NBR Transcripts February 1, 2005
Tuesday, February 01, 2005PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: Google is going strong. The online search engine reports solid fourth quarter earnings with revenues coming in much higher than expected. And that sends Google's stock heading skyward in after hours trading.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: This man says fraud in the telecom industry played a big role in why one of America's oldest companies has agreed to be bought out by a competitor. And we talk to him about it. He's David Dorman, chairman of AT&T, soon to be part of SBC Communications.
KANGAS: This family-run Midwestern department store chain says bigger isn't necessarily better when it comes to retailing. It thinks better service is a better bet. We profile the Von Maur stores.
GHARIB: And home, sweet homes have been a sweet spot for investors in recent years. We'll talk with the manager of one mutual fund that has been hammering down profits with a portfolio of property.
KANGAS: I'm Paul Kangas.
GHARIB: And I'm Susie Gharib. This is NIGHTLY BUSINESS REPORT for Tuesday, February 1.
Good evening, everyone. Investors go gaga over Google tonight. The stock skyrocketed to as much as $210 in after-hours trading, a gain of almost 10 percent, after the search engine reported big increases in revenues and profits in its fourth quarter. Factoring in special charges, Google earned $0.71 a share in the period. The earnings are a bit below what analysts had expected, but their estimate didn't figure in the charges. Also impressing investors, Google's revenues doubled to just over a billion dollars and that's thanks to increased advertising and traffic on its web site. Analysts say the results should remove any doubts about Google's growth potential.
DAVID GARRITY, MANAGING DIRECTOR, CARIS & COMPANY: It's difficult to argue with a company when it's having billions of dollars of advertising revenue thrown at it. It's one thing to have heard back in the late 1990s when various Internet analysts were talking about eyeballs. Here we are actually talking about hard cash. Hard cash is obviously something investors will feel far more comfortable paying for and it's certainly an opportunity that has a great deal left to be exploited in it.
GHARIB: Google also says it is working on an improved desktop search engine, which it will only say is coming soon. By the way, the company went public, you'll recall, back in mid-August at $85 a share.
KANGAS: The president spent time today practicing his state of the union speech for tomorrow night. He's now on draft 17. A senior administration official says the big issue on the domestic side will be Social Security. Mr. Bush will explain why he believes it is necessary to permanently fix the system. One aspect of that may be improving benefits for the very lowest wage workers. Darren Gersh reports. DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: About one out of every 10 older Americans now lives in poverty. While Social Security has done much to relieve the hardship of retirement, it does not currently guarantee that those who work their entire lives will not end up poor. Reformers want to change that. Today, the only bipartisan group of lawmakers to put forward a reform bill this year made correcting that a top priority.
REP. JIM KOLBE, (R) ARIZONA: Ours would provide at least a poverty- level payment. Then, the personal account would be on top of that. And we have another provision in the personal account for the government to match for low income people that can't put very much in.
GERSH: Raising the minimum guaranteed Social Security benefit was also a top priority for the president's commission on Social Security reform. Under one plan, the president's commission proposed workers earning the minimum wage for 30 years would be guaranteed a retirement benefit of 120 percent of the poverty rate. Currently, the poverty rate is just under $9,000 for an individual. So if the commission's plan were in effect now, the minimum Social Security benefit for 30 years of work would be $10,776. But skeptics say the current Social Security system also provides disability insurance and survivors' benefits, which are especially important for low-wage workers. The president's commission did not say how those benefits will be preserved under a system of personal accounts.
WILLIAM SPRIGGS, ECONOMIST, ECONOMIC POLICY INSTITUTE: That hasn't been spelled out. He hasn't let out enough details to say that yes, that would be a better deal.
GERSH: And other reformers say the best way to help low-wage workers escape poverty is to give them the largest possible personal account.
PETER FERRARA, SOCIAL SECURITY ANALYST, FREE ENTERPRISE INSTITUTE: This is a first opportunity to give low income workers a chance to also accumulate their share of ownership in the nation's economy.
