NBR Complete Transcripts: 05-08-2006
Monday, May 08, 2006Dell Sounds A Warning Bell
SUSIE GHARIB: A shocker from Dell tonight could leave Wall Street shell-shocked tomorrow. Dell shares tumbled more than 6 percent in after-hours trading after the world`s largest personal computer maker issued an earnings warning late today. Dell said it expects its fiscal first quarter earnings to come in at $0.33 a share on revenues of $14.2 billion. Dell`s prior guidance called for earnings of as much as $0.38 on revenues of up to $14.6 billion. That was also the consensus on Wall Street. Analysts at Dell blamed the shortfall on recent pricing decisions. Analysts say market leader Dell is feeling the heat from competitors.
MARK LANYON, TECHNOLOGY HARDWARE ANALYST, MORNINGSTAR: Dell has attempted to grow a certain level of unit volume while maintaining margins and has struggled a bit more in each of the last few quarters doing so. So today I think marks a bit of a sea change in their strategy towards the market. They`re going to more aggressive in their pricing to grow those unit volumes and take share from competitors.
GHARIB: Dell is scheduled to report fiscal first quarter earnings after the closing bell next Monday. Lanyon says that`s when we`ll get a better view of Dell`s new pricing strategy.
Wachovia Goes West
YASTINE: A big merger today in the banking industry. Wachovia is buying California`s Golden West Financial. The price tag: $25.5 billion in cash and stock or just over $81 for each Golden West share. That represents a 15 percent premium over Friday`s closing price. Wachovia is the fourth largest bank in the U.S. with operations primarily on the east coast. Combining with Golden West boosts its branch count to 3,400, a big step toward its goal of becoming a national brand.
MARK HEBEKA, BANKING ANALYST, STANDARD & POOR`S: Long term for Wachovia I see it as a positive. I think while the price may have been a bit high, they are going to establish a west coast presence. They are going to become a national player and they can grow from there.
YASTINE: Still, not everyone is as enthusiastic about the deal. Analysts at Prudential and Friedman, Billings, Ramsey downgraded Wachovia stock today. A community group has also come out against the merger, claiming Wachovia`s lending practices make it tougher for African Americans to get loans.
Wall Street Reaches for a Record With An Eye On The Federal Reserve
GHARIB: A flat day of trading on Wall Street, as investors wait on the Federal Reserve`s meeting on Wednesday to decide interest-rate policy. Still, the last few weeks of trading have pushed the Dow within 150 points of its all- time closing high. Spurring that move has been a string of strong corporate earnings. Suzanne Pratt wraps up the first quarter financial numbers.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street expected good quarterly numbers from corporate America. What investors got instead was a hot first quarter earnings season. According to Thomson Financial, S&P 500 companies are on track to post a 14 percent jump in earnings growth. That`s well above the 10 percent gain that Wall Street predicted at the start of earnings season in early April. And it looks like the first quarter will be the 11th consecutive quarter of double digit earnings growth, the longest streak of its kind in more than 10 years.
ROBERT KEISER, SENIOR RESEARCH MANAGER, THOMSON FINANCIAL: The primary factor fueling earnings growth right now has to be the U.S. economy. It`s growing at close to a 5 percent clip, GDP year-over-year. Inflation is well-contained, core inflation around 2 percent. So the underlying fundamentals behind the U.S. economy right now are very strong and it`s been reflected in the earnings numbers.
PRATT: While the biggest profits came from the energy sector, the biggest earnings surprises came elsewhere. The basic materials sector delivered profits that were 15 percent above expectations. Financial services beat analysts` forecasts by 10 percent, while industrial and health care each exceeded estimates by 6 percent. No sector experienced flat or negative growth. Some market pros say the positive earnings news has helped underpin a healthy move in stock prices. Since reporting season officially began on April 10, the Dow has jumped nearly 500 points or 4 percent. Those gains have come in spite of surging oil prices and higher interest rates. Some market strategists say it`s about time investors take notice of corporate profits.
