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Anheuser-Busch InBev, the world’s largest brewer, said cost cutting had helped it beat analyst forecasts for second-quarter profit, although the second half of the year would be significantly weaker.

AB InBev has described beer as “resilient” in the face of the global economic slump, although the industry has seen consumers trading down from premium to cheaper brands, and opting to drink at home instead of the pub.

“We have strong operating momentum going into the second half of 2009, but recognize that many challenges remain. The beer industry, while resilient in most of our key markets, is not immune to economic pressures,” Chief Executive Carlos Brito said in a statement.

The maker of Budweiser, Stella Artois and Beck’s beers said earnings before interest, tax, depreciation and amortization (EBITDA) rose 18.5 percent to $3.596 billion, compared with the average $3.221 billion in a Reuters poll of 15 analysts.

Overall cost of sales decreased by 5.6 percent in the second quarter, or 2.4 percent per hectoliter, thanks to brewery productivity enhancements, the group said.

The brewer said it projected cost of sales per hectoliter to run flat or increase by low single digit percentages over the full 2009 year, which was “somewhat more optimistic” than previously anticipated.

It had benefited from lower spot prices for its non-hedged input costs — the cost of ingredients such as malting barley, other grains and hops — after a sharp rise in prices last year, it said.

By 5 a.m. EDT, AB Inbev shares had dropped 3.7 percent to 27.7 euros, against a 0.9 percent fall for the DJ Stoxx Europe food and beverage sector 500 fast cash.SX3P. Shares in Heineken, which reports on August 26, were down 3 percent.

“The market is reacting somewhat negatively to the group’s outlook,” said KBC analyst Wim Hoste, adding, however, that this reaction was a little exaggerated given the strong second-quarter EBITDA performance.

The company, reporting in dollars from this year, said second-half year-on-year EBITDA gains would be significantly below the 18.5 percent achieved in the second quarter of 2009, primarily due to more difficult comparisons.

Analysts were positively surprised by the group’s improved guidance for cost of sales.

“In a market which is going down it is very good that they can keep their costs under control,” Petercam analyst Kris Kippers said.

VOLUMES DROP, MORE SAVINGS EYED

The company said second-quarter volumes fell by 1.1 percent, against overall expectations for a 1 percent drop.

Volumes grew 7.0 percent in Brazil but fell 8.9 percent in Central and Eastern Europe (CEE) due to weak market demand and market share loss in the value segment. CEE nevertheless saw EBITDA growth of 39 percent in the second quarter as a result of price improvements, lower cost of sales and lower distribution costs, the group said.

World number two SABMiller’s underlying beer volumes were flat in the second quarter, while those of Carlsberg, the fourth biggest brewer, fell by 6 percent on a like-for-like basis. 

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BOSTON – The Boston Globe is moving toward charging readers for online content, while its parent, The New York Times Co., explores a possible – but not certain – sale of the newspaper.

"Nothing is absolute, but we are heading toward some sort of consumer pay model," for its Web site Boston.com, Globe spokesman Bob Powers said Friday.

Powers said the newspaper had assembled a team to explore options for online charges and informed Globe unions of its intent Thursday. Charging for Web content holds risks because it can drive away users who are accustomed to browsing the site for free, and in turn can lead to a loss of online advertising.

Times Co. confirmed in a regulatory filing that it had retained Goldman, Sachs & Co. to explore a potential sale of its New England Media Group, which includes the Globe, Boston.com and the Telegram & Gazette of Worcester, Mass.

In an interview with the Globe Thursday, Times Co. Chairman Arthur Sulzberger Jr. and Chief Executive Janet Robinson said the newspaper – once on track to lose $85 million this year – is now on a much stronger financial footing thanks to concessions by Globe unions and other measures.

Sulzberger said a sale was but one option.

"We are exploring that as a possibility. It does not mean it will absolutely be the case," he told the Globe.

"What's important here is that the Globe be maintained as a viable business entity, whether it's sold or we continue to operate it, and to make sure it has the financial stability to ensure its continuity," he said.

Powers said management of the newspaper believes readers would be willing to make a financial contribution to receive Web content, and has been conducting market research over the past several months in an attempt to determine "what consumers would be willing to pay, but weighing that against any potential loss of advertising.''

