NBR Transcripts - February 16, 2005
Wednesday, February 16, 2005PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: There's profit in those printers. Hewlett-Packard (HPQ) reports better than expected earnings late today, boosting its stock in after hours trading. It's welcome news for the tech company, which has seen a week of turmoil after its CEO was ousted unexpectedly.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: The chairman of the Federal Reserve says the economy is doing well these days, but the same thing can't be said about Social Security. Alan Greenspan gives Congress ideas on how he thinks Social Security should be revamped and his main watchword is caution.
KANGAS: Investors put some sparkle in the stock of soft drink maker Coca-Cola (KO) as the company posts solid financial results for the fourth quarter.
GHARIB: This retired couple is coping with the rising cost of Medicare and they are definitely not alone. Tonight, a look at why Uncle Sam's biggest health plan is facing an unhealthy future and what can be done about it, as our series "off the charts" continues.
KANGAS: I'm Paul Kangas.
GHARIB: And I'm Susie Gharib. This is NIGHTLY BUSINESS REPORT for Wednesday, February 16. Good evening, everyone.
Upbeat earnings news at Hewlett-Packard after a week of management turmoil. After the closing bell today, the computing giant reported better than expected quarterly earnings and sales the first financial look at the company since its controversial CEO Carly Fiorina was ousted last week. Hewlett-Packard earned $0.37 a share in its fiscal first quarter. That was $0.03 more than estimates and revenues jumped almost 10 percent to $21.5 billion. For its current second fiscal quarter, Hewlett said it expects per share earnings of $0.35 to $0.37 and a slight increase in revenues of up to $21.6 billion. In after hours trading, the stock rose as much as 2.5 percent and has risen more than 4 percent since Farina's departure.
Joining us now to talk more about the outlook for Hewlett-Packard, Frank Gillett, technology industry analyst at Forrester Research. Nice to have you on the program, Frank.
FRANK GILLETT, TECHNOLOGY ANALYST, FORRESTER RESEARCH: Hi Susie, thanks.
GHARIB: I know you listened in on the analyst call this afternoon. From what you heard, what kind of shape is Hewlett-Packard in?
GILLETT: They seem to be going right on track. They did what they promised they would do and that's deliver the revenue and the earnings. What it shows is that it's not the CEO's issue for this quarter's earnings. It's a longer term issue.
GHARIB: You know, it's interesting, as I listened on the call and I wasn't surprised but there was no mention of Carly Fiorina on that call and it seemed like the company was going pretty much out of its way to show it's business as usual. It's the status quo and we are getting on with things. Is that your take on it?
GILLETT: Yeah, they definitely were doing that. In fact they said, you know, we don't want to talk about anything except the earnings. But you know, what they were not addressing is this fundamental question of how they are going to crack the problem of getting the stock price up, getting the revenues up and demonstrating that HP's fundamental strategy of better together all these businesses under one roof will work.
GHARIB: Let's talk about that a little more. Is that the fundamental issue? Is that the fundamental challenge of HP at this point?
GILLETT: Sure, because the financial analysts are arguing that the company would be worth more broken up. The industry analysts like myself who think about the products and the customers, believe that there is some synergy in buying all this from one company but we don't believe HP is really fundamentally proven it in a way that makes a difference with customers.
GHARIB: If you were advising the company, what would you be telling them to do?
GILLETT: Well, the thing that we think they need to do is get much clearer about how they compete with low cost technology providers like Dell (DELL) and premium technology providers like IBM (IBM) and Apple (AAPL) and right now trying to do all that under one roof is trying to be say a car mechanic and an English teacher at the same time. It's very tough to do. And you can't find, you know, people or organizations that can do that easily.
GHARIB: There still isn't a new CEO and it's going to be a while before that happens. But if you could project a look ahead two years from now, what do you think HP is going to look like?
