NBR Transcripts January 6, 2005
Thursday, January 06, 2005PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: The future of U.S. Airways may have been decided today, but not in the skies. It happened in a Virginia bankruptcy court. A judge orders a drastic step that could alter the carrier's flight plans permanently.
LINDA O'BRYON, NIGHTLY BUSINESS REPORT ANCHOR: It looks like shoppers played both ends against the middle this holiday season. For the most part, high end and low end stores did great, but that can't be said for everyone else.
KANGAS: Microsoft is muscling in on the market for anti-spyware programs. The software giant is beginning to offer its own security products and that shakes up the stocks of other companies that already sell those products.
O'BRYON: Also tonight, it isn't often that the sale of gourmet cream cheese spotlights a trend in American business. But it's true in one case, and we'll tell you what it is.
KANGAS: I'm Paul Kangas.
O'BRYON: And I'm Linda O'Bryon. Susie Gharib is off tonight. This is NIGHTLY BUSINESS REPORT for Thursday, January 6.
KANGAS: Good evening, everyone. Big developments in bankruptcy court today for U.S. Airways. A judge has agreed to toss out the carrier's labor contract with its nearly 9,000 unionized machinists, if they don't agree to concessions quickly. The judge also cancelled the pensions for that union and the carrier's flight attendants' union. The moves could save hundreds of millions of dollars a year. But as Stephanie Woods reports, that may not be enough to keep the airline in the air.
STEPHANIE WOODS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Even with canceled employee pensions and 35 percent pay cuts, U.S. Airways may not survive. CEO Bruce Lakefield put his best face on the grim situation outside the bankruptcy court in Arlington, Virginia.
BRUCE LAKEFIELD, CEO, US AIRWAYS: Our employees are doing their best in these tough times. Management's doing their best in these tough times and we hope we can do all the right things for everybody to make U.S. Airways a competitive airline in the future.
WOODS: But a small group of angry retirees and employees sent a different message.
UNIDENTIFIED MALE: How much pay cut you gonna take Bruce?
WOODS: A Christmas weekend work slowdown that left hundreds of passengers and their luggage stranded may have sealed the fate for the airline. There are reports that advance bookings are down. Analysts say U.S. Airways future is in the hands of its largest creditor, GE Capital and the Air Transportation Stabilization Board.
VAUGHN CORDLE, CHIEF ANALYST, AIRLINEFORECASTS: They'll have to have relief from the ATSB. They'll have to have relief from General Electric and if they don't get that relief I think U.S. Air may be done.
WOODS: Making the skies even less friendly is a new fare war sparked by Delta, slashing prices 50 percent, which U.S. Airways is already matching. U.S. Airways isn't alone. Continental today warned it could run out of cash if it doesn't get $500 million in wage cuts from its unions by February 28. Analysts say this could be the beginning of a long delayed industry shakeout.
CHRIS LOZIER, ANALYST, MORNINGSTAR: This could be the straw that breaks the camel's back, that is, Delta's decision to lower fares like they are, we may finally see natural selection run its course in the airline industry and see the weakest players fall out.
WOODS: Already United and U.S. Airways are in bankruptcy. Delta and Continental are both struggling and there are concerns about costs at Northwest. U.S. Airways machinists union will vote on a new contract by January 21. If the union and carrier agree, that will overrule today's court action, throwing out the current contract. If they can't agree, the carrier could be facing a repeat of its Christmas weekend crisis. Stephanie Woods, NIGHTLY BUSINESS REPORT, Washington.
O'BRYON: There are labor developments at United Airlines as well tonight. Its pilots union has ratified a new contract with the carrier. The deal could save the airline $180 million a year in labor costs. But it must be OK'd by a bankruptcy court in Illinois which could hear the matter as early as tomorrow. As part of the agreement, United's pilots have promised not to contest the airline's bid to end the union's pension plans. United has been in Chapter 11 bankruptcy protection for more than two years now.