STEPHEN WOOD, PORTFOLIO STRATEGIST, RUSSELL INVESTMENT GROUP: I think there`s been a lot of headline risk. I think there`s been a lot of Federal Reserve risk and I think there`s been a lot of post-Enron risk. You know, can corporate numbers be believed? And I think now that we`re in a new regulatory environment, I think that there`s strong confidence that the economy is moving forward and that the global economy looks pretty healthy. I think now investors are beginning to focus on earnings.
PRATT: Earnings experts believe the double digit profit growth will continue throughout the rest of 2006. They also say the good numbers will be fairly broad-based, coming from a variety of sectors throughout corporate America. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
One On One With Warren Buffet, Chairman of Berkshire Hathaway
SUSIE GHARIB: A good day for investors of billionaire investor`s Warren Buffett`s Berkshire Hathaway. Shares of the class "A" stock rose $490 a share today, closing at $89,200. The move came after the company`s annual shareholder`s meeting this weekend in Omaha and news Friday that Berkshire was buying 80 percent of an Israeli tool-making firm. NIGHTLY BUSINESS REPORT`s" Linda O`Bryon sat down with Buffett in Omaha. They talked about what`s next for the firm and looked back at how Buffett turned a small company into one of the nation`s largest.
LINDA O`BRYON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Berkshire Hathaway annual meeting is like no other in America, with a record 24,000 shareholders from all over the world coming to hear the words and wisdom of Warren Buffett. He greets shareholders and employees from Berkshire`s far- flung operating companies, now numbering more than 60. They range from insurance to ice cream to manufactured homes and this year, news of a $4 billion acquisition of 80 percent of Iscar, a metal-cutting tools producer, headquartered in Israel. It will be Berkshire`s first acquisition of a company based outside the United States.
WARREN BUFFETT, CHAIRMAN, BERKSHIRE HATHAWAY: I`ve always hoped we could do this. We were -- people were aware of Berkshire around the world, but in this country, we really were on the radar screen. When somebody had a big private business they wanted to sell, they thought of Berkshire. Around the world I don`t think that was true. Fortunately, these people did in Israel. And I think the fact that this one has been purchased will perhaps cause someone someplace, in some other country -- Germany, the UK, someplace -- to think maybe I better call Berkshire.
O`BRYON: And you`re looking for those calls?
BUFFETT: I`m just like an eager teenage girl just sitting by the phone.
O`BRYON: Well, is there a risk, though, political risk, international risk of going outside the U.S.?
BUFFETT: There`s always some risk, some kind everyplace. But Iscar, for example, operates in 61 countries. I mean they have plants all over the world. They have sales all over the world, but it`s very definitely Israel-based. I mean, the headquarters will always be there. The people will be there. But the talent, in effect we get the worldwide effect of it. That`s a very talented management there. And they`re thinking about every country in the world.
O`BRYON: What about the whole notion of acquisition, which really is how, has been how you`ve been growing the company? Is there a point where you get too many companies, too large?
BUFFETT: I don`t think so. I mean, it`s not a problem. We have I don`t know, 60-odd businesses, maybe 40 managers that report to me. Some of them have multiple units. And they`re so good, I don`t have anything to do. I leave them alone. You can think about the next acquisition.
O`BRYON: A large part of your business is insurance, including reinsurance. What has been the impact over the past two years of the major hurricanes?
BUFFETT: Well, it`s caused the market to get tighter in what we call the super-cat or mega-cat arena, particularly for wind insurance. We`re not sure whether the two-year experience, which has been terrible on hurricanes or the 100-year experience is the more valid. But you have to worry some. The water temperature is warmer, and that gives energy to hurricanes. So it may be that the exposure has increased dramatically. We saw a couple of category five`s. They weren`t category five`s when they hit the mainland. But both the intensity and the frequency of the last couple of years scares you somewhat. Now, we still don`t know. I mean, we could have a benign season, but I wouldn`t want to bet on that.
O`BRYON: You have a lot history with newspapers, starting with your own paper route in Washington DC, ownership of the "Buffalo News" and a large investment stake in the "Washington Post." What do you foresee for the newspaper industry?
BUFFETT: I think the economics are going to deteriorate. We all have two eyeballs and we all have 24 hours a day to look for education or information or for entertainment. And the newspapers` preeminent position in terms of information, particularly local information even, has eroded to some degree and it will continue. There are way more ways that you can get news now and there`s way more ways that you can entertain yourself than before.
