocoPhillips and Colgate-Palmolive.

Jefferies’ global equity strategist Sean Darby said markets were now having to readjust fast to the changing fortunes of the U.S. and Europe.

“The U.S., the U.S. dollar and the U.S. economy were very heavily consensus trades at the end of last year,” he said.

“Trades around that, for example weak oil price, strong dollar, weak euro, have also been very consensus over the last couple months. That easy money has probably played itself out … There is a bit more unwinding to go.”

The disappointing news on the world’s biggest economy comes on top of a worrying slowdown in China and persistent fears about Europe as Greece scrambles to avoid bankruptcy.

The Federal Reserve said on Wednesday that the dip in the U.S. economy was probably due to “transitory” factors. But, combined with concerns about the labour market, traders all but crossed June to September from the list of possible start dates for Fed rate rises.

Central banks and the cheap money they are pumping into the world’s still-wobbly economy remain the underlying theme for markets.

New Zealand’s central bank became the latest to say it could cut interest rates if domestic momentum weakened.

Russia cut rates by one-and-a-half percentage points, having had to jack them up last year following the slump in oil prices and the Ukraine crisis.

The rouble firmed after the central bank announcement, having been down prior to the decision, as there had been speculation that the bank would opt for a bigger rate cut. At 1047 GMT the rouble was at 51.23 against the dollar, still down 0.7 percent on the day. [RUBUTSTN=MCX]

U.S. crude oil hit a five-month high as the dollar slipped to its lowest since February and as more evidence emerged of a gradual balancing of the U.S. domestic market.


Europe’s slide mirrored overnight moves in Asia. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.1 percent as South Korean, Australian, Chinese and Hong Kong shares all suffered losses.

Japan’s Nikkei slumped 2.6 percent, extending losses after the Bank of Japan kept monetary policy unchanged. The decision was expected but disappointed some participants who had bet it may ramp up its already massive stimulus measures.

“Risk has been building in the markets for weeks – the mass stock market trading account openings in China, the rally in Europe as the ECB ploughs on with its 65 billion euro a month QE programme,” IG market strategist Evan Lucas said.

(Additional reporting by Lionel Laurent; Editing by Louise Ireland and Kevin Liffey)

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Stocks slip, euro near two-month high as US economy loses steam

TOKYO (Reuters) – Asian stocks stumbled on Thursday while the euro held near two-month highs against the dollar after surprisingly downbeat first quarter economic growth in the United States dimmed the mood.

The disappointing news on the world’s biggest economy, coming on top of a worrying slowdown in China, found expression in a warning by New Zealand’s central bank that it could cut rates if domestic momentum weakened.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.9 percent. Japan’s Nikkei shed 1.9 percent and South Korean, Australian, Chinese and Hong Kong shares also suffered losses.

The drop in Asian equities followed Wednesday’s slide in U.S and European stocks, with Germany’s DAX – which hit a record high earlier this month – tumbling 3.2 percent on the euro’s surge.

“Risk has been building in the markets for weeks – the mass account openings in China, the rally in Europe as the ECB ploughs on with its 65 billion euro a month QE program,” said Evan Lucas, market strategist at IG in Melbourne.

The U.S. economy grew just 0.2 percent in the first quarter, down sharply from the previous quarter’s 2.2 percent growth. The disappointing data further dimmed already faint prospects for an interest rate hike in June by the Federal Reserve.

“If the U.S. was the main source of the slowdown in Asian export growth in the first quarter we should see growth start to accelerate,” analysts at ING wrote.

Some economists also note that trade-reliant Asian economies are more sensitive now to growth trends in China than those in the U.S.

The euro was little changed at $1.1119 after surging to a near two-month high of $1.1188 in the wake of the data. A rise in euro zone debt yields also helped the euro. German Bund yields posted their biggest daily rise in two years overnight on waning deflation fears and improved prospects for a Greek debt deal.

The common currency shed some of its gains after investors focused on the Fed’s monetary policy statement attributing the winter slowdown in U.S. economic growth partly to transitory factors.

The Fed, however, took a dimmer view of the labor market after its two-day policy meeting ended late Wednesday.

“All in all, the FOMC statement gave a balanced assessment of the current economic slowdown and the Committee remains very much in a data-dependent mode. However, the balanced and cautious tone in the statement is a far cry from the optimism and (over)confidence that we have seen in previous statements,” economists at Rabobank wrote in a note to clients.

The dollar was down 0.2 percent at 118.87 yen after a choppy session overnight which took it to between a low of 118.60 and a high of 119.36.

