Transcript: Thursday, June 12, 2014

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

rising to their highest level in years as the Iraq violence intensifies.
Some oil experts say oil could easily go higher.

As the conflict escalates, a number of American energy companies with
operations in Iraq could feel the heat.

MATHISEN: And show me the profits. Add streaming music to the list
of things Amazon (NASDAQ:AMZN) now offers. But will it help increase
earnings? Something shareholders keep looking for.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
June 12th.

GHARIB: Good evening, everyone.

We begin tonight with the escalating violence and chaos across Iraq.
And even though al Qaeda militants have taken over cities and are closing
in on oil refinery, thousands of miles from Wall Street, the impact here in
the U.S. is clear. Stocks have been plunging and the price of oil surging.
As more regions of Iraq fall into the hands of insurgents, there are calls
for the U.S. to intervene in the crisis, as fears that the uprising could
spread beyond Iraq`s borders.

Three years after American troops have pulled out of Iraq, government
officials in Baghdad are now asking the U.S. for assistance in containing
the rebels. But President Obama has made no commitments and says he is
looking at all options.


anything, because we do have a stake in making sure that these jihadists
are not getting a permanent foothold in either Iraq or Syria.


GHARIB: Meanwhile, the violence is heightening, worries about the
supply of oil and a spike in energy prices. Let`s look at the closing
prices today, Brent oil futures climbed to $113 a barrel today. The cost
of West Texas crude jumped more than $2, hitting the highest price of the
year, $106 a barrel.

Jackie DeAngelis has more on the outlook for oil and gasoline prices.


geopolitical situation in Iraq causing volatility and oil prices on both
sides of the Atlantic. These as prices have remained relatively high for
the last few weeks. What`s interesting, however, is that gas prices have
remained relatively stable recently. The current average for a gallon of
regular gasoline is $3.64, according to AAA`s fuel gauge report. That`s
down 2 cents from a week ago and only a penny higher than the same time
last year.

But this could be the calm before the storm if geopolitical tensions
in Iraq worsen, and oil prices climb higher, traders say expect to pay more
the next time you fill up.

wholesale for gasoline is going to be a level we`re heading above that
level. And the important thing here is that refineries aren`t going to
have an excessive amount of capacity. So, we are going to see some supply
constraints in gasoline this summer.

DEANGELIS: While no one like to pay more at the pump, analysts have
often likened gas prices to taxes — no one likes to pay more and when they
have to, they cut elsewhere.

is suffering from high gas prices is probably a little an understatement.
And this last 5 percent move in a week could be a real kick in the pants to
them, as well.

DEANGELIS: Adding fuel to the fire, comments from President Obama
earlier today that he isn`t ruling anything out, leaving the door open for
possible U.S. intervention.



MATHISEN: The trouble in Iraq impacts a lot of U.S. energy companies
that do business there.

Morgan Brennan now with a look at which firms have operations in Iraq
and what`s at stake.


fifth largest proven crude oil reserves in the world. As the conflict
escalates, the threat of disruptions for production looms. It`s a scenario
that could impact a number of U.S. energy companies. Starting with
integrated oil giants, ExxonMobil (NYSE:XOM) has Marathon Oil (NYSE:MRO),
Occidental Petroleum (NYSE:OXY), and Murphy Oil (NYSE:MUR) all have
operations throughout Iraq. And of these names, Exxon, the most exposure.

But analysts say Iraq still only accounts for a small percentage of
these companies overall global production, meaning the benefits associated
with rising oil prices could more than offset the negative impacts
associated with local disruptions.

percent, 97 percent of the business for these guys is now theoretically
more profitable. There is more business to do because the oil prices are
higher, just so long as you don`t get it so high that you start to worry
about GDP growth and doing some economic damage.

BRENNAN: Another industry with exposure to Iraq, the oil field
services companies, which service and maintain oil companies equipments.

