NBR Complete Transcripts: 07-19-2007
Thursday, July 19, 2007The Dow Closes Above 14K Despite Google's Earnings Gaffe
SUSIE GHARIB: A milestone on Wall Street: the Dow closed above 14,000 for the first time today, up 82 points to 14,000.41. The S&P 500 also closed at a new record, up seven points to 1553. IBM's strong earnings powered today's rally. But late today investors reacted differently to earnings from Google. Shares of the Internet search giant tumbled almost 8 percent in after hours trading on news that its second quarter earnings fell short of Wall Street expectations. Excluding items, Google earned $3.56 a share, $0.03 below analyst estimates. But revenues rose over 60 percent to $2.72 billion, slightly better than expected. Rick Summer, equity analyst at Morningstar, says Google needs to look beyond search engines.
RICK SUMMER, EQUITY ANALYST, MORNINGSTAR: You can't continue to grow beyond the moon, if you will. So it's a great market, it's a large market. It will be saturated eventually and the real question is, let's not think that Google is terrible. Right now what we have is we have a valuation that is, in our mind, really ahead of itself. And what is Google going to do beyond search is critically important to be able to justify this sort of valuation.
GHARIB: Also moving lower, Microsoft shares, which fell almost 2 percent in after hours trading after the software giant reported earnings that matched analyst expectations. Despite charges of more than a billion dollars to repair its X-box 360 game consoles, the software giant earned $0.39 a share in its fiscal fourth quarter. Revenues jumped 13 percent to $13.4 billion. Looking ahead, Microsoft says its core businesses are healthy and it expects to post double-digit gains in profits and revenues in its next fiscal year.
Wall Street is Buying into the Earnings Trend
PAUL KANGAS: Microsoft is not the only firm that is optimistic about profit growth. For many big U.S. companies, strong demand outside the U.S. has been powering earnings and as Erika Miller reports, Wall Street expects the trend to continue.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Coca-Cola, UPS and Johnson & Johnson are very different companies in very different industries, but they all have something in common. All credited strong overseas demand as the main engine of second quarter earnings growth. They're not alone. Portfolio strategist Brian Rauscher says companies with strong overseas exposure are likely to outshine the rest this earnings season.
BRIAN RAUSCHER, PORTFOLIO STRATEGIST, BROWN BROTHERS HARRIMAN: You're definitely seeing a divergence between companies that are domestic only and ones that have more global growth. And the ones that have been the weakest are the ones that are some of the more domestically oriented companies.
MILLER: According to Standard & Poor's, S&P 500 firms that report regional data, generated more than 40 percent of their sales outside the U.S. last year. Those same S&P 500 firms also earned about half of their pre-tax operating earnings outside the U.S. Experts say foreign demand for U.S. goods is likely to continue to drive profit growth for S&P 500 firms in the second half of this year. That's because U.S. growth is expected to lag the rest of the world's, as it has the past few years. Stephen Wood of Russell Investment Group says the weaker dollar is also helping sales of U.S. goods in foreign markets.
STEPHEN WOOD, PORTFOLIO STRATEGIST, RUSSELL INVESTMENT GROUP: If you're looking at the dollar, which is moving down, holdings in earnings in foreign countries are worth more in dollar terms, so that's been helping international earnings as well.
MILLER: One worrisome scenario for Wall Street is a major slowdown in the U.S. economy that cripples global growth. But for now most experts don't see that happening. In fact, Wall Street is betting U.S. corporate profit growth will pick up though the rest of the year. What's clear is that investors in big U.S. companies have to pay attention to what's happening outside this country. It's a big change from the late 1990s, when the U.S. was driving global growth. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
Fed Chairman Ben Bernanke Fields Lawmaker Questions About Sub-Prime Loans
SUSIE GHARIB: The Federal Reserve's policy committee remains focused on inflation, according to minutes released today from the Fed's June meeting. The panel also said it wasn't convinced recent moderations in core inflation were lasting. Those sentiments were echoed by Fed Chairman Ben Bernanke yesterday and today as he continued his semi-annual economic testimony to Congress.
PAUL KANGAS: As he wrapped up that testimony, Fed Chairman Ben Bernanke was grilled by lawmakers on the Senate Banking Committee. One of their biggest concerns: the rising number of mortgage delinquencies and foreclosures on sub-prime loans. As Stephanie Dhue reports, lawmakers used the forum to press the Fed chief to do more to protect consumers.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Federal Reserve Board Chairman Ben Bernanke received both praise and condemnation for the Fed's regulation of the mortgage market. Some lawmakers applauded the Fed's recent steps to curb abusive lending practices, but New Jersey Senator Robert Menendez blasted the agency for doing too little too late.
