Samsung Electronics sparks dividend debate after big worker bonus

Samsung Electronics Co Ltd, the world's largest smartphone maker, has reignited shareholder calls for more returns after splashing out on a special employee bonus estimated at nearly $1 billion.

The arch rival of Apple Inc drew on its $50 billion cash pile to mark 20 years of transformation into Asia's most valuable company - just two months after investors criticized it for not spending enough to increase its dividend yield.

The bonus, to commemorate Chairman Lee Kun-hee's "New Management" strategy, hit October-December operating profit which Samsung said likely fell 6 percent on year and 18 percent from a record third quarter to 8.3 trillion won ($7.8 billion).

Initial street estimates put the bonus at 300 billion to 700 billion won, but the extent of the profit decline indicated a payout closer to 1 trillion won, or an average $4,000 for each of the company's 240,000 employees, analysts say.

That is likely to have sent fourth-quarter profit below even the most bearish forecast among 23 polled analysts of 8.8 trillion won, to the lowest level since the 8.1 trillion won of July-September 2012.

"This (bonus) could increase pressure from some shareholders to raise shareholder returns, and I also do have some hopes for more payout either in the form of a share buyback or dividends," said Kim Kyung-yoon, head of equities management at Kyobo Axa Investment Managers, which owns Samsung shares.

Like most South Korean companies, Samsung has kept its dividend yield low at around 1 percent or less, which is a primary reason its shares are not as valuable as global peers.

"We are not against paying bonuses to workers but at least the shareholders should get as much," said Mark Mobius, executive chairman of Templeton Emerging Markets Group. "They should really celebrate the event with a big bonus, a bigger dividend, which may happen."

Samsung shares saw their first annual decline in 2013 in five years partly due to the company's conservative shareholder return policy, despite operating profit likely growing 28 percent to a record 36.8 trillion won. They closed down 0.2 percent on Tuesday, versus a 0.3 percent rise in the broader market.

Returns equal around 5.1 percent of profit, the lowest since 2007 when Samsung last bought back shares, at which time its rate of return was 15.8 percent.

"NO TRANSPARENCY"

Lee, who took over Samsung Group in 1987 from his founder-father, in 1993 ordered lieutenants to "change everything except your wife and children" to transform Samsung Electronics from a mid-tier television set manufacturer into a global technology leader.

It has since overtaken Sony Corp in TVs, Nokia Oyj in mobile phones and Apple in smartphones.

Lee, who turns 72 this week, set the agenda for the future in his New Year speech by stressing the need to drop a hardware-centric culture and adopt new ways of thinking to stimulate innovation.

"In theory this (bonus) has nothing to do with Samsung's enormous profit... and will not be repeated, although there is no transparency on this issue and so no guarantees," CLSA analyst Matt Evans said in a note.

"Whether shareholders will receive any similar 'bonus' in the form of a meaningful dividend or share buyback remains to be seen. However, this analyst is not holding his breath as M&As are a more likely way" of using its cash reserves.

Korean companies often top up low salaries with bonuses. Samsung Electronics gives up to 50 percent of annual salary by returning 20 percent of profit that exceeds targets. It also offers up to 100 percent of basic monthly salary to employees in units which achieve targets.

SMARTPHONE SALES

Fourth-quarter earnings were also likely affected by Samsung's flagship Galaxy S and Note smartphones losing out somewhat to Apple's iPhone in primary markets such as the United States and Japan during the year-end holiday season.

The company, ahead of releasing final figures on January 24, estimated fourth-quarter sales of 59 trillion won. This compared with the 61 trillion won Thomson Reuters' Starmine SmartEstimate of 23 analysts, which gives greater weighting to the more accurate analysts.

"Even taking into account one-off costs, the (fourth-quarter) profit is lower than expected. Samsung has not provided details, but smartphone profit may have fared worse than expected, given increased marketing expenses," said IBK Investment & Securities analyst Lee Seung-woo.

Samsung is bracing itself for its toughest year at its mobile devices division since it started making smartphones in 2007, as Apple raises its China presence and fights back with larger-screen offerings.

Analysts estimate 2014 profit growth at its mobile arm to range from low single digit to mild contraction after growing eight times over the past five years.

($1 = 1065.5000 Korean won)

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Boeing remains top planemaker in 2013, loses on race for orders

Boeing remained the world largest plane maker in 2013, but industry sources said it lost the race to log new orders to rival Airbus.

Boeing Co said on Monday that it delivered a record 648 jetliners in 2013, topping Airbus for the second year in a row and beating 2012 deliveries by 7.8 percent.

