NBR Transcripts - February 17, 2005
Thursday, February 17, 2005PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: It's the case of the dueling discounters. Both Wal-Mart and Target report better-than-expected earnings today, but not for the same reasons. And both retailers are predicting a strong year ahead, but not for the same reasons.
SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: The president's main man on the economy says slashing the budget deficit is an important priority for the administration, but it's not the only one. We'll go down the to-do list with Gregory Mankiw, outgoing chairman of the White House Council of Economic Advisors.
KANGAS: Your money and your health: how health care companies are finding creative new ways to keep rising costs under control and get their patients on the road to recovery.
GHARIB: And from point and press to produce like a pro. We look at a new version of computer software that will take you to the next level with your digital pictures.
KANGAS: I'm Paul Kangas.
GHARIB: And I'm Susie Gharib. This is NIGHTLY BUSINESS REPORT for Thursday, February 17.
Good evening, everyone. On Wall Street today, concerns about higher interest rates overshadowed good news from the nation's two largest retailers. The Dow fell 80 points and the NASDAQ shed 26. But shares of Wal-Mart and Target rose today, after both reported double digit quarterly earnings growth. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wal-Mart and Target reported solid fourth quarter earnings, but for different reasons. At Wal-Mart, profit growth was driven by margin expansion, as the chain offered fewer holiday markdowns. The world's largest retailer earned $0.75 a share, a penny better than expected and up from $0.63 a year ago.
BILL OREHER, RETAIL ANALYST, DEUTSCHE BANK: Very strong results reflected them dealing with a very difficult sales environment, showing gross margin expansion because of great global sourcing opportunities.
MILLER: Deutsche Bank owns more than 1 percent of Wal-Mart shares and it does investment banking and other business with the chain. Target, on the other hand, focused on bringing more customers into its stores by offering trendier merchandise like Isaac Mizrahi clothing. The nation's second largest retailer earned $0.90 a share, compared to $0.80 a year ago. That was also a penny better than expected. Those results exclude the sale of Marshall Fields and Mervyn's department store chains. Target's strategy of offering exclusive merchandise helped lift sales at stores open at least a year. For the quarter, same store sales rocketed 5.4 percent, compared to just 1.5 percent for Wal-Mart. Wal-Mart expects business to pick up in the coming year, as an improving economy encourages lower income customers to boost spending. Analysts say Target is fortunate to have a more affluent customer base.
EMME KOZLOFF, RETAIL ANALYST, SANFORD C. BERNSTEIN: They are higher income. They have fancier houses. They drive nicer cars. They have more education. They pool from a different demographic and that makes a huge difference. And in a time like this, where the low end is really under pressure, Target wins.
MILLER: Bernstein has done business with Target over the past year. Investors seem more optimistic about Wal-Mart's prospect than Target's. Wal-Mart stock is trading near the low end of its 52-week range, while Target shares are at the upper end of their range. And Wall Street analysts are confident that Target will continue to steal market share away from Wal-Mart. As a result, they expect earnings per share to grow about 23 percent at Target this year, compared to just 13 percent at Wal-Mart. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
KANGAS: Stocks opened lower despite those good retail earnings, as investors were cautious ahead of Fed Chief Greenspan's second day of testimony. We'll have details on that next. News of a larger than expected 0.3 percent drop in January's leading economic indicators triggered some selling. Early on, the Dow was down 55 points, NASDAQ off 16. Then an afternoon sell off in the tech sector undermined the market in general. So the Dow industrial average came in with a loss of 80 2/3 points at 10,754.26. The NASDAQ Composite down 26 points at 2061.34. Standard & Poor's 500 lost 9 1/2 points ending at 1200.75. Over in the bond market, the 10-year note fell 7/32nds to 98 16/32nds, putting the yield at 4.19 percent.
GHARIB: It was day two on Capitol Hill for Federal Reserve Chairman Alan Greenspan. He testified in the House of Representatives today, part of his annual report on the state of the economy. Greenspan called budget deficits a serious issue for the economy, and urged Congress to offset tax cuts by reducing spending. Then he warned lawmakers that Medicare funding is the most significant budget issue in the coming decade, saying it must be dealt with sooner, rather than later.