SEN. ROBERT MENENDEZ (D) NJ: We could have been more proactive in this process and it seems to me we're coming to the table with a plan after a tornado has already ripped through a community.
DHUE: Bernanke sought to assure lawmakers the Fed is doing everything it can to protect consumers from being taken advantage of.
BEN BERNANKE, CHAIRMAN, FEDERAL RESERVE: I asked for a top-to-bottom review. We looked at every possible power that we have. We have examined each one. We have had a lot of input, a lot of hearings and we are moving forward.
DHUE: Bernanke says the central bank will require improved loan disclosure statements by the end of the year. It is also considering new regulations that would apply to all financial institutions, including restricting so-called liar loans by requiring lenders verify a borrower's income. It would also restrict the use of prepayment penalties and require lenders to include taxes and homeowners insurance in a borrower's monthly payment. But some lawmakers want to do more to protect consumers. Senator Charles Schumer has proposed legislation that would regulate mortgage brokers and require them to put borrowers in suitable mortgages. Bernanke says a suitability standard should be linked to the borrower's ability to repay a loan.
BERNANKE: If you think of suitability as requiring the lender to pick the very best of the dozens of products available for the borrower, that may be setting a standard which is not actually viable. Perhaps another way of thinking about it is equating suitability with affordability.
DHUE: Bernanke says even though sub-prime losses could reach $100 billion, those problems shouldn't spill over into the broader economy or destabilize the financial system. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"Driving a Deal"-Part 3: Auto Worker Woes Are Having An Impact On Real Estate
SUSIE GHARIB: In Michigan, the U.S. auto industry drives the state's economy. And perhaps no segment of that economy has suffered more than the housing market. Last year home prices in the great lakes state fell 7 percent, while increasing about 1.5 percent nationally. As we wrap up our series "Driving a Deal," Diane Eastabrook looks at Michigan's struggling real estate market and efforts to jump-start it.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just a few weeks after planting a for-sale sign in their yard, Tom and Kathy Fisher sold their 1,300-square-foot ranch home in Livonia, Michigan. The couple then traded up to a larger two-story house in nearby Canton. Tom Fisher thinks he got a bargain on his new home, but admits he would like to have made more on the sale of his previous one.
TOM FISHER, HOMEOWNER: We made approximately $15,000 to $16,000 over what we originally paid for it.
EASTABROOK: Were you disappointed that you didn't make more?
FISHER: Sure, sure, we would have liked to have made more, but we also understood that that wasn't going to be the case this time.
EASTABROOK: It's a buyer's market for Michigan real estate. 150,000 lost auto manufacturing jobs over the past few years and high unemployment have made the state one of the toughest real estate markets in the nation. Comerica Bank chief economist Dana Johnson says the sluggish Michigan economy is dragging down the state's real estate market. He says that is different from what has happened in other parts of the country.
DANA JOHNSON, CHIEF ECONOMIST, COMERICA BANK: You are destroying jobs and income in Michigan and that has had a knock-down effect on the housing market, and that has been the cause of the weakness in the housing market, not affordability issues because house prices had previously risen so much.
EASTABROOK: The Michigan Association of Realtors says falling home sales and home prices during the first five months of the year reflect how depressed the state's real estate market is. Realtors say for every one house that sells quickly in southeastern Michigan -- like the Fishers' -- there are two or three more that sit on the market for months even after the sellers reduce their prices several times. That has been the case for this new Cape Cod home. The 2,400-square-foot house has been on the market for over a year and its price has already been reduced three times. Veteran real estate broker James Craver doesn't think the Michigan real estate market will improve until the U.S. auto industry does.
JAMES CRAVER, REAL ESTATE BROKER, REMAX: When people feel more comfortable about their positions in these factories in these jobs and feel their jobs are secure, I'm sure that will help.
EASTABROOK: But Detroit isn't waiting for an auto industry u-turn to turn around its real estate market. It has the ninth highest home foreclosure rate in the nation. Detroit Mayor Kwame Kilpatrick is trying to change that and even help more residents buy homes. He has cut property taxes and launched a neighborhood improvement program to jump-start home ownership.
KWAME KILPATRICK, MAYOR, DETROIT: So people now can get a 6,000, 5,000, 4,000-square foot all-brick house with a backyard, two-car garage and not have to pay the exorbitant amount of property taxes that Detroiters were paying before I came into office.
EASTABROOK: Developers are also coming to the city. In downtown Detroit, construction workers are clearing the way for the new Griswold Capital Park, an 80-unit condominium project. It sits next to the historic Book Cadillac Hotel, which is being renovated and will house another 70 condos. David Di Rita is a principal with the Roxbury Group, the developer of Griswold Capital Park. Di Rita thinks downtown condo projects like these reflect confidence in Detroit's real estate market and encourage investment.
