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Mexico says trade talks must take note of very sensitive products

LAHAINA, Hawaii Pacific Rim trading partners have to make an effort to seal an ambitious free trade deal but must also recognize that very sensitive markets cannot be thrown open to full competition immediately, Mexican Trade Minister Ildefonso Guajardo said on Thursday.

Trade ministers from the 12 countries negotiating the Trans-Pacific Partnership on the Hawaiian island of Maui still had several big issues outstanding on Thursday.

“They are few but very contested,” he told Reuters. Mexico is under pressure to open agricultural markets to products from Australia and New Zealand, and is also watching demands from Australia for increased access to the U.S. sugar market, which Mexico enjoys preferential access to.

“Everyone knows the sensitivities in the markets, of course we all have make an effort, but the effort has to be in line with the principle … that the very, very, very sensitive products are subject to a less aggressive schedule of market opening,” he said when asked about sugar.

(Reporting by Krista Hughes; Editing by Sandra Maler)

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Airbus seeks to rebuild trust as A400M systems fall short

PARIS Airbus Group has told buyer nations of the A400M transporter aircraft that it cannot deliver all of its high-tech defenses according to plan, casting a shadow over some of its military uses as Europe battles growing instability on its borders.

The troop and cargo lifter was developed at a cost of 20 billion euros ($22 billion) for seven European NATO nations and is already in service with French forces in Mali. Other core buyers include Belgium, Britain, Germany, Luxembourg, Spain and Turkey. Malaysia is so far the only export customer.

Some of the state-of-the-art systems designed to warn of threats such as missiles or hostile radar are more difficult than expected to develop, handing buyers a choice between taking planes or waiting for upgrades, European defense sources said.

But after years of political disputes and technical problems, a new military-aircraft management at Airbus Group (AIR.PA) is working flat out to rebuild trust worn down by delays and overruns that are typical of large defense projects.

An internal audit and regular updates appear to be paying off, people close to the talks said, with fewer visible signs of tensions that have led to costly stand-offs in the past.

A new setback came with the fatal crash of a plane being prepared for delivery to Turkey in May. Investigators are looking into a possible accidental data wipe.

Ankara is negotiating with other A400M buyers to see whether it could get a replacement aircraft by swapping deliveries as it steps up its military role in the region, defense sources said.

Although production is back to normal, a clampdown on some testing after the crash led to new development delays of up to three months, erasing the remaining “buffer,” they said.

Even though the destroyed plane was insured, some analysts expect Airbus to take a further modest provision on the A400M with its results on Friday, adding to 4.76 billion euros of charges already generated by Europe’s biggest defense project.

Airbus declined any comment ahead of the results.


A senior executive told Reuters in comments published this week that Airbus was confident of meeting the upper end of its revised production goal of 13 to 17 planes this year, following the accident, but declined further comment.

The group appears certain it can deliver 13 of those planes, leaving 10 to deliver for the rest of the year.

The remaining four are the subject of negotiations over how many customized features should be slotted in and when, with France, Germany and Britain seen at the center of the debate.

Airbus met buyer nations this week and several weeks of negotiations lie ahead, sources in two capitals said.

Although some of the plane’s advanced defenses will be later than planned, European defense sources say buyers have been assured it can tackle shoulder-held weapons held by non-state actors that are one of the region’s pressing threats.

One of the A400M’s other roles is dropping parachutists.

Free-jumping from the side doors has been approved but dropping paratroopers from both sides at once to speed up penetration of territory has introduced the risk of collision.

Airbus is facilitating trials of various parachutes to try to avoid this, the sources said. Another solution is to space the jumps, but this can expand the drop zone. One analyst said this was not a serious concern and may be resolved in training.

Despite the flaws, supporters stress the A400M, which shot to the attention of the public in an action movie premiere last week, remains more sophisticated even than some fighters.

However, Airbus has had to admit to buyers that refueling helicopters will be ‘mission impossible’ any time soon, because the shape of the plane subjects choppers to too much turbulence when tethered on their relatively short fuel hoses.