The Globe was exploring several prospective pay models, including charging for so-called "verticals" within the site, such as sports or arts and entertainment, or a method by which users would get a certain number of page views at no cost, with payment required for subsequent page views, Powers said.

There was no hard and fast timetable for when a decision would be made, he said credit reports free.

Many other publications have developed online subscription models or are considering doing so as the industry tries to recover from the one-two punch of readers – and advertisers – abandoning print versions for the Internet and the recession that has further weakened ad sales.

News Corp. chairman Rupert Murdoch told analysts Wednesday that visitors to newspaper Web sites owned by the company would have to begin paying fees within the next year. News Corp.'s properties include The New York Post, The Times of London and The Sun, a popular British tabloid. The company already charges for some access to The Wall Street Journal's Web site.

The Globe, citing unnamed sources, also reported Friday that Platinum Equity, a Los Angeles-based investment firm, had submitted a bid to buy the newspaper, becoming the third group to do so.

Platinum Equity made its first foray into newspaper publishing in May when it purchased The San Diego Union-Tribune from Copley Press Inc. for an undisclosed price.

"We don't discuss whether or not we're considering prospective acquisitions. Nor do we comment on market rumors that we're looking at or bidding on particular businesses," said Mark Barnhill, a principal at Platinum Equity, in an e-mail to the Associated Press.

The Globe previously reported on two other prospective bids, one by a group led by Boston Celtics owner Stephen Pagliuca and former Boston advertising mogul Jack Connors, and the other from a group headed by Stephen Taylor, a former Globe executive and member of the family that sold the Globe to the Times Co. for $1.1 billion in 1993. The newspaper cited unnamed people with knowledge of those offers and neither group has commented.

Powers said he could not comment on any prospective bids.

In its filing Thursday with the Securities and Exchange Commission, Times Co. indicated that the Globe's financial situation had improved through restructuring efforts that included gaining $20 million in wage and other concessions from the newspaper's unions.

The Globe lost $50 million in 2008, and Times Co. has said it was on track to lose $85 million this year before the agreements with the unions.

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A sales bounce last month has buoyed spirits at Plaza Motors. Profits were up nearly 20 percent over May at the Creve Coeur luxury vehicle dealer, which had to cut about 5 percent of its work force in the last year as the recession deepened.

But John Capps, Plaza’s president and CEO, isn’t ready to celebrate just yet.

"Nobody’s doing cartwheels at this point," Capps said. "We see business improving a little bit right now. I think it has turned, but we’re slowly crawling back up."

Luxury auto dealers nationwide saw sales of new vehicles improve in June, as the high-end segment increased its share of total auto sales for the third straight month, according to CNW Research, a national auto research firm. Brands such as BMW, Lexus and Mercedes all stemmed sales declines.

But the luxury market hasn’t escaped the economic fallout. Sales of luxury cars are still down about 31 percent compared to 2008, according to J.D. Power and Associates. That’s still better than the rest of the auto industry, where year-to-date sales have fallen almost 35 percent compared to last year.

Many luxury dealers are living significantly leaner, having slashed overhead and trimmed staff to stay afloat during the sagging auto industry’s record decline.

"It’s going to be a tough year," said J.J. Mills, co-principal at St. Louis Motorsports in Chesterfield, which sells a half-dozen luxury brands including Bentley, Rolls Royce and Maserati. "I think it’s going to get worse in the short term but better in the long term."

A trend toward smaller vehicles is helping spur pockets of growth in the luxury segment, which accounted for 1.65 percent of all car sales in June, according to CNW Research. Sales of compact premium crossover vehicles (CUV) are actually up almost 20 percent over last year, according to Jeff Schuster, the firm’s executive director of forecasting.

Mercedes, Audi, Infinity and Volvo have rolled out new crossovers in the last year. Models include the BMW X3, the Audi Q5 and the Volvo XC60.

"You have the segment more than doubling in terms of products being offered," Schuster said. "As you go from smaller to the largest within the premium segments there’s significant performance differences."

At Plaza Motors, Capps is starting to see burgeoning consumer interest in the smaller CUVs. But they have yet to become a consistent money-maker. "They’re new and exciting," he said. "Those cars are doing fairly well, but they’re relatively low-volume faxless payday loans."

But entry-level and used luxury cars are providing some relief. Manufacturers also are lowering prices on some of their basic cars, making luxury ownership more accessible to a broader audience, Capps said.

