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Target prices

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Target prices

After a year when only one was in the black, the stock portfolios picked by our
panel of pros all scored in 2003. Will their aim be true in ‘04?

Frank Jolley is trying to play it cool. He says he doesn’t take Business North Carolina’s annual stock-picking competition seriously. Yet last year’s champ, who’s president of Jolley Asset Management in Rocky Mount, knew before the official numbers were crunched this year that someone else had captured his crown.

He had set up an electronic spreadsheet with all the panelists’ picks and a data feed that continually updated the prices throughout the year. In the contest, each panelist picks three stocks he thinks will produce the biggest average percentage gain, adjusted for splits, over a set 52-week period.

Every three or four weeks, Jolley would check on his picks: Charlotte-based Duke Energy, Charlotte-based Wachovia and Hickory-based cable maker CommScope. Shortly after the contest’s conclusion, he was asking if his reign was over. It’s not that he has a compulsive desire to win, mind you. “I don’t want to go out and embarrass myself. I don’t care if I’m at the top, but I don’t really want to be near the bottom.”

That defensive mindset served him well a year ago, when he was the only panelist to eke out a positive return. And it worked pretty well during the 52-week period that ended Oct. 17 — when all the panelists finished with a positive return. Though Jolley didn’t win, he came close, finishing second behind George Shipp, chief investment officer of Richmond, Va.-based Scott & Stringfellow. Jolley had picked what he thought were depressed stocks with potential and was rewarded by CommScope, which gained 81%, and Wachovia, which increased 31%. He, like another panelist, lost his bet that Duke would pull out of its slump. It fell 2%.

Shipp, who won two years ago, rebounded from a dismal performance last year to take back his title. He did it with cheap, unglamorous stocks that investors learned to love during the 52-week period. High Point-based textile maker Culp nearly doubled in price while Raleigh-based trash hauler Waste Industries USA shot up 49%. His dark horse, Charlotte-based MedCath, took a beating and, despite a late rally, lost 15.8%.

This year, the rules change: The return, and best percentage gain, also will be adjusted for dividends. In 2004, Shipp likes Wilmington-based Cooperative Bankshares and a couple of life-science stocks — Burlington-based Laboratory Corporation of America Holdings and Wilmington-based Pharmaceutical Product Development. LabCorp runs diagnostic tests for hospitals and doctors’ offices. PPD shepherds drug candidates through the regulatory process.

Jolley likes PPD, too, along with Charlotte-based Coca-Cola Bottling Company Consolidated and Charlotte-based aeronautics-parts maker Goodrich. “We’ve had a huge rally off the bottom since March, and the smaller-cap names rallied much more than the larger-cap indexes. I was trying to come up with companies where the fundamentals were improving and that hadn’t participated in the rally. Coke Consolidated fell into that camp, and PPD fell into that camp.”

Goodrich has been caught in an industrywide downturn for much of the past two years. Commercial aviation is still down, Jolley says, but defense spending should cushion it. The stock of aircraft maker Boeing, which buys parts from Goodrich, rose about 50% between March, just before U.S. troops invaded Iraq, and October.

Despite uncertainty about how the United States will fare in Iraq, the general economic outlook is a far cry from a year ago, when fears of terrorist attacks and a looming war, along with investor discontent over a sluggish economy and corporate scandals, kept stock values in the tank and investor confidence in a bunker. “Anybody that uttered an optimistic sound last year was down 5% or 10% in a week,” Shipp says. “There are still plenty of things to worry about, but economically it looks like we’ve turned the corner.”

Frank H. Black

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  • Bobby Edgerton
  • President
  • Capital Investment Counsel Inc.
  • Raleigh

Red Hat Inc.

This cash-rich company sells and services the Linux computer operating system. Red Hat is finally showing profit and carries a market cap north of $1 billion. Sales have increased from $2 million to more than $100 million within eight years.

Duke Energy Corp.

Duke strayed from its utility roots to become a globetrotting, energy-trading disaster. Under former CEO Rick Priory, its debt ballooned to $24 billion. And net debt rates moved from 38% to 67% in 10 years. But someone can turn this debt-ridden company around. Buy on the bad news.

Lance Inc.

If trends continue, Lance will be debt-free in four years. It assumed $71 million in debt in 1999 in its purchase of Cape Cod Potato Chips. Lance’s real estate in Charlotte, its distribution system, its cash flow and its dividends are worth more than $270 million — the company’s market value. In a decent economy, its cash flow is $50 million a year.

Bobby Edgerton

""

  • Frank G. Jolley
  • President
  • Jolley Asset Management LLC
  • Rocky Mount

Pharmaceutical Product Development Inc.

Pharmaceutical Product Development in Wilmington offers a broad range of research and consulting services for drug and life-science companies. PPD stock is down from its historic high of $38.40 in 2001. Earnings in 2004 are projected at $1.90 per share, up from a 2003 estimate of $1.60 per share. Revenue for 2004 is projected at approximately $800 million. The company’s balance sheet is extremely strong, with equity of $491 million versus long-term debt of only $6.5 million. At approximately 14 times next year’s earnings, this has excellent potential.

