NBR Transcripts - Feb. 7, 2005
Monday, February 07, 2005PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: Uncle Sam's budget goes by the book, these books, in fact. In them are details of President Bush's $2.5 trillion spending plan for 2006, boosting military and homeland security spending and booting out funding for a wide range of government programs.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Wall Street is being swept up in a flurry of wedding plans these days. So far in 2005, there have been a slew of major mergers and acquisitions, kicking off what some experts say could be the best year for M&A in a long time.
KANGAS: Shares of Clorox were shining on Wall Street today, as the household products maker reported better-than-expected earnings. In fact, much better than expected, with profits more than 50 percent higher than a year ago.
GHARIB: Also tonight, he's a man for all media. Now he wants to be king of Internet commerce as well. We sit down with Barry Diller, chairman of IAC Interactive.
KANGAS: I'm Paul Kangas.
GHARIB: And I'm Susie Gharib. This is NIGHTLY BUSINESS REPORT for Monday, February 7.
Good evening, everyone. President Bush sent Congress a $2.5 trillion budget today. The spending plan for 2006 is one of the most austere presidential budgets in years. Bush's blueprint erases many domestic programs and would leave next year's deficit at an estimated $390 billion. Washington bureau chief Darren Gersh has details.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Bush calls his 2006 budget a lean one. In fact, it is the tightest since Ronald Reagan, the last two-term Republican to hold the oval office.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Our priorities are winning the war on terror, protecting our homeland, growing our economy. It is a budget that focuses on results. Taxpayers of America don't want us spending our money on something that is not achieving results.
GERSH: Overall, the president proposes to spend $2.57 trillion next year, with a deficit of $390 billion or 3 percent of gross domestic product. That's half a percentage point less than last year and the red ink is projected to drop to 1.3 percent of GDP by 2009. But to get there, Mr. Bush wants to cut or eliminate 150 programs and not counting defense and entitlements, keep spending flat for five years. The administration's budget director dismissed charges the plan is already dead on arrival on Capitol Hill. Joshua Bolten told reporters he believes there's a growing desire for fiscal discipline in Washington.
JOSHUA BOLTEN, OMB DIRECTOR: Are we going to get everything we ask for? No. Are we going to get all the program cuts we wanted? No. Are we going to get all the spending increases we asked for? No, I don't expect that. But I think we will get a lot of them. I actually enter into this with a happy spirit. GERSH: Much of the cutting the administration says comes in programs that are redundant or inefficient. Spending on housing programs takes an 11 percent cut next year; farm subsidies down almost 10 percent; funding for Amtrak and transportation down 6.7 percent; EPA funding off more than 5 percent. What's up? Defense, by 5 percent, also homeland security, by 3 percent. The real problem, Democrats say, is what's not in the budget: no additional spending for war in Iraq; no fix for the alternative minimum tax; and very little of the more than $1 trillion it will cost to make the president's tax cuts permanent. Social Security reform also takes place largely outside the administration's five-year budget window.
SEN. KENT CONRAD, (D) NORTH DAKOTA: The president has nothing in his budget to pay for the cost of Social Security privatization. But if you pull back the curtain, here's what you find, $754 billion is the cost for just 2006 to 2015. But look at the 20-year cost of his proposal. There, $4.5 trillion.
GERSH: A more realistic accounting for all those costs, Democrats say, would bring the president's budget to a deficit of $461 billion next year. And that doesn't count any budget cuts both Democrats and Republicans may find hard to sell to the voters back home. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
KANGAS: Stocks posted modest gains this morning amid better- than- expected earnings from Humana, Goodrich and Lubrizol. The Dow was up 12 points early on. The NASDAQ rose a fraction. Then the market turned mixed to slightly lower for the rest of the day as it digested last week's big run up in stock prices. The Dow Industrial Average closed down one-third of a point at 10,715.76. The NASDAQ Composite was off 4 2/3 points to 2082.03. Standard & Poor's 500 Index dropped about 1 1/3 points to 1201.72. In the bond market, the 10-year note rose 8/32 to 101 18/32, putting the yield at 4.06 percent.
