Transcript: Tuesday, March 11, 2014

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


TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Criminal investigation. The U.S. attorney in New York reportedly wants to know why it took General Motors (NYSE:GM) nearly a decade to recall more than a million vehicles. Lawmakers are also looking for answers. And G.M. has a lot riding on the outcome.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Tesla ban. New Jersey becomes the third state to say the company can`t sell cars directly to customers. Is the ruling a threat to Tesla`s business model?

MATHISEN: And, food for thought. Prices are jumping, everything from sugar to meat to vegetable oil. Why? And how to budget for higher prices this spring?

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, March 11th.

And good evening, everybody. I`m Tyler Mathisen.

HERERA: And I`m Sue Herera, in for Susie Gharib.

A very busy news day for a pair of U.S. automakers, General Motors (NYSE:GM) and Tesla.

We begin this evening with G.M. Five years after emerging from Chapter 11 bankruptcy protection, promising to be a better run company that would respond to consumer demands and make better cars the company is under the gun again. Late today, the U.S. attorney in New York City launched a criminal investigation into the automaker for a decade-long delay in recalling 1.6 million cars with faulty ignition switches, a problem that caused 13 deaths.

That follows an announcement earlier today of a congressional committee investigation into what the automaker knew about that defect and why nothing was done about it, or even correcting that default until last month. Making matters worse, G.M. knew about that problem for 10 years. And so did federal safety officials.

Shares of G.M. tumbled 5 percent today on news of that investigation.

Phil LeBeau joins us now from Chicago with more on G.M.`s mounting troubles over those ignition problems and what`s being done about it at this point — Phil.

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: You know, Sue, what`s interesting here is you`ve got more investigations that are coming up for General Motors (NYSE:GM), and now you have a criminal probe. And it may not result in any criminal charges being filed against General Motors (NYSE:GM).

But anytime you put potential criminal actions along with 1.6 million vehicles recalled, you have a lot of people potentially consumers who will look at this and say, has anything changed at General Motors (NYSE:GM)? That`s going to be the main question that a lot of consumers have. Have things changed at General Motors (NYSE:GM) or is this the same company making similar kinds of mistakes it made before it went into bankruptcy?

For CEO Mary Barra this is truly one of the toughest challenges she`s going to face as a CEO and it`s the first big one she`s facing just a couple of months after she took the top spot.

MATHISEN: All right. Phil, let`s move on to the other big automaker story making headlines today, and that is the luxury electric carmaker Tesla.

LEBEAU: Right.

MATHISEN: Its shares which have been as you know Phil really high fliers, dropping about 2 percent today after New Jersey motor vehicle officials say they`re going to make the company shut down two mall-based Tesla showrooms. Why are they doing this? And what might it mean for Tesla?

LEBEAU: Well, it hurts Tesla from this standpoint. New York is one of the top markets for sales of the Model S. And, yes, people in New Jersey in the future will be able to go maybe to Pennsylvania or to New York to buy a Model S and bring it home. But because New Jersey is now decided it`s going to ban direct sales of automobiles, that means that people there will either have to go through a third party or go out-of-state.

And for Tesla, this becomes the third state in the country, after Texas and Arizona, that has banned direct sales of automobiles.

As to why, Tyler — it`s the dealers in New Jersey. They do not want to see direct sales of vehicles. And therefore, they have been fighting Tesla all along. They had an opportunity here to go before the Motor Vehicle Commission and say, don`t allow direct sales anymore — essentially ban Tesla. And that`s what happened.

HERERA: Phil, the other story that falls really under your beat is the missing plane. Any updates today? What do we know?

LEBEAU: No, the mystery continues, Sue. We`re going to be going on daybreak relatively soon over in Malaysia. It will be the fifth day of searching for Flight 370 from Malaysia Airlines.

They have shifted the search to the west coast of Malaysia into the Strait of Malacca because the Malaysian military have gone back over the radar from Friday night into Saturday morning and they found that the plane was actually in that area. So, perhaps, today, we might get some indication that they found some debris or something else.

HERERA: You`re going to be a busy guy. Phil, thank you as always.

LEBEAU: You bet.

HERERA: Stocks swung between gains and losses today before finally ending with red arrows across the board despite a lack of major earnings or economic data to really influence traders. The Dow finished down 67 points, the NASDAQ fell 27, marking its first four-day losing streak since August. And the S&P 500 was off by 9.

