NBR Complete Transcripts: 05-04-2007
Thursday, May 03, 2007GMAC May Put The Brakes on GM's Recovery
SUSIE GHARIB: Quarterly earnings at General Motors skidded way off the road today, plunging 90 percent from a year ago. The numbers were nowhere near what analysts were expecting, and GM shares tumbled 5 percent. As Diane Eastabrook reports, houses, not cars put the real dent in the struggling auto giant's results.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: General Motors had good news and bad news for investors today. The good news, global auto sales improved in the first quarter compared to the same period a year ago. The bad news, General Motors Acceptance Corp -- of which GM owns a 49 percent stake -- lost more than $300 million because of residential mortgage losses. But chief financial officer Fritz Henderson says steps taken at GMAC should improve that unit's results in the current quarter.
FRITZ HENDERSON, CFO, GENERAL MOTORS: It's about reducing volumes in particularly non-prime production of loans, reducing some of our lending into non-prime originators. Frankly, we've seen run off (ph) in our (INAUDIBLE) investment portfolio, a large portion of which is non-prime.
EASTABROOK: Excluding special items, GM earned $0.17 a share in the first quarter, a far cry from the $0.87 Wall Street was expecting and the $0.62 GM earned during the same period last year. Investors weren't pleased, pummeling GM's stock price throughout the day. Still, GM touted improvement in its global auto operations, where sales increased 3 percent in the first quarter. While losses at GM North America narrowed, Henderson admitted more work needs to be done cutting costs and attracting buyers into showrooms.
HENDERSON: From our perspective, it's about continuing to rebuild our brands, position ourselves properly, make sure that our quality message gets out and then frankly execute.
EASTABROOK: Analysts say GM has improved its product lineup, but they think more cost cuts are in order. Morningstar analyst John Novak says that will mean tough contract negotiations with the United Auto Workers this summer.
JOHN NOVAK, AUTO ANALYST, MORNINGSTAR: I think certainly health care will be on the table, further plant closures will likely be on the table and ultimately the company just needs to continue working to reduce their costs, which is easier said than done.
EASTABROOK: GM's Henderson says the company has been working cooperatively with the union, but he wouldn't speculate about upcoming negotiations. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
The S&P 500 Cracks 1500
PAUL KANGAS: The Standard & Poor's 500 Index did something today it hasn't done in almost seven years, closed above the 1500 level. The index is considered a key measure of the stock market's performance. It is now just 25 points below its all-time high, set in March of 2000. Suzanne Pratt takes a look at the significance of 1500 for investors.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: While the Dow rather noisily broke past the 13,000 level, the S&P 500 quietly achieved a milestone of its own. Not since the dot-com bubble was deflating in September 2000 has the S&P 500 been above 1,500. It slipped below 800 in October 2002 and has taken all that time to rally back. It's now only 25 points from its all-time high. Just as 13,000 was psychologically important for Dow watchers, some experts say 1,500 has similar positive significance for the S&P 500. But stock market technicians say 1,500 is not a technical barrier. Still, Miller Tabak analyst Phil Roth says he sees no major technical indicators suggesting a serious correction is coming.
PHILIP ROTH, CHIEF TECHNICAL MARKET ANALYST, MILLER TABAK: I think the market is in the mature stages of an advance, but I've thought that for a year, so we've had an unusual market that has held up and made a little bit of progress. But it's made very little progress. In fact, the S&P is only a couple of percent higher than it was in December.
PRATT: In the seven years it has taken for the S&P 500 to work its way back to 1,500, much has changed for the index, most importantly market leadership. Energy stocks have been the best performing sector in the last seven years, returning 135 percent. Materials come in second. On the flip side, information technology and telecom services were sharp laggards. A variety of factors helped to push the S&P back into record territory. Most recently it has been corporate profits. With about 80 percent of S&P 500 companies reporting quarterly results, profit growth is up an average of nearly 8 percent. That's a far cry from the 3 percent analysts were forecasting a few weeks ago. Russell investment portfolio manager Stephen Wood says 1,500 for the S&P also means large cap stocks are back.