DAVID DI RITA, PRINCIPAL, THE ROXBURY GROUP: I think we just have to have a healthy, stable real estate market in the long run to allow the kind of fluidity of the market that gives people the confidence that they can buy and sell.
EASTABROOK: Economists say that is why so much attention is being paid to the upcoming contract talks between the car makers and the United Auto Workers union. They say the industry that has driven Michigan for more than a century will continue to drive its economy and housing market for several more years down the road. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Livonia, Michigan.
GHARIB: Those historic labor negotiations between the United Auto Workers and the American auto makers kick off tomorrow at Chrysler. We'll have an update.
"Commentary"-What Should Be Corporate America's "Main" Concern
SUSIE GHARIB: Tonight's commentator says too many corporate leaders forget about Main Street and focus only on Wall Street. He's Bill George, author of "True North" and former chairman and CEO of Medtronic.
BILL GEORGE, AUTHOR, "TRUE NORTH": For the past decade, we've had a big problem in the corporate world, but no one will name it. The problem is that many leaders believe they are more responsible to Wall Street than to Main Street. But it's Main Street where the customers live and where the money is made. The only way to create long-term value for your shareholders is to create superior value for your customers.
That comes from motivating your employees to create great products and superior customer service. That's why companies like J&J and Target and PepsiCo have been so successful in sustaining their growth. But companies whose primary focus is on Wall Street and meeting its short-term goals are never going to create long-term value. Wall Street may focus on quarterly earnings, but it still takes five years to discover a drug, design a semiconductor, or create a breakthrough product like the iPod. You simply can't do it overnight.
If you don't stay focused on your true north, you'll get buffeted by the winds of change and wind up capitulating to the short-term gain. At Medtronic, it took a decade to create superior products that restored millions of people to health, but that's how we created $60 billion in shareholder value, not by responding to Wall Street.
Unfortunately, many corporate leaders don't have the patience or the vision to do that. They bow to short-term pressures, keep shifting strategies and wind up destroying their value. Authentic leaders stay focused on creating great value for customers. And that's how they create long-term shareholder value. Leaders who focus on Main Street will out- compete every time those who only worship Wall Street. I'm Bill George.
"Tech Talk"-Ditching Deposit Slips
SUSIE GHARIB: In tonight's "tech talk" segment, teaching an old machine some new tricks, how a new machine can help teach students and how some small changes can make a big difference. With an explanation of all this, here's our technology maven, Scott Gurvey.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: New banking regulations, known as check 21, allow banks to process checks and deposits immediately if they so choose. Wincor-Nixdorf, one of the world's largest makers of ATM machines, has new models which do that by scanning checks and processing deposits without the need for deposit slips. Both Wells Fargo and Bank of America are testing these machines in the United States. Wincor-Nixdorf VP Alan Walsh says the ATMs also give banks new marketing opportunities.
ALAN WALSH, VP OF BANKING, WINCOR-NIXDORF: Our ATMs offer what we call customer relationship management software. That means that we personalize the transaction for the consumer who puts the card into the ATM. So we say, hi, Bob, welcome to the bank. We realize that just repaid your mortgage. Would you like a new mortgage? You've just repaid you car. Would you like a new car loan? Would you like to buy a holiday?"
GURVEY: Great, now my ATM knows all about me. But I would like an ATM that doesn't require a deposit slip or envelope. They're never around when you need them. Intel has produced a revolutionary personal computer you will not see in the United States in the near term. The small and rugged classmate is designed specifically for students in emerging markets worldwide. They are full powered PCs running Microsoft Windows, but cost only a few hundred dollars. They come loaded with special software for both students and teachers, which provides instruction on a wide range of subjects. All this is part of Intel's world ahead program, designed to bring new technology to people around the world. Unlike most online communications systems, a new one named Yoomba uses your existing email address to manage chat and audio messaging. Yoomba founder Elad Hemar says his system solves a problem found in older networks.
ELAD HEMAR, CEO, YOOMBA: It means that a Yahoo! user, for example, can only talk to a person inside Yahoo! This has been a problem for the last at least 10 years since instance messaging and instant communication has been introduced and we are coming with this new approach of the open communications experience.