Coca-Cola Bottling Company Consolidated

Charlotte-based Coca-Cola Bottling Consolidated is the second-largest Coca-Cola bottler in the United States. Earnings for this bottler have suffered in 2003, largely due to poor weather in its operating areas. Its 2004 earnings are estimated to rebound to $2.85 per share, up 18% from the 2003 estimate. It generates significant levels of cash, which is used for its healthy dividend of 2.1% and deleveraging of the balance sheet. The Coca-Cola Co. owns about 37.5% of the company’s shares.

Goodrich Corp.

Goodrich supplies parts and services to the commercial-, regional-, business- and general-aviation markets. Its earnings peaked in 1999 at $3.24 per share. For 2004, earnings are expected at around $1.50. However, the stock should start to reflect a recovery in the aerospace markets over the coming year. In the meantime, the company pays a dividend of just over 3%, so investors get paid while waiting for better times.

Frank G. Jolley

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  • George F. Shipp
  • Chief Investment Officer
  • Scott & Stringfellow Inc.
  • Virginia Beach, Va.

Laboratory Corporation of America Holdings Inc.

Laboratory Corporation is a steady, cash-generating health-care business with a potential long-term upside driven by new genetics research. LabCorp has opportunities to pick up market share from hospital-based labs or via small acquisitions, but the base business can grow sales volumes at mid-single digits. Since LabCorp trades at only 12 times 2004 earnings forecasts, there is valuation upside.

Pharmaceutical Product Development Inc.

Since its January 1996 initial public offering, the stock has delivered 11% compound returns, beating the S&P 500. Earnings in the past five years have grown even faster — more than 30% per year. Don’t expect that to continue now that PPD is a $650 million company, but the need for drug companies to bring new compounds to market has never been greater. PPD’s third quarter showed record new business wins, so expectations of profit gains above 15% in 2004 seem reasonable, as does the 15 price-earnings multiple on those forecasts.

Cooperative Bankshares Inc.

Cooperative Bankshares has 19 branches in an attractive part of the state — from Corolla to Wilmington. That helps fuel healthy earnings growth — 16% in the first half of 2003, following 60% gains in 2002 and 42% in 2001. Profitability ratios are above the state’s community-bank averages. And asset quality, as measured by nonperforming loans, is superior. The dividend is modest, but at only a 10% payout ratio, there’s room for an increase.

Alexander B. Miles

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  • Doug Smith
  • Asst. Vice president-
  • financial consultant
  • First Charter Investment
  • Charlotte

Duke Energy Corp.

Duke’s new management supports the current dividend, which was better than 6% in late 2003. Recent tax changes should attract investors to companies with high dividend yields. Duke’s stock is trading well below its historic high and offers a favorable risk/ reward opportunity. Energy companies continue to suffer from a crisis in confidence, and Duke is no exception. Investors should be patient.

RF Micro Devices Inc.

RF Micro Devices manufactures semiconductor parts used in wireless-communication products such as cell phones and cable-television modems. Technology stocks had a mild recovery in 2003. RF Micro Devices stock was part of it, moving approximately 20%. Analysts expect a more than 20% increase in semiconductor sales in 2004. RF Micro Devices is positioned to capture its share of these increased sales.

Cree Inc.

Cree develops and makes semiconductor materials and devices based on silicon carbide, gallium nitride, silicon and related compounds. Its light-emitting diodes can be found in a variety of products, including automobile dashboards and traffic signals. It was Business North Carolina’s High-Tech Company of the Year in 2003 for “focusing on innovation, execution and the bottom line.” An intrafamily lawsuit was recently thrown out of court. With the legal issues resolved, the stock should trade more in line with its peer group.

Tom Moore

""

  • William W. Sutton II
  • Vice president
  • Deutsche Banc
  • Alex. Brown Inc.
  • Winston-Salem

BB&T Corp.

BB&T is quietly becoming one of the country’s best regional banks. It is the best acquirer in the banking industry. The First Virginia Bank acquisition, its largest yet, took it from fifth to second in that state. It’s now the 11th-largest bank in the country and 10th-largest insurance-agency network. BB&T shares have a dividend yield of 3.45%, and it has increased its dividend at a 16% rate for the last 10 years.

Krispy Kreme Doughnuts Inc.

There is controversy about this stock’s valuation, and the critics might be right — if Krispy Kreme never opened another store. It has 315. In 1992, Starbucks had 300 stores; today it has 7,225. Then, the critics were saying the same things about Starbucks’ valuation as they are saying now about Krispy Kreme’s. Since going public, Krispy Kreme has beaten Wall Street’s earnings estimate every time.

Inspire Pharmaceuticals Inc.

The headlines about North Carolina’s troubled textile, furniture and tobacco industries have obscured the state’s thriving biotechnology industry. Chapel Hill-based Inspire develops drugs to treat respiratory and ophthalmic diseases. The FDA granted priority review to Diquafosol, its treatment for dry-eye disease. It has a number of other initiatives under development, as well.