France, which views this as crucial for its special forces,

is considering buying Lockheed Martin (LMT.N) C-130s, one of the planes the A400M was designed to replace, to address this gap.

The setback could raise questions over ambitions to export the plane to the United States which uses C-130s to refill Black Hawks, though future research might overcome this — at a cost.

(Editing by Mark Potter)

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Facebook shares dip as results fail to impress

Facebook Inc’s (FB.O) shares fell as much as 5 percent on Thursday, after the company’s weak advertising sales growth outlook dampened investor expectations boosted by Google Inc’s (GOOGL.O) strong report earlier this month.

Facebook’s shares rallied 7 percent since the search giant reported a better-than-expected profit on July 16, and said it would take a disciplined approach to spending.

In contrast, Facebook said it plans to keep spending heavily on its messaging services, Instagram and its virtual reality headset business. Costs soared 82 percent in the second quarter.

“The number one reason (for the share price fall) is that … some investors looking at these results are deciding to take their profits,” FBN Securities analyst Shebly Seyrafi said.

The stock is expensive compared with that of its peers, according to Thomson Reuters data. It trades at 40.4 times forward earnings, well above the sector median of 25.6 and Google Inc’s (GOOGL.O) multiple of 20.9.

However, Wall Street analysts think the stock has more room to grow and expect Facebook’s strong investments to boost long-term growth.

Of the 50 brokerages covering the stock, at least 24 raised their price targets. Piper Jaffray was the most bullish with a $146 target – 50 percent over Facebook’s Wednesday close of $96.99.

Wall Street is overwhelmingly bullish on Facebook – only one analyst a “sell” rating on the stock.

“While newer initiatives may have a less pronounced impact on near-term revenue growth, we believe management’s focus on optimizing the user experience will bear significantly more financial fruit long term,” Baird analysts wrote in a note, raising its price target to $110 from $96.

Facebook’s monthly active users hit 1.49 billion globally as of June 30, up 13 percent from a year earlier. Second-quarter revenue jumped 39 percent to $4.04 billion, but beat estimates by just 1 percent.

“I think that the underlying expectation was that revenue could be a bit stronger than that, especially given that we have seen quite a lot of strength at Google and even Twitter’s ad revenue was better than anticipated,” Atlantic Equities analyst James Cordwell said.

Facebook shares pared some of their losses to trade down 2.5 percent at $94.55 by afternoon.

(Story corrects date to July 16 from June 16 in paragraph 2)

(Reporting by Tenzin Pema and Abhirup Roy in Bengaluru; Editing by Sayantani Ghosh and Saumyadeb Chakrabarty)

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Venezuela currency blues hit U.S. blue-chip companies

BOSTON Venezuela’s currency woes cut nearly $3 billion in profit at U.S. blue-chip companies during the second quarter and prompted Procter Gamble Co (PG.N) to remove its operations in the South American country from its consolidated financial reports.

More so-called deconsolidation moves and exits from Venezuela are likely to happen during the second half of the year as U.S. corporations grow increasingly frustrated with Venezuela’s sinking Bolivar currency, according to analysts and U.S. regulatory filings.

Deconsolidating Venezuelan operations means that business can largely no longer hurt or benefit a U.S. parent company’s financial results. Often companies are taking a big one-time charge so that they can ring-fence what is left in Venezuela.

Colgate-Palmolive Co (CL.N) and Goodyear Tire Rubber Co (GT.O), for example, said they also may deconsolidate their Venezuela operations if economic conditions in that country worsen, according to U.S. regulatory filings made this week.

And Mattel Inc (MAT.O) said it may cease operations in Venezuela altogether if volatility in Venezuela worsens.

With slumping crude oil prices and debt payments coming due this year, the Venezuelan government has fewer U.S. dollar reserves available to meet the private sector’s demands. As a result, entities may have a harder time obtaining U.S. dollars than any time since currency controls were first implemented in 2003, Ernst Young said in an April report.

Jack Ciesielski, president of investment research firm R.G. Associates, said if conditions do not improve in Venezuela, he expects to see more companies follow PG’s lead.

“I’d say the die has been cast,” he said.

