NBR Complete Transcripts: 05-16-2007
Wednesday, May 16, 2007HP Beats The Street Thanks To Strong PC Sales
SUSIE GHARIB: A triple digit rally for the blue chips today powered the Dow to a new record high. The Dow surged 103 points and is now just shy of 13,500. Then after the bell, computer giant Hewlett-Packard reported solid earnings and its shares rose more than 2.5 percent in after hours trading. Excluding special items, HP earned $0.70 a share in its fiscal second quarter, a penny more than estimates and thanks to sales of personal computers. Revenues matched expectations, up 13 percent to $25.5 billion. Looking ahead, HP expects earnings of $0.64 to $0.65 on revenues of as much as $24 billion in the current quarter. Brian Alexander, computer analyst at Raymond James says having a diverse product line benefits HP`s bottom line.
BRIAN ALEXANDER, VP EQUITY RESEARCH, RAYMOND JAMES: This quarter, you could see the balance in HP`s portfolio really helping them sustain strong growth and profitability and they are the most, probably the most diversified technology company in the world and also the largest with over $100 billion of annual revenue, so I think it positions them well.
GHARIB: Alexander also predicts HP`s inventory and management will help it perform well over the next several quarters.
Crude Inventories Are Up & So Are Gas Prices
JEFF YASTINE: Energy prices fell today after the government reported an increase in crude oil and gasoline stockpiles. The June contract for crude lost $0.62 to $62.55 a barrel in New York trading. But as Suzanne Pratt reports, American consumers are unlikely to get much relief from record high gasoline prices this summer.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: In New York City, prices at the pump are among the highest in the country, ringing up well above $3 a gallon. Experts say drivers nationwide will probably pay even more to fill up in the coming months. Bank of America analyst Bruno Stanziale says the primary reason is that gasoline inventories are still too low to meet demand.
BRUNO STANZIALE, OIL ANALYST, BANK OF AMERICA: Stocks of finished gasoline are way below where they need to be. Refiners are under a constant struggle between producing gasoline and at the same time, sacrificing production of other products. So, the whole system is strained.
PRATT: Today, the government reported larger than expected increases in stockpiles of crude oil, gasoline and distillate fuels. The weekly report also showed refinery utilization rates climbed to 89.5 percent suggesting slow recovery from a stretch of unplanned repairs. Man Financial oil trader Chris Motroni says he`s still worried about the state of U.S. refineries.
CHRISTOPHER MOTRONI, OIL TRADER, MAN FINANCIAL: These refineries are kind of running well. How does something kind of run well? It`s a concept that bothers me. So, that`s how uneasy I feel regarding all of the refineries in the Gulf.
PRATT: While the inventory increases and improved refining capacity reported today could push prices lower in the next few weeks, experts say a decline is unlikely to hold. That`s because the U.S. is only weeks away from the start of the peak summer driving season when gasoline demand surges. Experts say there`s simply not enough time to bring stockpiles to levels that would make the oil market more comfortable. The national average for unleaded gasoline is currently $3.10 a gallon and $3.41 for premium, well above last year`s prices. Some experts predict this summer, drivers in many U.S. cities will pay $4 a gallon.
MOTRONI: If the increased demand continues with the minimal supply that we have, that`s just basic economics where you`re going to see $4 a gallon at the pump.
PRATT: The energy market is also facing the wildcard of Mother Nature. Experts say with supply already an issue, any major storm this hurricane season and gas prices skyrocket. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
Congress Takes A Very Public Look At Private Equity
SUSIE GHARIB: Bausch & Lomb caught the eye of private equity today. Its shares soared almost 10 percent on word it is being taken private by Warburg Pincus in a $4.5 billion deal. Warburg will acquire all outstanding shares of Bausch & Lomb for $65 each in cash. It`s also assuming $830 million in debt. The move comes just a year after Bausch & Lomb was rocked by a worldwide recall of one of its key brands for contact lens solution. The company still faces over 300 product-liability lawsuits stemming from that recall. Today`s deal also carries a go- shop provision, letting Bausch & Lomb hunt for a higher bid in the next 50 days.
YASTINE: Over the last year, we have seen an explosion of private equity deals, like today`s buyout of Bausch & Lomb. The value of those deals has soared into the billions of dollars and that now has the House Financial Services Committee taking a closer look at private equity. As Stephanie Dhue reports, lawmakers are concerned workers aren`t sharing in the buyout boom.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: There were $406 billion worth of leveraged buyouts in the U.S. last year. And with no sign of that pace slowing, House Financial Services Committee Chairman Barney Frank wants to be sure workers aren`t left behind.
