Transcript: Thursday, October 23, 2014

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


powered higher on one of the busiest earnings days of the year, and it was
driven by two old and staid blue chips that many considered bellwethers for
the global economy.

Amazon (NASDAQ:AMZN) still isn`t making money, reporting a wider-than-
expected loss. And its outlook for sales isn`t much brighter.

GHARIB: And life in the Clouds. Does Microsoft`s strong quarter show
the company`s push into Cloud computing is paying off?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for
Thursday, October 23rd.

MATHISEN: Good afternoon, everyone, and welcome.

A solid bounce-back rally on Wall Street today as strong corporate
earnings from a pair of big blue chip industrial giants helped to erase all
of yesterday`s losses and then some, not even a spike in initial jobless
claims or a new possible but unconfirmed case of Ebola in the U.S. could
dampen investors` appetites for stocks today. It turned out to be one of
the best days of the year for equities.

At the closing bell, the Dow was up 216 points after briefly seeing a
318-point gain, the NASDAQ higher by 70, and S&P 500 added 23.

Bob Pisani now with more on what was behind today`s rally from the
floor of the New York Stock Exchange.


another impressive rally today. What exactly is going on?

Well, there are two factors that seem most important: first is
earnings. By the end of the day, almost 40 percent of the S&P 500 will
have reported for this quarter, and the numbers have been very good.
Today, for example, strong reports from 3M (NYSE:MMM) and Caterpillar
(NYSE:CAT), and Union Pacific (NYSE:UNP), listed the industrials and
transports. A strong report from Diamond Offshore lifted oil drillers.
Excellent reports from the automotive space from Group 1, Dana and O`Reilly
also lifted that sector.

One important point, the commentary on weakness in Europe has not been
as dire as some feared. Weakness in Europe has been mentioned by a number
of companies, but the concerns have been offset by comments about strength
in the U.S. or even in China.

The second factor is hedge funds have been forced back into the
market. In recent days, they have been very active buyers.

So, there are several other factors helpful to stocks today. First,
oil had stabilized in the low 80s. Second, China`s manufacturing number
was slightly better than expected. Third, there`s some relief that the
terrible incident in Canada yesterday appears to be the work of a lone

Finally, news that a New York City doctor who had been treating Ebola
patients in West Africa had been taken to a New York City hospital with a
high fever knocked about 80 points off the Dow`s 300 points rally in the
final hour of trading.

It`s a very good reminder that concerns about Ebola have not gone
away. But it`s also a sign that the market may be a bit more nuanced in
its reaction to Ebola worries.

And let`s face it. If this happened three weeks ago with the Dow up
300 points, it`s likely the Dow would have dropped 200 points, not 80, on
this news.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at New York Stock


GHARIB: Now, after the closing bell, it was the tale of two tech
stocks, earnings from tech bellwethers, Amazon (NASDAQ:AMZN) and Microsoft
(NASDAQ:MSFT) and the results could not have been more different.

We begin with Amazon (NASDAQ:AMZN).com and the e commerce giant`s huge
miss, reporting a loss of 95 cents per share, much bigger than the 74 cents
that analysts have forecasted. Revenues also came in below expectations
but only by a fraction and the number increased from last year.

Amazon (NASDAQ:AMZN) sales guidance for the crucial holiday quarter
also came in below Wall Street estimates. Shares plunge nearly 11 percent
in after-hours trading. They were flat in the regular session today.

Bertha Coombs joins us now from the NASDAQ Exchange with the one big
takeaway from Amazon`s disappointing report — Bertha.

Susie, I think increasingly people on the street say we love using Amazon
(NASDAQ:AMZN). A lot of folks love using it. There are a lot of consumers
who really like the service.

But it seems as though Amazon (NASDAQ:AMZN) can deliver on everything
except earnings and profits. And for a long time because they were growing
so fast, a lot of investors forgave them that. But that time is now
drawing to a close. And people are starting to say maybe you`re just in
too many things. You`re in content. You`re in devices that you now give
away for free. You`re also increasing your delivery options, but when are
you going to pay us with better profits?