KANGAS: The star witness against former WorldCom CEO Bernie Ebbers took the stand in a Manhattan courtroom this afternoon. Under questioning, WorldCom's former finance chief Scott Sullivan, admitted cooking the company's books and identified Bernie as the one person who helped him. Sullivan also admitted he used cocaine and marijuana in the years he worked for WorldCom. Sullivan pleaded guilty to fraud last year and is the key player in this trial. The government says Ebbers was the mastermind behind the $11 billion fraud that drove WorldCom into bankruptcy. Ebbers has pleaded not guilty to charges of conspiracy and fraud.
GHARIB: An acrimonious end today to what would have been a big merger in the banking industry. Riggs National Bank and PNC Financial Group called off their $779 million deal today. Now Riggs' parent company is suing PNC. Here's what happened. Back in July, PNC agreed to buy Riggs for $24.25 a share. But last month, Riggs pleaded guilty to violating a law aimed at preventing money laundering. That spurred PNC to cut its bid to $19.32 a share and Riggs' board rejected it today. Riggs' suit claims it has been harmed and it wants either an unspecified amount in damages or PNC compelled to do the deal under the original terms. Late today PNC said it regrets Riggs' action and hopes it drops the lawsuit.
KANGAS: But while that merger may be off, there's a laundry list of others that are on. 2005 is starting out as a banner year for mergers and acquisitions on Wall Street with some big deals involving some big-name companies. Suzanne Pratt asks the experts why the urge to merge is so strong nowadays.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just five weeks into the New Year and already it's clear on Wall Street that love is in the air-- corporate love that is. Procter & Gamble is tying the knot with Gillette. SBC Communications is buying AT&T. And MetLife is handing over billions for Citigroup's Travelers unit. According to Thomson Financial, which tracks M&A activity, so far 2005 has seen deals with a combined value of $142 billion. Not only does that far outstrip last year's deal-making, but it's the fastest pace since 2000. Most experts say an improved economy and higher stock prices are behind the return of big deals. But they also cite a variety of other factors.
OLIVER CROMWELL, PRESIDENT, BENTLEY ASSOCIATES: You're still seeing a lot of the private equity funds still with a lot of cash and money to invest in deals. I think you're seeing corporations with a lot of cash on the balance sheet and good prospects for earnings, for replenishing that cash. And, third, I think there's a fair amount of good psychology in the market.
PRATT: The rebound in M&A activity actually began in 2003 and carried over into 2004, when both the number of deals and their price tags grew steadily. Most experts are confident the deal-making will continue to accelerate in 2005 as long as the positive factors driving the rebound remain in place.
CROMWELL: I just look at our own firm, and we have far more engagement letters at this time of year compared to last year. So looking at our own deal flow and pipeline as one example I would say yes, we do see it continuing.
PRATT: Curiously, however, the latest merger mania has done little to revitalize the overall stock market. Some strategists believe that could soon change.
TONY DWYER, EQUITY MARKET STRATEGIST, FTN MIDWEST SECURITIES: The increase in the mergers and acquisition activity is a good sign. It shows that there's value in the market and that corporate leaders are willing to spend some cash. That's a big deal when you're looking at valuations after a two-year run, which are still pretty attractive. PRATT: Experts say a continued acceleration in M&A activity doesn't guarantee higher stock prices, but it certainly suggests that corporate America is bullish about the future. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
GHARIB: Oil prices dropped to their lowest level in almost a month today and that's thanks to action or, more specifically, inaction by OPEC. The cartel's member states appear to be leaning towards leaving production levels unchanged through the winter season. That could mean growing fuel stockpiles here in the U.S., where mild winter weather is already cooling off demand for heating oil. In trading on the New York mercantile exchange, light sweet crude for March delivery closed at $45.28. It was off $1.20. That's down almost 10 percent since OPEC's last meeting, January 31.
