Merrill Lynch -- Lori (slow)
>> welcome back. declines in energy today added to the bullish sentiment for stocks. nymex crude futures fell $2 a barrel on investor speculation there’s less of a threat for supply disruptions in saudi arabia. today’s close, $61 a barrel, more than a 3% drop. natural gas an even bigger decliner, the biggest, in fact, falling more than 4.5% on surging supplies. study―study’s―today’s saudi arabia’s security forces killed five al qaeda militants.
>> we believe that $10 to $15 is priced into crude oil right now. as far as geopolitical considerations, we would probably see oil trading at $50.
>> analysts and traders say lower anxiety is leading to lower prices. testimony in the fraud and conspiracy trial of former enron c.e.o. jeffrey skilling and ex-chairman kenneth lay in houston. the former chief account for enron’s north american unit testified. the company inflated earnings by shifting money from reserve accounts in 2000. the witness told jurors enron changed a reserve earmarked for a tennessee valley authority contract so it could increase earnings from 32 cents to 34 cents a share. that allowed enron to beat the average analyst prediction by two cents a share. bloomberg news learned kohlberg kravis roberts, world’s biggest buyout firm, may increase its stake in general motors’ commercial mortgage unit. people familiar with the talk say the move will come six months after buying 60% of the company. kohlberg kravis, five-mile capital and goldman sachs plan to expand the agreement reached in august. “the detroit news” reports that in march g.m. will temporarily cut sticker prices on vehicles that have been selling slowly. the paper says the company plans a march madness program linked to the ncaa basketball tournament. and merrill lynch is rewarding shareholders by picking up the pace of its share buyback program. the move follows record profits at merrill and the sale of its asset management unit. the stock price surged on the news. merrill is registered to buy back up to $6 billion worth of its own stock, 1/3 more than last year and 8.5% of all of the company’s outstanding shares. buybacks push up a company’s stock price and shares of merrill were up on today’s news. the world’s biggest security’s firm is taking advantage of three straight years of record earnings to return capital to shareholders. sandler o’neill analyst jeff harte says merrill is trying to catch up to its peers.
>> merrill lynch has been more aggressive than most the last 12 months, certainly, and largely that’s because i think they were probably not aggressive enough in the late 1990’s and right after 2000.
>> merrill’s authorized the buyback of $4 billion of shares for each of the last two years. its bought back almost all of those shares.
>> going forward, i think $1 billion a quarter is pretty close to the right number for what i’d like to see from merrill lynch, assuming the business fundamentals continue to go in the right direction. i would actually expect to see it accelerate and maintain at a fairly aggressive pace.
>> merrill c.e.o. stanley o’neill recently told investors that $2 billion of capital from the sale of merrill lynch investment managers would be used for buybacks. merrill lynch is a passive minority investor in bloomberg lp, the parent of bloomberg news. goldman sachs, world’s second biggest securities firm, boosted chief executive officer henry paulson’s total pay by about 28% last year, totalling $38.3 million. his pay last year included a restricted stock award valued at $30.2 million. chief operating officer lloyd blankfein did almost as well as his boss, receiving $38 million last year, up from just under $30 million in 2004. in the drug industry, a major drugmaker expected to make news this week when a trial involving merck’s painkiller drug, vioxx, begins in new jersey. jury selection began today at merck and company. the trial over its vioxx painkiller. patients who claim they took the drug for 18 months claim the painkiller was linked to heart attacks. merck has won two vioxx trials and lost one involving short-term users. it withdrew the drug in 2004 which studies found the drug doubled the risk of heart attacks after 18 months of use. merck has set aside $970 million to defend these vioxx lawsuits. staying with the pharmaceutical theme, pfizer reorganized management roles at its u.s. pharmaceutical division in response to comparatively low sales, according to a report in the “wall street journal.” finance executive peter brandt became executive vice president of the division reporting to president patrick kelly. separately, the journal reported that c.e.o. henry mckinnell earned about $15.9 million last year in pay and is due to receive a pension valued at $83 million in 2008. google holds 50% of the online search engine market but one site’s c.e.o. says that will change. you may have questions about this lofty goal. bloomberg asked ask.com for details. more coming up.
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Listen Market briefing --- Lori (slow)
Lowe --- Brett (slow)
NYSE --- Deb (fast)
Nasdaq --- Bob (fast)
in just about five years today. after companies, including cablevision systems and home improvement retailer lowe’s reported earnings beating estimates. we’ll get you details on both. and sales of new homes falling to the lowest level in a year in january. the 5% drop suggests five years of record growth for housing may be over in 2006. before we go on any further, here’s a look at the closing numbers -- home depot, one of the leaders on the dow today, care of an outlook boost by rival lowe’s. speaking of which, one of the catalysts of today’s rally, shares of lowe’s up 5.75%. the home improvement retailer reported a 37% jump in fourth-quarter profit. brett gehrig has details on lowe’s.
>> lori, this is a big vote of confidence for lowe’s management as investors vote on their growth strategy and that the housing boom may be slowing, but is still strong and the market will stay strong enough to catapult annual profit beyond what analysts are participating. lowe’s forecasts profit will rise from $4.03 to $4.13 a share. the analysts’ estimates for the year was $3.95. the company affirmed its sales forecast of 13% to 14% gain.
>> you’re going to see comp store growth driven by their special order sales, by their increased improvements on pricing and in the margins, they’ll have improvement from their new logistic system and direct sourcing.
