Tuesday, November 20, 2007

Feds Urge Vigilance on Toy Safety


Despite a record number of recalls this year, potentially dangerous toys remain on store shelves days before the start of the busy holiday shopping season, consumer groups warned Tuesday. Federal regulators, under fire for lax enforcement, urged shoppers to be vigilant.

The Consumer Product Safety Commission has worked closely with Mattel Inc and other manufacturers on recalls of millions of toys tainted with lead and other products, yet two consumer investigations released Tuesday cited possible violations, including sales of toys with small parts that could pose a choking hazard.

"Why is it we are the ones that are getting this information out to parents, and not the government and not the toy companies?" asked Charles Margulis, of the Center for Environmental Health.

In CPSC's annual toy safety message, Nancy Nord, acting head of the CPSC, sought to reassure parents that the agency was doing all it can to remove unsafe toys. She noted the Chinese government recently had signed agreements to help prevent lead-painted toys from reaching the U.S.

"Toys today are undergoing more inspection and more intense scrutiny than ever before," said Nord, citing CPSC's "daily commitment to keeping consumers safe 365 days a year."

Vallese left the door open to the possibility of several more CPSC recalls before year's end, declining to say if most dangerous toys had already been removed from store shelves given the recent spate of toy recalls. "When we find violations, we will announce them," she told The Associated Press.

Joan Lawrence, a vice president of the Toy Industry Association, said more recalls were probable given recent manufacturer retesting of products. "That's why it's so important for consumers to pay attention to recall notices," Lawrence said.

Among the biggest toy hazards cited by CPSC:

_Riding toys, skateboards and inline skates that could cause dangerous falls for children.

_Toys with small parts that can cause choking hazards, particularly for children under age 3.

_Toys with small magnets, particularly for children under age 6, that can cause serious injury or death if the magnets are swallowed.

_Projectile toys such as air rockets, darts and sling slots for older children that can cause eye injuries.

_Chargers and adapters that can pose burn hazards to children.

The series of announcements Tuesday, coming three days before the start of the busy shopping season, helped cap a year of harsh congressional criticism of CPSC enforcement following a number of recalls involving millions of lead-tainted toys and other products - the highest number of recalls ever due to product defects. The agency's staff has dropped from almost 800 employees in 1974 to an all-time low of about 400 employees now.

Both the House and Senate are now considering legislation to overhaul the product safety system by substantially increasing CPSC's budget, raising the cap on civil penalties for violations and giving the CPSC authority to provide quicker notice to the public of potentially dangerous products.

The measures also seek to ban officials at federal regulating agencies from taking trips financed by industries they oversee. Both Nord and her predecessor as chairman, Hal Stratton, accepted free trips worth thousands of dollars at industry expense.

In its 57-page annual survey released Tuesday, U.S. PIRG agreed that toys with small magnets as well as small parts that pose choking hazards create significant risks.

Between 1990 and 2005, at least 166 children choked to death on children's products, accounting for more than half of all toy-related deaths at a rate of about 10 deaths per year, the group said. Several times this year potentially dangerous toys were sold without the required warning labels of possible choking risks while the CPSC also has been slow to issue public warnings, U.S. PIRG said.

"The Consumer Product Safety Commission is a little agency with a big job it simply cannot do," said Ed Mierzwinski, the group's consumer program director. "Congress must give it the tools it needs to do that big job better."

In a four-day investigation of toys it purchased at stores such as Target Corp, Wal-Mart Stores Inc and The Disney Store, the Center for Environmental Health found that 9 out of the 100 toys it purchased had high lead levels of 900 parts per million or more.

Another six toys had levels higher than 100 parts per million, the approximate trace level that some consumer groups would like to see as the limit whether in paint, coatings or any toys, jewelry or other products used by children under 12.

On Monday, California Attorney General Jerry Brown sued 20 companies in state court, including Mattel Inc. and Toys "R" Us, claiming they sold toys containing "unlawful quantities of lead." The move follows major recalls of toys, lunch boxes, children's jewelry and other goods during the last year by CPSC.

Freddie Mac Posts a $2 Billion Loss


Turmoil in the housing sector continued to reverberate today across several parts of the industry, reinforcing the mood among investors that the downturn has not yet reached its bottom.

Freddie Mac, the big mortgage finance company, posted a $2 billion loss for the third quarter and warned that it might not have enough capital on hand to cover the mandatory reserves for its mortgage commitments. The company has been battered by a rising wave of foreclosures tied to subprime mortgage defaults and is now “seriously considering” cutting its stock dividend.

Freddie’s misfortune is particularly rattling because the company is considered to be protected by an implied government guarantee. There was no mention in this morning’s earnings release about an infusion of federal capital, though the company said it would seek counsel from Goldman Sachs and Lehman Brothers for its short-term efforts to shore up its reserves.

Shares of the company plummeted 29 percent, to $26.50, its lowest level in 11 years. Shares of its sister firm, Fannie Mae, dropped 25 percent.

“Without doubt, 2007 has been an extremely difficult year for the country’s housing and credit markets,” Richard F. Syron, the chairman and chief executive of Freddie Mac, wrote in a statement.

Mr. Syron was not alone in his lament. D. R. Horton, the nation’s largest home builder, reported a $50.1 million loss in its fiscal fourth quarter as the housing downturn pummeled its inventory, goodwill and land-use contracts. Lower demand and tighter lending standards have cut back the company’s business and caused many clients to cancel contracts.

