Transcript: Tuesday, July 29, 2014

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

Stocks knocked down as sanctions against Russia ratchet up. The targets:
banks and energy.

Hashtag flying high. Twitter shares soar as the social media company
posts a surprise profit and says it`s adding more users — a lot more.

And piling up. The debt problem you may not even know you have.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, July

Good evening, everyone, and welcome. I`m Tyler Mathisen. Susie
Gharib has the night off.

Stocks dropped as the U.S. and European Union acting in tandem imposed
tough new sanctions against Russia, because of its actions in Ukraine.
More on that in a moment.

But we begin tonight with after-hour earnings that sent one high
profile social media stock zooming. Twitter shares soared after reporting
blowout second quarter results. Wall Street expected the company report a
loss of a penny a share, but surprise, surprise, it turned up hot profit,
albeit a small one, 2 cents a share. Revenue, though, more than doubled
and the company saw a big uptick in user growth and here is what happened
to the stock. Look at that chart. Up as much as 30 percent in after hours

Our Julia Boorstin spoke with the CEO Dick Costolo and has a look at
those results.


soaring after hours as the company`s results beat expectations across the
board. And the company raised its full year guidance. Twitter`s users
numbers are growing faster than expected. The company ended the quarter
with 271 million monthly active users, up from 255 million at the end of
last quarter.

The company benefitted from the World Cup. But in an exclusive
interview, CEO Dick Costolo said that`s not all.

DICK COSTOLO, TWITTER CEO: It was a continuous set of growth across
the quarter. It was no one moment or one time thing that affected the
growth in users. It was the combination of product changes that we talked
about over the course of the year that are starting to deliver the kind of
results we wanted to see.

BOORSTIN: When I asked Costolo if Twitter`s adverting revenue per
user would be able to double, to catch up with Facebook (NASDAQ:FB), he
said he didn`t see anything structural to prevent Twitter from have the
same kind of financial results seen from others in the space.

And as for catching up with Facebook (NASDAQ:FB) size, he said, our
goal is to have the largest total audience in the world and reach every
person in the planet.

Fielding questions tweeted in about privacy, Costolo says the company
is taking action.

COSTOLO: We have a whole product team focused on user safety and
privacy and will continue to invest in that, as we become increasingly the
world`s information network. Obviously, it`s the case we need to take that
seriously and address it.

BOORSTIN: Now, we`ll see if Costolo can keep up that user growth and
continue to grow revenue.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in San Francisco.


MATHISEN: A major escalation today in the war of words and actions
with Russia over what the West says is its continuing role in backing
insurgent bent on destabilizing Ukraine.

Until now, the mostly U.S. sanctions targeted individuals and were
widely regarded as token efforts to make Russia`s Vladimir Putin back off.
He hasn`t.

President Obama said the new measures coordinated with the European
Union are aimed at three key and sentence areas for Russia — energy,
defense and finance. Future technology sales to Russia`s important oil
industry will be blocked, matching actions by the E.U. earlier today, and
the president says the sanctions already in place are taking a toll.


Ukraine and the sanctions that we`ve already imposed have made a weak
Russian economy even weaker. Foreign investors already are increasingly
staying away. Even before our actions today, nearly $100 billion in
capital was expected to flee Russia. Russia`s energy, financial and
defense sectors are feeling the pain.


MATHISEN: Let`s bring in our Washington correspondent John Harwood.

John, what did the president and the European allies do today
specifically? And is it likely to change Vladimir Putin`s mind one little
bit when he clearly enjoys very strong support within Russia?

as you indicated earlier, nothing changed his mind so far, but this was the
moment the president was waiting for when finally, Germany, Italy, France,
the United Kingdom, agreed to be willing to bear some of the pain that they
would feel from inflicting pain on Russia, because they are so much a
bigger and economic player with the Russians than the United States.

The U.S. had been reluctant to get out front far too because it wasn`t
going to do all that much as long as Europe continued to do business would
simply make the United States look weak.

So, now, that you have the possibility with these broader sectoral
sanctions of changing the calculus for Putin. If it doesn`t, then they`re
going to have to see if there are any other steps they can take. Everybody
has ruled out military boots on the ground.

One of the options, of course, Tyler, is supplying the Ukrainian
formed forces, but the president said when asked about that, the problem
isn`t Ukraine`s inability to respond military, it`s something to change
Russia`s incentives.

