By: Paul Kangas, Susie Gharib

April 19, 2004, Nightly Business Report

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: The McDonald's Company (MCD) faces a stunning and unexpected challenge, as its chairman and CEO, James Cantalupo, dies suddenly this morning. The fast food giant moves quickly to select its president and COO to replace him. We'll have the story.
 
PAUL KANGAS, NIGHTLY BUSINESS REPORT ANCHOR: Saudi Arabian oil takes center stage on world markets today, as the White House says the kingdom is committed to oil prices in the $22 to $28 a barrel range. That's well below where oil is trading right now. So is that commitment for real?
 
GHARIB: It might be a "close shave" for Coca-Cola (KO). There is speculation on Wall Street tonight the chairman of Gillette (G) might be in line to take the reins of the soda giant. The news sends Coke's stock bubbling higher.
 
KANGAS: Then, going, going, gone, electronically. We'll take you to a growing marketplace where everything old is new again, as long as you can still drive it.
 
GHARIB: I'm Susie Gharib.
 
KANGAS: And I'm Paul Kangas. This is NIGHTLY BUSINESS REPORT for Monday, April 19.
 
Good evening, everyone.
 
McDonald's is mourning the loss of the man behind its corporate turnaround. Chairman and CEO James Cantalupo died this morning of an apparent heart attack at a franchisee meeting in Orlando. The company tapped Charlie Bell, its president and chief operating officer, as Cantalupo's replacement.
 
As Diane Eastabrook reports, it's a huge loss for McDonald's, but industry watchers predict Bell can keep the turnaround on track.
 
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Only a few hours after McDonald's announced former Chairman and CEO James Cantalupo's death, the burger giant named President and COO Charlie Bell to the post of chief executive officer. Experts credit McDonald's for acting so quickly.
 
EDWARD ZAJAC, PROFESSOR, NORTHWESTERN UNIVERSITY: To do it within hours of the sudden death of a CEO is quite significant. I think it highlights that McDonald's is wanting to tell the world that the turnaround that Jim Cantalupo had helped engineer in a very short period of time, that that is going to continue.
 
EASTABROOK: Bell is a 43-year-old Australian, who became McDonald's president and COO January 1 of last year. He has been president of McDonald's Europe and president of the Asia-Pacific, Middle East, and Africa group. Bell began his career with the burger giant at the age of 15 as a crew member in Sydney. Analysts call him Cantalupo's right-hand man and say Bell was being groomed to eventually run McDonald's.
 
CARL SIBILSKI, RESTAURANT ANALYST, MORNINGSTAR: Charlie Bell, I think, brings an interesting flair to the table. He seems to be much more conscious of the restaurant environment and design and the strategy of, you know, making McDonald's appealing to customers now, so it seems like a good decision.
 
EASTABROOK: Despite Bell's credentials, analysts admit he has big shoes to fill. Cantalupo was a 30-year veteran of McDonald's, who was called out of retirement last year to turn the restaurant chain around. His strategy included closing under-performing stores and renovating others. Cantalupo also revamped McDonald's menu, rolling out successful new menu items like gourmet salads and McGriddle breakfast sandwiches. Both consumers and investors approved. Last month McDonald's reported its eleventh consecutive month of positive same-store sales. But industry watchers say the company still faces operational problems at its U.S. stores and needs to improve sluggish sales in Europe. Most believe Bell will continue Cantalupo's legacy, but they aren't sure the transition will be flawless.
 
SIBILSKI: If you look at Jim, he was an extraordinary man. He was at McDonald's for almost 30 years. He learned a lot about the system. He knew a lot about the overall system, the U.S. and the markets abroad, and that's something that I think Charlie Bell is going to -- it's going to take him some time to get to that stage where he can execute the way Cantalupo did.
 
EASTABROOK: Analysts say Charlie Bell has the reputation of being a true visionary, and some think that attribute could keep him at the helm of McDonald's for many years.
 
Diane Eastabrook, NIGHTLY BUSINESS REPORT, Chicago.
 
GHARIB: A surprise announcement from US Airways (UAIR) late today, its president and CEO, David Siegel, has resigned effective immediately. Siegel said he is leaving in the best interest of the company after a difficult two years at the helm. US Airways has been taking heat for Siegel's pay package, $9 million in total compensation last year. And its pilot union has been calling for him to step down saying Siegel's business strategies were failures. The carrier has named Bruce Lakefield to replace Siegel in the CEO's post.
 