MATHISEN: And a trio of Dow components making news today and moving shares of each.

First up, McDonald`s (NYSE:MCD), its shares added some special sauce, 4 percent worth, just one day after weaker than forecast February sales had investors on the run the other way. Today, the burger giant`s chief financial officer outlined strategies to turn around slumping sales. Like refocusing on basics like better service, rolling out more new menu items and pushing its high margin breakfast offerings.

HERERA: Next up is Wal-Mart (NYSE:WMT), with shares also rising on encouraging sales data. The chief financial officer of the world`s biggest retailer told investors that sales have been very good since mid-February after tumbling earlier in the month due to that bitter cold and snowy weather.

MATHISEN: And, finally, there`s the oil giant Chevron (NYSE:CVX). Shares there fell more than 1 percent after the nation`s second largest oil company cut its 2017 production target by 6 percent, citing lower natural gas prices, rising costs and project delays.

CEO John Watson says the company`s growth strategy, however, remains intact.


JOHN WATSON, CHEVRON CHAIRMAN & CEO: It is hard to grow in our business. We`ll be growing 20 percent between now and 2017. A lot of other companies are finding it difficult and are more flat in their production outlooks.

So, when you spend a little bit more, you can realize the growth. That`s what our plans show.


MATHISEN: Watson says the company still plans to spend $40 billion this year on capital projects, about the same as last year.

HERERA: Another Dow member making news today, Microsoft (NASDAQ:MSFT). With sales of video games a $15 billion a year industry, the company is betting that the release of its newest title, “Titanfall”, which give a much-needed boost to sales of its Xbox One gaming console, which is losing ground to Sony`s PS4.

Josh Lipton has more.


JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The Xbox One needs a jolt, and today it could get it. Microsoft (NASDAQ:MSFT) debuted its hottest new video game title “Titanfall.” The company has a lot riding on its success. Research from NPD says that Sony`s gaming console, the PS4, is beating the Xbox One by at least a 2 to 1 margin in the U.S.

YUSUF MEHDI, XBOX CHIEF MARKETING STRATEGY OFFICER: This generation of consoles is off to the best start ever.

LIPTON: But Microsoft (NASDAQ:MSFT) isn`t throwing in the towel. Yusuf Mehdi, chief marketing and strategy officer at Xbox is excited about “Titanfall`s” potential.

MEHDI: I do think that “Titanfall” is going to be a big boost to the console generation market. As I said, it`s already off to the hottest start yet. But I think people have been waiting, all of our fans have been waiting for a great game like this to come and make the move. So, we`re optimistic that it`s going to get a lot of people to come try Xbox One.

LIPTON: There have been reports of hiccups with the launch of the new game, but Microsoft (NASDAQ:MSFT) needs strong software titles like “Titanfall” to drive sales of its Xbox platform.

While Sony (NYSE:SNE) says it has sold 6 million PS4 consoles, Microsoft (NASDAQ:MSFT) in its last earnings report said it had sold close to 4 million Xbox One units.

The difference explained in part by price. The PS4 is $100 cheaper than the Xbox One. “Titanfall” could help bridge some of that gap. Analysts say the game takes advantage of Xbox One technology, offering players great special effects and the feel, they say, of a blockbuster movie.

(on camera): The gaming industry is changing. Casual gamers are now playing more on their smartphones and tablets rather than consoles. And some analysts on Wall Street want Microsoft (NASDAQ:MSFT) to sell or spin off Xbox because they say the business is a money loser.

(voice-over): Lewis Ward of IDC disagrees. He says that Microsoft (NASDAQ:MSFT) doesn`t just think of the Xbox as a gaming hub but rather an all-in-one media center for your living room.

LEWIS WARD, IDC RESEARCH DIRECTOR OF GAMING: And I think that over time they hope this will stave off Apple (NASDAQ:AAPL), right. Partly, it`s a blocking function of say Apple (NASDAQ:AAPL) or Google (NASDAQ:GOOG) or other companies that want to come in and put PCs in the living room, per se, or Internet in the living room. This is Microsoft`s kind of way to block them. Even if they don`t knock it out of the park, it is partly a defensive mechanism.

LIPTON: U.S. spending on videogames is still massive. Gamers spent more than $15 billion last year according to NPD.