GURVEY: Sometimes high tech doesn't look like high tech. Take a look at hurriquake, a new type of nail -- that's right, nail -- from Stanley Bostich. You wouldn't think you could do much to improve a nail but the hurriquake nail has been designed to provide extra resistance to the uplift and shear forces prevalent in hurricanes. The design won "Popular Science" magazine's innovation award and it exceeds the code specifications of one of Florida's biggest coastal counties, Miami-Dade. Maybe you can build a better mousetrap. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
Paul Kangas' Stocks in the News
KANGAS: Wall Street opened sharply higher, buoyed by IBM's solid earnings out last night and strong results this morning from Honeywell and Textron. After an hour of trading, the Dow was up 81 points, right at the 14,000 mark and the NASDAQ was up 18 points. The market encountered selling resistance during the mid- session hours and pulled back a bit, but optimism over those earnings after- the-bell from Microsoft and Google triggered a late comeback. The Dow Industrial Average closed up 82.19 at a record 14,000.41. The NASDAQ up 20.55 ending at 2720.04 and the Standard & Poor's 500 Index gained 6.91. That was to a record 1553.08. In the bond market, the 10-year note rose 4/32 to 96 even. That put the yield at 5.02 percent.
The most active big board issue was a new issue. This is MF Global Ltd (MF). It's the brokerage arm of a hedge fund called the Man (ph) Group, 97 million shares offered to the public at 30, didn't have a very good debut, opened at $27.30 and had a high of $28.53 and ended well below its offering price of $30.
Then came Alcoa (AA) with a loss of $1.83. The Australian newspaper reports BHP Billiton will not make a buyout bid for Alcoa.
Pfizer (PFE) on disappointing earnings out yesterday, down $0.14.
And EMC Corp (EMC) up $0.47.
General Electric (GE) a $0.26 gain there.
Ford Motor Co (F) showed no change today. The company said it had contact with parties interested in its Land Rover and Jaguar brands and is evaluating the level of interest.
Time Warner (TWX) $0.17 loss there.
JPMorgan Chase (JPM) down $0.12.
Citigroup (C) fell $0.47.
ExxonMobil (XOM) was up $1.14. IBM (IBM), the star of the day, up $4.78. That accounted for about 37 points of the Dow's 82 point gain right there and of course it had better than expected earnings out yesterday as we reported and today, Citigroup boosted its 2007 and '8 earnings both for IBM and boosted its price target from $122 to $135 a share.
Hewlett-Packard (HPQ) up $1.26. Two research companies, Gartner and IDC Forecasting are forecasting very strong worldwide computer sales, very good for Hewlett of course.
And then Honeywell Intl (HON) a $0.44 gain. Second quarter earnings higher, $0.78, up from $0.63 a year ago, $0.03 above the Street estimate and the company boosted its full year guidance as well.
Textron (TXT) had nothing but good news today. The stock up $6.77. First of all, second quarter earnings $1.69, up from last year's $1.34. Revenues up 15 percent. The company declared a two for one stock split, a 19 percent boost in the dividend and on top of that says it's going to buy 24 million shares of its own stock back.
Nucor (NUE), the steel company, down $1.19. Lower earnings there, $1.14 in the second quarter versus $1.44 a year ago, $0.03 below the Street estimate.
And Hershey Co (HSY) did not have a good day, off $1.49. Second quarter earnings fell to - let's make that $0.35, down from $0.42 a year ago. Standard & Poor's repeated a "sell" on Hershey stock and cut its price target from $50 to $46 a share.
Unitedhealth Group (UNH) down $1.69. Second quarter earnings higher, $0.87, up from $0.70 last year, $0.06 above the Street estimate. The problem was, the company cut its full year revenue guidance.
Sherwin-Williams (SHW) doing well, up $5.98. Second quarter earnings $1.52, up from last year's $1.33 and sees third quarter earnings as high as $1.55.
And then Foot Locker (FL) rose $1.80. The "New York Post" reports the company's considering its sale and the article said Apollo Management is mulling over a $29 a share bid.
Google (GOOG) topped the active list, down $0.91 in regular way (ph), but after hours plunged as low as $505 on those disappointing earnings.
Microsoft (MSFT) closed down or up $0.59. Fourth quarter earnings $0.39, just in line and after hours the drop in the stock was down to about $30.90, not too bad.
Apple (AAPL) up $1.88.
Research in Motion (RIMM) rose $3.92.
And then Qualcomm (QCOM) a loss of $1.75.
Cisco Systems (CSCO) gained a half a dollar.
And a $0.20 rise in Intel (INTC).
Ebay (EBAY) $0.55 loss there.
Juniper Networks (JNPR) up $3.33. Second quarter earnings for Juniper $0.20, up from $0.18 a year ago, in line with estimates and the company boosted its full year earnings guidance.
Baidu.com (BIDU) fell $1.71.
Starbucks (SBUX) up $1.21 on speculation PepsiCo wants to expand its partnership, but Starbucks says no such plan is afoot at the moment.
And then Sterling Financial (SLFI) up $7.11, Sterling indeed. The company is going to be acquired by PNC Financial for cash and stock worth $19 a share.
And those are the stocks in the news tonight.