KANGAS: Wall Street edged higher early today. The Dow and NASDAQ Index posted single digit gains despite a much larger than expected rise of 43,000 in new weekly jobless benefit claims. Then buyers got more aggressive, finding bargains after three days of losses. By mid-day the Dow was up 65 points, NASDAQ up 11. But the rally was blunted by rising oil prices and caution ahead of tomorrow's employment report. The Dow Industrial Average closed with a gain of only 25 points at 10622.88. The NASDAQ Composite actually lost 1 1/4 points, ending at 2090 on the button. The Standard & Poor's 500 Index rose 4.15, ending at 1187.89. Over in the bond market, the 10-year note rose 5/32 to 99 28/32 putting the yield at 4.27 percent.
O'BRYON: The verdict is in on the holiday shopping season. December sales at the nation's top retailers were a mixed bag. Results in the year's key shopping month ranged from outstanding to downright disappointing. Suzanne Pratt takes a closer look at the season's biggest winners and the biggest losers.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: A rush of last minute shopping brought on by discounts helped to rescue the holiday season. Some experts say if it weren't for consumers hitting the malls in droves in the week after Christmas, sales could've been a lot worse.
PAMELA NAGLER, RETAIL ANALYST, FULCRUM PARTNERS: Well, week five I think is the huge story actually across all retail. Everyone benefited from week five. But there are those who would've done well even if the week five traffic did not materialize.
PRATT: Wal-Mart and Target both benefited from a surge in sales in that last week of December. Wal-Mart's same store sales rose an expected 3 percent while Target's gained more than 5 percent, topping estimates. Warehouse clubs, chains catering to teens and luxury merchants were December's biggest winners. Nordstrom and Saks posted sales gains of 9 percent and 6 percent. Sales at American Eagle Outfitters and Abercrombie surged an impressive 33 percent and 10 percent, while Costco rang up a gain of 8 percent.
LINDA KRISTIANSEN, RETAIL ANALYST, UBS: Where the excitement and the fashion newness are more at the upper end. Neiman Marcus, Nordstrom, they tend to carry things that are less widely distributed. So, people are really gravitating to that. And then you add in the fact that their customer is doing well, and the demographics are so favorable.
PRATT: Elsewhere in the retail world the losses were many and varied. December same store sales at Sears and J.C. Penney fell 3 percent and 1 percent, while December was a cruel month for Pier One. Sales at Best Buy gained 2.5 percent, but that was below forecasts. And, now that holiday sales numbers are out, Wall Street is shifting its focus to January, February and March, a period about which many analysts are worried.
KRISTIANSEN: I think things are going to slow down in general in the spring season and into the summer. But, again there are going to be pockets of strength, luxury. But, I think for the industry overall, we're going start to see a little bit of moderation in sales momentum.
PRATT: Part of the reason the coming months are expected to be so difficult for retailers is tough comparisons. In the first quarter of last year, many of the nation's top chain stores rang up very solid sales. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
KANGAS: President Bush met with Republican congressional leaders today to discuss reforming Social Security. Under consideration, a proposal to slash benefits for future retirees as part of an overhaul of the retirement system. That proposal was circulated in a memo from the president's director of strategic initiatives, and supports changing the way Social Security benefits are adjusted. The idea would be to go from a formula indexed to wage hikes to one indexed to inflation. But the White House insists it has not made a final decision on how to proceed.
O'BRYON: 2005 could be a big year for mergers and acquisitions. While M&A activity has been picking up in recent months for large cap companies, it has also been going strong for smaller firms. As Diane Eastabrook reports, the middle market has been on a buying binge and experts say it could be an indicator for the rest of the market as well.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lifeway Foods is known for its yogurt drink Kefir, but this small food company wants to be known for many other products as well. So, last summer the suburban Chicago manufacturer paid $500,000 in cash for a gourmet cream cheese company and it's on the lookout for more deals.
JULIE SMOLYANSKY, PRESIDENT & CEO, LIFEWAY FOODS: We have money and our stock price is at a good place for us to go out and look for companies and to be able to make a good offer.