Meanwhile, the chief financial officer of Royal Dutch Shell Group (RD) stepped down today. Judith Boynton becomes the latest executive casualty of a controversy over estimates of Shell's oil and gas reserves. Her resignation came as the company issued yet another downgrade of those reserves, this time to a near-final estimate of 4.85 billion barrels. Shell's shrinking resources have caused an investor uproar that led to the resignations of its former chairman and the head of exploration and production.
 
KANGAS: But that isn't the only controversy in the oil industry today. A new book by investigative reporter Bob Woodward outlines a pledge between the Saudi ambassador to Washington and the Bush administration to bring oil prices down to the $22- to $28- a-barrel range, just in time for the November election. The Saudis say they will not interfere with U.S. elections and will remain a reliable oil supplier.
 
Darren Gersh reports.
 
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oil traders in New York were unimpressed with news of the so-called "Saudi pledge," with some traders predicting prices are headed even higher.
 
ERIC BOLLING, TRADER, NEW YORK MERCANTILE EXCHANGE: Unless the other members of OPEC up and said, we'd be willing to do the same thing, which means produce quite a bit more oil, I'd be surprised to see prices stay in this area, given the very, very strong demand for some of the products of oil.
 
GERSH: In his new book, "Plan of Attack," "Washington Post" editor Bob Woodward reports Saudi Prince Bandar told the White House before the Iraq war that his country would drive down oil prices in time for the November election. White House spokesman Scott McClellan confirmed that in recent talks with the administration, Prince Bandar: "committed to making sure prices remained in a range of $22- to $28-a-barrel, and that they don't want to do anything that would harm our consumers or harm our economy."
 
But oil analysts consider that less a promise than a restatement of OPEC's longstanding position.
 
JAMAL QURESHI, OIL ANALYST, PFC ENERGY: This does not sound like a pledge so much as the Saudis stating their belief that prices were going to be coming down as a result of oversupply of oil in the market and as a result of the loss of a risk premium after the end of the war in Iraq.
 
GERSH: Pledge or not, the news had an immediate political impact.
 
SEN. JOHN KERRY (D-MA), PRESIDENTIAL CANDIDATE: Now if, as Bob Woodward reports, it is true that gas supplies and prices in America are tied to the American election, then tied to a secret White House deal, that is outrageous and unacceptable for the American people.
 
GERSH: But analyst Roger Gale says for weeks now Democrats have attacked the president for doing nothing to halt rising gas prices. Now the president can fight back.
 
ROGER GALE, CEO, GF ENERGY: The president is now able to say, don't listen to that guy, I've had this under control all along. I've got my deals with the Saudis, I'm working at those levels, I can cut the deals that make the American consumer better off.
 
GERSH: If the Saudis did promise to fine-tune oil prices, that pledge will be increasingly difficult to keep. Markets are putting in a new risk premium, taking into account the escalating conflict between Israelis and Palestinians and the increasing violence and unrest in Iraq.
 
Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.
 
KANGAS: The blue chips headed lower this morning on concerns about higher oil prices and higher interest rates. Solid earnings from 3M (MMM), Eli Lilly (LLY) and Fannie Mae (FNM) cushioned the sell-off a bit, as did a 0.3 percent rise in the March leading economic indicators. Solid telecom and biotech stocks helped the NASDAQ market move higher. At midday, the Dow was down 40 points; but the NASDAQ was up a dozen points. And that mixture continued right on to the closing bell. The Dow Industrial Average ended down 14 2/3 points at 10,437.85. The NASDAQ Composite was up nearly 24 3/4 points at 2020.43. The Standard & Poor's 500 Index gained 1 1/4 to 1135.82. In the bond market, the 10-year note fell 11/32 to 96 30/32, lifting the yield to 4.39 percent.
 
GHARIB: This is the peak week for quarterly earnings announcements, more than a third of the Standard & Poor's 500 will be reporting. But as Erika Miller reports, strong quarterly numbers might not be enough to lift the market out of its funk.
 
