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Weekly Financial Report
With Scott Roulston of Fairport Asset Management
Friday, July 12, 2002
Scott Roulston, CEO of Fairport Asset Management, discusses
the battering of corporate CEO's, the bright outlook for local manufacturing
company Eaton, and the baseball owner's role in the looming strike.
April Baer - The market's movements have lobbed
crazily, including a plunge to the lowest close since last October. But
some late day activity did help things a bit. The NASDAQ closed up by
28 points yesterday. The DOW closed down by a dozen points, ending at
8801. Scott Roulston of Fairport Asset Management checks in every Friday
morning for an analysis of the week's news. Good morning, Scott.
Scott Roulston - Good morning, April.
April Baer - Given all the corporate scandals,
the continued fallout from WorldCom, the announcement of the President's
plan - I guess every CEO in the country is hoping to have his or her title
reclassified this week, eh?
Scott Roulston - (laughter) Something along those
lines - right up there with baseball managers and investment people, I
think you feel like a dart catcher or something like that these days.
April Baer - Hey wait a minute! You're one of them,
aren't you? The CEO of Fairport Asset Management?
Scott Roulston - That's right. I'm thinking about
changing my title somehow. (laughter)
April Baer - I read a commentary this week in the
New York Times suggesting that maybe it's not a few bad apples screwing
things up for perfectly good companies in the U.S., but maybe instead
an unhealthy hunger for short-term profits is feeding corporate scandals.
Do you think there is any truth to that?
Scott Roulston - I think if we look back at the
decade of the 90's, one of the things in hindsight we will see is it was
short-term profits. Yeah, I think absolutely. And it's not just the corporate
CEO's - I think it was the investing public, the media and the analysts.
There still seems to be a lot of focus on short-term profits. Stock options
are one factor. It's kind of too much of a good thing, perhaps. I think
that companies wanted to align shareholders' interests with management,
but we went overboard. And there is now a movement (again) in Congress
to try and expense stock options, which we've talked about before. I think
it would be a good idea to try and temper that short-term focus that you're
talking about.
April Baer - Everybody loves a winner! Speaking
of winners, I wanted to talk for a minute about Eaton - one of the last
standing big manufacturers based in the City of Cleveland. Eaton has a
conference call scheduled Monday to discuss second quarter earnings. I
saw a report in Forbes a couple of weeks ago predicting more good times
ahead for Eaton. What do you think this company has been able to do that
some of the other large manufacturers have not?
Scott Roulston - Well, if we focus on the long-term,
I think Eaton has pretty much stuck to its knitting. You're right, they're
one of a just a handful of manufacturing companies left in this area.
I can think of Parker Hannifin, Lincoln Electric, Nordson, as probably
being the others that are top of mind. What Eaton has done over the last
few years is they have diversified, but stayed pretty much within their
core of industrialized businesses. They're in fluid, power, controls,
automotive and truck. If you had invested in Eaton 10 years ago, you would
have doubled your money. That's not a spectacular record, but it's a decent
record - especially lately. They've been relatively stable and I think
investors (especially in an environment like today) appreciate that kind
of steady growth - not spectacular, but steady.
April Baer - Let's talk a little sports business
- this looming baseball strike. Last time the league had one of these,
the World Series was cancelled. I'm thinking this may be the first time
since then that Cleveland fans really wouldn't care one way or the other
- at least the Indians wouldn't have had much of a shot anyway. Why do
we, as fans, have to endure this?
Scott Roulston - Why do we have to endure it? I
think we're dealing with…this may surprise you, but I come down on the
… a lot of people pick on the players and the unions. I'm going to take
the other position. I think the owners (and in Cleveland we have a decent
person in Mr. Dolan), but that not withstanding, I think the owners are
the gang that couldn't shoot straight. And the ringleader, Bud Seelig
- I mean this All Star tie fiasco this week! You know, the first rule
in business is that you take care of your customer. I can't imagine how
they would let that tie happen this week. But beyond that, I think what
they're trying to do with this strike, to answer your question, is that
they are dealing with probably the most powerful union in the United States
and they have no clue how to handle this union. As a matter of fact, I
think they're trying to bust the union, which is just a dumb idea. So
you have a group of owners who, while they've been guilty of collusion
in the past (they couldn't even do that right), I think they are right
up there with Enron and WorldCom, as far as mis-management and the way
they've botched this whole thing up with their customer base - the fans.
It's unfortunate.
April Baer - Maybe Charlie Manuel was lucky to
get out when he did.
Scott Roulston - Yeah, well, we can't let that
slide.
April Baer - Scott, thanks so much.
Scott Roulston - Have a good weekend!
April Baer - Scott Roulston of Fairport Asset Management
joins us every Friday to talk business.
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