Financials cause slide in S&P 500 profit

NEW YORK - It doesn't take highly paid Wall Street analysts to figure out why corporate earnings are trending toward their worst performance in six years.

With roughly half the companies in the Standard & Poor's 500 having reported fourth-quarter results, banks and brokerage have proven to be the biggest drag on the overall earnings picture. Profit declined 22 percent from the year-ago period for all the S&P components — but, stripping out banks and brokerages, earnings for the index's component companies would be up almost 12 percent.

"There are really two different markets out there," said Howard Silverblatt, senior index analyst at S&P. "It won't be hard for some fund managers to beat the index so long as they stayed out of the financials."

He said the fourth quarter looks to be the worst since the dot-com implosion in 2001, when a plunge in profit from technology companies caused S&P 500 earnings to tumble 24 percent year-over-year. This time around, the collapse of the subprime mortgage market is to blame.

Global banks and brokerages have written down almost $150 billion due to steep losses from investments tied to the subprime mortgages that went sour last year as interest rates rose and the housing market slumped. Many financial institutions have been forced to secure more capital to shore up their finances, and analysts believe more charges for bad investments are ahead.

These losses have caused financial companies' fourth-quarter earnings to come in well below Wall Street expectations. Banks and brokerages made up about two-thirds of the companies that missed analyst projections during the quarter.

About 60 percent of S&P 500 companies have beat Wall Street expectations, and 14 percent have met them, according to Thomson Financial. However, 27 percent missed targets — up significantly from the typical 20 percent seen in previous years.

Don't expect the problems in the financial sector to abate anytime soon, especially amid concerns about more write-offs at banks. This means the S&P 500 has — at least temporarily — lost its biggest profit driver.

Losses from financial players like Citigroup Inc., Bear Stearns Cos. and Merrill Lynch & Co. wiped about $61 billion from the S&P 500's overall profit during the fourth quarter. That represents roughly one-third of the proposed economic stimulus package currently being debated in Washington.

The numbers are quite jarring: S&P 500 companies are expected to have made $150 billion during the fourth quarter compared to nearly $200 billion a year earlier. The index's 93 financial companies — which last year accounted for 27 percent of the S&P 500's overall profit — are forecast to have logged an estimated $7 billion loss during the recently completed quarter.

"We look at the S&P as a whole, and certainly what happens every quarter is there is a group that lags — but the financial sector is the biggest," said Ed Peters, chief investment officer at PanAgora Asset Management. "Everybody looks at year-over-year levels, and given current credit conditions are going to tighten, it means we're not going to get great results in the financial sector for the time being.

In the meantime, the bad news in the financial sector doesn't seem to be relenting. Swiss bank UBS AG this past week said it anticipates bigger-than-expected write-downs related to subprime mortgages.

Investors hae also had to contend with what might be a new front in the credit crisis: bond insurers. MBIA Corp., the biggest U.S. bond insurer, swung to a fourth-quarter loss amid worries that the bond insurance industry faces a barrage of credit rating actions.

However, it's not all bad news for investors. S&P's Silverblatt said any indication that financial institutions have gained control over the fallout from the subprime situation might become an instant buying opportunity. And an advance in the overall stock market this past week show that investors are indeed looking to buy.

"There are potential value plays where financials are somewhat depressed due to market conditions rather than their own fundamentals," Silverblatt said. "If we don't get the mega-charges, the earnings are going to have a very good increase."

Exxon, Chevron post record profits

HOUSTON - Suppose Exxon Mobil decided to return the favor and buy you a tank of gas. Then again, why stop there? The oil giant turned a profit last year fat enough to buy a fill-up for every car, truck and SUV in America — four times.

Beating its own record to rack up the largest annual corporate profit in American history, Exxon Mobil Corp. said Friday it earned $40.6 billion for the year, reaping the benefits of crude-oil prices around $100 a barrel.

Exxon Mobil also topped its own record for profit in a single quarter, posting net income of $11.7 billion for the final three months of the year — about $1 billion more than the same period in 2005, the previous quarterly record.

The annual profit was enough, at $3 a gallon, to buy nearly four 15-gallon fill-ups for the roughly 243 million registered passenger vehicles on American roads. Put another way, it's almost equal to what Microsoft has offered to buy Yahoo outright.

And the quarterly profit alone is about the same as the size of the entire economy of Iceland or Namibia. The previous record for annual profit was $39.5 billion, posted by Exxon Mobil in 2006.

Chevron Corp., No. 2 behind Exxon Mobil among U.S. oil companies, also had its best year ever in 2007, saying Friday that it banked a profit of $18.7 billion.

The results were eye-popping but not a total surprise: For most of the fourth quarter, oil prices hovered around $90 a barrel, 50 percent higher than a year earlier. Crude reached an all-time high of $100.09 on Jan. 3 but has fallen about 10 percent since.

Revenue at Exxon Mobil rose 30 percent in the fourth quarter to $116.6 billion from $90 billion a year ago. For the year, sales rose to $404.5 billion — a figure just slightly lower than the U.S. Defense Department's fiscal 2007 budget.

Exxon Mobil, which produces 3 percent of the world's oil, pegged high commodity prices as the driver for its results but also touted its far-reaching businesses.

"We continued to supply crude oil and natural gas volumes to meet the world's energy needs through disciplined development and operation of our globally diverse resource base," said Chairman Rex Tillerson.

But at a time when many fear the U.S. economy is sliding into a recession — or is in one already — not everyone was applauding the results.

With the economy weakening and the prospect of $4-a-gallon gas looming for spring and summer, the hefty oil profits immediately renewed charges that Big Oil was profiting at the expense of most Americans.

Within hours of Exxon Mobil and Chevron reporting their results, Sen. Charles Schumer, D-N.Y., a member of the Senate Finance Committee, urged Congress to repeal tax breaks for the oil industry.

"Congratulations to Exxon Mobil and Chevron — for reminding Americans why they cringe every time they pull into a gas station and for reminding Washington why it needs to act swiftly to break our dependence on foreign oil and roll back unnecessary tax incentives for oil companies," Schumer said.

The Foundation for Taxpayer and Consumer Rights called for greater regulation of energy trading markets. The watchdog group has said congressional moves for more market oversight have been blocked by the oil industry's powerful lobbying efforts.

Many analysts believe speculative investors played a role in driving oil prices above $100.

"There's no excuse for continued inaction by Congress and the White House," said Judy Dugan, the consumer group's research director.

The criticism is nothing new to Irving-based Exxon Mobil, which has reported gargantuan profits in recent years during spikes in commodity prices. Those spikes typically make it more costly for consumers to fill their tanks and heat their homes.

In 2005, when the price for a gallon of gas first hit $3, top oil executives were hauled before federal lawmakers to explain profits and assure customers they weren't being gouged.

Industry representatives say it's important to note oil companies invest large portions of their profits back into their businesses. Exxon Mobil, for example, said Friday its spending on capital and exploration projects increased to nearly $21 billion last year, up 5 percent from 2006.

It also noted its U.S. tax bill from 2002 to 2006 was $59.9 billion, and that its worldwide effective income tax rate for 2006 was 43 percent.

What's more, finding new supplies of oil and gas is becoming increasingly more expensive and difficult. The recent boom has pushed up prices for labor and equipment, and forced the companies into more remote, challenging environments.

"These companies continue to face formidable reserve replacement, production growth and cost challenges," Moody's Investors Service said in a recent note.

Higher commodity prices were clearly evident from earnings at Exxon Mobil's exploration and production arm, where net income rose 32 percent to $8.2 billion.

Exxon's production increased nearly 1 percent from the fourth quarter of 2006, driven by higher demand for natural gas in Europe. Excluding Exxon assets that were taken over by the Venezuelan government last year and other factors, production rose nearly 3 percent.

Refining and marketing earnings came to $2.3 billion, up from nearly $2 billion in the same quarter a year ago, as improved refining operations offset lower U.S. refining margins.

Refining margins — the difference between the cost of crude and what the company makes on refined products such as gasoline — have been squeezed in recent months as spiking oil prices outpaced increases in gasoline prices and other refined products.

They also affected Chevron's quarterly earnings, which rose 29 percent to $4.88 billion as higher oil prices offset weakness in the refining sector. Revenue also rose 29 percent to $61.41 billion.

Exxon Mobil declared a quarterly dividend of 35 cents per share earlier this week — in line with its past several quarters.

Neither Exxon Mobil nor Chevron gave an outlook for upcoming financial results, though Chevron said "major" project delays have lowered its outlook for 2008 production by about 150,000 barrels of oil per day to 2.65 million barrels.

Some analysts expect refining margins to rebound as the summer driving season approaches and gasoline prices rise.

John Parry, a senior analyst with John S. Herold Inc., said if crude prices remain in the $90-per-barrel range, oil company earnings are likely to be flat or slightly lower than the most recent quarter.

Despite U.S. urging, OPEC decided Friday against increasing the amount of oil it produces, insisting that supplies were adequate and that speculators and geopolitical jitters — not oil availability — were setting prices. It said it was focused on near-term expectations.

Exxon Mobil shares fell 45 cents to $85.95 on Friday. They've traded in a 52-week range of $69.02 to $95.27. Chevron dropped 76 cents to $82.49. Its shares have traded in a range of $64.99 to $95.50 in the past year.

Exxon posts record profits on oil prices

HOUSTON - Exxon Mobil Corp. posted the largest annual profit by a U.S. company — $40.6 billion — on Friday as the world's biggest publicly traded oil company benefited from historic crude prices at the end of the year.

Exxon also set a U.S. record for the biggest quarterly profit, posting net income of $11.7 billion for the final three months of 2007, beating its own mark of $10.71 billion in the fourth quarter of 2005.

The previous record for annual profit was $39.5 billion, which Exxon Mobil had in 2006.

The eye-popping results weren't a surprise given record prices for a barrel of oil at the end of 2007. For much of the fourth quarter, they hovered around $90 a barrel, more than 50 percent higher than a year ago.

Crude prices reached an all-time trading high of $100.09 on Jan. 3 but have fallen about 10 percent since then.

