Best Buy: Earnings 'clearly unsatisfactory'

Best Buy reported disappointing third quarter earnings Tuesday, building on the growing sentiment that the electronics retailer may have a hard time reviving itself.

NEW YORK (CNNMoney) -- Embattled electronics retailer Best Buy is coming up on the holiday season with a lot of ground to make up, after reporting third-quarter earnings and sales Tuesday that CEO Hubert Joly calls "clearly unsatisfactory."

The Minneapolis-based company said that it earned $12 million, or 3 cents a share, from continuing operations in the quarter ended Nov. 3. That was down 97% from a year earlier. Sales at stores opened last year dropped 4.3%, and revenue declined by 3%.

The company also lowered its full-year guidance, saying that it expects to generate free cash flow in the range of $850 million to $1.05 billion, compared to the $1.25 billion to $1.5 billion range it reported in August.

The earnings were below even the lowered expectations on Wall Street, following the company's warning last month that third-quarter profit would drop by at least 10%.

Shares of the company were down more than 4% in premarket trading.

The company's stock was already down 42% so far this year, as investors lost faith that the company will be able to revive itself.

In recent years, Best Buy has struggled in the face of competition from online retailers such as Amazon (AMZN, Fortune 500), and big box stores such as Wal-Mart (WMT, Fortune 500) and Target (TGT, Fortune 500).

One of its greatest obstacles, particularly as online shopping continues to take over a larger share of personal spending, is that Best Buy has become somewhat of a showroom for online retailers. Customers can see items they want to purchase in person at Best Buy before going home to buy them at lower prices online.

Related: The Best Buy-out just got harder

The challenge to keep up with these deep discounters becomes particularly hard as retailers pull out all the stops to win over customers this holiday shopping season.

The company has also had a management shakeup to deal with. In August, Best Buy hired former travel executive Hubert Joly as its CEO. The company has gone through months of uncertainty, triggered by the abrupt departure of former CEO Brian Dunn in April after an internal investigation into his relationship with an employee.

Last month, Best Buy also announced that its head of U.S. business and executive vice president of U.S. operations were leaving the company. It appointed Shawn Score to lead the U.S. retail stores business.

First Published: November 20, 2012: 9:15 AM ET

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Home building at 4-year high

Housing starts climbed unexpectedly in October, a sign that the recent recovery in housing is continuing.

NEW YORK (CNNMoney) -- The pace of home building rose to its highest level in more than four years in October, according to a government reading issued Tuesday.

The Census Bureau report showed builders started construction at an annual pace of 894,000 homes last month, up 3.6% from the pace in September. Economists surveyed by Briefing.com had forecast a slight slowdown in building.

"The further rise in housing starts in October confirms that the previous month's very strong gain was not an unsustainable surge," said Paul Diggle, real estate economist with Capital Economics. "It's clear that the homebuilding recovery is gathering a real head of steam."

The stronger-than-expected report came because of a surge in construction of buildings with five or more residences in them. Single-family home starts remained little changed from September. But the September and October readings were the two best months for single-family home starts since 2008 as well.

Applications for building permits slipped 2.7% to an annual pace of 866,000. Despite that decline, the October reading was stronger than any month other than September over the course of the last four years.

Housing starts have soared about 42% from year-earlier levels, while permits are up about 30%. Joseph LaVorgna, chief U.S. economist for Deutsche Bank, says the recovery in housing is coming at a critical time for the overall U.S. economy, as the lift it was getting from exports and capital spending by businesses had started to slow.

The housing market has been showing numerous other signs of recovery in recent months. Demand for homes have been helped by mortgage rates at record lows.

The Federal Reserve's decision to buy $40 billion in mortgages every month is likely to keep rates low for the foreseeable future. The low mortgage rates, coupled with affordable housing prices and an improving jobs market have helped to restart home sales.

Related: A new housing boom

Foreclosures have fallen to a five-year low, reducing the supply of distressed homes available on the market. And four years of depressed levels of home building have cut the supply of new homes on the market to nearly record lows, according to a separate government report.

