NBR Complete Transcripts: 04-20-2007
Friday, April 20, 2007The Dow Reaches For 13,000
SUSIE GHARIB: The Dow made a strong run at 13,000 today, closing at a new record high. The blue chip average surged 153 points to 12,961. The NASDAQ jumped 21 points. Powering today's rally, another batch of strong earnings reports in corporate America, including better than expected earnings from Dow component Caterpillar and Honeywell. Even though only a quarter of S&P 500 companies have reported their earnings, Wall Street analysts are already boosting their growth projections. Scott Gurvey reports.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street's earnings outlook was bleak when the season began. Analysts had dropped their year over year forecast to just 3.3 percent growth for the S&P 500. They were once looking for 9 percent. This week, they changed their mind again. As a long string of better than expected first quarter reports came in, analysts surveyed by Thomson First Call raised their estimates day by day with their consensus for earnings growth reaching 5.2 percent today. Michael Thompson, director of research at Thomson Financial, says he expects to see 7 percent growth by the time all the reports are in.
MICHAEL THOMPSON, DIRECTOR OF RESEARCH, THOMSON FINANCIAL: Expectations will (INAUDIBLE) lower. Analysts were very, very conservative. If you just look at the 130 plus companies that reported today on the S&P 500, that's just over a quarter. It's amazing because most of thosecompanies have beat on average past 10 percent on the earnings line and over 9 percent increase in terms of growth on the revenue line.
GURVEY: Expectations for the second quarter are still a low 3.5 percent. But analysts are looking to see a rapid acceleration in earnings growth as the year continues, reaching 12 percent in the first quarter of next year. For investors, strong earnings growth is the best predictor of market performance over the long term. Michael Metz, chief investment strategist at Oppenheimer, says a near-term correction is likely, but his long-run forecast is bullish.
MICHAEL METZ, CHIEF INVESTMENT STRATEGIST, OPPENHEIMER & CO.: You have sort of a synchronized boom in developed and developing nations and even though the U.S. slows down, worldwide this should be another great year and I think that's being reflected in stocks. Remember, the big capitalization stocks in America are multinational. They really depend on growth as much overseas as domestically, so as far as their overseas operations and exports are concerned, the outlook is good almost regardless of the slowdown in the U.S.
GURVEY: Historically, earnings have grown at an average 7 percent rate, just about where Thomson First Call believes this quarter will end up. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
The Air Passenger Bill of Rights Is Debated in Congress
PAUL KANGAS: In Congress today, a debate over how the airline industry treats its passengers. At the center of discussion is a controversial passenger bill of rights, suggested after a tough winter of flight snags for the major airlines. But as Stephanie Dhue explains, there are questions about whether that type of bill will fly.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stranded passengers, overbooked planes and canceled flights have lawmakers considering a new passenger bill of rights. Kate Hanni was trapped on the runway on an American Airlines plane for nine hours in December. She turned her anger into advocacy and today urged lawmakers to hold the industry accountable.
KATE HANNI, EXECUTIVE DIRECTOR, COALITION FOR AIRLINE PASSENGERS' BILL OF RIGHTS: The airlines made commitments, which they haven't kept, and why should they? There are no consequences for their actions. The DOT forgives most of the fines imposed so they are virtually meaningless.
DHUE: The passenger bill of rights under discussion would let stuck passengers get off a plane after three hours on the ground. It would also require airlines to provide food, drinking water and adequate restroom facilities to stranded passengers. Jet Blue established its own customer rights agreement after grounding thousands of passengers over Valentines Day weekend. CEO David Neeleman says putting a passenger bill of rights into law could have unintended consequences.
DAVID NEELEMAN, CEO, JETBLUE: On just a good day in New York, in the summertime, you can have taxi out times of an hour, an hour and a half. We get a thunderstorm that will come over the field and close departures for a couple of hours, it would be very easy to have somebody on a plane over a three-hour period of time and to the extent that our pilots were mandated to bring people back to the gate at that limit, chaos would reign.
DHUE: Back in 1999, the major airlines promised to voluntarily improve their customer service. But in an audit last year, the Department of Transportation found that only five of the 12 airlines had systems in place to honor the agreement. Committee Chairman Jerry Costello says he will make sure the airlines live up to their promises now.
REP. JERRY COSTELLO, CHAIRMAN, AVIATION SUBCOMMITTEE: The bottom line is, is that either they're going to address the problem or we are.