ALAN GREENSPAN, FEDERAL RESERVE BOARD CHAIRMAN: We are looking at a gulf in our unified budget for all sorts of reasons of which Medicare is the largest one in the period as we get into the next decade. And unless we address that issue now, well in advance of its occurring, I'm not sure that we're going to be able to get an appropriate handle on it before it creates serious problems down the road.
GHARIB: The Fed chairman isn't alone in being concerned about serious problems with the economy, so is the president's lead economic adviser Gregory Mankiw. Mankiw is leaving his post tomorrow, but today he released the official economic report of the president. Washington Bureau Chief Darren Gersh sat down with Mankiw late today and asked if he shared Alan Greenspan's concern that the deficit is a huge problem.
GREGORY MANKIW, CHMN., COUNCIL OF ECONOMIC ADVISERS: I think all things equal, deficits are undesirable and that's why the president said many times, he wants to reduce the deficit in half over five years. He also wants to fundamentally reform Social Security so it doesn't put budgetary pressure going forward as the baby boom generation retires. So I do think reducing the budget deficit is an important priority. I think also the budget deficit is an understandable response to what we've experienced in the past few years. The U.S. economy went to recession. We had to pay for the war on terror and the combination of the end of the high tech bubble which lead to the recession and the war on terror pushed the budget deficit larger, but what we need to do is shrink it over time and the president put forward policies to do that.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: You mentioned Social Security and there was one point I wanted to bring up, which even, people who support personal accounts talk about, which is that if you're moving from the current system to a system of personal accounts, you have one generation that's paying for current beneficiaries, but also funding their own retirement, putting dollars into their own accounts and essentially you have a generation that's pretty much paying twice.
MANKIW: There is really no alternative to reform, because right now we have a system that's not sustainable. We have a system that going forward if nothing is done, the trust fund will run out of money in 2042 and benefits will be cut automatically in order to keep - to fall into line with the receipts that are coming into the system. So doing nothing is not an option and the question is what should the option be? Right now what the president is doing is going around the country explaining to the American people that there is a problem and we shouldn't wait to solve it. As soon as we solve it, the more attractive the options are and then once we do that, we'd sit down and decide what are the nature of reforms that we want. The president's made very clear that he wants personal accounts to be part of the system, but in addition to that, he's very open-minded. There would have to be other parts to the reform package. He's laid out a variety of options and all those things are on the table and that's something we'll be working with Congress in order to get done.
GERSH: But that analysis that people say OK, well, essentially one generation has to pay twice in order to make Social Security more solvent going forward. Does that, do you accept that analysis or do you disagree with it?
MANKIW: I think what's true is that we have is the legacy from past decisions, that makes the options going forward less attractive. We're in situation now, we've got a $10 trillion unfunded liability and some way that liability has to be filled and the question is how is it going to be filled and the president's put forward some ideas to do it and other people put forward other ideas. There is really no option other that to say how are we going to deal with (INAUDIBLE) liability?
GERSH: You put out the president's economic report today and one chapter focuses on immigration, a controversial subject and basically you found that there is some evidence that immigration lowers wages especially for people who are less skilled but overall immigration benefits the country. How did you come to that conclusion? How does the report come to that conclusion?
MANKIW: What we did is we sort of surveyed the research that had been done on the economics of immigration. Obviously immigration is an issue that goes beyond economics. It has security dimensions. It has social dimensions, but also has an important economic dimension and the president said many times that immigrants that have come to the United States have made us stronger as a nation and we're looking at the economics of immigration we believe that is fundamentally true. Like all policies there are costs and benefits and what we do is talk very honestly about the cost and benefits in the chapter but on net, immigration is a positive for the U.S. economy.
GERSH: I was a little surprised to see in an economic report so much emphasis one chapter devoted to HIV/AIDS. Why did you do that and what is the economic impact of HIV/AIDS?