The sweetener Splenda is it for the folks at Coke. Coca-Cola said today it will roll out a new version of its Diet Coke sweetened with Splenda in the second quarter of this year. It's the latest in a flurry of new drinks aimed at boosting sagging sales at the Atlanta-based company. The Splenda-sweetened soft drink will actually become the seventh product to bear the Diet Coke name. As you know Paul, in addition to the original version, Diet Coke is also sold in lemon lime, vanilla, cherry and caffeine-free versions.
KANGAS: And they're all sweetened with aspartame, Susie. Splenda is being marketed as a product made from sugar. Now let's take a look at our stocks making news tonight Big board volume leader on 29 million shares, Pfizer (PFE) moving up $0.68. There's some optimism that an FDA committee at a meeting next week might decide not to pull the company's Celebrex pain killer off of the market.
Lucent Technologies (LU) a $0.07 gain.
Qwest Communications (Q) down $0.46. "Wall Street Journal" reports that MCI has yet to respond to the company's $6.3 billion buy out bid.
Meanwhile, AG Edwards brokerage downgraded the stock from "hold" to "sell" on a price basis.
ExxonMobil (XOM) up $0.11. Smith Barney upgraded some of the major oils today.
General Electric (GE) a $0.02 loss. That was fifth in big board volume.
Then Time Warner (TWX) a $0.07 drop.
Sprint FON Group (FON) fell $0.60.
EMC Corporation (EMC) managed to gain a penny.
Nokia (NOK) $0.18 loss.
Tenth in volume was Texas Instruments (TXN) with a nickel drop.
Humana (HUM) fell $0.50. Companies fourth quarter earnings fell to $0.29 versus $0.41 last year. However that was $0.02 better than the Street was expecting and the company did boost this year's earnings estimate from $1.95 to $2.05, but analysts note that most of the increase in that would be due to a one-time tax benefit, so not real earnings apparently, according to the analysts.
WellPoint Health Networks (WLP) down $4.04. Fourth quarter earnings sharply lower, $0.92 versus $1.42 last year. That did include a $0.47 loss for the repurchase of high coupon notes.
Allergan Incorporated (AGN) down $4.63. Fourth quarter earnings, a real turn around, earnings of $0.85 versus a loss of $0.70 a year ago, but the company sees first quarter earnings dropping to $0.66 to $0.67 and that's well below the Wall Street estimate of $0.75 a share.
Clorox (CLX) up $0.58. Second quarter operating earnings up over 50 percent to $0.72 a share versus only $0.47 last year.
Goodrich (GR) moved up $0.93. Fourth quarter earnings up 62 percent, $0.30 versus only $0.19 a year ago.
And Lubrizol Corporation (LZ) had a great day, up $3.22. Company in with fourth quarter earnings of $0.51, well above $0.40 a year ago. Revenues rose 14 percent and the company is predicting first quarter earnings will be $0.67 to $0.73, well above the fourth quarter level.
Nam Tai Electronics (NTE) up $1.28. Fourth quarter earnings higher $0.24 versus $0.19 a year ago, $0.02 above the Street estimate and revenues soared 41 percent. The company is going to boost the 2005 cash dividend to $1.32 a share. That's way up from $0.48 annually before.
Hasbro (HAS) up $0.40, slightly higher fourth quarter earnings there, $0.44 versus $0.41 a year ago. And then Cypress Semiconductor (CY) moved up $0.37 after the Piper Jaffray brokerage upgraded it from "market perform" to "out perform."
Corning (GLW) Incorporated up $0.44. The story here Needham Security brokerage upgraded it from "buy" to a "strong buy." NASDAQ's volume leader, NASDAQ 100 (QQQQ) down $0.08.
