NBR Complete Transcripts: 05-24-2006
Wednesday, May 24, 2006Higher Gas Prices Take A Memorial Day Holiday
LINDA O'BRYON: Encouraging news tonight for the millions of Americans who are planning to hit the highways for the Memorial Day holiday weekend. It may not cost quite as much to fill your car`s gas tank. New government data today shows gasoline supplies rose a larger than expected 2.1 million barrels last week. That helped send crude oil prices tumbling almost $2 a barrel to close at $69.86. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Motorists looking to travel this weekend should find gas stations well stocked and prices slightly lower than last week. Those prices are being driven by an increase in fuel supplies.
DOUG MACINTYRE, OIL ANALYST, ENERGY INFORMATION AGENCY: Gasoline supplies in particular are likely to be sufficient, but not of such great quantity that we would see a dramatic drop in prices.
DHUE: Prices at the pump last week averaged $2.87 a gallon, a drop of about $0.06 from the week before. The Energy Information Agency expects prices to average $2.71 a gallon this summer. Lower prices may come as refineries come back online, including those damaged by hurricane Katrina and those that postponed routine maintenance from the fall.
ROBERT SLAUGHTER, PRESIDENT, NATIONAL PETROCHEMICAL & REFINERS ASSOCIATION: We had more refinery maintenance than usual in the spring. That period is coming to and end and so those facilities are coming back online, which means an increase in production of gasoline, diesel and other fuels over what we`ve seen in the last few weeks.
DHUE: Pump prices are $0.75 a gallon higher than last year. Still, AAA expects more than 31 million travelers to hit the roads this weekend, about a 1 percent increase over last year.
MANTILL WILLIAMS, PUBLIC AFFAIRS DIRECTOR, AAA: This is one of the smallest increases we`ve seen in three years. This compares to 2002 after 9/11 and also 2003. So usually we tend to see around a 2 percent increase.
DHUE: High gas prices have fueled heated emotions, but the financial impact on most Americans is relatively small. On a five-hour road trip, a $0.75 increase in a gallon of gas will cost a family of four about the same as the price of lunch. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
IPO Outlook With David Menlow, president of ipofinancial.com
KANGAS: Meanwhile, a not so stellar debut on Wall Street today for Internet phone service provider Vonage. The company`s shares opened for trading at the New York Stock Exchange this morning, priced at $17 each and then headed south. Vonage closed at $14.85, off $2.15. That`s about a 13 percent drop. The company`s in a very competitive industry, with phone, web and cable companies selling similar services. Analysts say Vonage is an unprofitable firm selling at a very high valuation, with some skeptics claiming it went public because it couldn`t get an adequate takeover offer.
O`BRYON: MasterCard and Vonage are two of the most high profile IPOs in recent weeks, but they`re certainly not the only ones. Joining me now to discuss the IPO market is David Menlow, president of ipofinancial.com. David, thanks for joining us.
DAVID MENLOW, PRESIDENT, IPOFINANCIAL.COM: Great to be here Linda.
O`BRYON: Let`s begin with the MasterCard IPO. What do you expect for that issue?
MENLOW: Well certainly, of the two deals that we`re talking about here, MasterCard and most likely Vonage, MasterCard is the quality of the two deals. The problem that it`s facing in the marketplace is the media is basically sitting on the litigation potential that exists with the company and the fact that they could be on the hook for a couple of billion dollars if the decision is made against them.
O`BRYON: So there are some significant risks. Are those risks built into the price?
MENLOW: I would say yes. The company is coming at a cheap valuation relative to what it is actually worth, and we would say that this is a little bit of a carrot that`s being dangled in front of the investors to say, if there is a situation where there is litigation problems, it will probably happen later on and through appeals and what have you, it`ll take a couple of years until it resolves itself.
O`BRYON: So on balance then, you`re positive about MasterCard.
MENLOW: We love the way they execute business. This is an unbelievable brand recognition name. They just continue to almost print money. That`s how successful their business plan is. They hit the interest rate markets with all its volatility, almost like it`s smooth sailing.