"You can get a new Mercedes, BMW or Lexus for a price that’s not too significantly different than what you’d pay for a high-end GM car or a Ford," Capps said. "They’re expanding their product lineup and appealing to people who can now drive those brand names."

On the other end of the luxury spectrum sits St. Louis Motorsports, whose Bentleys and Lamborghinis all push well into the six figures. While the dealership witnessed a slight sales rebound last month, its year-to-date sales for six upper-echelon manufacturers are down 30 to 50 percent nationwide, Mills said.

A volatile stock market and fluctuating investment portfolios have forced some high-end consumers to refrain from replacing older vehicles or making that first splurge, Mills said. "They’re looking at their money and basically being as discretionary as anyone else," he said. "People aren’t trading in cars as often."

Still, St. Louis Motorsports is currently the nation’s No. 3 Lamborghini dealership, after spending part of the last year in the top spot. "I would think it’s the last thing a person would be buying," said Mills. "It’s been a real pleasant surprise."

It’s also one of the few. Like most of the industry, sales and foot traffic have been in serious flux since last summer. St. Louis Motorsports has shed about 20 percent of its work force since October.

"We’ve all taken on additional duties and responsibilities within the store," Mills said.

The pain in the luxury market and the industry as a whole may persist a bit longer, said Schuster, the J.D. Power forecaster. He expects the stagnant market to drag through the summer.

But a handful of indicators, including rising consumer confidence and more consistent showroom traffic, suggest mild recovery might reshape the remainder of the year.

"We’re always on the optimistic side of sales, and I think you’re probably going to see the fourth quarter looking pretty good," said CNW president Art Spinella. "It’s not the usual auto market anymore."

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OTTAWA–Export Development Canada yesterday threw cold water on anyone reading too much into evidence that the economy is not falling as fast as a few months ago with a bleak forecast for the export sector, which makes up about 35 per cent of the country’s gross domestic product.

The Crown corporation said Canadian exports of raw materials and manufactured goods will tumble another 21 per cent this year and only grow from that new bottom by 6 per cent next year.

EDC chief economist Peter Hall said Canadians should take recent talk of an economic turnaround with a large grain of salt, adding real recovery will not happen until 2011.

"You can’t have confidence alone driving the world economy up, you have to have more than that," said Hall, "and more than that is fundamental markets like the consumption of durables, the auto sector, and housing car loans for people with bad credit."

That has yet to materialize, he said.

Canada’s open economy is so tied to the U.S., and the world, that there cannot be a major rebound in Canada until it occurs in foreign markets, Hall said.

But with global demand for Canadian goods likely to remain weak for another 18 months, particularly in the U.S., Hall forecast exports of commodities such as energy, fertilizers and base metals will fall off an average of 38 per cent this year, and manufactured goods will fall 22 per cent. The one benefit from weak global demand for oil, he added, is that the Canadian dollar will likely slide to the range of 83 cents (U.S.) to 85 cents over the period, giving some relief to exporters.

The Canadian Press

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Google Inc. is building a computer operating system in a move that could place the search engine giant in direct competition with the industry's other heavyweight, Microsoft Corp.

Mountain View, Calif.-based Google said late Tuesday that it is working on a new open-source operating system that is an extension of its Google Chrome Web browser.

“It's our attempt to re-think what operating systems should be," Sundar Pichai, Google's vice-president of product management, said in a blog posting.

The Google Chrome OS will be "lightweight" and will be initially targeting netbooks, lower cost laptops that are becoming increasingly popular. The operating system will focus on “speed, simplicity and security” and is expected to be available by the second half of 2010, Google said fast payday loans.

The move could be viewed as an effort to go after the bread and butter of Microsoft's business, which is built around its widely used Windows operating system.

Over the past several years, Google has been attempting to extend its core business beyond search engine technology with offerings that include Gmail and Google Docs, a suite of computer programs that's meant to provide an alternative to Microsoft's word processing, spreadsheet and calendar applications.

Meanwhile, Microsoft has been trying to garner a bigger slice of the search engine market, having recently launched a revamped version of its search technology under the name Bing.

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It began 41 years ago when a meandering drive through then-rural south St. Louis County landed Orville Roy at the Chrysler assembly plant in Fenton.