The record profit for the October-December period amounted to $2.13 a share versus $1.76 a share in 2006. Year-ago net income was $10.25 billion.

Also extraordinary was Exxon Mobil's revenue, which rose 30 percent in the fourth quarter to $116.6 billion from $90 billion a year ago. For the year, sales rose to $404.5 billion — the most ever for the Irving, Texas-based company — from $377.64 billion in 2006.

In addition to benefiting from higher commodity prices, the company said its results were evidence of a well-run, globally diverse operation that's investing billions to find more energy supplies. It noted that its capital and exploration spending amounted to nearly $21 billion last year, up 5 percent from 2006.

Exxon Mobil produces about 3 percent of the world's oil.

Its shares fell 45 cents to $85.95 Friday after rising as high as $87.86 earlier in the session. The shares have traded in a 52-week range of $69.02 to $95.27.

Higher commodity prices in the quarter were clearly evident from earnings at Exxon Mobil's exploration and production arm, known as the upstream. Income rose 32 percent to $8.2 billion from $6.2 billion a year ago.

On an oil-equivalent basis, production increased nearly 1 percent from the fourth quarter of 2006, driven by higher demand for natural gas in Europe. Excluding the expropriation of its Venezuelan assets last year, divestments and other factors, production rose nearly 3 percent.

Refining and marketing, or downstream, earnings were $2.3 billion, up from nearly 2 billion in the year-ago quarter, as improved refining operations offset lower U.S. refining margins.

In the U.S., downstream earnings were off sharply from a year ago — $622 million in the most-recent quarter versus $945 million in 2006.

Refining margins — the difference between the cost of crude and what the company makes on refined products such as gasoline — have been squeezed in recent months as spiking oil prices outpaced increases in gasoline prices and other refined products.

Already, ConocoPhillips has said record oil prices at the end of 2007 helped it post a 37 percent increase in fourth-quarter profit, even as it produced less crude and natural gas than a year earlier. Its quarterly net income rose to $4.37 billion versus $3.2 billion a year earlier.

ConocoPhillips is the nation's third-largest integrated oil company behind Exxon Mobil and Chevron Corp.

Chevron reported separately Friday that its profit rose 29 percent in the fourth quarter, as surging prices for crude oil offset weak results from its refining business. It earned $4.88 billion, or $2.32 per share, from $3.77 billion, or $1.74 per share, a year earlier. Revenue rose 29 percent to $61.41 billion from $47.75 billion.

On Thursday, Royal Dutch Shell PLC, Europe's largest oil company, posted a 60 percent gain in fourth-quarter profit to $8.47 billion on asset sales and higher oil prices. Shell said full-year net profit was a company record $31.3 billion, up 23 percent from the prior year.

Exxon and Chevron earnings soar on record oil prices

NEW YORK (Reuters) - Exxon Mobil Corp (XOM.N) said on Friday record oil prices propelled its quarterly and yearly profits to the highest-ever levels by a U.S. company.

Chevron Corp (CVX.N), the second-largest U.S. oil company, also posted an enormous profit in the quarter as crude prices, which reached more than $99 a barrel during the period, outweighed its relatively weak refining profits.

Exxon, the world's largest oil company not run by a state, fourth-quarter net income rose nearly 14 percent to $11.66 billion, or $2.13 a share, from $10.25 billion, or $1.76 a share, in 2006. Analysts, on average, were expecting earnings of $1.98 per share.

"They performed across the board, upstream, downstream, U.S. and foreign," said James Halloran, who helps manage about $35 billion at National City Private Client Group.

Revenue in the quarter rose 30 percent to $116.64 billion. For the year, the company pulled in $404.55 billion, slightly larger than the 2006 gross domestic product of Turkey, the world's 17th largest economy.

The company's full-year earnings of $40.61 billion set a new record for U.S. profits -- beating out its own previous mark for 2006.

U.S. oil prices averaged more than $90 a barrel during the quarter and nearly hit $100 due to tight supplies, geopolitical risks and the weak dollar. They averaged just over $60 a barrel in the same period a year earlier.

Oil companies around the world have ridden the multiyear energy boom to record levels of profitability. Royal Dutch Shell (RDSa.L) on Thursday posted a $27.6 billion profit in 2007 -- the largest ever profit by a European company.

But their swelling coffers have attracted unwanted attention from politicians, who have characterized the companies as opportunists and suggested taking back lucrative tax breaks.

Democratic presidential hopeful Barack Obama said Exxon's profit was a sign that the U.S. economy is "out of balance."

"Exxon Mobil posted record profits at 11 billion dollars this quarter alone at a time when families are struggling ... to fill up their gas tanks," he told reporters in Los Angeles.

CHEVRON PROFIT RISES, PRODUCTION OUTLOOK WEAK

Chevron's net income rose to $4.88 billion, or $2.32 a share, from $3.77 billion, or $1.74 a share, last year. Analysts had expected the company to earn $2.30 a share.

Sales in the quarter rose to $59.9 billion from $46.24 billion last year.

Chevron's earnings for its exploration and production segment rose 66 percent to $4.84 billion, but profit from its refining, marketing and transportation business was off nearly 79 percent to $204 million.

Profit margins from refining were relatively weak in the quarter as gasoline prices failed to keep pace with oil prices that soared to record levels.

The San Ramon, California, company said its production fell about 1.6 percent to 2.61 million barrels of oil equivalent per day.

Chevron cut its 2008 production forecast and said its 2007 reserve replacement rate would be low, as high oil prices took a bite out of expected production from international projects.

The company expects production in 2008 to rise about 1.2 percent to 2.65 million barrels of oil equivalent per day, assuming an average oil price of $70 a barrel. It had previously forecast production of around 2.8 million barrels of oil equivalent a day, but at a lower average oil price.

Chief Financial Officer Steve Crowe said that 95,000 to 100,000 barrels per day of the cut was due to major project delays.

Chevron also said its 2007 reserve replacement rate would be in the range of 10 percent to 15 percent. Reserve replacement rate calculates what percentage of the oil produced over the year the company replaced through exploration or acquisitions.

Crowe said the reserve replacement rate was hurt by the high year-end oil prices used to calculate the figure, sales of projects and timing of various large projects.

Exxon also had some difficulty with production. Quarterly production rose 1 percent as increased volume from projects in Qatar and the North Sea offset OPEC quota effects, production sharing agreements and lost oil from assets that were taken over by Venezuela.

"A lot of these larger oil companies are challenged to grow production. That's one of the reasons that oil prices aren't necessarily expensive at $90 a barrel -- the largest oil companies in the world are proving challenged from a production and reserves replacement standpoint," said Simmons & Co. analyst Robert Kessler.

"I think all these companies need to be spending more on exploration if they have any hopes to actually turn around production in the long term. The unfortunate reality is that the larger you are, the more you have to produce, and the more you have to find in order to keep that production stable," he said.

Earlier this week, Shell also reported a drop in quarterly oil and gas production and indicated its reserve levels would disappoint when they are disclosed later this year.

Shares of Exxon closed down 45 cents, or 0.5 percent, at $85.95 and Chevron shares were down $2.01, or 2.4 percent, at $82.49, both on the New York Stock Exchange.

Emerging markets sqeeze Ericsson profits

STOCKHOLM, Sweden - Wireless equipment maker LM Ericsson AB reported a sharp drop in fourth-quarter net profits and said Friday it would lay off around 1,000 employees in Sweden because of costs cuts.

At a news conference later Friday, Ericsson's CEO Carl-Henric Svanberg said additional job-cuts worldwide are forthcoming in order to reach an annual cost cut goal of $629 million.

"Totally in the world... As a rule of thumb, I'm sure that a thousand (people) per billion is probably in the neighborhood of where it's going to end up," Svanberg said, without elaborating. All parts of Ericsson's business would be effected by the savings, he said.

"What we're doing is to adjust to a slower market," Svanberg said. "We're taking action to safeguard our competitive position."

One-time costs are expected to reach around $629 million.

Most of the cuts would be completed next year and most of the layoffs in Sweden would be made through voluntary programs "as far as possible."

The company also said that although industry fundamentals and consumer behavior back a positive longer-term outlook, "we find it prudent to plan for a flattish mobile infrastructure market" in 2008 on the back of slowing market growth in the past year.

Operating margin for the quarter fell to 14 percent, from a previous 22.5 percent in the same three months in 2006.

The company said expansion in lower margin emerging markets is pressuring profitability.

A decline in network expansion and upgrades in mature markets have declined, leading to lower margins there as well, it said.

Fourth-quarter net profit fell 42 percent to 5.6 billion kronor ($880 billion), down sharply from 9.73 billion kronor in the year-ago period.

For the full year 2007, net profit dropped around 16 percent to 22.1 billion kronor ($3.5 billion), compared with 26.25 billion in 2006.

Despite the weaker earnings, the company's board said it would propose a dividend of 8 cents per share at the upcoming annual meeting.

Ericsson's year-end result and future forecast have been heavily anticipated by market watchers ever since the Stockholm-based company in October shocked the market with a hefty profit warning and a surprise cut in its 2007 outlook — forcing its chief financial officer to step down.

Sales for the three-month period ending Dec. 31 remained almost unchanged at 54.5 billion kronor ($8.57 billion) from 54.2 billion kronor in the same period the year before.

Ericsson shares fell 3.5 percent to close at 13.80 kronor ($2.17) in Stockholm.

Estee Lauder keeps fiscal-year view

NEW YORK (Reuters) - Estee Lauder Cos Inc (EL.N) reported a higher quarterly profit and stood by its 2008 outlook on Friday, counting on international sales and other measures to offset tighter consumer spending at home.

Shares of the cosmetics and perfume company, with brands like MAC, Aveda, Clinique and Sean John, rose as much as 7.8 percent following the news.

"We see the result as a positive fundamentally as the affirmation of sales and profit targets should help to assuage investor fears about the impact of a slowing U.S. consumer," Goldman Sachs analyst Amy Low Chasen said in a client note.

Estee's profit was boosted by a revenue increase of more than 20 percent in markets like the Middle East, Africa and the Asia Pacific region.

