Transcript: Thursday, April 17, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and
Susie Gharib.

results from Dow stocks at General Electric, Goldman Sachs and United
Health Care say about three distinct parts of the American economy — the
industry, finance and health care?

do something as simple as download a coupon for Cheerios? Well, you just
gave up your right to sue General Mills in court.

GHARIB: Stocks pickers` market. The Dow and S&P have their best week
this year and our guest tonight has a list of under-the-radar names that
could see double-digit returns.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Thursday, April 17th.

MATHISEN: Good evening, everyone, and welcome.

A triple play for earnings today: three Dow components, big ones,
General Electric, Goldman Sachs, UnitedHealthcare, representing three very
distinct and vital parts of the American economy gave us a pretty good idea
of how the economy shaped up in the first quarter and what may lie ahead.

Profits in General Electric beat expectations, making it the best
performing Dow stock today. Goldman Sachs also beat, closing in the green.
But for UnitedHealthcare, its results sent share sharply lower. But that`s
only part of the story.

Mary Thompson has more.


First quarter profits fell in all three of the Dow components reporting
Thursday, General Electric results still managed to beat analysts forecast,
though, thanks to strength in its energy and aviation businesses.

Here`s money manager Jack de Gan.

JACK DE GAN, HARBOR ADVISORY ANALYST: It was a good report, you know,
back in December when GE gave its look ahead, they were talking about 4
percent to 7 percent organic growth possibly this year. And you know after
the first quarter that we had with — you know, with relatively slow
economic growth, there was concern that they wouldn`t make that. And they
came out at eight, a point ahead.

THOMPSON: The conglomerate is shrinking its finance unit and
expanding its presence in faster growing areas like energy. This year, it
plans to sell $4 billion worth of industrial assets. Goldman Sachs
continues to trim expenses. Like GE, its profits declined by the results
beat Wall Street`s forecast. Goldman Sachs helped by a tight grip on cost
controls strengthened its investment banking group and profits from its own

All of this offsetting what analyst Brennan Hawkins says was a
sluggish quarter in its trading business.

BRENNAN HAWKEN, ANALYST: Trading was OK in a difficult environment.
Not taking anything away from Goldman here, I think they did an excellent
job given the realities but the realities aren`t great.

THOMPSON (on camera): In the last quarter, the realities of the
Affordable Care Act set in for health insurer UnitedHealthcare, though
analyst Vishnu Lekraj says the impact shouldn`t have been a surprise to the

should have known this was coming on the pike. We expected greater
competition and greater pricing pressure, greater cost pressure.

THOMPSON (voice-over): In the first quarter, profits at the nation`s
largest health insurer fell 8 percent from the prior year, higher taxes
linked to ACA and lower Medicare Advantage reimbursements behind the



GHARIB: The Dow ended down today, the blue chip average was up 2
percent for this holiday-shortened week, and the S&P was the standout, up
almost 3 percent on the week.

The markets are closed tomorrow for the Good Friday holiday.

So, here`s a look at today`s closing numbers: the Dow lost 16 points,
the NASDAQ rose nine and the S&P added two and a half points.

MATHISEN: Our market guest tonight says investors should buy this
dip. He is optimistic about stocks and not worried about the recent

Sandy Villere is portfolio manager of his own firm, Villere and
Company. It is based in New Orleans.

So, Sandy, let the good times roll?

exactly right. I think the market is going to I think the market will be
up about 6 percent this year. But I think stock picking is going to rule
the day. We`ve got to find those diamonds in the rough, those gems that
can out-perform and deliver good returns for our shareholders.

MATHISEN: Go ahead.

GHARIB: All right. So, you`re saying buy the dips. Right now, so
many investors are looking at the same information you are. They`re
worried about what`s going to happen with interest rates. They`re worried
about all of this volatility. And so, they`re just playing it safe.

And you`re just jumping in and buying what you say are really beaten
down stocks. So what are you seeing that they`re not seeing? Why are you
so optimistic?

