Rising food and paper costs may have you paying more for your Big Mac. / Image: pointnshoot/Flickr/CC BY

McDonald’s is the world’s leader in the fast food market, garnering about 19 percent of that niche. However, faced with the rising costs of food and paper, the company has announced that it plans to implement more small price increases throughout the year in order to offset this trend somewhat.

Earlier estimates proved inadequate

McDonald’s estimates that food costs will rise between 4 percent and 4.5 percent in the U.S. and Europe this year. This is an increase from earlier estimates, which projected only 2 to 2.5 percent increases in the U.S. and 3.5 to 4.5 in Europe. Paper costs were also cited in the projected price hikes. McDonald’s claims that food and paper costs ate up 33.6 percent of the company’s sales in the first quarter of 2011. Those costs were up from 32.9 percent in the same quarter a year ago.

A bad time to raise prices

Consumers who struggle daily with the rising costs for housing, fuel and the other staples, may just stay home to eat if prices increase too significantly.  Steve West, an analyst for securities-related financial services company Stifel Nicolaus, said, “It’s very hard to pass through price increase[s] right now.”

Stock prices fall

After the company announced that it planned to raise prices, shares fell 1.5 percent in midday trading on the New York Stock Exchange.

The company’s CFO Pete Bensen says the company intends to sacrifice some short term profits in favor of long term growth.

Prices up by 1 percent

In March, McDonald’s implemented a 1 percent menu price increase in the U.S. and Europe. Other increases are planned throughout the year. Price increases are also planned for its stores in China.

McDonald’s continues to lead competition

McDonald’s continues to outperform its competition. Peter Jankovskis, an officer at Oakbrook Investments, claims, “The bottom line is they’re still doing a great job of growing revenue.”  The total first-quarter revenue for the corporation rose 9 percent, to $6.1 billion.  Sales in the European stores were especially significant.

Sources

Reuters

MSNBC

Daily Finance

Goldman Sachs said goodbye to a few bucks this fiscal quarter. Image from Flickr.

Goldman Sachs profits fell 86 percent in the second quarter compared to the first — the richest securities firm on Wall Street took a beating. The biggest reasons for the precipitous drop in revenue, most analysts say, are a big fat SEC fine and an even fatter British bonus tax. However, historically volatile markets also hurt the bank’s earnings.

Goldman Sachs profits withstand SEC fines and British bonus taxes

Tuesday Goldman Sachs announced that the bank’s profits were $613 million in the second quarter. Those numbers are down 86 percent from the first quarter and 84 percent from the second quarter of 2009. The Los Angeles Times reports the Goldman Sachs profits announcement came just a few days after it settled a lawsuit with the Securities and Exchange Commission. In a deal during the financial crisis, the SEC accused Goldman Sachs of fraud as it made money at its clients’ expense. In the Goldman Sachs fraud case, the bank escaped having to admit to a crime, but it coughed up a $550 million fine to sweep the case under the rug. The total amount was subtracted from the bank’s earnings for the second quarter. A $600 million British bonus tax levied on Goldman Sachs for its executives working in Britain also hit the bottom line.

Goldman Sachs went wrong direction in volatile market

Bloomberg reports that Goldman Sachs lost money because it bet on stock market volatility to ease just as it was surging. To illustrate, Bloomberg used the Chicago Board Choices Exchange Volatility Index, known as the VIX. The VIX is probably the most widely used measure of stock market volatility. The VIX, which started the second quarter at 17.47, rose as high as 45.79 on May 20 before ending the quarter at 34.54. The index, which methods the cost of using opportunities as insurance against declines within the Standard and Poor’s 500 Index, has averaged 20.38 over 20 years.

Goldman Sachs nevertheless pays out billions in bonuses

Even though Goldman Sachs profits fell in the second quarter, the bank nevertheless made tons of money. The Los Angeles times article said that though Goldman Sachs has come under fire before because of its massive employee bonuses, it didn’t let up in that department. In the second quarter, the bank dedicated $ 3.8 billion, or 43 percent of total revenues, to Goldman Sachs bonuses — the exact same percentage of revenue used for bonuses during the first quarter. And even as second quarter profits plunged, the bank hired 1,000 new employees.