All these factors have helped to lift home prices and get builders back building again. So Tuesday's report is just one more sign that the long-awaited housing recovery is taking hold.

First Published: November 20, 2012: 8:43 AM ET

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HP drags U.S. stocks lower at the open

NEW YORK (CNNMoney) -- Hewlett-Packard dragged U.S. stocks lower at the start of trade Tuesday.

Hewlett-Packard (HPQ, Fortune 500) shares plunged 14%, after the company reported quarterly results that included a multi-billion dollar writedown.

That pushed the major indexes into the red. The Dow Jones industrial average slid 0.4%. The Nasdaq and S&P 500 were both down about 0.2%.

But stripping out the PC maker's dismal performance, stocks were little changed as investors backed off a recent rally and turned their attention back to Europe's sovereign debt worries.

Eurozone finance ministers were meeting Tuesday to discuss the latest release of bailout funds for Greece, which the country needs to stave off default. They meet as Moody's downgraded France's credit rating, stripping the country of its coveted AAA rating due to worries about economic weakness.

Escalating violence in the Middle East between Israelis and Palestinians continues to be a global concern. Oil prices have been ticking up amid growing worries about a possible ground war in Gaza. Crude prices edged down 80 cents to $88.48 a barrel. Brent crude, Europe's benchmark, was little changed at $111.13 a barrel.

In the U.S., there were signs of a recovering housing market. The Census Bureau reported housing starts rose to the highest level in four years. But housing permits declined slightly to an annual rate of 866,000 last month, less than the 870,000 expected.

At 12:15 p.m. ET, Federal Reserve Chairman Ben Bernanke will speak at the Economic Club of New York.

U.S. stocks rallied Monday, logging their best gains in months, as investors started the holiday-shortened week optimistic that the fiscal cliff talks are progressing.

While the rhetoric out of Washington has been mostly positive, experts say stocks will remain under pressure and trading will likely be choppy until an actual deal is finalized, which could take weeks.

Fear & Greed Index

World Markets: European stocks were mixed in afternoon trading ahead of the finance ministers' meeting. Britain's FTSE 100 slipped 0.1%, while the DAX in Germany edged up 0.2% and France's CAC 40 fell 0.3%.

Asian markets closed lower. The Shanghai Composite lost 0.4%, the Hang Seng in Hong Kong dropped 0.2%, and Japan's Nikkei edged 0.1% lower.

Companies: Shares of Best Buy (BBY, Fortune 500) dropped more than 7% after the electronics retailer continued to show signs of struggling as it reported earnings and sales that missed forecasts. Best Buy also cut its outlook.

Green Mountain Coffee (GMCR) surged 10% after the company announced the appointment of a new CEO, Brian Kelley, effective December 3.

Krispy Kreme Doughnuts Inc (KKD) stock jumped more than 10% at the open, after Monday night's quarterly results that beat expectations.

Currencies and commodities: The dollar fell against the euro and the British pound but gained against the Japanese yen after the Bank of Japan left interest rates unchanged.

Gold futures for December delivery fell $2.80 to $1,731.60 an ounce.

Bonds: The price on the benchmark 10-year U.S. Treasury edged lower, pushing the yield up to 1.62% from 1.61% late Monday.

First Published: November 20, 2012: 9:55 AM ET

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Unions fight bonuses for Hostess execs

Striking members of the Bakery Workers union at Hostess. The company will be in bankruptcy court Monday seeking permission to shut down.

NEW YORK (CNNMoney) -- Hostess Brands will ask a bankruptcy judge on Monday for approval to shut down the company and pay $1.75 million in executive bonuses.

Unions representing workers at the maker of Twinkies, Wonder Bread and Drake's snacks are arguing against the bonuses.

But there appears little the unions can do in court to block the shutdown of Hostess or save the 18,500 jobs at the company.

