War blamed for low profits

NEW YORK - An unlikely assortment of US companies - from the makers of wicker baskets and widgets to operators of salad bar restaurants, book stores and radio stations - are saying their bottom lines are taking a hit because of the war in Iraq.

In the past week alone, more than a dozen companies have blamed the US-led conflict in Iraq for a shortfall in quarterly sales and earnings.

And the bad news just keeps coming.

Circuit City Stores, the No 2 US consumer electronics chain, warned this week that it would report sharply lower profits, saying the Iraq conflict kept shoppers at bay.

Borders Group, the No 2 US bookseller, followed suit, as did Best Buy Co, the New York Times, Gannett Co, publisher of USA Today and other newspapers, Garden Fresh Restaurant Corp and Radio One.

"It's a more identifiable cause that can be stuck on the problem," said Richard Babson, an independent consulting economist in Watertown, Massachusetts.

"It's certainly easier [to cite the war] than having to try to explain to stockholders the more complicated picture of what's going on in the economy," he said.

While Babson agreed the war did carry some blame, he said it was just one of a number of factors working together to create "an underlying fog of uncertainty" that is making consumers hold back.

"The Iraq conflict has been widely used [as an excuse], and fairly so," agreed Owen Fitzpatrick, head of US Equity Group with Deutsche Bank.

"It definitely takes the steam out of the economy."

Chuck Hill, director of research at earnings research firm Thomson First Call, said the war was a legitimate excuse in relation to higher energy prices and the impact on utilities, transport and materials companies.

But, in general, "it's more of a convenient excuse", he said, pointing to capital-spending-heavy sectors such as technology and industrials.

To be sure, the war is not hurting every business.

Michael Dell, CEO of Dell Computer Corp, said on Thursday that the No 2 personal computer maker was on track to meet sales and earnings targets.

"There are conversations about current events but we don't see it having a huge impact," he said.

Still, the war - and its incessant coverage on television - is having an effect on the economy.

Joe Stocke, managing director at Stone Ridge Investment Partners, in Malvern, Pennsylvania, said the round-the-clock news coverage, with viewers watching the war unfold in real time, had a huge impact on the psychology of consumers, business people and investors.

"It's reasonable to expect that the war's having an impact on many companies ... because a lot of people have been apprehensive," he said.

Rick Jandarin, equity strategist at Banc One Corp, the No 6 US banking company, said he had noticed a sharp acceleration in the number of downward revisions in earnings guidance in the past several weeks.

"The pickup [in profit warnings] is much more than we would have seen due to the usual seasonal adjustments," he said. "Right now it's more negative than that."

And the profit warnings were not limited to any one sector, he said.

"Whether it's on the retail side, or consumer companies, or technology, it's right across the board," he said. "Put it this way, we haven't seen any sector that's positive."

- REUTERS

Herald Feature: Iraq war