O`BRYON: Well as we heard, by contrast, Vonage, the Internet phone provider, has been a disappointment so far, some analysts saying it could be the worst performing IPO of the year. What happened here?
MENLOW: Well, this was clearly a company that should not have come public in the eyes of the investing world. The institutions that probably were interested in it faded at the last minute. At a $17 price, which was the mid-range actually faded almost instantly and that`s an indication that people see that there are real problems with the company, competition and the technology.
O`BRYON: We`ve seen some other IPOs that have done well in the market. One of them is the spin-off Chipotle, Chipotle I should say, from McDonald`s. Now what fueled that success? We see the chart here from its IPO price to where it is now (INAUDIBLE).
MENLOW: That`s a singular success story. It is the largest opening premium that the IPO market has seen for 2006 opening up I believe 104 1/2 percent higher. But this is about being nursed along with the McDonald`s name, with all the McDonalds business acumen that they bring to the equation and the idea is really just in the early expansion stages. So it has been received well and should continue to do well in the aftermarket.
O`BRYON: So it sounds like that brand name recognition has really helped. What about Tim Horton`s, known for coffee and baked goods, headquartered in Ontario, spun off from Wendy`s and as we can see, the stock is trading higher than its initial price.
MENLOW: It is, but not quite by the same percentage that you saw with Chipotle. The big difference with them is that the investors were looking for a much more aggressive expansion campaign to come into the United States. They are looking to expand in the U.S., but they`re still putting the thrust of their business efforts into Canada. So it`s a theme that is proven, but for the most part, it`s one of those that`s a nice company, but we`re looking for something with more excitement like a Chipotle.
O`BRYON: Anything exciting coming up?
MENLOW: Well, I don`t know that there`s going to be anything on the immediate horizon that really needs to be looked at, but I have to reiterate what we`ve been saying to all our clients that, everybody is very tired of the energy market and all the derivative IPOs that come to market. Even though that might be the case, the fundamentals are solidly in its favor, even with energy coming down. So you have diminishing supply for increasing demand in a product and the formula is just going to spell success for future IPOs if people have patience.
O`BRYON: All right, thank you very much. We`ve been speaking with David Menlow, president of the ipofinancial.com.
"Work in Progress" -Giving Convicts A Chance
LINDA O`BRYON: Every year in the United States, 650,000 men and women are released from prison to make their way in free society. But many never find jobs, and that dramatically increases the odds they will eventually find their way back into a cellblock. As our "Work in Progress" series continues, Washington bureau chief Darren Gersh looks at how one state prison system, Louisiana`s, is trying to better the odds of going straight.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Dixon Correctional Institute is tucked into the Louisiana countryside north of Baton Rouge. There are 1,524 beds here and they are all full.
JAMES LEBLANC, WARDEN, DIXON CORRECTIONAL INSTITUTE: Most of you want to do the right thing.
GERSH: For Warden James LeBlanc, repeat business is the problem.
LEBLANC: One out of two of you are coming back to us and that`s something that we are trying to change.
GERSH: A stint as acting director overseeing the state`s probation and parole department convinced LeBlanc that the old way of doing things was not making his state safer. Inmates were leaving prison unprepared for free society and half of them ended up coming back.
LEBLANC: Our institutions go to great lengths in providing opportunities for the inmate populations. We do some good things with educational programs, vocational programs, substance abuse, but then we tie a concrete block on them around their feet and drop them off in the ocean off the front gate.
GERSH: At DCI, LeBlanc piloted a new philosophy that has now spread to all Louisiana prisons: every inmate gets a re-entry plan and 100 hours of pre- release training to prepare them for free society. Prison officials also help identify inmates eligible for outside programs like Louisiana Community Prisoner Reformation, or CPR.
UCY LONG, PROGRAM COORDINATOR, LOUISIANA CPR: For some of you who may not know this, I spent 20 years, three months and 15 days in prison. That`s right.
GERSH: Ucy Long was behind bars for armed robbery. Today, he is the coordinator for Louisiana CPR. The counselors here help non-violent, non- sex offenders find housing, transportation and work. Long knows from experience it won`t be easy for these men to return to the violent streets of New Orleans.