At a court hearing set for 2 p.m. ET, the company will ask U.S. Bankruptcy Court Judge Robert Drain in New York to approve retention bonus payments to executives expected to oversee the shutdown of Hostess.

"The cessation of ... operations is not a simple matter of turning off the lights and shutting the doors," the company wrote in a court filing. "A freefall shutdown and fire sale liquidation" could result in damaged production equipment and the "improper disposal" of waste, the company added.

Under the plan, bonuses ranging from $7,400 to $130,500 will be paid to 19 executives. The company argues the bonuses are below market rates for such payments.

But the unions, which blame mismanagement for the company's demise, say the bonuses are unjustified and should be rejected by the judge.

Related: Twinkies hoarding begins

The unions filed various motions over the weekend seeking to protect pension funds and salaries under previous contracts.

But as of Monday morning no motions had been filed seeking to block the liquidation plan itself. And the unions' statements seemed resigned to the fact that Hostess will be closed down and the hourly workers will be out of work.

The Bakery Workers union, whose Nov. 9 strike prompted Hostess management to announce the shutdown, issued a statement Saturday saying that mismanagement over a number of years is the reason the company is shutting down, not the strike.

Related: Hostess jobs: 'Great' to 'Not worth saving'

"Hostess failed because its six management teams over the last eight years were unable to make it a profitable, successful business enterprise," said the union.

But it said its members understood when they went on strike that a shutdown of the company would likely occur.

Related: Buyers prepare bids for Hostess assets

"They were well aware of the potential consequences of their actions but stood strong for dignity, justice and respect," the union's said.

Hostess has announced its intention to sell its brands, recipes for various products and other assets as a way to generate cash for its creditors. Even if the products are purchased by other companies and once again sold to consumers, it's unlikely that the current employees will be rehired to produce or deliver those products.

First Published: November 19, 2012: 9:44 AM ET

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Dividend investors prepare for fiscal cliff

The president and lawmakers are in talks to try and avoid the fiscal cliff. Investors in dividend-paying stocks could get hit by higher tax rates if politicians can't come to a deal.

NEW YORK (CNNMoney) -- As negotiations over the fiscal cliff get underway in Washington, investors who crave the safety of blue chip stocks are bracing for big changes in how dividends are taxed.

Under the automatic tax hikes and spending cuts that could go into effect January 1, the qualified dividend rate would more than double for those in the highest income tax bracket. Dividends are currently taxed at a rate of 15%.

Yet the prospect of a higher tax rate has not diminished the appeal of dividend-paying stocks for many investors.

"I really don't see any change in the argument that you have to come back eventually to high quality dividend-paying stocks that have the ability to raise their dividends over time," said Ben Fischer, managing director and portfolio manager at Allianz Global Investors.

Most experts believe President Obama and Republicans in Congress will come up with a solution to what everyone agrees would be an economic disaster. But even if taxes on dividend payments go up, many investors expect companies to continue using record amounts of cash to reward shareholders. American firms have an estimated $1 trillion in cash sitting on corporate balance sheets.

Related: Comprehensive coverage of the fiscal cliff

The key is to invest in companies that have the most potential to grow dividend payments over time, said Kate Warne, chief investment strategist with Edward Jones.

The sweet spot appears to be a dividend yield between 3% and 5%.

Anything below 3% would not be enough to keep up with taxes and inflation, while stocks that already pay dividends above 5% have less room to increase their dividends. And since yields are a function of the company's annual dividend divided by its stock price, an unusually high yield could actually be a sign of a company in trouble. Yields can go up simply because the stock price is going down.

"There's nothing in the fiscal cliff that says avoid buying dividend-paying stocks, just be a little more careful about which ones you buy," said Warne.

Related: Wall Street bracing for capital gains tax hikes

Another reason investors aren't panicking: The higher tax rate on dividends would not apply to retirement accounts, which hold about half of the dividend-paying stocks on the market, said Bernard Kavanagh, vice president of portfolio management for St. Louis-based broker Stifel Nicolaus.