MATHISEN: He also said, I thought pointedly in response to a
question, that this is not the beginning of a new Cold War.

HARWOOD: No, he didn`t. And, you know, the United States continues
to seek Russia`s assistance on other issues, such as sanctions against Iran
and North Korea and a whole range of other issues and, you know, they had
the reset in relations earlier, the Obama administration, they say they got
some results from that. So, they are not swearing off the relationship but
they feel like, given the seriousness of the situation in Ukraine, the
violation of Ukraine`s sovereignty and, finally, the downing of that
passenger jet, this is the moment that they can mobilize the European
community to join them and maybe change the balance of power in Ukraine.

MATHISEN: And, very quickly, John, followed by the downing of some
military aircraft after the downing of that Malaysia airliner.

HARWOOD: Yes. And also firing of artillery shells into Ukrainian
territory from Russia. It hasn`t gotten better so far. This is the
strongest gambit the West has made yet.

MATHISEN: John Harwood, thank you very much.

Those sanctions overshadowed generally favorable corporate earnings
and some new economic reports on the state of the economy. Consumer
confidence is measured by the conference board jumped in July to a nearly
seven-year high. But a new report on housing confirmed what we already
know, that home price gains are slowing.

By the close, the Dow fell more than 70 points and is now about 1
percent off its record high. The NASDAQ dropped two and the S&P 500 was
down nearly nine points.

American Express (NYSE:EXPR) (NYSE:AXP) reporting earnings after the
bell, posting a 9 percent jump in profit, partly on higher credit card
spending. Earnings were $1.43, a share exceeding expectations, card member
speeding accelerated, also growing by about 9 percent. Revenue up 5
percent at AmEx, meeting forecast at $8.66 billion. Some of that came from
the sale of half the company`s corporate travel business to an investor

Shares were initially lower after that report and there you see they
closed at $91.71.

Two major pharmaceutical companies, both Dow components, posted
quarterly profits that beat analysts` predictions. But both stocks went in
opposite directions as the companies looked to find new areas of growth.

Meg Tirrell has more.


country`s two largest drug makers are gearing up for growth. Both are
facing generic competition to major medicines. Merck (NYSE:MRK) lost
patent exclusivity on prescription nasal spray Nasonex. While Pfizer
(NYSE:PFE) faces generic competition to Celebrex, for arthritis and pain
later this year.

The two drugs combined sales: more than $4 billion in 2013.

DAMIEN CONOVER, MORNINGSTAR: Both are facing patent losses and they
have a lot of legacy products that are doing pretty well that kind of
offset those patent losses, but really translating into pretty stagnant
growth, and that really sums up to leading to the question where is growth
going to in the future, and I think that`s really depending on the pipeline
for both of these companies.

TIRRELL: So, what is coming up? For Merck (NYSE:MRK), investor
attention is on cancer and hepatitis C. It`s developing a drug called
Pembrolizumab, that`s under consideration at the FDA for treatment of
advanced melanoma. But Morningstar`s Damien Conover says it could be
expanded to other diseases like lung cancer, in a market he estimates to be
worth $20 billion by 2023.

Merck (NYSE:MRK) is also developing a combination of medicines for
hepatitis C, to shorten treatment times to as little as four weeks. That`s
the same disease targeted by Gilead`s Sovaldi, the pill that`s drawn
attention for its efficacy and controversial price tag.

Conover says drug makers focus on these specialty diseases is only
increasing, and that could be good for patients.

CONOVER: As Merck (NYSE:MRK) shifts to specialty care and as do a lot
of big pharmaceutical firms, you`re going to see a wave of influx of
specialty care drugs that`s going to increase pressure on pharmaceutical
firms and technology firms to reduce some of those prices.

TIRRELL: As for Pfizer (NYSE:PFE), it`s developing a breast cancer
drug called Palbociclib, that could draw $5 billion in peak sales,
according to ISI Group. And all eyes will be on Pfizer`s plans for business

Conover expect they will make another bid for U.K. drug maker
AstraZeneca, continuing a string of so-called inversion deals that lower
company`s corporate tax rates by moving them overseas.

(on camera): And in telephone interviews today, the CEOs of both
Merck (NYSE:MRK) and Pfizer (NYSE:PFE) said the tax code must be reformed.
Merck`s Ken Frazier said the company is not considering a big consolidation
deal, while Pfizer`s Ian Reed said the company will consider acquisitions
of all sizes. Both CEOs said that U.S. tax code puts companies at a
competitive disadvantage.



