NBR Complete Transcripts: 11-01-2006
Wednesday, November 01, 2006CVS To Buy Caremark Rx
SUSIE GHARIB: It's an almost $21 billion drug deal. CVS, the nation's largest drugstore chain, said today it's buying Caremark Rx, one of the nation's biggest pharmacy benefit managers. The combined company will become a huge player in pharmacy services. That could change the landscape of the prescription drug business. CVS now runs 6,200 stores in 43 states. Caremark manages drug benefits for more than 2,000 health plans. The companies say combing forces in a merger of equals could realize $400 million in operating savings the first year alone by increasing purchasing scale and efficiency. Analysts say it's a good opportunity for both companies.
MARK HUSSON, RETAIL ANALYST, HSBC: Drugstore retailing is getting more difficult. And I think this is just a sign that CVS is looking for other avenues other than just drugstore retailing to grow its business. And Caremark is a large pharmacy benefit management company and has a very important mail order business. Mail order has been growing a lot faster than retail. And this gives CVS access to that mail order piece of the puzzle.
GHARIB: CVS had been a client of HSBC over the past year. Now CVS and other retail pharmacies have been under pressure lately since Wal-Mart began selling some generic drugs for just $4 for a month supply.
One Power Company's Upgrades May Bring Pollution Problems
PAUL KANGAS: The U.S. Supreme Court today heard arguments on a case that could have a significant impact on business and the environment. The case involves Duke Energy and just how the company modified some of its old, coal-fired power plants almost two decades ago. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: When Duke Energy modernized its coal-fired power plants back in the late 1980s, it didn't put in any new pollution controls. Environmental groups that brought the case say the Clean Air Act required that it should have.
BLAN HOLMAN, ATTORNEY, SOUTHERN ENVIRONMENTAL LAW CENTER: The law requires that they clean these plants up when they do the modifications and that's what we want to see happen.
DHUE: But today, the energy company told the justices that regulators were inconsistent in interpreting that law. Duke argues that it did not have to spend billions of dollars in new pollution controls when it upgraded the plants because the hourly rate of emissions didn't increase.
CARTER PHILLIPS, COUNSEL FOR DUKE ENERGY: We did ask the regulators what to do. Every one of these projects was inspected by a North Carolina or South Carolina inspector. Every one of them was determined not to be subject to this statute. And that's why we're saying look, you can't come back 20 years later and say, it's a do-over and you owe us billions of dollars. That's just wrong.
DHUE: A ruling against Duke Energy could set the stage for power plants and industrial factories to be forced to spend billions on pollution controls. For example, New York State has similar suits against Synergy and American Electric Power.
PETER LEHNER, ENVIRONMENTAL PROTECTION BUREAU, NY ATTORNEY GENERAL: It will mean that these power plants which are often 40, 50 years old, extremely dirty, will have to put on the pollution control that any modern power plant will have to put on.
DHUE: The justices seemed sharply divided and were clearly grappling with complex environmental and legal issues. Observers don't expect a quick ruling in this case. A decision may not be handed down until late spring. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"H2o Woes"-Uncorking The Bottled Water Business
SUSIE GHARIB: Twenty years ago, bottled water was part of the beverage market that was pretty much ignored by most companies. That's not true today. With growing numbers of Americans drinking bottled water, the field is now dominated by big companies like Coca-Cola, Nestle and others. As we continue our series "H2o Woes," Jeff Yastine looks at the big demands and the big controversies of bottling natural spring water.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: When it comes to diving the nation's lakes and rivers, there are few matches for this: the inland freshwater springs of northern Florida. Small and large, there are dozens of such springs across the region. It's a mecca for cave divers below the water's surface, and above it, an attraction for locals as well. The springs and the underground aquifers that feed them are also a mecca for a much more lucrative activity: supplying the nation's nearly insatiable thirst for bottled water. Twenty years ago there were only a few companies with permits for freshwater withdrawals from the region. But that number has grown with the popularity of bottled water.
MEG ANDRONACO, NATURAL RES. MGR., NESTLE WATERS, NORTH AMERICA: The water emanating out of this spring can be anywhere from 10 to 20-- sometimes a little bit older than that. It takes that long for the water to travel.
