Transcript: Thursday, February 19, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Pay raise. Walmart long criticized for not paying its workforce enough will spent a billion dollars for wage hike increases for half a billion employees this year.

Another swipe. A judge rules American Express (NYSE:EXPR) (NYSE:AXP) violated antitrust laws, sending shares of the company lower, making this the second major setback with the credit card company in just a week`s time.

And driving into debt. American automobile buyers are borrowing lots of money for new cars and trucks — record amounts in fact. Is it a cause for concern?

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, February 19th.

Good evening and welcome. Glad you could be with us. I`m Tyler Mathisen. Sue Herera is off tonight.

Well, the largest private employer in the country is making a big investment in its employees. Walmart will hike the wages of its entry level workers, more than a third of its workforce, to $9 an hour. That`s above the federal minimum wage.

The world`s largest retailer has long been under pressure from organized labor groups demanding higher pay and better benefits.

The company also reported earnings today. They topped expectations, but it did cut sales outlook, citing the stronger dollar. Investors pushed shares of Walmart lower, likely worried about the bottom line implications of its worker pay initiative. It was, in fact, the worst performing stock in the Dow Jones Industrial Average today.

Courtney Reagan now with more on Walmart and what was behind the company`s big decision.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The country`s largest private employer will spend a billion dollars to increase wages for half a million of its 1.3 million workers, improve its scheduling and offer new training programs for career advancement.
Currently, only 6,000 Walmart workers make federal minimum wage.

But starting in April, wages for Walmart`s U.S. employees will be at least $9 and then at least $10 an hour by February next year. Department managers will also see pay improve.

PAUL TRUSSELL, DEUTSCHE BANK: Part of Walmart`s problem has been concerns around inventories being out of stock. It`s been about bad customer service, long lines at the checkout counters. There`s been a lot of disgruntled workers. And, frankly, this does sound like taken a step to kind of correct perhaps some of those past evils.

REAGAN: In an exclusive interview with CNBC, Walmart CEO Doug McMillon said the pay increases ultimately bring sales dollars back into his store.

DOUG MCMILLON, WAL-MART CEO: It will play through retention, the ability to hire, the talent we need to hire. I`m confident those things will work their way through because we`re investing to make them happen.
But ultimately, we want associates so excited about taking care of customers, thanking them for shopping with us. Things like that, that`s got to show up in sales.

REAGAN: The cost of Walmart`s wage increase and training initiative are part of the reason in addition to ecommerce investments, its earnings forecast are below Wall Street`s consensus. For the fourth quarter, Walmart`s earnings did beat expectations. The revenues came in lighter than anticipated.

Most noteworthy however, sales in traffic at U.S. stores opened at least a year posting the strongest increases in two years. The retailer`s chief financial officer said lower gas prices and better weather helped drive more customer trips to stores.

However, Walmart`s U.S. CEO Greg Foran says the congestion at West Coast ports is hurting some pockets of merchandise right now and said if the labor contract issues aren`t resolved, the problems for all retailers will worsen.

Out of stock inventory has been an issue for Walmart in the past.
Though, this time, there`s only so much the retailer can do about it.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: Meanwhile, the luxury department store chain Nordstrom
(NYSE:JWN) failed to impress investors after the closing bell when it reported earnings. The retailer`s fourth quarter profit and full year outlook fell short of estimates. Those sales last quarter did slightly beat those forecasts. Shares dropped initially in after-hours trading as you see there on that chart, following the earnings report.

Liz Dunn joins us now to talk more about retail earnings, cheap gas prices and consumer spending. She`s the founder and CEO of her own firm, Talmage Advisors, which focuses on the retail industry.

Liz, always good to see you.

Let`s start with Walmart. Is raising wages the right thing for Walmart to do and how do you expect it will affect the bottom line?

LIZ DUNN, TALMAGE ADVISORS FOUNDER & CEO: I think it is the right thing to do. If you think about this in the context of the broader economy, one of the challenges we`ve seen is stagnating wages. And so, I think that this is a huge step. Walmart is the largest employer in the United States, and so, with this kind of step, not only is it just about Walmart, but it also sort of forces the hand of other employers to perhaps match these wage increases.

So, I think it`s the right thing to do. Investors obviously didn`t like it today. But ultimately, I do think that this will benefit Nordstrom
(NYSE:JWN) — I`m sorry, Walmart. And come back to them in —

MATHISEN: One would presume that if some of these entry level workers have a few more dollars in their pocket, they will be able to spend a little more, maybe even spend a little more at Walmart.

