Transcript: Nightly Business Report — March 3, 2015

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Winter chill. How big a dent is the cold weather across much of the country leave on last month’s auto sales?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Stern words. Oil rebounds as the Israeli prime minister warns the U.S. against accepting a weak nuclear deal with Iran.

MATHISEN: High stakes. Hearing the future of the Affordable Care Act falls to the Supreme Court now, where arguments will be heard tomorrow about the legality of one of its main provisions: subsidies.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, the 3rd of March.

HERERA: Good evening, everyone. And welcome.

A hangover on Wall Street one day after the NASDAQ closed above 5,000 and the Dow Jones Industrial Average and S&P 500 hit records. But the markets just couldn’t hang on, as investors kept a close watch on three things: auto sales, Israeli Prime Minister Benjamin Netanyahu’s forceful speech to a joint meeting of Congress, and the House vote to fund Homeland Security.

But it was those monthly sales figures from the major auto makers that set the tone for the day. Sales mostly rose even as brutal winter weather blanketed parts of the country.

But for some, that just wasn’t enough. Chrysler missed estimates despite sales increasing nearly 6 percent. Ford’s numbers were off by 2 percent, much worse than expectations. The standout was General Motors (NYSE:GM) posting a 4 percent rise, better than expectations as truck sales surged.

Shares of Fiat Chrysler and Ford slumped while General Motors (NYSE:GM) rose a fraction.

Phil LeBeau has more on last month’s auto sales.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Pardon the pun, but February auto sales were colder than expected. Sales last month rose about 5 percent, with a pace coming at $16.23 million. That was below estimates 16.6 or $16.7 million. For the major auto makers, almost all of them reported sales that were below Wall Street estimate, Ford being the one that reported a decline in sales, with sales dropping 1.9 percent.

What happened last month? Blame it on the weather. Storms really hurt showroom traffic, especially in the Northeast where sales fell by as much as 50 percent in some markets because of the repeated snowstorms. Add in ice storms in the Southeast late in the month and that’s a big reason why sales slowed down in the last week of February. That said, there were a couple of bright spots, pickups and SUVs are still in heavy demand. In fact, G.M. truck sales were up more than 30 percent last month.

The real question is what happens with auto sales this month? That’s because March is the beginning of the auto sales season where we really start to see business pick up. If the weather improves, most dealers around the country are expecting that we should see auto sales move substantially higher.

Philip LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: Well, stocks were sandbagged today by those auto sales results and some traders say the decline in equities was basically to be expected following yesterday’s big records on the Dow and the S&P and the NASDAQ nipping above 5,000.

By the close, the blue chip Dow index was off 85 points to 18,203. NASDAQ lost 28 back below 5,000, and S&P 500 was down 9.

The energy market spent much of the morning focused on Israeli Prime Minister Netanyahu stern warning to Congress, about American efforts to strike a multinational nuclear deal with Tehran.

In a joint meeting of Congress, Netanyahu made it clear he thinks Iran can’t be trusted.

(BEGIN VIDEO CLIP)

BENJAMIN NETANYAHU, ISRAELI PRIME MINISTER: The greatest danger facing our world is the marriage of militant Islam with nuclear weapons. To defeat ISIS and let Iran get nuclear weapons would be to win the battle but lose the war. We can’t let that happen.

(APPLAUSE)

(END VIDEO CLIP)

MATHISEN: The reaction was seen for a bit in the oil markets with WTI crude rising and then giving back some gains. It settled at $52.52. Brent also saw gains at 2.5 percent as you see there.

Jackie DeAngelis has more.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The oil market reacting to geopolitical news today after Israeli Prime Minister Benjamin Netanyahu addressed a potential nuclear deal with Iran saying, quote, “This is a bad deal, a very bad deal. We’re better off without it.”

Crude saw an initial spike on the prime minister’s words, but then pared some of its gains when President Obama reacted.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Let’s wait until there’s a deal on the table that Iran has agreed to, at which point everybody can evaluate it.

DEANGELIS (on camera): The significance of deal or no deal is Iran’s oil supply. If we do get a deal, U.S. could lift sanctions on Iran. If oil could flood the market and depress prices further. If we don’t get a deal, we could see the market work through the supply that it already has and prices could slowly rise again. A deadline for the talks is late March.

(voice-over): Crude managed to settle over $50 a barrel with Brent crude over 60. Oil prices have been hovering in this range for weeks.