More details about this topic at these websites

latimes.com

bloomberg.com

dailyfinance.com

Citgo is trying desperately to raise enough money to continue operations. Image from Flickr.

Given the BP oil spill disaster, it is no surprise that oil-refining company Citgo is having problems getting financing. Originally, the company was looking to raise $1.5 billion by selling bonds. However, the business they are in combined with the fact the company is “exposed” to Venezuela made this sale a flop. Now, the company is turning to $2 billion in bank loans combined with just $300 million in bonds.

Bond sale fail

Citgo, which is the child company of Venezuelan PDVSA, has been running at a net operating loss for the first quarter of the year. In order to raise quick cash to run the company with, the company tried to sell $1.5 billion in bonds. Bonds are a group of individual little loans, where the company must repay the bond plus interest to investors. Citgos bonds were slated for 2017 maturity, meaning any investor who bought them would have to wait seven years to get paid back. Investors, though, were not interested.

Bank loans to the rescue

Because the pay day of bonds didn’t pan out, Citgo was forced to find other options for money loans. The company turned to banks and private money lenders, and it was able to raise $2 billion. That money is partially from new credit extended to the company, and partially from “extension of existing credit lines.” In other words, these lenders were willing to take on the risk of extending credit to Citgo. These lenders, however, have said that they are planning on turning these loans into bonds — in other words, spreading the risk out among many, many more investors.

Citgo’s operating loss

The operating loss that Citgo had over the last quarter is for many reasons. There is political instability in Venezuela, where Citgo’s parent company lives. Though Venezuela’s state-owned oil company does not do much offshore drilling, the BP oil spill is generally affecting the oil and fuel market. This instability within the market is contributing to companies like Citgo being unable to get financing to continue operations.

U.S. Rare Earths owns deposits of minerals used in making computers and cell phones.

U.S. Rare Earths is a company that “holds the only known U.S. deposit of heavy rare earths with a concentration worth mining, according to a recent report by the U.S. Geological Survey,” says Fox News. So what does it all mean? Rare earths are used in all types of developing technology, such as hybrid cars, wind turbines, computer hard drives and cell phones.

U.S. Rare Earths and technology

Scientists have predicted that the world faces a rare earths shortage, but U.S. Rare Earths could prevent technological innovation in this country from being crippled. In the past, the U.S. has gotten most of its rare earth minerals from China. Now it is up to U.S. Rare Earths to develop its heavy rare earth mineral deposits.

Naturally, U.S. Rare Earths stock is a hot commodity as investors realize the potential for this company to make a killing. Some investors are probably getting instant cash loans as we speak to make sure they buy in to U.S. Rare Earths before the price per share skyrockets and even the biggest guaranteed payday loans out there won’t cover the cost.

Details on U.S. Rare Earths

Scientists’ predictions say the rare earths shortage will hit in about 10 years. Jim Hedrick, a former USGS rare earth specialist, says some developers are already experiencing a shortage. U.S. Rare Earths owns land rich with heavy mineral deposits on Lehmi Pass, which is on the border between Idaho and Montana. U.S. Rare Earths also owns mineral deposits in Diamond Creek, Idaho. On the periodic table of elements, heavy rare earth are the minerals ranging from terbium to lutetium.

U.S. Rare Earths’ founders started the company 15 years ago with the Lehmi Pass deposits. At the time, they were only interested in the concentration of thorium, which provides an alternative to nuclear fuel. After 15 years and countless technological innovations, U.S. Rare Earths finds itself in the position of owning the only known rare earth deposits in the country. For the time being, U.S. Rare Earths is concentrating on mining the Diamond Creek land in Idaho because it is closer to civilization and thus more “mining friendly.”