LONG: Choices. One mistake can cost you the rest of your life guys. When you get out of here, you think about that.
GERSH: A bipartisan group of lawmakers in Congress is now pushing the second chance act to provide up to $300 million to expand reentry efforts like this. The idea is to cover more of the 650,000 men and women released from prison every year. The economic stakes are high. The best estimate is that 7 percent of the adult workforce has served time behind bars. And for minorities, the figure may be closer to 30 percent. Joey Portera is one of the first to go through the CPR program. He spent three years in prison for selling drugs. Now Portera has changed his priorities.
JOEY PORTERA, LA-CPR PARTICIPANT: I got kids, I got a wife. I am starting all over. I got to get some income as soon as possible so I can start getting my life back together. I`m just hoping my education and experience will beat the felony conviction.
GERSH: Portera will soon find out. At one minute past midnight, he`s a free man. His father and wife are waiting at the front gate. Early the next morning, Portera begins his first day with a visit to his parole office. Then, a job coordinator at Louisiana CPR takes him to the state`s one-stop job center.
The job search is one of the most difficult parts of the reentry process. Pre-employment criminal background checks are now routine. Some state laws make it illegal to hire ex-offenders for work in places like schools and nursing homes. Researchers have found up to two-thirds of ex- offenders have not found regular jobs a year after their release, but New Orleans may be different. Nine months after hurricane Katrina, the labor market is still tight.
BETTINA BUVAL, MANAGER, NEW ORLEANS WORKFORCE DEVELOPMENT: It`s giving people a chance to be competitive for jobs where employers at first wouldn`t give them a second glance.
GERSH: After a week of searching, the Louisiana CPR program lands Portera a job as a longshoreman. He makes $10 an hour and when we went back to talk with him, he had been on the job for close to a month.
PORTERA: It`s a good place to start, especially coming home straight from prison and it definitely beats working upstate for free.
GERSH: But the transition to free society is never easy. Portera`s son was born while his father was in prison. It`s a new experience, balancing the pressures of work and family.
PORTERA: When you come home, a lot of those responsibilities like the light bill, the rent, groceries, dog food, diapers -- all that stuff that you forgot about? Back in action.
GERSH: The long hours on the dock are stressful and hot, but Portera says it`s a chance to begin building a better future for his family. Darren Gersh, NIGHTLY BUSINESS REPORT, New Orleans.
"Money File"-Cashing In On Saving
In the "money file" tonight, to spend or not to spend when it comes to spending a lot of cash. Here`s Chuck Jaffe, senior columnist at "Marketwatch".
CHUCK JAFFE, SENIOR COLUMNIST, MARKETWATCH: My daughters are big fans of a television show dedicated to completely over-the-top sweet 16 parties. Thankfully, my girls recognize the ridiculous excesses of greedy, spoiled kids and outrageously indulgent parents spending gobs of money for a little bit of personal glory. But there is little doubt that many people, both children and adults, feel entitled to things that are excessive, if only to keep up with the neighbors or the people they see on TV. The result is spending beyond their means.
Forget the six-figure parties that are the subject of the silly TV show. Consider that the Conde Nast bridal group just released a survey showing that the average wedding in America now costs $28,000, a 100 percent increase over the last 15 years. I`m not going to suggest that people shouldn`t celebrate a marriage or even a sweet 16, but rather that they keep things in perspective. At 28 grand, the average wedding is equal to about nine months of pay for the country`s median household. It`s a pretty nice down payment on a house. And while wedding memories may last a lifetime, squandering the chance to put a roof over your head can impact your finances negatively for just as long.
In a nation that glorifies profligate spending, smart, savvy choices are tough to make. Over years of talking with consumers, I`ve learned that people who make budget conscious, frugal, but not cheap decisions, they have no regrets, while people who blow big wads of cash tend to learn the lesson that the glory of excessive spending is both fleeting and financially dangerous. I`m Chuck Jaffe.