In contrast, its U.S. sales in the quarter, which included the key holiday period, grew at a rate of 8.9 percent, highlighting persistent weakness in department stores.

Rival Elizabeth Arden (RDEN.O) also reported similar troubles on Thursday, saying weak U.S. sales would hound it through its fiscal year.

Still, Estee affirmed its fiscal 2008 profit forecast of $2.28 to $2.40 a share, and sales growth of 7 percent to 9 percent.

"We believe our international business overall will remain solid, more than compensating for slower domestic growth," Chief Executive William Lauder said during a conference call. "We're prepared to keep a tight lid on expenses in order to achieve our profit objectives," he added.

Analysts on average were expecting earnings of $2.38 a share for the year, according to Reuters Estimates.

Estee expects third-quarter sales to rise 8 percent to 10 percent, with earnings per share at 43 cents and 49 cents. Analysts were expecting profit of 50 cents a share for the quarter.

EARNINGS, CLINIQUE ON QVC

In the second quarter that ended on December 31, net profit rose 8 percent to $224.4 million, or $1.14 a share, from $208.4 million, or 99 cents a share, a year earlier.

The results matched analysts' expectations, according to Reuters Estimates.

Just meeting Wall Street's expectations may be good news, Bear Stearns analyst Justin Hott wrote in a client note.

"Given the poor data points from U.S. department stores over the past month, we think meeting and reiterating guidance is positive for Estee Lauder shareholders," he said.

In November 2007, Estee appointed Procter & Gamble (PG.N) veteran Fabrizio Freda as president and chief operating officer and said he could succeed Lauder as CEO within two years.

The appointment of an outsider as a possible heir-apparent comes as Estee battles higher operating costs and limp U.S. department store sales.

Quarterly sales at Estee rose 16 percent to $2.3 billion, led by its skin-care and makeup categories and strength in the Middle East, Africa, China, Australia and Korea.

The company expects those categories and markets to continue to add to its sales growth for the rest of fiscal 2008.

Estee also announced plans to debut its Clinique line on television shopping channel QVC on February 17.

The news follows on the heels of its deal with Botox-maker Allergan Inc (AGN.N) to sell a line of Clinique-branded products exclusively through physicians in the United States.

Estee shares were up 4.6 percent at $44.60 after rising as high as $45.85 earlier on the New York Stock Exchange trade. Its shares trade at 15.9 times 2009 earnings estimates, a premium to Arden, which has a trading multiple of 9.9.

Lower broadcasting revenue hurts Gannett

WASHINGTON - Gannett Co., the largest newspaper publisher in the United States, said Friday its fourth-quarter profit dropped 31 percent on a decline in broadcasting revenue and weak newspaper ad sales.

But Wall Street had expected slightly lower earnings per share, and Gannett shares edged up.

The McLean, Va.-based publisher of USA Today said earnings sagged to $245.3 million, or $1.06 per share, for the three months ended Dec. 31 from $353.5 million, or $1.51 per share, a year ago.

Excluding a non-cash impairment charge, profit declined to $1.28 per share from $1.47 per share a year earlier.

Analysts polled by Thomson Financial expected net income of $1.27 per share — a penny below adjusted expectations.

Gannett said its 2007 earnings also were down compared to a year ago because the 2006 fiscal year and fiscal fourth quarter were both one week longer.

Quarterly revenue fell 12 percent to $1.9 billion from $2.2 billion in the 2006 fourth quarter. The company blamed the fall on lower advertising revenue, including a significant drop political advertising during the non-election year of 2007. Analysts expected sales of $1.98 billion.

Gannett's newspaper revenue was $1.7 billion. Advertising revenue was $1.2 billion, down 12 percent from $1.4 billion a year ago. The flagship USA Today newspaper saw advertising revenue fall 16.7 percent in the fourth quarter. Overall newspaper circulation revenue declined 7 percent to $313.2 million.

The drop in political advertising revenue was especially pronounced in the broadcasting unit, where it fell 22 percent to $212 million.

"In the fourth quarter, we faced a challenging advertising environment, tough comparisons, which included an extra week in 2006 and the relative absence of election-related advertising in broadcasting," Chairman, President, and Chief Executive Craig Dubow said in a statement.

For all of 2007, Gannett earned $1.06 billion, or $4.52 per share, down from $1.16 billion, or $4.90 a share, in 2006. Revenue fell to $7.4 billion from $7.85 billion in 2006.

Gannett, like other media companies, has suffered a downward slide as advertising wanes, especially real estate and job ads that have slowed with the housing slump and decelerating economy. In November, the company said it would trim 45 jobs at USA Today, or almost 9 percent of the newsroom staff.

In December, Gannett announced plans to print a lifestyle magazine geared toward wealthy readers four times a year. It also announced a joint venture with Tribune Co. in October to expand a network of local entertainment Web sites.

Aside from USA Today, Gannett publishes 85 other daily newspapers and nearly 1,000 other publications.

Gannett shares rose 12 cents to $37.05 in late morning trading Friday.

Chip prices drive Hynix 4Q loss

SEOUL, South Korea - Hynix Semiconductor Inc. posted its worst quarterly performance in four years Friday due to falling chip prices in an oversaturated market.

Hynix, the world's second-largest memory chip maker by sales, said it lost 467 billion won ($496 million) in the three months ended Dec. 31, compared with 1.02 trillion won during the same period last year.

It was the company's worst quarterly net loss since the fourth quarter of 2003, and far worse than the 53.5 billion won ($56.8 million) analysts polled by Thomson Financial had expected.

"The industry will remain challenging in the first quarter of this year as weak pricing may persist," O.C. Kwon, Hynix's senior for strategic planning, said during a conference call.

Sales during the quarter at the Icheon, South Korea-based company fell 35 percent to 1.73 trillion won ($1.84 billion) from 2.66 trillion won in the last quarter of 2006.

Reflecting the gloomy industry outlook, Hynix cut its capital spending plan for this year by 25 percent to 3.6 trillion won ($3.8 billion), down from 2007's 4.8 trillion won.

For full-year 2007, net profit plunged 84 percent to 329 billion won ($348.7 million), while sales rose 11 percent to 8.43 trillion won ($8.95 billion).

Prices of memory chips — such as DRAM, or dynamic random access memory, used in personal computers and NAND flash used in MP3 players and digital cameras — have fallen steeply, leading most chip makers to post losses for the October-December quarter.

Analysts say those losses may extend through the first and second quarter of 2008, adding that profitability could improve in the second half on stronger seasonal demand.

"In terms of both earnings and chip prices, the first quarter should be the bottom for the industry and Hynix," said C.W. Chung, a Seoul-based analyst at Lehman Brothers.

"Losses at Hynix are expected to widen in the current quarter, but will be narrowed in the second quarter and then the company will possibly return to a profit in the third quarter," Chung said.

Hynix's DRAM sales prices fell 35 percent sequentially in the fourth quarter from the third, with 7 percent on-quarter growth in shipments. NAND flash chip prices declined 34 percent, although shipments grew 47 percent on strong demand for MP3 players and mobile phones.

DRAM shipments accounted for 60 percent of total sales in the fourth quarter, down from 67 percent in the third and 75 percent in the fourth quarter of 2006.

Google's 4Q earnings miss raises worries

SAN FRANCISCO - Google Inc.'s top executives say all is well at the Internet search leader despite a rare earnings disappointment, but investors are worried something is amiss.

Concerns about how the feeble U.S. economy might affect Google contributed to a nearly 20 percent decline in the company's stock during January.

Now, it looks like February will begin on a sour note. Google shares fell 6.7 percent, or $37.99, to $526.31 at the open of trading Friday, after the company released fourth-quarter results that missed analysts' expectations.

Precisely what caused the letdown is likely to be a matter of intense debate in the next few days. "There is a lot to scratch my head over about in this (report)," Jackson Securities analyst Brian Bolan said late Thursday. "I might be up all night trying to figure it out."

Chief Executive Eric Schmidt rebuffed the notion that the economy undercut Google's growth.

"I am happy to say we have not seen a negative impact from the rumors of a future recession," Schmidt told analysts in a conference call.

Company co-founder Sergey Brin said in an interview that the company hasn't seen evidence of the recent economic turmoil affecting its business.

"I'm very happy with things," Brin said. "I think things are going really well."

Google earned $1.21 billion, or $3.79 per share, during the final three months of 2007. That's a 17 percent improvement over net income of $1.03 billion, or $3.29 per share, in the same period a year earlier.

It's the first time Google's quarterly profit has climbed by less than 25 percent since the Mountain View-based company went public nearly 3 1/2 years ago.

If not for stock awards given to its employees, Google said it would have made $4.43 per share — a penny below the average estimate among analysts polled by Thomson Financial.

The earnings would have been even lower if Google hadn't benefited from an abnormally low tax rate of 25 percent in the quarter. American Technology Research analyst Rob Sanderson estimated Google would have earned 11 cents per share less if the company had been taxed at its more typical rate of 27 percent.

Fourth-quarter revenue totaled $4.83 billion, a 51 percent improvement over $3.21 billion in the previous year.

In a more important measure to investors, Google retained $3.39 billion in revenue after paying fees to the thousands of Web sites in the online advertising network that fuels its profits.

The net revenue missed analyst estimates by about $60 million.

Google executives said a revision in the company's formula for showing advertising links crimped the fourth-quarter results by reducing the number of revenue-generating clicks. Without providing details, the executives said Google made the change to decrease the frequency of "accidental" clicks on ads.

Total paid clicks in the fourth quarter rose 30 percent from the same period in 2006. In the first three quarters of 2007, Google's paid clicks were rising at a clip of 45 to 52 percent.

Brin and other executives also said Google didn't reap as much revenue as management envisioned from its advertising partnerships with rapidly growing online social networks like News Corp.'s MySpace.

Management didn't quantify the size of the shortfall, but Brin said engineers are addressing the problem.

Google has guaranteed News Corp. payments totaling $900 million during a three-year contract scheduled to end in 2010, so it can lose money if ads on MySpace aren't paying off.