GILLETT: To follow through on your previous question, what this is really about is sharpening the organization so that they've got a bunch of people who think only about low cost technology solutions to compete with Dell and other providers and others who think only about premium technology solutions and we saw maybe a hint or a first step when the head of the imaging and personal systems group announced that within his overall business unit, he had brought together the people who think about consumer printers and the people who think about consumer PCs into one organization. And so that's the beginning of creating a Dell clone within that overall larger business unit. And I think you will see more of that kind of discipline, that attempt to - from thinking about the customer in the same way that their competitors do within their overall structure. So if we look out two years, that means potentially that we see a low price technology business unit. So reconfiguring from today, that means pulling some of the low priced enterprise technologies together with those consumer PCs and then conversely, a premium technology unit that's focused on competing with IBM for big business and government customers.
GHARIB: So during this period where Hewlett-Packard is going to try to figure out which way it wants to go and is also on a management search, what competitors are going to benefit from this period of transition?
GILLETT: Our survey data says that with the uncertainty around IBM selling its PC unit, that in fact HP is in a position to capture some of IBM's customers who may be uncertain. So the kind of things that we'll see is folks like Dell trying to pressure HP harder and we see a little bit of an indicator in that in the fact that the revenues affect the prices of consumer printers seem to decline in this most recent quarter. What we'll also see is IBM trying to press advantage with its professional services unit. Now what you have to keep in mind, as you look at all this, is that in fact HP is doing rather well. The problem is they haven't gone sort of the last tenth of the mile and convinced us they can make this work.
GHARIB: I'm sorry Frank. We're going to have to leave this here. We've run out of time but we appreciate your thoughts.
GILLETT: No problem, thank you.
GHARIB: Thank you for coming on this program. We have been speaking with Frank Gillett of Forrester Research.
KANGAS: An optimistic assessment of the economy today from the chairman of the Federal Reserve. Alan Greenspan told Congress the economy is doing well and the Fed's keeping an eye out for signs of inflation. But while that view was re-assuring, lawmakers wanted to hear Mr. Greenspan's views on a more pressing issue: Social Security. Darren Gersh reports.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Alan Greenspan chaired the commission that pushed through the last overhaul of Social Security in 1983, so lawmakers were eager to hear his views on the president's ideas for reform. The Fed chairman told Congress to be careful when it comes to borrowing to fund a transition to a system of personal accounts. Financial markets, Mr. Greenspan said, may or may not be ready to deal with trillions of dollars in long-term Social Security liabilities.
ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN: And if we were to go forward in a large way and we were wrong, it would be creating more difficulties than I would imagine. So if you're going to move to private accounts, which I approve of, I think you have to do it in a cautious, gradual way.
GERSH: Greenspan said he felt a Social Security reform plan that borrowed a trillion dollars or more over 10 years would be pushing the margin of market tolerance. With the president pitching reform at that very moment in New Hampshire, Democrats in Washington seized on the chairman's concerns.
SEN. CHARLES SCHUMER (D), NEW YORK: What you're saying here is that it's risky because we don't know what the markets have - what the markets will do if they see it and at the same time, it does not increase overall net savings.
GERSH: But with a surge of boomer retirees threatening to strain the economy's resources in years to come, Mr. Greenspan said Social Security requires some risk taking.
GREENSPAN: We've got this huge hole in our long-term funding problem and I know of no way to resolve it without some risk.
GERSH: Oh, yes, there were a few questions about that other issue: the economy. The Fed chairman forecast smooth sailing with no change in his course of gradual interest rate hikes.
GREENSPAN: All told, the economy seems to have entered 2005 expanding at a reasonably good pace, with inflation and inflation expectations well anchored.
GERSH: And the good news is expected to continue. The Fed now forecasts core inflation will remain at between 1.5 and 1.75 percent for the next two years. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
KANGAS: Stocks opened lower on caution ahead of the Fed chief's testimony, but the sell-off was cushioned by news of a 4.7 percent jump in January housing starts to an 11-year high. At noon, the Dow was off 36 points, NASDAQ down 5. Mr. Greenspan's upbeat remarks about the economy helped the market improve, but a rise in oil prices hampered bullish enthusiasm. So the Dow still lost 2.44 ending at 10,834.88. The NASDAQ Composite was down 1.75 points at 2,087.43, while the Standard & Poor's 500 gained about quarter of a point to 1,210.34. In the bond market, the 10-year note fell 16/32 to 98 22/32. That put the yield at 4.16 percent.