MATHISEN: All right, Bertha, stay right there if you don`t mind, as
we look now at Microsoft`s very, very different story. The software giant
topped forecast, took in 54 cents a share. That was full nickel above
analysts` estimates. Revenues $23 billion were a billion more than
forecast and much higher than they were a year as you see right there.

But net income did fall 13 percent from last year. This, after the
firm took a more than $1 billion charge related to layoffs in its Nokia
(NYSE:NOK) handset division. At the same time, Nokia (NYSE:NOK) handset
sales were actually strong. Shares of Microsoft (NASDAQ:MSFT) initially
moving higher, sharply so as you see there in the after hours.

Bertha, once again at the NASDAQ, the big takeaway from you from these
numbers from Mister Softee.

COOMBS: Microsoft (NASDAQ:MSFT) is cool again. Satya Nadella took
over in February from Steve Ballmer and he has really set a stone of
modernizing Microsoft (NASDAQ:MSFT), moving away from software sales, from
those little packets and disc to on the Cloud, that`s where things are
moving, and also moving more towards mobile. The Cloud computing revenues
double, still not a huge part, but it just shows he is starting to change
this big ship around, and for now, the honeymoon continues for him.

MATHISEN: All right, Bertha, thank you so much for reporting on both
of those companies.

Now, let`s bring in David Garrity to talk more about Microsoft
(NASDAQ:MSFT) and Amazon (NASDAQ:AMZN). He`s principal at GVA Research.

David, let me just start off saying that I know going into these
earnings reports, you were not recommending Microsoft (NASDAQ:MSFT) or
Amazon (NASDAQ:AMZN). Now that you see the after-hours reaction with
Amazon (NASDAQ:AMZN) stock down sharply 11 percent, Microsoft (NASDAQ:MSFT)
is up sharply, have you changed your opinion?

(NASDAQ:AMZN), we still would be probably avoiding the stock more as a
holiday year-end shopping trade just given the disappointment we were
seeing in terms of the revenue guidance for the December quarter. I mean,
there are some concerns here quite clearly with respect to Amazon
(NASDAQ:AMZN), we don`t really see a lot in terms of profits falling to the
bottom line. We have seen good sales growth but that sales growth is
decelerating. And any time you see a stock that`s trading at very, very
high multiples in terms of earnings, slowing growth is death as far as the
stock is concerned. We`re not surprised to see it down so much after

MATHISEN: What about Microsoft (NASDAQ:MSFT)? Microsoft`s numbers
are pretty good. They`ve got a new CEO, albeit one with somewhat
controversial pay package. What do you think of Microsoft (NASDAQ:MSFT),
and do you like it anymore today? You have a hold on it.

GARRITY: Well, in terms of Microsoft (NASDAQ:MSFT), seeing this very
nice acceleration in terms of revenue growth. I mean, the revenue growth
at Microsoft (NASDAQ:MSFT), that`s 25 percent year over year. Obviously,
better than the 20 percent we saw from Amazon (NASDAQ:AMZN). But
certainly, that revenue growth is being driven by some fairly high profit
margin areas. There are Cloud computing initiatives where they`re taking
share away from the likes of IBM and also potentially away also from Amazon

I mean, certainly, we think with regards to Microsoft (NASDAQ:MSFT),
there are some challenges, they have legacy businesses which are very
profitable but with slow growth. We do have to see how is the company
going to re-engineer its breath in order to get the stock over $50. But we
do like Microsoft (NASDAQ:MSFT) continue to hold, obviously, Amazon
(NASDAQ:AMZN) we were thinking there might have been a trade going into
year-end, looking at these numbers, we would reserve judgment.