YASTINE: Ten to 20 years?
ANDRONACO: Ten to 20 years. Thank you. Yeah. It's not just very local. It's not weeks or days. It's most years-old.
YASTINE: Meg Andronaco is the natural resources manager for Nestle waters, the nation's largest bottler of spring water. The company taps five spring sources in Florida, including this one, Crystal Springs, northeast of Tampa.
ANDRONACO: We do have internal standards for the springs we use. I do believe there's abundant springs both in Florida and the United States. But we look at water quality in the spring, the location of the spring, the flow from the spring.
YASTINE: Bottled water companies are riding a wave of popularity. Just in the past five years, bottled water sales rose by more than 60 percent. Much of that comes from brands bottled from municipal sources, but spring water represents a key growth segment for the industry.
STEPHEN KAY, VP COMMUNICATIONS, INTERNATIONAL BOTTLED WATER ASSOCIATION: Spring water sources are very important to the bottled water and the beverage industry overall. The greatest growth in the bottled water industry is what we call distilled spring water segment. That's water that doesn't have carbonation or sparkling. So the spring water segment is the largest portion and the most demand for consumers.
YASTINE: But spring water bottling is not without controversy. Opponents in a few areas around the country have sought to block commercial bottling efforts. Some fear it could draw too much water out of springs or cause nearby wells to run dry.
PETER GLEICK, CO-FOUNDER & PRESIDENT, PACIFIC INSTITUTE: It's very important to look at. It's very important to look very carefully at a local water resource and the impacts of a bottled water company on that local resource. It may be a small fraction of a state total. It may be a small fraction of a regional total, but it may turn out to be a large fraction of a community's resource and it's important to look at. It's a valid to question controls that are being put in place to protect those local resources and we're going to see more and more of that.
YASTINE: Bottlers counter that a spring water bottling plant draws a relatively small amount each day -- hundreds of thousands of gallons, compared to millions of gallons used just for lawn irrigation in the same region. Companies like Nestle Waters say there's an additional incentive to be good stewards of water resources. This bottling plant near the tiny north Florida town of Lee cost upwards of $80 million to build. It taps the same flow of water as this nearby spring. The company says it's not in its best interest to exhaust such sources. ANDRONACO: We don't build our factories on wheels so we don't build it at one spring and use that spring up and move it to another. We want to be here 100 years from now, when we're all retired and gone. And so we need to do the monitoring and the longer period of time you do that, the more (INAUDIBLE) you have, the more data you have the better. You can understand your system better.
YASTINE: Springs attractive to bottlers tend to be in rural areas. Some communities have welcomed the additional jobs created for the local economy.
PAULA ARNOLD, PRESIDENT/CEO, GREATER MADISON COUNTY CHAMBER OF COMMERCE: In a small rural county like Madison, we're always needing jobs and our average wage in this county is about $8.50 per hour, which is relatively low statewide and obviously nationwide. And Nestle jobs, their entry level job pays $11 an hour, so it's considerably higher and it offers a great opportunity to our residents.
YASTINE: The opportunity for bottlers is a big one as well, as long as consumers keep buying and the spring water keeps flowing. Jeff Yastine, NIGHTLY BUSINESS REPORT, Lee, Florida.
"Street Critique"-Studying Stocks Pays
PAUL KANGAS: While many stocks with high yielding dividends also carry high price tags, tonight's "street critique" guest says there are some undervalued gems with strong yields and you can find them if you do your homework. She's Hilary Kramer, market strategist and personal finance editor at aol.com
Hilary, welcome back to NBR.
HILARY KRAMER, PERSONAL FINANCE EDITOR, AOL.COM: Thank you, Paul.
KANGAS: Tell me about these undervalued stocks with the big dividend yields. What's your thinking behind this strategy?
KRAMER: The market is so frothy right now with these big cap stocks, the Dow 30, there's so many 52-week highs, the way to go is to find dividend yield and opportunities.
KANGAS: but you know that old Wall Street axiom says high yield usually means high risk. What's the risk picture here?