“We expect the housing environment to remain challenging,” Donald R. Horton, the company’s chairman, said in a statement.

The subprime debacle also claimed another high-profile casualty: H&R Block’s chairman and chief executive, Mark Ernst, who said today he would resign amid the company’s difficulties with subprime exposure. Mr. Ernst had come under fire for the bungled sale of the Option One Mortgage Corporation, a company subsidiary that took heavy losses on risky loans.

His replacement as chairman will be Richard C. Breeden, the former chairman of the Securities and Exchange Commission, who was recently elected to H&R Block’s board after sharply criticizing Mr. Ernst. The chief executive slot will be temporarily filled by Alan M. Bennett, a former top executive at Aetna, the insurance company.

Home building data released today suggested that housing troubles will only worsen. Groundbreaking permits fell 6.6 percent in October to their lowest level in over 14 years, a sign that builders are cutting back on residential home projects. Permits have dipped nearly 25 percent since last October, to a seasonally adjusted 1.18 million annual rate, the Commerce Department said.

New residential construction grew slightly last month, rising 3 percent, to a 1.23 million annual pace. It was the first increase in four months, but the increase came mostly from a 44 percent leap in multifamily homes, like condominiums.

Construction of single-family homes dropped again last month, and over all, housing starts remain near the lowest level since the recession of the early 1990s. “With mortgage financing further constrained and inventories of unsold homes quite high, the near to medium term outlook for housing starts is not good,” Joshua Shapiro, chief United States economist for MFR, wrote in a research note.

That would be unfortunate for Freddie Mac, whose mortgage-related securities rapidly lost their value as the subprime market began to collapse. The company was forced to write down about $2.7 billion in assets related to credit guarantees and derivatives. Freddie lost $3.29 a share in the third quarter, compared with a loss of $1.17 a share a year earlier. The company also said it did not expect earnings to improve in the fourth quarter.

“We’re not happy about this,” Mr. Syron told investors and shareholders on a conference call today. “We don’t expect you to be happy about it.”

HP profit jumps 28%

By John Boudreau (Mercury News)

Hewlett-Packard, the world's leading computer maker, reported a 28 percent spike in profit for the most recent quarter as sales of laptops rose nearly 50 percent and international business soared.

The Palo Alto-based computer and printer company reported earnings of $2.2 billion, or 81 cents a share, compared with earnings of $1.7 billion, or 60 cents a share for the same period a year ago.

HP's computer division had a 30 percent revenue jump to $10.1 billion for the quarter ending Oct. 31. Shipments were up 31 percent. Meanwhile, HP's software business doubled in revenue, reaching $698 million. Software sales got a boost from the company's acquisitions, including Mercury Interactive.

For the fiscal year, the company reported revenue of $104.3 billion, a 14 percent jump from the previous year and the first time HP has racked up $100 billion in annual sales.

"We had a strong quarter characterized by double-digit growth across all our regions," HP Chairman and Chief Executive Mark Hurd said in a conference call with analysts. "We did this while continuing to make progress on our cost structure. I am confident we can continue to execute with discipline and produce another year of strong financial returns."

As fears of an economic slowdown spooked the markets, analysts probed Hurd about his economic forecast. While declining the role of economist, the CEO of the world's largest information technology products company eased some concerns with an upbeat fiscal 2008 guidance.

The company predicts earnings, excluding one-time charges, of 80 cents a share in the first quarter, which is 3 cents higher than what analysts had forecast. HP expects sales of $27.4 billion to $27.5 billion, also higher than the $27 billion analysts were expecting. The company expects revenue for fiscal year 2008 to be $111.5 billion.

Hewlett-Packard also announced it was setting aside an additional $8 billion for share repurchases, indicating the company believes its share to be undervalued.

Overall, analysts viewed the company's financial snapshot as a hopeful sign, particularly after Cisco Systems reported weak sales to U.S. corporations a week and a half ago.

"Obviously, the concern that the IT spending environment would come to a screeching halt is alleviated," said Pacific Crest Securities analyst Brent Bracelin. "HP is the largest IT supplier in the world and its comments are that things are healthy and spending continues to be healthy."

Hewlett-Packard, though, is not as reliant on the U.S. market as other tech companies. For the fourth quarter, the company reported that nearly 70 percent of its revenue came from overseas.

"They are the most global company among large hardware companies," observed American Technology Research analyst Shaw Wu. "Being more international is an advantage these days."

While the PC sales were impressive, HP's Imaging and Printing Group represented 42 percent of the company's $2.63 billion in operating profit for the fourth quarter, almost twice that of the Personal Systems Group, which includes PCs.

"Their performance in the last three years has been two-pronged," said Michael Cuggino, president of Permanent Portfolio Fund in San Francisco, who overseas $1.5 billion in investments, including shares of Hewlett-Packard. "On the one hand, they are reducing excess costs and infrastructure. HP was a bloated organization for a while. At the same time, they've been growing revenue and gaining market share. When you look at PCs and services, they've been doing a great job."

Still, Hewlett-Packard will continue to face multiple battles with giants like IBM and Dell, which is "having a midlife crisis," Cuggino said.

Cost-cutting can take a company only so far, he added.

"The real challenge going forward is going to be less about streamlining operations and more about achieving sustained revenue growth in the face of pretty tough competition."

Shares of HP were up 83 cents, or 1.7 percent, to $50.27 in after hours trading.