Transcript: Tuesday, February 10, 2015

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Fresh fizz. Coke earnings and sales gave the stock a jolt. But can the blue chip with a red can turn around years of sluggish global growth?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Finding a floor. Everyone is looking for one in oil prices. But after today’s tumble, could this be it?

MATHISEN: And in the record books. Apple (NASDAQ:AAPL) today did something no U.S. company, no company anywhere has ever done before. It closed at a record market value of more than $700 billion.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, February 10th.

HERERA: Good evening, everyone.

Stocks break their two-day losing streak and the S&P 500 closes at its highest level this year. Thanks in part to hopes for a deal with Greece and Coke.

There’s no company more American and today, it did something it hasn’t done in four quarters. It reported a rise in sales in North America, its biggest market. The world’s largest beverage maker was also able to hike prices, helping to offset the impact of a stronger dollar. Shares finish the day up nearly 3 percent, topping Wall Street profit and revenue forecast for the year.

But the company still faces some very big challenges and after years of sluggish sales, can Coke find growth?

Sara Eisen reports.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Coca-Cola’s earnings beat came mostly due to continued cost cutting including layoffs and its first price hike in several years. The good news: sales were up slightly in North America. CFO Kathy Waller told me lower gas prices are helping consumers. Also, health conscious consumers buying teas and flavored waters, while shying away from sugar and soda.

IVAN FEINSETH, TIGRESS FINANCIAL PARTNERS: Understand that trend and also population growth has flattened. So, the overall demand is flat. They have to now look for niche markets to grow because the growth in carbonation soda is flat.

EISEN: Still, the question revolving around Coca-Cola (NYSE:KO) mirrors questions about the overall economy. Mainly, can the world’s largest beverage company find growth while facing global head winds?

Most of Coke’s earnings come from outside the United States. With the price of American exports increasing, thanks to that stronger dollar, Coca-Cola (NYSE:KO) CEO Mukhtar Kent is calling 2015 “a year in transition.” He notes, “The consumer is challenged everywhere around the world and that there is a lot of volatility in currency, interest rates, in growth rates and in geopolitical issues.”

There’s also a continued risk among Coke’s major shareholders. One camp led by billionaire Warren Buffett seems content with Coke’s steady pace and its dividend growth. The other camp may be smaller, but it’s continuing to pressure Kent and the board to make changes.

FEINSETH: The board has to realize they work for the shareholders. They don’t work for themselves. So, when the shareholders aren’t happy, they have to address it quickly. When the business is not growing or profitability is declining, they have to address it quickly.

EISEN: For now, a decent earnings report gives Coke another quarter to deflect any heat it might be feeling.

For NIGHTLY BUSINESS REPORT, I’m Sara Eisen at the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: And joining us now to talk a little bit more about Coke is Caroline Levy. She’s beverage analyst and managing director at CLSA Americas.

Caroline, welcome and welcome back.

I — Sara Eisen just characterized Coke’s report today as decent. The market seemed to see it as a little bit better than that. How do you see it?

CAROLINE LEVY, CLSA AMERICAS: We’ve been seeing quite a lot of relief rallies into these quarters where expectations get so negative, everybody has been aware of the currency headwinds that are facing Coke and many multinationals. And I think we’ve had some very bad earnings releases leading up to this. So, I see more of a breath of relief rather than applause at a great quarter.

HERERA: SO, Caroline, what more does Coke has to do? Because it’s taken them quite a while to make some efficiencies and there’s still a lot more that they have to do apparently.

LEVY: I think they really need to do more of what they’re doing and faster. So, I think it’s interesting that they’ve bought a 16 percent or 17 percent stake in Monster beverages. I wonder why they didn’t buy the whole company, because I think something like that would have been transformative. And, yes, it might feel risky, but I think they need something major.

The second thing I’d say is on the cost-cutting side. They’ve announced plans to generate savings of $3.5 billion over several years. But it’s not enough and it’s not fast enough. So, those are some examples.