MATHISEN: It was a big earning`s miss for UPS, and the outlook wasn`t
much better. Higher spending and increased cost caused the package
delivery company to lower its profit forecast for the year, and that sent
shares down by nearly 4 percent.

Morgan Brennan takes a closer look.


The world`s largest package delivery company shipped 7 percent more
packages around the globe than a year ago. Shipping activity surged
internationally especially in Europe.

But here in the U.S., more consumers purchase products online. E-
commerce fueled a 60 percent increase in UPS`s less expensive surepost
shipments. Positive sign for consumer spending, but a drag on the delivery
giant`s revenue per package.

KURT KUEHN, UPS CFO: It is an interesting time. We`re seeing
actually the strongest growth in our domestic business that we`ve seen in
over a decade. Certainly, e-commerce is driving a lot of it. But at the
same time, we are making big investments to expand our capacity and be able
to handle all this growth. So, that`s why you are seeing mixed results
economically, but great results as far as demand.

BRENNAN: Those investments are in response to botched holiday season
deliveries last year after UPS and competitors couldn`t keep pace with the
last-minute surge in shipping demands. The investments include updates to
existing infrastructure, dozens of newly built hubs and plans to operate
this Black Friday as a full workday, the first time the company has ever
done so.

All together, it will rack up $175 million in cost, significantly
higher than the $100 million initially UPS estimate in year. That spending
will weigh more heavily on future earnings through the rest of the year but
analysts say the investments are prudent.

KEITH SCHOONMAKER: In the long run, we think the company will adapt
its network size to the challenges of increased demand and then the
greatest contention will be dealing with the long-run shift and mix to e-

BRENNAN (on camera): Moving forward, analysts say the biggest
challenge facing UPS will be catering to increasing shipping demand as new
infrastructure is still being built out. Also, whether the dramatic
increase in online shopping will continue to pressure sales.



MATHISEN: Still ahead, are Americans getting better at paying down
debt? The surprising numbers behind a new report.


MATHISEN: China is, of course, one of the hottest growth markets for
American technology companies but for Microsoft (NASDAQ:MSFT), relations
are turning cold. As we told you yesterday, Chinese officials made an
unexpected visit to Microsoft (NASDAQ:MSFT) offices and today, things

Eunice Yoon has more now from Beijing.


confirmed an investigation into Microsoft (NASDAQ:MSFT). The state
administration for industry and commerce has said that the software giant
is suspected of a monopoly. The agency cited compatibility issues for the
Windows OS and Office software and said about 100 officers raided
Microsoft`s offices in various cities across China to gather more
information into the way Microsoft (NASDAQ:MSFT) bundles the software and
adds security features.

The inspectors are also investigating some of the company`s senior
management and other personnel in China.

The government said that some of employees in question have been out
of contact and is urging Microsoft (NASDAQ:MSFT) to cooperate with the

Microsoft (NASDAQ:MSFT) had confirmed the official visits on Monday
and has said it was happy to answer the government`s questions.

Microsoft (NASDAQ:MSFT) is the latest American tech firm to face
scrutiny from Beijing after Washington`s repeated acquisitions of Chinese
cyber theft.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon, from Beijing.


MATHISEN: We begin tonight`s “Market Focus” with strong after the
bell results from Amgen (NASDAQ:AMGN).

The biotech company saw better than expected earnings helped by strong
sales of its rheumatoid arthritis drug. It raised its 2014 guidance, also
announced a new restructuring plan and it`s going to cut its work force by
as much as 15 percent to focus its resources on developing new drugs. It
will close two of its plants, as well. Shares initially after the report,
during the regular session. The stock was up slightly to $123.31.

Aetna (NYSE:AET) posted an earnings beat as the insurer saw a record
medical membership and revenue. On those good earnings, the company upped
its full year outlook. Despite that, investors were concerned about a
rising medical costs, which the company blamed on the new hepatitis
treatments, hepatitis C, and it`s public exchange memberships. Shares of
Aetna (NYSE:AET) down 3 1/2 percent, $81.88 the close.

Corning (NYSE:GLW), the company based known for making the gorilla
glass used in Apple (NASDAQ:AAPL) and Samsung smartphones, reporting a
mixed second quarter. Earnings missed the mark as demand for that glass
has been lower. On that, the company cut its full year glass shipment
growth forecast, and the stock tumbled. It ended down more than 9 percent
to $20 even.

