NBR Transcripts-May 13, 2008
Tuesday, May 13, 2008Wal-Mart's Happy Face May Not Smile Through The Summer
SUSIE GHARIB: Encouraging news today on the retail front. While the government reported that overall retail sales fell 0.2 of a percentage point in April, excluding autos, sales actually rose by 0.5 percent. Meanwhile the nation's largest retailer, Wal-Mart, said sales jumped almost 7 percent in its fiscal first quarter and earnings came in at $0.76 a share, topping analyst estimates by a penny. As Scott Gurvey reports, some economists say today's data suggest the U.S. may not be in such bad shape after all.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The economy may be sluggish, but today's data indicate reports of its death are greatly exaggerated. It is true that sales of automobiles fell off a cliff. You have to go back 10 years to find a weaker auto sales report. But excluding autos, retail sales rose in April, doing much better than most economists had forecast. There was even a bounce back for housing related items, building materials, furniture and appliances. Economist Cary Leahey of Decision Economics, says the data implies the nation will avoid a recession, even though employment is falling.
CARY LEAHEY, ECONOMIST, DECISION ECONOMICS: One can, might argue that perhaps people were feeling a little bit better and spent because they were spending in anticipation of the rebate check to come, but still this was a number that was pretty good and gets you off to at leas a decent start in the second quarter. And if consumer spending is up 2 percent at an annual pace in the second quarter, it's very hard for GDP growth to be negative.
GURVEY: The world's biggest retailer echoed that retail sales report with its latest earnings. Wal-Mart reported higher profits, but was very conservative in its guidance for the second quarter and the full year. It predicts sales could be flat through July. Wall Street was disappointed by the forecast, although retail analyst Neil Currie of UBS says it was to be expected. UBS has done investment banking and other business with Wal-Mart over the past year.
NEIL CURRIE, RETAIL ANALYST, UBS: In such an uncertain economy, I think it's prudence to be conservative. However, they're entering the second quarter with comps of 3 percent, with traffic that is actually positive year over year. And that's the first time we've seen that in a long time. And also apparel which has been a drag on sales the past couple of years, is actually seeing some major improvements and should turn positive soon. So I think the 0 to 2 percent sales guidance is very conservative and they should beat that.
GURVEY: Many economists say today's data give the Federal Reserve further reason to stay on the sidelines for a while, waiting to judge the effects of recent interest rate cuts and tax rebate checks on consumer spending and the economy. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Green Options: Fuel"-Hybrid Corn
SUSIE GHARIB: Higher energy costs are fueling a boom in ethanol production. It's expected to increase roughly 45 percent this year. The corn-based fuel has been touted as a clean-burning alternative to gasoline. But in recent months, ethanol has been blamed for driving up both grain and food prices. Tonight we begin a four-part series called "Green Options: Fuel" looking at different fuels and how they might be used to ease the energy crunch. In part one, Diane Eastabrook reports on how scientists are harnessing bio-technology to help farmers around the world produce more grain for fuel and food.
BRAD SMITH, FARMER: I personally don't remember this wet of a spring.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: With mud like this, farmer Brad Smith has had to delay planting nearly 25 acres of corn in northern Illinois. Smith says at this point, every day he loses in the field could result in fewer bushels of corn harvested in the fall.
SMITH: We see a yield penalty every day after the tenth of May that we get the corn crop planted, so we're doing everything we can to try to minimize the negative effects of a delayed planting season.
EASTABROOK: In the U.S. and around the world, the pressure is on farmers like Smith to produce bumper crops. Demand for grain from food producers to ethanol manufacturers is increasing at a break-neck pace. So the challenge for grain producers is how to feed and fuel the world with a finite amount of farmland and obstacles from mother nature.
DUSTY POST, GLOBAL CORN TECHNOLOGY LEAD, MONSANTO COMPANY: Diane, these are drought tolerant in-breds that we have in our discovery program.
EASTABROOK: Dusty Post heads up a team that develops bioengineered corn at Monsanto. In this greenhouse outside of St. Louis, Post is developing a corn hybrid that could grow with hardly any water. She is also working on a seed variety that could produce more corn from a single plant.
POST: We're putting in trans-genes that actually allow the plant to produce more kernels. So, for example, it's been estimated that roughly three kernels more per ear translates into a full bushel of corn per acre.
EASTABROOK: Scientists have been developing different crop hybrids for hundreds of years. But recent advances in biotechnology have allowed researchers to sequence every gene in a plant and breed even more innovative varieties. Insect and weed resistant seeds have been on the market for about a decade. More recently, farmers have been able to buy a starchier corn variety that produces more ethanol. Robb Fraley, chief technology officer at Monsanto, thinks bioengineered crops are not only improving agriculture, but expanding it globally.
ROBB FRALEY, CHIEF TECHNOLOGY OFFICER, MONSANTO COMPANY: I think these technologies, particularly the better methods for controlling insects and weeds, the better methods for protecting against drought risk will encourage farmers to plant corn on soil types and geographies that a few years ago wouldn't have been seen as traditional corn markets.
