Wesfarmers sells Coles stores to FoodWorks, corporate earnings to dive 20%: Economy roundup

Wesfarmers, owner of the Coles supermarket chain, will transfer 45 of its stores to grocery retailer FoodWorks in a $35 million deal.

Coles has said the payment will be subject to approval by the Australian Competition and Consumer Commission and FoodWorks’ shareholders, but that no jobs will be lost.

“We think this is a great outcome for team members and customers of both Coles and FoodWorks,” Coles managing director Ian McLeod said. “FoodWorks view these Coles supermarkets as valuable additions to their existing portfolio of over 700 member stores.”

“In undertaking this store transfer, a key priority has been to ensure continuity of employment for the affected store teams… I’m very pleased to advise that all store team members will be offered roles with FoodWorks and that they will retain all their existing employment entitlements.”

Shares flat

Meanwhile, the Australian share market has opened lower today due to weak leads from Wall Street last week, but has moved into positive territory during morning trade.

The benchmark S&P/ASX200 index was up 4.3 points or 0.11% to 3908.1 at 11.45am AEST. The Australian dollar also gained ground to US80 cents.

Commonwealth Bank shares have gained 1.4% to $39.20 while Westpac jumped 0.4% to $20.08. AMP gained 1% to $4.91 as ANZ gained 0.4% to $16.46.

Corporate profits to slide

Corporate earnings are set to fall by 20% this financial year due to the impacts of the financial crisis, analysts have told The Australian.

UBS chief equities strategist David Cassidy told The Australian the drop in the last six months will be worse than the overall result of the 2008-09 year.

“This six months will be worse than the full (2008-09) year, so this should be the low in terms of previous corresponding period growth rates,” Cassidy said, expecting 29.9% decline in earnings per share compared to the same period last year.

“We expect the economy to progressively improve over the next couple of years… the next six months should still be negative, but not as negative, and we expect that the market will return to positive PCP growth for the June 2010 half,” Cassidy said.

Credit demand falls

New figures from the Australian Bureau of Statistics show that demand for credit was down $32 billion in the March quarter from the December quarter, driven by decreased demand from non-financial corporations.

Demand from state and local public non-financial corporations was down by $3.5 billion, while state and local general government demand was down $2.3 billion.

The figures also show that non-financial corporations raised a net $10.3 billion, offset by repayments of loans of $10.5 billion. Households raised a net $15 billion during the March quarter, up $3.5 billion from the December quarter.

Opposition leader Malcolm Turnbull’s popularity has taken a hit after last week’s OzCar affair. A new Newspoll conducted for The Australian shows Turnbull’s voter satisfaction fell from 44% to 25% since mid-June. Approval also fell from 43% to 32%, while Prime Minister Kevin Rudd’s approval jumped three points to 67%.

In the US, a senior advisor to President Barack Obama has said he will discuss a second stimulus package to boost the economy if necessary.

“Much of the stimulus is yet to come, and let’s see how this works before talking about next steps,” senior adviser David Axelrod told NBC’s Meet the Press.

“Let’s see in the fall where we are, but right now we believe what we have done is adequate to the task. If more is needed, we’ll have that discussion.”

President Obama passed a $US787 billion stimulus package in January to help boost the economy out of recession, but the country’s downturn is now harsher than expected with unemployment expected to reach 10% in the next few months.

“We have not broken the back of the recession,” Axelrod said. “We are going to have to sail through some very difficult times here. But the question is ‘are we moving in the right direction?’

“This recession that began last year is the worst that we’ve had in generations, and so unemployment is higher than any of us would like. But to suggest that it wouldn’t have gone higher had we not done the things we did, I think is totally misleading,” he said.