GHARIB: Bertha brought up two interesting points on both of these
companies. With Microsoft (NASDAQ:MSFT), she`s saying it`s cool again,
it`s a cool stock. I want to get your thoughts on that, and about Amazon
(NASDAQ:AMZN), saying that — some investors saying, it`s just so many
things and whether they`re going to deliver a profit? Your thoughts on
both of these?

GARRITY: Well, in terms of Microsoft (NASDAQ:MSFT), we do have some
very nice upgrades in terms of taking place in terms of the Xbox game
console. But that`s something that`s probably a once in a decade
phenomenon, so we can say if it`s cool, it`s only temporarily so. In terms
of the Cloud computing initiative, certainly, we need to see continued
progress there.

I would say, you know, if people want to look at a company that was
cool, obviously you have to look at Apple (NASDAQ:AAPL). And then when you
size up Microsoft (NASDAQ:MSFT) against Apple (NASDAQ:AAPL), Microsoft
(NASDAQ:MSFT) looks maybe a little bit more attractive but not necessarily

MATHISEN: So, I was going to ask you if these two big mega cap text
stocks aren`t particularly your taste right now. What is? You mentioned
one, Apple (NASDAQ:AAPL). Are there any others in sort of mega cap tech
land that you like?

GARRITY: Well, we think, you know, Apple (NASDAQ:AAPL) clearly,
Google (NASDAQ:GOOG), despite the fact they had somewhat disappointing
results we think it`s set up well for the end of the year. We think Google
(NASDAQ:GOOG) over the next 12 months could be potentially a $700 stock.
We also like Facebook (NASDAQ:FB), which we think, you know, showing very
solid growth metrics and evaluation that`s attractive, selling less than
one and a half time its growth rate.

So, we think that Facebook (NASDAQ:FB) selling in the low $70s
probably could be near $100 within the next six to 12 months.

GHARIB: All right. Lots of good information. Thanks a lot, David.
David Garrity with GVA Research.

MATHISEN: More now on those strong earnings, and making everything
from Post-it notes to scotch tape to ceramics. Profits there up 6 percent
last quarter as it sold more materials to automaker and electronics
manufactures. 3M (NYSE:MMM) also lowered the high end and raised the low
end of its full year earnings guidance. Shares among the biggest gainers
in the Dow today. They were up about 4.5 percent.

GHARIB: But the biggest gainer in the Dow today, Caterpillar
(NYSE:CAT) — the industrial equipment giant. The stocks surged 5 percent
after Cat reported quarterly earnings that topped forecast. The company
says the solid results were helped by cost cuts and by strong sales of
construction and oil drilling machines. So, what`s the outlook for
Caterpillar (NYSE:CAT) in the year ahead?

Dominic Chu takes a look.


followed earnings report each season is that of Caterpillar (NYSE:CAT).
Their bulldozers, dump trucks and other heavy machinery are used by
everyone from miners to oil drillers, to construction workers, and they`re
used all over the world. That`s why many investors use the company as a
barometer or gauge of global economic health.

Caterpillar (NYSE:CAT) reported stronger than expected profits and
sales and it raised its full-year profit forecast — thanks to increased
demand from the North American construction, oil and gas markets. The
strength in Caterpillar (NYSE:CAT) stock helped to fuel gains in the
overall stock market.

But while many traders and investors focused on the stock gains, other
experts are a little bit more cautious on the company`s outlook.

ANN DUIGNAN: One of the reasons we`re neutral on Caterpillar
(NYSE:CAT) heading into 2015 was exactly on that piece with oil prices
coming down, if they fall further going into 2015, that it will impact many
of Caterpillar`s business. Not just its engine, oil and gas business.

CHU: Cautious optimism is also how Caterpillar (NYSE:CAT) is
approaching the coming year. It says that there`s a reasonable likelihood
that world economic growth could improve in 2015, and that there`s a
potential for increased infrastructure investment in places like India,
Turkey, and the United States.

So, more roads, bridges, tunnels, et cetera. But don`t expect it to
be off to the races.