Sanderson said Google's explanations made sense to him. "I don't think much has changed at Google from yesterday to today. They are still in a sweet spot."

But Google's reassurances didn't seem to placate jittery investors worried that online advertising revenue may taper off as the United States — the world's biggest economy — teeters on the brink of recession.

Google shares rose $16.03 to finish regular trading at $564.30, then plunged $36.90 in extended trading after the fourth-quarter results came out.

Because Google generally only gets paid when Web surfers click on an advertising link, its growth could taper off if consumers become less inclined to click on ads as they curtail their spending.

But Google also could benefit if consumers become more focused on saving money during hard times, according to Jonathan Rosenberg, the company's senior vice president of product management and marketing.

In Thursday's conference call, Rosenberg painted a scenario in which more consumers will turn to the Internet in search of the best deals — a quest that will lead them to Google and perhaps induce more revenue-producing clicks on ads.

For all of 2007, Google earned $4.2 billion, or $13.29 per share, a 37 percent improvement over $3.08 billion, or $9.94 per share, in 2006. Revenue in 2007 totaled $16.59 billion, a 56 percent increase from $10.6 billion in 2006.

Chevron 4th-qtr earnings rise with oil prices

NEW YORK (Reuters) - Chevron Corp (CVX.N), the second-largest U.S. oil company, on Friday said its fourth-quarter earnings rose as record prices for oil outweighed relatively weak refining profits.

Net income rose to $4.88 billion, or $2.32 a share, from $3.77 billion, or $1.74 a share, last year.

Analysts on average had expected the company to earn $2.30 a share, according to Reuters Estimates.

Sales in the quarter rose to $59.9 billion from $46.24 billion last year.

Oil prices averaged more than $90 a barrel during the quarter and almost hit $100 due to tight supplies, geopolitical risks and the weak dollar. They averaged just over $60 a barrel in the same period a year earlier.

Profit margins from refining were relatively weak in the quarter as gasoline prices failed to keep pace with oil prices that soared to record levels.

Chevron's earnings for its exploration and production segment rose 66 percent to $4.84 billion but profit from its refining, marketing and transportation business were off nearly 79 percent to $204 million.

Since the beginning of last year, shares of Chevron are up about 15 percent, underperforming the Chicago Board Options Exchange's oil index, which is up about 21 percent.

Gannett 4th-quarter profit falls 31 percent

NEW YORK (Reuters) - Newspaper publisher and broadcaster Gannett Co Inc (GCI.N) posted a 31 percent decline in quarterly profit on Friday due to lower broadcast and print ad sales and an impairment charge.

Gannett said it faced a "softer" economic environment, echoing the comments of other U.S. newspaper publishers this week.

The USA Today publisher said fourth-quarter net income fell to $245.3 million, or $1.06 per share, from $353.5 million, or $1.51 per share, a year earlier.

Revenue fell 12 percent to $1.9 billion, below the average Wall Street forecast of $1.99 billion, according to Reuters Estimates.

Excluding an impairment charge of 22 cents a share, Gannett's profit was $1.28 per share, narrowly beating the average Wall Street estimate of $1.27.

Newspaper advertising revenue fell 12.2 percent to $1.25 billion. Broadcasting revenue fell 21.7 percent to $212.0 million. Gannett's fiscal fourth quarter consisted of one less week this year than in the year-earlier period.

Advertising revenue at the flagship USA Today fell 16.7 percent.

Nissan up on sales gains but warns of tough 2008

TOKYO (Reuters) - Japan's Nissan Motor Co (7201.T) reported a 16 percent rise in quarterly profit, helped by popular vehicles such as the Rogue and Qashqai SUVs, but warned a weak dollar and U.S. economic woes meant a rougher road lay ahead.

Excluding an accounting change, third-quarter operating profit fell 7.2 percent but Japan's No.3 automaker -- 44 percent owned by Renault SA (RENA.PA) -- stuck to its forecast for annual operating profit to rise 3 percent.

"We're taking a cautious stance for the fourth quarter and beyond," Corporate Vice President Joji Tagawa told a news conference, citing turmoil in the U.S. market due to the subprime crisis and high commodity and energy prices.

As well, a stronger yen against the dollar will cut profits when they are brought home to Japan.

"But unlike the situation a year ago this is due to tough external conditions and not Nissan-specific challenges," Tagawa added.

Nissan is enjoying powerful growth in emerging markets such as China, Russia and the Middle East, as well as a recovery in the United States.

Global vehicle sales climbed 13 percent in the quarter, with all regions posting a rise except Japan, where the car industry faces a contracting market as the population ages.

However, rising sales overseas have helped Nissan make more use of its domestic car factories, improving profits at home.

October-December operating profit came to 211.9 billion yen ($2 billion), up from 183.1 billion yen a year ago despite a negative impact of almost 20 billion yen from currency swings. That was in line with an average estimate of 213.5 billion yen in a survey of seven brokerages by Reuters Estimates.

Net profit grew 27 percent to 132.2 billion yen while revenue rose 18 percent to 2.77 trillion yen.

"It is positive that the firm posted a growth in the U.S. market," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Carlos Ghosn, chief executive of both Nissan and Renault, has been downbeat on the outlook for the key U.S. market but Nissan sales rose 3.7 percent there, versus a 2.5 percent fall in the total market, thanks to successful launches for the Rogue crossover and the introduction of the Murano SUV and Infiniti EX.

NATURAL HEDGE

Domestic rivals Honda Motor Co (7267.T) and Suzuki Motor Corp (7269.T) this week also reported double-digit rises in quarterly profit thanks to stronger car sales and windfalls from the yen's fall against currencies other than the U.S. dollar.

For Nissan, the euro's appreciation against the yen did not have a big favorable impact, Tagawa said, because its move against other currencies such as the rouble and pound were not so favorable.

He said Nissan was relatively well-protected against the dollar's weakness due to the high rate of local production in the United States, at 80 percent.

"Our localization rate is high compared with our rivals, and we're benefiting from this natural hedge," he said.

The dollar averaged 113.3 yen in the third quarter versus 117.8 yen the previous year while the euro rose to 163.9 yen from 148.3 yen.

For the full year ending on March 31, Nissan kept its forecasts unchanged for an operating profit of 800 billion yen and net profit of 480 billion yen, roughly in line with consensus forecasts from 20 brokerages.

Investors will eye a new business plan to be unveiled in April for the three years to March 2011. Ghosn has signaled accelerated growth, with more than 33 new models compared with 28 during the past three years.

NEW MODELS POWER SALES

The profitability decline in the latest quarter, excluding the accounting change, was also due to higher commodity prices.

European sales rose 12.5 percent, largely fuelled by runaway demand for the Qashqai SUV. Nissan said on Thursday it would add 800 staff and begin a third production shift at its plant in northeast England in response to demand for the model.

Sales in markets outside Japan, Europe and North America grew 28 percent, with big gains in China and the Middle East.

Sales in Japan fell 0.9 percent, but that was better than a 3.7 percent fall in overall demand as Nissan outperformed rivals.

Shares of Nissan lost 33 percent in the year to Thursday, underperforming Tokyo's transport sub-index (.ITEQP.T), which has fallen 26 percent.

Prior to the earnings announcement, the stock ended down 0.7 percent on Friday, against a 0.1 percent rise in the subindex.

($1=106.36 Yen)

Sharp's profit edges higher

TOKYO - Sharp Corp. saw net profit grow 3.8 percent in the October-December quarter owing to increased profits in its liquid crystal display and chip businesses, the major manufacturer of LCD televisions said Friday.

Net income rose 29.60 billion yen ($278.2 million) for the fiscal third quarter, up from 28.51 billion yen the same period the previous year, the Osaka-based company said in a release.

Sales rose 12.3 percent for the period to 921 billion yen ($8.66 million) from 820 billion yen, it said.

Sales of LSIs — sophisticated chips increasingly used in digital consumer goods — rose 33 percent, while liquid crystal display sales climbed 34 percent during the third quarter, the company said. That offset a 9 percent decline in revenue from other electronics components such as solar cells.

Consumer and information products such as LCD color TVs and mobile phones posted a 8.3 percent sales rise as well, said Sharp, known for its Aquos brand of flat-panel LCD TVs.

The company left unchanged its forecast for the full business year through March at 105 billion yen ($987 million) net profit on sales of 3.4 trillion yen ($31.95 billion).

Sharp's share price fell 0.7 percent to $17.16. It announced the results after the close of trading on the Tokyo Stock Exchange.

The company was the world's third-largest LCD TV maker in 2006 behind Sony Corp. and South Korea's Samsung Electronics, according to a survey by market researcher DisplaySearch.

Nissan's quarterly profit soars

TOKYO - Nissan reported a 26.6 percent jump in October-December profit Friday and kept its full year forecasts as strong sales appeared to quell looming worries about a U.S. slowdown and an unfavorably strong yen.

Profit at Nissan Motor Co., which has an alliance with Renault SA of France, rose to 132.22 billion yen ($1.24 billion) for the fiscal third quarter from 104.46 billion yen the same period the previous year.

Quarterly sales climbed 18.2 percent to 2.770 trillion yen ($26.03 billion), helped by brisk sales of the Rogue crossover vehicle in the U.S.

Earnings at Japan's No. 3 automaker, which also makes the Z sportscar, Altima coupe and Infiniti luxury models, were in line with forecasts, but its bottom line could be endangered in coming months amid worries about slower American consumer spending, the company said.

Also, a weaker dollar, which has dropped recently to about 106 yen from 114 yen last year, could eat into foreign revenue.

But so far demand for Nissan vehicles has remained strong in the U.S. and in emerging markets such as the Middle East, China and Russia. Even in the domestic Japanese market, the company boosted its market share, it said.

"Despite the headwinds that affect our industry, Nissan has benefited from the success of the new products launched during the past 12 months," said Nissan Chief Executive Carlos Ghosn, who also heads Renault.

Nissan sold 898,000 vehicles worldwide in the quarter ended Dec. 31, up 13 percent from the same period a year earlier. American sales accounted for 255,000 vehicles, or 28 percent.