STEPHEN WOOD, PORTFOLIO MANAGER, RUSSELL INVESTMENT GROUP: Now we're getting both pistons of the market working, small-cap and large-cap. So, for the last 12 to 18 months, you're really seeing large cap and large cap growth reassert itself. So I think it's a much healthier market environment.
PRATT: Others say 1,500 for the S&P 500 is an accomplishment in itself, suggesting stocks are likely to move higher still. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
Growing Concerns About Products From China
PAUL KANGAS: China exported more than $2 billion worth of agricultural products to the United States last year. But there are growing safety concerns about those food exports. The recent pet food contamination scare has been traced to a food additive from China. And as Stephanie Dhue reports U.S. lawmakers want China to tighten its standards.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: China is a major exporter of fruits, vegetables and other food products. But the recent cases of exported pet food contaminated with the chemical melamine have highlighted a growing safety problem with Chinese agricultural exports. Congresswoman Rosa Delauro is calling on the U.S. to scale back plans to allow imports of Chinese poultry.
REP. ROSA DELAURO CHAIR, APPROPRIATIONS AGRICULTURE SUBCOMMITTEE: Trade is important, but trade does not trump public health. This is about public health. That's why we need a strong food safety system in this country.
DHUE: Most of the criticism surrounding the tainted wheat gluten imported from China has been directed at the Food and Drug administration. Congresswoman Delauro has introduced food safety legislation that would give the FDA the power to order mandatory recalls, establish an early warning system and fine violators. But Delauro says the Chinese also need to be on notice.
DELAURO: We may have to limit imports, agricultural imports, if we can not get the assurances that we need in order to protect public health.
DHUE: China doesn't have a great track record for product safety. Last year, nearly half of all consumer product recalls were manufactured in the Asian nation. Nancy Nord heads the Consumer Product Safety Commission. In 10 days she will be in Beijing as part of a cooperative approach to help the Chinese improve product safety.
NANCY NORD, ACTING CHAIRMAN, CONSUMER PRODUCT SAFETY COMMISSION: Our challenge is to make sure that the Chinese manufacturers and the Chinese government understand that in the United States we do have a culture of safety and imports, which are growing in number dramatically, need to meet the same safe standards that U.S. manufactured products meet.
DHUE: Trade consultant Henry Levine expects China to address the issues, but says part of the problem is its weak enforcement of health and safety regulations.
HENRY LEVINE, CONSULTANT, STONEBRIDGE INTERNATIONAL: So there is a structural issue on the Chinese side, but I do think that they are sensitive to the criticism and also highly motivated to want to maintain a positive reputation as an exporter.
DHUE: Experts say how the Chinese handle the food safety issue will be a key factor in its trade relationship with the U.S. Initially, China denied it sold the contaminated wheat gluten. But since then, Chinese officials have moved, although slowly, to address the problems. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Working with Warren"-Bruce Whitman, CEO, Flightsafety
SUSIE GHARIB: As chairman of Berkshire Hathaway, Warren Buffett gives total freedom to the CEOs of his operating companies. No micromanaging from headquarters. One of those companies, FlightSafety International has flourished in the 10 years since Buffett acquired it. It has grown into the world's largest aviation school, providing training for more than 75,000 pilots a year. And it's one of the most profitable divisions of Berkshire Hathaway. As we wrap up our series "Working with Warren" I asked FlightSafety ceo Bruce Whitman what's the biggest advantage of working for Buffett.
BRUCE WHITMAN, CEO, FLIGHTSAFETY: Warren Buffett has the direct line and I have the number and he answers his own phone if I call him. And so, at any time that I feel or we as a team feel that we need his advice, we have access to it. In addition to that, he's just a great thinker. He has a big picture view of the world and just having him available is just the best.
GHARIB: Mr. Whitman in the latest annual report, Warren Buffett said that he's taken the easy route, that he lets his managers run their own shows and his only task is to cheer them on. Is that really the way that Warren Buffett operates?
WHITMAN: Absolutely. Warren lets you run your business as though it was your own. And he expects you to run it as though it was your own and spend money as though it was yours. And he's a terrific supporter. He's a cheerleader, but he's available if you need him.
GHARIB: So he really stays out of the way?
