Transcripts: Thursday, February 27, 2014

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you in part by —

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Record close. Fed Chair Janet Yellen puts investors in a buying mood, pushing the S&P to new highs at the close. Should her comments be interpreted as a green light for stock investors?

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Return to profit. A surprisingly strong quarter for electronics retailer Best Buy (NYSE:BBY).
But is it proof that the company`s turnaround is on solid footing?

GHARIB: And what did General Motors (NYSE:GM) know and when did they know it? Regulators are asking whether the automaker reacted fast enough in its recall of more than 1 million cars and the issue could prove costly.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for this Thursday, February 27th.

Good evening, everyone. I`m Susie Gharib.

GRIFFETH: And I`m Bill Griffeth. Tyler Mathisen is on assignment.
We will be hearing from him later in the program. I look forward to that interview very much.

Meantime, those soothing words today from Janet Yellen, of course, the new chair of the Federal Reserve, who testified today before the Senate Banking Committee about the strength of the U.S. economy right now. And that helped investors sent the S&P 500 index to a new record closing high today. Ms. Yellen told lawmakers and Wall Street that she is staying the course right now. She will continue to taper back on the central bank`s asset buying stimulus program and keep record low interest rates right where they are.

But she`s also keeping an eye on whether the winter unrelenting snow and bitterly cold temperatures have been responsible for the slowdown in job growth and consumer spending that we`ve seen, or if they`re indicative of a larger long-term problem in the economy.

And the new Fed chair is cautious in her long-term forecast for the economy.

Steve Liesman has more on Ms. Yellen`s appearance on Capitol Hill today, what she said that Wall Street liked and where she sees the economy heading next.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The new Fed chair in testimony before the Senate today gave her long-run outlook for the U.S. economy, and it wasn`t a pretty one. Asked how long it would take for the economy to normalize, Janet Yellen ventured a disheartening “several years, I think”. She reiterated the bleak outlook for Americans who are looking for fulltime jobs.

JANET YELLEN, FEDERAL RESERVE BANK CHAIR: The fact that we`ve seen very slow growth in wages, for example, I take as one of many pieces of information suggesting that the labor market is not returned to normal and has quite a ways to go. And it`s something that`s appropriate for to us look at as we consider appropriate monetary policy.

LIESMAN: On the immediate economic news, Yellen suggested a lot of recent weakness in the data is like lit result of weather. But the Fed hasn`t figured out yet how much.

YELLEN: In the weeks and months ahead, my colleagues and I will be attentive to signals that indicate whether the recovery is progressing in line with our earlier expectations.

LIESMAN: Yellen is sticking to the general policy of her predecessor, Ben Bernanke, because the economy has improved somewhat the Fed is reducing its bond purchases meant to drive down interest rates and is on track to wind them down by the end of the year unless there is in Yellen`s words a, quote, “significant change in the outlook.”

But because the economy is still operating below normal, the Fed plans to keep interest rates very low for a long time.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GHARIB: On Wall Street today, investors apparently liked what they heard from Yellen, sending stocks higher and pushing the S&P 500 to a new record high. The markets also got a boost from a batch of retail stocks after some better than expected earnings and outlook.

Investors and traders shrugged off some disappointing economic reports, a spike in first-time jobless claims last week and a 1 percent dip in orders for big ticket durable goods ordered last month, both as a result of bad winter weather. The Dow rose 74 points, the NASDAQ added 26, touching a fresh 14-year high, and there`s the S&P up 9 points, closing at a new record of 1,854.29.

GRIFFETH: Joining us now with his perspective on the markets, our friend Hugh Johnson, chairman and chief investment officer at Hugh Johnson Advisors.

Hugh, always good to see you.

HUGH JOHNSON, HUGH JOHNSON ADVISORS CHAIRMAN & CHIEF INVESTMENT
OFFICER: My pleasure, Bill.

GRIFFETH: So, the S&P sits at an all-time high tonight. Should it be?

JOHNSON: Well, yes, you can`t argue with it. I think one of the reasons it should be is that when you take a look at just the experience of the last year plus, the returns that you`ve had from the stock market are so phenomenal, are so positive, and the returns from other asset classes such as the bond market haven`t been very good.

So, as a result of that, that`s obviously attracting a lot of invests to the equity markets. I think that`s one of the reasons. There`s just simply better returns.

The other reason is when I take a look at, I crunch the numbers and I do the valuation metrics, Bill, I`ll be honest with you, I think the market`s fairly valued. And I don`t think there`s any good reason to believe that there`s some reason that the current bull market economic cycle is going to end in 2014 and `15. So, I think things look very positive.