DUNN: Absolutely, you know? I think it will — it will come back to Walmart in terms of their sales. Also, in impacting customer service — employees feeling a little bit better about working at Walmart and passing that on in terms of providing better customer service to customers, which should show up in the register.

MATHISEN: That was certainly Mr. McMillon`s thought there.

One more second on Walmart. What did you make of the numbers today?
The comp-store sales numbers were very favorable really.

DUNN: Right. And this is the second time in a row, the second quarter in a row, we`re seeing better results out of Walmart. And so, I think it`s notable, the fact it`s coming from traffic. Much has been said about whether or not gas prices are actually benefitting that low end consumer. I think this is a very strong sign that they are.

So, numbers were good. Obviously, the outlook a little bit disappointing. Currency is one factor there. And then, you know, this cost of paying people more.

MATHISEN: You know, let`s talk a little bit now about gasoline prices and your thoughts about how much, if at all, those falling gasoline prices are translating into better sales at other retailers apart from gasoline stations. It seems like an awful lot of that money is getting saved or being driven towards paying down debt.

What are you seeing? What are you sensing?

DUNN: Well, this is an impact that we should see for the lower end consumer, a bit more than the consumer broadly. The lower end consumer has been lagging. They`ve really been struggling and the recovery has missed the lower end consumer.

So, you know, saving perhaps and perhaps just a little bit of catch- up. But I would say we`ve seen a number of upside surprises from, you know, more mass and discounters. That`s a little bit of, you know, the lower expectations, but I do think we`re starting to see a little bit of past through for consumers spending a bit more.

MATHISEN: Final question. Of all the retailers you follow, what stock is your favorite right now and why?

DUNN: You know, I really like Macy`s (NYSE:M) and I also like L Brands. They`re taking share. They also have a little bit of a benefit from improving economy overall, but I think you really want to stick with share gainers in this market because we`re not looking for tremendous growth in consumer spending. And so, I think the share gainers are the places you want to be.

MATHISEN: Liz, thank you so much. It`s always great to see you.

DUNN: Thanks for having me.

MATHISEN: Liz Dunn, Talmage Advisors.

Well, that better than 3 percent drop in shares of Walmart that we`re just talking about, kept pressure on the Dow all day long, while tech remains strong and the NASDAQ stayed positive. All end today, the Dow fell
44 points to close at 17,985, back below 18,000. The NASDAQ did add 18, the S&P, it recently hit an all-time high before it finished lower by two points, back below 2,100.

DUNN: Legal ruling against American Express (NYSE:EXPR) (NYSE:AXP).
The judge said the company violated antitrust laws when it used a long standing practice that steered customers away from using lower cost credit cards. Now, the fees that American Express (NYSE:EXPR) (NYSE:AXP) charges merchants, they`re routinely higher than those of other card companies, like MasterCard (NYSE:MA) and Visa (NYSE:V). American Express (NYSE:EXPR)
(NYSE:AXP) says he`s going to appeal the decision and that the judge`s ruling will hurt competition.

This is the second setback for American Express (NYSE:EXPR) (NYSE:AXP) in a week`s time. Last week, AmEx says its longstanding partnership with Costco (NASDAQ:COST), under which it is the only card the retailer takes, will end next year. Shares off American express off nearly 2 percent today at $78.40.

Well, now to the global markets where Japan`s benchmark Nikkei Index hitting 15 year high, with the country-grabbing all the attention is Greece, which submitted a proposal to its creditors for a six months extension of its loan agreements. The plan was rejected by Germany.

Michelle Caruso-Cabrera has more on the negotiations and what might happen at a key meeting of Eurozone finance ministers tomorrow.

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: So, it finally happened today. The Greek government submitted a formal request for an extension of the bailout. The government refused to say it`s a bailout extension, but everyone else in the eurozone is saying that is exactly what it is and that`s what they needed in order to come to the table.

So, here we go again for the third time in two weeks. All of the Eurozone`s 19 finance ministers are going to gather in Brussels to look at this request by the Greek government. It`s about a page and a half document. They make several key commitments in there and yet, at the same time, there are a number of other countries in the Eurozone.

Germany in particular, that feels the way it`s worded, there`s just too much wiggle room in there that Greece maybe could back out of previous commitments and not stick to the program as they have previously committed to. And at the same time, still try to get more money out of the Euro zone. So, tomorrow is still going to be very, very contentious. The outcome is really key.