MANKIW: The purpose (INAUDIBLE) was to get people to understand that the HIV/AIDS crisis is not just a humanitarian crisis. It is of course a humanitarian crisis, but it's also an economic crisis in many ways. It has a devastating impact on individuals and societies that it's - are affected by it. But in addition, economics can be used to contribute to the solution. And so we talk there is about how incentives can be structured in order to encourage innovation in the treatments for HIV/AIDS and how those treatments can be disseminated in the most efficient way possible.
GERSH: And tomorrow it will again be Professor Mankiw, so thank you for being on NIGHTLY BUSINESS REPORT.
MANKIW: Thank you.
KANGAS: Now let's take a look at some stocks in the news tonight.
Big board volume leader on 20.3 million shares, Pfizer (PFE) moving up $0.11.
Then a new issue, Dolby Labs (DLB). This is the well-known audio technology firm, the Dolby sound, 27 1/2 million shares offered to the public at 18. Stock opened at 23 and had a high of 25.45, backed off a little. Big gain though, even though the company disclosed that its patents on Dolby digital will start to expire in the year 2008.
Hewlett-Packard (HPQ) coming down $0.20.
MEMC Electronic Materials (WFR), a $0.36 gain. The company had a 57 million share secondary offering priced at $11.50 a share and considering that it closed higher than that, looks like it was well received.
ExxonMobil (XOM) on a weak oil group today down $0.35. That was fifth in volume.
Time Warner (TWX) lost a penny.
$0.19 drop in General Electric (GE).
Texas Instruments (TXN) a $0.61 loss.
Lucent Technologies (LU) dropped a nickel.
And then Qwest Communications (Q), tenth in volume, down $0.13. Qwest chairman notified MCI's board of directors that Qwest's attempt to submit a modified offer to acquire MCI after completing a review of Verizon's merger agreement.
RadioShack (RSH) tumbling $3.44. Fourth quarter earnings were higher, $0.81 versus $0.77 a year ago, but $0.02 below the Street and the company sees first quarter earnings falling to only $0.39 to $0.41. It also cut its full year earnings guidance by $0.07, down to around $2.37 a share.
Medtronic (MDT) moved up $1.46. Third quarter earnings $0.46, up from $0.38 a year ago, in line. That excludes one time items incidentally. Company sees the fourth quarter rising to around $0.53 to $0.54.
CIBC World Markets brokerage upgraded the stock from "under perform" to a "sector perform" rating.
Advance Auto Parts (AAP), look at that advance, up $7.29. Fourth quarter earnings $0.46, up from $0.38 last year and that was nicely above the Street estimate and it sees first quarter earnings jumping to the A0.85 to $0.90 range.
Clark (CLK), this is a manager of employee benefit plans and its fourth quarter earnings sharply higher, $0.57 versus $0.23 a year ago. Revenues were up just about 10 percent.
Reliance Steel & Aluminum (RS) up $4.61. Fourth quarter earnings soared to $1.31 from only $0.30 last year and sales were up 53 percent and the company on top of that is upbeat on its outlook.
Bristol West Holdings (BRW), this is an auto insurer. Fourth quarter earnings $0.47 up from $0.41 a year ago, but $0.06 below the Street estimate. Wachovia Securities downgraded it from "outperform" to "market perform" on the company's disappointing results in the state of California.
Administaff (ASF) down $2.20. JMP Securities downgraded it from "market perform" to "under perform" largely because of yesterday's lower than expected fourth quarter earnings.
Wendy's International (WEN) off $1.03. The company sees this year's earnings coming in around $2.23 at best and the Street estimate is up there at $2.44, a bit of a disappointment.
WMS Industries (WMS) up $1.56. "Las Vegas Sun" newspaper reported that Wynn Resorts Chairman Steve Wynn has acquired 4 percent because he likes the company's products, namely gaming machines, what else?
NASDAQ topped the active by Apple Computer (AAPL) down $2.32, a little profit taking.
Google (GOOG) fell $0.51.
And so did Intel (INTC).
Microsoft (MSFT) a $0.14 loss.
eBay (EBAY) down $0.33, was fifth in dollar volume on NASDAQ.
Cisco Systems (CSCO) down $0.26.
As the same case with Dell (DELL).