KRAMER: Not necessarily with all stocks. If you have a strong earnings, cash flow, then the companies will give it to shareholders in the form of a dividend.
KANGAS: All right. Let's get right to individual issues. Tell me what you like.
KRAMER: Suburban Propane, SPH, one of my favorite stocks. You're talking about a dividend well over 7 percent.
KANGAS: My goodness.
KRAMER: . and hoping to increase soon. Suburban Propane has a million customers. They service the propane market, fuel oil. They have a large network. It's very hard for customers to switch. There's a lot of loyalty there and you can't go wrong even with the stock being at a 52-week high.
KANGAS: So the big yield does not mean big risk in this case because of the steady business.
KRAMER: That's right.
KANGAS: OK, let's move right along. Let's have another one that you like.
KRAMER: Verizon. Verizon has now come full circle especially now that they've finished really truly their MCI integration. They are very strong in the corporate market, commercial market. The stock is undervalued because there's concern about them losing fixed line business, but that's not what the revenue driver is for the future and you have a nice dividend yield there.
KANGAS: OK, let's have another one.
KRAMER: OK, Puget energy. I'm always looking for the utility companies that will give you a nice, strong yield but at the same time are undervalued, could even be, you know, acquisition target, and in a growing area, for example, the northwest, which is what you have with Puget Energy.
KANGAS: OK. That sounds like a very interesting stock. And then what, what else do you like?
KRAMER: Scottish Power, SPI. This is one of the largest utilities in Europe. Strong in wind power, big footprint globally, internationally. They'll do even better here on the dividend and Scottish Power is a true acquisition target. They sold the business to Berkshire Hathaway recently and now they're sitting there and they're really a duck waiting to be acquired.
KANGAS: We have time for one more, Hillary.
KRAMER: Telstra. This is the Australian telecom giant, very similar to a Verizon, undervalued because there's concerns over regulatory fighting. But this is a company that also owns 50 percent of the second largest cable operator in all of Australia, fixed line business, wire business. You can't go wrong if you want a solid international stock.
KANGAS: And do you own any of these stocks or have any other discloses to make?
KRAMER: No.
KANGAS: OK, I imagine most of them have been regular dividend boosters, also. True?
KRAMER: That's right, especially for Suburban Propane. They're hoping to come up 3 percent.
KANGAS: Thanks very much for being with us tonight, Hillary. We'll see you again on November 15th.
KRAMER: Thank you, Paul.
KANGAS: My guest, Hilary Kramer, personal finance editor at aol.com.
"Money File"-Reviewing Retirement Plans
As the end of the year gets closer, there are probably a lot of things you're thinking about: Thanksgiving and Christmas and holiday spending, for example. In the money file tonight, some other things to think about. Here's Kathy Kristof, business writer for the "Los Angeles Times."
KATHY KRISTOF, BUSINESS WRITER, THE LOS ANGELES TIMES: If you are self- employed, even if you just moonlight to earn some extra income, this is the time of year to think about retirement plans. Self-employed individuals have a lot more options than everyone else when it comes to socking away money for their golden years. Better yet, they have more time to sock that money away and still get tax deductions for it on their 2006 returns.
In most cases, they can claim 2006 tax deductions even if they don't fund the accounts until sometime in 2007. But to get the deductions, the plans generally have to be set up by year end. What are your options? The best two are so-called sep-IRA's and individual 401(k) plans. Each of these plans allow you to set aside up to 25 percent of your self-employment income or $44,000, whichever is less. The benefit of the sep plan is that it's extremely simple. You can set it up at almost any bank, brokerage firm or mutual fund company, and chances are the only cost will be a small annual fee.
The 401(k) plan is a little more complicated and would probably require the help of a tax specialist to set up and administer. That makes the 401(k) a touch more costly to operate, but it may still be worth it. With most plans, once you put money in, you can't get it out until retirement. The 401(k) is the one exception. IRS rules allow you to borrow up to 50 percent of your account value or $50,000, whichever is less. Most experts discourage borrowing from a retirement account, but it's nice to know you can if you need to. I'm Kathy Kristof.