Drug maker Merck Co Inc (MRK.N) took a $715 million second-quarter hit against profit after it revalued its Venezuela assets using a less preferential exchange rate.

But the biggest impact from Venezuela’s currency woes came from Procter Gamble. The world’s largest consumer products maker on Thursday announced a $2.1 billion charge against earnings, reflecting the company’s inability to convert Venezuela’s currency or pay dividends.

Beginning in the third quarter, PG will exclude the operating results of its Venezuelan subsidiaries from its consolidated financial statements.

Hits to U.S. corporate profits in Venezuela accelerated in February when the President Nicolas Maduro devalued the bolivar by 70 percent via a new currency system known as Simadi. Previously, many U.S. companies valued their monetary and non-monetary assets at the most preferred rate of 6.3 bolivars to the dollar. But under Simadi, the exchange rate has been around 200 bolivars.

(Reporting By Tim McLaughlin; Editing by Cynthia Osterman)

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Google loses bid to overturn low-cost patent licenses to Microsoft

NEW YORK In a setback for Google Inc (GOOGL.O), a U.S. appeals court ruled on Thursday that the low licensing rate Microsoft Corp (MSFT.O) pays to use some of Google’s Motorola Mobility patents had been properly set.

The 9th U.S. Circuit Court of Appeals in San Francisco said a lower court judge properly determined the patents’ value even though the royalty rate was only a fraction of what Motorola had asked for. Google sold the Motorola handset business to Lenovo (0992.HK) last year but kept its patents.

The court also upheld $14.5 million awarded to Microsoft for Motorola’s breach of contract to license its patents fairly.

Both Microsoft and Google declined to comment on the decision.

The case has been broadly followed by the technology industry because it could affect how Google and others negotiate royalty rates on their technology.

Microsoft sued Motorola in 2010, alleging Motorola had breached its obligation to offer licenses to wireless and video patents used in Xbox game consoles and Windows products at a reasonable cost.

After a 2012 trial, U.S. District Judge James Robart in Seattle said the appropriate royalty rate was $1.8 million, far less than Motorola’s demand for as much as $4 billion a year. A jury later found Motorola in breach of contract. Google appealed the verdict and the royalty rate to the 9th Circuit.

The dispute highlighted a debate over how much patent owners should be able to ask others to pay to use inventions that have become widely adopted in certain technologies.

Apple (AAPL.O), Intel (INTC.O) and other companies filed court papers in support of Microsoft’s position, while major patent licenser Qualcomm (QCOM.O) opposed Robart’s calculation, saying it will devalue patents and cause “incalculable damage” to innovation.

The case in the 9th Circuit is Microsoft Corp vs. Motorola Mobility Inc et al, 14-35393.

(Reporting by Andrew Chung; Editing by Jonathan Oatis and Tom Brown)

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P&G results raise concerns about pace of turnaround

Procter Gamble Co (PG.N) reported its sixth straight quarter of falling sales, hurt mainly by the stronger dollar.

Even after stripping out the impact of the dollar and acquisitions, sales rose just 1 percent, raising concerns about the slow pace at which PG is turning around its business.

The company’s shares fell as much as 4.3 percent in morning trading on Thursday, after it said sales would fall by a low-to-mid single-digit percentage in the year ending June 2016.

PG, struggling in an increasingly competitive consumer products industry, has been trying to turn itself around since 2014 by focusing on fewer, faster-growing brands.

It has also made management changes, including appointing company veteran David Taylor CEO this week.

But these moves have failed to convince investors that the company, which gets two-thirds of its revenue from outside the United States, has done enough to get back on track.

JP Morgan analysts noted that PG’s volume sales were the weakest in five years.

Some analysts question whether PG is too big and whether it would be better off splitting its businesses into separate companies.

Analysts on a conference call grilled executives about why PG was still struggling to show underlying earnings growth, why steps taken so far have been ineffective and whether the company had a Plan B.

“We clearly recognize the need to grow faster … we’re not going to get there in the next quarter or two but we do expect sequential progress as we move through the next fiscal year,” Chief Financial Officer Jon Moeller said.