What's more, dividend-paying stocks are really the only game in town for investors who want a steady stream of income, given the meager rates on U.S. Treasuries. Investors have been on the hunt for alternative sources of yield. This has driven up demand for stocks that typically pay dividends, such as utilities, real estate investment trusts and limited partnerships.

"When you look at yields on fixed-income," said Kavanagh. "Where else are you going to go?"

While valuations on some of these stocks have become rich, there are still plenty of reasons to own dividend-paying stocks, said Paul Magnuson, managing director at NFJ Investment Group.

Magnuson said dividend-paying stocks are an important part of the total return on an investment portfolio over time. They hold up better in down markets, tend to be less volatile and are a measure of quality, he added.

"These attributes are not going to go away anytime soon," said Magnuson.

Still, the higher tax rate could be a problem for those who own dividend-paying stocks that aren't in a retirement account, such as high net worth individuals and hedge funds.

Related: Buffett not worried about fiscal cliff

Joseph Perry, a partner at accounting and advisory firm Marcum LLP, said companies could help shareholders avoid the higher tax rate by issuing a special dividend payable before year-end.

In fact, a number of companies have already announced special dividends in recent weeks, including casino operator Wynn Resorts (WYNN, Fortune 500), U-haul parent Amerco (UHAL) and asset manager Waddell & Reed (UMUHX).

Perry also recommends stock dividends, which are issued in the form of shares rather than cash.

"A stock dividend is generally not taxed until the stock is sold," he said. "So investors can defer taxes until they sell their shares."

In addition to being able to defer taxes, investors that hold the stock for more than a year would be taxed at the lower capital gains rate if they decide to sell their shares, said Perry.

Nike (NKE, Fortune 500) recently announced plans to issue a 100% stock dividend to long-term shareholders as part of a two-for-one stock split. The company did not specify that the move was in response to taxes, but said it remains committed to delivering value to shareholders.

First Published: November 19, 2012: 9:48 AM ET

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Intel's CEO Otellini to retire in May

Paul Otellini, Intel's CEO since 2005, will step down in May.

NEW YORK (CNNMoney) -- Intel CEO Paul Otellini will leave the company in May, the world's largest chipmaker announced on Monday.

Otellini has been at Intel (INTC, Fortune 500) for 38 years, spending the last eight as the company's chief executive. He previously held roles overseeing the PC microchip business and Intel's sales team.

No successor to Otellini was named. The company said its board of directors will consider both internal and external candidates for the position.

"I've been privileged to lead one of the world's greatest companies," Otellini said in a written statement. "After almost four decades with the company and eight years as CEO, it's time to move on and transfer Intel's helm to a new generation of leadership."

Intel's CEO oversaw the company during a transition in computing -- a shift that Intel didn't always find itself on the right side of. When Otellini took the company's helm in 2005, the desktop still ruled the personal computing landscape, but Intel dominated laptops as well -- which was about the extent of the mobile world at the time. Otellini even won over Apple (AAPL, Fortune 500), which had long favored IBM's (IBM, Fortune 500) PowerPC chips over Intel's. Macintosh computers began shipping with Intel processors in 2006.

But in 2007, Apple introduced the iPhone, and netbooks became the fastest-growing segment of the PC market. Intel was left out of both markets. It later caught up and became a mainstay in the netbook world with its Atom processor, but by then, netbooks had been effectively replaced by the iPad and other tablets.

Though Otellini's Intel has since made great strides at getting its chips inside smartphones and tablets -- including a high-profile partnership with Google's (GOOG, Fortune 500) Motorola -- it is still threatened by British chip designer ARM (ARMH), whose licensed designs appear in 95% of all mobile devices. Even the three-decade old Wintel partnership that brought both Microsoft and Intel to prominence is no longer an exclusive marriage. Microsoft made a new version of Windows available on ARM processors.