Sepracor (SEPR) up $4.95, however. Merrill Lynch said this company is weighing its options, including its possible sale.
Applied Materials (AMAT) down $0.17.
And Oracle (ORCL) a $0.37 loss. That was tenth in volume.
Huge loss in Advanced Neuromodulation Systems (ANSI), off $8.23. The company had lower than expected fourth quarter earnings, $0.24 versus $0.18 last year, but a penny below the Street. Also it got a subpoena regarding its accounting practices from the Department of Health and Human Services.
And those are the stocks in the news tonight. Susie?
GHARIB: Thank you Paul. This week we have been taking a closer look at the rising costs of health care. And as we've seen, it's getting tougher and tougher to slow that rise through conventional means. So some new approaches are being tried. As we wrap up our series, "off the charts: can health costs be controlled?" Jeff Yastine looks at radically different ways to solve the problem, including one backed by the Bush administration.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: For Deana Kirtman, a long time sufferer of asthma, it's time to have her breathing power measured on this computer. She developed asthma as an adult and as had some scary episodes.
DEANNA KIRTMAN, ASTHMA SUFFERER: It was a challenge even to know how to manage myself and I was just learning how it do that and it would be to the point where when I would go home to California to visit, I would have breathing problems and it terrify my parents and my in laws and my friends and they'd be like, should we go to the emergency room? No, I can manage it.
YASTINE: But getting a real handle on her condition didn't occur until she was enrolled in a care management program by her health care provider Kaiser Permanente. Care management sometimes called disease management elsewhere, is an effort to keep health problems like asthma or diabetes from becoming acute. The idea is that by having closer contact with a patient that person can learn to manage his or her condition better and avoid the most expensive option, going into the hospital.
DR. AMY COMPTON PHILLIPS, CARE MGMT. DIR., KAISER PERMANENTE: By doing the right things for people, we will actually ideally in the long run save costs. If one heart attack costs roughly $50,000 to take care of, we save significant dollars if we keep people healthy and keep them from having heart attacks.
YASTINE: Disease management is just the latest of ongoing efforts to try to contain their rising cost of medical care without sacrificing the quality of the care people receive. Another is something called consumer driven health care. The idea is to let people shop around for the best health care and the best prices and this would happen by having individuals do their own spending for routine health care costs. To make this a reality, the Bush administration wants more people to put money into new HSAs or health savings accounts. These let people who buy high deductible insurance policies set aside money tax free to cover their out of pocket costs. The president says by encouraging that, insurance and health care itself should become far more affordable.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Our view is that if you're a consumer of health care and you're in the marketplace making health care decisions, it is more likely that there be more cost control in health care than a system in which the consumer of health care has his or her health care bills paid by a third party provider.
YASTINE: But there are drawbacks because the HSAs are linked to the purchase of health plans with high deductibles, it's likely to mean extra costs for the less healthy and while the widespread use of high deductible insurance may help control spending for routine health care visits, experts say it would have little impact on costs for catastrophic health care.
PAUL GINSBERG, CTR. FOR STUDYING HEALTH SYSTEM CHANGES: A lot of health spending is for patients who are very sick who actually are not going to be experiencing financial incentives in the new benefit structures because they will have exceeded their deductibles or their out of pocket maximums and so in a sense, this is a tool that clearly can work, but there's a question of how far can it go?
YASTINE: Major insurers are already marketing health savings accounts to the public, but the big question is whether Americans will welcome a route where decisions on health care quality and costs are left sole in their hands. Jeff Yastine, NIGHTLY BUSINESS REPORT, Miami.
KANGAS: Tomorrow our Friday market monitor guest is James Stack, president of InvesTech Research.
GHARIB: A big win for big business today, as Congress passed class action reform. The measure, which transfers most large, multi-state class action suits to Federal courts, is now headed to the White House for President Bush's signature. Supporters say the bill protects businesses from nuisance lawsuits and overly sympathetic state juries. Critics call it a payback to big business at the expense of consumers.