(on camera): Even though growth was flat last year, game sales revenue was down 25 percent in January, another reason Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) are going to rely a lot on mega-titles like “Titanfall”.

Josh Lipton, NIGHTLY BUSINESS REPORT, San Jose, California.


MATHISEN: Still ahead, dairy, sugar, meat. Prices are rising but will you see sticker shock at the supermarket?


MATHISEN: PIMCO, the world`s biggest bond fund, is getting a lot of heat today. It`s coming from a company insider. Long time PIMCO trustee William Popejoy told “The L.A. Times” he`s outraged over reports that CEO Bill Gross takes an annual salary of $200 million. He took issue with his alleged, quote, “bullying behavior” toward fellow employees and reports of workplace clashes between Gross and his heir apparent Mohamed El-Erian. He suddenly resigned earlier this year.

And because of El-Erian`s abrupt resignation, several institutional investors, including some big retirement systems, say they will be keeping a much closer eye on PIMCO`s performance than usual.

HERERA: Good news out of Puerto Rico today in its biggest bond sale to date. The cash-trapped island sold $3.5 billion worst of municipal bonds today, more than the $3 billion originally up for sale, at a yield of 8.727 percent. Talk about oversubscribed, the demand was so high, investors would have bought $16 billion worth of those munis at that yield.

MATHISEN: Looks like the suit saga is over and that`s where we begin tonight`s “Market Focus”.

Men`s Wearhouse (NYSE:MW) will buy its smaller rival Jos. A. Bank for about $1.8 billion. That ends a month long takeover battle between those two retailers. As part of the deal, Jos. A. Bank agreed to terminate its deal to buy the privately held retailer Eddie Bauer. Shares of both companies were higher today. Men`s Wearhouse (NYSE:MW) up almost 5 percent to $57.14. Jos. Bank rose about 4 percent to $64.22.

And JCPenney got an upgrade from Citi. It rates the retailer a buy instead of neutral. It says it believes the retailer can continue to deliver positive same store sales as it makes changing like updating its merchandise mix. Now, that sent shares of JCPenney up 3 percent to $8.67.

And another retailer, Dick`s Sporting Goods (NYSE:DKS), says fourth quarter profit rose almost 7 percent, driven by an increase in sales. The CEO says the company should see double-digit earnings growth this year. Shares more than 4 percent higher today to $56.67.

HERERA: Both Fannie Mae and Freddie Mac tumbling after lawmakers released a blueprint for a housing finance reform proposal. The Senate Banking Committee said it would soon release a draft bill that would wind down the government-owned mortgage companies. That bill would replace the financiers with a new government reinsurer. Fannie Mae fell 32 percent to $3.95 and Freddie Mac was down about 27 percent to $4.04.

And shares of Plug Power (NASDAQ:PLUG) tumbling after Citron Research said the stock is worth about 50 cents a share. The author of the note analyst Andrew Luck says there are no profits, no unique technologies and the end of government subsidies looms for the fuel cell producer.

That sent shares of other high flying fuel cell companies like FuelCell Energy (NASDAQ:FCEL), Ballard Power Systems (NASDAQ:BLDP) and UQM Technologies way down on the trading session.

Plug Power (NASDAQ:PLUG) fell about 41 1/2 percent to $6.03.

MATHISEN: And a popular yogurt-maker is looking for investors. Privately owned Greek style yogurt maker Chobani is exploring options now to raise new capital, seeking a valuation of $5 billion. Dow Jones reports that an initial public of offering is not imminent but the company is considering selling a stake in itself to a private investor or entering into a strategic partnership.

HERERA: Well, yogurt is just one of some basic grocery items that are expected to see sizeable price hikes this year, increases may even change what Americans are buying and eating.

Sara Eisen has more on the food inflation that`s coming to a supermarket near you.


SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Food inflation is coming. A new report from the United Nations showing food prices jumped last month by the most in more than a year and a half after a long decline.

According to the U.N. Food Commodity Price Index, cereal prices were up over 3 percent from January to February of this year. Vegetable oil up nearly 5 percent, dairy up 3 percent, sugar up just over 6 percent. Meat, however, was down.

The reason? All of the abnormal weather not just in the United States but around the globe. Global unrest also leading to supply issues.

There`s also a growing thirst for milk in Asia. With that growth, more products from the U.S. is being exported. The question is, when does it show up in your grocery aisle?

