Euro zone private sector growth beats forecasts in August: PMIs

1 of 2. Workers are seen at a Vinci construction site in the financial district of La Defense, near Paris August 1, 2013.

Credit: Reuters/Benoit Tessier

By Jonathan Cable

LONDON | Thu Aug 22, 2013 4:44am EDT

LONDON (Reuters) - Business activity across the euro zone has picked up this month at a faster pace than expected, surveys showed on Thursday, led by Germany as it benefited from growing demand for its exports.

Survey compiler Markit's Flash Composite Purchasing Managers' Index (PMI) bounced to 51.7 from last month's 50.5.

It was the highest reading since June 2011 and beat all predictions in a Reuters poll whose median forecast was for 50.9. Readings above 50 signify expansion in activity.

While growth accelerated in the euro zone's biggest economy, it was a different story in France, the bloc's No.2 economy, which saw business fall as its economy went into a summer lull.

But Markit said the composite PMI, which surveys thousands of companies across the region and is used as an indicator of growth, pointed to a 0.2-0.3 percent economic expansion in the current quarter.

That is similar to a Reuters poll taken earlier this month that predicted growth of 0.2 percent this quarter.

"It's looking good. If the euro zone is picking up then that bodes well for the global economy. The wobble in France is a bit of a worry, but hopefully that will be corrected," said Chris Williamson, Markit's chief economist.

Growth returned to the region's dominant service sector - the services PMI rose above the 50 mark for the first time since the start of last year, coming in at 51.0 after 49.8 in July.

Similarly, growth quickened among manufacturers, whose PMI rose to a 26-month high of 51.3 from 50.3.

Both PMIs beat the median expectation in a Reuters poll and the services index came in above the most optimistic forecast. The manufacturing output index, which feeds into the composite PMI, bounced to a 27-month high of 53.4 from 52.3.

An earlier flash composite PMI from Germany showed the growth rate was the fastest in seven months but in France activity declined across the board.

Support from Germany and France, the 17-nation bloc's two biggest economies, helped it escape from its longest recession on record last quarter, expanding a better-than-expected but still modest 0.3 percent.

The problem faced by the European Central Bank in trying to stimulate growth - as it has been for some years - is still the heavily indebted south. But Williamson said manufacturing and services activity was improving in the periphery.

New business in the bloc increased for the first time in just over two years, and the composite subindex rose to 50.5 from 49.7, supported by orders coming in for manufactured goods from abroad at their fastest rate since May 2011.

Despite the upturn, expectations among services firms dipped from July's 16-month high and manufacturers reduced their workforce at a faster pace than last month.

"The job shedding in part reflects the need to keep costs down and remain competitive, but there is still some uncertainty about the outlook," Williamson said.

(This story corrects month in headline to August)

(Editing by Hugh Lawson) (Reporting by Jonathan Cable)

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Starbucks beats on higher sales, lifts forecast

NEW YORK (AP) — Starbucks says its profit climbed 25 percent in the latest quarter as its coffee costs eased and more caffeine-addicted customers flocked to its cafes around the world, with people in the U.S. spending a little more on items such as revamped sandwiches and new salads.

The results topped Wall Street expectations, and the company raised its full-year guidance. Starbucks' shares were up almost 7 percent in aftermarket trading.

The Seattle-based chain, which has more than 19,000 locations around the world, said global sales rose 8 percent at cafes open at least 13 months, with all regions registering growth. In its flagship U.S. market, the figure rose 9 percent.

The performance is in contrast to McDonald's Corp., which reported an underwhelming 1 percent increase in U.S. locations open at least a year earlier this week. The fast-food chain had partly blamed economic conditions, saying people have been reluctant to eat out.

Troy Alstead, chief financial officer for the chain, said the results demonstrate people's loyalty to the Starbucks brand, despite factors such as bad weather or a weak economy cited by other companies for underwhelming results in the quarter.

"We have some resilience, some insulation," Alstead said.

"Starbucks today exists within a universe of one," CEO Howard Schultz emphasized n a call with analysts.

Starbucks has been making a number of changes to drive up sales. In April, it rolled out revamped sandwiches in new packaging that come with slightly higher prices; the new egg salad sandwich, for example, costs $5.25, up from $5.15 previously.

New salads and grain bowls were also introduced at about $7 per box.

Moving forward, the company has been testing new baked goods — acknowledging that its baked goods don't have a great reputation. It also announced that it's teaming up with Danone to offer new, branded Greek yogurt parfaits that are set to start replacing its current offerings in cafes by next year.

It's also pushing aggressively to enroll people in its loyalty program, offering incentives such as a $5 load on cards for people who sign up. The benefits are twofold; Alstead said people tend to visit more often and spend more once they enroll.

In the meantime, Starbucks is also benefiting greatly from lower coffee costs, which are expected to continue for at least another year and half. Despite its lower costs, the company last month instituted price hikes in the U.S., a move which should help widen its operating margins even further.

Starbucks said sales rose 9 percent in China and the greater Asia region for the quarter. It also managed to increase sales by 2 percent at established cafes in Europe, where the company has been struggling. The company has been closing underperforming stores and licensing out operations in other regions.

Looking ahead, it cautioned that sales at established locations would ease back into the 5 percent to 7 percent range it saw in the first half of the year.

Starbucks Corp. earned $417.8 million, or 55 cents per share, for the period ended June 30. That's up from $333.1 million, or 43 cents per share, a year ago.

Analysts on average expected 53 cents per share.

Revenue rose to $3.74 billion, more than the $3.72 billion analysts had forecast.

It now expects earnings per share in the range of $2.22 to $2.23, up from $2.12 to $2.18.

Its shares rose to $72.30, after closing up 2 percent at $68.17. Its stock is up 34 percent over the past year.

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