What could be some of the short-term catalysts? Well, to the downside, a dollar that continues to strengthen after hitting an 11 year high today. To the upside, news tomorrow that inventories are tightening.

For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.

(END VIDEOTAPE)

HERERA: John Harwood joins us now with more on the Israeli prime minister’s speech and the other piece of action on the nation’s capitol, that House vote to fund the Department of Homeland Security.

Good to see you as always, John.

Let’s start with Iran if we could and Mr. Netanyahu’s impassioned plea to Congress not to do this deal with Iran and then the president came back and said there was nothing new in the speech.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Sue, the president delivered a very eloquent and powerful speech. It may not have been new, but it was well-delivered. It drew a very enthusiastic reaction from Congress, members of both parties — even though many Democrats had boycotted this speech.

The acid test going to be, what is the reaction, if in fact we get a deal? The president has said the chances are less than 50/50. The negotiators continue to work in Switzerland, that’s Iran and the P5-plus-1, which includes Britain, France, Russia, China, Germany, all trying to strike this deal.

So, you know, is the Prime Minister Netanyahu going to be able to turn political or public opinions strongly against it? Is he going to deter a deal from being struck? We’re going to see that play out over the next few weeks.

MATHISEN: You know, John, it was rich irony that Secretary of State Kerry was literally in Switzerland at the same time this speech was going on. My question for you is what role does Congress have to play in this?

The president in his rejoinder after the speech made it very clear, hey, look, the executive branch is paramount with respect to striking deals and foreign policy.

What role does Congress have to play here?

HARWOOD: It’s a little murky at least to me, Tyler. A couple of things, first of all, there is sanctions legislation that Congress has enacted and to the extent that a deal would lift sanctions, that could involve a role for Congress. I got different answers from aides on the Hill, different answers from members of the same party. So, there doesn’t seem to be a clear consensus and Mitch McConnell indicated after the speech today that he’s going to attempt to push legislation to the Senate floor to have Congress weigh on this deal.

So, this is a bit of a moving target. Democratic Senator Bob Menendez who was the chairman of the foreign relations committee, now the ranking member, had been pushing sanctions legislation last year. They held off on pushing that through the Senate. Mitch McConnell is going to try to do something as soon as he can arrange it that might impact the negotiations in Switzerland.

HERERA: Let’s move to the Department of Homeland Security legislation. And the House did pass it.

So, what’s next, John?

HARWOOD: What’s next is John Boehner, the House speaker, breathes a very major sigh of relief because he and Mitch McConnell vowed were not going to have shutdowns, were not going to have crisis management and John Boehner was undercut by more than 50 members of his own caucus last Friday who took the interim deal that he had made with Democrats and the members of the Senate and they submarined that deal.

Now that John Boehner went to them this morning that said, we’ve got no choice, we got to pass funding. We’ll see if members of Congress learn from that misfire and give John Boehner a little more maneuvering room going forward.

HERERA: All right. John, thank you so much — John Harwood in Washington.

Ty?

MATHISEN: Well, from the “I’ve seen this movie before” department, the Congressional Budget Office is warning about a federal debt limit, saying if it’s not raised, the Treasury Department will run out of cash by October or November. The government can rely on accounting maneuvers to keep the government afloat until then. Does this sound familiar?

Without congressional action to raise the debt limit, the government would default on its obligations.

HERERA: The Affordable Care Act is back at the Supreme Court. The nine justices will hear a major challenge tomorrow to a key provision of the Affordable Care Act, subsidies. Some say the outcome has the potential to derail the president’s signature achievement and it all hinges on just a few words.

Hampton Pearson has more.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Tomorrow, the Supreme Court justices will hear the biggest challenge for the Affordable Care Act since a landmark 2012 decision upholding the individual mandate. This time, opponents of the mandate are challenging the government subsidies offered to those who get their coverage through the health insurance marketplaces run by the federal government.

The challengers and leading conservative legal scholars say the lies are crystal clear. It says subsidy should go only to people who get insurance through an exchange as established by the state.

CORY ANDREWS: The challengers in this case who are some low-income Americans who would — who don’t want to purchase insurance and who — but for the subsidy would not be required to purchase insurance because subsidy raises — compensates zero income and makes eligible for the individual mandate under the statute.

PEARSON: It’s estimated that over 7 million Americans signed up for insurance through the federal government exchange and would receive a subsidy to cover all or part of their coverage.