A rise in yields on U.S. Treasuries, which saw the benchmark 10-year note’s yield climb to a six-week high overnight amid a global bond sell-off, helped shore up the dollar.

The New Zealand dollar sank 0.8 percent to $0.7618 after the Reserve Bank of New Zealand stood pat on monetary policy and said it would cut rates if warranted.

The kiwi’s retreat pushed the Australian dollar down 0.3 percent to $0.7988 after it marched to a three-month peak of $0.8077 overnight on the dollar’s broad weakness.

In commodities, U.S. crude extended gains after jumping to a four-month high overnight when the first crude stock draw in five months at the Cushing, Oklahoma, hub suggested the oil glut may be starting to wane. The contract was last up 0.1 percent at $58.65 a barrel

(Editing by Eric Meijer Shri Navaratnam)

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Salesforce working to field takeover offers: Bloomberg

(Reuters) – Cloud software company Inc (CRM.N) is working with financial advisers to help it field takeover offers after being approached by a potential acquirer, Bloomberg said, citing people with knowledge of the matter.

The company’s shares rose as much as 17.3 percent to touch an all-time high of $78.46 on Wednesday. They closed up 11.6 percent at $74.65, valuing the company at about $49 billion.

There is no certainty any deal will transpire, Bloomberg said. It did not identify the potential acquirer.

A Salesforce spokeswoman declined to comment.

Salesforce’s stock trades at 89.9 times forward earnings, well above the peer median of 19.9, according to Thomson Reuters data.

Several giants of the software industry are seeking to beef up their presence in cloud computing, a fast-growing area of technology that helps customers make use of software, services and content over the Internet.

Multiple sources close to the most obvious potential bidders, including Oracle Corp (ORCL.N), Microsoft Corp (MSFT.O), Germany’s SAP (SAPG.DE) and IBM (IBM.N), poured cold water on speculation that the companies had considered, or were considering, an offer.

IBM, Microsoft, Oracle, Hewlett-Packard Co (HPQ.N) and SAP declined to comment.

Google Inc (GOOGL.O) and Inc (AMZN.O) did not immediately respond to requests seeking comment.

(Reporting by Bill Rigby in San Francisco, Nadia Damouni in New York, Kshitiz Goliya, Arathy Nair and Devika Krishna Kumar in Bengaluru; Editing by Sriraj Kalluvila and Robin Paxton)

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Wall St. ends down after Fed statement, GDP data

(Reuters) – U.S. stocks ended lower on Wednesday as the Federal Reserve cited weakness in the U.S. economy and data showed U.S. growth slowed more sharply than expected in the first quarter.

But the Fed’s acknowledgement of weakness in some sectors of the economy makes it more likely it will not be ready to raise until at least September, which kept stocks from falling further.

“We all know the Fed would love to start normalizing rates, but the simple fact is, the data does not warrant that action right now,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services in New York.

While concerned about lingering economic weakness, U.S. investors also are worried about the possibility of the Fed raising interest rates too soon.

Seven of the 10 SP 500 sectors ended lower, with just energy, financials and materials in positive territory.

Insurer Humana’s (HUM.N) shares fell 7.2 percent to $168.05, the second-biggest loser on the SP 500, after results missed forecasts. Shares of rivals also fell, including UnitedHealth (UNH.N), which was down 3.4 percent at $113.61. The SP healthcare index .SPXHC was down 0.8 percent, the biggest drag on the SP 500.

The Dow Jones industrial average .DJI fell 74.61 points, or 0.41 percent, to 18,035.53, the SP 500 .SPX lost 7.91 points, or 0.37 percent, to 2,106.85 and the Nasdaq Composite .IXIC dropped 31.78 points, or 0.63 percent, to 5,023.64.

The central bank’s policy statement put in place a meeting-by-meeting approach toward the timing of its first rate hike since June 2006, making such a decision solely dependent on incoming economic data.

Earlier in the day, data showed gross domestic product expanded at an only 0.2 percent annual rate as harsh weather put off shoppers and energy companies cut spending.

Twitter (TWTR.N) fell 8.9 percent to $38.49, a day after the company cut its full-year forecast due to weak demand for its new direct response advertising.

Other decliners included Wynn Resorts (WYNN.O), which fell 16.6 percent to $108.77 after the casino operator reported weaker-than-expected first-quarter profit. Inc (CRM.N) jumped 11.6 percent to $74.65 after a Bloomberg report that it is working with financial advisers to help field takeover offers after being approached by a potential acquirer.