Recently discharged from the Marine Corps, Roy decided to fill out an application. A job offer came two days later and, with it, a legacy was born.

Eventually, three of Orville Roy’s sons, a daughter-in-law and a grandson, Michael Roy Jr., would follow him through the Fenton plant gates.

"It’s been our living, our livelihood," said Michael Roy Sr., 48, Orville’s son.

No more.

On July 10, Michael Roy Jr. and 600 other Chrysler workers will punch their time cards and go down in history as the final shift at a location that has turned out the automaker’s products for a half-century.

"There’s no middle class anymore," said Michael Roy Sr., forced to retire from Chrysler in December due to medical problems. "The middle class is gone."

That may be an overstatement from a former worker angered and betrayed by what he sees as the failure of the United Auto Workers and Chrysler to protect local production jobs now outsourced to Mexico and Canada.

But it still rings true for families, like the Roys, who have come to view assembly line positions at Ford, General Motors and Chrysler as a birthright.

Multigeneration families employed by and loyal to a single car manufacturer have long been "part and parcel of the automobile business," said Michael Smith, director of the Walter Reuther Library at Wayne State University and an expert on the labor movement. "That’s why the auto crisis is so devastating."

Matthew Diemer, an assistant professor of counseling at Michigan State University, said it may be premature to declare the "death" of a tradition of children following parents and grandparents into blue-collar manufacturing jobs.

"But maybe," he allows, "what we’re seeing is the death knell."

COMPLICATED OPTIONS

The bell tolled for the Roy family on April 30, the day Chrysler announced it was laying off what remained of Fenton’s Dodge Ram pickup truck work force. (The company halted minivan production at the Fenton location last year.)

After work that afternoon, 24-year-old Michael Roy Jr. and his mother, Cheryl Roy, repaired to a local tavern to consider a series of complicated options.

In mid-May, Cheryl Roy, made her up her mind. An autoworker for 14 years, she rejected a possible transfer to a Chrysler facility in either Illinois or Michigan and took a company buyout.

Cheryl is collecting severance benefits, searching for a job and staying at the family home in Arnold to care for her husband, Michael Sr., who retired following diagnosis of amyotrophic lateral sclerosis — Lou Gehrig’s disease.

Also looking for work, Michael Roy Jr. wonders what the future holds for a young man who aspired to retrace the footsteps of his grandfather and father.

"I’m good with my hands," he said. "And if you’re good with your hands, what can you do now?"

The official answer: Move from the production of goods and services dependent on nonrenewable resources to the production of environmentally sustainable commodities. Manufacturing the blades used in power-generating wind turbines is a commonly cited example.

State and national leaders across the nation, including Missouri Gov. Jay Nixon, contend that so-called "green jobs" represent the next wave of American manufacturing.

Michael Jr. knows that getting a foothold in the clean energy work force means going back to school. A few credits shy of an associate’s degree, he walked away from his education to accept an offer of a part-time Chrysler job that he saw as a stepping stone to full-time employment bad credit personal loans.

Strapped by declining income as he helps tend to his father, Michael cannot afford, in terms of either time or money, to return to his studies at Jefferson Community College.

Smith agrees that Michael’s best hope rests in furthering his education,

A former autoworker himself, Smith laments that the days when a union membership card served as a portal to a middle class lifestyle are slowly disappearing.

"The jobs that dad and grandpa had, that didn’t require anything more than a high school education, are no longer around," Smith said. "Even auto working is not just about putting on hubcaps anymore. It’s a lot more sophisticated."

ITS OWN REWARD

That was not the case when Orville Roy, now 80, began working his way through various administrative departments, including payroll, in 1968.

"In the old days, if you knew somebody and you wanted to get hired, all you had to do was ask for a recommendation," he said.

All the better if that acquaintance happened to be a blood relative.

Putting aside their disappointment that jobs once performed in Fenton are now held by workers in Canada and Mexico, Michael Sr. and Cheryl Roy acknowledge their family of six has done all right by the nation’s No. 3 domestic automaker.

"We have four kids that wanted to play sports and take dance classes and do all sorts of things," said Cheryl. "Somebody had to pay for it."

Until Cheryl went to work in the pickup plant in 1995, that somebody was her husband, who had started as a "floater" in the chassis department 11 years before.

"I worked on the line, and that was punishment," said Michael Sr.