MATHISEN: What is your rating on the stock and what would make you change it?

LEVY: We’ve had an underperform rating for a couple of years, actually — initially stemming out of concerns with China, which is their second largest market in the world. But I think really what we need to see, they do need this year under their belt, I don’t think there’s anything short-term that would change my view. But over time, what I’d love to see is more free cash flow generation, more return of cash to shareholders.

Also, recognition, maybe you don’t keep plowing money into CSDs if the market is shifting away from them.

HERERA: Caroline, a lot of people think that perhaps Mukhtar Kent is not the person to transform Coca-Cola (NYSE:KO). The company has grown under him certainly, but they’ve been challenged under him as well.

LEVY: For me, the biggest disappointment actually was the purchasing of the U.S. bottling operations, a massive, expensive endeavor, and in the sluggishness with which the refranchising is happening. And so, yes, that has been under his watch. I think he’s faced a lot of big negative macros, but I still would like a little more sense of urgency.

MATHISEN: You mentioned a phrase a moment ago. CSDs, I’m assuming that’s carbonated sugar drink?

LEVY: Yes, sir, carbonated soft drinks.

MATHISEN: Carbonated soft drinks.

LEVY: Yes.

MATHISEN: All right. And a lot of them have sugar.

You don’t like this stock. You wouldn’t buy it here. Are there others that you like better? And you know who I’m thinking of.

LEVY: Absolutely. Absolutely.

Well, number one, you may be thinking of Pepsi, I’m actually thinking of Monster, because the opportunity for Monster now that they have Coke’s blessing and the opportunity to be distributed globally in the Coke system is immense. So, we’re very excited about Monster.

Pepsi, we have an outperform rating on that because the snack business is quite robust, but I still think the U.S. only stocks are really going to continue to do very well, and with Monster barely outside of the U.S. but with a huge opportunity outside the U.S., I think that’s a perfect combo.

HERERA: All right. Caroline, thank you very much. Caroline Levy with CLSA.

LEVY: Thank you.

HERERA: Dow component Coke helped bolster the markets today as did optimism Greece will reach an agreement with its creditors, even as Germany’s finance minister dampened the prospect of the compromise.

At the close, the blue chip index, the Dow index rose 139 points to 17,868. The NASDAQ finished with a gain of 61 and the S&P 500 was up 21.

Also contributing to the optimism, Apple (NASDAQ:AAPL), which became the first U.S. company to close with a market cap above $700 billion. It’s now more than twice as valuable as Microsoft (NASDAQ:MSFT). And ExxonMobil (NYSE:XOM), the second largest, has a market cap of $385 billion.

Ty?

MATHISEN: Astonishing.

HERERA: It is.

MATHISEN: All right. Stocks rising today, crude prices falling. First time in four sessions.

International Energy Agency warned that the supply of oil will raise global inventories before investment and spending cuts start to dent production and that pressured prices. WTI, that’s West Texas, fell 5 percent, finishing the session just above $50 a barrel. Brent also lower.

And as the debate continues over whether oil prices have bottomed for now, falling about 50 percent in recent months, today, J.P. Morgan weighed in, saying oil’s collapse is almost over. This counters yesterday’s note when you told about from Citi that said oil prices had further to fall, maybe even to $20 a barrel.

Let’s bring in Kevin Book for his take on oil prices.

Kevin, welcome. Clearview Energy Partners (NYSE:EPL).

Kevin, who’s right, Chase or Citi?

KEVIN BOOK, CLEARVIEW ENERGY PARTNERS: Well, it’s not for me to judge whether they’re right or wrong. History will do that for all of us, including our oil forecast.

But what’s clear about the divergence in opinion, not only you need two sides to make a market, which is part of the fun but also that there’s so much uncertainty about what’s going to happen, given the unconventional supply that has come to the market, and how little we understand how quickly it might retreat from the market.

HERERA: Now, Kevin, that is one of the differences in your notes that you pointed out. That this time around, the volatility that we’ve seen in oil, the big swing to the downside, is different than swings that we’ve seen in the past.