Shares of Caterpillar (NYSE:CAT) higher on the news that heavy
equipment maker has agreed to repurchase $2.5 billion worth of its stock.
It will buy it from Societe Generale. That sent Cat up a fraction to

And shares of Windstream (NASDAQ:WIN) popped after the telecom company
received regulatory approval to convert some assets into a real estate
investment trust or a REIT, in an effort to minimize taxes. That approval
made other telecom companies look more attractive to investors and it sent
shares of Windstream (NASDAQ:WIN) as well as Frontier, CenturyLink
(NYSE:CTL), AT&T (NYSE:T) and Verizon (NYSE:VZ) all higher.

The Federal Reserve has begun its two-day policy meeting and is all
but certain to continue winding down its economic stimulus, part of its
great monetary policy experiment following the financial crisis. Now, for
the past five years, the Fed has pegged interest rates at zero, and put
about $4 trillion worth of extra cash into the banking system and on its
balance sheet.

So, what happens when the central bank tries to bring rates and its
balance sheet back to normal? Will it end badly or well?

Steve Liesman reports.


expects the Federal Reserve to stop buying assets this year and around this
time next summer to raise interest rates for the fit time since 2009. So
what happens then? Can the Fed exit the extremely easy monitory policy
smoothly or will it end badly?

The July CNBC Fed Survey finds the market evenly divided between
doomsayers and soothsayers. Thirty-four percent say it will end badly in a
recession or a market selloff or higher inflation. Thirty-four percent say
it could end well. And about a quarter say it could go either way.

BOB BRUSCA: Well, I think we`ve had periods in the past with very low
interest rates, very easy monetary policy and in the past, they ended
badly. I think in this particular period, there are even more risks and
challenges to what monetary policy has done and I think the Fed to pull
this off has got to get too many things just right. I don`t think we`ll
get that many things just right.

LIESMAN: Brusca thinks inflation may rise, pushing the Fed to raise
interest rates to cool down the economy, causing a spike in interest rates,
and that could cause stocks to selloff and ultimately result in a

But John Lonski of Moody`s (NYSE:MCO) Capital Markets disagrees. He`s
not worried about inflation, at least not until he starts seeing the money
the Fed has pumped into the system, called excess reserves, being turned
into loans.

increase in reserves, this huge balance sheet produced more in terms of
loan growth, chances are it`s not going to go ahead and trigger a lasting
upturn by inflation.

LIESMAN: Both economists agree the Fed will need to tread carefully.
Lonski thinks the Fed can do it, but Brusca says it has to move interest
rates from zero all the way to 4 percent.

BRUSCA: It`s like asking me, how can you drop an egg from a ten-story
building and have it not break? I don`t know. How can you?

LIESMAN: The Fed will try not to break eggs at its meeting tomorrow.
It`s expected to reduce its bond purchases by $10 billion, bringing them
down to $25 billion a month and could signal those purchase will end in
October. Part of the Fed`s effort as a smooth exit and to prove wrong
those who think it can`t end well.



MATHISEN: A new study by the Urban Institute finds that more than 35
percent of Americans with credit records have debts that have been reported
to collection agencies, this is even though credit card debt as a
percentage of income is at its lowest level in more than a decade. The
study found such things as unpaid hospital bills, student debt, even gym
memberships are piling up. The delinquent debt is overwhelmingly
concentrated in Southern (NYSE:SO) and Western state. Nevada and Texas
have unusual high households with debts subject to collections actions.

So, what do you need to know if you`re an American facing debt

Tim Maurer joins us to help put it all into context. He`s director of
personal finance with BAM Alliance.

Tim, always great to see you. Thank you for rejoining us.

I thought our debt problems were getting resolved, that total debt was
coming down and that these problems are going away. But it seems like the
number of households with debt in collections is stubbornly high, hasn`t
budged much at all.

TIM MAURER, BAM ALLIANCE: I think it may be a result of the crisis
that we had in the past with mortgage debt. That was so much bigger and so
much more of an issue, that`s where all of our focus went at the time.

But think about this, and especially when you look at the different
geographic areas suffering so much. Some of the areas that were hit the
hardest economically in the midst of the downturn of the Great Recession,
the credit crunch, and so, those folks may have had to defer some bills for
money they owed. They may be in denial but I think it can make some sense
as to why we`re seeing this today, even though we see overall debt coming

MATHISEN: It is — I am sure that most of the people who are subject
to collections know that there is a collection action out there
outstanding. But my guess also is there are a fair number of us who have
collection actions that we don`t know about because we haven`t checked our
credit records in a long time or we`ve moved and the bill keeps going to
the old address, hasn`t been forwarded.