Declining issues outnumbered advancing ones on the NYSE by 2,023 to 1,008, for a 2.01-to-1 ratio on the downside; on the Nasdaq, 1,853 issues fell and 867 advanced for a 2.14-to-1 ratio favoring decliners.

The benchmark SP 500 posted 11 new 52-week highs and 1 new low; the Nasdaq Composite recorded 54 new highs and 51 new lows.

About 7.2 billion shares changed hands on U.S. exchanges, above the 6.3 billion daily average for the month to date, according to BATS Global Markets.

(Additional reporting by Ryan Vlastelica; Editing by Savio D’Souza and Nick Zieminski)

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Greece prepares reform bill, lenders seek concessions

ATHENS/BRUSSELS (Reuters) – Euro zone officials sought to wring policy concessions from Greece on Wednesday to unlock urgently needed aid after Athens said it would present a list of reforms for legislation to show it is serious about implementing its promises.

The draft bill was not expected to include major novelties beyond measures already discussed with EU and IMF lenders, but Athens is hoping it will speed up slow-moving talks and permit at least an initial deal to ease its searing cash crunch.

The reforms, including some privatizations and tax steps, were to be outlined to senior euro zone finance ministry officials in Brussels on Wednesday. They will be assessed in more detail when technical-level teams from Greece and the lenders meet on Thursday, Greek government officials said.

Despite lenders’ scepticism, Greece’s government is hoping an interim deal can be struck before a May 12 payment of 750 million euros to the IMF that Greek officials have suggested could be difficult to make without more aid.

However, a senior euro zone official involved in the talks said that to secure any deal, Greece would have to make a substantial concession on at least one of three disputed issues – pensions, labor market reform and taxation.

“We need to see a very significant policy move on the Greek side this week to recreate confidence the process,” the official said, speaking on condition of anonymity.

“It could be pensions, it could be the labor market but … they have to pay the political cost. The Eurogroup wants to see that political cost being paid.”

The lenders have said a partial disbursement of frozen aid is not possible until Greece has presented and implemented a full list of reforms. Athens is hoping an initial deal will prompt the European Central Bank to loosen restrictions that prevent Greek banks from buying more Treasury bills.

“We are now aiming at a ‘minimum’, let’s say, agreement in which we combine some things that we will agree to implement immediately with the relaxation of the ECB restrictions,” Deputy Prime Minister Yannis Dragasakis told Sto Kokkino radio.


The ECB has kept Greek banks afloat but on a tight leash while talks with lenders continue. It raised the cap on emergency liquidity assistance available for Greek banks by 1.4 billion euros to 76.9 billion euros on Wednesday, a banking source told Reuters.

Figures published by the ECB showed that the Greek banks continued to leak deposits in March, but at a slower pace than in the first two months. The euro zone official said they were still well capitalized, but their fate hinged on the continued solvency of the Greek government.

The discussion with lenders on detailed legislation is meant to underline the government’s serious intent, after the lenders accused Prime Minister Alexis Tsipras’ government of dragging its feet and failing to produce results.

The euro zone official said it was vital that Greece discuss the legal texts with its partners before putting them to parliament and not just present a “take it or leave it” package, immediately leaked to the media, making negotiation impossible.

The proposals will include tax and public administration reforms, a tax on television broadcasting rights and on TV advertisements, a Greek official said. Tourists on popular Greek islands will be required to use a credit card for transactions of more than 70 euros in an effort to crack down on tax evasion.

The creditors have demanded that the rate of value added tax applied on those holiday islands be the same as on the mainland.

It was not immediately clear if the government planned to cede more ground on such issues in this week’s talks.

One official said the government would try to break the deadlock on the labor market by pushing back its plan to raise the minimum wage, a move the lenders oppose.

Deputy Labour Minister Dimitris Stratoulis reiterated that Athens would not agree to demands for further pension cuts.

“Our government is making every possible effort right now to have a positive deal, which will respect our program, which will respect the main principle of our program since we took power, which is to put a brake on wage and pension cuts,” he told Mega TV.

The draft bill is expected to be discussed at a cabinet meeting in Athens on Thursday, a finance ministry official said. Once approved, it would then be debated in parliament.

EU paymaster Germany, which has taken a hard line, said it expected talks would be speeded up now that Greece had reshuffled its negotiating team.

($1 = 0.9091 euros)

(Additional reporting by Deepa Babington, Angeliki Koutantou and Lefteris Papadimas in Athens; Writing by Paul Taylor)

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