GERSH: (INAUDIBLE) said a minimum benefit if at all is one of many issues reformers must address. A senior administration official says the president will provide more details in his state of the union speech tomorrow on how to move the Social Security debate forward. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
KANGAS: Stocks opened modestly higher on an easing of oil prices, an upgrade on ExxonMobil stock and a jump in American Express, which announced plans to spin off one of its units. At mid-morning, the Dow was up 33 points, NASDAQ up five. Better than expected earnings from Valero Energy coupled with optimism over those after-the-bell earnings from Google extended the gains in afternoon trading, so the Dow Industrial Average closed up 62 points right on the button on 10,551.94. NASDAQ Composite up 6 1/4 points at 2,068.70. Standard & Poor's 500 gained 8.14 to 1189.41. In the bond market, the 10-year note fell 3/32 to par and 27/32 putting the yield at 4.14 percent.
GHARIB: More details today about the massive merger of SBC Communications and AT&T. At an analyst meeting in New York City, SBC said it expects the combined company to cut almost 13,000 jobs, with the bulk coming from network efficiencies. The chairmen of both companies made their first public appearances together, as well, saying the $16 billion merger is a great match. Suzanne Pratt sat down with one of those men today, AT&T's Dorman and began by asking him, why he agreed to join forces with SBC.
DAVID DORMAN, CHAIRMAN & CEO, AT&T: We have huge technology changes, enormous impacts from fraud. Five companies engaged in the telecom industry have reported significant fraud. Obviously everyone knows WorldCom MCI, but we also had Enron and Tyco who had big fiber optic divisions as well as Global Crossing and Qwest, who've all had reported fraud. Those all mixed together, created a very difficult environment.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Did you really feel that you had no choice?
DORMAN: No. The opportunity to combine with SBC, if you step back and look at it has a company that's largely focused in the consumer business, branching into video, SBC, just beginning to get into the enterprise space, where we and many other people are and we on the other hand, exiting the consumer business. So you have pieces of the puzzle that fit together perfectly with very little overlap.
PRATT: Did you feel any pressure in a historic sense, in bringing about the demise of Ma Bell, the American institution?
DORMAN: I did have a sense that this was an important American company and being able to combine with SBC allows the U.S. to have a global leader in telecom amongst all the carnage we've seen in telecom in the last five years.
PRATT: So what about the AT&T brand name? Are you keeping it?
DORMAN: That's really Ed Whitacre's decision. I mean, let's face it; AT&T has the most recognized communications brand certainly in the U.S., if not the world. And that has great value and Ed knows that and I'm sure he'll take all that into consideration.
PRATT: Do you think that there's anything that AT&T could have done differently, looking back over the last 20 years, to avoid putting itself up for sale?
DORMAN: A lot of things happened that no one could have anticipated. When I think when Mike Armstrong came here in ‘97 and embarked on a strategy to buy cable companies, integrate them, we arguably had a great set of assets with cable, wireless and our enterprise business that I just described all under one roof. But we did it at a time when there was a heady market. The explosion of the Internet, long distance competition was heating up. Little did we know at that time what was driving that competition had a lot of fraud underpinning it. People needing to get revenue and sort of making it up and lowering prices, supported by fictitious financials. No way Mike could have known that, but because of the fact that we did a pay significant price to acquire the cable companies, as it turned out, as things in the economy got worse and the bubble burst, our ability to keep all those businesses together, given the amount of debt we had, was impossible.
PRATT: Let's talk about price. There's virtually no premium. How do you justify the price to AT&T shareholders?
DORMAN: Any time a transaction leaks, you're going to have wild gyrations, potentially in a stock, depending on who likes the deal, who doesn't like the deal, what's the rumor? Where is its going to come out? What I think we have to remember is, what were the trading ranges of these stocks prior to the leak? If you look at a one week, one month, three month, six month, the AT&T shareholders on a six-month basis are getting a very tidy premium.