 

 

Sweetening the deal

“I don’t want to go out and embarrass myself.” I know just how Frank Jolley feels. That was my goal when I became the first Business North Carolina editor to participate in our annual stock-picking competition. Sad to say, I did not meet my goal.

In a year when all of our panelists finished in the black, I landed 3.9% in the red. Two of my picks — Duke Energy and MedCath, both based in Charlotte — lost ground. My only winner: Winston-Salem-based R.J. Reynolds Tobacco Holdings. My only other consolation: This year’s top two panelists, Jolley and George Shipp, also bet wrong on Duke and MedCath, respectively.

Because thinking about my picks didn’t work very well, I’ve cast off the burdens of research and reason and sought refuge in randomness. I cut out our listing of the state’s 75 largest public companies from our August issue, taped it to a cubicle divider and started pitching darts at it. Three hits later — never mind how many throws that took — I had my picks. I’m not normally inclined to think that our little contest would merit divine intervention. But after looking at my three choices and their performances in the previous 52 weeks, it seemed as if an invisible hand guided my darts according to this precept: Buy high, kiss your fortune good-bye.

1st State Bancorp Inc.

At $25.77 on Oct. 17, Burlington-based 1st State was within $2 of its all-time high. It was also within $4 of its 52-week low. Consistency has been the theme here. The company went public in 1999 and hasn’t grown much since its IPO year: Assets are up just 5%, and annual earnings stayed between $3.3 million and $4.0 million in 2000, 2001 and 2002. A ray of hope: Third-quarter earnings per share were up 16% from 2002.

Old Dominion Freight Line Inc.

This is another stock not far from its all-time high, trading at $32.92 on Oct. 17. Old Dominion, a Thomasville-based trucking company, is coming off a year that will be tough to repeat. Net income jumped 55% in 2002, thanks partly to the collapse of a bigger competitor. Analysts were expecting EPS to slip from $2.14 in 2002 to about $1.71 in 2003.

Sonic Automotive Inc.

Charlotte-based Sonic Automotive has been trading well off its all-time high of $39.75, but at $26.55 on Oct. 17 it was just 8% below its 52-week high. Sonic Automotive owns 192 car dealerships and 42 collision-repair centers. EPS grew 29% in 2002 to $2.47. In 2003, analysts were expecting EPS to slip to about $2.21

Stepping out

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Up Front: January 2004

Stepping out

The little man and I had this routine. I’d shake my head, frown and mutter, “Can’t walk, can’t talk, ain’t got no teeth.” He’d wag his noggin, mocking me. It looked so natural: For most Kinney males, wallowing in self-pity is like sinking into a warm bath. But then he’d rare back and cackle or even bellow with glee. The little man is nothing if not a happy soul, a trait he must have inherited from his momma’s people or from my son through his own mother.

I am, people tell me, a good grandpa. I should be, if for no other reason than I’ve got more than enough guilt to invest in it. I can’t tell you exactly when my own children took their first steps, uttered their first words or cut their first teeth, but I know where I was when it happened — at work. At the time, I told myself I was doing it for them, working my ass off to make a better life for my family.

Looking back, though, I realize it was mostly for me, an exercise in ego gratification as I tried to prove something to myself and others. And in doing it, I lost as much as I gained. That frown my son — the publisher — sometimes sees when he leaves at 6 to have dinner with his wife and child has more to do with envy than disapproval.

So I try to make amends by mentoring the little man, teaching him some of the lessons ol’ Pappy learned in the school of hard knocks. For example, while babysitting the other week, I urged him to get off his knees and walk like a man. “You’re nearly 14 months old. I was walking at 10 months.” Squirming in my lap, he didn’t rise to the bait but just reached for the remote, a manly skill that, along with flirting with women, he’s already mastered.

“And remember, it’s a dog-eat-dog world out there, which puts you at a distinct advantage without any teeth.” He looked up and yelped, “Bap!” I don’t know whether he was trying to say “Pappy” or warning me, “Back off,” either of which I could proudly attribute to my tutelage.

Then, on Thanksgiving Day, one of his front teeth poked in. I immediately started worrying about how much braces will cost in 2015. Six days later, when I got home from work, my wife met me at the door, having just hung up the phone. “The Nubster just took his first steps on his own.”

For months now, he’d been pushing toys, high chairs and furniture through the house like a greed-crazed contestant propelling a shopping cart in a supermarket sweepstakes. But cop his prop, he’d plop. His attitude seemed to be, why try to totter like a drunken sailor on two limbs when you can scuttle like a ferret on four? This time, he had been pushing one of those big exercise balls, which rolled away, and without thinking about what he was doing, he started chasing it.

The following Saturday, Jane and I went to Ben and Charlotte’s house to see it with our own eyes. And over the course of four hours, he steadfastly refused to perform. Nothing we could do could coax him to walk. When we arrived back home, there was a message on the machine: No sooner had we left than he decided to stroll from the hamper to the dresser in his bedroom.