EASTABROOK: Multi-billion dollar deals like Johnson & Johnson and Guidant are starting to grab headlines again. But experts say middle market mergers have been going strong for a couple of years now. Middle market firms such as Lifeway, are valued between $50 million and $500 million. Investment banker Scott Lang says the same things that are driving big mergers, an improving economy, lower interest rates and lots of private equity dollars, have also been driving smaller deals. Lang also thinks the middle market is a good gauge for the larger market.
SCOTT LANG, PRINCIPAL, BROWN GIBBONS LANG & COMPANY: One of the things that's happening right now is that you're seeing companies that are better types of companies, better performing companies coming to market and so naturally they're going to get higher values and they are going to attract a lot of buyers.
EASTABROOK: Lang says the middle market has seen a lot of deals in the food and beverage, steel and building services industries. That activity could spill over to larger companies in those sectors. He's confident merger mania will continue for a few more years. But he's also concerned about rising interest rates and deals getting too expensive.
LANG: One of the things that happens when the prices go up, your returns, your expected returns are harder to achieve and may have to go down. So also you're more likely to use more debt to accomplish a buyout let's say.
EASTABROOK: Debt is something Smolyansky wants to avoid. While she wants to grow Lifeway into a nationally-known brand, she says right now she won't do any deals that require financing. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Morton Grove, Illinois.
KANGAS: Now let's take a look at some stocks in the news tonight.
For the third straight day, Lucent Technology (LU) topped the active list on the New York exchange, today trading 29.8 million shares, stock down $0.07.
Followed by Pfizer (PFE) up $0.02.
$0.47 gain in Citigroup (C).
General Electrical (GE) up $0.29.
EMC Corporation (EMC) fell $0.25, fifth in big board volume.
Target (TGT) down $2.78. December same store sales were a better than expected 5.1 percent on the upside, but the company says its future growth rate will be below Wall Street estimates. That's obviously what hurt the stock.
Wal-Mart (WMT) moving up $0.76. December same stores sales there up 3 percent, which is at the high end of its projection. The company sees January same store sales up 2 to 4 percent.
Bank of America (BAC) was a $0.07 loser.
Motorola (MOT) up $0.19.
And Nokia (NOK) a nickel gainer, tenth in big board volume.
Best Buy (BBY) fell $2.55. December same stores sales were up 2.5 percent, but that was lower than expected and the company projected maybe growth up to 5 percent and it sees fourth quarter same store sales at the low end of its guidance.
Burlington Coat Factory Warehouse (BCF) up $3.01, good earnings, second quarter $0.93 versus $0.62 last year. Sales up a respectable 4.8 percent.
AnnTaylor Stores (ANN) up $2.55. Its December same store sales were down 1 1/2 percent, but that was better than expected and actually total sales were up 11 percent.
Chico's FAS (CHS) up $4.67. December same store sales there up 19 percent. The Street estimate was for a rise of only 5.9 percent. Chico's also set a 2 for 1 stock split.
New York & Company (NWY) down $2.16. December same store sales down 5 1/2 percent and the company cut its fourth quarter earnings estimate from as high as $0.46 to as low as $0.30 a share.
Abercrombie & Fitch (ANF) $2.65 gain there. December same store sales up a very respectable 10 percent.
Aeropostale (ARO) down $1.78. December same store sales were up only 1/2 percent and the Harris Nesbitt brokerage downgraded the stock from "buy" to just a "neutral" rating.
Zale Corporation (ZLC) the jewelry up, down $2.28. The company was itself disappointed over a 7/10 percent decline in its November December holiday sales.
Unocal (UCL) up $3.15. There's speculation that CNOOC Limited, a Chinese oil producer, may be considering a buyout bid for Unocal.
And BlackRock (BLK) up $5.15. The Investment Management Company boosted its fourth quarter earnings estimate from the $0.50 to $0.60 range all the way up to $0.74 to $0.76.
NASDAQ 100 (QQQQ) topped the NASDAQ active list again, a $0.19 loss there.
eBay (EBAY) down $4.72.
Microsoft (MSFT) edged up $0.03. Microsoft said it's going to begin offering its own spyware and virus fighting software. That hurt a lot of people in the business like McAfee, which dropped about $1.50 and then we'll see Symantec right at the bottom.