DOUG OBERHELMAN, CATERPILLAR: The recovery is going to be low and if
you look at our sales history over my career almost 40 years at Caterpillar
(NYSE:CAT), most recoveries come out of the blocks pretty fast. We even
saw that in `10, `11 and `12. This one is probably going to be a lot
slower in the way it`s probably good for Caterpillar (NYSE:CAT) or maybe
good for the world arguably.

Caterpillar`s results are giving bullish investors a reason to stay
that way. Now, Wall Street will wait to see if other earnings reports this
season will validate that view.



MATHISEN: Another big name out with solid earnings this morning was
General Motors (NYSE:GM). Despite 75 recalls of more than 30 million
vehicles in the first half of the year, GM had its best third quarter since
1980. Surging the demand for pickups and SUVs offset weak sales in Europe
and South America. But Chuck Stevens, GM`s chief financial officer, is
upbeat on sales forecast outside the U.S.


CHUCK STEVENS, GENERAL MOTORS CFO: Europe is very much on plan
towards executing the profitability in 2016, and China. As we said, we
expect the China industry to grow, our share and revenue to grow faster
than the industry and to maintain those margins.


MATHISEN: Despite that optimism and the good report, shares of the
automaker were down today by more than 1 percent.

GHARIB: Moving from the roads to the skies, with more Americans
flying and oil prices falling to $82 a barrel. A handful of U.S. carriers
reported very strong third quarter earnings. That helped shares of United,
Continental, American and Alaska Air take off today.

Phil LeBeau has more on why shares of the airlines are soaring.


Pardon the pun, but the airline industry is soaring. The combination of
strong demand, a limited number of seats to support higher ticket prices
and moderate jet fuel prices have combined to make it a profitable third
quarter on the runway. Depending on the carrier, profits jumped between 27
and 97 percent.

GARY KELLY, SOUTHWEST CHAIRMAN & CEO: From a macro perspective the
economy has been more stable this year, energy prices have been very stable
for really close to the last two years until the recent drops. And then
travel demand has been very strong.

LEBEAU: The robust earnings are a welcome relief for shareholders who
in recent weeks have watched their airline stocks come under pressure due
to fears the Ebola virus would scare travelers into delaying or cancelling
future trips. But while discussing earnings, executives at several
airlines say they have not seen a drop in future bookings.

(on camera): The airlines are now set up for a strong holiday travel
season, which is good news for them, but not as much for you if you are
planning a trip. Because demand is not slowing down, if you`re planning to
take a trip before the end of the year, don`t expect to find many airfare



MATHISEN: Still ahead, the rail industry is racing to keep up with
strong demands. Sounds like a good thing, right? So, why is it turning
into a big headache for the railroads?


MATHISEN: A new warning from the U.S. government: do not — do not
buy oil from ISIS. The Obama administration says it will slap sanctions on
anyone who buys oil from the Islamic militants in Syria and Iraq. It is
estimated that ISIS makes a million dollars a day from refining and selling
crude oil to smugglers who bring much of the oil out of Syria and Iraq and
then transport it through Turkey.

GHARIB: Back here in the U.S., a lot of oil travels by rail. And
carrying more freight at higher rate helped Union Pacific (NYSE:UNP)
railroad deliver a 19 percent jump in profit last quarter. With the
company CEO predicting record results for the full year, shares today
chugged 5 percent higher.

MATHISEN: But with more goods moving across the country, gridlock has
become an increasingly large problem on the nation`s rails, already costing
operators billions. Railroad companies are steam. So, what`s the industry
doing to try to relieve the pressure?

Morgan Brennan has our story.


operators had seen a surging freight volume, as more goods by train.

The Association of American Railroads says so far the gear volume is
nearly 4 percent higher than the same period in 2013, and that`s expected
to continue as the U.S. economy recovers and this type of transport proves
more cost effective than trucking.

But the growth comes with a catch. It`s causing congestion. Beyond
the harsh winters we`ve seen backlogs, delays, and service the boom is one
key reason.