He’d walk when he damn well wanted to walk. I don’t know where he got such a mule-headed stubborn streak, but they do call him Pappy’s boy.

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State can’t manufacture the kinds of jobs it loses

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2005 industry report: manufacturing

State can’t manufacture the kinds of jobs it loses

Production lines

TREND: The state is losing manufacturing jobs, many to foreign competition, despite the improving state and national economy.

OUTLOOK: Job losses will continue during 2005 in the largest manufacturing industries — furniture and textiles — but high-tech, drug, automotive and boat manufacturing should expand.

Here’s the good news for the state’s manufacturing sector: During the first nine months of 2004, it lost about 6,800 jobs, according to the U.S. Bureau of Labor Statistics. That’s compared with the 30,000 that disappeared during the same period in 2003.

The bad news: Trade quotas that expired Jan. 1 have opened the door for even more imports from low-wage countries, especially China. That could mean more job losses as domestic producers try to compete. Furniture and textiles likely will take the brunt.

Three once-powerful textile giants are no longer independent companies. Two Greensboro-based textile makers, Cone Mills and Burlington Industries, were bought out of bankruptcy by New York-based WL Ross & Co. and folded into Greensboro-based International Textile Group. In April, GMI Merger, an affiliate of New York-based Cerberus Capital Management, bought Greensboro-based Guilford Mills, which emerged from bankruptcy in 2002, for $107 million.

Not all textile and apparel companies are hurting. Since 2002, Greensboro-based VF has been ditching weak lines, shuttering North Carolina plants, moving manufacturing jobs overseas and buying hot brands such as Nautica Enterprises and Vans. It reported net income of $349 million, up 20%, for the first nine months of 2004.

Despite job losses, furniture makers had a better year than in 2003 because of an improving economy and booming new home sales. Jerry Epperson, furniture analyst with Mann Armistead & Epperson in Richmond, Va., says domestic wood-furniture shipments were up 5% in the first half of 2004, while imports rose 15%. Domestic upholstered-furniture shipments rose 8.4% for the period, and imports were up 19.4%. Manufacturers who control production costs can look forward to a decent 2005, Epperson says, because of continued demand from home buyers as well as the extra cash that homeowners have from mortgage refinancing and rebounding stock markets.

Industries that are less dependent on cheap labor have fared better in North Carolina. “We should see a job gain in nontraditional areas like transportation equipment, technology and pharmaceuticals,” says Michael Walden, an economics professor at N.C. State University.

They’ll be lured here by factors such as wages that are low by domestic standards, a dearth of labor unions and the state’s strong worker-training programs. The state also has stepped up its use of financial incentives. The biggest package so far has gone to Round Rock, Texas-based computer maker Dell. After winning $243 million in state grants and tax credits, it decided in December to build an assembly plant in Winston-Salem that will employ up to 1,500.

Merck & Co. of Whitehouse Station, N.J., will get up to $28 million to build a $300 million vaccine factory in Durham County and create about 200 jobs. Durham-based Cree, which makes light-emitting diodes used in cell phones and other products, got a $5.1 million state grant to help pay for a $300 million expansion and create up to 300 jobs.

China provided an unexpected boost to steel makers in 2004. Charlotte-based Nucor was complaining in 2003 about unfair foreign competition. But in 2004, China began using so much steel that it created a worldwide shortage, pushing up prices and boosting sales of U.S. steel makers. Nucor reported record sales and earnings for the first nine months of 2004. Net earnings hit $780.1 million, compared with $42.2 million in 2003.

Textile executives have pushed the Bush administration for trade sanctions against Chinese manufacturers, who domestic competitors say benefit from Chinese government policies that keep costs artificially low. Walden says efforts to slap tariffs on some Chinese imports won’t change long-term trends. “I think they may win a battle here and there, but they will lose the war. An industry may be able to get relief here and there, but ultimately we will have more open trade.”

Special Section: Golf

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North Carolina’s Best Golf Courses

For the fifth consecutive spring, the North Carolina Golf Panel is proud to partner with Business North Carolina in publishing rankings of the best golf courses in what we believe is the best state for golf. The list of the top 100 courses is determined by a scoring system in which panelists are asked to consider these factors: conditioning, routing, design, strategy, memorability, fairness, variety and aesthetics. Thanks to a voting process that’s now completed and tabulated online, we’re able to provide a greater array of specialty rankings that we hope you will enjoy.

Once again, Pinehurst No. 2, which reopened in March following an extensive restoration by designers Bill Coore and Ben Crenshaw, tops the list — as has been the case since the panel was founded in 1995. There was some shifting among the top 10 as Charlotte Country Club improved one position to sixth and the Elk River Club in Banner Elk two positions to seventh. Greensboro Country Club’s Farm course, previously unranked, received a complete makeover from designer Donald Steel. As a result, it won Best New Course honors and leapt into the top 100 at No. 37. Also making an impressive debut is Carolina Golf Club in Charlotte, a 1929 Donald Ross layout reinvigorated by Kris Spence. It came in at No. 57.

