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DealBook: Citi’s Quarterly Profit Misses Estimates

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Microsoft Profit Misses as Surface Tablets Languish; Shares Drop

The stock fell 5 percent after hours from 5-year highs.

The massive charge underlines the struggles of the world's largest software company, which last week announced a deep reorganization to transform itself into a "devices and services" leader, but is struggling to make mobile computing as attractive as Apple Inc or Google Inc.

"That's the biggest miss we've ever seen from Microsoft, the biggest that I could remember," said Brendan Barnicle, an analyst at Pacific Crest Securities. "It looks like everything was weak."

Before the sell-off late Thursday, Microsoft shares had risen 32 percent this year, beating a 19 percent rise in the Standard & Poor's 500 index.

Microsoft said the $900 million charge was related to its Surface RT tablet, the version of its tablet running on ARM Holdings-designed chips. The Surface was meant to challenge Apple's iPad when it was launched alongside Windows 8 in October, but has not sold well.

Earlier this week, Microsoft said it was drastically cutting prices and expanding distribution of the model to entice buyers, reducing the value of Surface devices in its inventory.

"We do know we have to do better, particular in mobile devices," Amy Hood, Microsoft's new chief financial officer, said in a telephone interview. "That's a big reason we made the strategic organizational changes last week."

Microsoft's biggest shake-up in five years, unveiled by Chief Executive Steve Ballmer last week, creates a single devices unit for the first time at the company, suggesting that it will double down on its so-far unsuccessful move into hardware.

Redmond, Washington-based Microsoft reported fiscal fourth-quarter profit of 59 cents per share, compared with a 6 cents per share loss in the year-ago quarter when it wrote off the cost of a failed acquisition.

Wall Street had estimated earnings of 75 cents per share, on average, according to Thomson Reuters I/B/E/S. Excluding the Surface charge, Microsoft reported 66 cents per share profit, a less drastic miss.

Revenue rose 10 percent to $19.9 billion, helped by sales of Microsoft's Office suite of applications, but fell short of analysts' average estimate of $20.7 billion.

Sales of Windows rose slightly, but only because of the inclusion of some deferred revenue, weighed down by an estimated 11 percent dip in PC sales in the quarter.

Microsoft's Windows 8 has sold more than 100 million licenses since launching in October, but is struggling to win over many consumers confused by the new design which is more suited to tablets than traditional PCs. Acknowledging this, Microsoft is releasing a revamped version of the system called Windows 8.1 later this year, which brings back the iconic 'start' button.

(Additional reporting by Liana Baker in New York; Editing by Richard Chang)

MasterCard Profit Rises but Revenue Misses Estimates

Visa reported rising growth in the key U.S. market in contrast to MasterCard, which has suffered as some of its biggest issuers, including Citigroup Inc, struggle.

Visa stock rose 2.2 percent in after-hours trading while shares in MasterCard, which reported earlier in the day, closed down 2.4 percent on the New York Stock Exchange.

Both reported purchase volume increases of 9-10 percent from a year earlier, after adjustment for currency fluctuations, but MasterCard said its growth was slowing in the United States, the biggest market.

Annual growth in MasterCard's U.S. purchase volumes eased to 4.6 percent from 7.1 percent in the previous quarter. Visa's annual growth edged up to 4.1 percent from 3.0 percent. (http://link.reuters.com/xep77t)

As well, MasterCard was downbeat about coming months.

"In the U.S., the second quarter right now looks a little bit dodgy, but there could be some upside going into the second half of 2013 as far as U.S. economic growth is concerned," MasterCard Chief Executive Ajay Banga said on a post-earnings conference call.

Visa raised its fiscal 2013 earnings forecast to around 20 percent in earnings per share from a previous outlook for gains in the high-teens.

Consumer sentiment across the globe has remained muted, given the uncertainty in Europe and China's slowing growth. U.S. consumer spending has taken a hit from higher payroll taxes.

MasterCard said it signed a memorandum of understanding with China's Alibaba Group, Asia's largest e-commerce company, to offer epayment services to potentially 800 million Alibaba customers.

Both MasterCard and Visa are trying to capture new business as consumers turn increasingly to cards and digital payments instead of cash.

They are also experimenting with mobile payments as they fear losing business to upstart technology companies.

Digital wallets are electronic versions of real wallets that store card and bank information and can be used to buy things online quickly and anonymously. They are increasingly being used on smartphones to shop in retail stores, posing a threat to networks such as MasterCard, Visa and American Express.