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street is in the throes of another gangbuster quarter for earnings. When all the reports are in, analysts predict profits at Standard & Poor's 500 firms will be up almost 20 percent for the first quarter. But that does not necessarily mean the stock market will rally in coming weeks.
 
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: I think in the near term, the market is likely to remain volatile, because even though we have good earnings reports that are coming out now and investors are expecting strong results in the first quarter, that probably has already been factored into share prices.
 
MILLER: Another factor holding stocks back is concern about higher interest rates. The fear is rising rates will slow economic growth and make stocks less attractive relative to bonds. Adding to investor anxiety: escalating terrorism in the Middle East and Europe, as well as higher oil prices. Taken together, some investment strategists predict it will be several months before stocks can mount a sustainable rally.
 
STOVALL: I think the market is probably going to go through a consolidation phase, that we're probably going to see continued worries about the Fed and possibly bottom out sometime in the summertime months.
 
MILLER: Stovall and others are predicting the old Wall Street adage "sell in May and walk away" will hold true this year. Studies show that since 1945, the S&P 500 has gained an average of 7.2 percent in the six months from November through the end of April. It has gained an average of 1.5 percent in the May through October period. That said, almost no one on Wall Street is recommending investors try to time the market by selling their stock holdings now. Instead, experts recommend that long-term investors ride out market volatility, predicting 2004 will still be a solid year for stock returns.
 
DOUGLAS ALTABEF, PORTFOLIO MGR., MATRIX ASSET ADVISORS: The economy is improving, even with a couple of interest rate increases. Inflation does not appear to be a major factor, and typically the market does fairly well in an election year.
 
MILLER: Many market strategists are still predicting that stocks will end the year with high single-digit gains, at least. That's welcome news to many investors, who have watched the Dow and the NASDAQ lose ground in the first three months.
 
Erika Miller, NIGHTLY BUSINESS REPORT, New York.
 
GHARIB: Microsoft (MSFT) and the state of Minnesota have settled a class- action, antitrust lawsuit. Terms of the deal weren't disclosed, but lawyers were seeking more than $400 million on behalf of Minnesota consumers who claim they were overcharged for the software giant's products. This case would have been the first class-action suit of its kind to go trial. But instead, it's the latest in a series of settlements aimed at ending Microsoft's legal problems. Microsoft already settled similar charges with nine other states and the District of Columbia, Paul. And, as you know, it resolved an antitrust lawsuit just this month with Sun Microsystems (SUNW).
 
KANGAS: Well, the news didn't impact Microsoft's much stock today, Susie. And we'll see it in just a moment as we take a look at our "Stocks in the News" tonight.
 
Bib board volume leader on 26.4 million shares, Lucent Technologies (LU) moving up $0.12.
 
Followed by Nokia (NOK) with a $0.69-gain, coming back from $1 1/2-loss Friday when the company said its second-quarter earnings would be lower than the Street is expecting. And today, incidentally, Prudential did downgrade it from overweight to underweight..
 
NorTel Networks (NT) up $0.23.
 
General Electric (GE), a $0.13-loss.
 
Pfizer (PFE) was down $0.04, fifth in big board volume.
 
Motorola (MOT) moved up $0.11.
 
And there you see McDonald's (MCD), down $0.71. It traded as low as $26.50 on the tragic death of its chairman and CEO as you heard about.
 
Texas Instruments (TXN), a $0.74-gain.
 
Time Warner (TWX), a $0.19-rise.
 
And Citigroup (C) down $0.12, tenth in big board volume.
 
Coca-Cola (KO) gained a $1.07. The company will soon introduce its new low- carb cola, to be called C2. There is also a rumor making the rounds the company may try to hire James Kilts away from Gillette (G) where he's the chairman and chief executive officer. Gillette stock fell $1.57 to close at $38 1/4 today.
 
3M Company (MMM) managed to get into the plus column with a $0.03 after trading as low as $82.76. First-quarter earnings nicely higher, $0.90 versus $0.63 a year ago, and that was $0.03 above the Street estimate. The company boosted full-year guidance from around $3.57 to as much as $3.70 a share.
 
Eli Lilly (LLY) moved up $0.95. The company's first-quarter earnings, including charges, $0.37 versus $0.38 a year ago, but excluding those charges, the earnings were up to $0.70 versus $0.61, and that was $0.04 above the Wall Street estimate.
 