DHUE: But it may not take new legislation to enforce better customer service. Lawmakers are also calling on the Department of Transportation to take a tougher approach. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Everything You Ever Wanted to Know About Earnings"-Guiding the Numbers
SUSIE GHARIB: As we reported at the top of tonight's program, earnings are a critical factor for Wall Street. One key element in reporting earnings is guidance, a company's own forecast of its performance. Guidance numbers are eagerly awaited by investors but increasingly, companies are questioning the benefit of short-term targets. Tonight as we wrap up our series "Everything You Ever Wanted to Know About Earnings," Suzanne Pratt looks at the issue of quarterly earnings guidance.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: On General Mills earnings conference call last month, company management gave Wall Street plenty of financial information. But, one thing General Mills CFO Jim Lawrence did not provide was quarterly earnings guidance. That's the controversial practice of a company making public predictions about its future earnings per share. Lawrence says focusing on those specific numbers is bad idea.
JAMES LAWRENCE, CFO, GENERAL MILLS: I think what companies need to do is to drive performance for the shareholders, to drive real economic wealth and that is not necessarily represented by EPS, be it for the year or the quarter and to the degree that companies have setup a quarterly target of EPS and then tried to hit that, I think that's a mistake.
PRATT: General Mills is part of a growing list of large companies that do not give quarterly earnings guidance. Some the biggest names include Coca-Cola, Walt Disney and ExxonMobil. According to the National Investor Relations Institute, the number of companies that supply guidance slipped to 66 percent last year from 71 percent in 2005. Guidance became a corporate habit in the late 1990s after Congress passed legislation protecting companies from liability for performance forecasts. But, in the last few years, many companies have concluded the quarterly practice does more harm than good. CFA Institute managing director Kurt Schacht says the problem is that guidance encourages obsessive attention to short-term goals.
KURT SCHACHT, MANAGING DIRECTOR, CFA INSTITUTE: The company will tell you specifically they should make $0.06 over the next quarter, a range of what the earnings should be over the next quarter and then they spend the next 90 days doing everything they possibly can to make sure that they are at or above that earnings guidance.
PRATT: Other experts believe doing that breeds bad behavior in boardrooms and accounting departments. Although an extreme case, WorldCom is a frequently cited example of executives crossing the line to hit their numbers. Nevertheless, quarterly guidance does have supporters in corporate America and on Wall Street. They contend no guidance means more earnings surprises and leads to greater stock price volatility. Intel, which released earnings earlier this week, does not make EPS projections. But, it does provide quarterly revenue guidance. CFO Andy Bryant explains why.
ANDY BRYANT, CFO, INTEL: Intel believes that what we can do to help our owners, for the general public understand the company is a positive. We think we can best do that if we're talking to shareholders, potential shareholders than if we're keeping quiet about it. Certainly I can see positive and negatives, but we clearly believe the more we can share about our business, the better off everybody will be.
PRATT: BMO Capital markets analyst Victor Lazarovici says there's nothing wrong with a company going out on a limb about its future.
VICTOR LAZAROVICI, METALS ANALYST, BMO CAPITAL MARKETS: I thing guidance is helpful and I think it also makes management focus on the short term. It's helpful to analysts and the investing public because you get a sense of where management thinks the business is going.
PRATT: If a company doesn't give guidance, Wall Street analysts will still make their own projections. Lehman Brothers retail analyst Alan Rifkin admits he has to work harder to evaluate those companies that don't supply guidance.
ALAN RIFKIN, RETAIL ANALYST, LEHMAN BROTHERS: It's a little more difficult in that you're not getting your hand held, but that's really where the opportunity lies in that the people who, the analysts who uncover more stones and do more due diligence on their own quite often are ahead of the folks who are solely reliant on company management telling you exactly what they would earn.
PRATT: Guidance is just one aspect of earnings season. As we learned this week, investors should closely scrutinize earnings reports and listen to what companies have to say about them. Armed with that information, investors should be able to make better investment choices. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"Market Monitor"-Elaine Garzarelli, President of Garzarelli Capital
PAUL KANGAS: My guest "market monitor" this week is Elaine Garzarelli, president of Garzarelli Capital and welcome back to NIGHTLY BUSINESS REPORT, Elaine.
ELAINE GARZARELLI, PRESIDENT, GARZARELLI CAPITAL: Nice to be here Paul.
KANGAS: During our last several visits, you've been decidedly bullish on the U.S. stock market and given these recent new highs, including today, correctly so. You told us the U.S. economy had rarely been in such good shape as in recent times. Any change in your position? Is the stock market getting ahead of reality?
GARZARELLI: No, no. Actually, the stock market is catching up to where it should have been last year and we think it has a lot further to go.