"I’ve shoved in engines, I’ve thrown tires and I’ve thrown bumpers," said Michael Sr., lapsing into autoworker jargon to describe the tasks he performed at Fenton. The "punishment" of the line, though, had its own reward: By the time Michael Sr. retired late last year, he was earning $29.95 an hour, plus the heralded UAW benefit package.

There was also the intangible benefit, Michael Jr. noted, of spotting a Dodge Ram on the road and thinking, "I made that truck."

TUG OF TRADITION

Michael Jr. never matched his father’s salary.

Nor, because his tenure paralleled Chrysler’s shrinking market share, was Michael Jr. ever offered a full-time position at the plant.

Michael Jr. can lay claim, however, to a dubious distinction: He worked both the last day and night shift to produce a minivan at the South Plant and, later, was assigned to the last North Plant night shift to build a pickup.

Michael Jr. was circumspect last week as he reflected on the irony of a callback has placed him on a shift that will soon assemble the final Chrysler product ever built in Fenton.

"It’s frustrating," Michael Jr. said. "But (unlike his dad and grandfather) I haven’t put my whole life into it."

Resolved that the time has come for him to move forward, the son of Michael Roy Sr. and grandson of Orville Roy nonetheless feels the tug of the tradition that began on a long ago leisurely drive that wound up, improbably, at a car factory.

"I was kind of hoping," Michael Jr. said wistfully, "that my grandkids would work there."

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Toronto’s stock market took a nasty tumble yesterday along with oil prices and the Canadian dollar after a World Bank report dashed hopes of an early "green-shoots" recovery from the current economic storm.

Led by energy and materials stocks, the S&P/TSX composite index fell 4.4 per cent, or 453.77 points to 9,834.18 – its biggest point drop since Dec. 1 – while crude oil slid more than $2 (U.S.) a barrel, cutting short the spring rally that investors have enjoyed of late.

"There’s a bit of a reality check going on," said Craig Wright, RBC Financial Group’s chief economist.

"There was a fairly significant rally recently, but the markets have been getting ahead of themselves in our opinion, and we’re seeing a retracing of that."

Stock markets and commodities took a hit after yesterday’s World Bank report said the global economy will contract more than previously thought. The bank said the globe’s economy will shrink 2.9 per cent this year – an estimate far worse than its previous forecast for a 1.7 per cent decline.

"I think as we go through this year volatility and uncertainty are going to remain quite elevated," Wright added.

"Some people might be locking in some of the profits that they made over the last three months," said Bruce Latimer, a trader at Dundee Securities.

"It was selling right across the board and they didn’t even try to rally the market at all, so we might be in for a few more days of this."

"People continue to be worried about the overall economy," said Royden Richardson, vice-chairman of Richardson Partners Financial Ltd. in Toronto, which oversees $7 billion (Canadian) of client assets.

"Stocks got a bit ahead of themselves. You just can’t get back to normal that quickly."

The loonie continued its downward slide, falling 1.34 cents (U.S.) to 86.76 cents against a stronger greenback.

All of the TSX’s 10 main sectors ended down, led by a 6.5 per cent drop in the energy group and a 5.97 per cent sell-off in materials.

The pullback follows a considerable rally since the index hit a five-year low in March. At one point this month it was up 43 per cent from the March trench cash advance no faxing. Yesterday’s retreat was the TSX’s lowest close since May 15, taking it below the 10,000 mark.

Gold mining shares also fell as the bullion price shed $15 to close at $920.60 in New York.

And burgeoning supplies of crude and gasoline finally appeared to grab hold of energy prices that since early May have appeared to shake off market fundamentals.

Benchmark crude for July delivery dropped $2.62 to settle at $66.93 on the New York Mercantile Exchange. The July contract expired later yesterday, and most of the trading already has shifted to the August contract, which lost $2.52 to settle at $67.50.

The TSX Venture Exchange gave back 40.14 points to 1,078.66.

U.S. markets were also lower.

The Dow Jones industrial average fell 200.72 points to 8,339.01, after giving up almost 3 per cent last week. The Nasdaq composite index lost 61.28 points to close at 1,766.19, while the S&P 500 dropped 28.19 points to 893.04.

On the Nasdaq, big-cap technology stocks led the decline.