And then Google (GOOG) down $8.33, profit taking after sharp recent rise.
Microsoft (MSFT) fell $0.16.
Intel (INTC) a $0.09 loss.
Cisco Systems (CSCO) bucked the trend, up $0.26 a share, fifth in dollar volume.
eBay (EBAY) a $0.29 loss.
A dime gain in Apple Computer (AAPL).
An $0.11 drop in Oracle (ORCL).
Juniper Networks (JNPR) up $0.17.
And QUALCOMM (QCOM) fell $0.97.
RealNetworks (RNWK) off, up $1.17. This week's "Barron's" financial has favorable comments and suggests the company could be a takeover target.
Axonyx (AXYX), look at that loss, almost 63 percent, down $3.05. It's a drug developer and late stage trials for the company's Alzheimer treatment proved to be ineffective, down went the stock.
And Sohu.com (SOHU), this is a Chinese Internet advertising agency. Fourth quarter earnings dropped to $0.17 from $0.28 a share last year. The company predicting first quarter earnings of $0.14 to $0.16 and that's well below the $0.18 Wall Street estimate.
And those are the stocks in the news tonight. Susie.
GHARIB: Paul, media mogul Barry Diller has a new mission: to rule the web. His company, IAC Interactive owns more than two dozen Internet businesses from Expedia to LendingTree to match.com. Analysts call IAC one of the four horsemen of the Internet, along with Amazon, Yahoo! and eBay. Recently Erika Miller talked with Diller and began by asking him why he's spinning off Expedia into a separate company.
BARRY DILLER, IAC/INTERACTIVECORP: When this company is spun off into what will be called Expedia, it will be quite clear to all exactly what it does and it will be more easily understood as a pure box play of itself, for those people who are interested in it.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: I was taking a look at your stock chart and I noticed that IAC stock is down about 20 percent in the past year. What do you think it will take to really ignite the stock?
DILLER: As people begin to understand and it settles as to what we're doing, as we're able to tell the story of IAC, the company that has got great stable businesses, many emerging businesses, and a balance sheet that would kill a horse, meaning we are very overcapitalized. So I think people will look at it and say, OK, I think that's worthy of investing in. And I think the same is particularly true in travel. I think when travel stands alone, I think given its size and its dominance and all of its stories, I think begin to resonate and get heard.
MILLER: You once said that your goal is for operating profits to rise between 25 and 30 percent a year, then you seemed to back away from that. Where do you stand now?
DILLER: What we did, wish we hadn't, I think really ill advised. What we did is in order to talk about our businesses, a year and a few months ago, we said we had stretch goals that over five years would result in $3 billion a year of operating income, which by the way, when you divide it is backwards, with about 30 percent a year. That was our stretch goal for the company. What happened of course is people said, well, that's what we expected to achieve.
MILLER: Is it still your stretch goal?
DILLER: I mean, sure. I think we can grow better than the average. I think we can absolutely grow in double digits, and we've never not, but to put a precise tag on it that anybody should believe? Makes no sense.
MILLER: Can you talk about what's next at IAC? What do you see as the next big opportunity for your company?
DILLER: I think we really are at the beginning. I don't think we're far into this process at all. Since 1995 when the Internet started getting used by normal people, it's about 10 years later. It is a radical revolution. More and more people are going to be using this magic box to do things with, because it's going to make their lives in so many respects easier, and because of that and because of its depth and breadth, it will without any question enrich people's lives. And so I think it's all over the place, the opportunity.
MILLER: And what about frugal and services like that that make comparison shopping on the Internet easier, will that cut into margins?
DILLER: The Internet can be of course a margin killer to the degree that in fact you're transparent. So you better have efficient goods and or services, because otherwise somebody else is going to come in and dis-intermediate you, take you out of whatever in the chain you are. But frugal and other developments, they're just really good competition. They just make you say what's my service, what am I doing for the consumer that they should pay attention to me?
