NBR Transcripts-May 8, 2008
Thursday, May 08, 2008Wal-Mart & Costco Ring Up Sales In April
SUSIE GHARIB: American consumers stretched their dollars last month shopping at discount retailers. April sales reports from the nation's biggest chain stores were a mixed bag, but the numbers were better than expected. Wal-Mart and Costco were among the top performers, while apparel retailers such as Limited Brands, Gap and Chicos posted weak results. As Suzanne Pratt reports, experts believe retailers will continue to face a rough road in the months ahead.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The world's biggest retailer looks to be one of the biggest beneficiaries of the slowing U.S. economy. With consumers feeling pinched by surging gas prices and declining home values, they're heading to discounters for necessities like food and medicine. But Wal-Mart is less sanguine about the future, predicting today that its May sales would be flat or only up 2 percent. The retailer also said it's too early to know what effect the government's stimulus checks will have on consumer spending. Citi analyst Deborah Weinswig, whose firm has done investment banking and other business with Wal-Mart in the past year, thinks consumers are more likely to spend those checks at Wal-Mart than any other store.
DEBORAH WEINSWIG, SR. RETAIL ANALYST, CITI: The reason behind that being, obviously, it's kind of one-stop shopping. They are cashing the checks. And they obviously have started to gain mind-share and market- share in some discretionary categories.
PRATT: Other April bright spots include teen retailer Aeropostale and the luxury department store Saks, both posting a double-digit jump in sales. Still, analyst Richard Jaffee believes most retailers will face a challenging environment this summer. He calls the April results a false positive.
RICHARD JAFFEE, RETAIL ANALYST, STIFEL NICOLAUS: We knew April was going to be much better than March -- the Easter shift, the better weather and the beginning of the rebate checks coming through. But we don't think this is in indication that the consumer is back in the marketplace and leading an economic turnaround.
PRATT: For many department stores and apparel retailers, April was a cruel month, as Americans cut back on discretionary spending. From American Eagle outfitters to JC Penney, retailers slashed prices to lure shoppers. While the discounts worked, they may hurt profits. The retail industry starts reporting first quarter results next week and earnings for the group are expected to decline by 7.4 percent.
WEINSWIG: I think earnings for the first quarter could actually surprise on the upside because, for one thing, everyone has been very aggressive on reducing expenses because of a weak top-line environment.
PRATT: Beyond the economic head winds that plague most retailers, experts say many stores seem unable to inspire consumers to shop. They say that's because the fashion choices have simply been unremarkable. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
"A Tale of Five Cities"-Silicon Valley, California
SUSIE GHARIB: Speaking of housing, our real estate series, "A Tale of Five Cities," heads west tonight with a look at California's Silicon Valley. It's one of the nation's most expensive housing markets, but prices are beginning to show some signs of softening. As Oanh Ha of PBS station KTEH reports, while there are deals to be had, affordability is still a big problem. OANH HA, NIGHTLY BUSINESS REPORT CORRESPONDENT: After years of saving and scrimping, Steve Rodriguez and his wife Norma Salazar, are looking for a home for their growing family. But without the help of financing from a housing nonprofit, this three bedroom town home -- at $545,000 -- would still be out of their reach.
NORMA SALAZAR, PROSPECTIVE HOMEOWNER: Impossible! There's just no way -- no way, because banks nowadays require higher incomes for a higher loan and us, we don't have. We're just moderate income family, so we wouldn't get a higher loan and now with - thanks to neighborhood housing, we got a great loan and we're ready to buy a house.
HA: Home prices in Silicon Valley dropped 9 percent in March alone, but the median price is still $620,000. Economist Stephen Levy says that's making home ownership just a dream for many families.
STEPHEN LEVY, ECONOMIST, CENTER FOR CONTINUING STUDY OF THE CALIFORNIA ECONOMY: At the very worst point, only one in six households in the valley could afford a median home. Now it's up to about one in four, but that's still only 25 percent. Three out of four households in the valley cannot afford a median-priced home right now.
HA: Still, Silicon Valley real estate hasn't been hit as hard as the rest of California, where prices have fallen sharply since 2006. In Santa Clara County, the hub of technology and innovation, the median price year- over-year only began to drop in December.