>> last quarter, it was homeowners that wanted to remodel kitchens and bathrooms that pushed the bottom line higher. comparable store sales gains as customers bought cabinets and counter tops. gross margins broke through 35% while costs declined. add to that, revenue growth outpacing that of rival home depot, and the bulls were back on board.
>> right now, the market is looking at overall housing and interest rates and thinking that this is going to be the driving factor. the stores themselves, these companies are proving the market wrong and this morning’s numbers from lowe’s certainly show pretty much a blowout quarter.
>> a blowout quarter and a blowout day for the stock. lowe’s shares climbed the most in 2 ½ years today on the company’s results on forecast. lowe’s said revenue will rise as much as 20% this quarter. profit will be in the range of 92 to 94 cents a share, well ahead of the 88 cents estimated by analysts, lori.
>> want to point out we have eric boshard, analyst with f.t.n. midwest research securities, with more on lowe’s. january new home sales unexpectedly fell to their lowest level in a year and the number of homes for sale hit a record.
>> it’s another sign the once-hot housing market is cooling. last month’s drop in sales came in spite of the warmest january on record. new home sales dropped a greater-than-expected 5% to an annual rate of 1.2%. the prior month’s sales were revised higher.
>> we saw today with the new home sales, down 5%, confirming a trend we’ve seen in existing home sales, which is down considerably, across to mortgage applications and so forth. we’re starting to see somewhat of a slowdown.
>> that cooling trend is seen in the number of homes for sale on the market . they rose to $528,000 in january, the most ever. at the current sales pace, there are enough new homes on the market to satisfy demand for more than five months. the median price of a new home rose 7% last month to $238,000. builders, including toll brothers, the largest u.s. builder of luxury homes, says orders are declining. they may offer homes with fewer extras to keep prices down and trim inventories, economists said. economist anthony chan said, though mortgage rates are creeping up, we’re not likely to see a major meltdown in home sales.
>> some of the research i’ve done finds that major meltdowns occur when long-term rates really rise in line with what they’ve done in the past. this time, the rise in long-term rates is there but not as severe because there’s a breakdown in the link between short-term and long-term interest rates.
>> the report may be predicting a slowdown in the u.s. economy. federal reserve officials warned in the minutes of their january 31 meeting that a slowdown in the housing market may weigh on economic growth in the second half of the year. tomorrow, retailers will report on existing home sales for january and economists are predicting those sales held at the lowest level since march of 2004. lori?
>> thank you. the dow off to a good start this week but we did have below-average volume today. for more on what could lie ahead for stocks, deborah kostroun filed this report.
>> the s&p 500 sitting right near its five-year high. we also saw volume below average. but many traders say we’re just getting started this week with a lot of economic reports. so we could see that volume picking up this week and many of those economic reports could show the first-quarter economic growth is picking up a little bit. records in today’s session, you saw the transports coming in at a record. the russell 2000, the small caps, and also many of the financials performing well. even the amex broker/dealer index, at least in today’s session, hitting another record high. retail stocks were the best performers in the s&p 500. really led by lowe’s. lowe’s was third biggest individual gainer in the s&p 500 with a profit gain of 37%, the biggest in three years. americans spending more on remodeling things like kitchens and bathrooms but not helping out the bloomberg home building index because that was one of the worst individual performers today as new home sales fell 5% and that data pushing the gauge of homebuilders down in today’s session. a lot of concern is what we see with higher mortgage rates and higher home prices, which could push down sales and contribute to a slowing of the economy in the second half. something else that economists say could contribute to slowing, crude oil prices. they were down 3% today, easing the possibility that terrorists could be disrupting shipments from saudi arabia, easing just a little bit. a drop in energy prices may also boost earnings, as well. what you did see, natural gas, oil services, many of the integrated oil stocks, all lower today. cablevision had a fourth-quarter profit after adding 130,000 new phone subscribers in the fourth quarter. the stock with its biggest gain in eight months. newmont mining, biggest gain in the s&p 500 on the day, leading the gold stocks lower. newmont saying fourth-quarter profit plunging 67% as declining output and higher production costs eroding the benefit although they saw higher gold prices. i’m deborah kostroun.
>> light volume also a theme at the nasdaq today. but recent trends of gains, though, did continue. here’s bob bowden with more.
>> the nasdaq composite index up .9% and it was on lower volume. in fact, nasdaq volume has exceeded two billion shares only once in the last 10 sessions. for perspective, going back the previous 15 sessions, it was over two billion 12 out of 15 sessions so it was normal in january for two billion to be exceeded but not the case today. sandisk shares upgraded to buy from hold by the analyst at citigroup and up over 8% today. and m-systems flash disk up 6%, also upgraded to buy by analyst from citigroup. autodesk shares up 2.7%. the deutsche bank analyst upgraded autodesk to buy, saying growth drivers can sustain 12% or better than that. revenue growth, long term, for autodesk. i.a.c. interactive up 3% on the day. “barron’s” said shares may rise 30% because of opportunities at ask.com. also that, liberty media may purchase the entire company, all of i.a.c. a number of other dot-com stocks rallied on the day like google and monster.com as well as net ease. one group down is chip equipment, from a downgrade from citigroup analyst tim curry who downgraded applied materials and advanc energy―advanced energy industries and downgraded lam research to a hole. but fuel cell shares rose 4%. they said they’ve been selected by the department of energy as a prime contractor in a new project. i’m bob bowden from the nasdaq marketsite.
>> coming up, we’ll go over the commodity situation, plus testimony from the enron trial. and a buyback from merrill lynch. all of that and more on bloomberg “after the bell.” stay with us.