PRATT: With all the recent consolidation, have we come full circle back to 1984 before the breakup of AT&T?
DORMAN: 1984 we had one company, AT&T, one company. We had two tiny, very new long distance companies, Sprint and MCI who were insignificant at that point in time. And then we had the seven Bell companies that came out of the divestiture. If you look today, we have a very powerful national Verizon company that sells wireless everywhere, serves millions of consumers. We have SBC. We have Bellsouth. We have Qwest. We have AT&T. We have the new MCI. We've got all these different players. They're not going away.
PRATT: Mr. Dorman, thank you for speaking with NIGHTLY BUSINESS REPORT.
DORMAN: Thanks a lot.
KANGAS: The nation's biggest automakers kicked off the new year with a mixed bag of sales. General Motors said sales rose just 1 percent last month. GM says tough weather throughout the nation was to blame for sluggish sales. It's also cutting its first quarter production schedule by 25,000 vehicles or about 2 percent. An even tougher month for Ford Motor, January sales fell 12 percent to just 201,000 cars and trucks. Ford is also trimming production by about 10,000 vehicles or 1 percent. But it was a brighter story at Daimler-Chrysler's American Chrysler unit. Sales posted a huge jump, rising 9 percent. The company credits its new products for the strength, especially its Chrysler 300 sedan.
Now let's take a look at our stocks in the news tonight.
Big board volume leader, a familiar name, Pfizer (PFE) trading 32.7 million shares today, down $0.30.
Tyco International (TYC) fell $1.63. First quarter earnings came in at $0.42 a share. That was just in line with Street estimates and the company says second quarter earnings will be at the low end of its $0.45 to $0.47 per share guidance. That's what hurt the stock apparently.
Sprint FON Group (FON) up $0.35.
And American Express (AXP) really helped the Dow, rising $3.40. The company plans to spin off to shareholders its American Express financial advisors unit.
Citigroup (C) in there with a $0.43 gain, fifth in volume.
Then Lucent Technology (LU) dropped a penny.
General Electric (GE) moving up $0.15.
ExxonMobil (XOM) a gain of $1.67. Yesterday of course it had record fourth quarter earnings of $1.30, which we reported and today, Bear Stearns brokerage upgraded it from "peer perform" to "out perform."
SBC Communications (SBC) up $0.16.
And its merger target AT&T (T) down a nickel a share.
Disney (DIS) was up $0.17. Chairman George Mitchell said today the company is on track to name a successor to Michael Eisner. President Bob Eiger is the hands of favorite to succeed Eisner.
American Standard Companies (ASD) a good gain of $3.22. Company in with a fourth quarter loss of $0.41, but that's due to one time big asbestos charge. Excluding that, the company had earnings of $0.46 a share, $0.04 above the Street estimate, it initiating a quarterly dividend of $0.15. It's going to buy back up to $400 million of its own stock and Standard & Poor's repeated a "strong buy" recommendation today.
Valero Energy (VLO) up $4.93, big jump in fourth quarter earnings to $1.89, versus the Street estimate of $1.44. So it's doing much better than expected.
Alliance Gaming (AGI) up $1.87. Second quarter loss of $0.15, but CIBC brokerage said that's not as bad as expected, even though it's versus earnings last year and the company does seen a profitable second half of this year.
Chicago Mercantile Exchange (CME) stock tumbling $23. It traded as low as $186.10. Fourth quarter earnings higher, $1.64 versus $0.87, but that was a nickel below the Wall Street consensus.
Manpower (MAN) losing $5.29. Fourth quarter earnings, $0.73, up from $0.61 last year, but it says first quarter earnings will drop all the way down to $0.34 to $0.37 a share.
Zimmer Holdings (ZMH) up $8.55. Fourth quarter earnings sharply higher, $0.81 versus $0.15 last year. Revenues rose 14 percent. The company boosted this year's earnings guidance by $0.06 to around $2.90 a share and on top of that, Standard & Poor's upgraded it from "hold" to a "strong buy" today.