Apple Inc.’s stock fell 1.5 per cent to $137.37 even as it said it had sold more than one million of its newest iPhone in the first three days of its launch, beating expectations. The company statement also quoted chief executive Steve Jobs, leading at least one analyst to speculate he was back from medical leave.

The Toronto base metals sector was down more than 9 per cent as the price of copper in New York fell 11.85 cents to $2.132 a pound.

Peter Cardillo, chief market economist at brokerage house Avalon Partners Inc. in New York, said investors want to see stability in commodity prices – not a surge or a tumble. A sharp rise in commodity prices hurts consumers, while a sharp drop is sign of weak demand.

Teck Resources Ltd. shares were down $2.07 (Canadian) to $16.76 even though Teck said Friday it expects its 2009 coal sales to be at the upper end of its guidance.

The financial sector fell 3.5 per cent, with Royal Bank of Canada down 90 cents to $45.10.

With files from the Star’s wire services

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Consumer nations on Sunday urged producers to keep oil prices stable or risk derailing a fragile global economic recovery, as top exporter Saudi Arabia forecast prices eventually moving towards $75 a barrel.

Group of Eight energy ministers were meeting in Rome against the backdrop of a price rally that has sent oil prices to a six-month high of more than $60 a barrel.

"If oil prices do spike up considerably, that would be a factor in delaying economic recovery," U.S. Energy Secretary Steven Chu told a news conference.

Italian Energy Minister Claudio Scajola said: "A low oil price helps in times of economic crisis but discourages investment and does not guarantee a future of stability. It is necessary to have an equitable and not volatile price that can guarantee global economic growth and also the possibility of investment."

Oil prices have almost doubled from last December’s low and risen well above the $50 level that Saudi Arabia has said it could live with to help nurse the world economy back to growth.

Algeria’s oil minister said an output cut was unlikely when OPEC meets in Vienna on Thursday. Saudi Arabia, the biggest and most influential player in the 12-member producer group, also said OPEC would "probably stay the course."

Saudi Oil Minister Ali al-Naimi offered the prospect of prices and demand eventually rising but declined to speculate on when prices would hit the $75 level producers say is needed to encourage investment.

"Demand will pick up eventually when the economy recovers," Naimi told reporters. "Eventually could be tomorrow or it could be 10 years from now, but eventually it’s going to happen, but when I don’t (know) payday cash loan."

Algeria’s Energy Minister Chakib Khelil predicted oil prices could touch $70 per barrel by end-2010 if the economy recovered, but warned recent price rises were being driven by speculation and a weak dollar rather than fundamentals.

Energy leaders at the summit agreed the financial crisis had dealt a sharp blow to investment in production for the long term. The International Energy Agency warned investment in oil and gas production would fall 21 percent in 2009.

Italian oil company Eni’s president, Roberto Poli, said the "magic range" for prices high enough to spur investment without hurting the economy was $60-$70 per barrel, while Edison CEO Umberto Quadrino put that at $60-$80 per barrel.

"The experience of the last price cycle demonstrated that to ensure steady economic growth, prices should not rise higher than $75 per barrel," Poli said. "Oil price instability and unpredictability are the worst enemies of any well- thought-out plan to build a different energy future."

OPEC ministers are expected to make no change to oil supply at their Vienna meeting as higher prices ease their concerns about overflowing fuel inventories and the deepest fall in demand for years.

A senior Gulf source has said the group will stick to its current targets, but stress the need for full compliance.

But Iran’s OPEC governor said higher oil prices were lulling some OPEC members into a false sense of security. Venezuela said oil markets were over-supplied but it was too early to tell whether an output cut was needed. 

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More evidence emerged Friday that the recession is easing, with output by the nation’s factories, mines and utilities falling at the slowest pace in six months.

At least one area of the economy is flat, but that’s welcome news. Consumer prices were level in April after a slight dip the prior month.

Inflation usually doesn’t pick up until well after a recovery begins, noted Mark Vitner, senior economist at Wachovia. If the economy rebounds late this year, as many analysts expect, prices likely will be stable until 2011, he said.

Some economists have been concerned about the possibility of deflation. But most say that possibility appears remote because the Federal Reserve has responded with force to combat the downturn.

The Fed said output at factories, mines and utilities fell 0.5 percent last month, after revised declines of 1.7 percent in March and 1 percent in February. Analysts had expected a drop of 0.6 percent last month.