So I don`t think there`s any reason it shouldn`t be here, and no reason it shouldn`t go higher, significantly higher perhaps.

GHARIB: Bill, let me toss out the question about the Ukraine. It seems like investors don`t have to worry about the Federal Reserve too much. Fed Chair Yellen says she`s going to stay the course.

But what about all these headlines that investors are seeing about the Ukraine? How should they factor that in? Should they be worried about that?

JOHNSON: Yes, you always, Susie, always have to worry about something and you certainly have to worry about that. And you have to worry about some of the things that Janet Yellen mentioned, which, of course, is what is the extent of the slowdown in the economy do just due to the weather or is there something more fundamental? And she`s going to be working on trying to answer that question. So, that`s one worry.

But the geopolitical situation should be — should clearly be worried about it. Obviously, if it deteriorates, if what happens in the Ukraine deteriorates and it end up in a confrontation between Russia and the Western world, including the United States, that`s not good news, particularly when you think of Russia is responsible for about 12.5 percent of total global production of oil.

So, there has significant economic implications. So you watch that very carefully, cross your fingers, hope that it doesn`t deteriorate further.

GRIFFETH: You`re not alone in believing that the stock market has much more to go. A lot of analysts on Wall Street now are thinking the S&P could hit 2,000 by the end of this year.

But do you worry about some of these high flyers that we see these days? The Teslas, the Facebooks, the Netflix (NASDAQ:NFLX), Twitter and that huge gain that it had after its IPO last year. Does that remind you of another time, maybe the 1990s? Are we getting frothy in the sector right now, do you think?

JOHNSON: Yes, I think, Bill, that`s a great observation. And I think, you know, Janet Yellen was asked the question, are we seeing speculation in the different asset classes, particularly in equities? And I think she`s pretty much said or implied that no, broadly speaking, we`re not seeing a level of speculation or euphoria in the markets themselves.

But there`s clearly pockets of the market, you mention them, Tesla, for example, where you have extreme problems — I have extreme problems with high valuations. And it does remind me of the late 1990s when we ran into problems.

It`s not in my view widespread enough yet to be overly concerned about it. But Fed`s going to watch it. I`m going to watch it. And every investor should watch it, because if it starts to broaden out and we get significant overvaluation, significant optimism in the markets, that`s usually going to be a signal that it`s time to, you know, reduce your exposure to equities. But we`re not there yet.

GRIFFETH: Very good.

Hugh Johnson, chairman and chief investment officer at Hugh Johnson Advisors — always good to see you. Thanks.

JOHNSON: My pleasure.

GRIFFETH: Best Buy (NYSE:BBY) reported earnings that came in better than expected. But investors weren`t buying into the strong results. The nation`s biggest electronics chain unexpectedly turned a profit last quarter, cutting costs to offset declining sales. But the stock fell nearly 1 percent today and is down 35 percent so far this year.

Courtney Reagan has more now on Best Buy`s turnaround and what`s next for the retailer.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The holiday quarter wasn`t all bad for Best Buy (NYSE:BBY) after all. In January, the consumer electronics retailer reported disappointing holiday sales and warned of compressed profit margins which sent shares tumbling 28 percent.
But today`s full quarterly results are changing some investors` mind about Best Buy (NYSE:BBY) and the progress of its turnaround.

Despite weaker than expected sales, Best Buy`s earnings beat the street by a wide margin, thanks to a stronger than anticipated level of cost cutting. Plus, profit margins weren`t as bad as feared, even after the retailer warned it had to cut prices to remain competitive during the holiday season.

Best Buy (NYSE:BBY) CEO Hubert Joly has also made e-commerce and faster more efficient product delivery a priority, and it`s working.

ANTHONY CHUKUMBA, BB&T (NASDAQ:MSDXP) (NYSE:BBT) RETAIL ANALYST:
We`ve made a lot of progress online. The online sales are up 26 percent in the fourth quarter, becoming much more competitive with Amazon (NASDAQ:AMZN). But at the end of the day, turnarounds are not — you know, they`re bumpy. That`s what we`re seeing here.

They made a lot of progress in 2013. I think they`ll continue to make progress, maybe not at the pace that we originally thought.

REAGAN: I spoke to Joly on the phone and asked him where the surge in online sales is coming from. Is it Best Buy (NYSE:BBY) in-store shoppers now buying online, or is it new Best Buy (NYSE:BBY) shoppers that have been shopping with competitors?

Joly says, quote, “The good news is it is both. But we are getting a fair share of growth online from new customers. We`re making a push to grab millennials. And we have great market share with boomers.”