URBAN: You`re talking about Halliburton (NYSE:HAL) Schlumberger
(NYSE:SLB), to a lesser extent, Baker Hughes (NYSE:BHI), they made an early
push into the country, lot of operations in the south, frankly haven`t been
very profitable. They`ve been trying to push that back to break even, or
do a little better even, have had some success with that.

BRENNAN: Production disruptions could have a greater impact on these
companies` bottom line, something we`ve seen before when Baker Hughes
(NYSE:BHI) reduced fourth quarter after operations were suspended at a
facility in just last year.

Still, a lot is going to come down to location. Southern (NYSE:SO)
Iraq accounts for a lions share of the oil output. But it`s actually
Kurdistan in the north where energy companies stand to lose the most.
That`s because many companies and oil field services have increased their
investments and operations in that region. It`s held the promise of bigger
profits than the South. An escalating conflict could derail those efforts.



GHARIB: John Kilduff joins us now to talk more about Iraq and the
impact on U.S. energy prices. He`s founding partner at Again Capital.

John, thanks for coming by to talk with us.


GHARIB: Let me start right off with prices and where they`re going.
You`re predicting worse case scenario that things really get bad, it could
get up to $150 a barrel, talk us through your thinking on that.

KILDUFF: Well, on times like this, we`re already in a multi-month
high — multi-month high right now. We dust off the chart and see where`s
the high water mark when you look back. That was 2008 when we hit $147 a
barrel. So, just sort of sitting here today, round number, resistance and
upside target, that`s the number.

We get through — we`ve gotten through 105, next up is 110. I think
after that, that will be generated by some real damage on the ground or
real worries, or even when I`m calling a credible threat to Baghdad and the
central government, that`s when we`re off to the races and you`ll see those

MATHISEN: Worse case $150. What is the likeliest case in your view?

KILDUFF: Well, I`m not too sure on this one, Tyler, to be honest with
you, this happened so quickly. The oil market hasn`t overreacted to this,
because the northern output from Iraq has been off line for months. So,
this has been nothing really new that the market hasn`t been able to deal
with already.

But the southern oil facilities, that`s 3 million —

MATHISEN: That`s the bulk of their production.

KILDUFF: That`s 100 percent of it, right now. It`s 3 million barrels
a day. To put that in perspective, that`s 10 percent of OPEC`s 30 million
barrel a day commitment to the world right now. So, it`s a lot. It`s
meaningful, and it can`t be made up. So, that`s when you get into this
what-if scenario.

I think if it calms down and they relax, prices will come down quite

GHARIB: And what kind of adjustments can they make going off line?
Will OPEC increase its production? Will the U.S. tap into the strategic
petroleum reserve? I mean, what kinds of things can we expect?

KILDUFF: Well, OPEC does not have the capacity to make up the 3
million barrels, it`s just not there. That`s what makes this so dire if it
is impacted. The U.S. has 3 billion barrels of oil in storage, it could
tap them it. Thankfully, we are producing 8.4 million barrels a day
ourselves, but that`s not enough to insulate us from this.

So, this represents still a shock to the system. Every ten barrels
sustained is a half a point off GDP, and the numbers start going from
there, because what happens when that pump price hits four, or 4.50, five –

MATHISEN: That`s what I want to ask you. What do you see for prices
at the pump later this summer into the Labor Day season?

KILDUFF: You`re talking $4.55 as a result to the kinds of prices that
we get to the $110, $115, $120 easily. And the boomerang on that, Tyler,
is the consumer confidence implodes on that.


KILDUFF: And it`s a whole big syndrome of people pulling back for a
variety of reasons, not spending on retail and vacations, and we`re back in
a recession.

GHARIB: You know, I saw a headline say that Iraq threatens the whole
global energy supply for years. That seems like a really strong statement,
how true is that?

KILDUFF: Well, you know, this whole situation was predicted when Iraq
was first invaded back in 2003. We were worried about the country breaking
apart. We were worried about a Shia arc, because where the Shia are, the
Iranians, the central government of Iraq, is where most of the oil is. But
this is really a pitched battle between the Sunnis, who are the Saudis, and
the UAE, versus Iran, principally, and now their counterparties in Iraq.