Still, the report showed U.S. industry remains weak. Industrial production has fallen in 15 of the 17 months since the recession began in December 2007 and is down 16 percent since then.

"Overall, yet another report that fits within the picture of an economy contracting more slowly but still far from an actual recovery," Paul Ashworth, senior U.S. economist at Capital Economics, wrote Friday.

A 1.4 percent increase in auto production, which came after huge reductions earlier this year, boosted overall results payday loan. But that won’t last as Chrysler and General Motors Corp. are shutting plants in May and June, which could send industrial production lower, economists said.

Also Friday, a Reuters/University of Michigan index of consumer sentiment rose to an eight-month high in May.

Meanwhile, the Labor Department said its consumer price index was flat last month, meeting expectations. The tame inflation performance reflected a second monthly drop in energy costs and a third straight decline in food prices.

Over the last year, consumer prices have fallen 0.7 percent, the largest 12-month decline since a similar drop for the year ending in June 1955.

Falling prices can be good for shoppers. But over the long term, they can erode wages and cause consumers to postpone purchases, leading to steep drops in production. But broad price declines aren’t affecting goods outside food and energy, economists said. Core inflation, which excludes food and energy, rose 0.3 percent last month. It was the biggest jump since July, but about 40 percent of the gain came from a huge rise in tobacco prices, reflecting higher federal taxes.

"Inflation’s not a problem if you don’t smoke," Vitner said.

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Tim Hortons Inc. is doing what it can to avoid charging more for a coffee or a doughnut but some price increases are inevitable because of higher costs, says CEO Don Schroeder.

"We continue to look at that with our store owners because there are a lot of cost pressures," Schroeder said Friday after the company's annual shareholder meeting.

"Our stores owners are very conscious of the fact that many of their good, loyal customers are feeling the crunch of the economic times, and they're trying very hard not to have to take price (increases) at this time, but at some point it'll have to happen."

Analysts agree that a new round of higher prices is on the horizon at Canada's largest coffee and doughnut chain (TSX: THI), adding to other recent increases driven largely by food and coffee costs.

"We are projecting more price increases in the back part of the year as the impact of the weak Canadian dollar drives Tim's coffee costs up," CIBC World Markets analyst Perry Caicco wrote in a note to clients.

Schroeder said restaurant owners have been asked to cut non-value-adding costs, "so that we can absorb and protect our store owners' profitability without having to take a lot of excessive price to our customers." He added that simple steps like asking employees to re-use hairnets can save thousands of dollars.

Despite cost pressures, Tim Hortons is embarking on an ambitious expansion plan that will grow its store base by more than five per cent this year.

The company plans 150 to 180 new stores, with 30 to 40 in the United States and the rest in Canada, chief financial office Cynthia Devine told shareholders.

Currently, the chain has about 3,400 locations, including 500 in the U.S.

Schroeder said Tim Hortons plans to move primarily into smaller markets by focusing on small stores and kiosks guaranteed cash advance.

"In some of the developing markets it makes more sense to get a smaller restaurant," he said. "There's less capital investment and it also reduces operating costs for the operator, gives them a chance to get to the break-even level much faster."

Devine said the company is forecasting operating profit growth of 11 to 13 per cent this year, and expects its U.S. operations to achieve break-even for the first time.

Same-store sales are expected to grow by three to five per cent in Canada and zero to two per cent in the United States.

However, CIBC's Caicco cautioned that fierce competition, such as McDonald's free-coffee promotion for two weeks in April, will hurt Tim Hortons' results for the second quarter.

"The fact is, when it comes to down-and-dirty promotional fights and low-ticket offers, Tim's is in uncharted waters," Caicco wrote.

Schroeder said Tim Hortons sees competition as a good thing that pushes it to improve, and he said the company will likely come up with new promotions of its own for the remainder of the year.

Tim Hortons reported Thursday that its first-quarter net income rose by 7.5 per cent from a year ago to $66.4 million. Earnings per share of 37 cents, up from 33 cents, thinly beat analyst expectations.

Revenue grew 10.2 per cent to $507.2 million, as same-store sales were up 3.4 per cent in Canada and 3.2 per cent in the United States, driven by higher prices.

Tim Hortons shares were down 55 cents to $28.50 Friday afternoon on the Toronto Stock Exchange.

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