from DJ Newswires: Many US Cos Set Ambitious Capital Spending Goals For 2000
(This report was originally published late Monday.)
By Mark Boslet
PALO ALTO, Calif. -- U.S. corporations have begun unveiling ambitious capital-spending plans for this year, motivated by the continued strength of the national and worldwide economies.
So far, these plans appear largely undeterred by the recent swings in the financial markets.
The willingness to increase capital budgets cuts across most major industries and reflects corporate interest in a broad range of projects. In some instances, spending plans appear to be starting points that executives are likely to add to through the year. Already, big-name firms such as Intel Corp. (INTC), Wal-Mart Stores Inc. (WMT), Motorola Inc. (MOT) and Texas Instruments Inc. (TXN) have increased targets set only months ago.
Much of the spending will go toward business equipment, including high-tech gear such as computers and software. In recent years, spending on information-processing systems has accounted for about a quarter of U.S. capital budgets.
However, this year should bring an increase in the construction of new commercial buildings after a decline in spending last year, said Cynthia Latta, principal U.S. economist at Standard & Poor's DRI, an economic forecaster.
Latta said she expects overall capital spending by U.S. companies to increase 11% this year. That includes a 12% rise in spending on business equipment and software - the same as last year - and a 4.5% to 5% increase in building construction, after a decline of 2.4% in 1999.
Overall, inflation-adjusted capital-spending budgets in the U.S. increased 8% in 1999 and 11.8% in 1998, according to the Bureau of Economic Analysis.
"I think investment is driven primarily by profit or the thought someone else will eat your lunch if you don't invest," Latta said.
Spending Plans Already Increased
Several spending plans stand out for their urgency. Wal-Mart said last week in an Securities and Exchange Commission filing that its spending for fiscal 2001 would climb 14% to $8 billion from a $7 billion goal it had announced in mid-February. The $7 billion plan was already up 18.6% from $5.9 billion in fiscal 2000.
Wal-Mart of Bentonville, Ark., plans to expand or relocate existing stores and build new ones both domestically and abroad.
Chip maker Intel also last week increased an already ambitious plan. The Santa Clara, Calif., company said it would spend about $6 billion, a boost from its earlier $5 billion target. Intel spent $3.4 billion in 1999.
Executives at the company said they have underestimated semiconductor demand for the past four quarters and want to be sure adequate production capacity is in place.
Other high-tech companies are weighing in with expanding numbers as well. Texas Instruments said that to keep up with brisk demand it has increased its capital budget to $2.5 billion from a $2 billion goal announced in January. The Dallas communications chip maker spent $1.37 billion in 1999.
Motorola also bumped up spending plans in its processor business to $2.6 billion from initial expectations of $2.3 billion and the $1.5 billion spent last year. Motorola plans $4.9 billion in capital spending companywide.
Corporate leaders in other industries also have signaled year-over-year increases. Pharmaceutical giant Merck & Co. (MRK) will raise spending to $2.8 billion in 2000 from $2.6 billion in 1999. DuPont Co (DD) expects non-acquisition expenses to be about $2.4 billion, up from the $2.1 billion the company spent on property, plants, equipment and affiliate investments in 1999.
Waste Management Inc. (WMI) projects spending of $1.3 billion, and conglomerate Tyco International Inc. (TYC) plans an increase to $1.8 billion from $1.6 billion a year ago.
In Peoria, Ill., Caterpillar Inc. (CAT) anticipates spending $870 million, a 13% increase from $770 million in 1999, on its machinery and engines businesses.
Communications Spending Looks Strong
Spending plans continue to swell in the communications industries. MCI WorldCom Inc. (WCOM) sees capital spending this year at $8 billion to $10 billion as it prepares for a wave of data and Internet traffic along its networks. The company had planned to spend $7.5 billion last year, but raised that total before the year was out to $8.7 billion.
Baby Bell SBC Communications Inc. (SBC) expects capital expenditures of $13 billion to $14 billion )n 2000, up from $10.3 billion, as the telecommunications company rolls out high-speed digital subscriber line, or DSL, service to broadband customers.