VILLERE: Yes, I think you really do have to look at individual
stocks. And that`s the key word. So, while all of this stuff is going on,
you`ve got all sorts of issues all over the planet. I think it`s time to
just really look, and be laser focused on individual stories, and while
earnings were — you know, GE had good numbers, and Goldman had good
numbers, tough numbers out of IBM and Google, let`s focus on individual
stocks. That`s what I`m focusing on.

MATHISEN: Good numbers in terms of beating the forecast. But not
necessarily good numbers in terms of growing the profit. Both of their
profits were actually lower than year ago.

But I take your point and I want to move to your first stock pick this
week, and that is Like and Kind Quality, ticker LKQ. Tell me about this
one and, why you like it.

VILLERE: Yes, these guys distribute refurbished and recycled auto
parts, basically that are exactly like OEM or new parts, but about 20 to
percent of the cost. So, if you think about it, body shops are really
funded by insurance companies and insurance companies want to get that car
back on the road as quickly as possible for the cheapest price as possible.
So we really like it. They really consider themselves a logistics company
that happens to be in the auto parts business, because they get their parts
to the customers so quickly.

Rob Wagman, the CEO, just invested another $318,000 into the company
and it`s down about 17 percent year-to-date which kind of creates this
opportunity, because as winter was so bad, a lot of body shop owners
couldn`t get into work and couldn`t order those parts. And so, that`s just
deferred for the next quarter. I think there`s going to be a lot of pent-
up demand and a great opportunity to buy a 22 percent grower added just at
20 multiple.

GHARIB: OK. Really interesting, and the other one you have on your
list, Flowers Foods. The ticker symbol there FLO. It`s the second largest
bakery in the country. Tell us more about this company.

VILLERE: So, I like this because it`s boring, right? I mean, these
guys were — you know, they were founded in 1919 in Thomasville, Georgia,
and now, went public in 1968. But the second largest bread baker in the
country, they`ve got the largest bread brand in the country, in nature`s
own. They were doing about $43 million in revenue, about a decade ago, and
now, they`re doing over $1.3 billion.

So, the nice thing is that restructuring play right now because
they`ve just bought the Hostess Bread assets out bankruptcy. So, now, they
have the five bread brands including Wonder Bread. They`ve also got about
26 different bakeries and 36 different warehouse depots. So, they`re
selling off about nine bakeries. They`re selling off 21 different
warehouse depots.

And so, while markets drag in second half of 2013, we`re going to
start to see recovery in the back half of `14, and you collect a nice
dividend these guys returned about $750 million in free cash flow over the
last five years. And I think it`s going to be a real big winner.

MATHISEN: All right. Let`s move you on to the last one. We`ve got
auto parts. We`ve go bread.

Bore me one more time, Sandy. Come on, baby.

VILLERE: All right. We can. We can certainly do that.

Pool, it`s the largest distributor of swimming pool products, not only
for construction, but also repair and maintenance for your swimming pools.
So, these guys are as big as their top 50 competitors combined. I love
companies that dominate a niche, and this is truly what they do.

If you believe people just put chemicals in their swimming pool and
not let it turn green or black or fill it in, Pool is not going to be a
good play.

Not only that, there is a deferred maintenance part of this story
where there`s 2 million pools in the U.S. that are between 15 and 20 years
of age. And as your pool hits that magical eighth year, you`re going to
need to replaster it or it`s going to crack and all these other stuff.

They reported earnings today. They reiterated their guidance for
2014. They bought back about 484,000 shares in the quarter. And it`s one
that I think is going to work well is they can grow at 20 percent. I like
it a lot.

MATHISEN: All right. You know your boring stocks well, Sandy. Do
you own any of these? Give me a little disclosure here.

VILLERE: I own them all. My firm owns them all, just in New Orleans.
So, I just say, we eat our own our cooking and that`s what I certainly do
in this situation.

MATHISEN: Money where your mouth is. Sandy Villere, have a great

VILLERE: Thank you. You, too. Take care, Tyler.