KANGAS: Where do your widely followed 14 marker indicators standard now?
GARZARELLI: Well, a bullish reading at 65 and they're at 67 percent; 30 percent would be a major sell signal and 42 percent would be a correction greater than 4 to 7 percent.
KANGAS: You're still quite bullish?
GARZARELLI: Definitely, best economy I've ever seen.
KANGAS: When you were here last in October, you said the housing slump was basically over, but it has gotten a bit worse hasn't it and has it bottomed finally?
GARZARELLI: Well, the mortgage rates are down, 30-year mortgage rates down 100 basis points and I think housing now is flattening out and it should start to turn up later this year in 2008, modestly.
KANGAS: How about oil prices?
GARZARELLI: Oil prices would be bearish from my indicators if they went to $100 a barrel or if the 10-year bond yield currently is 4.7 percent and went up another 300 basis points.
KANGAS: You took away from question. I was going to ask you what would turn you bearish, and apparently that's it. GARZARELLI: Yes.
KANGAS: Now in that visit in October, you recommended four stocks. Let's see how they've done since then. We see Dow Chemical, up 16.1 percent, good call, Intel even moved up 7.4 percent. So you're ahead of the game there. There were two others, Hovnanian, the home builder down 15 percent, that is understandable. Are you still with it?
GARZARELLI: Hovnanian we sold at the end of December for a 25 percent gain. Now you're getting close to a point where you might want to buy it back.
KANGAS: And Altria Group indicates an 11.5 percent loss, but that doesn't take into account the spin off of Kraft, which would put you in a profitable position correct.
GARZARELLI: It would be up 17 percent and I think what we're recommending now is to keep Phillip Morris and sell Kraft because Kraft is overvalued we believe.
KANGAS: OK. That's clear enough. How about some new recommendations, Elaine?
GARZARELLI: I've got some. Now I think the strongest areas in the economy will be capital spending, exports and I think the dollar will continue weak. So the first stock I like is Caterpillar tractor, 50 percent foreign sales. I also like in the capital spending area --
KANGAS: Wait a minute. Let's get the next one up on the chart here. Caterpillar just had a good day today, too. OK, now we see the I-shares of Goldman Sachs in the semiconductor industry.
GARZARELLI: Right, 80 percent of sales are foreign and that includes Texas Instruments, Motorola and Intel, plus some other semiconductor stocks as well.
KANGAS: This is an exchange traded fund, ETF?
GARZARELLI: This is an exchange traded fund right and you can buy and sell it all day long. The next one is Pharmacy Holders and that's also an exchange traded fund.
KANGAS: It's had a sharp rise recently. You're not afraid of that recent -- GARZARELLI: No, because it is down 27 percent from its all-time high in '01. So it is still an excellent, excellent value and also would be a beneficiary of a weakening dollar.
KANGAS: That's your theme here, a weakening dollar is good for exporters.
GARZARELLI: It is. People are worried about a weakening dollar. I like it. Just don't crash. Just be weak.
KANGAS: Do we have another one?
GARZARELLI: Moderately weak. And the last one would be Lehman Brothers and I'm very familiar with that particular stock. And it is down 10 percent just recently. And it is definitely lean and mean and one of the best banking companies.
KANGAS: OK.
GARZARELLI: So with a bullish stock market outlook, the brokerage stocks should be wonderful, wonderful performers.
KANGAS: Do you personally own any of these stocks?
GARZARELLI: I own them all.
KANGAS: KANGAS: And the ETFs included?
GARZARELLI: Yes.
KANGAS: Elaine, I want to thank you for being with us once again.
GARZARELLI: My pleasure on such a nice day.
KANGAS: You like that 153 point gain.
GARZARELLI: I love it have a good weekend. It will make everybody happy.
KANGAS: Thanks Elaine, my guest, Elaine Garzarelli of Garzarelli Capital.
"Last Word"-"Dickens World"
SUSIE GHARIB: And finally tonight, while literary purists may protest, there's a new theme park in the works outside of London, celebrating the life of Charles Dickens, his books and best loved characters. The folks behind "Dickens World" are transforming a 70,000 square foot warehouse into a theme park featuring the cobblestone streets and store fronts of 19th century England. Among the park's features, a water ride, the haunted house of Ebenezer Scrooge and a 4-D animatronics theater review of Dickens life. And Paul, while I know you have "Great Expectations" for "Dickens World", its opening has been delayed until the end of May.
KANGAS: I hope it is not because of hard times.