So, this upsets the entire balance, they — it`s not as if these are
Sunnis that are friendly to us, like the Saudis are. They`re a pretty
brutal group, as we were all finding out. So, they`re not going to be too
inclined to get lower oil prices to the west to keep the economy alive.
So, it`s a problem all around.

GHARIB: All right. A lot of good information. John, thanks again.
I appreciate it.

KILDUFF: Thank you.

GHARIB: John Kilduff with Again Capital.

MATHISEN: Well, rising fuel prices are a big concern for the nation`s
biggest airlines, because jet fuel is the carrier`s largest single expense.
Shares of the big airlines took some hits today. Delta and United both
fell more than 5 percent. American, Southwest and JetBlue all saw
significant losses, as well.

GHARIB: Meanwhile on Wall Street, stocks fell on those worries about
Iraq, but also on some disappointing economic news. A smaller than
forecast rise in retail sales in the month of May and a surprise jump in
jobless claims. Here`s how the major averages ended the session. The Dow
tumbles 110 points, its second triple digit loss in a row. The NASDAQ down
34, the S&P lost 13 points.

MATHISEN: General Motors (NYSE:GM) is looking to drive its share
price high. The automaker`s board has approved the repurchase of 5 million
shares of company stock, hoping to offset the bad press and expense of that
disastrous and tragic ignition switch debacle and recall.

The U.S. Supreme Court ruled that money inherited from individual
retirement accounts can be taken by creditors to cover bankruptcy debts.
In a unanimous ruling, the court said inherited IRA money not received from
a spouse is not protected in bankruptcy proceedings, unlike most other
retirement savings accounts.

GHARIB: Well, anyone under 65 who is planning on retiring this year
may need that IRA money and a whole lot more. Fidelity Investments says
that couples retiring at age 65 in the year 2014 should expect to incur
$220,000 in health care costs during their retirement and that`s even with
Medicare coverage. And that figure doesn`t include the added cost of
nursing home or long-term care.

Still ahead, downward drop. Can Lululemon, the once hot yoga wear
maker, rebuild trust with its customers and turn the stock around?


GHARIB: The chairman of the Federal Communications Commission is
asking telecom and cable companies to step up and take the lead on sending
off cyber attacks. Tom Wheeler urged companies like Verizon (NYSE:VZ),
AT&T (NYSE:T) and Time Warner (NYSE:TWX) to take responsibility and market
accountability for preventing and managing hacking attacks before the
agency has to impose new regulations.

MATHISEN: Shares of Lululemon under attack today, with investors
turning sour after the chain reported profits plunged to 60 percent last
quarter and as well lowered its outlook for the full year. Shares turned
south, tumbling 16 percent. The upscale yoga wear seller says that much of
that drop in profit was due to a bigger tax bill.

But as Courtney Reagan explains, Lululemon is getting squeezed from
all sides.


It was a lemon of an earnings report for Lulu and the yoga wear retailer
isn`t inspiring much confidence that it will get better any time soon.
While Lululemon did report a stronger than expected first quarter and
announced a $450 billion share buyback, its sales and profit forecast and
unexpected news that CFO John Curry will retire at the end of the fiscal
year is causing concern among investors.

Aggravating matters further, there`s little Namaste among the board,
with founder, board member and large stakeholder Chip Wilson continuing to
bring tensions to the Lulu family, voting against the current chairman and
another board member, saying neither fits with the core values of the

When asked about the board division on the earnings call, current CEO
Laurent Potdevin said candidly —

LAURENT POTDEVIN, LULULEMON CEO: Our parents are fighting and it`s

REAGAN (on camera): While Lululemon has a high level of customer
loyalty, it struggled to recover from last year`s see-through pants recall
and lately uninspiring product. The new CEO calls 2014 a transitional
year, as it works with new products design and revamps its manufacturing
process, though some analysts think the period of investment may last
longer than a year.