GHARIB: Now, another issue that investors are watching closely.
Ukraine and Russian President Vladimir Putin. His televised question and
answer session today attracted a lot of attention. Putin admitted for the
first time that Russian armed forces have been deployed in Crimea before it
was annexed. And he also warned of possible disruption to Europe`s gas
supply, giving a Ukraine a month to pay off its gas debts.

MATHISEN: Putin also strongly asserted Russia`s historical claim to
eastern Ukraine. This as officials from Russia, the U.S., Europe and the
new Kiev government met in Geneva on the Ukrainian crisis.

Steve Sedgwick has been there, covering the talks which ended with a
joint statement.


backdrop of increasing violence in the south and east of Ukraine, there
were low expectations coming into the first big diplomatic talks between
Ukraine and Russia since the crisis began, with the U.S. and E.U. in
attendance, concrete steps, it looks like, have been made. Diplomat
measures include OEC international monitors going into the country to
monitor disarmament, protesters and pro-Russian sympathizer vacating some
of the government buildings they have occupied in the last few days, and
the Ukrainian government agreeing more voice constitutionally to ethnic

In the press conference afterwards, I asked John Kerry whether,
though, the crisis that started the whole process in Ukraine, i.e., Crimea,
had been given up on by the West.

JOHN KERRY, SECRETARY OF STATE: The fact is we have made it crystal
clear there is a significant difference over Crimea. We are not, quote,
“giving up”.

SEDGWICK: John Kerry there speaking to me in the press conference
post, what has been a very successful day, albeit in the early stage of
diplomacy in the whole Ukraine.

Steve Sedgwick for NIGHTLY BUSINESS REPORT, in Geneva.


GHARIB: And still ahead on the program, have you downloaded coupons
for Cheerios lately? Subscribe to a General Mills newsletter? If the
answer is yes, you just gave up your right to sue the company in court.
We`ll explain.


MATHISEN: A federal judge in Texas has rejected an emergency order
related to the GM faulty ignition switch recall. Now, lawyers representing
several vehicle owners wanted to force General Motors to issue a park it
now notice for all of the 2.6 million vehicles involved. GM argued the
cars are safe to drive as long as nothing extra is attached to the ignition

GHARIB: Morgan Stanley`s first quarter earnings surged more than 50
percent and that`s where we begin tonight`s “Market Focus”.

The investment firm`s profits and revenues came in better than
expected. It also posted higher revenue in each of its major businesses
including surprising results from its fixed income division. Morgan
Stanley also doubled its quarterly dividends to 10 cents a share. Shares
rose about 3 percent to $30.76.

Well, it was just the opposite story for DuPont. The chemical-maker
saw its agricultural sales suffer and its operating costs rise because of
the harsh winter weather. Quarterly earnings matched estimates but revenue
came in below analyst estimates. DuPont said the rough weather shaved 7
cents a share off the quarter profits. Shares fell 1 percent to $66.98.

And Mattel posted a first quarter loss on weak sales of Barbie. The
toymaker also blamed a challenging retail environment, as it had to mark
down inventory that was left over from a sluggish holiday season. Shares
from Mattel down 1 percent to $37.47.

MATHISEN: PepsiCo posted an earnings beat as the company sold more
snacks around the world and hike prices and that helped the maker of Frito
Lay chips and Tropicana Juices to offset softer volumes and foreign
exchange headwinds. Shares climbed about 1 percent to $85.55.

Meanwhile, shares of Barnes & Noble moved lower on news the company`s
chairman and largest shareholder Leonard Riggio had trimmed his stake in
the book retailer. Riggio sold 3.7 million shares and that cut his stake
to 20 percent. He says the sale was part of his long-term financial and
estate planning, that he has no plans to sell more stock this year. Shares
plunged 12 percent to $16.37.

China`s Weibo made its trading debut today, and shares surged. The
social media company priced at 16.8 million shares at $17 apiece, which was
at the low end of the expected range. Nevertheless, it raised more than
$285 million from the offering. The stock popped 19 percent, finishing the
day at $20.24.

But what exactly does Weibo do?