GHARIB: Defense attorneys went on the attack in the fraud trial of former WorldCom CEO Bernie Ebbers today. In questioning the prosecution's star witness, Scott Sullivan admitted he lied repeatedly to just about everyone about the firm's fragile finances. It was a critical point for Ebbers' lawyers, who must prove their client was not responsible for pushing WorldCom into the biggest bankruptcy in American history. Suzanne Pratt reports.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Today, Bernie Ebbers and his attorney finally got their shot at the government's star witness as cross examination of Scott Sullivan began. Under questioning by defense attorney Reid Weingarten, the former CFO admitted he repeatedly lied to shareholders, analysts, the WorldCom board and audit committee as the company's accounting troubles were unraveling. At one point, Weingarten asked Sullivan quote, if you believe something is in your best interest, you are willing and able to lie to accomplish it, isn't that right? End quote. Sullivan answered yes, that on that day, he was lying. And while some legal experts say Weingarten scored points for his sharp questioning, they also believe it would be better for the defense if Sullivan could be portrayed as a habitual liar.
JASON BROWN, ATTORNEY, HOLLAND & KNIGHT: If the lies only have to do with the witnesses having covered up the crime that he's now acknowledging, it's probably less compelling cross examination than lies about other financial frauds or other crimes that are not charged in this case.
PRATT: To that end, Weingarten questioned Sullivan about his drug use, which he had admitted to in earlier testimony. When asked about his answers on a government security clearance questionnaire, Sullivan said quote, I was not truthful in answering the question, end quote. He went on to say that he lied to avoid embarrassment. Weingarten also asked Sullivan about his cooperation agreement with the government. Sullivan explained it was his understanding that he could receive a reduced sentence if the government wrote a letter affirming his cooperation in the trial. Sullivan, who pleaded guilty to fraud last year, is facing up to 25 years in prison.
NEIL GETNICK, ATTORNEY, GETNICK & GETNICK: The fact of the matter is that he's there for a reason. He's helping himself by trying to have a cooperation arrangement with the government. There's no getting away with that. But again, juries are sophisticated and they understand that's how cases are made.
PRATT: As Scott Sullivan completes his sixth day on the witness stand, it has becoming increasingly clear that the case comes down to Sullivan versus Ebbers and legal experts say Scott Sullivan's credibility as a witness is likely to determine the outcome of this trial. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
KANGAS: Now let's take a look at some "Stocks in the News" tonight.
The most active big board issue trading 27 million shares, Pfizer (PFE) losing $0.27, even though SEC filings show investor George Soros has recently boosted his stake to 193,000 shares.
Second in volume was Wright Express (WXS), this is a new issue. It's a spin off from Cendant. It's in the payment processing business and there were 40 million shares offered at the price of $18 each. The opening price fell to $17.50 and then the high of the day $17.65 and it went back to close at its low of the day, $0.90 below the offering price.
Qwest Communications (Q) was down $0.07.
ExxonMobil (XOM) hitting a new 52-week high in a very strong oil group which rose on concerns of OPEC's production cutbacks.
Coca-Cola (KO) was fifth in volume, moving up $0.65. Fourth quarter earnings excluding one-time items $0.46 a share, $0.06 above the Street estimate although the company itself said it wasn't satisfied with those results.
Motorola (MOT) fell $0.27.
Followed by Texas Instruments (TXN) with a nickel gain.
Tyco International (TYC) down $0.06.
Hewlett-Packard (HPQ) a $0.06 loss. You heard about better than expected earnings. I saw the stock as high as $21.84 in after hours trading.
Lucent Technologies (LU) dropped a nickel. That was tenth in big board volume.
Abercrombie & Fitch (ANF) losing $1.60 despite higher fourth quarter earnings of $1.15 versus last year's $0.97. Same store sales were up 9 percent but Prudential Securities downgraded it from "neutral" to "under weight" and SEC filings show the (INAUDIBLE) stores had been Abercrombie & Fitch recently.
Too Inc. (TOO), the apparel retailer, down $2.14 despite higher fourth quarter earnings, $0.66 versus $0.51 last year. Same store sales rose 5 percent. Those earnings were in line, but look at the rise the stock's had recently.
Brady Corporation (BRC), which is in the label making business, second quarter earnings shot up to $0.41 versus only $0.17 a year ago. Revenues up 28 percent and those earnings were $0.11 better than the Street was expecting, nice move in the stock.