If they don`t finish tomorrow, then the rest of the Eurozone ministers, many of whom who have to go back to their home countries and get this vote passed in front of their parliament, it`s the equivalent of trying to get a vote in U.S. Congress on a similar scale, if they don`t get this done by tomorrow, they don`t think they`re going to have enough time before the official Greek program expires. That means it will be cut off by the European Central Bank and that could be really devastating for the Greek economy. That would get them awfully close to potentially exiting the Eurozone.

If they don`t get the deal done by tomorrow, there`s concerns about what would happen in the banking system, in Greece over the weekend, would there be runs on the bank? And would the European Central Bank have a big decision about whether or not they`re going to keep funding the Greek banks?

So, bottom line: tomorrow is pivotal.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.

(END VIDEOTAPE)

MATHISEN: Oil prices fell for a second day after a government report showed record high inventories of crude. The Energy Information Administration said it was the sixth straight week where levels were at a peak.

WTI fell 98 cents today, off its session lows, though. It finished at $51.16. Brent crude was down 32 cents at $60.21.

Oil and gas prices watched closely, of course, by the nation`s drivers who have been in showrooms buying up new cars. And to pay for all those new cars, they`ve taken on record amounts of debt — almost $900 billion as of the fourth quarter of last year. This according to Experian Automotive.

Phil LeBeau is in Chicago now with a closer look at that report.

Phil, welcome.

We`re seeing record auto loans, but whose borrowing might surprise people. Why?

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: I — Tyler, I think it will surprise people, because the people who are buying, borrowing the most in the fourth quarter were those who had the best credit. The super prime credit rated consumers did more borrowing than any other group and that includes those with subprime or deep subprime credit ratings.

And we`ve heard this talk over the last several months, Tyler. People with the poor credit are the ones who are driving auto sales. This report shows that`s not the case.

MATHISEN: We have heard numerous stories about dealer selling new vehicles to those with weaker credit. Is it a concern? Is it a myth?
What is it?

LEBEAU: It is a concern but it`s not inflating sales overall.

Look, in any market, you will see dealers selling vehicles to people who can`t afford those vehicle payments. That`s inevitable. That`s going to happen all the time. When you look at the repossession rates or the delinquency rates on auto loans, they`re below historical averages. So, we`re not seeing a problem right now similar to what we saw in 2008 and 2009.

MATHISEN: You know, a lot of different loan types. You hear them advertised all the time. No money down, zero percent financing, the seven- year loan. What`s the most popular loan? Is the seven-year rising to the top?

LEBEAU: It`s not the most popular yet, but it`s quickly becoming more popular. Six and seven-year loans are what we`re seeing most people take out. Most people are doing six-year loans right now, Tyler, but increasingly, seven year loans are being offered.

MATHISEN: That`s really amazing.

Philip LeBeau, thanks — Phil in Chicago tonight. >

LEBEAU: You bet.

MATHISEN: Well, still ahead, Yahoo (NASDAQ:YHOO) made a big move today to reinvent a critical part of its business. But will it work?
We`ll explore.

(MUSIC)

MATHISEN: The labor market appears to be perking along. The number of Americans filing new claims for unemployment benefits dropped by 21,000 last week to 283,000.

President Obama submitted his annual economic report to Congress and it paints a positive picture of the economy, over the next 12 months. The report clearly outlines his agenda which includes overall overhauling the corporate tax code increasing infrastructure spending and some new trade agreements.

John Harwood is with us now from Washington.

John, welcome.

Does the president propose these new policies in his economic report or where?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, he reiterates what he proposed in the State of the Union and his budget. So, we`ve seen a celebration from the president over the accelerating job market which created 260,000 jobs on average per month in 2014, heightened growth and better trends in unemployment, which is now, of course, below 6 percent. And the president`s remedies are what he calls middle class economics. Steps to improve middle class incomes through labor market reforms, through new tax credits and tax benefits for average families and higher taxes on the wealthy.

MATHISEN: Republicans control the Congress. Will the middle class economics play there, go very far?

HARWOOD: No. It won`t go very far at all, but the president is trying to shape the debate that is accelerating now in the 2016 presidential race, Tyler, as well as the Congress that meets the next president, his successor. He`s trying to move the ball down the field.
Maybe get some things, but not very much of this agenda.

MATHISEN: You know, obviously, the GOP has their issues with the president, but some in his own party have issues with him, specifically, I think over corporate taxes and expanding trade. Is he making his own party unhappy?