Seema Mody takes a look at the potential risks and rewards of
investing in Weibo.


quiz, investors? What is microblog in Chinese? The answer: Weibo.
Similar to Twitter and Facebook, Weibo allows users to chat, upload
pictures, videos and share with friends. A huge user base, roughly 144
million monthly active users as of March, and 70 percent of users access
Weibo using their smartphones.

And just like other social media firms, Weibo makes most of its money
through advertising. Weibo`s annual sales nearly tripled last year, but
the company still lost money. And Weibo CEO cautioned that user growth is

CHARLES CHAO, WEIBO CHAIRMAN: So, this season, we slowing down in
gross rate last year, but as we begin to refocus our purpose, our effort on
the user growth, even the engagement growth, actually we see, I mean,
tremendous coming back in terms of the gross rate.

MODY: The timing of Weibo`s IPO is also questionable as the market
has recently cooled on social media stocks. Experts say that`s why bankers
were cautious and priced Weibo conservatively.

But other Wall Street pros are optimistic.

SAM HAMADEH, PRIVCO CEO: This is one of the most under-priced IPO`s
we`ve seen in years. We get social and mobile China all at once. It`s

MODY (on camera): As more users in China access the Internet over
their smartphone, mobile will be key to Weibo`s success as a public
company. And so will international growth, experts say, if Weibo can
attract more users outside of China it could one day rival the leaders of
social media, Twitter and Facebook.



GHARIB: Wal-Mart is launching a new domestic money transfer service
called Wal-Mart to Wal-Mart. It will allow direct transfers to and from
Wal-Mart stores for a small fee. Now, the service is aimed at the
retailing giant`s low income customers, many of whom don`t have traditional
checking or saving accounts. Western Union and Money Gram currently handle
such cash transfers, but their fees are higher.

Not surprisingly, shares of Western Union fell today, but those at
Wal-Mart rose slightly to $77.66.

MATHISEN: What would you do if you bought a food product and it made
you sick, really sick? Would you sue the manufacturer?

Well, not so fast. As first reported by “The New York Times”, General
Mills is trying to limit any future financial awards from litigation.
Eamon Javers has more on a new policy which could spread.


Click on the General Mill`s Web site this week and you`ll see some new
legal boiler plate. But that fine print could have huge implications for
people who buy General Mills cereals or other products. The new language
says if you use any of the company`s sites or services, including simply
logging onto to, that means you`re bound to a restrictive
set of legal terms, and those terms say you`d take any dispute you may have
with General Mills to a binding arbitration, not a United States

Companies like this kind of negotiation because they`re more likely to
prevail in arbitration and they don`t face the kinds of financial damages
they can suffer in court.

CHRISTINE HINES, PUBLIC CITIZEN: If it tries to do something wrong,
if it does something wrong or causes harm to its customers, it`s basically
trying to shield itself from any responsibility. So — and shield itself
from any legal action. And so, it`s just — it`s a little upsetting.

JAVERS: But General Mills says the new boiler-plate is simply
routine. “This is being broadly mischaracterized,” said a spokesman. “The
policy would not and does not preclude a consumer from pursuing a claim.
It merely determines a forum for pursuing a claim, and arbitration is a
straightforward and efficient way to resolve such disputes.”

(on camera): Lawyers I talked to today said that the company might be
pushing the legal envelope here with this interpretation of the rules, but
they may have one thing going for them, and that`s the Supreme Court, which
has been friendly to arbitration cases in recent years.

For NIGHTLY BUSINES REPORT, I`m Eamon Javers, in Washington.


GHARIB: We turn now to Michael Deutsch for legal analysis of what
this all means. He`s partner with of the New York law firm Singer Deutsch.

So, Michael, you just heard in our report that General Motors`
reaction was that this boiler-plate is routine. And we all have signed
similar agreements with credit card companies, with cell phone plans.

