Transcript: Friday, October 24, 2014

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


TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: What a finish. The Dow closes with a triple digit gain, and the S&P 500 has its biggest weekly run-up in nearly two years. But will a bank stress test out of Europe change the tone next week?

UPS delivered. But it wasn`t the better-than-expected earnings investors were focused on. It was something else.

Pit stop. Will Ford`s weaker third quarter results just a brief hit to the bottom line before a big run into 2015?

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, October 24th.

Good evening, everyone, and welcome. Susie Gharib has the night off.

Well, here is just what you need to hear before you head into the weekend. It was the best week for stocks of the year so far. OK, so maybe it did not always feel that way but it was, every single one of the 10 S&P
500 sectors was up for the week led by health care with its best performance in years, nearly 7 percent higher. Stylish corporate earnings and a general receding of global economic fears get credit for today`s gain and the weeks as well.

By the close of trading today, the Dow Jones Industrial Average was up
127 points to 16,805, the NASDAQ added a big 31 points and the S&P 500 rose almost 14, for the week now, the Dow was up 2.5 percent, the NASDAQ shot up more than 5 percent, its best week since December of 2011, and the S&P rose
4 percent.

One reason for the Dow`s triple digit gain today, Procter & Gamble (NYSE:PG). Shares of the world`s largest household products maker hit an all-time high after the company said it will separate its Duracell battery business into a stand-alone company, so P&G can focus on faster growing units.

The move is part of P&G`s focus to shed brands.


JON MOELLER, P&G CHIEF FINANCIAL OFFICER: More strategically focusing on the portfolio, at about 70 or 80 brands across 12 categories, these are brands that are leaders in their industry. And we should be able to create a company that maintains the benefits of the scale of the current company but grows a little bit faster and is more profitable.


MATHISEN: The company also reported quarterly revenue in line with estimates and per-share profit that came in just a bit below forecasts.

For Ford, it was a bit of a bumpy road last quarter. Shares of the automaker dropped 4 percent today after it reported a third quarter profit that was down more than 50 percent a year ago. A profit of more than a billion was a little better than Wall Street expected, but not good enough to ease concerns about Ford`s feature and the launch of the new F-150 pickup.

Phil LeBeau has more.


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Ford CEO Mark Fields called the drop in third quarter earnings a pit stop, a brief hit to the bottom line before the automaker starts a critical run into 2015.

BOB SHANKS, FORD MOTORS CO. CFO: Business has been affected by a number of adverse conditions, in terms of external factors, and, of course, given our exposure to every place in the world.

LEBEAU: While Ford`s losses in Europe increased in part due to a weak economy and falling sales in Russia, it`s what`s happening back here in the U.S. that worries investors. Primarily, will the launch of Ford`s new F-
150 pickup be a rocky one? Or will it go smoothly?

The F-series is Ford`s bread and butter model. It is estimated the company makes $8,000 to $10,000 profit off of every F-series it sells.

Last quarter, Ford sold fewer models of the popular pickup. That`s the main reason profit stalled in North America. The slowdown in sales is because Ford shut down its Dearborn truck plant for five weeks to retool it, get it ready to build the new F-series, which features the new lightweight alloy panels. It`s a radical departure from the current F- series built with steel panels. Ford says the change will be worth it when people finally get their hands on the new and much more fuel-efficient F- series.

SHANKS: We have launched the vehicle in terms of production, mass production and are going up that acceleration curve. So, everything looks good and we`re tremendously excited to get that product to the customers before the end of the quarter.

LEBEAU (on camera): We won`t know until early next year if the new F- series is a hit with truck buyers. If it is, 2015 could be a year when Ford starts to rev up its profits again.



MATHISEN: UPS delivered strong third quarter earnings and revenue today that topped analysts` expectations and it reaffirmed guidance for the year. But after a challenging holiday period last year, is the company ready for the upcoming one?

More from Morgan Brennan.


It was a solid quarter for United Parcel Services, boosted by U.S. consumer and business demand, as well as strong growth in Asia. But the biggest focus was on something else — the plan for holiday peak season.

KURT KUEHN, UPS, CHIEF FINANCIAL OFFICER: On our front, because of the magnification of e-commerce and the volume that we get, we`re expecting an 11 percent increase in shipments in the month of December. So, we`re going to be very busy this year.

BRENNAN: That projection comes on the heels of competitor FedEx
(NYSE:FDX) nearly 9 percent forecast. The National Retail Federation expects heavy holiday spending, with online shopping continuing to grow dramatically.