HARWOOD: Yes. He`s making both parties unhappy, actually, because Democrats don`t share his priority for reducing that top corporate tax rate from 35 percent to 28 percent, as he`s proposed. He`d have to close a lot of loopholes to do it. That`s very difficult to do.

But one thing that`s more likely to get through which is Democrats are very opposed to are the transpacific trade deal, and the trade deal he`s negotiating with Europe. The president`s trying to make the argument that the problem the labor movement is objecting to, jobs going overseas, downward pressure on wages, is a result of globalization but not the trade deals themselves and he said he`s going to get enforceable standards to prevent a race to the bottom in these new deals.

MATHISEN: John Harwood in Washington — thanks very much.

HARWOOD: You bet.

MATHISEN: John reporting from Capitol Hill or nearby.

Three companies returning more cash to shareholders is where we begin tonight`s “Market Focus”.

Coca Cola, T. Rowe Price and Colgate all announced hikes to their quarterly payouts. Coke`s is up 8 percent to 33 cents a share. T. Rowe Price is upping its dividend to 52 cents a share, plus it declared a special dividend of $2. Colgate`s is now 38 cents a share and it will buyback up to $5 billion in stock. T. Rowe Price rose 1.5 percent. Coke was up almost 1 percent. Colgate shares were down about a half percent.

Priceline`s results beat on both the top and bottom lines, bolstered by growth in hotel and car rental reservations. The travel booking site also said it would buyback an additional $3 billion in shares. It did warn investors about the impact of a stronger dollar. Still, Priceline popped about 8.5 percent to — look at that price — $1,218.05.

Well, all of those aggressive discounts helped T-Mobile deliver strong results for investors. The wireless carrier saw revenue rise as it managed to add more than 2 million subscribers.

The company`s chief explained how he wants to continue to invest in new subscribers.

(BEGIN VIDEO CLIP)

JOHN LEGERE, T-MOBILE CEO: I was accused in the second half of last year, of thinking more about customers than shareholders, which, by the way, you know, is — you can judge from the (INAUDIBLE). We`ve shown that profitability will follow. We gave huge guidance, which I think is the positive news that`s coming forward. And it`s a revolution. It`s one by one taking all the things that everybody hates about wireless and eliminating them structurally forever.

(END VIDEO CLIP)

MATHISEN: Shares there were up almost three percent to $31.85.

It was a mixed first quarter for Hormel. But the seller of Spam, Skippy and my favorite corned beef hash raised its earnings outlook for the year after lower meat prices and continued demand for turkey products drove margins higher. Shares up more than 2 percent today to $57.65.

Well, the government is suing to block the merger between Sysco
(NYSE:SYY) and US Foods, the nation`s two largest food distributors.
Regulators think the proposed $3.5 billion merger would hurt competition in food distribution and raise prices. Shares of Sysco (NYSE:SYY) off 3 percent to $38.56.

Well, Yahoo (NASDAQ:YHOO) wants to show it can make mobile work. And that`s what CEO Marissa Mayer was trying to prove at the company`s first ever mobile developer`s conference today. Investors did seem pleased, sending up shares more than 1.5 percent.

Our Josh Lipton now with a look at why it`s so important for Yahoo
(NASDAQ:YHOO) to get this part of its business right.

(BEGIN VIDEOTAPE)

MARISSA MAYER, YAHOO CEO: Good morning and welcome. We are so excited about today.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Yahoo`s CEO Marissa Mayer has said that when she first joined Yahoo
(NASDAQ:YHOO) in 2012, the mobile business there was a hobby, not a job.
These days, Mayer is working hard to change course.

That`s why today, she hosted Yahoo`s first ever mobile developer conference. Where the company announced a sweep of products for developers and touted Yahoo`s mobile success.

MAYER: This reinvention of our products for the mobile space is we`re having the achievement I`m most proud of during my 10 years at CEO. And the investment has paid off. We`ve seen tremendous growth in terms of users, revenue and time spent. Not only have we seen the growth, we`ve actually seen an outpacing of our historical rate, which, by the way, wasn`t that hard. We have actually outpaced the industry rate.

LIPTON: Mayer said that Yahoo (NASDAQ:YHOO) generated more than $1 billion in mobile ad revenue last year, making the company the third largest ad company in the world. Still, Meyer has a lot more work to do.
This year, Yahoo`s mobile ad revenues will account for about 4 percent of the overall market, compared to 35 percent for Google (NASDAQ:GOOG) and nearly 20 percent for Facebook (NASDAQ:FB).

