Now Canadians Can Blame U.S. for Manufacturing Woes

Discussion in 'Economics' started by omcate, Jan 27, 2004.

  1. omcate


    Mon January 26, 2004 01:50 PM ET

    By Yohannes Edemariam
    TORONTO (Reuters) - Canadian boat manufacturer Barry Galperin sees storms on his horizon because of the steady rise of the Canadian dollar against its U.S. counterpart.

    "If it continues like this," Galperin said, "I can survive for only one more year."

    Since the beginning of 2003, the Canadian dollar has climbed 20 percent to reach a 10-year high of about around 77 U.S. cents.

    This caused Canadian manufacturers, from Galperin's small Brig Inflatable Boats to Roots, whose sportswear has clothed both U.S. and Canadian Olympic athletes, to cut jobs and, in some cases, move production out of the country despite a robust local economy.

    Brig, which is based in Concord, Ontario, saw earnings drop almost 30 percent this boat-selling season.

    The company derives most of its sales in U.S. dollars, but pays expenses -- salaries and the money for raw materials -- in Canadian currency.

    The shifting exchange rate means Galperin makes less money in Canadian dollar terms even if the number of boats he sells remains stable.

    "When the new season started, the money I had in U.S. dollars just melted," he said.

    He said that he has been forced to raise his prices in the United States by 6 percent, making his company less competitive in an already tough market. If conditions do not improve, he will move his operation south of the border, to Buffalo, New York.


    Since some 40 percent of Canada's gross domestic product comes from exports, more than 80 percent of which are to the United States, the importance of the dollar's appreciation can not be underestimated, said Jay Myers, chief economist of Canadian Manufacturers and Exporters.

    "I think the full impact of the dollar's appreciation will not be felt well into the second quarter of the year," he said.
    To survive, Myers said, many companies have had to shut down their own plants and shift production overseas.

    Both he and Stephen Poloz, chief economist at Export Development Canada, which provides trade finance services to Canadian exporters, said small companies are the most likely to suffer because of the strong dollar.

    "Small manufacturers have very little scope for adjustment," he said. "Say you are a small company with 10 or 20 people, it's not like you can just cut 50 percent of your head count or buy a brand new machine."

    But even big corporations are finding things tougher. Alcan, the large Canadian aluminum company, recently announced the closure of a Quebec smelter that employs 515 people, citing the rising dollar as one of the reasons.

    "Every time the Canadian dollar rises by one cent, we lose $11 million," said Alcan spokesman Joseph Singerman.

    Clothing chain Roots, which has 200 stores worldwide, recently said it would close its Toronto plant, cutting 200 jobs, and outsource the production. It has already shifted some manufacturing overseas, where labor costs are lower and it does not have to pay for materials in Canadian dollars.
  2. MRWSM


    Just as long as they first thank the US for having any manufacturing to begin with. LOL
  3. By Deborah Cohen and Jessica Wohl

    CHICAGO/NEW YORK (Reuters) - Kraft Foods Inc. (KFT) said on Tuesday it would cut about 6,000 jobs, close 20 plants and boost marketing spending as it tries to restore volume growth in key categories such as cookies.

    The largest North American food maker aims to make slow-growth categories such as cheese more appealing to consumers interested in health trends such as popular low-carbohydrate or low-fat diets.

    The job cuts, which represent nearly 6 percent of Kraft's total work force, will be taken over a three-year period as Kraft takes pretax restructuring charges of up to $1.2 billion.

    Earlier this month Kraft unveiled a new structure that ties together oversight of the company's categories globally, rather than under separate regional businesses. The company also put Betsy Holden, its former co-chief executive, in charge of global marketing.

    In his first major address to Wall Street as the sole CEO of Kraft, Roger Deromedi said it was crucial for the company to respond to health and wellness concerns.

    "We've seen significant shifts in buying patterns -- caused not by one single need or change in attitude but instead by several new needs and beliefs," Deromedi told a group of analysts and investors in New York on Tuesday afternoon. "Which ones are fads and which ones are lasting, only time will tell. But it's clear we need to respond with a range of new products and marketing initiatives."

    The company's sweeping changes come as it has been hurt by slowing growth in core categories, pressure from private-label brands and retail consolidation.