That puts pressure on the shippers. Last year, an unprecedented 2 million packages missed Christmas after a last month spike in online shopping. That mess-up resulted in higher costs, lower earnings and eroded consumer confidence. But none more than UPS, which accounted for 2/3 of those late shipments. But analysts have higher hopes for the company this year.

KEITH SCHOONMAKER, MORNINGSTAR: UPS struggled a little bit more last year than FedEx (NYSE:FDX) did. It`s rare to see this company stumble.
That`s true. We expect high performance from UPS and they routinely deliver. In fact, during the third quarter, we saw margins increased to about 13.7 percent. That compares to about 7 percent margins at FedEx (NYSE:FDX). So, still UPS is a strong leader.

BRENNAN: UPS has been prepping for the holidays all year, investing
$500 million in capital expenditures, to update existing infrastructure make Black Friday a full operating day, hired 95,000 seasonal workers and increasing capacity with pop-up sorting stations called mobile distribution villages.

For its part, FedEx (NYSE:FDX) is also hiring more workers, 50,000, and dedicating 90 percent of its $1.2 billion in fiscal year investments to boost the capacity as well.

(on camera): Both companies say they`re working closely with retailers on delivery promotions and UPS warning it may charge some customers more, even turn down business if there is another surge in late unplanned packages. But the true tests will come in December, when it is time to put presents under the Christmas tree.



MATHISEN: Amazon (NASDAQ:AMZN) shares lost about 8 percent of their value today, hitting a 52-week low intraday that personally cost CEO Jeff Bezos a couple of billion dollars. The big slide came after the company yesterday reported its largest quarterly loss in 14 years, nearly half a billion dollars. Some Amazon (NASDAQ:AMZN) investors are becoming restless as CEO Bezos puts future growth ahead of current profit.

But Skip Aylesworth isn`t one of them. He`s co-portfolio manager of the Hennessy Technology Fund. And he`s sticking by Amazon (NASDAQ:AMZN).

Skip, welcome. Welcome back.


MATHISEN: How much Amazon (NASDAQ:AMZN) do you have? What percentage of it is your fund?

AYLESWORTH: Well, by policy we don`t disclose share count, but roughly 4 1/2 percent of the fund is in Amazon (NASDAQ:AMZN) as we speak today.

MATHISEN: So 4 1/2 in the fund, and the stock is down about 20 percent of the year. You can`t be happy.

AYLESWORTH: Well, I`ve seen better days. Yes. But I`m still confident that this is a good investment.

MATHISEN: But why, because a lot of people have become very critical of Mr. Bezos for investing lots of money in projects like the Fire telephone that just haven`t worked. Some of which have, but some of which really haven`t.

AYLESWORTH: Well, the fire phone is the main reason for this loss this quarter. And again, I believe he is setting us up for having the proverbial good Christmas quarter to come.

However, the characteristics of Amazon (NASDAQ:AMZN), first off, Amazon (NASDAQ:AMZN) is the major — is the predominant player in Internet retail here in America. So, it`s a major player. It`s not a flash-by- night company. It has real sales. It does a real business and it`s established.

I think the more important metrics that investors need to consider is that we are seeing continued growth in sales and in gross profits. This is all being done primarily out of cash flow. All of these new projects and spending he is doing is being done out of cash flow, not from borrowed money, which would be a warning sign if you saw the debt start to increase for the company, but it isn`t to date.

MATHISEN: But the company itself says that sales aren`t — in this next quarter, the fourth quarter, aren`t going to be as ebullient as a lot of people thought, number one, and expenses keep rising faster in some cases than revenue does.

That`s not a formula for long-term success. I guess my question is, does Jeff Bezos have too much power at Amazon (NASDAQ:AMZN)?

AYLESWORTH: Well, that is an interesting — certainly hard for me to particularly comment. He is in control and this is his company, for better or for worse. And like you mentioned at the start he personally lost a lot of money today and the question really should be is he happy or not? So he is certainly aligned with shareholders and I would imagine he is working hard to grow his personal net worth.

MATHISEN: Very quickly, Skip, what would it take for you to pare your
4 1/2 percent stake, 4 1/2 percent of your funds in Amazon (NASDAQ:AMZN)?

AYLESWORTH: Well, a couple of things I would look at that would cause me concern and question things, one is if we started to see the sales percentage increase down from double digits to single digits or even negative in quarter to year over year comparisons. The other is that meter, if we started to see the total debt of the company significantly increase, that is never a good thing. But right now, I`m comfortable with the investment.