Panelists had fun with a new category this year — our Dream 18, a collection of our favorite holes in the state. If you’re an avid golfer, it will capture your attention — and maybe even lead you to compile a list of your own.

Kevin Brafford is executive director of the North Carolina Golf Panel.

Some small farmers will take their leave

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2005 industry report: agriculture

Some small farmers will take their leave

Farm report

TREND: Farmland continues to vanish in the face of encroaching urbanization.

OUTLOOK: With the tobacco-quota system gone, many small growers will be forced into retirement or growing other crops by large farms that can operate on thinner margins.

If you want to see a small tobacco farm, you’d better take a picture. After what happened in 2004, it might not be long before they exist only in photographs and memories.

The $10.1 billion federal tobacco buyout, passed by Congress in October, will pay about $3.8 billion to quota holders in the Tar Heel State during the next 10 years. It also could shrink the number of tobacco farms. Within the next couple of years, half the 7,850 in the state likely will be gone, says Blake Brown, an economist at N.C. State University.

About 80% of tobacco farmers already grow leaf under contract to cigarette companies. Without the government buying tobacco, nearly all will. It’s easier for companies to contract with a few large growers than with many small ones. Smaller and older quota-holding farmers who have hung on to their fields and tractors awaiting the buyout likely will quit planting tobacco, speeding consolidation.

The buyout ends a program that limited production, propped up prices and made American tobacco uncompetitive with foreign-grown leaf. The amount farmers were allowed to grow has dropped 50% since 1997. Had the quota system remained, farmers probably would have seen a 30% to 35% cut in production limits this year. Without the quota system, tobacco acreage is expected to grow and leaf prices to drop.

Acreage of burley tobacco, typically grown on small farms in the west and Pied-mont, likely will shrink because of pressure from residential and commercial development. Tobacco farming could cease in some western counties, where mountains make large-scale farming impractical.

But the acreage of flue-cured tobacco, which made up more than 97% of the state’s total tobacco receipts in 2003, is likely to increase on the flat land of Eastern North Carolina, where the growing season is longer and mechanization is easier. “You might see 500-acre tobacco fields” instead of the patches that long had enabled small farmers to survive on price-supported tobacco, says Billy Ray Hall, president of the Raleigh-based North Carolina Rural Economic Development Center.

Money from the buyout will help more farmers move to niche crops. Growth continued last year in specialty melons, lettuces, blueberries, strawberries, goat meat, cheeses, fish farming and sweet potatoes. Growers in the state sold $3 million of sprite melons, which weren’t produced here three years earlier. About $27 million went to growers of eastern cantaloupes and $5 million to those who raised red seedless watermelons. The state also should experience a 50% increase in blackberry growers during the next five years.

Good farmland — for growing tobacco or raising niche crops — is getting harder to find. Many cities in the state are growing, and developers are converting farms into neighborhoods. According to the federal agriculture census, 3.9% of the farmland in the state — 366,000 acres — was lost from 1997 to 2002.

Farmland has been converted from forests, making up for some crop-acreage losses. But most of the million acres of forest lost between 1990 and 2002 were to development, according to a 2004 study by the U.S. Department of Agriculture.

Not only is land harder to find, but labor costs could rise for some Tar Heel farmers. The North Carolina Growers Association and the Farm Labor Organizing Committee reached an agreement that allows about 8,500 foreign farm workers in the state to form a union and provides for better pay and benefits such as sick days and bereavement leave. The agreement covers more than 1,000 farms, many of which grow cucumbers for Mt. Olive Pickle Co.

The deal could crack the door for better working conditions and increased pay for the rest of the estimated 43,500 foreign farm workers in the state, supporters say. But by November, fewer than half the potential members had signed union cards and agreed to pay dues.

Producers of the state’s top agricultural commodity faced their own uncertainties. Experiments continued on some Eastern North Carolina hog farms to find an economically and environmentally sustainable way to deal with pollution. A moratorium on new hog farms is in place until an acceptable waste-treatment method can be found.

Signs on the dotted lines

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Capital Goods – May 2011

Signs on the dotted lines
By Scott Mooneyham

To detractors, they are “litter on a stick.” To supporters, they’re effective advertising, a source of jobs and income producers for landowners. Billboards have been the cause of legislative, court and public-relations battles for decades. Another fight, this one prompted by new technology, is under way at the General Assembly. Billboard owners want to be allowed to upgrade their signs to use electronic technology so that advertisements can change every few seconds. The new digital signs, which look something like giant flat-screen TVs, have popped up along roadways in North Carolina and across the country. Nationally, about 2,400 have been erected the last five years, according to the Outdoor Advertising Association of America.

But some cities have ordinances that bar digital billboards because the existing signs were “grandfathered” and, as nonconforming uses, can’t be upgraded. Billboardowners want to change that. Legislation being considered in the state Senate would pre-empt local sign ordinances when they affect billboards built along major highways. The bill would also change the rules on clearing trees along public rights of way, allowing them to be cut 400 feet from signs instead of the current limit of 250 feet.