In between, Google (GOOG) nearly a $5 loss.
Symantec (SYMC) a competitor now of Microsoft, was off $1.86. That was fifth in dollar volume.
Intel (INTC) $0.07 gainer.
Cisco Systems (CSCO) up $0.28.
Apple Computer (AAPL) rose a nickel a share.
Oracle (ORCL) up $0.12.
And tenth in dollar volume, Yahoo! (YHOO) losing $0.70 a share.
Western Wireless (WWCA) up $4.70 a share. The "New York Times" today reported that Alltel is in talks to acquire this company for somewhere around $40 a share.
And finally Panera Bread (PNRA) really on a roll today. December same store sales up a very strong 7.1 percent.
And those are the stocks in the news tonight, Linda.
O'BRYON: You're on a roll tonight, too.
KANGAS: There you go.
O'BRYON: Shares of casino companies have done well in recent months, as have other travel and tourism stocks. One example of that trend is Kerzner International, which runs the Atlantis Casino Resort in the Bahamas. The company's now expanding into the Middle East, spending more than $3 billion to build a casino resort in Dubai. Jeff Yastine recently talked with Butch Kerzner, Kerzner International's CEO, and began by asking about his outlook for the coming year.
BUTCH KERZNER, CEO, KERZNER INTERNATIONAL: Business trends have generally been very positive and we see it at Atlantis in the Bahamas. Clearly people even in Las Vegas have had a very good year. So the business is generally very strong. Consumers are out and depending on the type of product that you have, the better quality products that are differentiated, and very exciting, seem to be strong and I think luxury travel this year for 2004 has been up quite dramatically.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Your Atlantis expansion project is in its third phase. This is on Paradise Island, Nassau, Bahamas. And you're building yet another addition onto the project. Explain a little about what's going on here.
KERZNER: This new expansion is going to really kind of focus on the luxury end of the mass market. And what we're going to develop is two products. One is a 600 room all-suite hotel, where each room has its own wonderful separate seating area. Every room will have beautiful ocean views. We're also going to be adding something that I think is a very important trend in our business, is something - is a project with a more of a residential feel. We're going to building a 400-room condo hotel where owners can buy a piece of Atlantis and if they're not using it, they can -- we will manage it for them and rent it out. So people, whether they're owners or people just coming down for a few days of vacation, if they want a more residential experience at Atlantis, they can rent one of these units.
YASTINE: Let's talk a little bit about the projects in Dubai and Morocco. We know what the potential risks are there. What kind of rewards are you looking at potentially? Why those areas?
KERZNER: We need to be on a wonderful ocean. We need to have predictable weather. We need to be on beautiful beaches which Dubai has. We also need, if we want to go after the European market, we need lots of airlift and we need big capacity. Because of the very rapid growth of tourism in Dubai, they ran out of beach and the way they solved - because of all the development. The way they solved that problem was that they went to reclaim land and they've decided to build it in the shape of a palm. They are investing $1.5 billion. It goes out about 3 1/2 miles into the ocean and it stretches point to point about eight miles. And we are really getting a prime position and it will become the anchor. Atlantis will become the anchor for the palm for folks that are visiting Dubai.
YASTINE: Besides Dubai and Morocco, where else would Kerzner International consider expanding to? Where do you see the other growth opportunities in the international marketplace?
KERZNER: What we are specifically looking at is for example the United Kingdom, which for many years, since the 1960's, has really had very limited approach to gaming. It's a tiny market. What's very exciting is that the U.K. is now, has been for the last two years moving forward with deregulating and there's a bill moving now in parliament that hopefully will get passed early next year, that will allow for eight regional major casino projects. We are very actively looking in Singapore. Singapore is a country that is seriously evaluating maybe one or two casino licenses that would be used to really help develop tourism. So I think from Kerzner's standpoint, it's exciting to be quite an international operator, having operated in many places in the world, to see that the gaming business is now really going global.