Airbus topped Boeing in new orders, however, according to two industry sources. Boeing said jetliner gross orders totaled 1,531 in 2013, a record, and net orders reached 1,355.

Airbus sales exceeded both of those numbers, the sources said on condition of anonymity, without giving further details.

Based on announcements of 98 orders since the end of November, Airbus has booked at least 1,471 gross orders and 1,412 net orders. The European planemaker typically unveils new orders with its final figures for the year, due Jan. 13.

Investors keep close tabs on deliveries, since plane makers book the bulk of the revenue from airplane sales when the aircraft are handed over to customers.

But orders have had a growing impact on share prices in the past two years, as the world's dominant plane makers fought for sales of new fuel-efficient models. Plane orders also can produce large swings in company cash balances, because airlines make down payments when orders are placed.

Boeing's delivery tally topped its forecast of up to 645 jets for the year and was up from 601 last year. The tally also exceeded deliveries by rival Airbus, one of the sources said.

Airbus delivered more than 625 aircraft in 2013, beating its target of up to 620 but lagging Boeing's total of 648 deliveries, the source said.

RISING PRODUCTION

Boeing said it delivered 440 of its 737 single-aisle planes, 98 of its 777 widebody planes and 65 of its carbon-composite 787 Dreamliners, which are now in use with 16 customers.

The Chicago-based aerospace and defense company also delivered 24 of its 747 jumbo jets, and 21 of its 767 jets.

Boeing Commercial Airplanes Chief Executive Ray Conner praised “solid execution” as factories increased production rates last year.

“We delivered more advanced, fuel-efficient airplanes to our customers than ever before, and it's a great example of what our team can accomplish,” he said in a statement.

Boeing's shares were up 0.92 percent at $138.89 in afternoon trading on the New York Stock Exchange.

Boeing's production lead is likely to grow this year. The company plans to increase output of its top-selling 737 model to 42 a month in 2014 and to 47 a month by 2017. It makes 38 a month currently. Airbus, by contrast, has not announced plans to increase output of its rival A320 jet.

Boeing also said it would lift production of its 787 Dreamliner wide-body jet to 12 a month by 2016 and 14 a month by 2020, up from a target of 10 a month by the end of 2013.

However, orders are likely to slow, even as deliveries rise, said Peter Arment, an analyst at brokerage Sterne Agee.

“With delivery slots filling up, even at these elevated production rates, by nature we're going to see some tapering of the order book activity,” Arment said.

Boeing and Airbus will focus on “leveraging and execution off these large backlogs” of orders, converting them to planes - and cash.

While some investors fear rising production will create an oversupply of aircraft, Arment said that's not a big worry.

“We still have some aging aircraft fleets in Asia and Europe that need to be replaced,” he said, and that should prevent a glut.

Boeing also delivered 171 military aircraft and satellites, up 11 percent from 154 in 2012. Boeing in October said it will close its C-17 military transport plane production, which is producing a steady 10 planes a year, due to lack of orders.

The order book for fighters also is tapering, and analysts say this could force closure of those production lines later this decade unless Boeing lands new orders.

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Colorado marijuana sales reach up to $1m (€735,400) on first day

Stores selling cannabis in Colorado have reportedly made up to $1m collectively during the first day of trading.

The sale of recreational marijuana became legal on New Year’s Day and stores may have turned over up to $1 million statewide during that day alone, shop owners have told NBC affiliate 9News.

The Department of Revenue for Colorado said official figures on how much was made will be released in February, although they expect that sales could hit $600m by the end of 2014.

This comes despite many shops being unable to gain access to baking services because of federal law in place stating cannabis is an illegal substance, according to KDVR.

Customers must pay in cash as federal banks will not knowingly service the industry, KDVR reported.

On so-called ‘Green Wednesday’, 24 stores, including thirteen former medicinal marijuana dispensaries, were able to sell the formerly illegal drug to customers interested in its recreational properties.

About 136 businesses in Colorado had been granted licenses to sell cannabis recreationally by 1 January, most of which are located in Denver.

While non-medicinal possession, cultivation and private consumption of marijuana was legalised in Colorado over a year ago, cannabis will only now be legally sold to the general public and taxed in a system similarly to alcohol.

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New vote at Boeing highlights split inside union

NEW YORK (CNNMoney) Union workers at Boeing are set to vote Friday on a contract offer from the company similar to the one they overwhelmingly rejected less than two months ago.

The vote is key to efforts by some at the Machinists union to keep work at union-represented plants in the Seattle area well into the future.

Boeing (BA, Fortune 500) has said if members don't ratify the company's latest offer, it will build the 777X, a new generation commercial jet, at a nonunion plant elsewhere in the country.