LEVY: The Silicon Valley economy is still growing. Around the state, most other regions are losing small numbers of jobs and we're adding jobs. And were adding rising amounts of venture capital, so that we have a small but sizeable number of very affluent people who are able to afford these higher median prices.
HA: But there are signs of a softening market. Sales in Silicon Valley in March dropped 46 percent from a year ago, the lowest in two decades. And the number of foreclosures is at a record high. But the overall picture looks rosier because in a few communities, home prices are being pushed up to all-time highs, says Nina Yamaguchi. She manages a Coldwell Banker office of 80 realtors.
NINA YAMAGUCHI, MANAGING BROKER, COLDWELL BANKER: This is one of our brand new listings. It's in one of the hottest neighborhoods of Silicon Valley. It's a three bedroom, two bath. The owners are asking just under $1.3 million and we already have four confirmed offers on it.
HA: Typical buyers of homes like this one have high paying tech jobs, want good schools for their kids and sometimes pay for million-dollar homes in cash.
YAMAGUCHI: The sweet spot of the market tends to be for sure between $1 million and $2 million because those buyers typically are not affected by the credit crunch and if you can afford it, you want to live in that neighborhood.
HA: At the same time, the hardship is growing for families who are priced out of the housing market and are forced to rent. Silicon Valley is the most expensive rental market in California and the rents are going up. Joshua Howard heads the California Apartment Association's tri-county division and says foreclosures and the credit crunch are sending more people into rental housing.
JOSHUA HOWARD, DIRECTOR, CALIFORNIA APARTMENT ASSOCIATION: We have an interesting conundrum or interesting circumstances coming together. You have more people chasing the same number if not fewer, number of housing units.
HA: Rents declined after the tech bubble burst in 2000, but are now heading back up. The average rent in Silicon Valley is $1,660 a month. For Norma Salazar and Steve Rodriquez, that's even more reason to buy. Their landlord has told them their rent is going up. I'm Oanh Ha, NIGHTLY BUSINESS REPORT, San Jose.
GHARIB: Tomorrow, we wrap up our series "A Tale of Five Cities" in Cape Coral, Florida's foreclosure capital.
"Bill of Health"-Hospitals Go Green
SUSIE GHARIB: With more companies adopting environmentally-friendly business practices, hospitals are trying to be greener in how they deliver quality healthcare. As Jeff Yastine reports in tonight's "Bill of Health," hospital administrators are finding that being eco-friendly can also be friendly to the bottom line. JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Broward Health in Fort Lauderdale is one of the nation's five largest public healthcare systems. Staffers here are learning it's not only possible but preferable to be environmentally friendly. Administrators used to pay to have haulers take away paper trash and old medical records. Now, that same paper -- 62,000 pounds a year -- generates cash by being shredded under secure conditions and sold for recycling. The hospital system now recycles or reuses about a third of its total waste. That includes not only paper and cardboard, but old computers and medical devices which would otherwise end up in landfills. Anna Gilmour of the organization Health Care Without Harm says hospitals are learning they can serve the environment and the bottom line.
ANNA GILMORE HALL, RN, EXEC. DIR., HEALTH CARE WITHOUT HARM: Senior leaders in hospitals -- the CEOs, CFOs, the COOs and one of the reasons that they're interested in doing this is because of the long-term financial savings that can occur. In 2000, the EPA put out a report where they stated that $1 of savings in operations is equivalent to $20 of new revenue for the healthcare system.
YASTINE: Broward Health's Senior Vice President Joe Rogers says there are other benefits for organizations like his.
JOSEPH ROGERS, SR. VICE PRESIDENT, BROWARD HEALTH: In many cases, I think health systems might forget or overlook the brand benefits to being green, which are tremendous. We are a health system and there's a tremendous link between the concept of being green and good health and it becomes very important for health systems to try to tie into that.
YASTINE: Hospitals have made big leaps in going green since the 1990s, when thousands still operated large onsite waste incinerators. Now, fewer than a hundred do. Many hospitals are also phasing out the use of toxic compounds. Broward health safety coordinator Patricia O'Rourke says the system recycles some lab chemicals and is using less-toxic alternatives.
