Transcript: Monday, April 21, 2014

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


SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Wall Street’s report card. One-third of the S&P 500 report earnings this week, but there are three companies to watch that could give investors more clues about the health of the stock market and the economy.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Price hike. Netflix (NASDAQ:NFLX) beats Wall Street estimates for profits and says new customers are going to have to pay more for its service. But will the price hike stick?

GHARIB: And what’s inside? Fidelity, T. Rowe Price and Blackrock are snapping up stakes in Silicon Valley startup at a record pace. Are these unproven companies adding more risk to your mutual funds?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for this Monday, April 21st.

MATHISEN: Good evening, everyone. And welcome back. We hope your holidays were good.

And “good” is the word for stocks today. The Dow and NASDAQ and S&P 500 each ending higher for a fifth session in a row. It is the first time we’ve seen that this year.

For the blue chip Dow stock, it is the first five-day winning streaks since last October. Volume, by the way, was the year’s lightest and stocks did trade in the narrowest range of the year as well. The Dow when all is said and done, higher by 40 points, NASDAQ up 26, and S&P jumped seven.

Solid earnings from Kimberly-Clark (NYSE:KMB), Hasbro (NYSE:HAS), Halliburton (NYSE:HAL), all helped to push prices higher and generally favorable tune of profit reports lately have boosted stocks so far this earning season.

But it’s early. This week, about a third of the S&P 500 companies will report their latest quarterlies and Dominic Chu takes a look at some of the most closely watched earnings and what investors will be looking for.


DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The 11 companies in the Dow Industrials will report earnings this week, as well as around 150 companies in the S&P 500. It’s going to be the busiest week of earnings so far this season but some reports will be scrutinized by investors more than others.

First up is McDonald’s (NYSE:MCD), the world’s biggest restaurant company will report earnings on Tuesday before the start of trading. Mickey D is often seen as a barometer of consumer spending across the globe. For that reason, investors look beyond just the headline, earnings and sales numbers. They will be focused on things like growth and comparable stores sales in each major geographic region they operate in.

In 2013, those com sales or sales in stores open at least a year grew by just 0.02 of a percent. On Wednesday, keep a close eye on Apple (NASDAQ:AAPL). And not because it’s the biggest publicly traded company in America as measured by market value.

Investors here will be checking out whether the market for higher smartphone products remains intact.

It’s also a story about growth and innovation. Apple (NASDAQ:AAPL) has long been seen as a leader in bringing hot new products to market. So, can it keep up the new product momentum?

And then, there’s the automakers — GM in particular. It reports earnings on Thursday and investors here will be looking for general health in the global auto market. Car sales in America are showing signs of life but growth in key markets like China will be a huge focus.

Investors will also be listening closely for any comments from GM regarding the ongoing investigation into its ignition switch recall and what kind of an effect it may or may not have on future sales. Of course, every earnings report from every company is important in some way, but these are three big ones to pay close attention to in this heavy week of earnings.



GHARIB: Just after the closing bell, earnings from Netflix (NASDAQ:NFLX), this is the world’s largest streaming video service, which added another 2.25 million new subscribers in the past three months. The company made $53 million in profit last quarter, taking in a better than expected 86 cents a share, topping estimates by 3 cents. Revenues were right in line with the forecast at $1.27 billion. That was enough to send shares initially higher after the report.

Seema Mody joins us now with more on Netflix (NASDAQ:NFLX) numbers.

So, you’ve been running through all the numbers. What’s your key takeaway?

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Susie, aside from sales and profits, investors keep a close eye on Netflix’s subscriber growth. The online streaming company added 2.25 million new domestic streaming customers in the first quarter. That was right in line with street estimates.

But all eyes are on the Netflix’s reach outside the U.S. It’s international subscriber base expanded by more than what analysts had been projecting this quarter, and international growth could potentially continue to be a driver going forward. Netflix (NASDAQ:NFLX), in fact, mentioned that it’s expanding into new European markets and that its international segment is on path to achieve profitability this year.