In an attempt to tighten its grasp on the mobile computer market, Otellini's Intel began to push its Ultrabook vision on PC makers. Otellini promised that the lightweight computers, whose design specification Intel licenses to manufacturers, would make up 40% of PC sales by the end of 2012.

That didn't happen. Ultrabook prices remain high, and sales have been lackluster, along with the rest of the PC market.

Still, Intel has had its share of successes and breakthroughs under Otellini. When its traditional chip design ran into the boundaries of physics, the company began building 3-D microchips to boost power and performance in computers. Intel continued to set sales and profit records through the end of 2011, and the company has made a successful push into the data center arena, where most of the non-wireless computing growth is coming from today.

"Paul Otellini has been a very strong leader ... one who has managed the company through challenging times and market transitions," said Andy Bryant, chairman of Intel's board.

First Published: November 19, 2012: 9:51 AM ET

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Hostess jobs: 'Great' to 'not worth saving'

NEW YORK (CNNMoney) -- For many of Hostess Brands' 18,500 workers and their families, the closing of their iconic company Friday is a devastating emotional and economic blow.

But others say the jobs weren't worth saving because of pay and benefit cuts.

For a member of the bakery workers' union whose strike a week ago led Hostess to shut operations, it's a sad day. "It was a great job. A lot of people put kids through college, paid for mortgages," he said.

The worker, who spoke on the condition his name not be used, said he spoke out at the union meeting against going on strike. "I said, 'If you're unhappy with the situation, then you need to quit. There are people with responsibilities and mortgages. We all can't afford to strike,'" said the veteran who worked loading trucks.

Related: Hostess shuts down for good

The worker said he blames management more than he blames his fellow union members who went on strike. And he's worried about the future.

"I'm 61, I was two years away from retirement," he said. "There aren't many jobs out there for someone like me."

However, other workers said the concessions being demanded by Hostess were just too great.

Mike Hummell, a receiving clerk and a member of the Bakers' union working in Lenexa, Kan., said he was making about $48,000 in 2005 before the company's first trip through bankruptcy. Concessions during that reorganization cut his pay to $34,000 last year, earning $16.12 an hour. He said the latest contract demands would have cut his pay to about $25,000, with significantly higher out-of-pocket expenses for insurance.

Related: Laid-off workers face tough job market

"The point is the jobs they're offering us aren't worth saving," he said Friday. "It instantly casts me into poverty. I wouldn't be able to make my house payment. My take-home would be less than unemployment benefits. Being on unemployment while we search for a new job, that's a better choice than working these hours for poverty wages."

While the Bakers' union voted against the concessions and went on strike, the 6,700 members of the Teamsters union narrowly ratified their own concession deal. Many of the drivers, who also served as Hostess' primary sales force, were earning more money than the bakers, getting commissions for the products they sold to grocery stores.

Related: Twinkies will survive

Tracy Fea, the wife of a Teamster working at Hostess, said she's particularly mad at the Bakers' union for the strike.

"While they [Teamsters at Hostess] were not at all happy about the additional concessions, they did not want to lose their jobs," she said. "My husband and I feel that if these employees [Bakers] were so unhappy ... then they should have quit so the company could continue on and the remaining employees that want to work could."

But Joe Lannan, a Teamster based in Kentucky, said he understands the bakers who walked out. He said he voted against the contract and would have struck if the vote had gone that way.

He said the split among Teamsters was between more senior workers and the newer drivers, such as himself. He's been at Hostess about a year.

"There were a lot of nervous guys, mostly with more senior drivers. I've seen a lot of teary eyes," he said.

But he's hopeful that a lot of the drivers will be able to find jobs due to the demand for truck drivers overall.

"The company has been in decline for years. There was no way it was going to get fixed," he said. "Everybody I worked with was looking for other jobs anyway."

Because of his commercial driver's license, Lannan was lucky enough to quickly find a new job, getting a call with a job offer as a fuel truck driver Friday afternoon.

First Published: November 16, 2012: 3:08 PM ET

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