WICK MOORMAN, NORFOLK SOUTHERN CEO: We`ve seen impact in our region
from growth in the energy business, from frac sand to natural gas liquids,
to crude oil, we`ve got a lot of infrastructure and work going on. But
right now, we just have a slower network and that affects every train on
the network.

BRENNAN: This issue manifests in chokepoints like Chicago, where all
the rail networks converge. It`s why Canadian Pacific approached CSX
(NYSE:CSX) about a now defunct merger, because CEO Hunter Harrison expects,
quote, “the worst gridlock ever”, if the industry continues as is.

(voice-over): But other operators, CSX (NYSE:CSX), Norfolk Southern
(NYSE:SO) and Union Pacific (NYSE:UNP), say that it wouldn`t help the
problem. They`re investing billions into more trains and crews and better
technology to make networks more efficient. Just today a new railroad
bridge meant to help ease traffic in Chicago open for business. Analysts
expect congestion to continue into 2015, but ease up as all of these plans
come online.

CHRISTIAN WETHERBEE, CITI RESEARCH: Towards the end of 2015, we would
expect to see some of the service issues start to right themselves.
Obviously, a merger could in our opinion go a long way towards improving
them over the very long-term, when you think sort of three, five-six years
beyond that, and you could see the mergers ultimately have some benefit
here. I think in the shorter term, we`re going to be seeing additional
crews and additional locomotives really trying to do most of the work.

BRENNAN: Wetherbee notes that some companies grapple with congestion
more than others, Berkshire Hathaway`s BNSF has struggled all year, and
Norfolk Southern (NYSE:SO) has experienced issues for the past two
quarters, nevertheless some in the industry is watching and watching
closely since delays can translate into higher costs for the railroads and
ultimately fewer customers.



GHARIB: We begin “Market Focus” tonight with Pfizer (NYSE:PFE),
announcing a massive share buyback. Its board approved $11 billion share
repurchase program. This is in addition to what`s remaining on the current
buyback program which works out a little over a billion dollars. On top of
that, the drug maker will return more crash to shareholders, with its new
dividend worth 26 cents a share. That will be payable in December.

Shares spiked when the news came out after the bell, the stock was up
1 percent in regular trading, closing at $28.60.

An improving housing market helped PulteGroup (NYSE:PHM). The home
builder`s third quarter profit and revenue topped estimates, thanks to an
improving economy and higher selling prices. It also hiked its quarterly
dividend by about 60 percent to 8 cents a share and it announced a plan to
raise its share buyback program by $750 million. Shares popped almost 2
percent to $19.51.

Eli Lilly (NYSE:LLY) is one company that didn`t participate in today`s
rally. Shares fell after the drugmaker said its quarterly earnings plunged
almost 60 percent, hurt by special charges and generic competition for its
depression drug.

The company is still optimistic when it comes to business in the U.S.,
but the CEO says Europe is another story.


bit more of a challenge as the economy sort of remains stuck in many
countries in Europe. That, of course, affects the government decision
about the things like reimbursement of medicines. So, our business in
Europe has been somewhat flat.


GHARIB: Eli Lilly (NYSE:LLY) shares were off 33 cents to $64.35.

Shares of Dunkin` Donuts also fell sharply after the coffee and donut
chain reported that its sales missed forecasts and it issued a warning.
Dunkin` says it will be a challenge to meet the low-end of its sales growth
target for the year.

Despite challenges, the CEO still optimistic.


NIGEL TRAVIS, DUNKIN` DONUTS CEO: Even though I`m very excited about
the programs we have in the fourth quarter, I temper that with the fact
that the consumers we discussed is in a little bit of a difficult place.
We`re going to try to get our accomplishments (ph) as high as possible.
But my big concern is the franchisee profitability and we`re doing a great


GHARIB: Despite that enthusiasm, the stock tumbled 6 percent to $44.