In Durham, the legislation would gut an existing billboard ban. In Charlotte, a tree ordinance would be undone. The billboard industry has found that it is not only fighting environmental groups — a traditional opponent when it has sought changes — but also local government. Fayetteville Mayor Tony Chavonne is among the critics of the bill. He doesn’t believe that legislators in Raleigh should be dictating to locally elected officials how their communities ought to look. Chavonne seems to have some support among the honorables. As the bill was being considered by a Senate committee, Sen. Richard Stevens, a Wake County Republican and former county manager, remarked that legislators appeared to be engaged in micromanaging local affairs. Critics also question the safety of the new technology, saying it can distract drivers. Digital billboards would be allowed to change every eight seconds, though state law prevents live video and scrolling.

The jury is still out on whether the changing messages distract drivers. A 2007 study by Virginia Tech Transportation Institute financed by the billboard industry says they don’t. A review of several studies by the American Association of State Highway and Transportation Officials counters that they could pull drivers’ eyes away from the road for an unsafe period of time.

Lost in the debate is the economic impact of billboard advertising for select businesses — and how much more effective digital billboards could be, says Tony Adams, lobbyist for the North Carolina Outdoor Advertising Association. That’s a plus not only for billboard owners but also for the tourism industry that particularly depends on that type of advertising, he says. “Advertisers like to be able to change their message quickly. With this, you can advertise specials all the time.” The industry’s arguments lean heavily on its contributions to the economy. It claims a payroll of $16 million in North Carolina and pays out $12 million in lease payments to property owners on whose land billboards stand. The industry knows how to stroke state government. It contributes about $5 million a year to public service announcements, much of it promoting tourism-related state enterprises such as the North Carolina Zoo and state aquariums. The legislation attempts to blunt opposition by raising permit fees for the signs, and some of that money would go to tree planting and highway-beautification projects.

That doesn’t mean the billboard industry will win this fight, even though the proposal has some powerful supporters, including the Senate’s majority leader, Onslow County Republican Harry Brown. The new Republican majority is apt to be more sympathetic to the economic arguments than its Democratic predecessor, but in this case, those arguments run headlong into another aspect of conservative philosophy — the more local the control, the more responsive the government to the governed.

Billboard owners would say that they, too, are part of the governed and that the current restrictions didn’t anticipate a time when someone could tap a few keystrokes on a computer to determine what kind of message would flash from a billboard. They do have one advantage over opponents of the legislation: They could begin an advertising campaign urging North Carolinians to support their cause. Plenty of motorists would see it. Some could even be flashed a different spiel every eight seconds.

Scott Mooneyham is the editor of The Insider, www.ncinsider.com.

She seeks to slice price hospitals pay

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People – January 2005

She seeks to slice price hospitals pay
By Chris Roush

As a student at South Mecklenburg High School in the 1970s, Susan DeVore worked weekends at Mercy Hospital typing its policy-and-procedures manual. It helped her understand how a hospital works, she says. She returned a decade later as its controller and director of finance.

Now, she’s president of Charlotte-based Premier Purchasing Partners LP, which helps more than 1,500 hospitals around the country cut costs by buying supplies in bulk. Her father worked for its predecessor in the 1970s. “I keep going full circle,” DeVore, 45, says.

Premier Purchasing Partners is part of San Diego-based Premier Inc., which is owned by about 200 nonprofit hospitals and health-care systems. DeVore oversees the buying of about $19 billion in medical equipment and other needs from more than 800 suppliers each year.

Because of her clout in the industry and changes she is making in the purchase of medical supplies, she was named by Modern Healthcare magazine as the 67th most-powerful person in health care — ahead of people such as U.S. Surgeon General Richard Carmona. “I think the industry perceives that we’re trying to do something very different.”

She was born in Fairbanks, Alaska, and grew up in Alabama, Pennsylvania and Germany. Her father ran hospitals in the Air Force. When he retired from the military in 1974, the family moved to Charlotte. He went to work for SunHealth Alliance, which merged with two other companies in 1996 to form Premier Inc.

After earning a bachelor’s in business from UNC Charlotte in 1981, she worked as a health-care consultant for accounting firm Ernst & Whinney. She left in 1984 to become controller at Mercy. “I really felt like I needed the credibility of working in an operational role for a significant period of time within a hospital to truly understand it.”

She returned to health-care consulting in 1989 with Ernst & Young, helping hospitals and health-care companies with financial planning, operations and mergers and acquisitions. She left in 2002 to start her own consulting company, but Premier called soon after. Because of her father’s history with SunHealth Alliance, “I felt obligated to at least listen to what it was.” She joined Premier in August 2003.

She has had to evaluate its operating procedures because of criticism that it and other group-purchasing organizations were buying supplies based on fees paid by suppliers instead of price or quality. Some, including a U.S. Senate subcommittee, have accused them of taking kickbacks. But her main task is to cut costs. A new initiative is applying a buying tactic used by retailers. Called a reverse auction, it pits suppliers against each other in bidding for business. Six reverse auctions cut costs 19%. Her goal is to save $68 million by improving operating performance and lowering costs at Premier’s hospitals by 2007.