    "The most important thing is that they appear to have a realistic assessment and I think a more effective strategy and structure," said David Adelman, a Morgan Stanley analyst.

    The maker of Oreo cookies, Velveeta cheese spread and Oscar Mayer meats said it would boost marketing and change its portfolio to better reflect consumer trends. Items like cookies have been hurt as consumers focus more on healthy eating.

    Deromedi said he wants to set expectations that the company can deliver on consistently.

    But some analysts were skeptical whether the company could wring much growth out of its business.

    "It looks like they've really stuck to their original game plan of trying to generate 2 to 3 percent volume growth in categories that I don't believe you can get this kind of volume growth" from, said Timothy Ramey, an analyst with D.A. Davidson & Co., who rates Kraft shares "underperform."

    "In essence, this is not a change in strategy," he said. "They've stuck to their strategy of spending aggressively. There's no real evidence that it in fact works."


    Northfield, Illinois-based Kraft said fourth-quarter net earnings fell to $869 million, or 50 cents a share, from $931 million, or 54 cents, a year earlier.

    Analysts had expected earnings of 50 cents a share on average, according to a poll by Reuters Research, a unit of Reuters Group Plc.

    Sales rose 6.2 percent to $8.33 billion in the quarter, but much of that increase was due to the weakness of the dollar, which boosts the value of Kraft sales outside the United States. Volume, which factors out currency and price fluctuations, rose only 1.1 percent.


    Kraft said it expects the restructuring program will raise earnings per share by 6 percent to 9 percent annually in the long run, though it will cut into 2004 profits.

    "I think the reality is that there is no quick fix to Kraft's problems, and this company is not going to be transformed in six months," Adelman said. But he added that he believes over time Kraft will be able to operate more effectively and consistently.

    The company, majority-owned by Altria Group Inc. (MO), said it expects the restructuring to produce annual pretax savings of $400 million by 2006, which it will invest in marketing.

    But it will also cut into profit this year. The company forecast profit for the year of $1.63 to $1.70 a share, including 30 cents a share in charges. Kraft forecast 3 percent sales growth on a constant-currency basis. Analysts on average had forecast profit of $2.01 a share, before the charges, according to Reuters Research.

    For the current first quarter, the company forecast profit of 32 cents to 35 cents a share, including 10 cents in charges. Analysts had forecast 47 cents a share before charges.

    About 1,300 salaried jobs will be cut in North America in the first quarter and the company will initially close plants in Canton, New York; Farmdale, Ohio; and Central Europe. (Additional reporting by Brad Dorfman in Chicago)
  4. In Canada we're having a lot of problems with this Softwood Lumber dispute. The Americans are complaining that Canada is charging too low a price for the stumpage fee. In the United States the tree cutting rights are put up for auction and they end up paying a higher price. Why can't we do the same thing in Canada. Instead of charging an artificially low price we could put the cutting rights up for auction as well? Then there would be no argument that the Canadians are paying subsidized stumpage fees. Is there a problem to set it up like that or are our politicians just being stubborn not wanting to do things the American way?
  5. The Canadian dollar situation is bad for us traders too.

    A year ago when I pulled $10k in profits out of my USD account and transfered it to Canada, it was worth almost $16,000. Now that same amount gets me $12,800, a 20% pay cut.
  6. wdscott



    Maybe the Canadians should diversify a little in their exporting countries, and not rely so heavily (32%) of their GDP to the U.S.

    Your statement:

    "Now Canadians Can Blame U.S. for Manufacturing Woes"

    because of a news report on a small boating manufacturer, when the U.S. as well as other countries(especially China) are battling high unemployment rates is a little absurd, don't you think?

    I just wonder if the President of the US would happen to be of different party affiliation, would you still fell the same.

    Dave Scott
  7. tenfly


    If I have this correct, our land is crown land, while in the US it is all private hence higher costs to American lumber companies..Not our fault the US doesn't help out it's own country and likes to reap the benefits of its capitalist society :confused:
  8. pspr


    You should have hedged your future profits in the currency futures markets. That's what they are for.

  9. omcate


    That was not my statement. It is the title of the article posted by Reuters on the Web .............