MATHISEN: All right, Skip, thank you very much. Appreciate your being with us as we always do. Skip Aylesworth —

AYLESWORTH: Thank you.

MATHISEN: You bet. Hennessey Technology Fund.

Still ahead: European banks face a critical test this weekend. And global investors will pay close attention to the results. We`ll tell you all about it, next.


MATHISEN: European Central Bank`s president warned the divided eurozone leaders that they risk a relapse into recession if they fail to move ahead with structural economic reforms. Mario Draghi says he wants to see government draw off a reform program by the next E.U. summit in December. Now, Draghi says they`ve avoided the collapse of the euro, but monetary policy is only one part of an economic revival plan. The others include some public finances and healing sick banks.

And speaking of banks, this weekend, we`ll get an official word on just how sick or not so sick some of those European banks will be. The regulators will release the results of a stress test and it`s something the global markets will pay close attention to.

Michelle Caruso-Cabrera reports.


MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: The European Central Bank and the European Banking Authority released the results of two sets of tests of roughly 130 banks across Europe on Sunday and those results are supposed to show the quality of assets held and also whether or not they have enough capital to withstand losses during times of crisis in bad economies.

One of the key questions, will the test be rigorous enough? Credible enough?

In previous years, we saw banks in Europe fail and need government bailouts, even though they had supposedly just passed the stress test months before. Today, word is reported they have seen an early draft of the results in that 25 financial institutions failed, and that 10 need to raise capital.

These are believed to be smaller banks, but aren`t systematically important. Those institutions will be given time to raise more capital and clean up their balance sheets. The banking regulators promise a deluge of data on Sunday that will be available to journalists, analysts and the public so that everyone can assess for themselves the health of those institutions.

Once this hurdle is passed, market watchers hope there will be an increase in lending in the eurozone, in an effort to kick-start the extremely weak economy there. Many analysts believe the banks have been hesitant to lend because they wanted to retain as much capital as possible to be sure that they pass the stress test. It will be key to watch how European markets trade on Monday. That`s going to give us the clue as to whether or not investors think the test will have the intended effect.

If investors have doubts about the quality of the tests, we could see shares of the banks to move lower and also in the long run, it would also mean a slower recovery for the European economy.

For NIGHTLY BUSINESS REPORT, I`m Michelle Caruso-Cabrera.


MATHISEN: Digital River (NASDAQ:DRIV) agreed to be taken private.
That sends shares surging, and that is where we begin tonight`s “Market Focus.”

The e-commerce service provider will be bought by an investor group led by Siris Capital Group for $830 million. The agreement also has a 45- day period where Digital River (NASDAQ:DRIV) can go shop around for another buyer. It`s kind of like getting engaged, but saying you still want to date around.

Investors were totally trusting, though. And the stock soared 47 percent to $25.65.

Bristol-Myers Squibb`s top-selling drugs continued to perform well in its third quarter, and that helped the company deliver for investors. The drug maker`s results topped forecasts, even as revenue fell because of an earlier divestiture of diabetes products. Shares popped 2 percent to $53.63.

Following suit, Shire (NASDAQ:SHPGY) trounced estimates. The Dublin- based drug maker saw record sales growth in its third quarter. It upped its earnings guidance for the year on those strong results.

The CEO says this performance is especially notable in light of the collapse of Shire`s planned combination with Abbvie.


FLEMMING ORNSKOV, SHIRE CEO: We continued to do our work and I think the earnings we`ve shown today shows that although we were distracted, we continued to have very strong momentum for Shire (NASDAQ:SHPGY) as an independent company.


MATHISEN: Shares popped 5 percent to $194.49.

Chiquita Brands has called off its planned merger with the Irish food company Fyffes. Shareholders rejected the combination, which would have created the world`s largest seller of bananas. Now, Chiquita says it will enter talks with a Brazilian company that upped its offer for Chiquita last week. This is the latest tax inversion deal to fall through since the Treasury Department cracked down on these types of deals back in September.
Shares were 40 cents higher. They closed today at $14.16.

Pepsi is planning a SodaStream test run and that sent Soda way higher today. The beverage giant, Pepsi that is, says it will be a small 10-week run with the do-it-yourself soda maker later this year. The stock soared
15 percent, SodaStream that is, to $24.45.

Oil posted its fourth straight weekly loss on continued concerns over excess supply. West Texas Intermediate fell about 2 percent earlier in the day, but pared some of those losses to close lower by a relatively modest $1.08. Still, the drop was enough to grab the attention of traders who had been trying to find a bottom that may still be elusive.