Something else to keep note of, Netflix (NASDAQ:NFLX) says it plans to increase its U.S. prices by a dollar or two for new members only. Existing members stay at current pricing. That’s $7.99 in the U.S.

Netflix (NASDAQ:NFLX) says this price hike will enable them to acquire more content and deliver an even better streaming experience.

Of course, tomorrow, the big question will be, what are analysts saying in terms of how this price hike will impact future demand?

MATHISEN: All right. Seema Mody, thank you very much. You’re a busy woman today.

All right. David Garrity joins us now to talk more about tech earnings and what to expect when other tech companies report later this week. David is principal with GVA Research.

David, welcome.

Let’s start — why not? — with Netflix (NASDAQ:NFLX). What did you think of the earnings report and what do you think of the stock at these prices? Would you buy it?

DAVID GARRITY, GVA RESEARCH PRINCIPAL: I mean, Netflix (NASDAQ:NFLX) was down about 25 percent off its high and we think — the fact that the stock it’s trading up after hours is pretty much bringing just in line numbers, basically let’s us know that the correction in the stock we think for the time being is halted.

You know, one question we have about the $2 increase for new customers is, is this a charge that’s going to be passed through to cable providers as the issue of net neutrality becomes more significant here in the U.S. Relative to when we buy the stock right now, we still think it’s fairly expensive. So, we would hold up for the time being.

GHARIB: All right. David, we have a lot of tech earnings coming out this week and big names that everybody always looks at. We have Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) on Wednesday and Thursday of this week. You have a buy rating on both of these companies.

What do you like about them and if an investor had money, new money to put to work, which one would you choose?

GARRITY: We’d put new money to work in Microsoft (NASDAQ:MSFT) versus Apple (NASDAQ:AAPL). We think, one, in the case of Microsoft (NASDAQ:MSFT), we have a new CEO, Satya Nadella, who was in charge of their cloud computing business, an area that the company can accelerate the growth in. Investors really don’t know Satya Nadella as of yet and to the extent, he’s been leading the highest growth areas in the company and we think there’s a lot of positive news to come from the first conference call that the new CEO is going to give us on Thursday, after the close.

And from that standpoint, we think there’s a lot of outside potential and Microsoft (NASDAQ:MSFT) near term, we think stocks basically get up to $48 looking out over the next 24 months.

Apple (NASDAQ:AAPL) on the other hand, while it’s obviously been a significant innovator, the new iPhone 6 isn’t going to come out until the end of September. They’re going to have to fight their way through the product transition, which we think makes the stock perhaps a bit sluggish near term.

MATHISEN: Let’s talk about Facebook (NASDAQ:FB). What do you like? What do you not like about it?

GARRITY: Facebook (NASDAQ:FB) — I mean, near term, the trends in terms of their driving more of their revenues from mobile, most likely continues. That number had been north of 60 in the last quarter, in December, we think it gets over 65 in March.

But the issue we have against the Facebook (NASDAQ:FB) is that management seems to be rather cavalier in terms of how they are using their stock and their cash to go out and bid up businesses such as WhatsApp and also Oculus VR, both companies where they’ve spent basically collectively $21 billion for businesses that aren’t making money as of yet, and in some cases, don’t really actually have any revenues.

GHARIB: All right. David, tell us about Amazon (NASDAQ:AMZN). It’s reporting on Thursday. The stock is down a little bit from its peak.

What’s your feeling about Amazon (NASDAQ:AMZN) and the stock?

GARRITY: Right. In terms of Amazon (NASDAQ:AMZN), I mean, obviously, we’re looking at a quarter here where the company is going to have earnings of about 15 cents a share. This will be the second quarter in a row the company has been profitable. Some of the concerns about Amazon (NASDAQ:AMZN) has been since we’ve seen weaker economies overseas, outside the U.S., is Amazon (NASDAQ:AMZN) going to be able to make their year over year revenue growth? With revenues about $19.5 billion.