The new contract, if approved, would mean an end to the traditional pension plan for more than 33,000 Machinists at Boeing, replacing it with a 401(k) type of plan.

The new vote is being pushed by the union's international office in Washington, D.C.

But the union's local leaders in the Seattle area are urging members to again reject the proposal.

Local union officials point to the loss of the pension as one reason. They also argue that approving the contract now would encourage the company to make continued threats to move work elsewhere in the future in order to win other concessions.

"[Even though] we believe you've already voted this very similar offer down on Nov. 13 by a 2-to-1 margin, the International is forcing us to vote to accept or reject," said a statement from the Seattle leadership to members. "The terms of this agreement are destructive to what we have gained over the last 78 years."

The international leadership insists this offer is better than the one rejected last year, adding about $1 billion in value to members. The improvements include a $5,000 bonus in 2020 and the continuation of the current formula for how new hires move up the pay scale.

In a letter to members, International President Tom Buffenbarger said that "overwhelmingly, members have asked for a new vote on the revised offer." He also said this will be the final chance to vote on the offer from Boeing and keep the work on the 777X at the union-represented plants.

Boeing said it has received proposals to build the plane from 22 different states, and that 54 other locations are being considered to build a new plant.

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Car sales make a strong comeback in 2013

NEW YORK (CNNMoney) — The auto industry topped 15 million vehicles in a year for the first time since 2007, and even a disappointing December couldn’t tarnish the improvement.

General Motors and Toyota Motor reported December sales that were down from a year earlier and missed forecasts. But GM’s full-year sales were up 7%, and sales to consumers rose 11%. Toyota’s full-year sales were also up 7%, and it said it expects sales to continue to rise in 2014.

“The auto industry was a consistent bright spot in the economic recovery throughout 2013,” said Bill Fay, the head of Toyota’s U.S. division.

Ford posted a modest rise in December sales that was weaker than forecasts. But that was enough to lift its full-year U.S. sales by 11%. Ford also posted the the largest market share gain of any automakers.

Chrysler had its best December in six years, which lifted its full-year sales by 9%.

Sales were strong across the industry in 2013, with every major automaker reporting improved sales. U.S. sales reached 15.6 million for the year, up 7.6% from 2012.

And although December sales edged up just 0.3% from a year ago, that didn’t raise alarms among experts.

Michelle Krebs, senior analyst at sales tracker Edmunds, said a couple of factors hit December sales, including bad weather and a strong November that may have moved up some deals that traditionally happen in the last month of the year.

“Dealers and automakers seemed to push Black Friday sales more than ever before,” she said.

But she is not concerned that the weak December sales are a sign of any problems ahead for 2014. Edmunds and most other forecasters are predicting full-year sales will top 16 million this year.

“The fundamentals are getting better and there’s a flood of new models coming that should generate excitement,” she said. “The new models seemed to do the best in December.”

The results cap a five-year turn around for the industry, lifting sales a full 50% above the dark days of 2009, when GM and Chrysler tumbled into bankruptcy and required federal bailouts.

Today, all the U.S. automakers are profitable, even though U.S. sales are still nearly 2 million vehicles below the record levels of more than a decade ago. Last month, the Treasury Department sold its last shares of GM after their price climbed more than 40% during the year. On Wednesday, Fiat agreed to buy the remaining shares of Chrysler from a union-controlled trust fund.

The 2013 sales volume has been much healthier for the industry than the larger volumes of the last decade. There have been more sales to consumers and fewer to rental car companies and other fleet buyers that pay less for cars and quickly dump them in the used car market, pushing down new car prices. As a result, consumers spent a record dollar amount on cars in 2013.

Sales in 2013 have been helped by a number of other factors as well:

Pent-up demand from buyers who had delayed purchases in recent years and were stuck driving older cars. Strong gains in the stock market, which lifted not only household wealth but also consumer confidence. Falling unemployment, which means that more Americans can afford to purchase a car. Greater access to credit, as lenders offered attractive rates on both car loans and leases. A rebound in the housing market, which allowed homeowners to refinance and free up money for a car payment. A jump in home building led to a particularly strong year for pickup truck sales.

The auto industry’s recovery has been an important driver for the economy as a whole. The industry added about 75,000 jobs in 2013, from auto plants to parts manufacturers and dealerships. More hiring is expected this year. Ford has already said it expects to add 5,000 jobs in 2014, its biggest increase in 50 years.

“All the indicators are trending in the right direction,” said Alec Gutierrez, senior analyst with Kelley Blue Book. “We see growth continuing, although the pace of growth is going to slow.”

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