WHITMAN: He doesn't require budgets. He doesn't require business plans. Because he thinks if you need to change them, you might be reluctant to do that if you had already committed to them.
GHARIB: If you go to Buffett with a problem is he the type to give you a solution or does he send you back to the drawing board?
WHITMAN: He's not one to make a unilateral decision. I mean he'll talk with you about it. He may point out something to you. But in the end, he will be guided by what you recommend because he thinks you're closer to the problem.
GHARIB: Is he quick and decisive or does he take his time and get back to you.
WHITMAN: No, he's quick and decisive. He's got great instincts. He's got great instincts with business and certainly with securities, but great instincts with people.
GHARIB: Mr. Whitman, if you were going to make a big business decision, do you feel the need that, to get the OK from Buffett before you proceed?
WHITMAN: The one thing that I don't ever want to do is surprise Warren, even if a good way. I'd like for him to know what's going on. And so if I feel that there is something that I'd like for him to know, I will call him.
GHARIB: In talking with the other CEOs at Berkshire Hathaway, they say that it's very rare that Buffett would stop by their headquarters. Why is it that he doesn't stop by, that (INAUDIBLE)
WHITMAN: Well, I think he has confidence in his managers. He emphasizes integrity and ethics and we all subscribe to those very important components. And I think as long as we do our job, he knows that we're doing the right thing. If he didn't think we were doing the right thing, I'd think he would check on us.
GHARIB: Do you think that there is a downside to this kind of hands- off management style?
WHITMAN: No, not with Warren. There might be with someone else. But Warren has great people in these manager positions. A number of us have been there a long time. And we work because we love what we do and we love working for him.
GHARIB: Is there any way that Buffett has influenced your management style or your management beliefs?
WHITMAN: I think that his sense of humor has rubbed off on all of us. He's got a wonderful sense of humor. I think his humility is terrific and - certainly something we all respect and I hope some of those good qualities have rubbed off, yes.
GHARIB: From what I heard about Warren Buffett, it doesn't seem like he's motivated by money. What makes him tick?
WHITMAN: It's not about money. It's really about doing what's right and about the feeling of accomplishment and I think about the feeling of helping people. What he's just done with his foundation is a great example of how he wants to put this money back into circulation for the good of society.
GHARIB: I understand that none of the CEOs at Berkshire Hathaway companies have ever quit. Why is that? What is the attraction of working with Warren?
WHITMAN: Warren is one of a kind. I think he's got a tremendous personality. He's a lot of fun and that's a big part of it. You want to work with people that are fun, that you can enjoy being with. And I think anybody that knows Warren knows that about him. And he is humble. He has no pretenses as we've discussed. And so he makes you feel good to be around.
GHARIB: On Monday, we'll hear from the big boss himself, Warren Buffett. This weekend, he'll preside over Berkshire Hathaway's annual shareholders meeting. I'll have a wrap-up from Omaha, Nebraska.
"Commentary"- Help Wanted
SUSIE GHARIB: With baby boomers beginning to retire, tonight's commentator expects a host of job openings at Federal agencies. He's Robert Morison, director of research at the Concours Group.
ROBERT MORISON, DIRECTOR OF RESEARCH, THE CONCOURS GROUP: Uncle Sam wants you! Not just young people to join the stretched-thin military, but employees of all ages for civilian jobs throughout government. The baby boom retirement wave hits different occupations with different intensity at different times. One of the first to be hit hard is government service at all levels, especially Federal agencies. The average American worker is 40 years old. The average Federal civilian employee is about 47, with the largest segment in their early 50s. One-half of today's Federal employees will be eligible to retire by the end of 2010.
Already there are half as many contracting officers as there were in 2001 dealing with double the number of contracts. In the senior executive service, that's the professional managers of civilian agencies, over one third are already eligible to retire. Uncle Sam has a whole lot of shoes to fill and youngsters aren't flocking to fill them. Meanwhile, most boomers plan to work in retirement and many want jobs that give back to society. So a second part-time career in government service should be an excellent match, except that working retirees demand flexible arrangements and many crave an escape from bureaucracy, while government organizations remain among the less progressive employers, places where you're often expected to be in the office from 9:00-5:00 so the boss can make sure you're working. So Uncle Sam wants you, but he's got to change his ways and make you want to work for him. I'm Robert Morison.