If they don’t get that, stock obviously is still trading at a fairly high multiple, could be vulnerable to a further pull back. And we’ve already seen a correction of 20 percent off of its 52-week high.

MATHISEN: David, thank you so much. You really took us through a lot there. We appreciate it.

GARRITY: Thank you.

MATHISEN: David Garrity of GVA Research.

GHARIB: Shares of General Motors (NYSE:GM) ended flat today, even after internal company documents released by government safety investigators show the automaker waited years to recall more than 300,000 Saturns with steering problems. The correspondence shows that GM received thousands of complaints about power steering failures in the Ion model.

MATHISEN: Rival Ford is making concession plans. Reports say Ford will make its chief operating officer Mark Fields its next chief executive when 68-year-old Alan Mulally retires as CEO sometime around the end of this year. Ford is expected to make the announcement official as early as May 1. Fields has long been seen as Mulally’s likely successor.

GHARIB: Meanwhile, Alan Mulally was on hand at the opening of the Beijing auto show as American automakers invest heavily in the world’s fastest growing car market.

Eunice Yoon has more from Beijing.


EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): China’s economy is gearing down. But you wouldn’t know it at the Beijing auto show. Carmakers wowed the crowd with hundreds of splashy new models, all aimed at the country’s first time car buyers.

ALAN MULALLY, FORD MOTOR COMPANY, CEO: This is the perfect time for us to be coming because the economic development of China and the discretionary income that the consumers have.

YOON: Ford has revved up its business here. Criticized as a late comer, the latest auto giant has marketed the compact Focus to young Chinese, turning it into a best seller in China.

Now, the company hopes to reinvent the Lincoln image, no longer a car for your grandpa but a status symbol for aspiring Chinese.

MULALLY: We’re investing in transforming a Lincoln, and I think I would characterize it as all of the technology that Ford brings to bear, plus the elegance, plus, it’s affordable. It’s affordable luxury. That’s what people want today.

YOON: Despite the government’s austerity drive, and the nation’s polluted skies, Chinese drivers still like bigger, better cars.

DAN AMMANN, GENERAL MOTORS PRESIDENT: We see a really huge opportunity for Cadillac, the luxury segment is growing really quickly. I think we have good timing in terms of the entries that we’re bringing into the market and then away from the luxury segment, the SUV is really growing very quickly.

YOON: GM is a top player here, but with such a crowded market, the U.S. automaker is investing big, $12 billion over the next three years. It says so far recalls in the U.S. are not hurting its solid image in sales in China.

AMMANN: We haven’t seen any impact and I haven’t heard a lot of discussion around that in my couple days here so far. But clearly, what we’re doing in the U.S. is we’re putting the customer in the middle of everything we’re doing. We’re working very quickly to address and repair the vehicles involved.

YOON: And moving quickly is key for a country where consumers aren’t yet loyal to one brand and have too many car choices.

For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.


MATHISEN: Still ahead, do you want your mutual fund investing in unproven startups? More and more investors are doing it. Leaving investors wondering if their funds are riskier than they thought.


MATHISEN: Prices at the pump have shot up to a 13-month high and are more than 15 cents a gallon higher than they were just a year ago. Gasoline rose nearly 9 cents a gallon over the past two weeks, according to the Lundberg Survey, reaching a nationwide average now of $3.69 a gallon for regular unleaded.

GHARIB: Even with the nation’s demand for oil and gasoline rising, there’s another setback for the long proposed Keystone pipeline.

As Jackie DeAngelis reports, there are more delays to bringing fuel from the oil sands of Canada to refineries along the Gulf of Mexico.


JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Delayed again. A long awaited State Department decision on whether to proceed with construction of the Keystone pipeline is on hold again. More than 2.5 million comments have been recorded online. The issue giving cause once again for pause as the Obama administration extend its review of environmental impact studies.

Opponents of the pipeline, like billionaire environmental Tom Steyer arguing that the pipeline will, quote, “significantly increase carbon pollution via some of the world’s dirtiest oil.”