Fannie Mae (FNM) down $0.38 despite first-quarter earnings, $2.03 versus $1.84 last year, $0.12 above the Wall Street estimate.
 
And then Kennametal (KMT) rose $2.75. The company increased its third- quarter earnings estimates from around $0.55 to $0.65 a share. And for the full year it sees maybe $2.15, not $2, as it said earlier.
 
Cole National (CNJ) up $3.45. The make of eyeglass frames got a $25 a share unsolicited cash takeover bid from Moulin International Holdings.
 
Amcol International (ACO), which is in the minerals business, up $2.18. First-quarter earnings nicely higher, $0.16 versus $0.10 a year ago. And sales jumped 28 percent.
 
Hasbro (HAS) down $0.87. First-quarter earnings tripled, $0.03 versus a penny last year, but that was just in-line. And the company is not very upbeat about the outlook for its new retail orders.
 
NASDAQ's most active, TASER International (TASR), up $4.60. The company will hold a conference tomorrow morning to discuss first-quarter results.
 
Intel (INTC) a $0.23-gain.
 
Cisco (CSCO) a $0.38-rise.
 
And there you see Microsoft (MSFT) with $0.37-gain.
 
ImClone Systems (IMCL), big day, up $7.03. Banc of America issued a positive report, featuring the potential for the company's Erbitux colorectal cancer treatment. Banc of America has a $91 a share target price for ImClone stock.
 
Yahoo! (YHOO) was up $1.55.
 
A $0.37-rise in Applied Materials (AMAT).
 
Research In Motion (RIMM) gained almost $4.
 
Apple Computer (AAPL) dropping $0.83.
 
And eBay (EBAY), tenth in NASDAQ dollar volume, was up $1.14.
 
Monolithic System Technology (MOSY) plunging $4 1/2 a share on news that Synopsys (SNPS) has terminated its plan to merge with the company.
 
And then StockerYale (STKR), look at that percentage move, up $2.70. The company makes light lasers and LEDs, things like that, but it received a good-sized order from BAE Systems for lasers which will be used in defense missiles.
 
And then over on the American Stock Exchange, Badger Meter (BMI) registered a $5 1/2 a share gain. First-quarter earnings soared to $0.73 versus only $0.21 last year. Sales were up 25 percent and the Baird brokerage upgraded it from neutral to outperform.
 
And those are the "Stocks in the News" tonight, Susie?
 
GHARIB: Paul, Japan's automakers are expanding their reach into the U.S., now holding almost one-third of the American market. But the Japanese are now finding an even more lucrative automotive investment area: selling used cars. From Nagoya, Japan, Lucy Craft looks at one of that country's least- known exports.
 
LUCY CRAFT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Introducing one of the hottest new businesses in Japan right now, used car auctions. It may not be as glamorous as robots or IT, but hyper-efficient auctions such as this one, run by industry leader USS, draw buyers by the thousands. It's an auction without human auctioneers, hammers or gestures. Bidding is performed in silence by the click of a button, an endless parade of sedans, compacts and SUVs are displayed on the screen for a matter of moments before an accelerated flurry of button jabbing decides the new owner. In an average of 20 seconds, it's going, going, gone.
 
FUTOSHI HATTORI, PRES., USS CO. LTD. (THROUGH TRANSLATOR): Under the old- fashioned system of human auctioneers and bidding by hand signals, we sold a maximum of 350 cars a day. But with this point-of-sale system and by using video displays of the cars, our biggest auction site can move 11,000 cars a day.
 
CRAFT: Japan's once seamy use car industry has exploded in recent years as dealers discover the fat margins to be reaped, dispatch used cars abroad, mostly to the developing world. A Japanese sedan with 60,000 miles on it can be had for just $2000 here. Older models with more mileage are practically given away. In 2003, Japan used vehicle exports rose to an estimated record one million units.
 
Finicky Japanese consumers don't care for used cars, so unlike in the U.S., there is virtually no demand here for secondhand vehicles. A surfeit of used Japanese cars is flowing to emerging markets from Kenya to Sri Lanka and even to Iraq. Increasingly whenever and wherever citizens can't afford to buy new cars, they're buying old Japanese ones.
 
