Martha Stewart---Alan (slow)
Expectations
Interview: Stone & McCarthy---Liro, Joseph---Economist
>> folks, we’re back. the martha stewart trial resumed today with testimony about the sale of her imclone shares in december 2001. a merrill lynch employee is testifying about the company’s internal investigation into that sale of shares by martha stewart. merrill lynch is, of course, a passive minority investor in bloomberg l.p., the parent of this channel. that said, alan dodd frank is outside the federal courthouse with the latest. alan?
>> matt, martha stewart is just leaving. she is in that black limousine somewhere behind me and the day wrapped up with the government devoting most of the time to two merrill lynch witnesses, who were laying the foundation for testimony tomorrow by the prosecution’s star witness, former merrill lynch assistant doug faneuil. he was the assistant to peter bacanovic, now co-defendant. the witness this afternoon, julia monahan, is an office manager and human resources person who dealt with issues like salaries and among brokers and their assistants. one of the things she testified about was how peter bacanovic, after this whole incident with martha stewart selling her stock on december 27 and then an almost immediate investigation by merrill lynch internally and by the s.e.c, caused bacanovic to try to get a healthy increase in compensation for his assistant, doug faneuil. now the government has contented that faneuil stuck with the cover story, as he’d been instructed and bacanovic continued the cover story and then martha lied to sell her imclone stock at $60 a share. the first merrill lynch witness, brian shimphauser, i’m sorry i mispronounced his name s a compliance officer and he testified that he heard the news on friday, december 28, after the close that the food and drug administration was not going to approve imclone systems application for fast-track approval of erbitux anti-cancer drug. he assumed when he came to work on monday morning that that would be a subject he would want to look into. it didn’t take him long to discover there was a lot of suspicious tradings in imclone systems. that’s when they came up with dr. sam waksal t c.e.o. of imclone and, of course, martha stewart. matt?
>> thank you, alan. we appreciate the updates. in other news today, two thirds of the s&p 500 companies have now reported their earnings and they have all surpassed estimates of analysts. our next guest tells us if the remaining companies are also going to exceed estimates, joe lero of stone & mccarthy joins us from our studios in princeton. what is your expectation for the balance? two thirds of reports, another one third to go. are they going to beat expectations?
>> so far they’ve had to beat expectations. not every company out of the 316 that have reported as of through friday afternoon has exceeded expectations. but most of them have and most have been by quite a bit. just the consensus forecast of earnings for the fourth quarter has increased steadily over the last―over the last quarter and over the last four months. they went up 2% just in the last week as we got the lion share of the numbers in the prior week. by the time the dust settles on this thing, we’ll see fourth quarter earnings, upwards of 28% or so above year-ago numbers and that will give us good momentum going into 2004 earnings season.
>> and make the end of next year -- or the end of this year, i should say, the fourth quarter of ‘04 very difficult in terms of comparables, right?
>> absolutely. i think most of us have factored that in. initially we thought maybe the third quarter of 2003 was going to be the peak of the earnings momentum. it looks like it will be in this current quarter in the fourth quarter. they should slow fairly―you know, fairly significantly as we progress through 2004 but that is not necessarily a bad thing. we’ll get solid earnings growth for the whole year. but as the comparisons get harder and harder to pass, we’ll see earnings momentum slow down.
>> you talked about in the beginning of the quarter, in october, the estimates were at 21.7%. by the end of the quarter, by the time we close out this fourth quarter earnings season, it might be up around 26%, 27%, 28% earnings growth. you marinade in that kind of macro earnings analysis. do you recall a quarter where expectations were so off or so under what reality actually was? we have less than a minute, joe.
>> yeah. as a matter of fact, in the beginnings or in the middle of the last bull market, in the late 1990’s, we consistently underestimated earnings and then until the long bear market of the last three year, we consistently overestimated and those estimates were revised down as the quarter progressed. it is much better to have them revised up than revised down.
>> doesn’t that not pose problems for the coming quarter, for the first quarter?
>> no. i think he with see it revised up consistently through the first quarter and by the time we get to april 1, the end of the first quarter, i imagine we’ll bup somewhere around 15%, maybe as high as 17% in our earnings estimates.
>> thank you very much. we have to leave it there. our thanks, of course, to joseph lrero chief economist at stone & mccarthy. still to come t bank of australia getting ready for a decision on interest rates. we’ll head to our tokyo bureau to see what else is happening in asia today. of course, it’s already tomorrow for that part of the world. back in a bit.