BOOK: Oh, absolutely. Right now, we’re looking at a tremendous inventory overhang. Even our numbers which tend to diverge from the consensus to the upside see a weaker second quarter on the basis of further inventory builds.

Where we’re different I think from some of the other forecasts that are out there is that we see production slowing down much sooner and much more starkly than some of the optimistic narratives about ongoing production, new efficiencies and coping better with lower prices.

MATHISEN: Which takes supply out of the market and implies that you think this is going to be $50 and above barrel oil on average rather than $30 to $20 a barrel year.

BOOK: That’s right. There’s well thought out opinions out here and I would not to disagree with it, with any of them.

MATHISEN: Oh, go ahead. Disagree.

BOOK: But $20 is a very attention grabbing number. It’s a number that takes us back to the beginning of the last decade when OPEC was still actively trying to manage the market and looking in the $18 to $22 price band. That’s an eyebrow-raising number.

HERERA: So, Kevin, is there one single determinant out there that you are watching very closely to tell you which direction oil is going to go? Or whether we formed a bottom here?

BOOK: Well, maybe the better to look at it is, what are we missing? And right now, with so much focus on supply, our view is that maybe we undercounting the responsive of demand. Certainly, it is different. OECD is a lot flatter than it used to be, less price responsive now that we’re more efficient.

But demand is not dead. You can’t have this kind of price for any sustained period of time without people rethinking their infrastructure, their purchasing decisions, their consumption patterns. That can start to boil in a much faster return to higher prices than I think any of us are expecting.

MATHISEN: Kevin, thank you so much. Kevin Book with Clearview Energy Partners (NYSE:EPL).

BOOK: Thanks for having me.

HERERA: Well, that recent sharp drop in oil prices over the past few months is prompting Halliburton (NYSE:HAL) to make some job cuts. The oil services company says it expects to lay up to 8 percent of its global workforce and is the latest in a string of energy companies to do so. The cuts will be across all of the company’s operations.

MATHISEN: Now to the economy. Two voting members of the Federal Reserve board see a rate hike looming. Today, president of the Richmond Fed, Jeffrey Lacker, said, quote, “June looks like an attractive option”, end quote, attention offer because the economy is strengthening. Separately, San Francisco Fed President John Williams told “The Financial Times” that the Central Bank is getting closer and closer to raising rates. And today, bond yields rose with a ten-year treasury closing right around 2 percent.

HERERA: The number of job openings jumped to a 14 year high. According to a new Labor Department survey, there were more than 5 million job vacancies at the end of December. December was also the best month for hiring since before the recession.

And Labor Secretary Thomas Perez says the job market is showing strength.

(BEGIN VIDEO CLIP)

THOMAS PEREZ, LABOR SECRETARY: In the depths of the recession, there were almost 7 job seekers for every job. Now, we’re down to 1.7. So, everything is moving in the right direction. You layer this on top of job numbers on top of gas prices on top of auto sales, and that all equals a confident and economy where the fundamentals are very, very strong.

(END VIDEO CLIP)

HERERA: Improved demand for goods and services has prompted employers to hire.

MATHISEN: One company doing hiring some hiring is Home Depot (NYSE:HD). The home improvement retailer says it will take on 80,000 workers for spring selling season. That matches the number of people it hired last year. The jobs will be both permanent and part-time and seasonal positions.

HERERA: Finance chiefs from the group of 20 leading economies are in Turkey and today, they vowed to take action to bolster global economic growth. The group said it would use monetary and fiscal policy to meet its goals, but Treasury Secretary Jack Lew urged countries not use currency devaluations as ways to increase their exports.

Steve Sedgwick has more from Istanbul.

(BEGIN VIDEOTAPE)

STEVE SEDGWICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Two-day meetings in finance ministers and central bankers from around the globe that was attended by Jack Lew and Janet Yellen finished here in Istanbul, with what the host, Mr. Babacan, the deputy prime minister of Turkey, said was a productive meeting. They were saying that the world is now in a better position than it was 12 months ago and that actually a lot of the action taken in Brisbane to move forward with the global economy and push $2 trillion worth of growth into that economy by 2018 was moving at pace.