Supporters say Keystone is critical for oil transport, that it’s safer than rail and barge shipment, and with North America in the midst of an oil boom, the 1,700-mile pipeline would result in countless jobs.

Still, others are saying the decision to delay has more to do with politics than the pipeline itself. Especially if November’s midterm elections are just a little more than five months away.

ANDY LIPOW, LIPOW OIL ASSOCIATES PRESIDENT: I think this decision was politically motivated. The State Department could go ahead and evaluate the Keystone without waiting for the Nebraska state Supreme Court to issue a ruling and this just facilitates a decision-making process that goes post to November election.

DEANGELIS: Republicans are blaming President Obama. Senate Majority Leader Mitch McConnell of Kentucky calls Keystone the single, greatest shovel-ready project in America, but adds the president simply isn’t interested.

LIPOW: According to the State Department, this pipeline will add over 40,000 temporary jobs which includes construction jobs throughout the Midwest, as well as all of the support services, including pipeline construction, food services, hotel, revenues that are going to support these workers.

DEANGELIS: Even Democrats like Senator Mary Landrieu of Louisiana said the announcement is nothing short of an indefinite delay.

Politics aside, though, analyst say crude will get to wherever it needs to go, and that will happen one way or another. It’s a matter of supply and demand and right now, there is plenty of both.



MATHISEN: In breaking news, late today, an activist investor teams up with a pharmaceutical company to mount a takeover bid and that is where we begin tonight’s “Market Focus”. The head of Pershing Square Capital Management, Bill Ackman, is reportedly teaming up with Valiant Pharmaceuticals, in a rare alliance to trying to buy Allergan (NYSE:AGN). That’s the company that makes Botox.

The deal is reported to be worse, slightly more than $45 billion. Ackman’s hedge fund has already built up a nearly 10 percent stake in Allergan (NYSE:AGN). Shares of Allergan (NYSE:AGN) spiked on the report and close the regular session up 6 percent, at $142 a share.
Shares of Sarepta Therapeutics soared on news it will file an application with the Food and Drug Administration to get its muscular dystrophy drug approved. Late last year, the FDA said the company needed to do a larger late stage trial of the drug, which treats a type of muscular dystrophy that afflicts children. But after meetings with the agency, the company says it worked out a strategy for what the CEO calls accelerated approval.


CHRIS GARABEDIAN, SAREPTA THERAPEUTICS CEO: We have an opportunity to provide supplemental data over the course of the next six to eight months that will strengthen a potential new drug application. And so, we are very optimistic as we sit here today of the prospect for a potential accelerated approval.


MATHISEN: Shares closed at $33.98. That’s a gain of about 40 percent.

And Pfizer (NYSE:PFE) has reportedly approached its British rival AstraZeneca with a $100 billion takeover bid, according to press reports. But the U.K.’s “Sunday Times” says the effort was rebuffed and there are no talks currently talking place. No comments from the drug giants.

Shares of Pfizer (NYSE:PFE) up 2 percent to $30.86. AstraZeneca surged almost 9 percent to $69.10.

GHARIB: Reports that Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM) were talking merger sent shares of Barrick way down, but Newmont way up in today’s session. The deal would have combined the world’s two larger gold producers but the talks didn’t result in an agreement. There are reportedly still hopes that the deal could be revived.

Meanwhile, shares of Barrick fell almost 4 percent, $17.28 there. Newmont shares were up more than 6 percent to $25 and change.

Hasbro (NYSE:HAS) swung to a profit in the first quarter. The toymaker saw costs fall and sales in its girls products category surged. Earnings topped estimates but revenue fell short. Investors overlooked the revenue myth and shares were up almost 2 percent to $55.66.

And Halliburton (NYSE:HAL) posted an earning beat on both the top and bottom lines. The oil field services provider is also calling for a 25 percent jump in earnings for the current quarter, thanks to a recovery in margins in North America and growth overseas. The estimates, by the way, is right in line with expectations. Still, shares spiked more than 3 percent to $62.92.