Jackie DeAngelis has more.


JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oil prices dropping sharply in today`s session to an intraday low of $80.36 before closing at $81.01. Many traders thought that oil bottom when it dropped under $80 last week. But now, they`re saying we could be headed lower from here. The factors to consider: a strong dollar, a supply glut and Ebola.

ANTHONY GRISANTI: The perception of market players is that if Ebola does spread, it`s going to cause economic slowdown, not only here in the U.S. but around the world. We actually saw a little bit of that today with airline stocks being sold off right from the get-of go this morning. So, there is definitely a little bit of economic activity as linked to the Ebola virus.

DEANGELIS: In addition, the markets digesting the report from EIA today that said if the U.S. lifts the ban on oil exports, gas prices will not rise.

Traders don`t agree. They say if the U.S. starts to export the oil and put it onto the international market, buyers will flock to the cheaper oil, crude oil prices will go up, so will gas prices. So, exporting may not be the way to go because cheaper gas prices, they`ve been a bright spot for consumers, something real that they can hold onto. In fact, AAA saying that we could see the national average fall $3 a gallon in coming weeks, and that half of U.S. stations are already selling gas for less than 3 bucks now.



MATHISEN: Our market monitor tonight has energy picks, he says, are direct beneficiary picks of the renaissance that is happening right here in the United States. He`s Rob Thummel with Tortoise Capital Advisers. It specializes in energy investments.

So, Rob, good to have you with us.


MATHISEN: Tell me how worried if worried at all you are about the decline in oil prices and the possibility that there may indeed be some sort of price war that could affect the profitability of some of these American drillers, particularly the shale drillers, that have made money as oil has rested mostly above 100 bucks a barrel.

THUMMEL: Yes, we`ve seen the oil prices decline 25 percent off their summer highs, and the oil stocks have come down with them.

That is a great thing for the U.S. consumers, because gasoline prices have fallen as well. So, that`s helped boost the economy.

But specific to the oil stocks themselves, it is really critical that you look at the oil stocks and kind of use the adage of — the real estate adage of location, location, location. It`s important to invest and look for the oil stock that really have the corner lots in the best neighborhoods, and that`s the best oil fields in North America.

MATHISEN: And so, there are some that might be more vulnerable to a price decline because of others, because of what they do and where they drill.

THUMMEL: That`s absolutely correct.

MATHISEN: All right. Let`s go to some you like and are in your portfolio, beginning with Pioneer Natural Resources (NYSE:PXD). Big in the Permian Basin.

THUMMEL: Yes, the Permian Basin is one of the premier oil basins in the United States. Pioneer has one of the largest acreage positions in the Permian Basin. The things we like about Pioneer is the fact that they have probably decades worth of drilling opportunities.

In addition to that, they are on target to double their production by 2018. And in addition to that, they have a hedging in place. They have about 85 percent of their production hedged this year, and 85 percent of the production hedged next year, that helps reduce some of the cash volatility.

MATHISEN: So, if this investment turns out the way you think it will
— we just showed the chart of Pioneer — where do you think it might be?
What could it might total return be over the next year or two?

THUMMEL: Well, we always think if Pioneer is able to double their production, typically cash flow grows, correspondingly, and that`s usually good for the stock price.

MATHISEN: All right. Let`s go to EOB resources — EOG Resources (NYSE:EOG), excuse me. EOG, I got to put on my glasses to see these things, Rob. Go ahead. Tell me about EOG.

THUMMEL: Yes, EOG is another great company. It`s the leading oil producer in the leading oil production basin in the U.S. and that is the Eagle Ford. The Eagle Ford Shale in South Texas is another one of the predominant or premier oil basins in the U.S.

The thing we like about EOG is the management team is really known in the industry as probably one of the best, and most respected management teams. In addition to that, EOG is growing its production volumes and its cash flow at a faster pace than its peers. Yet, it`s valued on a cash flow multiple, at a lower multiple than its peers.

MATHISEN: All right. Let`s talk about your last choice and that is Anadarko.

THUMMEL: Yes. Anadarko is another story. It`s one of our top holdings as well. The thing about Anadarko, it`s a high quality story.
Anadarko has exposure to lots of different oil and gas fields across the world, specifically in the U.S. as well.

One of the reasons, or one of the great things we like about Anadarko is its exposure to an emerging oil basin in the U.S. called the Niobrara Shale. Watch out for this one, this is a new one you may not have heard of. It`s in northern Colorado. It has the potential to be a significant oil field in the U.S. and as it develops, Anadarko will benefit.