Nissan kept unchanged its profit forecast for the full fiscal year through March at 480 billion yen ($4.5 billion).

For the nine months through December, Nissan's profit declined 9 percent to 344.64 billion yen ($3.24 billion). Sales for the period rose 13.9 percent to 7.835 trillion yen ($73.64 billion).

Nissan said recently the combined global sales for 2007 for the Renault-Nissan alliance totaled a record 6.62 million, up 4.2 percent from the previous year. Sales growth for the two companies was highest in Russia, South America, China, the Middle East and Africa, Nissan said. Renault owns 44 percent of Nissan.

Like Nissan, Japanese automakers appear to be holding up so far despite a troubled U.S. economy, a soaring yen and volatile stock markets.

Earlier this week, Honda Motor Co., the nation's second-biggest automaker, reported a 38.1 percent jump in profit for the October-December quarter. Toyota Motor Corp. reports earnings next week.

Nissan share prices dipped 0.7 percent to 1,006 yen ($9.45) in Tokyo. Earnings were announced after trading closed.

Beer sales lift Anheuser-Busch profit

ST. LOUIS - Resurgent beer sales helped lift Anheuser-Busch's profit 12 percent in the fourth quarter, but the brewer warned Thursday that rising costs could eat into earnings this year.

The maker of Budweiser and Bud Light said it earned $214 million, or 29 cents per share, in the three months ended Dec. 31, up from $191 million, or 25 cents, in the same period in 2006.

Net sales rose 8 percent to $3.7 billion after excise taxes were deducted.

Analysts polled by Thomson Financial had expected earnings per share of 32 cents.

Shares of Anheuser-Busch, the nation's largest brewer, dropped 76 cents, or 1.6 percent, to $46.50 Thursday.

Revenue at its U.S. beer segment rose 3 percent during the fourth quarter, while international revenue jumped 4.7 percent.

For the full year, Anheuser-Busch reported a profit of $2.12 billion, or $2.79 a share, up from $1.97 billion, or $2.53, in 2006. Net sales for the year rose 6 percent to $16.7 billion.

While the sales climbed overall in 2007, Anheuser-Busch's core brands of Budweiser and Bud Light continue to lag, said Benj Steinman, publisher of Beer Marketer's Insights. Growing overseas sales and revenues from imports that Anheuser-Busch distributes are the only forces driving up sales, he said.

"The consumer preferences are seemingly shifting to craft beers and, to a lesser extent, imports," Steinman said.

Anheuser-Busch plans to boost sales of those brands through a media blitz that will be unveiled in coming weeks, along with a 40 percent increase in the company's sales force, Chief Financial Officer W. Randolph Baker told investors during a conference call.

"For 2008, our clear top priority is to accelerate our core product sales and profitability," Baker said.

The company also will tighten its belt to fight cost increases, Baker said. Rising grain and other commodity expenses are expected to raise the cost of making a barrel of beer by 3 percent to 3.5 percent during 2008. Meanwhile, revenue per barrel is expected to climb between 2.5 percent to 3 percent, he said.

The company is hoping to find savings by improving its supply chain and holding down administrative costs, he said.

McKesson Corp. 3Q profits drop

SAN FRANCISCO - Prescription drug distributor McKesson Corp. said Thursday that one-time expenses sent its third-quarter profits sharply lower despite a double-digit increase in sales.

At 68 cents per share, McKesson's profit fell well short of the average estimate of analysts surveyed by Thomson Financial of 80 cents per share for the third quarter. The company's forecast for fiscal 2008 earnings also fell short of Wall Street predictions.

Profits for the year probably will be in the range of $3.22 to $3.32 per share, the company said. Analysts have predicted earnings of $3.33 per share for the fiscal year ending in March.

The San Francisco-based company said it earned $201 million during the three months ended in December, down 17 percent compared to net income of $243 million, or 80 cents per share, over the same period last year.

McKesson's quarterly revenue rose nearly 15 percent to $26.49 billion, up from $23.11 billion a year ago, driven by a sizable jump in U.S. and Canadian drug sales.

The nation's largest prescription drug distributor said third-quarter earnings suffered from one-time charges equal to 11 cents per share for restructuring, severance and pending legal settlements.

The company also said two of three major generic drugs that drove earnings in the previous third quarter had lower profit margins in 2007 and the third, a generic version of the blood thinner Plavix, went off the market.

Thursday's results marked the first time in almost two years that McKesson did not top analysts' earnings forecasts.

Overall, investors have been bullish on McKesson, whose shares closed at a 52-week high earlier this month after climbing more than 27 percent in 2007.

Industry watchers have said drug distributors could get a lift in 2008 as more generic versions of popular high-cost drugs hit the market and an aging population boosts Medicare rolls.

"We have a great business at a great time," said McKesson chairman and chief executive John Hammergren in a conference call with analysts Thursday.

Company executives tried to cast the disappointing earnings results in a positive light, saying McKesson was on track to meet its full-year goals despite the hit taken from the third-quarter charges.

They also voiced little concern about the possible impact of a recession on the drug distribution business, an industry traditionally sheltered from the effects of an economic downturn.

After the company released the earnings report after trading ended Thursday, its stock slipped but then rebounded in after-hours trading to hover just below the closing price $62.84.

Electronic Arts swings to 3Q loss

NEW YORK - Video game publisher Electronic Arts Inc. said Thursday it swung to a loss in the third quarter, hurt by restructuring charges and the way it accounts for online-enabled games.

The company acknowledged its business has been "mixed" in a robust market for games, though adjusted earnings met Wall Street's expectations.

For the quarter ended Dec. 31, the world's biggest independent video game maker posted a loss of $33 million, or 10 cents per share, compared with a profit of $160 million, or 50 cents per share, in the same period a year ago.

Adjusted earnings, excluding a change in revenue recognition and other items, were $290 million, or 90 cents per share, matching average analyst expectations as surveyed by Thomson Financial.

Revenue jumped 17 percent, to $1.5 billion, from $1.28 billion. EA said it deferred $231 million in sales of online-enabled games to future periods. If it had not, sales would have been $1.73 billion. Analysts were expecting sales of $1.74 billion.

"Need for Speed Pro Street," the latest installment of the racing franchise, was the quarter's best-selling title, but "The Simpsons Game" and "Rock Band" also did well, the company said.

Chief Executive John Riccitiello called the results "solid but mixed." The company saw stiff competition in North America, where its business was "flat in a very robust market" when not including EA Partners, its collaboration with outside studios, Riccitiello said in a conference call with analysts.

While it kept its spot as the top game publisher, EA lost market share in both North America and in Europe.

"Although we hit our numbers our numbers and anticipated our share losses, losing share is just not acceptable," Riccitiello said.

The market share losses come at a time when retail sales of video games are at an all-time high, fueled by their growing acceptance as a mainstream form of entertainment akin to movies or music. U.S. game hardware and software sales reached nearly $18 billion last year according to the NPD Group, with a strong showing during the holidays even as other retail sectors struggled.

EA has long been the world's largest independent video game publisher — those that do not also make consoles like Nintendo Co., Sony Corp. and Microsoft Corp. But Vivendi SA's looming purchase of a majority stake in Activision Inc. will create a powerful rival.

In a deal expected to close in the first half of this year, the French media and telecommunications company plans to combine Activision with its games unit to form Activision Blizzard, which will own the wildly popular online game "World of Warcraft" and the "Guitar Hero" franchise, among others.

Looking ahead, EA forecast fourth-quarter and full-year earnings below Wall Street's expectations because of the delay of two lucrative titles, "Battlefield: Bad Company" and "Mercenaries 2: World in Flames," until later. EA did not give any release dates for upcoming titles, including the highly anticipated "Spore" from "Sims" creator Will Wright, though it said the game will be out before the holidays.

Excluding acquisition charges, the effect of the deferred revenue and other items, the company expects fourth-quarter results between a loss of 3 cents and a profit of 2 cents per share, on sales of $925 million to $1.05 billion.

Analysts had predicted a fourth-quarter profit of 16 cents per share on sales of $837.9 million.

For the fiscal year, EA forecast a loss between $1.67 and $1.48 per share and adjusted earnings of 93 cents to 98 cents per share. This is at the lower end of the company's previous forecast and below Wall Street's expectations of $1.11 per share.

Colin Sebastian, an analyst at Lazard Capital Markets, said EA has a "very good" lineup that should help it gain market share in the coming months.

He said he is looking forward to "Spore," not only because of the publicity it has received and gamers' eager anticipation, but also from a financial perspective. Because it is an internally owned title, its margins are higher, meaning EA will make more money from it.

EA also said it closed the acquisitions of BioWare Corp. and Pandemic Studios in January. The $860 million deal was the largest in company's history. The studios EA bought from Elevation Partners are known for their action, adventure and role-playing games.

EA, based in Redwood City, Calif., reported results after the close of market. EA's shares fell $1.47, or 3.1 percent to $46.75 in after-hours electronic trading. The stock hit a 52-week low of $44.23 earlier this week.

Google quarterly profit climbs to 1.21 billion dollars

SAN FRANCISCO (AFP) - Google reported Thursday that its profits for the last three months of 2007 climbed to 1.21 billion dollars, but its stock price sank as the figure fell short of Wall Street expectations.

Google said its gross revenues for the quarter ending December 31 were 4.83 billion dollars, a 51 percent increase from the same period in 2006.

After accounting for money Google pays other websites for Internet traffic, its revenues for the recently ended period were 3.39 billion dollars.

Profits for the final quarter of 2007 were 3.79 dollars per share as compared to 3.38 dollars in the same period the previous year.

"We're very pleased with our performance this quarter," said Google chief executive Eric Schmidt.

"It reflects strong momentum in our core business, growing receptivity to our new business initiatives, and improved discipline in managing our operating expenses."

Google stock price dipped nearly 40 dollars to 525.90 dollars in trading that followed the release of the report, which disappointed financial analysts that had expected the Internet giant to make more money.

"Google is one of those stocks that trades on amazing earnings and this fell short of amazing by a significant margin," Silicon Valley analyst Rob Enderle told AFP. "The stock took a beating as a result."