The challenge, she says, is getting large drug and medical-device companies to cut their prices. She hopes to persuade them by emphasizing the amount that Premier hospitals spend each year and by considering competing products. “We need to create more competitive friction with suppliers to drive prices down.”

Service station

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Service station

As manufacturing continues to wane, the service sector has made a home for itself in the top tier of employers.

By Chris Richter

It might seem a cinch to land a job in North Carolina. The unemployment rate was 4.8% in October, nearly a percentage point below the U.S. average and 1.6 lower than a year earlier. But while the state’s unemployment rolls held 71,500 fewer names, its labor force shrank by 89,000 and 17,500 jobs vanished. “What has happened is there has been a very moderate recovery in the service sector while manufacturing has continued to decline,” says John Kasarda, director of the Kenan Institute of Private Enterprise at UNC Chapel Hill.

The service sector again dominates the top of Business North Carolina’s ranking of for-profit employers. Retail behemoth Wal-Mart has more than 45,000 employees in North Carolina — double its number 10 years ago, when it was third. J.C. Penney, in the top 20 last year, dropped after selling its Eckerd drugstore subsidiary. The two largest energy companies also cut their Tar Heel work forces — Duke by some 1,400 and Progress by about 600.

The manufacturing sector lost 14,400 jobs between October 2003 and 2004, but the rate at which they’re disappearing has dropped — 2.4% last year, compared with 4% the previous year. Together, Burlington Industries and Cone Mills had about 19,390 North Carolina employees in 1994. International Textile Group, formed last year by the merger of the two, reported about a quarter of that in 2004. Furniture Brands International, the only company in this year’s top 10 that gets most of its revenue from textiles or furniture, reported about 1,800 fewer North Carolina employees than in 2003. Once the cornerstones of Tar Heel manufacturing, textiles and furniture have been pummeled by competition from low-wage countries.

Kasarda sees a long-term shift to making complex products such as airplane parts and drugs, which don’t require as many workers. That’s evident in wages. While the state has bled jobs in manufacturing, the sector’s average wage has risen steadily. It was $14.31 an hour in October, up 52 cents from a year earlier, adjusted for inflation, and 82 cents more than in October 2002. “The economy itself is notching up in the quality of manufacturing. But the low-wage, labor-intensive jobs — it will be difficult to keep them given the competitive pressures.”

Expect more of the same this year, he says. Growth will continue in the service sector. Look for increases on both ends of the spectrum — high-paying, white-collar jobs and low-paying retail jobs. The economy is recovering, he says, but this time around has been more painful than when the state emerged from recession in the early ’90s. “It was much faster and stronger. Manufacturing employment recovered. Here, it’s not recovering.”

School rule will make late summer less of a bummer

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2005 industry report: travel & tourism

School rule will make late summer less of a bummer

Tour guide

TREND: More leisure time in mid- to late August for North Carolina’s public-school students.

OUTLOOK: As much as an 8% increase in revenue.

Anybody who says it’s easy to be a kid these days isn’t paying attention. Sure, kids a century ago were more likely to spend summers working on family farms tending crops and animals — often under a blazing sun. But kids in the 21st century have a summertime duty to the economy, too. And the governor and legislature want to make sure school doesn’t prevent them from doing it.

Starting with the 2005-06 school year, North Carolina public schools, other than year-round ones, may start classes no earlier than Aug. 25 and must end by June 10. That will add about two weeks to the summer holiday and perhaps $1 billion a year to a tourism industry that pulled in about $12.6 billion in 2003. If kids uphold their end of the bargain, they’ll spend more time knocking colored golf balls through miniature windmills and streaking down water slides — often under a blazing sun.

While it’s easy to clear kids’ schedules for more travel, it isn’t easy to predict the boost to the tourism industry. East Carolina University hospitality-management professor James Chandler arrived at the $1 billion figure by estimating that 10 more days of summer would boost hotel revenue $300 million, based on summer data from the last five years. That, he says, would mean an additional $700 million in spending on things such as food, souvenirs and attractions.

Critics say the true benefit could be much lower. However, the prospect of extra revenue — even if less than what Chandler forecast — was enough for the General Assembly to pass the bill. Gov. Mike Easley calls it “a win for travel and tourism.”

Tourism officials think so, too. “We are expecting the later school start to have a big impact here,” says Carol Lohr, executive director of the Crystal Coast Tourism Development Authority in Morehead City. Spending there drops 60% when school starts.

Business travel accounts for just 14% of North Carolina’s visitor volume, but the outlook for growth is good. In its 2004 midyear survey, the Alexandria, Va.-based National Business Travel Association reported that more than 60% of corporate travel managers surveyed nationwide said their companies were spending more on travel in 2004 than in 2003. More than 70% expected to book more hotel rooms.