KANGAS: Smith Barney is giving up on technical analysis, firing its entire U.S. technical analysis team today, including its team leader, Louise Yamada. Smith Barney will now focus its research on company coverage based on fundamentals. The firm fired six analysts last week and together with its parent company Citigroup continues to pare its staff. Citigroup shares ended the day with a loss of $0.38 to $48.40.
GHARIB: Here's a look now at what's happening for tomorrow. The bond market closes early ahead of the Presidents' Day holiday on Monday. Also tomorrow, January's producer prices and earnings from Campbell Soup and the JM Smucker company.
Tonight's commentator says while reforming Social Security is on the front burner in Washington, it shouldn't be. Here's Allan Sloan, Wall Street editor of "Newsweek" magazine.
ALLAN SLOAN, WALL STREET EDITOR, NEWSWEEK: Social Security is now the topic in Washington. The news is all Social Security all the time. A year ago, you could barely get anyone to talk about Social Security. Now, you can't shut them up. But let me share a little secret with you. Fixing social security, as important as it is, is a walk in the park compared with Medicare. Medicare's financial problems are five times Social Security's. Just as prescription drug plan is almost twice as big a problem as Social Security and starts a lot earlier. The drug plan starts sucking up tons of money next year. Social Security can pay for itself until around 2018. Which is the crisis? Obviously, it's not Social Security. Even worse, Social Security is about something we can compromise: money. Medicare is about who gets how much treatment to live for how long. How do you compromise something like this? I'm glad it's not my job to figure it out. I give President Bush credit for raising the Social Security question. I don't much like his answer or his approach, but I'm glad he's asking some of the right questions. Medicare, though, is just a total nightmare, one the president made far worse in 2003 by shoving his drug program through Congress. I hope we end up fixing Social Security in some sort of fair way. It's not that hard if people are willing to compromise. But fixing Medicare? That, my friends, will take a miracle. I'm Allan Sloan.
KANGAS: Recapping today's market action, the major averages end the day sharply lower. The Dow falls 80 points, while the NASDAQ slides 26 points. To learn more about the stories in tonight's broadcast, go to nbr.com.
GHARIB: In our tech talk segment tonight photos, fame and a breaking story about a fire hazard. With his monthly update, here's our technology maven, Scott Gurvey.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Microsoft has a problem with the power cables on its X-box video game console. The company said today it will replace the cables on 14 million units because of a potential fire hazard. Owners can get info online.
Meanwhile, Microsoft Chairman Bill Gates fired up the crowd at the RSA security conference this week in San Francisco. His news? Microsoft's anti-spy ware program, now being tested, will be offered to Windows XP users without charge. Microsoft will also upgrade its Windows Explorer web browser. The new version will increase security and should be out this summer. As with the anti-spy ware program, the new version seven of Internet explorer will only be for Windows XP users.
Firefox, the Internet browser available for several versions of Windows and many other platforms, has now been downloaded more than 25 million times. The free product was released 100 days ago by the not-for- profit Mozilla Foundation.
For years, Adobe has played a major role in photo and video image production for professionals. But it has also produced consumer versions of two of its leading products, both priced at under $100. Adobe Photoshop elements has most of the image processing tools found in the much more expensive professional version, plus photo enhancement tools to help you make quick fixes of balance and tone and even repair flaws like wrinkles or marks on scanned photos. The latest version adds tools to help organize your photo files, a much-welcome addition. Adobe Premier elements is based on the professional video editing standard Adobe premier. The power is there, but I still find the user interface difficult to follow. Both Pinnacle and Ulead do a better job on ease of use. Still, Premier has a huge bank of effects and tools to make truly awesome movies. And there is a version with both elements programs bundled together at the amazing price of $140.
Finally, a salute to Vinton Cerf and Robert Kahn, winners of this year's AM Turing award from the Association for Computing Machinery. It is the first time this prestigious award has been given for work in the field of networking. In 1973 and ‘74, Cerf and Kahn developed a method for breaking messages up into small packets and routing them through communication networks. Their concept is at the core of what we now call the Internet protocol. Where we would be without that?
Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
GHARIB: And that's NIGHTLY BUSINESS REPORT for Thursday, February 17. 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.