AT&T Corp.'s (T) capital spending includes plans to upgrade its cable plant and continue building a nationwide wireless network. The bill is expected to come to $13 billion to $14 billion. But then spending of $13.5 billion in 1999 exceeded the company's estimates.
Lucent Technologies Inc. (LU) also appears to be revving spending. During the company's first quarter ended in December, spending was $587 million, up from $347 million a year earlier. For all of fiscal 1999, spending was $2.2 billion.
International Business Machines Corp. (IBM) spent $6 billion in 1999, but said it was too early to pin down a figure for what it expects to spend in 2000.
In the oil industry, capital spending will be led this year by activity among independent oil and gas exploration and production companies, said Deutsche Banc Alex. Brown analyst Wesley Maat, who calculates worldwide spending will increase for the industry as a whole by 7% over 1999. Maat admits that his estimate may prove conservative.
Spending at major oil companies will be mostly unchanged from 1999, he said. The supermajors - BP Amoco PLC (BPA), Exxon Mobil Corp. (XOM) and Royal Dutch Petroleum Co. (RD) - account for one-third of the industry's capital budgets, and they are "still trying to right-size their organizations," Maat said.
However, Royal Dutch still plans to increase its exploration and production spending in 2000. The company intends to allocate $6 billion, which is up 11% from $5.4 billion in 1999, said Stifel Nicolaus & Co. analyst Andreas Vietor.
Texaco Inc. (TX) said its capital budget will rise 20% to $4.7 billion from $3.9 billion.
Overall, companies will continue to spend at a strong pace in 2000, though not at the pace of 1999, when budgets included extra money to correct Year 2000 software bugs, predicted Bill Quan, senior economist at IBJ Lanston Futures in New York.
Tech Revolution Rushes On
Yet the technology revolution pushes forward, with Web-based, e-commerce projects receiving attention in corporate boardrooms. The return on investment from high-tech spending has never been better, said WIT SoundView Technology Strategist Arnold Berman.
Analysts say it's unclear whether jittery financial markets will have an impact on capital-spending plans this year. Some deals to raise money through secondary and initial public offerings have been postponed while others are moving forward, they say.
It appears the markets are "resting on pins and needles" right now, Berman said.
Also bringing in an increase this year is American Home Products Corp. (AHP), where spending is projected between $1.2 billion and $1.25 billion, up from $1 billion last year.
Black & Decker Corp. (BDK) anticipates a rise in spending to about $200 million from the $171 million the power-tools company spent in 1999.
In the cable industry, Atlanta-based Cox Communications Inc. (COX) plans expenditures of $1.5 billion, up from $1.1 billion. Comcast Corp. (CMCSK) of Philadelphia said spending on its cable operations will climb to $1.2 billion in fiscal 2000 from $773.8 million in 1999.
Not all industrie3 or companies are ratcheting up capital budgets for 2000, however. CIBC World Markets metals analyst Tom McNamara expects spending to hold steady or fall at gold, copper and aluminum companies.
"Gold, I'd say, you're going to see a decline overall in capex," he said, referring to capital expenditures. "If I had to put a number to it, I would put something on the order of down 5% to 10%."
Low gold prices are leading to the decrease. For copper, while average prices increased in the first quarter, they are still relatively low from a historical perspective, he said. Aluminum prices also have risen from last year. However, companies are wary of overbuilding and driving prices down with oversupply, McNamara said.
"The aluminum capital expenditures will be flat to slightly down," he said.
Sears Roebuck & Co. (S) says spending will decline to $1.033 billion from $1.2 billion in 1999. Holding spending steady is Owens-Corning (OWC). The buildings-product company sees spending in 2000 about the same as 1999 spending of $244 million. Lockheed Martin Corp. (LMT) plans to trim spending to $600 million from $669 million in 1999.
-By Mark Boslet; Dow Jones Newswires; 650 496-1366
Contributing to this story are reporters Ann Keeton, Janet Morrissey, Janet Whitman, Christina Cheddar, Paula Stepankowski, Scott Eden, Christopher Williams, Jonathan Burns and Tom Locke |