PATRICIA O'ROURKE, SAFETY COORDINATOR, BROWARD HEALTH: So the patient always comes first. So when you're reducing hazardous materials and you're reducing bio-hazard waste and other exposures or utilizations of materials in a hospital that could be toxic, you're helping the patient overall, but also you're helping the employees.
YASTINE: The ultimate in environmentally friendly healthcare is new hospitals that are certified green. Those buildings have window, lighting and plumbing systems that are designed to be as efficient as possible. Even solar panels are used in some projects. The cost for building green hospitals is about 2 percent higher than building to code, but industry executives say those investments usually pay for themselves within just a few years of operation. Jeff Yastine, NIGHTLY BUSINESS REPORT, Bill of Health.
"Commentary"-Gas Price Solutions
SUSIE GHARIB: With gas prices topping $4 a gallon in some markets, Senator Hillary Clinton has become the latest presidential candidate to back lifting the nation's gas tax. Many economists oppose the move. But tonight's commentator says there are a couple of ways the government could bring prices down. He's Len Burman, director of the Tax Policy Center.
LEN BURMAN, DIRECTOR, TAX POLICY CENTER: Senator Clinton has said she doesn't care if a bunch of elitist economists oppose the idea of a summer gas tax holiday; she knows she could make it work. We complained that limited supply would keep gas prices high, even if the Federal tax were suspended. But Mrs. Clinton is right. The government could force prices down, but I don't think she would like the results. One option is price controls -- mandate that pump prices fall by the amount of the tax or even more. We tried that in 1973 and 1979, and it kept prices low. The only problem was shortages -- long lines and service stations shut down because they'd run out of fuel.
If Clinton doesn't want to channel Nixon or Carter, she could try FDR, who imposed rationing to keep prices in check, despite wartime shortages. Unfortunately, people don't like rationing. They tolerated it back in the '40s because they supported the war, but even then, a black market flourished. It's hard to imagine that patriotic fervor for the Iraq war would support gas rationing now. Economics is called the dismal science for a reason. Sometimes, the market creates grim realities, like $4 gas prices and we can't wish or bully pulpit them away. The good news is that market responses to high gas prices, like buying more fuel efficient cars and switching to alternative modes of transport, will bring prices down over time if we let them. I'm Len Burman.
GHARIB: NIGHTLY BUSINESS REPORT has offered Senator Clinton the opportunity to respond to tonight's commentary. We hope she agrees to do so.
"Last Word"-The Value of Mom
SUSIE GHARIB: And finally tonight, as Mother's Day gets closer, it's impossible to put a dollar amount on how much your mom is worth. But one financial advisor says the job market value of a mother has increased to nearly $800,000. Ric Edelman's light-hearted study looks at all the jobs a mother does -- among them: psychologist, driver, chef, housekeeper, nurse, management analyst, recreation worker and financial manager. And Paul, over the past year, the Mother's Day index has increased by nearly $29,000. And just in case you forget, Mother's Day is on Sunday.
KANGAS: You never forget an investment that good Susie, no way.
Paul Kangas' Stocks in the News
PAUL KANGAS: Those better than expected retail sales, along with a drop of 18,000 in new weekly jobless benefit claims, gave Wall Street an opening boost. The Dow jumped 67 points at the outset of trading, while the NASDAQ rose 9 points. Then a flurry of sell programs wiped out most of the early gains. But bargain hunters moved in and rejuvenated the rally, sending the Dow to a 93 point gain by 2:00 p.m. Oil futures inched higher late in the session though and it closed at a fourth straight record high of $123.69 a barrel and that helped trim the market's gains by the final bell. The Dow Industrial Average did close up 52.43 though at 12,866.78. The NASDAQ Composite was up 12 3/4 points exactly at 2451.24. Standard & Poor's 500 Index rose 5.11 ending at 1397.68. In the bond market, the 10-year note gained 24/32 to par and 25/32, putting the yield at 3.78 percent.