Investors seem to be keying on indications that Google's competition is getting tougher and its operating costs are creeping up, according to Enderle.

The portion of revenues that Google shares with partners that send Internet traffic its way was 1.44 billion dollars in the last three months of 2007, as compared with 1.22 billion dollars in the previous quarter.

Google hired nearly 1,000 workers in the last three months of 2007, bringing its count of full-time employees to 16,805. The Mountain View, California, firm ended the year with 14.2 billion dollars in its coffers.

Google reported total 2007 profits of 4.2 billion dollars as compared with 3.08 billion in 2006.

"We had strong financial performance across the board," Schmidt said during a conference call with analysts and reporters.

More than half of Internet search traffic handled by Google in 2007 came from outside the United States. Google reported particularly strong growth in France, Germany, Ireland, Spain, Brazil, and China.

"The international market is still very nascent with tremendous potential for what we can do over time," Schmidt said.

Google is experimenting with ways to generate advertising revenue from its increasingly popular video-sharing website YouTube as well as on social networking websites such as MySpace and Google-owned Orkut.

"I don't think we have the killer, best way to advertise on social networks yet," Google co-founder Serge Brin said during the call.

"It's a big opportunity. Even though the fourth quarter was disappointing in terms of monetization, we are optimistic about the future."

Eventually there will be "significant amounts" of advertising on YouTube, according to Google co-founder Larry Page.

Google is investing in tailoring advertising and Internet services to mobile devices, a market growing faster than the rest of the industry.

"The iPhone is the first of a whole generation of products that will be much more mobile search intensive, and with that search comes opportunities for ad monetization," Schmidt said.

"Ten or 20 years out, it is reasonable to assume the majority of searches will be on mobile or personal devices."

McKesson quarterly net profit falls

NEW YORK (Reuters) - Pharmaceutical wholesaler McKesson Corp (MCK.N) reported on Thursday that its quarterly profit fell 17 percent as results were hit by charges and lower profit margins on generic drugs.

The company also lowered the top of its full-year earnings forecast range and its shares fell nearly 3 percent in after-hours trading.

"The end came down by five cents. I think that's what's hurting the stock," said Jeff Jonas, an analyst with Gamco Investors.

"They've been outperforming for the last couple of quarters, so to see them move closer to the low end is going to be a bit of disappointment," Jonas said.

For the full fiscal year ending March 31, McKesson now expects earnings of $3.22 to $3.32 per share. The previous top end of the forecast range had been $3.37.

McKesson posted a net profit of $201 million, or 69 cents per share, for its fiscal third quarter ended December 31, compared with a profit of $243 million, or 80 cents per share, a year ago.

The results include charges of 11 cents per share for asset impairments, severance and restructurings and pending legal settlements as well as 2 cents a share related to its acquisition of Oncology Therapeutics Network.

Excluding special charges, earnings from continuing operations were 79 cents per share, missing analysts' average forecast by one penny, according to Reuters Estimates.

"I wouldn't call it a bad quarter but it was a little less than expected," Jonas said.

"In the distribution area it might have been a little bit of a weak quarter this time and there were higher costs in both parts of the business," he said.

The San Francisco-based company said it faced a tough comparison with last year's third quarter, which had significant earnings from three major generic drugs, two of which had lower profit margins this year and one of which is no longer available as a generic.

Generic versions of the blood clot preventer Plavix disappeared after Bristol-Myers Squibb Co (BMY.N) won a patent infringement lawsuit. And prices on generics of the cholesterol fighter Zocor and antidepressant Zoloft came down sharply as more companies began selling the drugs.

The company expects a generic pickup going forward as it benefits from the recent launch of a generic version of Wyeth's (WYE.N) acid reflux drug Protonix.

One month into the current quarter, said Chief Financial Officer Jeffrey Campbell, "we continue to expect a strong finish to the year."

McKesson said the fourth quarter is traditionally its strongest.

Revenue for the quarter rose 15 percent to $26.5 billion, topping Wall Street expectations of $25.27 billion.

Drug distribution revenue rose by 14 percent to $25.8 billion, led by a 17 percent rise in U.S. pharmaceutical direct distribution sales.

Technology solutions revenue rose 35 percent to $736 million, but operating profit in the quarter fell to $49 million from $63 million due to charges of $25 million to streamline staffing and product lines and for legal settlements.

Shares in McKesson fell to $61.01 after closing at $62.79 on the New York Stock Exchange on Thursday.

Google year-end results disappoint

SAN FRANCISCO (Reuters) - Google Inc (GOOG.O) on Thursday reported disappointing quarterly results on rising capital spending and costs for acquiring advertising customers, unnerving investors who sent its shares down 6.5 percent.

Revenue rose 51 percent to $4.827 billion, just shy of the $4.83 billion, on average, analysts had forecast. A rising level of payments to affiliated sites that deliver Google ads, called traffic acquisition costs, also surprised some.

"This quarter was softer-than-expected across the board," Cantor Fitzgerald analyst Derek Brown said. "Revenue from Google Web sites was a little bit lower and traffic acquisition costs were slightly higher than we had expected."

The disappointment was especially pronounced given the Web search leader's record of beating expectations, analysts said. It was only the third time in 14 quarters as a public company that Google failed to top Wall Street profit forecasts.

But Google executives underscored their belief that there were no signs that a weakening U.S. economy so far was hurting its own results and that they expect advertisers to maintain spending with Google even if they slash overall ad budgets.

"We have not yet seen any negative impact from the rumors of future recessions," Chief Executive Eric Schmidt told investors on a conference call, challenging investor psychology that has clobbered global stock markets in the past month.

Rival Yahoo Inc (YHOO.O) said on Tuesday that key online ad categories remained strong, but it had felt weakness in travel, financial and retail. Yahoo depends on display ads preferred by brand marketers, while Google's focus is on Web search ads.

Google's fourth-quarter net income rose to $1.21 billion, or $3.79 per diluted share, from $1.03 billion, or $3.29 per diluted share, in the year-earlier quarter. Excluding special items, earnings per share were $4.43, short of analysts' average forecast of $4.47, according to Reuters Estimates.

Wall Street analysts said Google's weaker-than-expected results had any number of contributing factors.

"They missed on revenue -- not by much -- but for the first time in a while," Sanford C. Bernstein analyst Jeffrey Lindsay said. "I don't think economic weakness has arrived yet," he said, adding, "They face competitive issues."

"Google is not taking share away from the other guys as easily as it was," Lindsay said. "The company is at the point where the raw gains in growth don't mask the trends in the marketplace so much anymore."

SOCIAL NETWORK WEAKNESS

Executives acknowledged Google has struggled to make inroads selling ads on social network sites -- now the Web's hottest market -- such as News Corp's (NWSa.N) MySpace.

Lindsay speculated Google is having trouble making money on its $900 million, three-year deal to sell advertising to MySpace customers.

Rising traffic acquisition costs may reflect the fact that Google pays MySpace whether or not it makes money selling ads on MySpace. "It's a toxic deal for Google," Lindsay said. "That is eating into margins."

Ad sales in Britain, Google's second-largest market after the United States, grew just 5 percent, or less than half the rate of the final quarter of 2006, amid weak holiday spending by financial services and travel advertisers.

Capital spending grew 20 percent in the fourth quarter over the third quarter of 2007 and was up 85 percent from the final quarter of 2006. Citigroup had warned that spending above $600 million during the quarter would be a negative sign.

Google shares traded at $527.40 in extended trading, down from their Nasdaq close of $564.30. Immediately following the results, the stock fell to around $510, down 9.5 percent.

The stock fell 24 percent in January. A 2007 darling among technology stocks, it has fallen from near $750 in November, when analysts raced to boost price targets as high as $900.

"It's been in the momentum-buying category for some time now and market conditions are harsh for momentum stocks when they miss," said Keith Wirtz, chief investment officer at Fifth Third Asset Management, which manages $22.5 billion.

"So we expect the stock has further to go in terms of a price readjustment," he said, adding that it could take months for selling pressures to ease. His fund will hold its positions in the shares but not buy more until the pressures dissipate.

On a price to earnings measure, the volatile stock has bounced between 29 and 59 in the past two years, with a 39 P/E on average, Citigroup estimates. It now trades at 29 times the average 2008 estimate, which Global Crown Capital analyst Martin Pyykkonen marks as "growth at a reasonable price."

Google slowed the pace of hiring dramatically in the fourth quarter. Its 16,805 full-time employees was up just 5.5 percent from the end of the third quarter. The quarterly hiring growth rate had been in double digits for years, leading analysts to call for Google to keep a tighter rein on costs.

MasterCard Nearly Triples Q4 Earnings As Card Giant Avoids Rivals' Debt Woes

MasterCard (NYSE:MA - News) showed Thursday just how resilient it is to credit woes and the general economic malaise in the U.S.

fourth-quarter profit surged 187% from a year ago to 89 cents a share. That excludes $1.37 a share on sales of shares of newly public Brazilian credit firm Redecard.

Earnings beat Wall Street estimates by 17 cents, sending shares 9.5% higher to 207.

Revenue rose 28% to $1.07 billion, the best gain in years.

The rise was driven by strong global growth in transactions and the total amount charged by customers. Transactions jumped 17.2% to 5.2 billion in the fourth quarter.

High-margin cross-border volume, which was up 27.7%, also was a big factor in kicking up the top and bottom lines.

Currency fluctuations accounted for 4.7% of the growth in net revenue.

Developing Credit Boom

In many developing stretches of the world, consumers continue to switch from cash to cards at dizzying rates.

About half of MasterCard's revenue comes from outside the U.S., including fast-growing regions in Asia and Latin America.

What's more, about 75% of MasterCard's revenue is immune from credit risk altogether: Its pure transaction business gives it an advantage over card-issuing bank customers and card companies that lend to customers, such as American Express (NYSE:AXP - News).

MasterCard often is unfairly compared with rivals that are vulnerable to credit woes, analysts say.

When AmEx warned of big credit woes on Jan. 10, MasterCard shares fell 9% the next day.

"If you understand what they do, it doesn't make any sense," said Anurag Rana, an analyst at KeyBanc Capital Markets.