Although, there were some criticism in the specific targets for investment that the Turkish host had wanted to include in the final communique was absent, with Mr. Babacan saying they were all working now on their own program. This will be country by country led.

There was a conversation as well about foreign exchange. Of course, there is a great concern that the countries may well use domestic policy to influence currency. It was a reiteration from ministers that actually domestic policy must be for domestic aims and not to affect the level of currency devaluates and then create a more competitive situation — something that said here.

Oil prices were talked about as well, and the host said, actually the lower oil price was net net positive for the global economy, although concern about investment and volatility did remain. They talked also about tax, about financial regulation and also about combating terrorism.

For NIGHTLY BUSINESS REPORT, this is Steve Sedgwick in Istanbul.

(END VIDEOTAPE)

HERERA: Still ahead, beyond the breach. The government is creating an agency to fight one of the biggest threats to American business, cyberattacks. But can Washington really solve the problem?

(MUSIC)

MATHISEN: A number of companies, not just one, a number were hacked today. “Newsweek’s” Twitter account was compromised by a group claiming to be affiliated with the Islamic State. The chief financial officer of Twitter, yes, the CFO, had his account hacked when he clicked on spam e-mail. An unauthorized content was posted to Delta Airlines (NYSE:DAL) Facebook (NASDAQ:FB) page after its account was accessed.

HERERA: And on a day when all these businesses accounts were hacked, Washington announced the creation of a new agency designed to monitor cyber threats. A counterterrorism official — sorry about that — counterterrorism official says the new agency will be there to aid in the fight against cyberterrorism which is a growing threat to business.

(BEGIN VIDEO CLIP)

LISA MONACO, HOMELAND SECURITY ADVISOR: To the private sector, we’ve made it clear that we will work together. We’re not going to bottle up intelligence. If we’ve got information about a significant threat to a business, we’re going to do our utmost to share it.

(END VIDEO CLIP)

HERERA: Eamon Javers has more from Washington now on this new cyber security initiative.

So, Eamon, how is this new cyber center going to be different from the cyber defenses that the government has now?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, that’s the key question here, Sue. In one way, it’s going to have a new name. It’s going to be called the Cyber Threat Intelligence Integration Center, and that word “integration” is sort of the key here.

The U.S. government has a lot of cyber monitoring devices and centers right now that are in place. In fact, President Obama just last month went to a cyber center at the Department of Homeland Security. This one though is going to be in charge of integrating the intelligence coming from all the different apparatus of the U.S. government, the FBI, the NSA, different parts of the national intelligence infrastructure.

So, they say that will be a one-stop shop for government officials in figuring out what’s going on in cyber space.

MATHISEN: Has the government never tried anything like this before?

JAVERS: They have. You know, they’re saying, Tyler, that they’re modeling this off of what they’ve done on the anti-terrorism side of the intelligence front. They say that by having an integration center where they pull all of this information together and send it to government officials, they can better get a handle on exactly what the government knows. They’re calling it a hole of government approach and they say it worked well on the terrorism side.

HERERA: Do you think they can really solve the problem? I mean, they must think they can if they’re putting this forward, but it seems to be getting worse every day.

JAVERS: Well, they think they can do a lot about it, Sue, but they don’t think they can entirely solve this problem. Lisa Monaco, who you just played in that clip just there from the White House, she said this is a key problem for the 21st century and it’s going to be a defining problem for the early part of the 21st century.

You don’t talk that way if you think you’re going to solve this problem overnight.

HERERA: Eamon, is there one particular aspect of social media or the e-mail system that’s the most vulnerable that officials are really worried about?