Paul Kangas' Stocks in the News
PAUL KANGAS: Blue chip stocks extended their climb into record high ground this morning, aided by a better than expected 1.7 percent rise in first quarter U.S. productivity, while unit labor costs remained in check. At noon the Dow posted a 25- point gain and the NASDAQ Composite was up 10 points. The market eased on profit taking in early afternoon, but then rebounded on optimism over tomorrow's April employment report. The Dow Industrial Average closed up 29.50 points exactly at 13,241.38, as you heard, its third straight record high. The NASDAQ Composite up 7.62 ending at 2565.46. Standard & Poor's 500 Index up 6.47 at 1502.39, its highest level as you heard in almost seven year. In the bond market, the 10-year note fell 7/32 to 99 19/32, putting the yield at 4.68 percent.
New York exchange volume leader on 16.6 million shares, Pfizer (PFE) moving up $0.27.
Followed by Verizon Communications (VZ) up $1.47, nice move there on news that Cablevision's quarterly results showed it is losing customers to Verizon's new video and Internet service.
Motorola (MOT) up $0.17.
General Electric (GE) $0.03 gainer.
AT&T (T) was up $0.22.
General Motors (GM) down $1.75. As you heard, first quarter earnings plunged 90 percent and on top of that today, Standard & Poor's downgraded GM from "hold" to a "sell."
LSI Corp (LSI) up $0.15.
Kraft Foods (KFT) $0.45 drop.
Sprint Nextel (S) was up $0.12.
And Coeur d'Alene Mines (CDE) a $0.15 loss. The company's going to buy two Mexican mining companies, (INAUDIBLE) Gold and (INAUDIBLE) silver for 271 million shares of Coeur d'Alene stock. That'll make Coeur d'Alene the world's leading silver producer.
We have two new issues today and they're both Chinese. First we had Qiao Xing Mobile Comm (QXM), maker of mobile phone handsets and it had 13.3 million shares offered at 12, opened there. The high of the day $12.45 and then it slipped back below the offering price.
Acorn Intl (ATV) came public. The story on this one is that it is a Chinese television home shopping company, 7.7 million American depository shares offered at $15.50, opened at $19.98. The high of the day $22.70, backed off a bit, but still a very nice debut for Acorn.
Hanson Plc (HAN), this is the big English building materials firm, up nicely after Heidelberg Cement of Germany said it's considering a buyout bid.
OM Group (OMG) a $6.10 gain. First quarter earnings jumped to $3.85 from only $0.62 a year ago. Sales were up 52 percent. The company cited very strong rise in cobalt prices.
Unum Group (UNM), the insurance company, up $2.41. After the close yesterday, first quarter earnings $0.50, up from $0.40 a year ago and that was a nickel better than Wall Street was expecting.
Lyondell Chemical (LYO) up $2.74. JPMorgan upgraded it from "neutral" to over weight."
On the downside, Officemax (OMX) plunging $7.67. First quarter earnings excluding one-time items, $0.77, same as last year. The Street was expecting $0.93.
Then Estee Lauder (EL) down $3.70. Third quarter earnings rose 58 percent to $0.45, but that was a penny below the Street estimate, no room for disappointment.
Microsoft (MSFT) $0.36 gain, topped the active list on NASDAQ.
Apple (AAPL) edged up a penny.
Google (GOOG) up $7.45.
Intel (INTC) fell $0.08.
Cisco Systems (CSCO) a $0.03 gain.
Then we see Monster Worldwide (MNST), of course this is the job search company and it's up on takeover speculation, nothing specific.
Amgen (AMGN) down $1.16.
Amazon.com (AMZN) moved up $1.01.
Symantec (SYMC) was up $0.88. Fourth quarter earnings $0.24, down from $0.26 a year ago, but $0.04 better than the Street expected.
Medimmune (MEDI) down $0.22.
Hansen Medical (HNSN) moving up $3.71. The company received FDA approval for its catheter control system and got that approval sooner than expected.
Those are the stocks in the news tonight.