Meanwhile, from mountains to coast, tourism officials reported busy summer seasons in 2004. Ninety percent of tourists come to North Carolina by car, but high gasoline prices had little effect. At the North Carolina Zoo in Asheboro, for example, 100,000 more people visited during the fiscal year that ended June 30 than in the previous year. It was the most since 2000.

The Outer Banks ended summer with business up 4% over 2003, according to Carolyn McCormick, executive director of the Outer Banks Visitors Bureau. In the west, Mitchell County, which includes sections of the Blue Ridge Parkway, was on its way to its best year since 2000 at the end of the summer, says Patti Jensen, director of tourism at the Mitchell County Chamber of Commerce.

But nature ruined the rebound. In September, rain and wind from hurricanes Frances and Ivan downed trees and power lines and washed out parts of the Blue Ridge Parkway. The state Tourism Division estimates losses in the 16-county western region at $87.5 million Sept. 6-24. Though some parts of the Blue Ridge Parkway will remain closed for up to a year, most damaged attractions were repaired quickly. “The main issue has been trying to get people to understand that all that is behind us,” says Marla Tambellini, assistant vice president at the Asheville Convention and Visitors Bureau.

As the western counties dried out, Concord Mills celebrated its fifth anniversary and continued its reign as the state’s top tourist attraction. The 1.4 million-square-foot shopping mall in Cabarrus County surpassed the Blue Ridge Parkway in 2003, with 15.3 million visitors. Annual retail sales in Cabarrus grew 7% to $2.6 billion in the fiscal year that ended in June.

The state tourism industry should get a boost in 2005 from the U.S. Open men’s golf tournament at Pinehurst Resort in June. In 1999, the U.S. Open at Pinehurst produced an economic impact of $170 million.

Scant money and lost jobs do not compute

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2005 Industry Report: Electronics

Scant money and lost jobs do not compute

The buzz

TREND: Contraction. Companies are closing, moving to other states or outsourcing jobs to lower-cost countries. Young companies are having difficulty raising capital.

OUTLOOK: Don’t expect much better in 2005. And don’t even dream of a return to the growth experienced in the ’90s.

Five years ago, North Carolina enjoyed a reputation for creating electronics and information-technology jobs. It had about 166,000 in 2001. But it has lost about 30,000 since. Nearly half the state’s IT companies have closed their doors or moved out of state, according to the North Carolina Electronics and Information Technology Association. Jobs also shifted offshore. Some companies outsourced entire IT departments to countries such as India.

“We had the illusion that the industry was booming in the 1990s, when in fact there was no money behind the boom,” says Mark Vitner, senior economist for Charlotte-based Wachovia. “Levels of employment like that will likely never come back.”

Jobs aren’t the only place the sector is falling short. Nearly as bad is its failure to attract venture capital. The $49 million collected by North Carolina companies during the first quarter of 2004 was the worst quarter since 1997. While the second quarter was better — a total of $82 million — only $9 million went to software and IT companies. Contrast that with 2000, when North Carolina companies secured almost $2 billion.

But while young companies are having problems getting enough money to grow, some of the sector’s old hands are thriving. Cary-based software maker SAS Institute rolled out an update of its SAS 9 Intelligence Platform software in March. It was among factors driving 12% revenue growth for the company through the third quarter.

Data-mining software such as SAS’ and WebSphere by IBM, developed at the company’s Research Triangle Park campus, continues to be in demand. “We’ve had the development of so much communications technology in the last 10 years that I think the growth area will be business intelligence that helps companies manage that information,” says Arvind Malhotra, assistant professor of information technology at UNC Chapel Hill’s Kenan-Flagler Business School. The outlook was more uncertain for IBM’s personal-computer division, based at RTP. The Armonk, N.Y.-based high-tech giant announced in December that it was selling the division to China-based Lenovo Group for $1.25 billion and an 18.9% stake in Lenovo, which will compete with Dell and Hewlett-Packard. Lenovo says it will keep the 1,900 employees who market and design computers in RTP.

Executives at Raleigh-based Red Hat turned red-faced in 2004. In June, the stock hit a four-year high of $29.06. In July, the company restated earnings for the past three years. While the bottom line didn’t change much, the uncertainty, coupled with subsequent earnings reports that were at the low end of analysts’ expectations, drove down the stock price. In mid-December, it was trading about 45% below its high in June.

Cary-based SpectraSite, operator of 7,700 wireless-communications towers, continued its comeback from Chapter 11 bankruptcy. The company reported net income of $40.4 million through the third quarter, compared with a net loss of $6.1 million through the same period of 2003. But a year-end merger announcement by Sprint and Nextel cast a cloud over future earnings. Both companies lease space from SpectraSite, with Nextel being its largest customer. SpectraSite would lose revenue if the surviving company cancels leases for redundant antenna sites.

Durham-based Cree, which makes semiconductors and light-emitting diodes used to illuminate cell phones and other devices, reported net income for the fiscal year that ended in June of nearly $58 million, a 66% increase from the previous year. The company expects the upward sales trend to continue. In August, it announced it would spend at least $300 million to expand its plant near RTP, creating 300 jobs during the next five years.