Visa's net profit fell to $1.27 billion (815.7 million pounds) from $1.29 billion a year earlier. But, on a per-share basis, profit rose to $1.92 per Class A share from $1.91, after share buybacks.

Total operating revenue rose 15 percent to $2.96 billion.

Analysts on average had expected a profit of $1.81 per share on revenue of $2.85 billion, according to Thomson Reuters I/B/E/S.

MasterCard net income rose to $766 million, or $6.23 per share, in the first quarter, from $682 million, or $5.36 per share, a year earlier.

Analysts on average were expecting the company to earn $6.18 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 8.4 percent to $1.91 billion but fell short of the average analyst estimate of $1.93 billion.

Visa shares were up 2.2 percent at $169.64 in after market trade on Wednesday.

MasterCard shares closed down 2.3 percent at $539.82 on Wednesday. They had previously risen about 6 percent this year.

(Editing by Rodney Joyce)

P&G Shares Fall After Forecast Misses Expectations

The news spooked investors who do not want to wait until 2014 for better sales increases. Shares of the world's largest household products maker fell as much as 6 percent after closing at an all-time high of $82.54 on Tuesday.

"There's a lot of frustration that they've been talking about a lot of actions they've been taking but we haven't really seen an acceleration in the sales growth," said David Blount, co-portfolio manager of the Growth & Income Fund at Eagle Asset Management, which includes P&G shares.

The company, maker of Pampers diapers, Gillette razors and many other products, has been under greater scrutiny to improve after cutting profit expectations in the past and learning that activist investor Bill Ackman invested in the stock.

Cincinnati-based P&G also posted a fiscal third-quarter profit on Wednesday that topped estimates despite sales that were weaker than both the company and analysts had anticipated.

Chief Executive Bob McDonald was roasted by analysts on a conference call a year ago when P&G gave a profit warning. While Wednesday's call was not as tense, analysts wanted to know why the company has not yet posted better sales growth more than a year into its turnaround.

P&G, which announced a $10 billion restructuring in February 2012, said that its push for more innovation means that several products such as new Iams pet foods and Olay skin creams will soon hit stores. After cutting billions of dollars in costs, along with eliminating hundreds of more jobs than anticipated, it will now spend more to promote those new goods and even to build the plants to produce them around the world.

FOURTH-QUARTER FORECAST

For the current fourth quarter ending in June, P&G said profit should fall to 69 cents to 77 cents per share, while analysts expected it to earn 81 cents per share, according to Thomson Reuters I/B/E/S. P&G earned 82 cents per share in the fourth quarter of fiscal 2012.

The company cited factors including weak market growth, higher marketing and other costs and volatility in Venezuela, Argentina, Egypt, Syria and South Korea.

Wednesday's fiscal third-quarter results were a sharp departure from the fiscal second quarter, when P&G raised its annual profit forecast and its shares jumped. On Wednesday, on the heels of the better-than-expected third quarter profit, it raised only the bottom end of its annual forecast range by 2 cents per share.

"They're still making progress, they're still on the right track, it is just going to be a little more slowly than what people expected," said Edward Jones analyst Jack Russo.

P&G insists that its forecast is "realistic, not conservative," especially given the headwinds it faces such as volatility in Venezuela and elsewhere, Chief Financial Officer Jon Moeller told analysts.

Along with spending on marketing to promote its new products, P&G is dealing with what it calls a "choppy" economic recovery, and sees a 1 to 2 percent impact on its sales this year from foreign exchange rates.

Its shares slid as low as $77.48 on Wednesday and were last trading down 4.7 percent at $78.05, wiping out nearly all of this month's gains. Shares of rivals such as Colgate-Palmolive Co and Kimberly-Clark Corp were down less than 2 percent.

JOB CUTS EXCEED GOAL

While products such as single-dose Tide Pods laundry detergent have boosted U.S. sales, P&G said it still needs to figure out the formula for getting products such as Pantene shampoo and Olay skin creams to stand out among competitors. Net sales decreased in the hair care and skin care business in the latest quarter.

P&G is taking the right steps by cutting costs, bringing out new products and growing in developing markets, but it is important for it to show progress in the beauty unit in the next quarter or two, said Russo.

P&G said it earned 99 cents per share on a core basis in the quarter ended in March, topping analysts' target of 96 cents. Core earnings exclude items such as restructuring charges.

