Earnings: Nike | General Mills

Overseas Demand Boosts Nike Earnings

BEAVERTON, Ore. - (AP) - A tax break from the Dutch, surging demand in China and the enduring popularity of another shoe brand now owned by Nike Inc. (NKE) all helped the world's largest athletic shoe and clothing company boost profit in its second quarter.

Converse, a name known to an entire generation of basketball players before Nike arrived on the scene, helped drive Nike earnings to $325.6 million, or $1.28 per share, from $301.1 million, or $1.14 per share, during the same period last year.

Sales increased 10 percent to $3.82 billion for the quarter ended Nov. 30, up from $3.47 billion in the same period last year.

"Converse is a great story," Nike Chief Executive Mark Parker said in a conference call with analysts after second-quarter results were released Wednesday.

Parker said revenue was up nearly 50 percent for Converse shoes, and its chief celebrity athlete spokesman, Miami Heat guard Dwyane Wade, was named Sports Illustrated's 2006 Sportsman of the Year.

"That's really having a profound effect on their bottom line," said analyst John Shanley of Susquehanna Financial Group.

"These are very profitable businesses," Shanley said. "I think Converse, with that 50 percent increase in revenue, is clearly the driver there."

In fact, the performance of other brands owned by Nike may have been part of the reason that Parker told analysts Nike is shopping for another company.

"There are no specific acquisitions on the radar screen right now," Parker said. "But I will add quickly that we are actively looking."

He also said pressure is building to spend some of the cash Nike has been generating with consistent improvements in sales and earnings.

"We're obligated to try to get the most use out of that cash," Parker said. "Acquisitions is one of the ways we can put that cash to use."

Sara Hasan of McAdams Wright Ragen in Seattle said the comments come at a time when fashion trends are changing, along with consumer tastes.

"That's interesting when talking about acquisitions of other brands," Hasan said, "especially because other brands have been performing so well."

Shanley agreed that fashion trends are going to have an impact on Nike marketing strategy — and possibly acquisitions.

"Kids' apparel wardrobe has changed dramatically," Shanley said, noting a move away from baggier, "hiphop"-style pants to tight jeans.

"This is a whole new fashion shift," Shanley said. "And you don't wear big bulky shoes when you're wearing a tight-fitting pair of pants. It's not anything Nike can do about it, they kind of have to adopt to it, and clearly they are."

During the analyst conference call, Shanley repeated his concerns about high levels of Nike inventory, noting the growth in inventory levels have outpaced sales growth in recent quarters.

But Parker and Nike Brand President Charlie Denson said the company is making progress by reducing the rate of inventory growth, with plans for more Nike-owned outlet stores to liquidate stock more effectively.

Nike benefited in the second quarter from a tax agreement with the Dutch government that boosted earnings per share by 13 cents — but even without that benefit, the company beat Wall Street estimates of $1.12 per share.

By region, U.S. sales rose 8 percent to $1.4 billion and 6 percent in Europe to $1 billion. Sales in the company's smaller Asia Pacific and Americas segments climbed 15 percent and 4 percent, respectively.

Future orders also improved, up 7 percent for the second quarter, compared to last year.

Parker noted that growth was strongest in Asia overall, but revenue increased even more dramatically in China, up more than 30 percent.

Denson said the United Kingdom and France remain a problem for Nike in Europe, but he was optimistic about improvement, especially in Britain. "I would say today that, retrospectively, that marketplace was probably worse off than we thought," Denson told analysts.

"But right now, nobody is winning in Europe. I think it's just a tough environment. We can turn it around, it's just going to take more time."

Nike also said changes in currency exchange rates boosted revenue growth by 1 percent in the recent quarter.

Nike shares rose $3.59, or 3.7 percent, to close at $99.78 on the New York Stock Exchange before the earnings were reported. They fell 4 cents in after hours trading.

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General Mills Profit Rises

MINNEAPOLIS - (AP) - General Mills Inc. (GIS) said second-quarter profit rose 4 percent on solid growth across its businesses, good enough to prompt the maker of Wheaties cereal and Yoplait yogurt to raise its guidance for the rest of the year.

General Mills earned $385 million, or $1.08 per share, up from $370 million, or 97 cents per share, during the same period last year. Revenue rose 5 percent to $3.47 billion from $3.29 billion during the same period last year.

Analysts surveyed by Thomson Financial were expecting a profit of $1.03 per share on revenue of $3.4 billion.

The company's second quarter is its biggest moneymaker of the year for the food company, in part because it includes Thanksgiving.

"This solid performance followed a good first quarter and puts us ahead of our plan targets for the first half of the year," Chairman and Chief Executive Steve Sanger said.

General Mills raised its guidance for the rest of the year to $3.09 to $3.13 per share, up from $3.03 to $3.08 per share it predicted in September.

Sanger said the company expects the cost of food ingredients to keep rising during the second half of its year, along with more marketing spending and spending for new products.