(on camera): Joly didn`t dwell much on the external economic pressures touted by many other retailers this earning season, though he did acknowledge there`s a level of economic uncertainty, adding a rising tide may not lift us. We have to walk to the top ourselves.

(voice-over): For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GRIFFETH: And shares of another beaten down retailer — get this — had their best day in more than four decades today. JCPenney shares soared by 25 percent after the struggling department store said that it lost a lot less money than forecast last quarter, as sales edged higher and Penney is predicting a further rise in sales and gross margins for the year ahead as well.

GHARIB: But shares of General Motors (NYSE:GM) ended a bit lower.
Investors are concerned about federal investors looking into whether the automaker was slow in announcing a recall after receiving complaints about faulty ignition switches in more than 1 million of its cars. Now, those defaults eventually led to 31 accidents and 13 deaths.

Phil LeBeau joins us now from Chicago with more on the investigation and what G.M. executives knew and when they knew it.

So, Phil, fill us in a little bit. I mean, how serious is this investigation? And how worried do you think G.M. execs are feeling about all this?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it`s certainly a concern. They`ve come out twice and apologized. You`ll hear one of their apologies in just a little bit.

The problem here is the timeline, Susie. Whenever there is a recall in the auto industry, the automaker submits a timeline to the National Highway Traffic Safety Administration explaining exactly when they started realizing there might be a particular problem with a particular vehicle.
The timeline in this case goes all the way back to 2004. And along the way, there are many people saying, boy, there was more than enough indication that perhaps General Motors (NYSE:GM) should have initiated a recall far sooner than at the beginning of 2014.

Now, today, General Motors (NYSE:GM) put out a second statement regarding the recall of these ignition keys and problems that have resulted here, essentially saying we are deeply regretful of the events that led to the recall and this investigation as our detailed chronology indicates, we intend to fully cooperate with NHTSA, that`s the National Highway Traffic Safety Administration, and welcome the opportunity to help the agency have a full understanding of the facts.

There is no doubt that for General Motors (NYSE:GM), Susie, this is just beginning.

GRIFFETH: You know, there`s a long list of vehicles involved in this recall, too many to really kind of go over. What do people that own those vehicles do right now?

LEBEAU: Well, it`s about 1.37 million. And we`re talking about some models between 2003 and 2007 model years. You see a couple of Chevys on there, a couple of Pontiacs and a couple of Saturns.

For now, if you have these vehicles, we`re talking about the key that goes into the ignition, General Motors (NYSE:GM) and the National Highway Traffic Safety Administration are telling the owners use that key by itself. Do not have it on a key ring. Do not have other things on the key ring. The belief is that perhaps these could jar the ignition key which then causes the problem with the air bags. That`s what they`re saying right now.

And then by April, General Motors (NYSE:GM) believes it will start to be able to send a fixed warranty notice to all the people about how they can get this fixed.

GHARIB: We`re getting into the buying season now. To what extent is this investigation a black mark against G.M.? Do you think it will impact sales and consumer buying habits?

LEBEAU: I don`t think so. Generally speaking, you have to have something far more dramatic, far more serious to really keep people out of the show rooms, Susie.

GRIFFETH: Phil LeBeau, thank you for that tonight.

And still ahead, why choosing healthier foods at the grocery store may be soon a little easier for you but costlier for the food industry. That story, next.

(MUSIC)

GHARIB: An update for you on the latest crisis in the Ukraine. Armed militia seized the parliament building in Ukraine`s Crimea region today, raising a Russian flag in defiance of Kiev`s interim leaders.

Meanwhile, Ukraine`s currency fell again. Its value has plunged 20 percent so far this year.

Now, after appeals from Kiev for financial help, an International Monetary Fund fact-finding team is preparing to go to Ukraine in the coming days. And just tonight, according to Dow Jones, the economic minister says there`s no risk of imminent economic collapse.

GRIFFETH: Heavy discounting during the holiday shopping season paid off for the Gap (NYSE:GPS). That`s where we begin tonight`s “Market Focus”. The clothing giant which operates Gap (NYSE:GPS), Old Navy and Banana Republic reported better than expected earnings after the closing bell, but revenues were a tad light. And the retailer`s full year outlook was weaker than forecast. And that sent the stock lower initially. Shares closed the regular session at $43.68.

Also reporting earnings after the bell tonight, Decker, the maker of Uggs boots, posted better than expected earnings and revenue for the fourth quarter but it said the current quarter would not meet current Wall Street projections. And that sent shares lower initially after the closing bell.
Decker`s finished the regular session at $84.67.