Overall sales rose 2 percent to $20.598 billion while analysts were looking for sales of $20.73 billion. The company had forecast 3 to 4 percent in sales growth.

P&G's organic sales, which strip out the impact of divestitures and foreign exchange changes, grew 3 percent - at the low end of its forecast of 3 to 4 percent.

On a net basis, the company earned $2.57 billion, or 88 cents per share, in the fiscal third quarter. That was up from $2.41 billion, or 82 cents per share, a year earlier.

McDonald declined to comment on any discussions he may have been having with Ackman, who is known to push for change at companies in which he invests. Ackman's Pershing Square had a 1.02 percent stake in P&G, or 27.95 million shares, as of December, making it P&G's eighth-largest shareholder, according to Thomson Reuters data.

P&G said it now plans to repurchase $6 billion of its stock this year, at the high end of its prior forecast for $5 billion to $6 billion in buybacks. Last June, P&G decided to hold off on buybacks, but in August quickly reverted back to its usual plan.

P&G also said it had cut 6,250 jobs as of March 31, ahead of its goal to cut 5,700 jobs by the end of June.

(Reporting by Jessica Wohl; in Chicago; editing by Jeffrey Benkoe and Matthew Lewis)

Coca-Cola's Revenue Misses Wall Street Expectations

The world's biggest soft-drink maker, with brands such as Sprite, Fanta and Minute Maid, also said revenue and profit were hurt by the stronger U.S. dollar, which reduces the value of overseas sales.

Still, earnings were in line with analysts' expectations and Coca-Cola shares fell only 27 cents, or 0.7 percent, to $37.86 on the New York Stock Exchange.

Coca-Cola gets most of its sales from outside the United States, so shifts in currency can have a big effect. In the third quarter that ended on September 28, the strong dollar shaved 5 percentage points of growth from net revenue and 7 points from operating income.

Aside from currency, results in Asia, particularly China, disappointed some analysts, though Sanford Bernstein analyst Ali Dibadj said it was not surprising, given the softening of consumer sentiment and the slowing of an economy that had been a growth engine for multinational companies in recent years.

"China is slowing down a little bit for the long-term benefit of China. As China will settle, there's a little bit of adjustment," Chief Executive Officer Muhtar Kent told Reuters. "Take a plane -- when it leaves cruising altitude and is going to land, the ride gets rougher. But it will settle."

Kent said he expects settling into a lower growth rate will happen within the next few months.

Sales volume rose 3 percent in the Pacific region; JP Morgan analyst John Faucher expected 4.5 percent growth.

In addition, European consumers have been hurt by the debt crisis. In the latest quarter, consumers were buying bottled soft drinks to take home, which is less profitable for the company than drinks sold in restaurants.

"Go to Madrid and look at the cafes. There aren't a lot of people sitting around drinking Cokes or coffee or whatever," Gary Fayard, chief financial officer, said on a conference call.

Also, European sales are growing most Eastern and Central Europe where prices are lower, Kent said. This helps volume of sales but hurts revenue.

Third-quarter net income for Coca-Cola was $2.31 billion, or 50 cents per share, up from $2.22 billion, or 48 cents per share, a year earlier.

Excluding items, earnings were 51 cents per share, in line with analysts' average estimate, according to Thomson Reuters I/B/E/S.

Revenue rose 1 percent to $12.34 billion. Analysts were expecting $12.41 billion.

Worldwide sales volume rose 4 percent in the quarter, driven by gains in all regions. Volume rose 1 percent in Europe, 2 percent in North America, 5 percent in Latin America and 11 percent in the Eurasia and Africa region.

Sales volume in the Philippines was flat, due to typhoons. In Japan, soda volume fell 5 percent from the year-earlier period when new products boosted sales. Volume rose 2 percent in China.

Closer to home, North American revenue and profit rose, helped by a recent acquisition and the impact of certain commodities hedges.

Coke is also seeing tougher competition from PepsiCo Inc, which is working hard to improve its North American beverage business. It has increased marketing spending with a focus on core brands like Pepsi-Cola and analysts have been saying that the renewed effort is working.

Through Monday's close, Coke shares were up 9 percent year-to-date, while the Dow Jones U.S. Beverage Index gained 10 percent and the Standard & Poor's 500 index rose 14.5 percent.

(Additional reporting by Brad Dorfman in Chicago; Editing by Maureen Bavdek and Phil Berlowitz)