Tokyo representatives for GM (GM), Ford (F) and DaimlerChrysler (DCX) declined comment. Detroit has good reason to be nervous about the tide of used Toyotas (TM) and Hondas (HMC) washing into developing countries. The onslaught of exports could end up creating brand loyalty to Japanese cars in the handful of emerging markets left in the world.
 
MIKE MCCARTHY, PRES., PROFICIENT EXPORT SERVICES: There are lots of cars leaving Japan now to all of -- every right-hand drive country in the world is taking these cars now.
 
CRAFT: By moving into even older and cheaper models, USS says it's on target to reach sales of two million cars a year by 2006.
 
HATTORI (THROUGH TRANSLATOR): The world is a big place and Japanese cars are so reliable, they can keep going for 200,000 miles. Even when they don't run anymore they can be broken down for parts.
 
CRAFT: As long as there are new cars and last year new car sales here topped 4 million, used car brokers say the secondhand business will thrive.
 
Lucy Craft, NIGHTLY BUSINESS REPORT, Nagoya, Japan.
 
KANGAS: Tomorrow, everyday Americans and the war in Iraq: how the first are helping the second.
 
GHARIB: Computer Associates (CA) fired nine employees today as a federal probe of its accounting practices heats up. The company would not name names, but said they came from its finance and legal departments. Two weeks ago, former Chief Financial Officer Ira Zar pleaded guilty to securities fraud for backdating contracts to manipulate Computer Associate's quarterly revenues. The company's board is expected to meet soon regarding the future of embattled CEO Sanjay Kumar.
 
KANGAS: Some employees of the Walt Disney Company (DIS) don't have a lot of confidence in their boss. New figures show more than 70 percent of the company's 401(k) shares were cast against Michael Eisner's reelection to the board at the annual meeting this year. But Disney says only about 20 percent of current employees are in that plan, and only about a quarter of them voted.
 
GHARIB: Here's a look now at what's happening tomorrow. Federal Reserve Chairman Alan Greenspan testifies before the Senate Banking Committee. Also tomorrow, weekly retail sales come out, and earnings from Dow components, Altria (MO), General Motors and Pfizer (PFE), as well as technology giants Lucent Technologies (LU) and Motorola (MOT).
 
Some thoughts on putting your tax dollars to work are on the mind of tonight's commentator. Here's Glenn Hubbard, professor of economics at Columbia University, and former chairman of the White House Council of Economic Advisers under President George W. Bush.
 
GLENN HUBBARD, FMR. CHMN., COUNCIL OF ECONOMIC ADVISERS: With the April 15 tax rush now gone, I fell asleep the other night and dreamt I owed twice as much tax as I thought. The Congressional Budget Office suggests this may be more than a bad dream.
 
Fueled by exploding growth in Social Security and Medicare outlays, federal spending as a share of GDP is projected to more than double over the next 40 years. And the 2004 Social Security and Medicare trustees report says the same thing. The unfunded liabilities, the excess of promised benefits under current law, less revenues from the payroll tax, totals a whopping $70 trillion.
 
Now, putting aside the campaign rhetoric, tax cuts aren't the problem here. Economists have estimated that forward-looking fiscal imbalances for the rest of the budget, outside Social Security and Medicare, are very small. And this calculation assumes that the current tax cuts are made permanent, so the long-term fiscal conversation must be about Social Security and Medicare.
 
Now these programs are important beyond their budgeting cost. We can improve their effectiveness by reducing costs and giving individuals better ways to prepare for retirement and old age health care spending.
 
Personal accounts for Social Security and health savings accounts for Medicare offer a way. With these empowering tools, younger people can adjust to a slower growth in Social Security and Medicare spending or have that "double my tax burden" dream.
 
Many happy returns. I'm Glenn Hubbard.
 
KANGAS: Recapping today's market action, tech shares bounce back from four days of losses. The Dow Industrial Average falls 14 points, but the NASDAQ Composite gains 24 points. And please be sure to join us at our World Wide Web site, NBR.com.
 
GHARIB: And that's NIGHTLY BUSINESS REPORT for Monday, April 19. I'm Susie Gharib. Good night, everyone.
 
And good night to you, Paul.
 
KANGAS: Good night, Susie.
 
I'm Paul Kangas, wishing all of you the best of good buys.