O`BRYON: Finally tonight, in the "ideas that might not fly in the United States" department comes this story from Finland. A new citizens group there thinks Finns should be happy about paying some of the highest income taxes in Europe. It`s called the happy taxpayers association. The group wants people there to focus on good things, like public services, that taxes deliver. So far, some 250 members have signed on to promote happy taxpayers. But far more folks are unhappy, Paul. The taxpayers association of Finland group, which wants taxes cut, has 190,000 members Paul.
KANGAS: Well being of Finnish descent, make that 190,001 members (INAUDIBLE) taxes.
Last Word: “The Happy Tax”
PAUL KANGAS: A strong housing market caught economists by surprise today. New home sales jumped an unexpected 4.9 percent in April to a rate of 1.2 million units, the highest rate since last year. But it wasn`t all good news. Home prices fell in April and unsold homes hit a record high. Analysts had expected sales to slide due to rising mortgage rates, which are at their highest levels in nearly four years. But economists say the data still points to a slowing market.
As you might expect, the most active big board issue, trading 26.1 million shares was Vonage Holdings (VG), the stock tumbling nearly 13 percent, down $2.15, traded as high as $17.25, but the low of the day was $14.50, not a very good debut as you heard.
General Electric (GE) moved up $0.26.
Then the star of the day, General Motors (GM) up $2.03, the best point gainer in the Dow. Merrill Lynch upgraded it from "neutral" to "buy" with a price target of $37 a share. GM`s gain added 16 points to the Dow Industrial Average.
Dynegy (DYN) a $0.02 gainer. The company priced a 35 million share public offering of its class A shares at $4.60 each.
Lucent Tech (LU) was up $0.02 as well. That was fifth in big board volume.
ExxonMobil (XOM) down $0.29 on the lower oil prices.
Pfizer (PFE) $0.15 loss.
Boston Scientific (BSX) up $0.53.
Time Warner (TWX) edged a penny lower.
And Citigroup (C), tenth in volume was up $0.13 a share.
Boeing (BA) was the big loser in the Dow of the day and I think what hurt it was the reaction, negative reaction to that 4.8 percent drop in April durable goods orders. That drop in Boeing stock cost the Dow 22 points, so it took away the General Motors gain.
Medtronic (MDT) up $2.22. The story here, after the close yesterday, fourth quarter earnings $0.62, way up from $0.16 last year. That was in line with Street estimates, but Morgan Stanley had a target price of $65 a share.
Payless Shoesource (PSS) up $3.77, big earnings, first quarter, $0.53, up from $0.45 last year, even though sales were flat. The company also said it`s acquired American Eagle brand footwear, didn`t disclose the amount that it paid however.
Enersys (ENS), which is in the battery and charger business, up $1.61. The company sees fourth quarter earnings coming in at $0.25 a share, $0.02 better than the Street estimate and up from $0.22 a year ago. It expects revenues to be up 24 percent.
Then First American Corp (FAF) up $2.12. The Keefe Bruyette investment house upgraded it from "market perform" to "out perform" after the company reached yesterday an agreement with the New York state attorney regarding a title insurance investigation.
Dreamworks Animation (DWA) up $1.51. Soleil securities upgraded it from "hold" to a "buy."
The golds were hard hit. Newmont Mining (NEM) down $1.64. The New York contract for June gold tumbled $36.20, down to $637.50 an ounce. Also jewelry demand for gold has dropped sharply because of the recent price surge in the precious yellow.
Then we see Borders Group (BGP), the book seller, down $1.23. First quarter loss of $0.29, $0.05 worse than the Street expected. The company sees second and third quarter earnings challenging.
Google (GOOG) topped the active list on NASDAQ, up $5.67.
Microsoft (MSFT) $0.71 gain.
Apple Computer (AAPL) edged up $0.19.
Intel (INTC) lost $0.06.
Cisco Systems (CSCO) a $0.12 gain. That was fifth in dollar volume.
Qualcomm (QCOM) up $0.33.
Yahoo! (YHOO) a $1.03 gainer.
Broadcom (BRCM) up $0.36.
A penny rise in Sandisk (SNDK).
And Dell (DELL) up $0.09 a share.
XM Satellite (XMSR) down $1.76. The company cut its subscriber growth forecast from nine million to 8 1/2 million by the end of this year.
And those are the stocks in the news tonight.