Sears (NASDAQ:SHLD) beat Wall Street estimates and narrowed its loss while overall sales fell during the last quarter. The company did say that this month, it is seeing rare sales growth. CEO Edward Lampert is trying to engineer a turn around at the retailer and is investing heavily in a customer loyalty program. Shares shot up by more than 6 percent today during the session, closing at $43.01.

And Wendy`s fourth quarter earnings rose, but sales came in under pressure and revenue fell short. The company reaffirmed its outlook for the year and said it plans to continue with its strategy of offering both premium priced and low-cost menu items. Shares of Wendy`s down 2 percent to $9.94.

GHARIB: It was a strong quarter for Mylan (NASDAQ:MYL), the drugmaker, topped earnings expectations, thanks to growth in its specialty segment and in its global generics business.

Now, earlier this month, Mylan (NASDAQ:MYL) completed its acquisition of a vaccine-maker. And today, the CEO said the strong results have put the company in a position to make another substantial acquisition this year.

(BEGIN VIDEO CLIP)

HEATHER BRESCH, MYLAN CEO: The scale, the globalization of the industry as a whole from customers to consumers, you know, I just think that being able to serve every geography and, of course, our mission statement to get to 7 billion people with affordable medicine. The way you do it is with scale.

(END VIDEO CLIP)

GHARIB: The stock soared more than 9 percent, making it one of the best performers on the S&P 500 today.

Activist investor Nelson Peltz continues to pressure Pepsi. According to reports, Pelts says that he`s spoken with several big shareholders and received positive reaction to his plan to split up the snack and beverage company. Peltz says he plans to take the issue to every major Pepsi shareholder in the coming weeks. Pepsi responded by saying it remains focused on delivering results for shareholders not new costly, quote, “distractions”. Shares rose half a percent to $79.07.

Another activist is once again stepping up its fight for Sotheby`s.
Dan Loeb`s Third Point hedge fund plans to nominate three people to the company`s board according to a filing. Loeb himself will be one of the nominees.

In response, Sotheby says it`s disappointed that Third Point has chosen this path. Last October, Loeb called for management changes, including the CEO stepping down. The stock fell a fraction to $50.37.

And Jos. A. Bank has rejected Men`s Wearhouse`s latest takeover offer.
Jos. A. Bank said no to $63.50 a share bid but did say it`s willing to consider a higher offer and will meet with Men`s Wearhouse (NYSE:MW) to discuss price. Shares of both companies rose today during the regular session and popped after hours on the news.

GRIFFETH: That is the takeover deal that won`t go away.

Turning to health news and some big changes coming to nutrition labels on just about everything you buy at the grocery store. The Agriculture Department has now proposed new calorie and added sugar listings on many popular foods to more accurately reflect the portions that Americans eat and how much fat and calories we`re actually taking in. Brace yourself.

Bertha Coombs has more.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The White House used its best-known health advocate to announce its new labeling program, the first lady.

MICHELLE OBAMA, FIRST LADY: As consumers and as parents, we have a right to understand what`s in the food we`re feeding our families.

COOMBS: The format change calls for a larger emphasis on calories with a label representing the actual package serving size. And a new line that points out added sugar.

MARGARET HAMBURG, FDA COMMISSIONER: Why does this really matter?
Because added sugars contribute to a substantial portion of American calories that don`t really provide much else in the way of nutrients.

COOMBS: The administration estimates it take the food industry $2 billion to make the change. But branding and labeling consultants say the real costs will be accounting for new nutrients that have to be emphasized.

BURKEY BELSER, NUTRITION LABEL DESIGNER: They got to involve the scientists at the manufacturers and, by the way, the grocery stores. So, it`s a significant effort on their part.

COOMBS: FDA Commissioner Margaret Hamburg hopes the new emphasis on added sugar will prompt packaged food makers to make change.

HAMBURG: This occurred back in 2006 when FDA required food producers to add information about trans fats.

COOMBS: Some food makers now tout the lack of trans fats. But when it comes to added sugar, they`ll likely try to downplay it.

BELSER: I don`t have to bring that information around to the front of the package and indicate that that`s there. Is it going to be a tight rope to walk? You bet.

COOMBS: Snack and soft drink makers may also try to push back on the proposed change.

(on camera): In a statement, the Grocery Manufacturers of America, the industry group that represents large food makers, says it looks forward to working with the FDA on the label changes, but adds that it`s critical that the changes be based on current and reliable science.

Bertha Coombs, NIGHTLY BUSINESS REPORT, New York.