What is General Mills doing that`s different than those agreements?

moving the ball further down the football field because these agreements
are becoming more and more common as a result not only of the industry`s
preference for them. But the Supreme Court as referenced in the report by
Eamon there, has over the last four years come down with four decisions
which have made it easier for companies to continue to grow this mandatory
arbitration part of dispute resolution rather than taking things to court.

So —

MATHISEN: Go ahead. Finish your thought there. I`m sorry.

DEUTSCH: So, I think we`re going to see more and more of it
particularly if General Mills, let`s say, gets away with this and not only
in the public realm but in the courthouse.

MATHISEN: So what were their legal justifications for — if I happen
to go on their Web site, that`s one thing. But if I happen to consume one
of their products and it injures me, it has nothing to do with what I did
on the Web site. How can they justify removing my right to take them to a
U.S. court to alleged injury? I don`t get it.

DEUTSCH: What they`re doing is they`re actually basing their decision
to this on this recent court decisions that I`ve just referenced. Over the
last several years, there have been four major court decisions at the
Supreme Court level where the Supreme Court has said that consumers or
small businesses do not have the right to opt-out of these mandatory
arbitration agreements that they`ve either signed or agreed to through
direct or indirect means.

For instance, if you have a credit card, and your credit card company
sends you your statement, and before you open your statement, it says you
need to click through to our new terms and conditions, you click through,
you don`t read any of it, you suddenly agreed to mandatory arbitration.
Supreme Court has said we`re going to enforce that.

So, what General Mills has done is they`ve looked at this and they
said, hey, we think we can make this work for a variety of ways we`re
interacting with consumers, in social media, when they`re coming to our Web
site or when they`re buying our product. And they`re pushing the envelope
to see if they can get away with it in the courts.

GHARIB: All right, so do you think that this is going to spread to
other companies, seeing what General Mills is doing, and other car
companies, whether it`s a car company or a drug company, will do the same?

DEUTSCH: I think over time, it is likely to happen. But certainly,
there are gong to be two important other companies are going to look to.
The first is what is the consumer reaction to what General Mills has just
done, because they`re the first company to really step out and say we`re
going to be very aggressive on what we can do right now.

And the second thing is what happens in the courthouses, because there
are going to be a variety of lawsuits over this. That`s for sure. And
once those wind their way through the system at the district court levels
around the country, you`re likely to see a variety of different decisions.
Those will be bumped up to the Court of Appeals, and maybe the Supreme
Court for resolution on this issue.

MATHISEN: So let me play devil`s advocate, Counselor, and say, you
know, why shouldn`t a company be able to say, you used my product, you play
by my terms, you got a problem with my product? We`ll dispute it. We`ll
resolve it, but we`ll resolve it in front of an arbitrator, not a court,
why can`t I as a seller or a business be able to make that rule, one of my
rules of doing business?

DEUTSCH: Well, it seems like based on the recent developments in the
law that may be the case over time. But traditionally, it`s been part of
the negotiation between a consumer and company that we`re going to engage
in a transaction. And as a result of that transaction, we`re going to
agree to the terms.

Whereas in this case, you`re just buying a product you have no idea
what the privacy policy is on the Web site. And you`re suddenly bound by
these arbitration rules. And so, this is really going to have to be
resolved by the courts.

GHARIB: Real quickly, what could be the tradeoff for a company like
General Mills, consumer backlash? They won`t buy their Cheerios anymore?

DEUTSCH: Well, certainly, you could buy a different form of cheerios.
Lot of companies are making cheerios. I think the real issue are what is
the effect on consumers? Because consumers, if they`re in arbitration,
there are several handicaps, aside from several advantages, and the
advantage of going to arbitration is it is usually quick, it`s inexpensive,
you get results and you can live, both parties live by that result fairly
quickly, much faster than the courts.

But on the other hand, you`re often giving up your right to punitive
damages. There`s confidentiality surrounding this. So, the company is
getting dramatic protection for mistakes it may have been in the course of
producing its products.

GHARIB: Sorry, we`ve got to go. But fascinating conversation. Thank
you very much, Michael Deutsch with Singer Deutsch.

DEUSTCH: Thanks very much.