EASTABROOK: But, bioengineered crops remain controversial because of safety concerns. While about 75 to 80 percent of U.S. farmers are expected to plant genetically modified corn this year, many countries still ban it. Currently only about 20 countries grow bioengineered crops. Richard Feltes is a grain analyst and senior research vice president for trading firm MF Global. While he thinks bioengineered crops are gaining wider acceptance and improving grain yields, he wonders if they can ever keep pace with demand.
RICHARD FELTES, SENIOR V.P. RESEARCH, MF GLOBAL: The challenge is very real and the linkage of food and fuel and these every high, ever increasing corn ethanol mandates is presenting a very daunting challenge to the corn market.
EASTABROOK: But Monsanto's Dusty Post thinks biotechnology can meet the challenge.
POST: It's a debate and we believe that the science is going to prevail because we have a product that the farmers value.
EASTABROOK: Researchers at Monsanto think 20 years from now, biotechnology could help farmers like Brad Smith double the amount of corn they are currently producing. They think that will go a long way in helping to satisfy both the energy and food needs of the world. Diane Eastabrook, NIGHTLY BUSINESS REPORT, Milledgeville, Illinois.
GHARIB: Our "Green Options: Fuel" series continues tomorrow with a look at how Florida sugar producers are trying to make ethanol from pulverized cane stalks.
Kiva President Premal Shah, Says Farmers & Crops Are Still Coming In
SUSIE GHARIB: The use of farm land to raise crops for fuel has increased pressure on commodity prices around the world. To find out what that means for farmers in developing countries, we turned to Kiva. It's a micro-lending website that directly connects donors in the United States with small entrepreneurs in poor countries. Washington bureau chief Darren Gersh asked Kiva President Premal Shah how rising food prices affect the small businesses his website helps finance.
PREMAL SHAH, PRESIDENT, KIVA: We have talked to a few of the entrepreneurs on our website, for example a farmer in Ecuador who is a rice farmer and while they're able to -- it's harvest season right now and he's excited for the short-term rise in prices for himself, his inputs, the oil- based fertilizers and the transportation to get things to the market, that's also something that eats into his profits.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Is the commodity price that you see at the end in the city when the rice gets sold to somebody, is that going back to the farmer or to the agricultural business that you support?
SHAH: What's happening is is the big driver is the rise in fuel prices right now and with the rise in fuel prices, it basically just costs more to produce that grain of rice. And so it doesn't really go back into the producer's pocket and more so when it goes to the city and that grain of rice ends up in a say small food shop, the consumers who are also poor most of the time, are unable to afford that rice and so essentially it's something that the consumption of rice actually goes down and then the end producer who's enabling that rice to come and get distributed isn't seeing the profit and it's really just an increase in the production -- the cost of production.
GERSH: So you said you've been in contact with more of the people who are getting the loans. What else are they telling you? What kind of problems are they seeing right now because of the rising food prices and commodity prices?
SHAH: There's a woman and she is a dairy farmer and so while the price of basically what she's producing has increased, her feeds, the wheat and the grains that she uses to feed the cow is also increasing. There is a baker also in Latin America who is trying to pass on the rise in cost to his consumers, but he's unable to do this because his consumers can't afford the increase in price. I mean the prices has shot up 50 percent for some of these commodities in just a matter of months. And so I think what we're seeing is a lot of the microfinance institutions that we work with who give out loans on the ground and who post these loans to the Kiva website are actually being asked to give out higher loan sizes so they can cover this shock and a lot of this loan money is not only being used for productive purposes like growing their business, probably subsistence purposes, just having a little extra money around the house to pay for the increase in prices right now.
GERSH: Premal Shah, president of Kiva. Thanks for your time.
SHAH: Thank you.
"Commentary"-Colombia FTA
SUSIE GHARIB : Tonight's commentator says Congress should stop dragging its feet on the Colombia free trade agreement. She's Barbara Hackman Franklin, president and CEO of Barbara Franklin Enterprises and former U.S. Secretary of Commerce. BARBARA HACKMAN FRANKLIN, PRES. & CEO, BARBARA FRANKLIN ENTERPRISES: Trade is not popular today. It's an easy scapegoat when the economy slows. And the negative rhetoric from the Democrat presidential candidates does not help. The Colombia free trade agreement is caught in this polarized climate. It was signed 16 months ago and is now pending on Capitol Hill.
In 1974, the executive branch and the Congress made a statutory bargain that trade agreements signed by the executive would be voted up or down without amendments by the Congress. That bargain, known as fast track, has worked well for decades, until this year. The House majority unilaterally broke the bargain and so far is refusing to bring the Colombia FTA up for a vote. This refusal is short sighted. First, this FTA would benefit U.S. companies and workers by leveling the playing field for U.S. exports to Colombia.
Secondly and very importantly, a congressional failure to act greatly damages one of our closest allies in this hemisphere. Colombia's President Uribe is working hard to combat violence and reform the economy and this hard work is paying off. So, if the U.S. Congress refuses to vote, the message sent around the world is that the U.S. cannot be trusted to deliver on its agreements and does not stand by its friends. We cannot afford to wait. The House should bring up the Colombia FTA for a vote now. I'm Barbara Hackman Franklin.