(END VIDEOTAPE)

GHARIB: From eating healthier to curing disease, we`ll introduce you to the man who`s trying to revolutionize the health care industry and save lives by using technology and data. That`s coming up.

(MUSIC)

COOMBS: Some 3,000 chief executives from 125 countries are gathering in Los Angeles for the annual meeting of the Young Presidents` Organization.

Now, among them, Dr. Patrick Soon-Shiong. He`s the CEO of California- based Nanthealth. His company has new software that consolidates and integrates medical records, scientific data and other information that he says could revolutionize the health care industry and potentially save lives.

Our own Tyler Mathisen sat down with Dr. Soon-Shiong at the YPO event discussing how the program works and how it can help.

(BEGIN VIDEOTAPE)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT: Susie, thank you very much.

Dr. Soon-Shiong, welcome. Good to have you with us.

Let me start with the big broad question. What is America doing right, and what are we doing wrong, in health care, its delivery? What we`re spending on? What we`re investing in or not investing in?

DR. PATRICK SOON-SHIONG, NANTWORKS FOUNDER AND CEO: Well, what we`re doing right we`re still the innovators of the world, right? I think the investment that`s been made in research and science still means that we are on the cutting edge.

What we`re doing wrong is because we know so much information — which should make either a difference in terms of whether this patient lives or dies — we`re not giving that information out to the patient and the provider in time. And the reason we`re not doing that is because we have these systems that don`t talk to each other. And I think if you follow what you do, you don`t know when your doctor and your primary care physician and the hospital and clinic if you go to a different city has any access to your information in real time.

MATHISEN: And one of the things that I know you`ve been working on actually an initiative that you`ve brought out just in the past few days, maybe even earlier this week, is one to bring together medical records and to unify them in a way that could help with that.

SOON-SHIONG: So the best way to describe what I`ve been doing in the last decade is understanding we have a blockbuster modeling of the Netflix
(NASDAQ:NFLX) model. So, we basically created now the Netflix
(NASDAQ:NFLX) of health care so to speak. Where we can now take every medical record regardless of where it`s generated, every medical device,
6,000 of them, and actually integrate that in real time in the Cloud and create what we call an operating system, a clinical operating system that can now go between the mobile device and the Cloud and have accessibility in secure health information real time for both provider and doctor no matter where you are.

MATHISEN: You also earlier today were talking about the realities, not just the potential, that big data and understanding it has to change the lives of people who are afflicted with some of the world`s great afflictions, blindness, Parkinson`s, autism. Tell me a little bit about that marriage of technology and clinical practice and the kinds of things that you`re doing now that the world will see more of over the next decade.

SOON-SHIONG: What`s going to transform health care is big data. But the problem is to actually digest big data in a transparent format that is actionable in time of need. So, we just launched a company called Nanthealth, N-A-N-T. It sounds hard to — but stands for “nant” stands for nano technology or stands for Nanten (ph) where he who speaks for the people.

At HIMS which is this biggest conference, largest health care conference, we launched this critical operating system to take big data into the Cloud and make it actionable in time of need at point-of-care, anywhere anytime.

So until we could do that, you wouldn`t take advantage of the amazing amount of science that is evolving now, to cure yet incurable diseases.

MATHISEN: Using such things as photonics. I saw an amazing demonstration using the power of light to interrupt some of the brain transmissions that cause the outward symptoms of Parkinson`s. A man who was really afflicted stood up and walked normally across a room. It`s astonishing.

SOON-SHIONG: Well, and I think that`s what is exciting. Because for the first time, we`re interrogating how the brain works, how sight works, how cancer cells work at what I call the atominal levels (ph).

So, at the first time we can touch and feel the cell in real time at atominal level.

So, if we can do that, understanding the mechanisms, we really have a shot now at treating Parkinson`s disease, rare disease, mitochondrial dysplasia, cancer, lung cancer, pancreatic cancer. We have the shot now for the first time.

MATHISEN: Dr. Soon-Shiong, thank you very much for being with us tonight.

SOON-SHIONG: You`re welcome.

MATHISEN: Appreciate your sharing with us.

Back to you.

(END VIDEOTAPE)

GHARIB: That`s fascinating interview. And all that progress. But it really amazes me about health care some of the basic delivery systems, just shared technology, still no standardized system.

GRIFFETH: And what they`re doing with nano technology, biotech stocks have been flying high for a few years now. And you`re starting to see results now from all the research that they`ve been using at this point.

GHARIB: All good stuff. Absolutely.

That`s NIGHTLY BUSINESS REPORT for us tonight. I`m Susie Gharib.
Thanks for watching.

GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2014 CNBC, Inc.

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