Brookfield Homes (BHS) up $3.31. Fourth quarter earnings $2.83, versus only $1.06 last year. Revenues soared 43 percent. The company sees this year's earnings around $5.25 a share.
The Yankee Candle (YCC) down $4.17. Fourth quarter earnings were higher, $1 versus last year's $0.88 but that was a nickel below the Street estimate and the company sees this year's earnings at $1.88 at best. The Street estimate is up there at $2.04 a share.
Cooper Tire & Rubber (CTB) fell $2 a share. Fourth quarter earnings fell to only $0.04, down from $0.10 last year. Revenues dropped 5 percent and the company says the first half of this year is difficult.
NASDAQ's most active, Google (GOOG) up $3.18.
Apple Computer (AAPL) up $1.72. That's a new high, a lot of positive analysts comment there.
Intel (INTC) down $0.33.
Microsoft (MSFT) $0.14 drop.
eBay (EBAY) was up $0.69, fifth in dollar volume.
Applied Materials (AMAT) which had better than expected earnings out after the close yesterday, up a penny.
Network Appliance (NTAP) down $2.63 despite higher third quarter earnings of $0.16 versus last year's $0.11, in line, but the company sees flat fourth quarter earnings.
Cisco Systems (CSCO) down $0.21.
Dell (DELL) $0.40 gainer.
And Yahoo! (YHOO), tenth in volume was up $0.44.
Audible (ADBL), look at that loss, down $9.38 or over 35 percent. The fourth quarter earnings was $0.06 versus a loss of $0.40 last year, but revenues missed Street estimates and the company says 2005 outlook is rather guarded.
Mamma.com (MAMA) down $2.03. Its auditor, PricewaterhouseCoopers has refused to sign off on the company's 2004 financials. The SEC is also probing trading activity in the stock.
And those are the "Stocks in the News" tonight, Susie.
GHARIB: Thank you Paul. Making a prescription drug benefit available to Medicare patients next year will dramatically raise that program's costs. But Medicare costs are already going up at a rate that the head of the Congressional Budget Office calls unsustainable. As we continue our series "off the charts: can medical costs be controlled," Jeff Yastine looks at Medicare's cost crunch and how it might be solved.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Mac and Vicki Rosen are living a quiet and healthy retirement. Whether it's a game of Scrabble or visiting with friends, they have no complaints about their lives. But there is one thing they see that could spell trouble in the years ahead: the rising costs of Max's Medicare coverage.
MAC & VICKI ROSEN, RETIREES: This increase monetarily that we have experienced since Medicare started. I was looking at old reports that we had gotten because he's been on Medicare for a few years. Originally, it had gone up 8 percent, 8 percent. Then, all of a sudden, it went up 13 percent. But this year, it's 17.5 percent.
YASTINE: For now, the Medicare cost increases don't represent a problem for people like the Rosens, but the same can't be said for millions of retirees living on fixed incomes nor for the millions more baby boomers destined to retire in the decades ahead. It represents a troubling challenge in public policy. Policy experts say Medicare is plagued by many of the same trends that contribute to rising costs in private health plans, but some observers point to the fact that Medicare is one of the last health plans to still offer the fee-for-service payment system, where patients can go to any doctor or hospital that accepts Medicare without restriction. Some critics say that's an anachronism, while others say the agency needs to find more efficient ways to use medical resources.
GAIL WILENSKY, SR. FELLOW, PROJECT HOPE: There's a lot of interest to see whether we can't find ways that will target the better use of devices or expensive therapeutics with the people who really need them. There's a lot of interest in trying to use pay for performance, where you would reward the providers -- physicians or hospitals or nursing homes or homecare providers -- who do it right the first time and who do it with a conservative practice style.
YASTINE: To do this, the government is counting on a program called "Medicare advantage," which lets private, managed care providers compete for Medicare patients. The provider gets a flat fee for each Medicare patient enrolled and aims to make a profit over the cost of care. The benefit for seniors, supplemental coverage such as mammograms and colonoscopies not covered under standard Medicare.