YASTINE: Is there any concern on your part that the international casino resort marketplace could become saturated? We're in a global economy. People don't need to travel as far if they want to get that sort of casino resort experience.
KERZNER: I think if all one was offering was gaming that would be correct. The reason I think it's, what we do in the Bahamas has been so successful is that it's more than just gaming. The casino is one element of it, but it's only one element of a much broader entertainment experience. And I think that as a model is a model that we're not just developing kind of cookie-cutter casinos. That, as a model, I think has a long way to go.
YASTINE: Our guest, Butch Kerzner of Kerzner International.
KERZNER: Thank you.
KANGAS: Tomorrow, our Friday market monitor is John J. Hughes, president and CEO of Quantum Capital Management.
O'BRYON: A seat on the New York Stock Exchange sold for $1,000,000 today. That price is $15,000 less than a sale earlier in the day and the lowest amount paid for a big board seat in over nine years. Membership prices hit an all time high in August of 1999 when a seat then sold for $2.65 million.
KANGAS: If you still want to lend a helping hand to the victims of the south Asian tsunamis, you could get a tax break, sooner rather than later. Congress passed legislation today letting donations made this month be deducted on 2004 tax returns. The idea is to encourage private donations to the disaster relief effort. The president is expected to sign it into law quickly.
O'BRYON: Here's a look at what's happening tomorrow, just one major report on the calendar tomorrow and it's a big one. We'll see the December employment numbers.
Tonight's commentator takes a look at a cutting edge trend in an old management process. Here's Tom Stewart, editor of the "Harvard Business Review."
TOM STEWART, EDITOR, HARVARD BUSINESS REVIEW: Most bosses hate giving performance reviews. Most employees hate getting them. Performance reviews cross a line between personal and professional. You remember how Tom Hanks' character in the movie "You've Got Mail," keeps saying, it's not personal, it's business.
Well, performance reviews are personal. Here's the worst. Even when they're positive, you sit there waiting for the but. You know how it goes, after the good stuff, the boss says, but there are a few things I'd like you to work on and all that praise goes out the window. Researchers in a new field of psychology, it's called the positive psychology movement - and a related group who study what we what you might call positive vibes in organizations, suggest that we gain more from developing our strengths than from writing laundry lists of weaknesses.
For example, I get extremely impatient with detail. Jigsaw puzzles either bore me or exhaust me. The way to deal with that isn't to say, Tom, work on your detail skills. I'm clever, not dogged. I'm good at framing issues and seeing connections between ideas. So you want to shape my job to exploit that, while helping me understand that I'd better make sure I'm paired with someone who is strong on details.
Scholars like Gretchen Spreitzer at the University of Michigan and Laura Morgan Roberts at Harvard Business School are showing that evaluations of that kind, which emphasize strengths, get better results than report cards that emphasize weaknesses. They're also a lot more pleasant -- for both the boss and the employee. I'm Tom Stewart.
KANGAS: Recapping today's market action, the Dow gains ground for the first time in 2005. The blue chips close up 25 points but the NASDAQ Composite still loses one point. To learn more about the stories in tonight's broadcast, go to nbr.com.
O'BRYON: And finally, there's a new top dog in Washington, D.C. tonight and she has taken up residence in the White House. Meet Miss Beazley, First Lady Laura Bush's new Scottish terrier puppy. She was a gift from the president for his wife's birthday back in November, but had to wait to move into her new digs. Today, Miss Beazley met her canine companion Barney and the two got acquainted on the lawn. The dogs are related. Barney's half brother is Miss Beazley's father. You'll recall Mrs. Bush worked as a teacher, so she named Miss Beazley after a dinosaur in a children's book called "The Enormous Egg" Paul.
KANGAS: You know, I have never gotten around to reading that book yet, "The Enormous Egg."
O'BRYON: I'll have to get you one.
KANGAS: Appreciate it.
O'BRYON: That's NIGHTLY BUSINESS REPORT for Thursday, January 6. I'm Linda O'Bryon. Goodnight everyone and good night to you too Paul.
KANGAS: Goodnight Linda. I'm Paul Kangas wishing all of you the best of good buys.