The Obama administration will argue it was not the intent of Congress to pass a law that leaves out so much of the country. And supporters say there are numerous references to subsidies for all Americans, in 900-plus pages that make up the Affordable Care Act.

VIJAY DAS, PUBLIC CITIZEN: If you want to talk about providing health care to more Americans or controlling health care costs — let’s have that conversation. But don’t let — let’s don’t have a bait and switch and really have a conservative assault on a fairly modest effort to establish health reform in the United States.

PEARSON (on camera): While there’s no constitutional showdown this time, the stakes are nearly as high as three years ago. A ruling in favor of the challenges could gut how the Affordable Care Act functions.

For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Washington.

(END VIDEOTAPE)

MATHISEN: Craig Garthwaite joins us now to discuss what’s at stake for many businesses and millions of people who are now covered under the Affordable Care Act. He’s assistant professor of strategy at Northwestern University’s Kellogg (NYSE:K) School of Management where he specializes in health care.

Professor, welcome back.

Let’s just cut to the chase here. Would an adverse ruling out of the Supreme Court effectively end the Affordable Care Act as we know it?

CRAIG GARTHWAITE, KELLOGG SCHOOL OF MANAGEMENT: Well, certainly in the 30-plus states that chose to use the federal exchange rather than set up their own exchange, the citizens there would lose access to subsidies. Many of those people would be unable to afford insurance and the exchange in those states would effectively cease to run effectively. Premiums would go up. Lots of people would be uninsured. And so, in those states, you’d see the beginning of the end of the ACA.

MATHISEN: What about businesses of these subsidies are indeed mixed? What businesses would be most affected?

GARTHWAITE: Well, certainly, the first business you want to look at are hospitals. If you think about how our health care system works, hospitals really served as the de facto insurers of last resort. If you don’t have insurance and you are sick, you go there, you get care. If you’re unable to pay, hospitals often eat those costs and the biggest effect on their bottom line.

They see changes of that from many of those hospitals by insuring tens of millions of Americans. We’re going to see hospital bottom lines do better. And so, it’s no surprise that those hospitals have been strong supporters of the ACA and in particular have opposed any attempts to limit the subsidies through the Supreme Court.

MATHISEN: I would think also that insurance companies would be massively affected here because they have counted on a non-adverse risk — to use the term of art here — around which they have based all of their pricing. If the risk pool changes dramatically, those companies whose stock pool has gone up a lot as a result of the customers they’ve gotten, I think it would suffer.

GARTHWAITE: Absolutely. I mean, we sort of gave a deal to the insurance companies and we said, we’re going to make sure people buy insurance. We’re going to give them subsidies. We want you to participate in the exchanges and develop plans that are offered throughout the states.

Now, we start changing the rules on those companies and you point out very well that you’re going to get a selective pool of probably the sickest people who remain in and many of these products ultimately go away because they can’t survive in a world in which we don’t have a subsidized pool that’s buying insurance.

HERERA: So, those would be some of losers certainly. But who would be some of the winners?

GARTHWAITE: I mean, winners are sort of tough to find. There are people who oppose the Affordable Care Act obviously are going to like a ruling that limits the subsidies because it would be the beginning of the end of the law. You could imagine a world in which we have sort of a well-functioning legislative and executive body that would take a ruling against the ACA, come together and develop a better more well-crafted law.

That’s not really the world that we live in though and so, what you see is the ACA is going to go away, or large portions of it, and those would be the winners, per se.

MATHISEN: I understand also that the so-called employer mandate might be affected here because it hinges in part on companies that have more than 50 employees, but for whom at least one or more employee receives some sort of subsidy. If there’s no subsidy, there’s no employer mandate, Craig.

GARTHWAITE: Right. It’s definitely going to weaken the employer mandate in those 30 states because those employers are going to pay a penalty if your employee shows up on the exchange or receives a subsidy. Your lowest income employees won’t qualify for subsidies anymore. So, in those places, you’ll see the mandate weaken dramatically.

The bad part about that is there’s also going to be states where people don’t get insurance from their employer, they can’t go to the exchange to get insurance because we’re going to effectively end a well-functioning exchange market in those states.

MATHISEN: All right. Craig, thank you very much. A very thorny issue indeed. Lots at stake. Craig Garthwaite, Northwestern University’s Kellogg (NYSE:K) School of Management.

GARTHWAITE: Thank you.