DR. MARCIA GOMEZ, MEDICAL DIR. OF HEALTH SVCS., HUMANA FLORIDA: Medicare advantage allows for a much more coordinated effort. For example, we can look at programs anywhere from preventive medicine programs, programs such as healthy lifestyles, which is a program we're developing here really geared for the mature man and woman.
YASTINE: But in taking Medicare advantage, the recipient is essentially signing on to a managed care program. That means healthcare is restricted to the doctors and facilities set by the provider. And some say the program doesn't do much in terms of its main objective in cutting the government's costs.
MARSHA GOLD, SR. FELLOW, MATHEMATICA POLICY RESEARCH: They've given people better benefits. They have a little bit of a drug benefit when Medicare didn't. They had low premiums when Medigap had a high one. They picked up a lot of Medicare's cost-sharing. And so it's been a good deal for beneficiaries. It hasn't saved the government that much money.
YASTINE: In Florida, with its heavy concentration of elderly, the race to sign up Medicare patients for Medicare advantage is heating up. The question now is whether it will hold down costs enough to do much for Medicare's bottom line. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
GHARIB: And a program note: for more information about Medicare, we talk with Dr. Mark McClellan, administrator of the Medicare system, on our president's day holiday program on Monday, February 21.
KANGAS: And tomorrow, as "off the charts" continues, how one healthcare company is finding ways to save lives and money.
GHARIB: The president's top economic adviser has resigned. Gregory Mankiw is leaving as the head of the Council of Economic Advisers. His departure was expected and he's going back to teaching at Harvard. Mankiw says he wants to return to his family, his students and his books. The White House hopes to announce a replacement soon. Federal Reserve Governor Ben Bernanke is seen as the top candidate.
KANGAS: The National Association of Securities Dealers is taking a closer look at stock trading practices at a Wachovia Securities office near Los Angeles. Brokers there allegedly used fake accounts to buy discounted shares in company stock purchase plans, then sold the shares at market value and pocketed the difference. Wachovia acknowledged the NASD probe and said the firm is also investigating.
GHARIB: Here's a look now at what's happening tomorrow. As we mentioned, Fed Chairman Greenspan continues his testimony before Congress. Also tomorrow: weekly jobless claims, January import prices and the Conference Board's leading economic indicators for January. As for earnings, Nextel (NXTL), Target (TGT) and Wal-Mart (WMT) are slated to report.
In the "Money File" tonight, learning the tricks of the trade when it comes to saving money for college. Let the IRS help you. Here's Kathy Kristof, business writer of the "Los Angeles Times" and author of "Investing 101."
KATHY KRISTOF, AUTHOR, "INVESTING 101": It's tax time, and that brings both good news and bad to parents of college-age children. The good news is that Congress offers a litany of tax breaks for those paying college bills. The bad news is that all these tax breaks are income-tested and complicated, so it's tough to know whether you'll qualify. Still, it's worth the effort.
These tax breaks can shave Federal income tax bills by as much as $2,000 per qualifying student. In some cases, they'll cut state income tax bills as well. So who can qualify? There are numerous different breaks with different qualification standards.
But the three most generous are the Hope Tax Credit, the Lifetime Learning Credit and the Tuition and Fees Deduction. The Hope Tax Credit and the Lifetime Learning Credit have virtually the same qualification standards. Single filers who earn less than $52,000 and married couples earning less than $105,000 can take a tax credit ranging from 20 percent to 100 percent of qualifying education expenses.
The Tuition and Fees Deduction allows singles who earn less than $80,000 and married couples earning less than $160,000 to claim a write-off of up to $4,000 for their qualified education bills. If you want to know more, ask the IRS to send you their booklet on education tax breaks.
It may take some figuring to know which breaks you qualify for and which are best, but if you are paying college bills, it's time well spent. I'm Kathy Kristof.
KANGAS: Recapping today's market action, stocks close the day right about where they started it. The Dow loses 2 points, while the NASDAQ falls 1 point. To learn more about the stories in tonight's broadcast, go to nbr.com.
GHARIB: And that's NIGHTLY BUSINESS REPORT for Wednesday, February 16. I'm Susie Gharib. Goodnight, everyone. Good night to you, Paul.
KANGAS: Goodnight, Susie. I'm Paul Kangas wishing all of you the best of good buys.