JAVERS: It’s the human being who’s receiving the e-mail, Sue. I can’t emphasize that enough. The weak link here is you and me. You know, even we saw high ranking Twitter officials falling prey to some of this. You know, when you get the e-mail, they call it spear fishing e-mails are so highly targeted that it really looks like it’s an it’s an e-mail to you. It looks like it comes from somebody you know. It’s on a topic you’ve maybe discussed before and you just click on the link even though there’s something is not quite right about it, that’s when they’ve gotten you.

And so, a lot of this is all about training the workforce to be a lot more suspicious of the e-mails that we’re getting, even if they seem like they’re on topic and on point.

HERERA: Scary stuff, Eamon. Thank you very much.

JAVERS: You bet.

HERERA: Eamon Javers in Washington.

MATHISEN: Well, a big miss since shares of Dean Foods (NYSE:DF) tumbling. And that is where we begin tonight’s “Market Focus”.

America’s biggest dairy processor reported earnings and sales that trailed estimates. The company also forecast current quarter earnings that fell below most analysts’ expectations. The CEO tried to encourage investors, saying he believes 2015’s full-year results will be substantially better than last year. Still, shares slumped, down almost 12 percent on the trade today to $15.92.

Shares of Starwood Hotels rallied after it announced earnings that beat estimates. The company also says it’s going to spinoff its timeshare vacation division to focus on its core hotel operations. Shares popped more than 6 1/2 percent. They finished at $75.93.

Starwood wasn’t alone. The hotel chain Wyndham Worldwide (NYSE:WYN) also impressed investors. Its quarterlies came in better than expected and it hiked its full-year forecast. Also, it raised its dividend to 42 cents a share from 35 cents. And the yield on the shares now about 1 1/2 percent. Those shares were up almost 9 percent to $88.07.

HERERA: CVS (NYSE:CVS) managed to post record sales, even after it decided to stop selling cigarettes. The pharmacy chain’s results were helped by Medicare growth, which helped to offset declining retail sales in wake of its decision to stop selling tobacco products. Shares were 2 percent higher to $101.68.

Shares of Martin Marietta had their best day in seven years. The maker of construction materials reported a solid earnings beat and it announced a $20 million share repurchase program, which includes $5 million already authorized shares. The stock rose 15 percent to finish at $137.24.

And Sony (NYSE:SNE) and Disney (NYSE:DIS) are teaming up to bring Spider-Man and the Avengers back together again. The two companies announced Spider-Man will appear in an upcoming Disney (NYSE:DIS)-produced Marvel superhero movie. And in a few years, the character will get his own Sony (NYSE:SNE) movie. Shares of Sony (NYSE:SNE) rose nearly 1 1/2 percent to $26.06. And Disney (NYSE:DIS) shares were slightly higher to $101.92.

We told you earlier in the program that Apple (NASDAQ:AAPL) hit $700 billion in market value. Part of the reason why is a venture it announced with First Solar (NASDAQ:FSLR). The companies will build an $850 million solar energy farm in California, and this will be Apple’s fourth solar farm. First Solar (NASDAQ:FSLR) rose nearly 5 percent to $48.54. Apple (NASDAQ:AAPL) closed at $122.02.

MATHISEN: And speaking of Apple (NASDAQ:AAPL), Sue, it is selling bonds now for the second time ever outside of the United States. As we reported yesterday, Apple (NASDAQ:AAPL) will issue bonds in Swiss francs, taking advantage of that country’s record low borrowing cost. The bond sale came in two parts, raising more than a billion Swiss francs or about $1.35 billion.

Now, the ten-year — get this — the ten-year Apple (NASDAQ:AAPL) bond will pay investors a yield of 0.28 percent. The ten-year U.S. treasury bond pays 2 percent. So, the market essentially says Apple (NASDAQ:AAPL) is a better credit than Uncle Sam. Maybe it is. The 15-year will pay a yield of 0.74 percent.

HERERA: Well, while Apple (NASDAQ:AAPL) is seeing strong demand for new Swiss franc bonds, there’s also big demand for its products in another part of the world and that’s creating a black market for iPhones in China.

