NBR Complete Transcripts: 07-18-2006
Tuesday, July 18, 2006Corporate Earnings All Ready Going Through Ups & Downs
SUSIE GHARIB: Mixed earnings late today from two tech bellwethers, IBM`s quarterly profits surged 11 percent, but Yahoo`s tumbled 78 percent. Big blue earned $1.30 a share in its second quarter, a penny ahead of analyst estimates, thanks to strength in its software business. But revenues fell almost two percent to $22 billion due to the sale of the company`s personal computer unit to Lenovo. In after-hours trading, IBM shares jumped more than 3 percent.
But shares of Yahoo! plunged almost 15 percent after reporting a second quarter profit of $0.11. Now while that was in line with estimates, investors focused on a shortfall in revenues and a warning from Yahoo! that its business might grow slower than expected for the rest of the year. Meanwhile, three Dow components reported their quarterly earnings before the opening bell. Coca-Cola and United Technologies both posted a stronger than expected second quarter profit. But Johnson & Johnson`s numbers came up short of analyst estimates. Scott Gurvey has details.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The giant manufacturing company United Technologies posted a strong gain in second quarter profit, led by demand for jet engines and other aerospace components. United Technologies said second quarter earnings were $1.09 a share, compared to $0.95 a share last year. Wall Street was expecting $1.01. Johnson & Johnson, the world`s largest health care company, posted a 9 percent increase in second quarter net income. But Wall Street was disappointed to see a decline in gross margins. Analysts were also concerned by a slide in sales for one of J&J`s hottest products, a drug alluding stent called Cypher. The company earned $0.95 a share, but that was below analyst`s average estimates of $0.97.
ROBERT GOLDMAN, MEDICAL TECHNOLOGY ANALYST, KEYBANC: Their problem at the moment is on gross margin, which showed an 80 basis point decline year over year. And that`s a function of a negative mix shift, which is to say you`re having relatively good growth in relatively low margin products. That unfortunately for Johnson & Johnson might be how life is for the next several years.
GURVEY: Things went better in the second quarter for Coca-Cola. The big board food giant posted a 6.6 percent increase in profits, helped by strong sales in Brazil, China and Russia and the increasing popularity of its non-carbonated drinks Dasani water and Powerade. Coke earned $0.78 a share in the quarter, a number which includes $0.04 from the sale of shares in a Turkish bottling company. The company earned $0.72 a share in the same quarter last year.
PATRICK SCHUMANN, BEVERAGE ANALYST, EDWARD JONES: Coke has taken baby steps in turning around its business. We think it`s finally stabilized, and now they can -- they`re at a position where they can grow. They have a very good geographic profile and we think they`ll take advantage of growth in developing markets such as Brazil and China over the long term. However, Coke does need to add to the non-carbonated portfolio over time to achieve better growth.
GURVEY: Tech will be on the table in a big way tomorrow. Among the companies expected to report are Apple, Intel, Motorola and eBay. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
A Sit Down With Microsoft CEO Steve Ballmer & Nortel CEO Mike Zafirovski
SUSIE GHARIB: Two technology leaders teaming up to make it easier for workers to communicate. Microsoft and Nortel networks today took the wraps off a new four-year, $1 billion deal in what they`re calling unified communications. The idea is to shift traditional business phone systems into software, letting people put all their communications onto one device. The companies will license some of each other`s intellectual property and use the other`s technology. Earlier this afternoon, I sat down with the CEO of Microsoft, Steve Ballmer and the CEO and president of Nortel, Mike Zafirovski. I began by asking Zafirovski how important the Microsoft deal is for Nortel.
MIKE ZAFIROVSKI, PRESIDENT & CEO, NORTEL: I mean, this is of significant importance for Nortel. Our enterprise business is almost 30 percent of our revenues. It is somewhat under attack in terms of the future of PBX machines and voice over IP as we see the inflection point of communications and IT coming together. We think it`s a very gutsy move for our company to partner with the largest software company in the world to accelerate the move to what`s being referred to as unified communications and we believe this will significantly increase, accelerate the movement from companies to environment where all their devices, all their communication devices will be able to work in a simple, easy- to-use software platforms.