Royal Caribbean Cruises (RCL) fell $3.65. Company reported a bigger loss in the fourth quarter than last year, minus $0.13 versus minus $0.10 then. Company cited higher fuel costs and of course hurricanes.
WMS Industries (WMS) down $2.86. Second quarter earnings of $0.12 versus a loss of a penny last year, but that was $0.03 below the Street estimate. On top of that, JPMorgan removed the stock from its focus list.
NASDAQ 100 (QQQQ) topped the active list, moving up $0.12.
And then Google (GOOG) down $3.72 in regular trade, but you know it went to $210 after the close.
eBay (EBAY) down $3.57.
Microsoft (MSFT) moved up $0.11.
Intel (INTC) an $0.18 gain, fifth in dollar volume.
Research In Motion (RIMM) up $4.68. The stock broke above a 20-day moving average and market technicians like that.
Cisco Systems (CSCO) $0.09 gain.
$0.63 rise in Apple Computer (AAPL).
Nextel Communications (NXTL) a $0.72 gain.
And then Applied Materials (AMAT), tenth in volume, up $0.50.
Ariba (ARBA) down $4.50, huge percentage drop. Company reported a fourth quarter loss of $0.16 versus earnings of $0.13 a share a year ago.
And then CTI Molecular Imaging (CTMI) up $2.63. The company quadrupled its first quarter earnings over last year, $0.08 versus $0.02 then. Revenues jumped 50 percent and the Piper Jaffray brokerage upgraded it from "market perform" to "out perform."
Those are the stocks in the news tonight, Susie.
GHARIB: Paul, The real estate sector has been amazing the skeptics for several years now and one real estate mutual fund that's consistently near the top of the group is Alpine U.S. real estate equity fund. During the last year, it gained more than 43 percent but more impressively it came in with annualized gains above 30 percent during the past five years, not to mention a better than 17 percent annualized gain since its founding more an 11 years ago. Sam Lieber has been the fund's manager during the entire stretch and Sam, welcome to NIGHTLY BUSINESS REPORT.
SAM LIEBER, ALPINE U. S. REAL ESTATE EQUITY FUND: Great to be here Paul.
KANGAS: That's quite an impressive track record. With all the investment possibilities in real estate, how do you decide where to put your money from the fund?
LIEBER: I must tell you that part of the opportunity we have is that we have a broader sandbox, in essence, a larger investment universe to play in and that of course, we like to think that careful stock selection has helped us, but frankly our ability to move between REITs or other dividend yielding stocks and as well as home builders and hotel companies, developers or asset places help considerably.
KANGAS: I understand that your fund is mostly invested in home builder stocks with lesser amounts in hotel stocks and then other types of REITs. Don't you see these groups as being a little overvalued or are there still some under valuation this late in the cycle?
LIEBER: Well, it's an interesting comment. REITs are traditionally, they've run a little bit ahead of themselves at this stage in the cycle. The early part of the recovery period often they overshoot a little bit where they're now with REITs. Home builders however have been climbing this wall of worry where they're still trading at seven and a half times to eight times earnings right now. That's very attractive, considering they have double digit growth, 35 percent compounded annual growth the last five years for the group. So that's very good and hotels of course have a very attractive position now with strong demand and limited new supply for the next couple of years.
KANGAS: What individual stocks, Sam, do you like now?
LIEBER: We like, for example, Gaylord Entertainment, which is a lodging play. And a special niche one in the conference center, we like Sun Stone Hotels, which has a 5.5 percent yield, a hotel REIT. We also like Toll Brothers and Hovnanian Enterprises. Toll Brothers caters towards the higher end housing buyer and has done extremely well, has 70 percent growth in their backlog last year. We think they're going to have 35 percent growth going forward in earnings, a great story. And Hovnanian is cheap.
KANGAS: Sam, do you personally own any of those stocks you mentioned?
LIEBER: Yes, I own all those through the mutual funds.