MATHISEN: Reports say that Square, the mobile payment startup, may be on the auction block. “The Wall Street Journal” said that the cash-strapped company has been in talks with several deep pocketed tech giants about being acquired including Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL), and eBay’s PayPal division.

But in a statement, executives at Square denied having any talks with Google (NASDAQ:GOOG) and says it’s never seriously considered selling the company to anyone. So, there.

GHARIB: How do you feel about your mutual fund investing in Silicon Valley startups? You may not know it, but according to a report in today’s “Wall Street Journal,” your fund could have some share of newbies like Airbnb or Dropbox if your money is managed by Blackrock, Fidelity, Janus or T. Rowe Price.

Joining us and here to talk about the risks and the rewards is Stacy Francis. She’s a financial planner with her own firm, Francis Financials.

So, Stacy, first of all, how common is this with mutual fund families and should investors be worried?

STACY FRANCIS, FRANCIS FINANCIAL PRESIDENT: Well, you know, it’s becoming more common and in fact last year, we saw 16 deals closed by the big four that you mentioned. This year to date, we’re already at 13. So, it’s looking like it’s going to be a banner year.

Should you be concerned? Yes, you should be concerned. The average per person investing in a mutual fund has it in their retirement. They are investing in a mutual fund because they want long-term growth and income, not necessarily jet rocket-propelled growth with a whole lot of risk with it.

MATHISEN: But — but just to take the other side of the argument here, my assumption is, from what I’ve heard about these positions, is that they are really relatively small in any individual fund and obviously if they pay off as a Facebook (NASDAQ:FB) or Twitter did and I believe some of those funds were actually investors early stage in there, they can do really well.

FRANCIS: Well, Tyler, you bring up a very good point. Typically, you cannot go over 15 percent in something liquid like this, according to the SEC. So, we’re looking at most a 15 percent stake. But the only thing I would say, to be very careful of — a lot of these investments are in high-tech startups and it really is — reminds me of those years, if we all remember, many decades ago, in the 1990s.

In fact, it’s interesting, Janus and Fidelity were two of the worst offenders and had some of the mutual funds that lost the most.

So, it’s not necessarily bad to invest in this part of the market. Our biggest concern is that investors don’t understand that this is what’s being put in their mutual fund.

GHARIB: So, if one of your clients came to you and said, look, I’m worried about this, what would you tell them to do? I mean, how can you find out if your mutual fund is making these kinds of investments?

FRANCIS: Well, those investors that have financial advisors that work for them, that essentially are helping them, you have an easy way out because that is the responsibility of that financial adviser.

However, if you’re on your own, there’s a couple things you need to do. Number one, go to Morningstar (NASDAQ:MORN).com. You can see all of the listings of the current holdings of that mutual fund that is public information. That is for you to know.

Also, when you get your annual report and you get the proxies — I know it’s a big, thick document. It’s very easy to just put it in recycling. Go through and look for words like adventure capital, IPO, pre-IPO investments. Those are your three target words to look at and be concerned about.

MATHISEN: Can’t you call the fund and ask if they have any early stage or capital investments?

FRANCIS: Yes. Definitely call the fund as well. Actually, to be honest, a lot of the mutual companies out there are getting high marks for consumer education. So, give them a call. I will tell you that this is not something that they are really publicizing and trying to put out there on the front pages either as we saw. You know, some of their stocks actually have been gotten some hits and that’s because this is not necessarily good news.

GHARIB: Stacy, real quickly, we just have half a minute. You know, for years, a lot of individual investors are saying, how can I play venture capital? How can I get in IPOs? Even if they can just buy a few shares.

Now, isn’t this a balanced way, a safe way of getting into those, you know, new offerings?

FRANCIS: Yes. There are actually mutual funds that you can buy that focus specifically on this part of the market. That’s where I would go to get that exposure. Better than buying, you know, a few shares of Facebook (NASDAQ:FB) through your discount brokerage. It’s better to get a larger exposure.