Mostly, it`s a six to nine-month lag, because costs for the big companies are mostly locked in. So when you start hearing guidance or forecast from these companies into 2015, you`ll hear about this price spike and you`ll hear about higher prices on the shelves.

Prices might show up earlier for dairy and hamburgers. Those are the exceptions because they`re harder for companies to hedge. McDonald`s (NYSE:MCD), for instance, taking its burger on the dollar menu from two meat patties to one.

David Palmer, an analyst at RBC, says Kraft (NYSE:KFT) is another company set to raise prices earlier because it too has a lot of meat and dairy. Although not all companies are willing to go out on a limb and say there`s a problem, at least not yet.

STEPHEN HUGHES, CEO, BOULDER BRANDS: We feel pretty good about our commodity positions for the next 12 months and don`t expect any additional issues. We have been dealing with an issue on egg whites, which is interesting as McDonald`s (NYSE:MCD) and Subway and others have gone to healthier options in their breakfast offering of egg white has driven egg whites up. We buy quite a bit of egg whites, so we`ve been dealing with that.

But I think overall, we think near-term, we`re in pretty good shape.

EISEN: Note that we`ve seen higher grain prices as well on the back of the Ukrainian conflict. Ukraine is a big exporter of wheat and corn. Still, analysts that follow these consumer companies say it`s deflationary. Meaning for the General Mills (NYSE:GIS) of the world and others that make bread and cereals, those input costs are still actually helping margins unless they continue to march higher or stay elevated.



MATHISEN: So where are food prices headed overall?

Let`s turn to Farha Aslam for some answers.

Farha, welcome.

She`s the managing director at Stephens.

So, how big overall are these price rises likely to be and how long-lasting?

FARHA ASLAM, STEPHENS MANAGING DIRECTOR: So we believe that you`re definitely going to see food inflation, particularly in the periphery of the store, in your milk aisle, your produce section. We do expect those prices to be short-lived through sort of the midsummer before they start to moderate going into the back half of the year, assuming that the U.S. crop is in good shape this year.

HERERA: It hits consumers, though, at a time when, you know, the economic recovery — although it`s progressing — certainly has not been able to be characterized as strong. How is its going to hit consumers do you think?

ASLAM: We do believe that consumers are going to feel some of the pinch. About 13 percent of U.S. food expenditures is on food. And we think that consumers will perhaps tend to economize by eating a few more meals at home rather than out at restaurants.

MATHISEN: How long-lasting is the rise in the price of milk likely to be? Sara just reported on demand from China and elsewhere. And that that coupled with some weather effects are causing milk prices to go up.

ASLAM: Absolutely. You`re seeing milk hit all-time highs. Just right now. And you should see it on the grocery shelf within a month or two.

We think milk prices will peak out here in the next three months before declining seasonally. Because you are starting to see the spring flush come in. That being said, if China continues to import record amounts of dairy, you are going to see long-term elevated dairy prices.

And this is hitting some of our companies, notably Dean Foods (NYSE:DF), the largest U.S. milk company, has had trouble passing along these higher costs and has therefore missed earnings. And their stock is down about 20 percent to 25 percent in the last six months.

HERERA: You kind of read my mind, because I was going to ask you how much pricing power some of these companies do have. I mean, Dean obviously has not had enough pricing power. That`s hit its bottom line.

But what about other companies out there? Is the economy strong enough so they do have some pricing power to get consumers to still buy their goods and still be able to keep their margins intact?

ASLAM: Absolutely. Our companies are really very conscious of the fact that U.S. household incomes remain constrained despite the recent rises in Wall Street prices. And therefore, you`re seeing them being very cautious in how they`re pricing their products.

Generally, they`re waiting until they absolutely have to increase prices. And in some cases, absorbing some of the inflation and offsetting it with efficiency programs. But after a certain point, you are seeing them pass it along. For example, you`ve seen Hormel hold the price on Spam for the last few years. But with hogs hitting all-time highs, they are now taking pricing on this iconic product.

MATHISEN: Well, my goodness, higher spam prices coming, Farha.

Thank you very much.

ASLAM: They`re coming.

MATHISEN: We appreciate it, Farha Aslam, managing director at Stephens.


ASLAM: Thank you for having me.

HERERA: Ty, coming up, a new and powerful prescription painkiller has been approved. Shares of the company behind the drug have been soaring. But so has the controversy. Details next.