MATHISEN: Best guess, where does oil settle? Let`s say over the next six months.

THUMMEL: Yes, next, we think — you know, around $80 is probably a reasonable number, big picture of the oil and gas sector, will continue to grow their production volumes in the right location as long as oil stays above $80 a barrel.

MATHISEN: You`re a good stock picker. You`re a good baseball picker.
I see you are from Kansas City, where you must be rooting for the Royals.

THUMMEL: I am absolutely. You know, it`s been 30 years since we produced 9 million barrels of oil a day — barrels a day, and it`s been 30 years since Kansas City made the playoffs.


MATHISEN: That`s one way to look at it.

THUMMEL: Go Royals!

MATHISEN: All right. Well, we`ll have somebody on for the Giants next week.


MATHISEN: Rob, thank you very much. Rob Thummel with Tortoise Capital Advisers. You hope his stocks move like a hare.

All right, just ahead: does the rocky stock market have you thinking about the safety of your retirement income? Today, the Treasury Department took steps that could potentially help future retirees. We`ll tell you about it.


MATHISEN: Volatility back in the markets, and that has been pretty evident this month. And that some investors worried about their retirement, savings, and wondering what if anything they should do.

This week, there have been some new developments from the IRS and Treasury that may in fact be helpful.

Sharon Epperson, who`s always helpful, is here to help us make sense of it all.

Sharon, what`s the best strategy for individuals who are concerned in these volatile markets about their retirement savings?

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, they shouldn`t do what Ann Hewitt told us that many 401(k) investors have done this month, and that is have above-average trading in their 401(k). This is your long-term investment portfolio and so, you don`t want to be trading in and out.

But what we found is on these days when we`ve seen a big market dip, a big dip in the S&P 500, a lot of folks have actually traded out of their 401(k), out of equities, and gone into fixed income, exactly the opposite of what you want to do for long term growth.

MATHISEN: Let`s talk about something that the Treasury Department has done just today basically, and that is sort of liberalize rules, I guess is a way to put it, regarding one kind of investment that you could put into your portfolio to stabilize it.

EPPERSON: One of the things that people are so concerned about, every study shows that they`re afraid of out living their retirement savings.
So, annuities that offer a guarantee stream of income is something that a lot of folks want.

Now, the Treasury Department is saying, hey, maybe this can go in your 401(k). We`re going to encourage folks to include this, employers to include this in a plan with target day funds so that you have it as an option.

The big caveat, though, a lot of financial advisers I talked to said is that you want to look at the fees that are associated with this, of course. And you also want to consider if you are an investor that is able to manage your own portfolio, you may be able to do better rolling it over into a 401(k) working with an adviser, and then buying annuity on your own.
You just have to see what —

MATHISEN: And derived the income you may have gotten out of annuity, or even more by your own artful management of your portfolio.

EPPERSON: Exactly.

MATHISEN: Also a bit bump-up in the max people can put in their
401(k) starting next year.

EPPERSON: You already told people about this last night on the program, but $18,000 is what you can put in your 401(k) as a contribution, maximum contribution in 2015. You know, you`re worried about having enough money for your retirement. It matters how much you actually put in.

So, it`s important to put in the max. If you`re over 50 you can put in $24,000 —

MATHISEN: I was going to ask you about the catch-up for people over age 50.

EPPERSON: The catch up of $6,000. So, you can up $24,000 altogether.

MATHISEN: You put $24,000.

Oh, bottom line here, in light of the fears that treasury actions, what bottom line should people do with their retirement savings?

EPPERSON: Bottom line is, now the time not to panic, but reassess where you are. If you`re afraid of the risk that we`ve seen, whether it`s Ebola, whether it`s shooting in Canada, things that make you not sleep at night, you need to reassess and make sure your portfolio is rebalanced, and that it`s reallocated so that you can and so that you reach your retirement goals, Tyler.

MATHISEN: Sharon, thanks very much.


MATHISEN: Have a great week, Sharon Epperson.

Finally tonight, folks, which universities produce the most billionaires? According to this year`s Wealth-X and UBS Billionaire Census Report, most of them are right here in the U.S. Ivy League names do dominate the list.

What`s number one? University of Pennsylvania, followed by Harvard, Yale, the University of Southern (NYSE:SO) California, and Princeton. Two overseas universities made the top 10, India`s University of Mumbai and the London School of Economics.

And that will do it for NIGHTLY BUSINESS REPORT for tonight. Thanks for watching. I`m Tyler Mathisen. Have a great weekend, everybody. We`ll see you Monday.


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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