But again, know what you are buying and there are great, great, great technology-fund oriented stocks out there that focus on stocks. Again, know what you’re buying. This is not what you want in your long-term investing.

GHARIB: OK. Lots of good advice. Thank you so much, Stacy.

Stacy Francis of Francis Financial.

And coming up on the program, did consumer backlash cause General Mills (NYSE:GIS) to reverse its legal policy? An update to the story that we told you about last week. That’s next.


MATHISEN: A big reversal from General Mills (NYSE:GIS), the cereal giant. Last week, we told you how the company changed its legal policies, saying that any customer, any customer who visited the company’s Web site or interacted with the company’s Twitter or Facebook (NASDAQ:FB) pages would automatically give up the right to sue General Mills (NYSE:GIS) in court, if there ever a dispute arose.

Following an outcry from legal and consumer advocates, the company reversed course and has now gone back to its original policy.

GHARIB: Nike (NYSE:NKE) has come out swinging, refuting reports that it’s getting out of the wearable technology business and laying off nearly all of the employees in the 70-person unit. Nike (NYSE:NKE) admitted into a statement that sales of its fuel band fitness devices have been unsuccessful, but says, quote, “as a fast-paced, global business, we continually align resources with business priorities. As our Digital Sport priorities evolve, we expect to make changes within the team and there will be a small number of layoffs.”

The statement added, “We do not comment on individual employment matters. Nike (NYSE:NKE) also says it will continue to sell those band devices and update its fitness software.”

MATHISEN: And finally tonight, the 118th running of the Boston marathon, the first since last year’s terrorist attacks at the finish line. This time, everything went off as planned and an American Meb Keflezighi won for the men. And Rita Jeptoo of Kenya defended the women’s title she won last year.

Today’s race hosted the most runners in two decades and the most spectators ever, more than a million people lining the streets, creating both challenges and opportunities.

Our Scott Cohn reports from Boston.


SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The mission stage a race that feels like any other in a year like no other.

At the start of the race, a moment of silence, and along the route, unprecedented security for 36,000 runners and a million spectators. But at the same time, there was a concerted effort to make security invisible.

BILL EVANS, BOSTON POLICE COMMISSIONER: My wife and child always come. You know, I’ve ran 46 marathons. And, you know, if they are sitting at the finish line, I don’t want them to look up and see snipers on top of roofs. I don’t want them to see men in tactical gear. This is a family event. I want it to remain such.

COHN: Last year’s deadly bombings taught lessons, the hard way, about protecting targets like sporting events, shopping malls and hotels.

Ed Davis retired as Boston police chief last year. Now, he’s a consultant.

ED DAVIS, RETIRED BOSTON POLICE CHIEF: This was not a close event. It was a soft target in that people could move around but clearly, backpacks were a threat to us and more of a threat than we had assumed.

COHN: 2013 taught law enforcement the importance of surveillance cameras and social media to share what they see.

(on camera): 2013 not only changed security to the core, it also struck a nerve in Boston and around the world, and that’s actually measureable in dollars and cents.

(voice-over): A fund for victims and their families raised more than the victim funds in Newtown, Connecticut, Aurora, Colorado, and at Virginia Tech University combined.

KENNETH FEINBERG, ONE FUND BOSTON ADMINISTRATOR: In 60 days, 100,000 donors from around the nation contributed $61 million.

COHN: And this year, the security, the visitors, the media are expected to spend a record $175 million which the mayor would trade in a heartbeat.

MAYOR MARTIN WALSH, BOSTON: Today is not about the money. Today is about the spirit of this race.

COHN: This year’s marathon is a major strive to restore the spirit the world has come to love.



GHARIB: They don’t say Boston strong for nothing.

MATHISEN: No, indeed.

GHARIB: That’s NIGHTLY BUSINESS REPORT for tonight. I’m Susie Gharib. Thanks so much for joining us.

MATHISEN: And I’m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody, and we hope to see you 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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