MATHISEN: And coming up, betting the farm. Zynga is taking the
franchise to mobile devices, and the company has a lot riding on the line.
We`ll be right back.


MATHISEN: If you`re an Internet gamer, this is a big day. And if
you`re addicted to Farmville on Facebook, it`s really big day. Farmville
is going mobile. Farmville anywhere you could say.

And here is Morgan Brennan to tell us more about why this is such a
big deal.


Just how big a deal is Zynga`s long-awaited mobile version of its Facebook
“Farmville” social game? You might say life size. The social gaming
company has decked out its San Francisco headquarters in honor of today`s
“Farmville 2: Country Escape” launch.

excited to finally bring “Farmville” to our players. We know with our
customer demographics that this is something they have been asking for.

BRENNAN: This is the first time Zynga has launched a fully mobile
game for its flagship franchise, representing a strategic shift away from
desktop and Facebook, where “Farmville” first found fame.

JONATHAN KNIGHT, ZYNGA VP OF GAMES: Between kind of growth and
monetization, it`s different. But obviously, we think a much bigger
opportunity in the long run. And, you know, we`re seeing that with kind of
early results.

BRENNAN: Seventy-five percent of the company`s game development
pipeline is now mobile first. And Zynga which reports earnings next week
expects mobile to surpass desktop revenue for the first time this year.
For this to happen, analysts say this game needs to be a success.

EVAN WILSON, PACIFIC CREST SECURITIES: It`s not going to be a good
enough for “Farmville 2” on mobile to be the number 20 or the number 10
game. Really, they need this to be in the upper echelon of games.

BRENNAN: A lot is riding on this game launch. It`s first offering
from new CEO Don Mattrick, who joined the company from Microsoft nine
months ago. He is leveraging “Farmville” because it`s still the company`s
most successful franchise, with 400 million players globally and over $1
billion in bookings over the past five years.

(on camera): But the company faces challenges. It has been difficult
to create that level of success with a new franchise. One of the reasons
the stock is trading about 60 percent lower than its 2011 IPO price. That
and steep competition from other social gaming companies, like newly public
King Digital and privately owned Supercell. Still, analysts are cautiously
optimistic about Zynga`s move to mobile. And they`re watching closely to
see what this farm can yield.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in San Francisco.


GHARIB: It seems that the Ford Mustang has become an iconic car
virtually forever? Well, it almost has, 50 years ago today, Ford debuted
the original Mustang at the New York World Fair. It became the automaker`s
most successful launch since the Model A. Currently in its fifth
generation, the 2015 Mustang now on exhibit at the New York Auto Show is a
limited edition. Ford will build just under 1,964 of these special models
before the full Mustang production begins later this year.

MATHISEN: And today marks another anniversary, CNBC`s silver. The
network that produces this program went on the air 25 years ago today, a
time when the business world was very radically different and the Internet
was still in its very small infancy, the Dow was trading at 2,300, the rate
on the 30-year mortgage was 11 percent, and the president of NBC at the
time, Bob Wright, introduced viewers to a groundbreaking new financial
channel. >


president of NBC. And I`d like to welcome you to the most significant
programming effort NBC has ever undertaken outside of the network — the
Consumer News and Business Channel, CNBC.


MATHISEN: We have come a long way. The economy has nearly tripled in
size, the price of oil has risen more than 400 percent, and as you can see,
our styles have matured a little bit over the years, along with the

GHARIB: Nice hair style.

MATHISEN: Nice, yes. There was more hair and less of me, I think.

GHARIB: That`s an interesting period of time. And I think the
Internet and access to the New York Stock Exchange were big openers for our
coverage as business reporters.

MATHISEN: Absolutely. And think about how that business has changed
over time. Amazing stuff.

GHARIB: All right. That`s it for us, NIGHTLY BUSINESS REPORT for
tonight. I`m Susie Gharib. Thanks for watching.

MATHISEN: And I`m Tyler Mathisen, have a great evening, everybody.
We`ll see you here tomorrow night for a special holiday edition of NIGHTLY


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