On Thursday, MasterCard's strong results helped lift shares of other card companies, including AmEx, which rose nearly 4% even though it had earlier reported a weak quarter.

"It's phenomenal growth, even in the U.S.," Rana said of MasterCard's results.

About 25% of MasterCard's revenue is based on how much card users actually spend, so it is more sensitive to consumer spending trends. But even that category grew 15.2% worldwide on a local currency basis, to $634 billion.

U.S. Growth Solid

The U.S. lagged somewhat, but still enjoyed 10% dollar volume growth. That was faster than in the previous two quarters.

In the fourth quarter, Americans shifted their spending from discretionary items such as jewelry and home furnishings to "everyday" purchases like gas and groceries, CEO Robert Selander said in a conference call Thursday.

"This movement to everyday purchases aligns well with where MasterCard is broadly positioned in consumers' wallets," he said.

Overseas growth was much higher. Dollar volumes on a local currency basis were up 34% in South Asia, the Middle East and Africa. Latin America was up 22% and Asia-Pacific 19%. Europe, a big source of cross-border volume, showed an 18.4% increase.

"There's a lot of fear that a slowdown in the U.S. will drag down (MasterCard's) earnings," said Bear Stearns analyst David Hochstim. "The reality is, this is a transaction company with global operations. Business is growing faster outside the U.S., and the U.S. business is growing nicely."

Healthy Outlook

Selander said during Thursday's conference call that MasterCard expects slower revenue growth in 2008, "but still at double-digit rates."

The key is controlling operating costs, Hochstim said, "and they've shown they are able to do that."

Selander said MasterCard will add staff slowly compared with last year's robust hiring.

MasterCard also would likely give fewer rebates and incentives to "volume discount" customers if card spending slows, Hochstim said.

"If there's a global slowdown," he said, "yes, their business would not do as well. But it would still do better than a lot of other companies."

Fair Disclosure Rule A Work In Progress Seven Years Later

Sun Microsystems is once again looking to interpret Reg FD, the rule that seeks to guarantee that everyone gets equal, timely access to corporate earnings and other news that can affect stock prices.

When it released its fiscal second-quarter results on Jan. 24, Sun (NasdaqGS:JAVA - News) posted the full release simultaneously on both its own Web site and via the press release wire service Business Wire. Sun might be the first big company to handle earnings this way, though many companies post earnings on their Web sites shortly -- perhaps minutes -- after releasing the report via a wire service.

"We're working with the SEC to enhance our reporting by leveraging the Internet, which a large portion of the world uses, to provide a more direct link," said Dana Lengkeek, a Sun spokeswoman.

Using Wire's Been The Custom

By longtime custom, companies have released their results initially via Business Wire, PR Newswire, Marketwire, Prime Newswire and other electronic wires that disseminate corporate news to the media and financial Web sites such as Yahoo Finance, where many investors first see the results. Most earnings come out just after the close of regular stock market trading, but the releases often spark big action right away in after-hours trading.

Sun says it continues to try to bring more fairness to the process. Sun's efforts raise some vital questions about the best way to honor the intent of Regulation Fair Disclosure in this age of electronic media, says John Coffee, a professor at Columbia Law School.

"There is no SEC requirement that a company has to use a paid wire service to put its earnings out," he said. "The only requirement is, when the company makes disclosures to some people, it has to make them universal."

That point was the crux of a controversy over Reg FD last July, when Sun at first posted its latest earnings just on its Web page and via e-mail notices, known as RSS feeds, to investors who had signed up to get such feeds. Sun and others say it was likely the first big company to release earnings in that fashion, bypassing traditional paid news wire services until about 10 minutes later.

Some criticized Sun's move as unfair, but how to best comply with Reg FD remains open to debate.

Many investors no doubt are unaware of Regulation Fair Disclosure. The Securities and Exchange Commission passed Reg FD in 2000, seeking to end selective disclosing of important information.

Sun Chief Executive Jonathan Schwartz defended the way the company released its results in July. But Sun has tweaked its policy to post the results through its own Web site and Business Wire at the same time.

The main goal of Reg FD is to ensure that all investors have a level playing field, says Neil Hershberg, senior vice president of global media for Business Wire. He says that was not the case with Sun's earnings release in July.

Some Web surfers couldn't access the Sun site for as much as six minutes after the results were posted, says Hershberg. He says the delay was probably due to a spike in traffic to the site. But six minutes is a lifetime for a fast-moving stock.

"From a technical standpoint, RSS feeds and Web postings by their very nature do not reach all investors on a simultaneous basis because of the architecture of the Internet," Hershberg said.

The disclosure process has always been in flux. Not that long ago, investors had to attend shareholder meetings or read printed reports that might come out days later to get earnings results. Real-time communication is changing things fast, says William Shepherd, an attorney with securities law firm Shepherd, Smith & Edwards in Houston.

"This is an age-old problem of who knows the information first, especially as technology grows," he said. "Whatever you do, there are always going to be complaints."

8-K The Big Requirement

Aside from earnings, the only mandate for complying with Reg FD about any other news that might affect a stock is to file an 8-K form with the SEC, says Gary Brown, an adjunct professor at Vanderbilt Law School. He also chairs the corporate department of the Baker Donelson law firm in Washington, D.C.

An 8-K filing is known as a "current report." It's supposed to disclose any relevant stock data between the required filing of the quarterly 10-Q earnings report and the annual 10-K filings to the SEC. Companies usually will provide such news via a financial news service, but they aren't required to do so.

Changes in Sun's disclosure process reflect the fact that financial reporting is just now starting to catch up with technology, Brown says.

"The real issue for Reg FD is whether you are getting broad public dissemination," he said. "First you need to satisfy the letter of the law, and then you can work toward achieving the spirit of Reg FD."

Siebel Systems, now a unit of Oracle (NasdaqGS:ORCL - News), was one of the first companies to be penalized in a Reg FD case. The SEC fined Siebel $250,000 for disclosing non-public information at an invitation-only investor conference in 2002.

Sony profit up 25 pct in third quarter

TOKYO - Sony's PlayStation game business stopped losing money for the first time in six quarters, helping the company to post a 25.2 percent jump in October-December profit.

Solid demand for liquid crystal display TVs and digital cameras also helped results, the Japanese electronics and entertainment company said, which brought the world Walkman portable players and "Spider-Man" movies.

Sony Corp. raised its full year forecast through March 31 only narrowly to 340 billion yen ($3.20 billion) from an earlier 330 billion yen ($3.10 billion), and kept its sales forecast unchanged at 8.980 trillion yen ($84.40 billion).

Tokyo-based Sony also cut its PlayStation 3 fiscal 2007 sales forecast to 9.5 million machines. It had previously expected to sell 11 million PS3 consoles during that period.

Sony sold 4.9 million PS3 machine during the latest quarter for a total of 10.5 million machines sold since it went on sale late 2006.

Japanese rival Nintendo Co. has already sold more than 20 million Wii machines worldwide, wooing newcomers, including women and the elderly, with "Wii Fit," "Wii Sports" and other hit games. Microsoft Corp. has sold 17.7 million of its competing Xbox 360 consoles. Wii and PS3 went on sale about the same time, a year after the launch of the Xbox 360.

The big recovery came in its game unit, which had been losing money on launch costs for the PlayStation 3, the successor to the hit PlayStation 2.

The PlayStation 3 machine itself was still a money-loser but the losses had been trimmed and the machine was expected to start producing profit in the fiscal year starting in April.

Sony's overall profit for the three months ended Dec. 31 climbed to 200.2 billion yen ($1.88 billion) from 159.9 billion yen the same period the previous year.

Quarterly sales gained 9.6 percent from a year earlier to 2.859 trillion yen ($26.87 billion).

Profitability at Sony's core electronics business declined for the quarter as plunging gadget prices offset better sales for Bravia LCD TVs, Vaio personal computers and digital cameras, according to Sony.

Similarly, Japanese rival Matsushita Electric Industrial Co., which makes Panasonic brand products, also reported robust results for three months ended Dec. 31 on strong sales of appliances and digital audiovisual products.

Panasonic's quarterly profit rose 46 percent to 115.2 billion yen ($1.08 billion), and the 4 percent drop in sales on year to 2.34 trillion yen ($22.02 billion) was due to Victor Company of Japan's change in status from subsidiary to affiliate.

Sony's sales and profitability in its movies division both fell because of a dearth of theater hits comparable to "Casino Royale" and "Pursuit of Happyness" of the previous year.

Equity-related income edged up 9 percent on year. Such gains reflect the performance of Sony's cell phone joint venture Sony Ericsson Mobile Communications AB, where handset sales for the quarter soared 18 percent on year to 30.8 million cell phones.

Sony BMG Music Entertainment also fared well with best-selling albums such as Alicia Keys' "As I Am," Celine Dion's "Taking Chances" and Carrie Underwood's "Carnival Ride."

Also boosting investment-related income was Sony's liquid crystal display joint venture with Samsung Electronics Co.

Sony's financial services operations, including an insurer and online bank, racked up a loss because of the recent slide in Tokyo stocks. Share prices have languished after the U.S. subprime mortgage crisis surfaced last year.

Sony shares gained 3.6 percent in Tokyo to 5,220 yen ($49.06). Earnings were announced after trading ended.

Electronic Arts quarterly profit up 44 percent before items

SAN FRANCISCO (Reuters) - Electronic Arts Inc (ERTS.O) posted a 44 percent rise in quarterly profit excluding special items and gave forecasts below Wall Street estimates, sending shares in the world's top video-game publisher down 6 percents on Thursday.

EA said it expected fourth-quarter results to range from a loss of 3 cents per share to a profit of 2 cents per share on net revenue of between $925 million and $1.05 billion in its fourth quarter.

Excluding special items, the forecast was below the average forecast for a profit of 17 cents per share on Reuters Estimates.

For its fiscal third quarter, Electronic Arts said profit excluding special items was $290 million, or 90 cents per share, compared with $201 million, or 63 cents per share, a year earlier and one penny higher than the average Wall Street estimate.