MILLER: Reporter: what's next for you? There has been some speculation that you might be a good candidate to replace Michael Eisner at Disney when he retires?
DILLER: It's insane on many, many levels.
MILLER: Absolutely positively.
DILLER: Absolutely, positively, unquestionably on every level, no.
MILLER: Barry Diller, thank you very much.
DILLER: Thank you.
KANGAS: Tomorrow, we know what it is to own a house or a car. So what exactly is an "ownership society"?
GHARIB: A spectrum swap for Nextel today. Nextel has agreed to give back a $2 billion chunk of airwaves that interfered with airwaves used by public safety agencies. In exchange, the Federal Communications Commission will give the wireless phone company cash for relocating current users and a swath of 10 mega-hertz spectrum. Those airwaves can handle new high- frequency services like wireless web browsing. The package is valued at almost $5 billion.
KANGAS: A financial commentator is in hot water tonight for allegedly getting paid to tout a stock. The SEC today filed civil charges against Courtney D. Smith, claiming he was paid over a million dollars to hype shares of Genesis Intermedia during appearances on CNBC, CNN, and Bloomberg TV. The U.S. attorney in central California has also filed criminal charges against Smith.
GHARIB: Here's a look now at what's happening for tomorrow. On the economic calendar, weekly retail sales come out. Also tomorrow, earnings from Alcan Aluminum, Cisco Systems, Marriott International, Prudential Financial and Taser International.
Consumer spending has been a mainstay of the economy in the recent years, but tonight's commentator says that may not be the case in coming years. Here's Bernard Baumohl, executive editor of the economic outlook group and author of "The Secrets of Economic Indicators."
BERNARD BAUMOHL, EXEC. DIR., THE ECONOMIC OUTLOOK GROUP: When it comes to forecasting consumer spending, economists have a less-than-stellar track record. It seems no computer model of the economy can predict with any reliability how consumers will behave in the future. In a way, that's understandable since people are inherently unpredictable. But to forecasters, this can be maddening because consumer spending represents 70 percent of all economic activity. Take the latest example: households have been on a non-stop shopping spree for the last 13 years with total spending higher each year. Economists have been asking how much longer this can go on. After all, spending has increased more than personal income, which means that to pay for all this shopping, Americans have had to dig into savings and borrow heavily. Indeed, in less than 10 years, the savings rate has plummeted from 6 percent to virtually zero and household debt has doubled to $10 trillion. With interest rates now rising, paying off that debt becomes more expensive. So will consumers finally take a break from shopping this year? That's what many computer models are projecting and this is not necessarily a bad thing for the economy. A pause in spending gives people a chance to replenish their savings and also helps reduce the trade deficit. It's all makes perfect sense. Yet this is precisely where economists get into trouble. Whenever you try to anticipate human behavior, logic and computer models usually turn into a trap. I'm Bernard Baumohl.
KANGAS: Recapping today's market action, stocks end the day pretty much where they began. The Dow loses just a fraction, while the NASDAQ Composite falls 4 1/3 points. To learn more about the stories in tonight's broadcast, go to nbr.com.
GHARIB: And finally tonight, it's a status car brand with a lot of high-octane frills, powerful engines, sleek styling, soft leather seats... Well, maybe not the last one. Mercedes Benz now says it will offer leather-free versions of all of its luxury cars in order to pacify an animal rights group. The German chapter of People for the Ethical Treatment of Animals, or PETA, says thousands of cows are killed each year just for leather car seats. So, Paul, Mercedes says customers can get fabric or synthetic leather as alternatives to the real thing.
KANGAS: Sounds like a worth while option to me. Why not?
GHARIB: Why not? That's NIGHTLY BUSINESS REPORT for Monday, February 7. I'm Susie Gharib. Good night, everyone. Good night to you, Paul.
KANGAS: Good night, Susie. I'm Paul Kangas, wishing all of you the best of good buys.