MAURER: Certainly possible, and I do think that there`s even some
fraudulent activity there. One of the foremost reasons to make sure you
check your credit report at least annually.

But I would say that medical bills is the big one here. Tyler,
believe it or not, most foreclosures happen as a result of and in many
cases, medical bills. It`s one of the top reasons for foreclosures, even
in the recent downturn. They tend to be big numbers and they do tend to be
harder to understand exactly how much you owe.

You know that the insurance company paid some and then you have a bill
for some. They are coming from doctors, hospitals. I do think that
medical bills, especially, can be particularly perplexed.

MATHISEN: How much do these credit actions or collection actions hurt
your credit rating, and does a $50 bill hurt you as much as a $500 bill?

MAURER: Well, look, smaller bills are definitely not going to hurt you
as bad as bigger bills, but simply having someone go to collection is
certainly one ding against you and that certainly will have a negative
impact. Here again with your credit card company, they`re s not likely to
send collections for six months. But your doc, the hospital will
automatically outsource the collections to another external company and as
a result, they tend to get to your credit report even faster, Tyler.

MATHISEN: That`s an interesting point, Tim. It`s not necessarily
your credit card that`s causing the problem here.

So, is the best thing I can do is a get a credit report from one
agency or all three? How — do you do? Give me some advice.

MAURER: Well, I`ve got to be honest, I check it, I`m a financial
planner so I do it as inexpensively as I can and there are three great free
resources that I have used in the past that I currently use or that I`ve
recommend and people have gotten good news from.

So, is one where you can get each of the three
major credit bureaus to send you the credit report itself, you do have to
pay money if you want to get your credit score, but if you go to or creditsesame, there you can get an idea of what your
report looks like and also an estimate that tends to be very close of what
your score is. And as you know, that credit score definitely drives a lot
of the purchasing we do with leverage.

MATHISEN: Right. Tim, next time, you come up here and teach me how
to tie a bow tie, OK?

MAURER: My pleasure.

MATHISEN: All right. Tim, thank you very much.

Coming up, Uber and Airbnb have already disrupted the transportation
and lodging industries, and they`re not done yet. What these two startups
are setting their sights on now.


MATHISEN: And finally tonight, two hot startups, Uber and Airbnb, now
moving into the lucrative business market.

Josh Lipton tells the story.


lot of fans among consumers. Now, the startup is taking aim at business
travelers. Today, Uber announced what it calls Uber for business, letting
users bill their trips directly to their company. Within the Uber app,
users will be able to toggle between payment options, which means business
travel can be automatically expensed while personal trips stay personal.

Uber is also partnering with Concur, a travel management service with
25 million people, as well as American Express (NYSE:EXPR) (NYSE:AXP),
whose cardholders will earn double points on Uber rides.

EMIL MICHAEL, UBER: It`s about making the experience of using a card
for business purposes, just better that it already is for both the employee
and for corporate account expense manager.

LIPTON: This is another big growth opportunity for Uber, which is
already valued at $18 billion. That`s about the size of Hertz and Avis

Uber`s news follows an announcement from Airbnb, a startup that lets
homeowners rent out spare rooms to strangers. Airbnb this week also
announced a partnership with Concur, and introduced its own service for

Both startups are trying to cash in on the fast-growing market for
business travel, aiming to disrupt global brands like Hilton and Marriott.
The corporate travel industry is expected to generate $1.2 trillion in
revenue this year, according to the Global Business Travel Association.

One risk for Uber and Airbnb, though, is backlash from politicians and
regulators who question the safety and security of these services. That
could limit the market share these companies ultimately grab but Uber`s
executives say such concerns are unfounded.

MICHAEL: We have better insurance coverage than any other ground
transportation provider out there today. And so, businesses are covered
end to end and their employees more so than any other means of
transportation today.

LIPTON: Only time will tell whether Uber and Airbnb can have the same
success with companies as they do with consumers. But today`s announcement
is a big shot across the bow and entrenched players in the space.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.


MATHISEN: And that will do it for NIGHTLY BUSINESS REPORT for
tonight. Thanks for joining us. I`m Tyler Mathisen. Have a great
evening, everybody. We`ll see you tomorrow.


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