GHARIB: Let me jump in because I`d like to get Mr. Ballmer in on this conversation. Mr. Ballmer, Nortel is not recognized really as the strongest player in this field. You`ve had a lot of other choices you could have gone with. Nortel is going through some tough times. Why Nortel?
STEVE BALLMER, CEO, MICROSOFT: Nortel is a fantastic company. Nortel has a wonderful history. They`ve got strong engineers. They`ve got a great customer presence. Some issues that Mike has had to deal with over the last couple of years. But when we ask who do our customers turn to, particularly business customers for enterprise voice solutions, Nortel is right up at the top of that list. And so we`re delighted to have the opportunity to partner with Nortel and really go after this, not just as a company that`s been great and has great people, but a company that`s got a leading market position.
GHARIB: Specifically what will customers see that`s new and different Mr. Ballmer?
BALLMER: Think about a world in which essentially everything is integrated. Today we have multiple email accounts. We have multiple voice systems. If I wanted to leave word for somebody, if it`s my -- if my wife calls, find me. If my broker calls, don`t find me. Send me to voice mail. No. Dump that into email. I`ll take that IM. There`s no way for me to describe how I want to relate to other people in the world. When we talk about unifying communications, we talk about bringing that together for the user and also allowing that or the consumer to let that be part of the rest of what goes on in business.
GHARIB: Mr. Zafirovski, I understand since you`ve become CEO, you`re been really trying to rebuild the company. I understand that you`re doing some restructuring in trying to cut costs. How much of your resources will be allocated to this deal with Microsoft?
ZAFIROVSKI: I`ve been with the company for eight months and there`s a great cash to recreate a great company. This is the most dramatic move for us to be able to develop a leading position working with Microsoft toward driving them to become the leader in driving unified communications. There will be substantial sales, marketing and resources, development of resources, working together including people here at the Redmond campus. We`re not disclosing the specifics but this will be very significant, consistent with significant expectations for high revenues for our company.
GHARIB: That`s great. Switching gears a little bit, Mr. Ballmer, at an investor conference last week you made some very upbeat and positive comments about your upcoming quarterly earnings report that`s coming out on Thursday. That`s great but looking ahead, what kind of growth can Microsoft expect given that personal computer growth is really slowing down?
BALLMER: Well, personal computer growth actually isn`t slowing down and certainly Microsoft`s growth is not just about the growth of the personal computer. We think we have great growth prospects both by the growth in the PC market, broader experiences for people with PCs, but also now with video game consoles, TV software, phone software, big opportunities for Microsoft.
GHARIB: Staying on the subject of earnings, Mr. Zafirovsko, I know Nortel is really trying to turn itself around. What is it going to take for Nortel to be profitable again and can you be spread out into so many different lines of business and markets and still be profitable?
ZAFIROVSKI: We have made public comments that we look forward to be increasing our profitability for break-even in 2005 to double digits by 2009. Meaningful (INAUDIBLE) improvement and profitability per year. We`re driving both the top line as well as changing processes within, internally. If you think about Nortel very briefly, we`re in the networks business providing reliable networks for enterprises and for carriers. We`re streamlined to some extent so far and we`ll continue to make investments (INAUDIBLE) and likewise we`ll be shrinking where we do not believe we can be the world`s best.
GHARIB: You`ve got your work cut out for you. Good luck, Mr. Zafirovski. Mr. Ballmer, thank you very much for being on the program.
BALLMER: Thank you
ZAFIROVSKI: Thank you very much.
Adult Communities Are The New Retirement Real Estate
SUSIE GHARIB: Graying Americans are giving a jolt to one segment of the housing market. Active adult communities are springing up all over the U.S. these days, not just in the Sun Belt. As Diane Eastabrook reports, baby boomers are setting the agenda for where the communities are being built and what amenities they offer.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: This is home sweet home for Fred and Roni Schmidt. The retirees wanted a lifestyle change, so last year they sold a 3,000-square-foot home in Dallas and purchased this much smaller one near relatives in northern Illinois.
RONI & FRED SCHMIDT, HOMEOWNERS: I wanted something, you know, one level. Also, we wanted a lot less maintenance. We had a swimming pool and a very big yard. We were on a corner lot.