Paul Kangas' Stocks In The News
PAUL KANGAS: Wall Street opened with modest gains on strong earnings report from Cigna and Mastercard, but stocks faded after new of a slowdown in October manufacturing and a 0.3 percent drop in September construction spending. At midday, the Dow was off 36 points, NASDAQ off 11. Stocks extended their losses on concern that the slowing economy could end in a hard landing, so the market ended near its worst level of the day. The Dow Industrial Average of 49.71 at 12,031.02. NASDAQ Composite fell 32 1/3 points to 2334.35. Standard & Poor's 500 down 10.13 at 1367.81. In the bond market, the 10-year note fell 2/32 to 102 12/32, putting the yield at 4.57 percent. The most active big board issue on 28.7 million shares was CVS Corp (CVS) down $2.35. As you heard, it's going to acquire Caremark for stock worth about $48.50 per Caremark. Incidentally, after the close, CVS reported third quarter earnings, $0.33, up from $0.30 a year ago, a penny above the Street estimate.
Time Warner (TWX) in there, you heard about the earnings, down $0.24.
And Caremark Rx (CMX) up $1.06, pretty close to the value of that takeover by CVS.
Pfizer (PFE) $0.11 loss there.
AT&T (T) down $0.49. That was fifth in volume.
Then we see General Electric (GE) a $0.21 loss.
ExxonMobil (XOM) dropping $0.36.
Lucent tech (LU) a $0.02 drop.
Ford Motor Co (F) moved up $0.24.
And tenth in volume, Citigroup (C) down $0.07 a share.
Cigna (CI), the big insurance company, up nearly $2. Third quarter earnings jumped to $2.75 from only $2 a year ago. Revenues up nearly 3 percent. Standard & Poor's repeated a "buy" on the stock.
Then we see Mastercard (MA) up nearly $11 a share. Third quarter earnings came in at $1.42, $0.35 above the Street estimate, way up from $0.79 a year ago. Revenues up a very respectable 14 percent.
Administaff (ASF) up 44.95. Third quarter earnings $0.43, $0.04 above the Street estimate and up from $0.26 a year ago. Revenues rose 19 percent.
Then BCE Inc (BCE) a Canadian firm, down $3.46. The story here, the company had lower third quarter earnings of $0.43 versus $0.45 a year ago, but the stock was really undermined by Canada's plan to start taxing income trusts more like corporations. BCE was going to convert into a trust.
And let's have a look at some of the other stocks that might be affected by this proposed tax change up in Canada, all multiple point losers. Telus (TU), Baytex Energy Trust (BTE), Canetic Resources Trust (CNE) and Enerplus Resources Fund (ERF) and Precision Drilling Trust (PDS) major losers on the day on that tax proposal.
Banta (BN), the big printing company, up $7.87. RR Donnelly, another company in the printing business, it will acquire it for $36.50 a share, but that's after a $16 a share special dividend was already declared by Banta. So you total those two up and you come up with just about where Banta closed today at $52 plus.
CEC Entertainment (CEC) up $3.41. Third quarter earnings jumped to $0.54 from $0.41 a year ago. Revenues up 8.4 percent. Those earnings $0.09 better than expected.
And Burger King (BKC) up $1.12. First quarter earnings $0.30 versus $0.19 last year. The company says it's on target for a 6 to 7 percent growth rate in revenues next year.
Google (GOOG) topped the active list on NASDAQ, down $8.89.
Microsoft (MSFT) bucked the trend up a dime.
Apple Computer (AAPL) down $1.92.
$0.32 loss in Intel (INTC).
Garmin Ltd (GRMN) plunging $8.43. The company makes navigational devices. Third quarter earnings $0.50, up from $0.33. That was just in line with street estimates, but sales were lower than expected and that apparently hurt the stock.
$0.03 drop in Cisco Systems (CSCO).
Dell (DELL) down $0.31.
And Express Scripts (ESRX) a $3.73 loss.
Baidu.com (BIDU) off $2.42.
Tenth in volume was Yahoo! (YHOO) with a $0.35 loss.
Nvidia (NVDA) fell $2.69 on news it will restate financials from 2004 through the first quarter of next year to correct errors in accounting for stock options.