KANGAS: OK. Now some people think if the Fed keeps raising rates, then real estate prices could come tumbling down. First of all, do you buy that and secondly, have you done anything to hedge your fund against that risk?
LIEBER: We haven't yet. We do think that there is one of two scenarios can unfold. We believe that we'll see actually a relatively moderate recovery, modest job growth with rates staying within 100 basis points, which is fine, actually a great spot for real estate with modest growth. However, if we do see a spike in rates, particularly if it comes from some reason other than the economy growing. Let's say the dollar weakens significantly. That could be detrimental. We would shift the portfolio very rapidly if we see that happen. We don't have to be so high in home builders. We have been 15 percent. We happen to be over 50 now. We can change that.
KANGAS: Thanks very much Sam. I've afraid our time is up, but let's hope that you can keep up your amazing performance for the long-term.
LIEBER: I appreciate that. We'll try.
KANGAS: My guest Sam Lieber of the Alpine U.S. real estate equity fund.
KANGAS: Tomorrow, it's your financial future. Some questions to ask before getting help with your portfolio.
GHARIB: American Airlines has an offer you can't refuse. It's offering a lowest fare guarantee for tickets purchased on its web site. The nation's largest airline says customers will find the best fares for its flights on aa.com. Prove that wrong, and the carrier will refund the difference and give customers a $50 travel voucher. But American says the guarantee isn't good on ticket consolidators like Priceline.
KANGAS: More changes to TiVo's management. Today, President Marty Yudkovitz resigned for personal reasons. His departure comes just three weeks after Michael Ramsay announced plans to step down as chief executive, but remain TiVo's chairman. The digital video recorder maker says Yudkovitz' departure is unfortunate, but there are no immediate plans to replace him. TiVo stock fell $0.17 to close at $3.84.
GHARIB: Here's a look now at what's happening tomorrow. The Federal Reserve issues its decision on interest rates and President Bush delivers his state of the union address. Also tomorrow, earnings from amazon.com, Anheuser-Busch and Boeing.
KANGAS: The family-owned department store chain is nearly extinct these days on the American retailing scene, thanks to consolidation in the industry. But in the Midwest, one family-owned chain isn't looking for a merger. As Diane Eastabrook reports, von Maur says staying single is helping it survive.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the often rough and tumble world of retailing, von Maur is the gracious competitor. You won't find cluttered shelves or sales promotions in these Midwest department stores. What you will find is free gift wrapping and shipping, along with interest-free credit. Interestingly, von Maur never has advertised, saying it spends the extra money on more employees and service. The company says that service has helped it survive and thrive for more than 130 years.
JIM VON MAUR, PRESIDENT, VON MAUR: Really, it's been good for us because I think we have set ourselves apart in terms of our service and the way we merchandise.
EASTABROOK: CJ Von Maur opened his first store in Davenport, Iowa, in 1872. Back then, it was a dry goods business that sold everything from bedding to brooms. Today, great-grandson Jim is heading the private family-run chain. The 35-year-old worked at Marshall Fields and Nordstrom before joining the family business a decade ago. He thought good service and short inventory cycles were lacking at those retailers, so he's continued to make them a hallmark at von Maur.
VON MAUR: Fashion is what gets a customer excited. They want to see something new and we really believed in keeping the store fresh and new and that is what attracts customers to a store.
EASTABROOK: Most of Von Maur's 22 stores are in newer malls. But the company admits it would like to open more stores in older, well established malls where there is a lot more traffic. Analysts say consolidation within the department store industry should allow the company to do just that.
NEIL STERN, RETAIL CONSULTANT, MCMILLAN/DOOLITTLE: Federated, Mays, Saks. They're closing stores. I mean they're shutting unproductive assets and that's leaving vacancies in malls, and it's leaving opportunity to von Maur.
EASTABROOK: Still, Stern warns von Maur needs to be cautious when selecting sites because one or two poor locations could sink the small chain. But the company assures that won't happen. Von Maur doesn't plan to open more than two new stores a year or expand outside the Midwest. Jim von Maur concedes as the chain grows, it may be forced to advertise. But for now, von Maur is happy to let its customers sing its praises. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Davenport, Iowa.