MATHISEN: A report out today says Sears (NASDAQ:SHLD) is going to lay
off 5,500 workers, close more than 100 of its stores, which include Kmart
and Sears (NASDAQ:SHLD). It`s going to do it before Christmas. Sears
(NASDAQ:SHLD) has been struggling to cut costs as sales shrink and it has
already closed 100 of its locations in the first half of this year. Shares
were higher after that report, up 4.5 percent to $35.95.

KLA Tencor surging in initial after-hours trading on its earnings
report. Profits there above estimates. The company announced a special
dividend of $16.50 a share, and it approved an increase to its stock
repurchase program for up to 3.6 million more shares. The stock 1 percent
higher before the close at $71, but look at that spike after-hours.

Maxim Integrated`s profit topped consensus, but revenue was well below
the target. Its guidance for its second quarter also missed, and that
worried investors. Shares tumbled right after the close, as you see right
there. During the trading day, the shares were about 1 1/2 percent higher
at $27.66, the close.

GHARIB: Coming up, the surprising company and sectors with the most
at risk as the California drought dragged on. That`s next.


MATHISEN: Who says the IRS is all mean and bad? The agency is
changing some rules to let workers put away more for their retirements.
The annual limit employees can contribute to their 401(k) or similar
retirement savings plan will be raised next year to $18,000 up from 17,500
this year in an effort to keep up with inflation.

GHARIB: The year`s long California drought has been the worst on
record in the Golden State. That lack of water is bad for lawns, bad for
crops, and bad for a whole lot of other companies and industries.

Jane Wells has more.


California doesn`t have a drop of water to spare.

UNIDENTIFIED MALE: We saw the — you know, the gutter completely
flooded all the way down the street.

WELLS: Cities like Sacramento have restricted watering and so-called
water cops like Steve Upton patrol before dawn to cite violators.
Everywhere, the drought is taking its toll, from the lawn to the hamburger,
cattle herds are thinner, so beef is higher. And chains like Fatburger are
trying to maintain margins.

ANDREW WIEDERHORN, FATBURGER: It now costs 25 to 50 cents more to
have a burger than it used to.

WELLS (on camera): Now, lawns and livestock are the natural victims
in a drought, but new analysis from equity research firm MSCI (NYSE:MSCI)
says you`d be surprised which industries are most at risk.

Linda Eling-Lee says the quarter of industry products for such
companies like Occidental, Marathon Oil (NYSE:MRO) and ConocoPhillips
(NYSE:COP) are in regions where there isn`t much water, which could be a
problem if they compete with agriculture and other industry. But for
utility companies in the Southwest, like Xcel or Pinnacle West, it could be
worse. There`s a lot of water in power, used for things like cooling.

use of the average electric utility company, you know, per dollar capital,
you know, is the standard deviations, not just 10 times. Standard energy
deviations more than all the other companies in all the other industries.

WELLS: She says utilities are making changes but change does not
happen overnight — oil, electricity, beef, crops and people all competing
for less water. And as the West looks to the skies for rain, Sacramento
water conservation manager William Granger said it`s looking less likely
the rain will come.

So much of the El Nino.

nada. It`s more like a la nada. So —



MATHISEN: And finally tonight, the kids who once told their teachers
that the dog ate their homework — they come a long way. A new survey from lists some of the worst excuses employers have actually
heard from underlings for missing work.

Here are a few of the best — I`m stuck in a blood pressure machine at
the grocery store. I`m not kidding, real things, folks.

I put in uniform in the microwave to dry it and it caught fire.

I accidentally got on a plane. How you do that, I don`t know.

And this one, at least gets credit — a partial credit for honesty. I
was in a good mood and I didn`t want to ruin it.

GHARIB: How do you come up with this stuff? I can`t make it up.

MATHISEN: Oh, boy. I hope my son sees that segment.

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

MATHISEN: I`m going to put my tie on the microwave tonight.

I`m Tyler Mathisen. Have a great evening, everybody. We`ll see you
tomorrow night.


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