REP. BARNEY FRANK (D) MASS. AND CHAIRMAN, HOUSE FINANCIAL SERVICES COMMITTEE: If we have a situation in private equity, where enormous values are created as apparently they are, people get these large sums of money and the workers are either no better off or worse off, then from a public policy standpoint that seems to be undesirable.
DHUE: The Service Employees International Union is waging a campaign to pressure buyout firms to share the wealth with workers. Stephen Lerner heads the union`s private equity project.
STEPHEN LERNER, DIRECTOR, PRIVATE EQUITY PROJECT, SEIU: We`re going to be putting a spotlight on individual deals, on problems that arise and also if there are good things. We`d love to talk about those, but we are going to keep raising the same issue. How do people who are working hard, trying to send their kids to college and buy a house have an opportunity to put a better life in this country?
DHUE: Dunkin brands CEO John Luther told lawmakers private equity freed his firm to focus on growing its business for the long term. Dunkin has already distributed stock and options to 150 employees.
JON L. LUTHER, CEO, DUNKIN BRANDS: That`s 15 percent of our company now has some opportunity perhaps for their children to go to college without borrowing money or whatever, so our goal is to continue to distribute that, those stock options and equity opportunities into our organization deeper and deeper.
DHUE: Republicans on the committee threw their support behind private equity, noting it can free companies from Wall Street short-term focus and generate wealth for average investors in pension and mutual funds. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Fueling the Future"-Fuel Technology Gamble
SUSIE GHARIB: As we reported earlier tonight, the price of gasoline could reach $4 a gallon this summer. That makes fueling the future an expensive proposition. Also expensive, paying for the technology to find ways to stretch gas mileage. General Motors is spending the money making big bets that may, or may not, pay off. As we continue our series "Fueling the Future," reporter Jonathan Silvers looks at how the auto maker wants to forge ahead on fuel economy.
JONATHAN SILVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The internal combustion engine made possible the unprecedented economic growth of the 20th century. And while the same machine in the 21st century is threatening to undo what it built, the global car market is surging. More vehicles will be made in the next 20 years than during the previous 100. Sixteen million will end up on American roads and with little alternative fuel available, virtually all will run on gasoline. Fuel efficiency for passenger vehicles has doubled since the Arab oil embargo of 1974. But today, the U.S. has twice as many cars on the road and uses 60 percent more gasoline than it did 30 years ago. Brett Smith of the Center for Automotive Research says this level of consumption will continue for the foreseeable future.
BRETT SMITH, CENTER FOR AUTOMOTIVE RESEARCH: It`s easy to say, "I believe in fuel economy. Fuel economy is good." On a personal basis, I can say that. On a social basis, we can say that. But you don`t really believe it when it comes to changing the type of vehicle I drive, downsizing the type of vehicle I drive, buying a vehicle with less performance. And from a car industry standpoint, that`s scary.
SILVERS: No one at General Motors looks frightened, certainly not Mark Maher, GMs executive director of powertrain vehicle integration.
MARK MAHER, EXEC. DIR., POWERTRAIN VEHICLE INTEGRATION, GM: GM produces 24 vehicles in 2007 that have 30 miles per gallon or better on the highway.
SILVERS: Last month at the GM proving grounds, Maher was exuberant testing a Pontiac Solstice, despite learning that Toyota had overtaken GM as the world`s largest auto maker.
MAHER: We`re going to see ongoing pressure from a competitive standpoint to improve passenger car fuel economy so there`s going to be big improvements in each segment in which we participate.
SILVERS: This year, GM powertrain launched 19 new or significantly revised engines and transmissions. They`re the most fuel efficient the auto maker has produced. MAHER: In the short term, we`re focusing on improving what would be viewed as traditional propulsion technologies. In the midterm, there`ll be much more hybridization and more focus on electric propulsion as battery technology comes along. And then in the long term, we still think that -- hydrogen fueled vehicles probably -- hydrogen fuel cell propelled vehicles provide an ultimate vision solution.
SILVER: GM is also trying to make up for a late start in the hybrid segment. It just introduced its first, the Saturn aura green line. It`s the most affordable hybrid in the marketplace, but its only $100 less than the Prius, which does more. The aura green is what the industry calls a mild hybrid. It can`t run solely on electric power, except at dead stops and it gets roughly nine miles per gallon less than the Prius. But it is a step forward says Mickey Bly, director of engineering for GM hybrid vehicles.
MICKEY BLY, DIR., ENGINEERING FOR GM HYBRID VEHICLES: While we weren`t the first, we feel that we have a very strong hybrid portfolio being introduced. We have had hybrids on the roads for the last four years in our bus fleet, which we thought was an important way to doing this, is going after the highest consuming vehicles first. We are seeing a lot of fuel efficiency technology being brought forth and the real challenge is making sure we have the most cost effective solutions that the customers can afford so they buy it.