DANA TELSEY, TELSEY ADVISORY GROUP CEO: Positive comps really aren`t
expected until the fourth quarter at the earliest, and they are living
through product from the old design team. They are spending money on
traffic driving initiatives in the second quarter and third quarter, but
it`s a work in progress. It`s not the same Lulu it was a year ago or two
years ago.

REAGAN (voice-over): As the athletic wear category grows so does the
competition. Lulu may not be the same retailer it was a couple of years
ago, but it is still worth more than $6 billion. It`s culturally different
enough from competitors Under Armour (NYSE:UA) and Nike (NYSE:NKE), that
it`s an unlikely acquisition for either.

Gap`s Athleta has also seen sales grow, as well as private label
athletic wear from department stores, all likely taking pieces of Lulu`s
market share. As competition intensifies and Lulu stumbles, investors are
beginning to wonder if the once Wall Street darling is now a fallen star.



GHARIB: Intel (NASDAQ:INTC) hikes its outlook, sending shares up as
much as 4 percent in after-hours trading, and that`s where we begin
tonight`s “Market Focus”.

The chip maker increased its guidance for the second quarter and also
the full year, saying it expects stronger than expected demand for personal
computers. Earlier, it was calling for flat revenue this year. Now, it
expects some growth. Ahead of that after the bell news, shares rose
slightly to $27.96.

Lands` End was popular with investors today after posting strong first
quarter earnings. The clothing chain, which was recently spun off from
Sears (NASDAQ:SHLD) saw a higher profit and revenue margins. Also driving
up those earnings, promotions and a better assortment of merchandise. The
stock jumped 8 percent to $28.79.

And the shake up of top executives at Twitter. The social media chief
operating officer Ali Rowghani has resigned but he will stay on as
strategic adviser to the chief executive. Twitter says it doesn`t expect
to hire a replacement. Shares popped 3 1/2 percent to $36.79.

MATHISEN: Kind of a surprise move by the founder and CEO of Tesla,
Elon Musk. He is opening up his company`s technology patents to any
automaker who wants to make long-range electric cars. Musk says an open
source philosophy will increase development of more and better electric
cars, leading to more sales across the sector and actually strengthen
Tesla`s market share.

Shares of Tesla, though, didn`t react favorable there, down to

MobileIron saw its shares jumping its trading debut. The company
makes software that protects corporate data accessed by employees on
smartphones. The offering raised $100 million with shares priced at $9
apiece. The stock rose 22 percent to $11.02.

GHARIB: Good news for pro-golfer Phil Mickelson on this first day of
the U.S. Open tournament. “The New York Times (NYSE:NYT)” reports that the
lucky lefty was not involved in any insider shading of shares of Clorox
(NYSE:CLX), around the time that billionaire investor Carl Icahn was trying
to acquire the company back in 2011. Wall Street regulators had been
looking into some timely trades of Clorox (NYSE:CLX) around the time of the
takeover including trades by Phil Mickelson.

MATHISEN: Well, of course, products go on Amazon (NASDAQ:AMZN) seems
to be just about everywhere. Your closet, your cupboards, even your living
room. And now, Amazon (NASDAQ:AMZN) has launched a streaming music service
for Amazon (NASDAQ:AMZN) prime subscribers aimed at your iPod or cell

Julia Boorstin has more.


free shipping and streaming video, subscribers to Amazon`s $99 annual prime
service now get another perk, Amazon (NASDAQ:AMZN) Music. Add free
streaming access to more than a million tracks.

With an app for Apple (NASDAQ:AAPL) and Android devices. This comes
as Amazon (NASDAQ:AMZN) expands into everything from grocery delivery to a
marketplace for local services, producing its own original videos. Amazon
(NASDAQ:AMZN) Music has a heavy emphasis on playlists, and most of the
songs are at least six months old, not new releases.

It`s inked deals with two of the three biggest music labels, Sony
(NYSE:SNE) and Warner music group, featuring the likes of The Doors,
Madonna, and Green Day. But it hasn`t yet made a deal with the largest
label, Universal (NYSE:UVV) Music, which has A-listers including Taylor
Swift, Lady Gaga and Elton John.