Most active big board issue today on 18.4 million shares, Citigroup (C) down $0.18. Followed by Pfizer (PFE) with a nickel gain.
Ford Motor Co (F) was up $0.24. The company's chief exec said Ford's turnaround is moving faster than expected.
SprintNextel (S) an $0.18 drop there.
Bank of America (BAC) off $0.67.
General Electric (GE) edged up $0.02.
Colfax (CPX), this is a new issue. Colfax is a manufacturer of pumps and the stock was offered to the public at $18 a share on an offering of 18 3/4 million, opened at $22.50 a share and the high of the day, $22.90, backed off a little, but still a nice debut.
Fannie Mae (FNM) down $1.42 in the midst of pricing of $2 billion offering of stock reportedly at a price of $27.50 a share.
Wachovia (WS) down $0.88. The company's CEO Ken Thompson handed his duties as chairman over to director Lanty Smith in a move he says will strengthen the company's independent leadership.
JPMorgan Chase (JPM) in there with a $0.52 loss.
American International Group (AIG) closed down $0.93 in regular trading and then after the close reported a loss of $3.09 in the first quarter. That is the equivalent of a $7.8 billion drop, bigger than expected. In after hours trading, the stock was just below $41 a share, but the company is boosting its quarterly dividend by $0.10 to $0.22 a share.
Big gainer RH Donnelley (RHD), publisher of Yellow Pages, first quarter excluding items, $0.22, a nickel above the Street estimate. The company's exploring ways to cut debt. Deutsche Bank also upgraded it from "sell" to "hold" today.
DRS Technologies (DRS) had a good day, up $10.15. "Wall Street Journal" reports an Italian aerospace firm is in advance talks to acquire DRS.
And then URS Corp (URS) up $3.54. First quarter earnings, $0.69, well above $0.58 last year. Revenues up 28 percent.
And then we see Treehouse Foods (THS) rising $2 a share. First quarter earnings $0.34, up from $0.24 a year ago. Sales jumped almost 40 percent.
Swift Energy Co (SFY) down $3.98 despite sharply higher first quarter earnings of $1.61 from $0.87 a year ago, but those earnings were $0.03 below the Street estimate, no room for disappointments.
Kingsway Financial (KFS), a Canadian company, losing $4.31. The truck and auto insurance unit of the firm, Lincoln General part of the reason for a big first quarter loss of $0.62 a share. The Street was looking for earnings of $0.38 a share.
Barr Pharmaceuticals (BRL) plunging $11.55. First quarter earnings fell to $0.57 from $0.73 a year ago, $0.21 below the Street estimate.
And then Pediatrix Medical (PDX) losing $9.79. First quarter earnings were higher, $0.67 versus $0.58 a year ago, but the company says its neonatal ICU volume growth is below normal and may not meet its 2008 earnings guidance. Down went the stock on that news.
OM Group (OMG), specialty chemicals, down $6.70. First quarter earnings plunged $1.81 from $3.85 last year. Gross margins narrowed.
Apple (AAPL) topped the active list on NASDAQ, up $2.47.
Google (GOOG) a $4.01 gain.
Research in Motion (RIMM) $1.20 advance.
Microsoft (MSFT) edged up $0.06.
Baidu.com (BIDU) down $3.96, fifth in volume.
Yahoo! (YHOO) up $0.58.
Cisco Systems (CSCO) an $0.08 drop.
Intel (INTC) $0.23 gain.
Energy Conversion Devices (ENED) up $15.10, a real turnaround. Third quarter earnings of $0.17 versus a loss of that much last year. The Street was looking for just break even.
And Millennium Pharmaceuticals (MLNM) a nickel loser. It's going to be acquired by Takeda Pharmaceutical for $25, so the stock is being removed from the Standard & Poor's midcap 400 index.
Hansen Natural (HANS), the beverage company, down $5.46, despite higher first quarter earnings of $0.29, up from $0.21, but $0.06 below the Street estimate.
And then American Superconductor (AMSC) jumping $8.10. The company had a fourth quarter loss of only $0.04. The Street was expecting a loss of $0.12 a share.
Those are the stocks in the news tonight.