Paul Kangas' Stocks in the News
KANGAS: Wall Street's blue chips charged into higher ground right out of the starting gate on those stronger earnings, sending the Dow to a 120 point gain after an hour of trading, while the NASDAQ was up 22 points. Gains in overseas markets kept the rally alive. The Dow easily broke above the 12,900 level with frantic short covering. So the industrial average closed at a record high for the third straight day. The Dow gained 153.35 at 12,961.98 today. It rose every day this week for an advance overall of 349.85 points. The NASDAQ Composite rose 21.04 ending at 2526.39 today. It gained twice, but fell three times this week, still had a net gain of 34.45 points overall. Standard & Poor's 500 Index closed up 13.62 at 1484.35 today. Over in the bond market, the 10-year note fell 2/32 to 99 19/32, putting the yield at 4.68 percent.
The most active New York exchange issue trading 35.2 million shares was Pfizer (PFE) losing a dime a share. First quarter earnings excluding restructuring charges came in at $0.68 and that was $0.11 above the Street estimate, but the problem was the company cut 2007 earnings guidance and warned that its Novast (ph) and Lipitor drug sales are being hurt by tough competition.
General Electric (GE) up $0.13.
ExxonMobil (XOM) had a good day, up $2.30. Oil was strong and incidentally, Exxon earnings are due out next Thursday.
Bank of America (BAC) up $0.13.
Advanced Micro (AMD) down $0.12 a share.
AT&T (T) gained $0.56.
Citigroup (C) up $0.33.
Ford Motor Co (F) a penny rise.
And then EMC Corp (EMC) down $0.03.
Kraft Foods (KFT) a $0.24 gain.
American Express (AXP) up $2.05. First quarter earnings $0.88, up from $0.70 last year and $0.08 better than the Street was expecting, a nice move in the stock.
Caterpillar (CAT) up $3.20. First quarter earnings $1.23, up from last year's $1.20, $0.15 above the Street consensus and the company boosted its 2007 earnings guidance.
General Motors (GM) a $0.31 gain. The company is requesting a de- listing from the London Stock Exchange in order to cut costs, parts of its cost-cutting program.
Honeywell International (HON) yet another Dow stock, up $2.34. First quarter earnings $0.66, $0.04 above the Street estimate and up from $0.52 a year ago. The company also boosted its 2007 earnings estimate and the amount by $0.15.
McDonald's (MCD) down $0.42, one of two losers in the Dow 30. Pfizer was the other one. Even though McDonald's had first quarter earnings of$0.62, up from $0.49 a year ago, that was in line with estimates. Revenues up a better than expected 11 percent. The company's going to sell 1600 of its store to Latin America, in Latin America to a franchise group.
H&R Block (HRB) a $0.73 gain. The company is selling its sub-prime unit called Option One mortgage to Cerberus Capital for anywhere from $1 billion to $700 million. The company was hoping to get $1.3 billion.
Genesco (GCO), the footwear company, up $6.57. Footlocker has made a buyout offer of $46 a share. Footlock stocked edge up $0.59.
Capitol Bancorp Ltd (CBC) plunging $6.40 just like first quarter earnings plunged to $0.36 from $0.61 a year ago, $0.28 below the Street estimate. The company cited challenges in the Great Lakes region for the sharp drop.
Mentor (MNT), which makes medical instruments, plunging $8.25. The company cut 2007 sales estimate from as much as $315 million to as little as $300 million.
Robert Half Intl (RHI), the staffing company, down $3.31. First quarter earnings $0.42, up from $0.38 last year, but that was $0.04 below the Street estimate and the Stiefel Nicholas (ph) brokerage downgraded it from "hold" to a "sell."
Then Oakley (OO), which makes eyewear products had a real big first quarter, $0.08 in earnings versus only $0.03 last year. Sales jumped 31 percent. The company boosted 2007 guidance too.
Google (GOOG) topped the active list on NASDAQ, up $10.83 after those great earnings yesterday.
$0.35 gain in Intel (INTC).
Microsoft (MSFT) $0.33 rise.
Apple (AAPL) a $0.70 gain.
Cisco Systems (CSCO) up $0.31 a share.
Yahoo! (YHOO) down a nickel.
$0.35 loss in Amgen (AMGN).
Qualcomm (QCOM) $0.08 gain Ebay (EBAY) $0.33 rise.
And Oracle (ORCL) a $0.24 gain.
Epicept (EPCT) up $1.67. The company's study of its Azixa product shows promise in treating brain tumors.
And Factory Card & Party Outlet (FCPO) up $2.67. Fourth quarter earnings of $0.07 versus a loss of $0.38 a share a year ago.
Those are the stocks in the news tonight.