Amazon`s sale of music downloads already make it a huge player in the
music business. Today`s launch makes the prime subscription more appealing
on the heels of a $20 price hike and helps it increasingly formidable
rivals. Apple (NASDAQ:AAPL) bolstering its music portfolio with its recent
$3 billion acquisition of Beats, Google (NASDAQ:GOOG) has its music play
store and streaming, and Spotify and Pandora are both on the rise.

JAMES MCQUIVEY, FORRESTER ANALYST: And that will mean that Amazon
(NASDAQ:AMZN) is not going to favor well compared to let`s say, Spotify or
Pandora, and that will be a challenge for it. But I think Amazon
(NASDAQ:AMZN) will respond by saying, hey, if you`re a prime customer, this
is all free. So, it`s not a direct comparison in the first place.

BOORSTIN: But unlike those services focused just on music, Amazon
(NASDAQ:AMZN) is making a bigger play for everything consumers do.

MCQUIVEY: Amazon (NASDAQ:AMZN) is trying to create a complete
portfolio of experiences for its customers, from books to summer shorts to
now a music subscription service. It means the full package in order to
keep people coming back day after day.

BOORSTIN: One way to keep consumers coming back? A phone. There are
reports that Amazon (NASDAQ:AMZN) will unveil one at an event coming up on
June 18th.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.


GHARIB: Coming up, soccer fans have the World Cup. Fans now have
NIGHTLY BUSINESS REPORT`s new ultimate stock cup challenge. We`ll explain,


MATHISEN: Today, the world`s biggest sporting event, the World Cup
begins with 32 countries battling out on the world stage for the ultimate
prize in soccer or football, if that`s your taste. So, that got us
thinking, who are some of the best global rivals in the business world.
And so, over the next four weeks, coinciding with the tournament in Brazil,
we will take a look at 16 companies that battle it out every day in global
business and we will have an analyst tell you which stock he or she favors
right now.

Call it NBR`s ultimate stock cup, the global rival edition. These
companies compete like Spain, Portugal, Argentina and Brazil.

And tonight, we start with a classic, Coke versus Pepsi.


MATHISEN: It`s perhaps the strongest brand in the world, Coca-Cola
(NYSE:KO). Born 1886, headquarters, Atlanta. Annual sales, almost $47
billion. The original carbonated, caffeinated confection was an instant
hit, rising quickly to become a global icon. But as demand for cola
leveled off, Coke has played to its strength in bottling and distribution,
time and again, they forged big wins.

The roster filled with one superstar name after another, Nestea,
Minute Maid, Sprite, Tab, Fresca, and Hi-C. Recent additions include Capri
Sun, Dasani Water, PowerAde, Honest Tea, and even a Rockstar.

Twelve years younger that Coke, Pepsi-Cola was first mixed by a North
Carolina pharmacist. Nowadays, its home is in Purchase, New York. Annual
sales, more than $66 billion, bankrupt twice in the 20th century, the
Pepsi-Cola company merged with Frito Lay way back in 1965 and became
PepsiCo. It owns beverage brand legends like 7-Up, Tropicana and Gatorade,
but also added Quaker Oats back in 2001. And eight years later, snack food
supremacy drove Pepsi`s overall market value past Coke`s for the first
time, and it remains there today.


GHARIB: Let`s turn to Caroline Levy for her play by play on these two
powerhouse brands. She`s beverage analyst and managing director at CLSA

So, Caroline, sticking with this sports lingo, you`re saying that on
the field, Pepsi out-runs, out-scores Coke. Now, tell us the key reason

Well, really it is not because Coke is not the stronger player in
beverages, they definitely are particularly on a global stage. Coke and
Pepsi are a little more neck and neck in the U.S., but globally, Coke is
the clear winner in beverages.