Paul Kangas' Stocks in the News
JEFF YASTINE: The rebound in oil prices and a spike in bond yields kept a lid on the blue chip stocks today. The Dow dropped more than 90 points in the first half of the session. Losses in Dow component's Wal-Mart and Hewlett-Packard led the way lower. The news was better for the NASDAQ, where the rally in oil fueled another advance for solar power stocks. So the Dow trimmed its losses out of the close, ending down 44.13 to end at 12,832.18. The NASDAQ rising 6.63 to 2495.12 and the S&P 500 falling a fraction to 1403.04. And bond yields jumped in anticipation of tomorrow's report on consumer prices. Traders expect the data to show more inflation. The 10-year note falling 31/32 to 99 21/32 and pushing the yield up to 3.92 percent.
And our first one to the upside, American Intl Group (AIG) gaining $0.79. AIG says it expects to raise more than $17 billion by issuing more stock and debt, which is supposed to help its balance sheet after two quarters of big losses. Former CEO Hank Greenberg wants to delay the start of tomorrow's annual shareholder meeting. No response from the company on his request. Hewlett-Packard (HPQ) sliding $2.47. As you heard, some think $25 a share is too high a price to pay for EDS. Hewlett-Packard says the deal will add to profits in coming years. The company also hinted that second quarter profits, which are due out a week from today, will be better than forecast.
Sovereign Bancorp (SOV) gaining $0.42. The bank raised $1 1/2 billion to help rebuild its balance sheet after making a lot of bad consumer loans. Friedman, Billings, Ramsey upgraded the shares.
And there's Electronic Data Systems (EDS) picking up $0.26.
Citigroup (C) losing $0.61. Interest rates sparking or spiking sharply higher today.
Pfizer (PFE) edging up a fraction.
And then we have General Electric (GE) losing $0.07.
Ford Motor Co (F) gaining $0.08.
JPMorgan Chase (JPM) losing $1.76.
Bank of America (BAC) falling $0.83. The bank expects larger losses on its home equity loans, but executives say they intend to complete the purchase of Countrywide Financial in the third quarter. Countrywide shares rose nearly 4 percent.
And Fluor Corp (FLR) shares jumping nearly $25, a great gain for that stock. A bunch of analysts raised their outlooks after yesterday's quarterly results and robust forecast, along with a record backlog of orders and that news helping a lot of the other major engineering companies. A quick glance at those, Foster Wheeler (FWLT), Jacobs Engineering (JEC), McDermott Intl (MDR), all doing nicely finishing near their best levels of the day. McGraw-Hill Companies (
MHP), Goldman Sachs adding that publishing giant to its "buy" list. The stock adding $2.24 today. And then Bally Technologies (BYI) rising nearly $5. Profits at the slot machines maker more than quadrupling at $0.52 a share. That was $0.04 above estimates.
On the downside, Lehman Brothers Holdings (LEH) falling $1.60. Oppenheimer's analyst cut his forecast at all the major investment banks and brokerages because of expectations the group will have to give back some of the gains booked last quarter because of further declines and loan losses on their books.
U.S. Shipping Partners (USS) sank more than $3.50 on a first quarter loss of $0.31 a share. Revenues fell 22 percent.
And then Crystal River Capital (CRZ) tumbling $2.36. The real estate investment trust logging a huge first quarter loss. They've hired the former head of Brookfield asset management as their new CEO.
Now turning to the NASDAQ, Apple (AAPL) gaining another $1.80. The one-year anniversary of the iPhone is next month, anticipation growing about the debut of the next generation iPhone which uses the faster 3G wireless transmission networks.
Google (GOOG) off $1.94.
Research in Motion (RIMM) fell $1.13 after a big $9 advance. You can imagine the headlines all summer. What's better, the Blackberry Bold or the new Apple iPhone?
Yahoo! (YHOO) rising $1.30. Published reports say Carl Icahn has built a large position in Yahoo! shares since last week that led to a big intra-day reversal higher for the shares. Reuters cited sources close to Icahn saying he'll map (ph) his own proxy fight with a new slate of board members with the intent to bring Yahoo! back to the negotiating table with Microsoft.
Microsoft (MSFT) losing $0.10 for the day.
Baidu.com (BIDU) advanced $1.53.
First Solar (FSLR), part of that big solar move today for all those stocks, gaining nearly $20.
Cisco Systems (CSCO) advanced a nickel.
Intel (INTC) up $0.12.
Applied Materials (AMAT) advancing a nickel.
Canadian Solar (CSIQ) vaulting nearly $7. This is a Chinese firm despite the name. First quarter profits were great. Second quarter results expected to be even better.
And finally Iomai (IOMI) more than doubling in today's trading, soaring $3.42. Intercell will pay $6.60 a share, nearly $190 million to buy the Maryland biotech firm. Those are the stocks in the news tonight.