EASTABROOK: The Schmidt`s house is one of 6,000 single-family homes and townhouses at Del Webb`s Sun City in Huntley, Illinois. Active adult communities for consumers 55 and older are becoming the hot spot in a cooling housing market. 78 million aging baby-boomers are the reason. Pulte Homes, which owns Del Webb, is betting many boomers will want to downsize to smaller spaces.
DAVE SCHREINER, V.P., PULTE HOMES INC.: We have over a million people on our national databases that have expressed interest in this kind of living. It`s just quite common for someone to get into their early `50s and say, "you know, what does the rest of my life hold for me?"
EASTABROOK: Since many baby boomers plan to stay on the job beyond the age of 65, more active adult communities are popping up near major business hubs like Chicago. And they`re catering to the active lifestyles of baby boomers.
You`re just as likely to find residents playing tennis and pumping iron at new active adult communities as you are to find them playing bridge and bingo. Pulte says, since boomers are expected to work longer and be more active, these communities must reflect those trends.
SCHREINER: If they are engaged in a painting program or some sort of a wellness program, well, 10:00 on a Tuesday morning might not be the best time for them. So we have to adapt our programs around a work life.
EASTABROOK: Pulte has nearly 50 active adult communities nationwide and another 100 under development. And it`s not alone. Upscale homebuilder Toll Brothers already has 16 active adult communities and another 36 on the drawing board. Since about half of active adult buyers pay cash for their homes, they aren`t directly impacted by rising interest rates. But analysts caution that could change.
CARL REICHARDT, HOME BUILDING ANALYST, WACHOVIA SECURITIES: Those who are looking to retire may have a difficult time selling their houses in the current environment, their existing houses, meaning that their ability to move down to a smaller house might be compromised if they can`t get the price they want for their existing home.
EASTABROOK: Still, Pulte is confident sales in the segment will keep growing as the nation`s largest demographic grows older. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Huntley, Illinois.
SUSIE GHARIB: Tonight`s commentator says it`s time something is done about how hedge funds are regulated. Here`s Laura Unger, former commissioner of the Securities and Exchange Commission.
Commentary: Taking the Thorns Out of Hedge Funds
LAURA UNGER, FORMER SEC COMMISSIONER: Quite understandably, the Congress and the SEC responded to the corporate meltdowns of 2002 with comprehensive reform. While opinions abound on the quality of that law, one thing is certain: without a crisis, there would have been no impetus for reform. After 2002, the SEC scrutinized the unregulated part of the markets, looking to head off the next crisis. Enter hedge funds. They are a big part of the market and growing, almost tripling in size in the last two years from $870 million to about $2.4 trillion in assets.
Many hedge funds are also highly leveraged and managed aggressively. While they play an important role in the markets, leaving hedge funds largely unregulated made the market cops very uncomfortable. In 2004, the SEC made the controversial move of attempting to regulate hedge fund advisors. The court recently rejected its decidedly awkward attempts to regulate by redefining what client means. Under new leadership, the SEC vowed to take another look at its enforcement program and rulemaking process.
If the SEC does not find a more credible means to regulate hedge funds, one or both of two things will happen. One, it will regulate by enforcement, no doubt vigorously. Two, a crisis will occur and Congress will respond with a whole set of new requirements. Many question the need for regulation. History shows that it takes a crisis to demonstrate that need. I guess that makes it near impossible to regulate ahead of the crisis. I`m Laura Unger.
NBR Complete Transcripts: 07-18-2006
PAUL KANGAS: Wall Street opened higher despite those worries about inflation and interest rates as investors focused instead on earnings. The Dow rose 50 points at the outset of trading with the NASDAQ up 12. The blue chips fell to a 50 point afternoon loss as oil prices surged, but made a long or I should say strong late comeback as oil faded and optimism about IBM`s after-the-bell earnings rose. The Dow Jones Industrial Average closed up 51.87 points at 10,799.23. NASDAQ Composite up 5 1/2 points exactly at 2043.22. Standard & Poor`s 500 was up 2.37 ending at 1236.86. Over in the bond market, the 10-year note fell 17/32 to 99 29/32, putting the yield at 5.14 percent.