However, more than half of Pepsi`s earnings come from snacks, and we
have an activist involved in Pepsi who wants the company to split. So,
from a stock perspective, we find Pepsi much more interesting.

MATHISEN: Do you think it may ultimately be split into various
divisions of food and beverage, or what?

LEVY: I actually do. In 2009, when I first joined CLSA, we wrote
that it should split. And now, we have Nelson Peltz and (INAUDIBLE) Bolton
(ph) really trying to make that happen. I think analysts for many years
have felt, as I do, that companies will do one thing extremely well will
get a better valuation. And so, we don`t believe in power one. I
certainly don`t. I think that a Pepsi beverage company globally and a
snack company globally will be far stronger to stand alone.

GHARIB: You know, every good team has to have their strong players
and their strong bench. And we know at Pepsi, Nelson Peltz has been
critical of Indra Nooyi and other management people. In the case of Coca-
Cola (NYSE:KO), CEO Mukhtar Kent has come under attack, but everyone from
Warren Buffett to shareholders about compensation packages, how do you rank
these two management teams?

LEVY: Well, I think Indra is criticized for not ever run a division.
She is financially very savvy. I think that she has been involved in
things like marketing, and sort of operating strategy in which she doesn`t
have experience. And I think the results have been some serious market
share losses in beverages, especially in big brands like Tropicana, which
used to dominate high-end orange juice and no longer does with Gatorade.

So, you know, I think that`s a big criticism of Indra, the operating
capability would be better in someone else`s hands.

Mukhtar came in a hero. He really grew up in the bottling system. He
was really a man of the people. I think he increasingly has become a
global diplomat and spokesperson for the company. And, you know, other
people are running the business. But he is still commanding strategy.

MATHISEN: And we`re a little short on time. Nobody markets better
than Coke, Caroline, and yet you have an under-perform rating on this.

LEVY: I do, and again, we`re talking about the stocks here. The soft
drink business is a very tricky one right now. I think there are going to
be sugar taxes imposed beyond Mexico where that will really happen in
January, and I think there`s risk of state and local taxation, sugar taxes
in the U.S. and taxes in other countries. So, I think carbonated soft
drinks in particular are strategically challenged.

GHARIB: And so, you like Pepsi. How good can it get there? Right
now, it`s trading around $87. What`s your target on it?

LEVY: Ninety-seven dollar target. If it splits, I think you see the
stock over 100 splits in terms of the beverage snack business. And, you
know, there is a reasonable chance that that may happen.

MATHISEN: Pepsi beats Coke. I assume you`re going to root for
England? Am I wrong?

LEVY: Well, I`m South African. So, you know —


LEVY: — I`m conflicted.

MATHISEN: OK, all right, very good. Caroline, thanks for joining us.

LEVY: Thank you.

MATHISEN: All righty. You just heard which stock our guest prefers.
We want to know what you think. Coke or Pepsi. Vote in our ultimate stock
cup on our Web site,

GHARIB: And finally tonight, this year`s World Cup in Brazil already
has one claim to fame, it`s the most expensive ever. The estimated costs
for hosting the games is reportedly more than $11 billion. Four years ago,
the same tournament cost South Africa only $4 billion.

But there is also a historical benefit for the winning country. The
victor`s national economy on average has out-performed the world economy by
3 1/2 percent in the month after the tournament.

And why do they call it the world`s most popular sporting event? More
than 3 billion –yes, 3 billion watched four years ago, even more people
are expected this year.

And, you know, Tyler, to put that in perspective, if you combined the
Super Bowl, the World Series, the U.S. Golf Open, there is still more

MATHISEN: Doesn`t add up to this at all.

GHARIB: It`s amazing.

MATHISEN: And Brazil and Croatia were playing earlier today.

GHARIB: How`s winning there?

MATHISEN: I don`t know who was winning there.

GHARIB: Stay tuned for that.

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

MATHISEN: I`m Tyler Mathisen, thanks from me, as well. Have a great
evening, everybody. We`ll 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
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on Nightly Business Report is not and should not be considered as
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