O`BRYON: Well, would you consider selling some of your holdings in newspapers for another type?
BUFFETT: We don`t sell, probably should as a strict mathematical decision. But one of the principles I lay out in the annual report is that we won`t sell something simply because it isn`t working out quite as well as we hoped originally or because somebody offers us a fancy price. We buy to keep.
O`BRYON: Fifty years ago when you created Buffett Associates, did you ever think you could create this kind of value and be CEO of one of the nation`s largest companies?
BUFFETT: Never dreamt it, Linda. No.
O`BRYON: How did it happen?
BUFFETT: It happened just by putting one foot in front of the other. I mean, we just -- at the start of every year you never know what`s going to happen. We just had this acquisition the other day of Iscar, for example. You just keep your eyes open and try to do rational things. Sometimes you get a chance to do some big ones. Sometimes you get a chance to do many of them. Sometimes not much happens. But 50 years is a long time and a lot of good things have happened.
Health Care Compromises Come Before Congress
SUSIE GHARIB: This is health week in the U.S. Senate. Lawmakers have scheduled votes on a number of health care proposals, including medical malpractice and women`s health care. Also on tap: a bill backed by President Bush and already passed by the House to encourage trade associations and groups of small businesses to offer health coverage to their members. As Stephanie Dhue reports, small business owners are watching it carefully.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: John Nicholson offers health insurance to the 15 employees who work at his florist shop. He pays two-thirds of the cost, employees pay the rest. Nicholson hopes to trim the nearly $20,000 a year he pays in premiums by buying coverage through a trade association. JOHN NICHOLSON, PROPRIETOR, COMPANY FLOWERS & GIFTS: We should be able to get a decline in prices because you`re going to aggregate smaller groups.
DHUE: Opponents say those lower prices will come with lower quality health coverage. Under the proposal, association health plans would be exempt from state standards of care. That`s why groups like the American Cancer Society and AARP say the bill is a step backward. They fear association plans won`t cover what are now considered basic items like mammograms, diabetic care, and colon cancer screenings.
DANIEL SMITH, VP GOVERNMENT RELATIONS, AMERICAN CANCER SOCIETY: You get what you pay for. And in this case the quality of the insurance won`t be as good because the bill actually would allow the insurance companies to basically ignore many of the guarantees of coverage that are out there that are the consumer protections that people need.
DHUE: Supporters, including the National Association of Realtors, say those current coverage mandates make insurance almost unaffordable for small businesses.
CASEY LEWIS, MEMBER, NATIONAL ASSOCIATION OF REALTORS: The insurance companies aren`t providing the kind of insurance we need for small businesses. That`s why this is in play.
DHUE: Analysts say prospects are poor for association health plans. To get a bill passed the Senate will require compromise, something in short supply this election year. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Arlington, Virginia.
Commentary: Home Sales Start To Fall Will The Economy Go With It?
SUSIE GHARIB: Tonight`s commentator is taking a look at the housing market and how the changing economics of it could affect homeowners and investors. Here`s Mark Zandi, chief economist of moodyseconomy.com.
MARK ZANDI, CHIEF ECONOMIST, MOODY`S ECONOMY.COM: Housing activity is weakening. Since peaking last fall, home sales have fallen some 5 percent. Unsold inventories have surged 20 percent and house prices have gone flat. All signs point to even weaker conditions in the months ahead. How worried should you be? First-time home buyers who bought a home in the past several years with an exotic mortgage loan and little down, should be concerned. If you are having trouble making your mortgage payment now, you will have a real problem when your payment adjusts higher in the next year or two. Short-term investors, those who have bought with the intent of selling quickly at a profit, will also be severely disappointed. Unless rents on these investments are covering mortgage payments, these investors will be increasingly squeezed.
The rest of us, however, should largely ignore the housing market downturn. We have plenty of equity in our homes. We have a fixed-rate mortgage and we don`t plan to sell our home anytime soon. House prices may go flat. They may even fall a bit, but this will mean very little to our financial well-being. When we are ready to sell five or 10 years from now, housing`s problems this year and next will mean very little. Housing is weakening; conditions are set to get worse before they get better. But for most us, while it will be important to pay attention, the home is far and away the most important asset in our balance sheet. There is nothing to do. This is Mark Zandi.