Third-quarter net revenue was $1.5 billion, up 17 percent from a year ago, boosted by sales of titles such as "Need for Speed: Pro Street" and "FIFA 08."

EA shares fell 6 percent to $44.50 in extended Nasdaq trading. Over the past year, the stock has fallen more than 6 percent, compared with a rise of more than 50 percent for chief rival Activision Inc (ATVI.O).

Raytheon profit, sales beat expectations

BOSTON - Raytheon Co. extended a run of strong fourth-quarter results by defense contractors, with recent big contract awards boosting Raytheon's prospects for 2008 as well.

An updated financial forecast Thursday from the world's fifth-largest defense contractor nevertheless falls just shy of Wall Street expectations. Raytheon's fourth-quarter profit and sales exceeded analysts' forecasts, and the company's shares rose $1.71, or 2.7 percent, to $65.14, recovering from a small dip in opening trading.

"I think Wall Street was anticipating their guidance would be modestly above where it is, but it is a good strong year they're looking toward, and the fourth quarter was better than anticipated," said JSA Research analyst Paul Nisbet.

Raytheon's results were in line with other major contractors' fourth-quarter numbers that that either met or exceeded Wall Street expectations, Nisbet said. The exception was Northrop Grumman Corp., whose net income was basically flat compared with a year earlier.

Raytheon's fourth-quarter earnings jumped 64 percent, due in part to a $214 million gain from a tax benefit — a previously disclosed refund involving tax claims dating to the 1980s.

Lower interest and pension expenses, as well as more streamlined operations, also boosted the Waltham-based company's quarterly net income to $598 million, or $1.37 per share, from $365 million, or 81 cents per share, in the previous year's fourth quarter. Sales rose 8 percent to $6 billion.

The latest quarter's profit was reduced by an after-tax loss of $36 million, or 8 cents per share, from discontinued operations.

Excluding that item and the 49-cents-per-share tax refund, Raytheon's adjusted earnings from continuing operations were 96 cents per share, up 26 percent.

The latest quarter's adjusted profit, and the company's $6 billion in sales, beat the consensus forecast of analysts surveyed by Thomson Financial, who expected a profit of 92 cents per share, and sales of $5.89 billion.

Raytheon's biggest quarterly sales gains came at its Intelligence and Information Systems unit, with a 17 percent increase, and Network Centric Systems, up 13 percent.

For this year, the 72,000-employee company expects earnings from continuing operations of $3.65 to $3.80 per share — just shy of analysts' forecast of $3.81 per share, and up from Raytheon's previous guidance of $3.45 to $3.65 per share.

Raytheon's updated 2008 sales forecast is $22.4 billion to $22.9 billion, a range in line with analysts' $22.69 billion estimate. Raytheon's new forecast is $300 million above the range offered in October.

Chief Financial Officer David Wajsgras told analysts on a conference call that the company's higher expectations are driven by "competitive winds in the fourth quarter," when Raytheon won several key contracts.

Contracts booked in the fourth quarter rose 21 percent to $9.2 billion from $7.6 billion in the year-ago quarter. Recent awards include a $1.35 billion deal with the British government for border security, and a $1.2 billion Air Warfare Destroyers contract with the Royal Australian Navy.

MasterCard profit up on card use abroad

NEW YORK - MasterCard's U.S. cardholders charged more in the last quarter of 2007 than they did in the previous year, but are spending less on discretionary items and more on necessities.

Americans may be taking on more debt to pay for the high price of food and gasoline, which could be a troubling trend for people if the economy keeps worsening and costs don't ease.

MasterCard reported Thursday a more than sevenfold rise in profit. The main drivers were the sale of a stake in a Brazilian company and strong card use by travelers and customers overseas, as well as a 10 percent rise in U.S. cards' gross dollar volume.

The company's shares soared $18, or 9.5 percent, to $207 Thursday.

Industrywide, Americans are paying down their balances at a slower rate than before, said Sanjay Sakhrani, card analyst at Keefe Bruyette & Woods. "The question is, as more people lose their jobs, as the economy weakens a little more, what the repercussions are."

Many homeowners are struggling with their mortgages, while commodity costs remain high. The Federal Reserve has been slashing key interest rates in an effort to revive the economy, but lower rates can accelerate inflation.

"Lower interest rates are not going to cure the problem of costs going up. It's only going to exacerbate that problem," said Greg McBride, senior financial analyst at Bankrate.com, an online financial information service.

Consumers increased their spending by 0.2 percent in December, the Commerce Department said Thursday, the weakest pace in six months. That pace could slow even more if the job market weakens — last week, applications for unemployment benefits soared to the highest weekly number since Oct. 8, 2005.

If the economy does fall into recession, people may not spend more, but they're likely to put more of their purchases on cards. MasterCard Chief Executive Robert Selander said that during the 2001 recession, slower gross dollar volume was offset by higher numbers of transactions.

"If you think about consumer behavior, when you are in a situation where you're worried about your job, or your mortgage or interest rates are high, you're going to stop spending on those luxury items and start focusing on those things you need — whether it's gas for your car or food for your family," said Selander in an interview with The Associated Press. "The consumer's behaving in a pretty rational way."

Purchase, N.Y.-based MasterCard said profit in the October to December period rose to $304 million, or $2.26 a share, from $40.9 million, or 30 cents a share, a year ago. Those results included an after-tax gain of $185 million from sales of the company's stake in Redecard SA, a company that signs up merchants in Brazil. Excluding that gain, profit came to 89 cents per share.

Revenue rose nearly 28 percent to $1.07 billion from $839.2 million.

The results were well above estimates. Analysts surveyed by Thomson Financial predicted, on average, earnings of 72 cents per share on revenue of $984.8 million.

The conversion of stronger currencies to the dollar boosted revenue by 4.7 percent, while international travel lifted cross-border transactions — which generate higher fees than domestic transactions — by nearly 28 percent.

Gross dollar volume rose 15.2 percent to $634 billion, discounting currency conversions.

The total number of transactions processed rose 17.2 percent to 5.2 billion.

About half of MasterCard's business is outside the United States.

MasterCard's full-year profit came to $1.09 billion, or $8.00 a share, on revenue of $4.07 billion.

The company said it expects its revenue to grow at a slower pace in 2008 than it did in 2007, but still at a double-digit percentage rate.

MasterCard does not have to sock away money for loan losses as many other companies do. Unlike American Express Co. and Discover Financial Services LLP, MasterCard processes card payments but does not take on the debt. The debt is held by the 25,000 banks in more than 200 countries — like Citigroup Inc. and JPMorgan Chase & Co. — that issue the cards.

Mattel reports profit despite recalls

LOS ANGELES - Mattel Inc. posted a 15 percent gain in fourth-quarter profit, even though it entered the crucial holiday season in the shadow of negative publicity over its recalls of millions of Chinese-made toys tainted with lead.

The company said Thursday that tax gains and strong international sales of Hot Wheels and other toys helped offset the cost of the recalls.

Still, the world's largest toy maker warned that it expected to rack up additional costs in 2008 as a result of the recall problems.

"There're going to be sizable legal costs this year," Robert A. Eckert, Mattel's chairman and chief executive, said during a conference call with Wall Street analysts. "We have a lot of litigation around the world on things related to product recalls, and we've got a significant case coming to trial this year."

Mattel began recalling toys last August due to concerns that lead paint levels might exceed U.S. safety standards.

The El Segundo, Calif.-based company reported that its net income grew to $328.5 million, or 89 cents per share, in the October-December period from $286.4 million, or 75 cents per share, in the prior-year quarter.

The latest period included charges of about $42 million related to the company's recalls of the tainted toys, and tax benefits of $47.3 million.

Sales rose 4 percent to $2.19 billion from $2.11 billion during the year-ago period, with all of the increase attributable to the weaker dollar's positive effect on international sales.

Analysts surveyed by Thomson Financial expected earnings per share of 73 cents on sales of $2.13 billion.

The company also approved an additional $500 million stock buyback.

Mattel shares gained $2.07, or 10.9 percent, to $21.01 Thursday.

Mattel posted global sales increases during the quarter across all but one of its toy divisions, the American Girl unit.

Favorable currency exchange rates overseas helped boost Mattel's international sales by 18 percent, but U.S. sales fell 3 percent.

The company's Girls and Boys Brands unit posted worldwide sales of $1.35 billion, up 9 percent from the same quarter in 2006.

Worldwide sales of Other Girls brand toys jumped 19 percent.

The toy maker continued to struggle with lagging demand for Barbie brand products.

Global sales of the brand rose 4 percent overall but declined 12 percent domestically, primarily due to weaker sales in the fashion dolls' entertainment-related products such as "Barbie Magic of the Rainbow" and the "MyScene" dolls line.

For the year, Barbie sales were up 1 percent worldwide but slipped 15 percent in the United States.

"U.S. Barbie performance was a disappointment," Eckert said. "In 2008, we're going to continue to focus on core reality offerings ... but we need to improve the performance of the entertainment side of Barbie, and I think we'll do that."

Sales for the company's Wheels division, which includes the lines of Hot Wheels and Matchbox toys, jumped 15 percent.

Hot Wheels-brand toys helped drive sales for the unit, posting a 21 percent jump in global sales.

Mattel's Fisher-Price Brands division posted global sales of $840.4 million, a 4 percent increase. U.S. sales slipped 3 percent.

Sales of toys in Mattel's American Girl unit dropped 2 percent to $241.6 million.

For 2007, Mattel posted a profit of $600 million, or $1.54 per share, compared with a profit of $592.9 million, or $1.53 per share in 2006.

Net sales totaled $5.97 billion in 2007, up 6 percent from $5.65 billion in the prior-year period.

The company's "Sesame Street" toy line, which includes the popular Elmo dolls, was among its best sellers in 2007, in addition to the still-robust toys from the "Cars" movie.

Looking ahead, Eckert said the company expects to face higher costs this year for commodities, labor and product testing, along with "the general sentiment of worsening economies."

The toy maker has also been seeing cost increases from its vendors. As a result, Mattel will raise its wholesale prices for fall 2008 products by mid-to-high single digits, management said