PAUL KANGAS: The real estate sector has been amazing the skeptics for several years now and one real estate mutual fund that's consistently near the top of the group is Alpine U.S. real estate equity fund. During the last year, it gained more than 43 percent but more impressively it came in with annualized gains above 30 percent during the past five years, not to mention a better than 17 percent annualized gain since its founding more an 11 years ago. Sam Lieber has been the fund's manager during the entire stretch and Sam, welcome to NIGHTLY BUSINESS REPORT.
SAM LIEBER, ALPINE U. S. REAL ESTATE EQUITY FUND: Great to be here Paul.
KANGAS: That's quite an impressive track record. With all the investment possibilities in real estate, how do you decide where to put your money from the fund?
LIEBER: I must tell you that part of the opportunity we have is that we have a broader sandbox, in essence, a larger investment universe to play in and that of course, we like to think that careful stock selection has helped us, but frankly our ability to move between REITs or other dividend yielding stocks and as well as home builders and hotel companies, developers or asset places help considerably.
KANGAS: I understand that your fund is mostly invested in home builder stocks with lesser amounts in hotel stocks and then other types of REITs. Don't you see these groups as being a little overvalued or are there still some under valuation this late in the cycle?
LIEBER: Well, it's an interesting comment. REITs are traditionally, they've run a little bit ahead of themselves at this stage in the cycle. The early part of the recovery period often they overshoot a little bit where they're now with REITs. Home builders however have been climbing this wall of worry where they're still trading at seven and a half times to eight times earnings right now. That's very attractive, considering they have double digit growth, 35 percent compounded annual growth the last five years for the group. So that's very good and hotels of course have a very attractive position now with strong demand and limited new supply for the next couple of years.
KANGAS: What individual stocks, Sam, do you like now?
LIEBER: We like, for example, Gaylord Entertainment, which is a lodging play. And a special niche one in the conference center, we like Sun Stone Hotels, which has a 5.5 percent yield, a hotel REIT. We also like Toll Brothers and Hovnanian Enterprises. Toll Brothers caters towards the higher end housing buyer and has done extremely well -- has 70 percent growth in their backlog last year. We think they're going to have 35 percent growth going forward in earnings, a great story. And Hovnanian is cheap.
KANGAS: Sam, do you personally own any of those stocks you mentioned?
LIEBER: Yes, I own all those through the mutual funds.
KANGAS: OK. Now some people think if the Fed keeps raising rates, then real estate prices could come tumbling down. First of all, do you buy that and secondly, have you done anything to hedge your fund against that risk?
LIEBER: We haven't yet. We do think that there is one of two scenarios can unfold. We believe that we'll see actually a relatively moderate recovery, modest job growth with rates staying within 100 basis points, which is fine, actually a great spot for real estate with modest growth. However, if we do see a spike in rates, particularly if it comes from some reason other than the economy growing. Let's say the dollar weakens significantly. That could be detrimental. We would shift the portfolio very rapidly if we see that happen. We don't have to be so high in home builders. We have been 15 percent. We happen to be over 50 now. We can change that.
KANGAS: Thanks very much Sam. I've afraid our time is up, but let's hope that you can keep up your amazing performance for the long-term.
LIEBER: I appreciate that. We'll try.
KANGAS: My guest Sam Lieber of the Alpine U.S. real estate equity fund.
GHARIB: And recapping today's market action, a big jump in American Express stock charges up the Dow. The blue chips gain 62 points, and the NASDAQ adds six. To learn more about the stories in tonight's broadcast, go to nbr.com. And that's NIGHTLY BUSINESS REPORT for Tuesday, February 1. I'm Susie Gharib. Goodnight, everyone and good night to you, Paul.
KANGAS: Goodnight, Susie. I'm Paul Kangas wishing all of you the best of good buys.