Eunice Yoon has more from Shenzhen.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): When you want an iPhone in mainland China, you can take to one of Apple’s 16 stores and buy the most popular model, the 64 gig iPhone 6 for $998.

But that’s not the only way to get an iPhone. Along the border with Hong Kong, iPhones are smuggled in, in suitcases, boxes and bags, by people paid as little as $42. At the train station, iPhone mules walk through customs and head to a darkened alley, carrying the phones in parts. A bag of chargers for one, earphones on the other, to avoid getting caught by the authorities.

The goods are handed off to others who reassemble and package the phones for sale in this country.

(on camera): China is Apple’s biggest market outside of the United States. It’s easy to find iPhones here. You can buy them in the official stores or you can come to a place like this, a major electronics market.

(voice-over): Outside, iPhones are sold at authorized resellers, but inside, there’s a healthy gray market trade. Some are new, many refurbished, which are which can be hard to tell. Most of the new phones are smuggled from Hong Kong, though some U.S. models can be found.

The phones are sold to fans of all ages, all over the country. New ones cost $150 less than at the official store, a bargain for a phone that sets the average migrant worker back two to three months pay. Look-alikes can be purchased too, even as we found out of — well, not quite the iWatch but the Ai-watch. Just the latest sign that Apple’s newest creation will wind up in China wherever it’s sold in the world.

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

(END VIDEOTAPE)

MATHISEN: Coming up, rent out your car? What about the spare room in your house? It’s all part of a fast growing sharing economy that’s giving rise to another potentially big business.

(MUSIC)

MATHISEN: And finally tonight, to many, the sharing economy is a game changer, giving rise to a new population only to drive, deliver, rent their house to earn money.

Like all businesses, these fast growing ventures involve some risk giving rise to yet another business, ensuring the shared economy.

Mary Thompson explains.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The ride-sharing service Uber says it makes a million trips a day covering a lot of ground and providing insurers fertile ground for new coverage.

MICHAEL BARRY, INSURANCE INFORMATION INSTITUTE: The sharing economy could be used especially on the auto insurance side.

THOMPSON: Among insurers providing targeted auto policies for drivers of firms like Uber and its rival, Lyft, are MetLife (NYSE:MET), GEICO and USAA.

JESSE MATA: Well-established exclusions against carrying passengers for a fear engaging in these types of activities. So that’s why there’s a sort of gray area between personal and commercial coverages for this type of activity, and that’s why we hope to sort of bridge the gap between these two types of coverage.

THOMPSON (on camera): For insurers, the sharing economy presents a huge opportunity. The consulting firm PWC estimates this economy will grow to $335 billion by 2025 from $15 billion in 2014.

(voice-over): Meaning, along with drivers, homeowners who rent their homes and individuals providing pick up and delivery services may need additional insurance, too. To make sure you’re covered before you share your car, home, or time picking up goods for others, the Insurance Information Institute’s Michael Barry said pick up the phone.

BARRY: The first call is got to be the insurance company and explain to them what you’re planning on doing.

THOMPSON: While firms like home rental business, Airbnb, provide hosts with coverage for damage and liability, Barry says your insurance company may still require additional coverage like a landlord policy. And individuals delivering groceries for Instacart may want to look at investing in a business owners’ policy. All of this meant to protect the person who is profiting from sharing.

For NIGHTLY BUSINESS REPORT, I’m Mary Thompson.

(END VIDEOTAPE)

HERERA: Fascinating, isn’t it?

MATHISEN: Interesting stuff.

HERERA: Yes.

MATHISEN: You’ve got to have insurance for everything.

HERERA: Yes, of course you do.

MATHISEN: You do.

HERERA: All right. That does it for NIGHTLY BUSINESS REPORT for tonight, with no insurance. I’m Sue Herera. Thanks for joining us.

MATHISEN: No assurances.

I’m Tyler Mathisen. Have a great evening, everybody. We’ll see you back her tomorrow.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. 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) 2015 CNBC, Inc.

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