SILVERS: The stakes have never been higher for GM and other ailing American auto makers. Brett Smith says betting on the wrong technology could prove fatal.
SMITH: The problem is the stakes are so incredibly high both in terms of, of the corporate results does my company survive and in terms of is it the right solution environmentally, socially and all these other challenges coming into it? It`s a great time to be in the business. But, it`s an incredibly uncertain time to be in the business.
SILVERS: Jonathan Silvers, "NIGHTLY BUSINESS REPORT."
"Street Critique"-Hilary Kramer, Personal Finance Editor, AOL
JEFF YASTINE: Tonight`s "street critique" guest says growth in the global economy is driving a surge in business for infrastructure stocks. She`s Hilary Kramer, market strategist and personal finance editor at AOL. Hilary, welcome back to NIGHTLY BUSINESS REPORT.
HILARY KRAMER, PERSONAL FINANCE EDITOR, AOL: Thank you, Jeff.
YASTINE: You know, when we talk about infrastructure, I think of things like road building, bridges, sewer pipes, dams, those sorts of things here in the U.S. Why look at that kind of a sector?
KRAMER: Infrastructure is the fastest growing sector probably of any sector across all of the markets, because you don`t just have in the U.S. a need for upgrading our current infrastructure. But you have infrastructure needs all across the emerging markets -- construction projects that span building bridges, highways and water filtration projects.
YASTINE: I see, by way of a small plug, we have a series coming out in June called "State of Repairs" that`s looking at infrastructure in the U.S. and the need for upgrades and the deterioration in some of that infrastructure. Let`s talk about specific issues that you are looking at for this sort of global play on infrastructure. The first one is Suez (SZE)?
KRAMER: Yes. Suez is a French utility company, one of the largest in the world, but they also have construction engineering. They`re a big player not just in drinking water, but drinking treatment facilities and they`re also in waste management, hazardous management, waste to energy and they have a 50 percent quarterly earnings growth. You can`t go wrong with a company like Suez. It`s a great global play.
YASTINE: All right. There`s another one you like called Cemex (CX). This is, a lot of us are familiar, it`s the Mexican cement company.
KRAMER: That's right, cement and concrete, third largest provider in the world, very high tech company, run by the Zambrano family and they`re supplying concrete and cement worldwide.
YASTINE: I noticed a really bit drop off though, somewhere about a year ago. Is there a particular aspect to that as to why it fell so much?
KRAMER: No, there was some insiders selling and then all it takes is one contract to go down and a stock like that can move. It was really more just a buying opportunity and Cemex is just going to continue going up.
YASTINE: I see, all right and there's another one that you like. This is a recent IPO, a spin off really from Halliburton, KBR (KBR).
KRAMER: KBR. You are buying a company that's undervalued. KBR is one of those stocks that has a bad reputation. They`ve done maintenance at a lot of the military facilities. The reputation came out of Iraq. But you are talking about a company that makes platforms, pipelines for the oil and gas industry, petrochemicals all over the world. KBR, one day that is going to be in the past and KBR is going to be a company that`s going to make shareholders a lot of money.
YASTINE: We got time for one more.
KRAMER: OK, Brookfield Asset Management (BAM), one of my favorites. That's a company just to buy and hold. The ticker symbol is BAM. You can buy it and hold it forever, because it`s a residential and commercial real estate play but they have a whole infrastructure business, including hydroelectric power plants in Latin America. It may be spun off. You can buy a company like BAM, hold it forever and it will just keep growing in your portfolio.
YASTINE: Hilary, any personal disclosures on these.
KRAMER: Not on these.
YASTINE: All right, Hilary, thanks for your time. Thanks for the stock tips.
KRAMER: Thank you Jeff.
YASTINE: Our guest, Hilary Kramer, personal finance editor at AOL.
"Commentary"-Fixing the Foreclosure Crisis
SUSIE GHARIB: U.S. home forecloses went through the roof in April, up 62 percent from a year ago levels. According to real estate data firm Realty track there were forecloses on 148,000 homes last month. While those rates are expected to remain high, tonight's commentator has a few thoughts on what lawmakers can do to ease the problems. He's Mark Zandi, chief economist at moody'seconomy.com.
MARK ZANDI, CHIEF ECONOMIST, MOODY'SECONOMY.COM: Mortgage foreclosure are mounting as is the political pressure to do something about them. Policy makers need to respond given the financial pain, lower income households and the community's in which they live are bearing. Rising foreclosures also threaten the fragile housing market and the economy.