YASTINE: A lackluster day of trading on Wall Street though as the Dow did still manage to close at a marginal new six year high. The Dow made an early stand to the 11,600 mark before retreating. But by midday it was flat as investors opted to sit on the sidelines ahead of Wednesday`s Federal Reserve meeting. The NASDAQ went nowhere all day as well. So the Dow eventually finished up 6.8 points to 11,584.54, squeaking out a new six-year record close. The NASDAQ rising nearly 2.5 points to 2344.99. And the S&P 500 falling about a point to 1324.66. In the bond market, the 10-year note falling 3/32 to 95 9/32, with the yield at 5.12 percent.
Paul Kangas' Stocks in the News
First Lucent Tech (LU) gaining two pennies.
And Disney (DIS) losing $0.32. Published reports say Disney will be ending its decade-old promotional tie in program with McDonalds, meaning no more Disney cartoon figures included in your kids` happy meals. Obesity in children, one reported issue for Disney executives. Another is marketing costs and the scheduling of films. Time Warner (TWX) dropping a penny.
Wachovia (WB), the reaction there, losing nearly $4 and as you heard, Wachovia will buy Golden West Financial for $81 a share. Some analysts think Wachovia may be paying too much.
And of course on the opposite side of that, Golden West Financial (GDW) shares surging over $4 and something Global West interest in selling is a sign of potential problems with the housing bubble and home mortgages. But Golden West founder says quote, that`s a bunch of garbage.
Pfizer (PFE) rising $0.14.
And then we have UnitedHealth Group (UNH) losing $1.31.
Boston Scientific (BSX) up a fraction.
And then Inco Ltd (N) shares gained a little over $8. Inco, the subject of a hostile takeover by Techcominco (ph) which is offering $70.60 a share in U.S. dollars. But there`s one condition, Inco has to cancel its bid to acquire a third company, Falconbridge in a deal that was proposed last year. Inco says its board will review Techcominco`s proposal.
And then Ford Motor (F) gaining four pennies.
And then Coca-Cola Co (KO) rising $0.66 to its highest price since September. "Barron`s" mentioned it as a undervalued stock, also one of Coke`s directors, financier Herb Allen, bought $18 million worth of stock in a vote of confidence about the company`s direction.
Fisher Scientific Intl (FSH) jumped a little over $2. Thermal Electron has agree to acquire the Scientific equipment wholesaler for about $77 a share. The combined companies will be renamed as Thermo Fisher Scientific. Shares in Thermal Electron fell $0.89.
On the earnings front Park Electrochemical (PKE) rising $2.64, fourth quarter profits more than doubled from year ago levels to $0.54 a share.
And then investors in Entercom Communications (ETM) dancing to the radio broadcaster`s stronger than expected quarterly profit. Those came in about $0.04 better than estimates.
And over at American Vanguard (AVD), it sank about $6.50. The west coast specialty products firm with a 21 percent drop in quarterly profits results hurt by higher freight costs. Then let`s look (ph) at United Industrial (UIC) which loses nearly $14. First quarter profits skidded lower and came in also about $0.04 below estimates.
Over at the NASDAQ, Intel (INTC) gaining $0.60. It has come out with a new brand name for its newest line of microchips. It`s calling them core two duo.
Google (GOOG) gaining about a half a dollar.
Microsoft (MSFT) down a fraction.
Ebay (EBAY) to a new one-year low, losing $1.07.
Apple Computer (AAPL) unchanged on the day.
Cisco Systems (CSCO) rising a touch today.
Dell (DELL) with a gain of $0.75, but off about 6 percent after hours on that profit warning we told you about.
Amgen (AMGN) gaining nearly $1.
Yahoo! (YHOO) with a gain of $0.21.
And Sandisk (SNDK) gaining a little over $2.
And then finally we have Emmis Communications (EMMS) which surged nearly $3. The CEO wants to buy the company outright and he`s going for $15.25 a share each in cash. That`s what he`ll pay to take the company private.
Those are our stocks in the news tonight.