MATHISEN: There`s a powerful new opioid painkiller that has some doctors, health care experts and lawmakers urging the FDA to reverse its ruling and keep it off the market.

At the heart of the debate, whether or not the drug may be too powerful and potentially addictive.

Sheila Dharmarajan has the story.


SHEILA DHARMARAJAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Zohydro is a potent painkiller that launched commercially this month. It`s stirring up an equally potent controversy.

Marketed by a small company named Zogenix (NASDAQ:ZGNX), Zohydro`s active ingredient is Hydrocodone, similar to popular painkiller Vicodin. Unlike Vicodin, which is mixed with acetaminophen, Zohydro is pure Hydrocodone in a higher dosage form.

While that may sound scary, experts say it`s actually one of the positives of the drug.

DR. STEVEN GARNER, NEW YORK METHODIST HOSPITAL: The big benefit with Zohydro is that you don`t have Tylenol attached to it. So, you avoid the possibility of liver failure which elderly would be prone to taking this medication.

DHARMARAJAN (on camera): Benefits aside, Zohydro has been controversial from the get-go. The FDA approved it against the advice of its own advisory panel, something that only happens 10 percent to 15 percent of the time.

(voice-over): Since its approval, critics have been calling for the FDA to reverse its decision.

DR. ANDREW KOLODNY, PHOENIX HOUSE CHIEF MEDICAL OFFICER: Chief concern about Zohydro among groups that are opposed to its release is the fact that the capsule can be easily crushed. And the capsule contains a 50 milligram dose of Hydrocodone. That`s 10 times more Hydrocodone than in a regular strength Vicodin. That makes that capsule especially lethal.

DHARMARAJAN: Washington is also voicing its disapproval. Senators Joe Manchin, David Vitter and Chuck Schumer, in addition to attorneys general from 28 states, asked the FDA to reconsider its approval decision.

So, why did the FDA approve it?

Experts say the agency was simply following its own rules. And Zohydro met all of its current standards for painkillers. For now, Zohydro is likely here to stay. Analysts we spoke to said it`s incredibly rare for the FDA to reverse a decision in the absence of new evidence or clinical studies.

For NIGHTLY BUSINESS REPORT, I`m Sheila Dharmarajan.


MATHISEN: The company behind that powerful new painkiller is Zogenix (NASDAQ:ZGNX), a small cap company whose shares have risen 30 percent this year.

HERERA: Ty, there`s some new numbers out today on enrollment in new health care insurance plans through the Affordable Care Act, the results are far short of expectations. The Health and Human Services Administration says that as of March 1st, 4.2 million Americans have enrolled in a new insurance plan, versus the 5.6 million originally projected. The deadline to sign up for a plan at the federal marketplace is at the end of this month.

MATHISEN: Those disappointing numbers may be the reason President Obama took some time out to talk up the affordable care act on the web-based interview show “Between Two Ferns.” It`s become a viral sensation.

In this clip, the host, actor/comedian Zach Galifianakis, is ribbing the president about the botched rollout of the law`s marketplace, comparing the Web site to a poor-selling MP3 player that Microsoft (NASDAQ:MSFT) put out a few years ago.


ZACH GALIFIANAKIS, COMEDIAN: Let`s get this out of the way. Would you come here to plug?

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Well, first of all, I think it`s fair to say that I wouldn`t be with you here today if I didn`t have something to plug. Have you heard of the Affordable Care Act?

GALIFIANAKIS: Yes, I heard about that. That`s the thing that doesn`t work. Why would you get the guy that created the Zune to make your Web site?

OBAMA: works great now.


MATHISEN: And the whole interview can be seen on the Funny or Die Web site. And it`s already been viewed at least 6 million times, adding about 1 million views every hour according to the site “Between Two Ferns,” big show. I haven`t seen it yet.

HERERA: I have seen a little of it. And parts of it can be very funny. Very funny.

MATHISEN: We`ll be watching.

HERERA: All right. That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.

We want to remind you: this is the time of year your public television station seeks your support to make programs like this one possible.

MATHISEN: And I`m Tyler Mathisen. On behalf of your public TV station, thank you for your support. Have a great evening, everybody. And we`ll hope to see you right back here tomorrow night.

Nightly Business Report transcripts and video are available on-line post broadcast at 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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