Sanford Bernstein analyst Ali Dibadj said PG should break into three companies — beauty, grooming and health, and home care.

PG has dropped about 50 brands since 2014, of which 43 were sold to perfume maker Coty Inc (COTY.N) for $12.5 billion this month.

PG intends to retain a core portfolio of 65 brands, including Tide detergent, Pampers diapers and Gillette shaving products.

Neil Saunders, CEO of research firm Conlumino, said PG needs to get rid of more brands if it wants to turn itself around faster.

Net income attributable to PG fell 80 percent to $521 million, or 18 cents per share, in the fourth quarter ended June 30, mainly due to a $2.03 billion one-time charge related to its Venezuelan operations.

Revenue fell 9.2 percent to $17.79 billion.

(Additional reporting by Ramkumar Iyer; Editing by Simon Jennings and Kirti Pandey)

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Greece, Europeans must reach deeper deal before IMF program possible

WASHINGTON The International Monetary Fund can only approve new loans for Greece after Athens reaches an agreement with European governments that would ensure it can pay its debts, an IMF official said on Thursday.

“The IMF can only support a program that is comprehensive,” the official said in a telephone briefing with journalists, adding that it “will take some time” before Greece and its European creditors can lay the necessary groundwork for a new IMF program.

The IMF has teamed up with the European Union and the European Central Bank in recent years to lend Greece money repeatedly to save it from a debt crisis.

Athens and Brussels this week started a new round of negotiations on an 86 billion euro ($93.8 billion) bailout after striking a preliminary deal earlier this month.

The IMF official said the international lender would actively participate in new talks and the Fund’s board on Wednesday authorized discussions on a new Greek lending program.

But there is “no expectation” that talks over the next couple of weeks will get to the point where the IMF can approve a new program, said the official, who spoke on condition of anonymity.

The IMF and the United States argue that Greece’s loan burdens are unsustainable and have advocated for an easing of some of the terms of Greece’s debts to international creditors. European governments have resisted the idea as they negotiate with Athens on further bailout funds.

The IMF also wants Athens to enact laws that would overhaul its economy. It sees debt relief concessions made by the Europeans and economic reforms enacted in Greece as necessary for ensuring Greece can pay back its debts over the long run.

“It will take some time before the two sides are ready to take these decisions,” the IMF official said.

(Reporting by Jason Lange; Additional reporting by David Chance; Editing by Andrew Hay)

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Flying through Dallas: Virgin America CEO says worst is over

Virgin America Inc (VA.O), a low-cost airline partly owned by billionaire Richard Branson, said it expects business to improve in Dallas, a major airline hub where competition has led to increased discounting.

Shares of the airline, which took to the skies in 2007, rose as much as 10 percent to a four-month high of $32.87 after it also reported a better-than-expected second-quarter profit.

Dallas, which accounts for 12 percent of Virgin America’s total capacity, is the hometown of No. 1 U.S. airline American Airlines Group Inc (AAL.O) and Southwest Airlines Co (LUV.N).

“We expect that the worst is behind us in Dallas,” Virgin America Chief Executive David Cush said on a conference call with analysts.

Virgin America, popular among travelers for its Wi-Fi service, comfortable leather seats and mood lighting, said industry capacity growth in Dallas is expected to ease to 31 percent in the third quarter from 32 percent in the second quarter.

U.S. airlines have added capacity to take advantage of higher travel demand and weak oil prices. Low oil costs reduced American Airlines’ fuel bill by $1.3 billion in the second quarter.

“We remain very bullish on the industry as a whole,” Cush told Reuters. “Revenue is solid, fuel prices are low; it’s a good time to be in the airline business.”

Virgin America, which had a blockbuster IPO in November 2014, is the first U.S. airline to go public since Spirit Airline Inc’s (SAVE.O) debut in 2011.

The airline’s U.S.-focused operations have sheltered the company from a strong dollar, which has crimped revenues at rivals that fly internationally.

Virgin America, the U.S. offshoot of London-based Virgin Group and 32 percent-owned by Branson, said it expects its overall capacity to increase 2-3 percent in the third quarter.