Here are a few suggestions. First, policy makers should resolve some of the three accounting tax and legal hurdles mortgages are struggling to overcome as they try to modify those loans headed to foreclosure. The majority of borrowers will ultimately meet the financial obligations if given some forbearance. Second, policy makers should grant the Federal Housing Administration temporary authority to extend its lending activities to fill the void left by exiting lenders. The FHA was the source of credit to lower income households long before the sub-prime industry.
Third, policy makers should not grant a moratorium on foreclosures. This will severely disrupt the origination of new loans and will only delay foreclosures not forestall them. Fourth, policy makers should not define who is suitable to get a loan. Given rapid financial innovations, who is deemed suitable today may not be considered suitable even a year from now. A suitable borrower cannot be legislated.
Policy makers have an opportunity to correct some of the clear wrong in the mortgage market and while it would be hard to make good policy when the emotions of families losing their homes are washing over the political process, they must work with all deliberation. This is Mark Zandi.
Paul Kangas' Stocks in the News
JEFF YASTINE: Investors looked past gas prices today and focused on a big buy of Citigroup shares. The Dow fell early on after news of building permits nosedived in April to a 10-year low. Then came word hedge fund manager Eddie Lambert bought a chunk of Citigroup and Warren Buffett`s Berkshire Hathaway bought big in health care firms, also Norfolk Southern. Both moves drove stocks higher, the Dow adding 103.69 points to a new record of 13,487.53. The NASDAQ gained 22.13 to 22, excuse me, 2547.42 and the S&P 500 rising 12.95 to 1514.14. And in the bond market, the 10-year note falling 2/32 to 98 10/32 and the yield at 4.72 percent.
And leading things off, Citigroup (C) advanced a little over $2. That`s a three-month high for the stock. This was the stock that got the Dow moving sharply higher today. Eddie Lambert bought 15 million shares in Citi for his hedge fund ESL Investments. Analysts taking Lambert`s move as a sign for change that may help rejuvenate growth at the company.
Halliburton (HAL) gaining $1.57. The oil service firm raising its dividend by 20 percent as the company prepares a second corporate headquarters and relocation of its CEO from Dallas to Dubai.
Ford Motor Co (F) dropped $0.15.
And then General Electric (GE) gaining $0.19.
AT&T (T) up $0.75. The stock received an upgrade from the Matrix brokerage. AT&T and Apple will launch the new iPhone in June and CEO Stan Sigmund called the launch the largest commercial product launch in electronics history. So expect a lot of fireworks from AT&T on that as they bring out the iPhone.
Pfizer (PFE) advancing $0.22.
EMC Corp (EMC) up $0.34.
Motorola (MOT) with a similar move.
Advanced Micro (AMD) edging up $0.18.
And then Limited Brands (LTD) dropping $0.71. As we reported last night, the retailer is selling its Express Unlimited Stores, chain brands and updating, rather focusing on its Victoria Secret store brand.
Deere & Co (DE) falling over $2. Profit taking after hitting an interday lifetime high of $123 and change. Second quarter profits rose 21 percent, but analysts were surprised Deere`s guidance wasn`t more bullish.
Then Quanex Corp (NX) surging over $4.50. The steel producer hired Lazard to advise on the sale of its building products division which raked in over $1 billion last year for the company.
Shares of Copa Holdings (CPA), parent of Panama`s Copa Airlines taking off, soaring more than $6 after releasing stronger than expected profits. Earnings weighed in at $1.12. That was $0.13 above estimates.
And on the downside, Sothebys Holdings (BID) falling $2.62, a downgrade from J&P securities.
Now let`s move onto the NASDAQ where Apple (AAPL) slipped $0.18.
But Google (GOOG) gaining more than $14. The company will introduce an enhanced universal search feature which will include books and YouTube videos and also boosting the NASDAQ quite a bit today.
Applied Materials (AMAT) losing $0.61.
Microsoft (MSFT) and Intel (INTC) both advancing $0.17.
Then we have Cisco Systems (CSCO) which upped $0.35.
Qualcomm (QCOM) losing $0.88.
Yahoo! (YHOO) advancing $0.40.
Amgen (AMGN) gaining $0.32 after yesterday`s $2 drop.
Amazon.com (AMZN) advancing $2.64. The online retailer getting into the music download business with plans to launch a digital music store later this year. They`ll offer millions of MP3 music files, but without the copy protection features used by most online music retailers.
Then East Penn Financial (EPEN) soaring over $5. It`ll be acquired by Harleysville National for $14.50 a share.
Then finally, Gaming Partners International (GPIC) off $5.24. Yesterday, the company posted profits of just a penny a share. Analysts were expecting $0.11 a share. The company is also having problems with its internal financial reporting controls.