Big board volume leader on 22.2 million shares was Nortel Networks (NT) moving up $0.13 on that Microsoft four-year pact to develop new communications software.
Lucent Tech (LU) gained a penny.
Wal-Mart Stores (WMT) up $0.15 in an otherwise weak retailing group.
Windstream (WIN), which started trading on the big board yesterday, up $0.52. After the close yesterday, Windstream was added to the Standard & Poor`s 500 Index, replacing Cooper Tire and Rubber.
EMC Corp (EMC), fifth in volume, was up $0.06.
And then Target (TGT) losing $2.02. The company sees July same store sales up only 3 to 4 percent at the low end of its previous guidance. Meanwhile, AG Edwards today downgraded Target stock from "buy" to "hold" and did the same downgrade on some other well-known retailers. Let`s have a look at them.
Abercrombie & Fitch (ANF) and Best Buy Co (BBY) and JC Penney (JCP) all substantial losses on the AG Edwards downgrade.
General Electric (GE) was up a dime.
And then ExxonMobil (XOM) rising $0.61.
Motorola (MOT) down $0.20.
Home Depot (HD), tenth in volume, lost $0.47 a share.
These were the Dow stocks that had earnings out today and you see they were all fractionally higher, except for Johnson & Johnson (JNJ) which had those earnings that were $0.02 below the Wall Street consensus. The stock down $0.30 a share.
Merrill Lynch (MER) was down $0.77 despite sharply higher second quarter earnings of $1.63, up from last year`s $1.14. That was $0.11 above the Street estimate.
Then we see a major loser, Centene (CNC), a managed health care company. The company cut its 2006 earnings estimate from as high as $1.70 to as low as $0.95 due to adverse medical cost trends and that whole sector was weak on the Centene news. Let`s have a look at that.
Amerigroup (AGP) off $2.55.
$5 loss in Molina Healthcare (MOH).
And Wellcare Health (WCB) off $4.10 on that whole sector.
The GEO Group (GGI), this is a company that manages prisons and detention, correctional institutions, things like that and it boosted its second quarter earnings forecast by $0.12 up to $0.67 to $0.70 a share. The Street estimate only $0.56 a share, nice move.
Crown Holdings (CCK) in the packaging business, up $1.33. Second quarter operating earnings, $0.43, way up from $0.09 last year, but that was partly due to the absence of a big charge that hit year ago results.
WMS Industries (WMS), the gaming machine maker, got an upgrade from Morgan Stanley from "equal weight" to "over weight."
And on the downside, Enterra Energy Trust (ENT), this is an investment trust. It`s going to boost funding for internal development by cutting its target payment by 90 to 100 percent down to 60 to 70 percent. As a matter of fact today, it lowered its monthly distribution from $0.18 down to $0.12 a unit.
NASDAQ`s most active, Google (GOOG) down $4.84. Earnings due out Thursday, but in after-hours trading, I saw the stock below $392 on Yahoo!`s very disappointing results and outlook.
Apple Computer (AAPL) a $0.53 gain.
Microsoft (MSFT), there you see it, a $0.26 in that pact with Nortel you heard about.
Intel (INTC) $0.37 gain there.
And Yahoo! (YHOO) closed with a gain of $0.40, but after hours, tumbled to around $27.80. That`s where I saw it on the low after the very disappointing earnings and outlook. That was fifth in volume.
Cisco Systems (CSCO) a $0.09 loss.
Oracle (ORCL) moved up $0.30 a share.
Dell (DELL) a $0.23 loss.
Broadcom (BRCM) edged $0.03 higher.
And Baidu.com (BIDU) which had a big gain yesterday, down $0.38, a little profit taking.
TD Ameritrade Holdings (AMTD) up $1.05. The online brokerage posted higher third quarter earnings of $0.23 versus $0.20 last year and that was a penny above the Street consensus.
On the downside we see Rambus (RMBS) losing $2. The WR Ambrecht (ph) downgraded it from "buy" to "hold" on concern the company`s damage award from Hynix Semiconductor Corporation could be drastically reduced.
And those are the stocks in the news.