The airline’s fuel expenses fell 30 percent to $2.18 per gallon in the quarter. Chief Financial Officer Peter Hunt said these costs are expected to fall 38 percent in the third quarter.

Virgin America, which leases all 53 of its Airbus single-aisle aircraft, said it expects to take delivery of five more planes between January and June 2016.

Excluding items, the airline earned $1.46 per share, above the average analyst estimate of $1.25, according to Thomson Reuters I/B/E/S.

Total operating revenue rose 0.5 percent to $400.9 million.

Up to Wednesday’s close of $29.79 on the Nasdaq, Virgin America’s shares had risen 30 percent since their debut on Nov. 14.

(Editing by Maju Samuel and Saumyadeb Chakrabarty)

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Oil companies slash spending, jobs as prices slide for second time

HOUSTON The stark reality of a much-feared second dip in crude prices is prompting global oil majors and nimble U.S. shale companies alike to ax spending once again a year after the first price crash started.

Just days into the second-quarter earnings season, Chevron Corp (CVX.N) and Royal Dutch Shell Plc (RDSa.L) said they would slash a combined 8,000 thousand jobs around the world.

In North Dakota, Whiting Petroleum Corp (WLL.N), the top producer in the No. 2 U.S. oil patch, cut its capital expenditure budget days after optimistically raising it 15 percent on bets the renewed downturn in prices would be a temporary blip.

ConocoPhillips (COP.N), the largest U.S. independent, trimmed its 2015 budget for the third time on Thursday, by $500 million to $11 billion.

More ominously, Linn Energy LLC (LINE.O), a small exploration and production company, suspended its quarterly distribution to investors on Thursday to conserve precious cash that has largely evaporated on the price drop. Its shares fell 26 percent.

Conoco CEO Ryan Lance said the company was preparing for “lower, more volatile prices.”

Crude prices have been on a roller coaster since mid-2014, when global oversupply started to chip away at levels higher than $100 a barrel. After hitting a bottom of $42 in March, U.S. crude rallied to around $60 in May, providing some breathing room to shale companies that saw a dramatic reduction in cash flow.

But since June 23, when the latest rout started, oil has tumbled about 20 percent to around $49 a barrel. The second dip has dashed hopes raised in May that prices would hold steady at around $60 a barrel or inch towards $65, a level that many U.S. shale oil producers have said would allow them to add drilling rigs and emerge from their defensive crouch.

Indeed, Whiting now plans to spend $2.15 billion this year, running eight drilling rigs instead of a previous plan for 11.

Anadarko Petroleum Corp (APC.N) said chasing growth in this environment would be make no sense.

“It just seems unlikely that we will have the kind of margins that we have seen historically that would encourage us to go back into a growth mode,” Anadarko CEO Al Walker told investors on Wednesday, while holding off on cutting its budget again.

Weaker companies are in a tougher spot as they weigh cutting spending, selling more high-yield bonds or issuing more shares to cope with the loss of cash from low oil and gas prices.

“All (exploration and production) companies have to be considering their capital programs,” said Matthew Miller, oil analyst with SP Capital IQ.


The easy money that the helped even highly leveraged companies keep drilling in the first half of the year may also become more scarce, another hurdle for the battered sector.

“This ‘shale’ capital was attracted by the promise of improving returns,” a scenario that has faded, said equity analysts at Nomura.

In addition to tightening capital markets, oil and gas companies, will likely see bankers cut funding for credit lines during so-called borrowing base re-determinations in October.

Small natural gas shale company EXCO Resources Inc (XCO.N) said on Monday its lenders cut its credit lines by 17 percent, resulting in a hit to the Dallas company’s available liquidity.

“We expect fall’s re-determination period to be more punitive than the spring’s,” analysts at Tudor Pickering said on Tuesday.

That could signal more job cuts, which Conoco said were in store.

Globally, more than 160,000 jobs in the industry have been shed over the last year, said Tobias Read, CEO of Swift Worldwide Resources, which provides contract engineers to oil companies.

(Reporting by Anna Driver; editing by Terry Wade and Bill Rigby)

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