GENE MUNSTER, PIPER JAFFRAY MANAGING DIRECTOR: The challenge that she`s had is that even though they`ve had a lot of progress, they still lag the industry in terms of mobile adoption and mobile revenue. There`s still about half of where they probably should be.

MAYER: And we are so proud of what we have to offer you here today.

LIPTON (on camera): It`s critical that Mayer keeps the momentum in mobile going. Businesses are expected to spend $28 billion this year on mobile ads, according to research firm e-marketer, so the stakes are high and there`s a lot of money on the line.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.

(END VIDEOTAPE)

MATHISEN: Coming up, Uber and Lyft, two popular start-ups that are changing the way people hailed cabs, are facing legal challenges that threaten their business model. We`ll explain.

(MUSIC)

MATHISEN: So, the West Coast ports are reporting now lower cargo volumes for January. The ports of Seattle and Tacoma said imports fell 21 percent compared with the same month a year ago. Port of Long Beach said volumes off 24 percent. The port of Los Angeles will release its numbers next week and it said it expects the report to show steep drops. The decline is being contributed to that ongoing labor dispute and slowdown.

Uber, the ride-hailing app that`s changing the taxi industry, is expanding the amount of capital it expects to raise by a billion dollars and that brings the total current round of funding to just under $3 billion. The start-up decided to increase the round because of high demand for its shares. The company is also seen its revenue growth accelerate in recent months.

Well, as Uber grows, so do its challenges and some of those challenges could end up bringing legal challenges. Uber and Lyft facing lawsuits brought by drivers in cities that could dramatically increase the cost of doing business and potentially change their business models.

Kate Rogers (NYSE:ROG) reports.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The model that has allowed the sharing economy to flourish could change dramatically as decisions are awaited in two lawsuits filed against tech startups Uber and Lyft in California.

At the heart of the cases, which seek class action status, is whether their drivers are independent contractors or employees. The plaintiffs argue their employees and are seeking reimbursement for things like gasoline and vehicle maintenance.

If judges rule in their favor, cost for transportation technology start-ups Uber and Lyft could increase significantly to include health insurance costs, Social Security, unemployment insurance, and wage protection. Uber and Lyft argue their technology platforms providing services to drivers as well as passengers.

In Los Angeles, an Uber driver who asked us to withhold his name says he`s spending $80 a week on gasoline, $30 a month on car washes, and $300 a year on maintenance. His reimbursement on those costs alone could near $5,000. He may be an independent contractor, but feels like more of an employee as he claims Uber has control over the jobs he accepts.

UBER DRIVER: Really, what I really feel as an employee given that Uber controls everything I do from where I go to how I can look and how I can talk to people. And every job that I take, I`m forced to take even if I lose money on the contract. Otherwise, I`m fired.

So, in that way too, I feel like an employee because I`m not given a choice as to what my duties are.

ROGERS: But not all drivers are pushing for benefits. Brooklyn-based Lyft driver Robert Henderson says he likes the convenience of being an independent contractor, although admittedly he receives health insurance through his wife. Becoming an employee would change his outlook.

ROBERT HENDERSON, LYFT DRIVER: It`s an obligation. And I don`t want the obligation feeling. I want — I like the fact that when I`m ready to work, I can work.

ROGERS: But attorney Shannon Liss-Riordan representing plaintiffs in both cases says flexibility and employment status aren`t mutually exclusive.

SHANNON LISS-RIORDAN, PLAINTIFF ATTORNEY: That`s a common refrain.
Oh, the workers like being their own boss. They like being independent contractor.

But the truth is they`re not independent contractors. They`re working for these companies, following the company rules. They`re not getting paid proper wages and employee benefits.

ROGERS (on camera): Uber and Lyft declined to comment and while the decisions could be limited to drivers in California, Liss-Riordan plans to appeal that, seeking a nationwide class action status which could be a game changer for other sharing economy start-ups across the country.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

MATHISEN: And finally tonight, China welcomed the year of the sheep today ushering in the Lunar New Year, part of the Chinese tradition. The sheep has a bad rap. Some Chinese believe the animal brings bad luck, but apparently not for U.S. investors. For the past years, sheep has been the most profitable year for the S&P 500, time and again, with average annual returns of about 21 percent. It is the third most profitable year for the Dow and we`re not pulling the wool over your eyes.

That`s NIGHTLY BUSINESS REPORT. I`m Tyler Mathisen. Thanks for watching. Have a great evening, everybody. We hope to see you right back here tomorrow night.

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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