HERERA: And still ahead, are outflows at PIMCO’s flagship funds starting to slow as its performance rebounds?

(MUSIC)

HERERA: Investors pooled more than $8 billion out of PIMCO’s flagship total return fund last month, the 22nd straight month of withdrawals. But it’s less than the $11 billion of outflows in January. Over the past five months, the total return funds formally run by PIMCO’s founder Bill Gross has handily whipped its benchmark and its Morningstar (NASDAQ:MORN) intermediate peer category as well.

MATHISEN: We begin tonight’s “Market Focus” with a restructuring announcement from Target (NYSE:TGT).

The retailer plans to cut thousands of positions as part of an effort to reduce costs by $2 billion over the next couple of years. It also gave full-year earnings guidance that was better than estimates and says it plans to buy back $2 billion worth of its shares this year. And those shares were up today, a fraction, to $78 even.

Best Buy (NYSE:BBY) reported better-than-expected quarterly earnings on a strong holiday season. On that, the retailer declared a special dividend, 51 cents a share, boosted its quarterly dividend to 23 cents a share. And the company will buy back $1 billion worth of shares, first repurchase since 2012. The stock was 1.5 percent higher today, finishing at $39.18.

HERERA: Lumber Liquidators saw its shares reverse course today. As we told you yesterday, the stock sold off after CBS’s “60 Minutes” reported that the company sold flooring with higher levels of formaldehyde. But today, Janney Capital Markets upgraded their rating on the stock to “buy” from “neutral” saying fears generated by the program are overblown. Shares popped 5 percent to finish at $40.78.

Actavis sold $21 billion in bonds today. The 10-year bond was priced to yield about 3.8 percent, which was at the lower end of guidance, showing strong investor demand for one of the largest corporate bond offering on record. The stock fell just a fraction to $296.23.

Shares of restaurant company Bob Evans fell sharply after the bell, after the company misses earnings and revenue estimates for the quarter and issued light guidance for the year. The company also said it won’t spin off its food unit, and has hired JPMorgan (NYSE:JPM) to advise on strategic options for its real estate. Shares fell more than 15 percent after the close, but rose a fraction during the regular session to $59.64.

MATHISEN: Well, people are changing the way they shop — not just what they buy, but how and where they buy it. And that is creating big challenges for some of the country’s biggest consumer companies.

Sara Eisen has more.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: It’s fast. It’s easy. It’s fast. It’s convenient for me.

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): When it comes to buying the basics, more and more people are turning to their computer. Like Christie Spears (ph) who rarely steps foot in a store these days.

UNIDENTIFIED FEMALE: Now I can pretty much shop for anything online. Still shop for clothes but definitely use it for household items, for cleaning products, things we just regularly use in the house.

EISEN: The latest data from Consumer Edge Research showed so-called consumables, every day household products are now tied with media. Think online books and movies as the second most popular category bought online.

Number one is apparel. And while most of the population still buys their consumer products at grocery stores or drugstores and only 9 percent on the Internet, the fastest growth is online.

UNIDENTIFIED FEMALE: There are definitely some web sites that are kind of a conglomerate of a couple different stores all in one web site. I love when I can buy dog food and cleaning products and snacks for the kids all on one Web site.

EISEN: No site has been as influential as Amazon (NASDAQ:AMZN).com, with the rise of services like Amazon (NASDAQ:AMZN) Prime which promises free two-day shipping on almost everything. The idea of buying 6-pack of paper towel rolls online makes more sense than ever. That explains why more people buy household items on Amazon (NASDAQ:AMZN) than any other category except for its bread and butter, media.

UNIDENTIFIED FEMALE: Last year was my trial year with Amazon (NASDAQ:AMZN) Prime. And I kept my Sam’s Club membership and I figured I would use both and see which I save more money on. And I think Amazon (NASDAQ:AMZN) Prime is going to come out on top.

EISEN: These are essential for consumer companies trying to understand not just what their customers want, but where they want to buy. For instance, Procter and Gamble just appointed its first ever in charge of ecommerce sales.

These companies have always focused on building relationships with brick and mortar retailers like Walmart. But now, they need to pivot from the decades-old fight for the space on the shelf, to the ever-changing battle for space on your screen.

(on camera): That transition is proving challenge for heavy weights like P&G, Colgate, Kimberly-Clark (NYSE:KMB) and others. As a result, it’s created an opportunity for upstarts like Dollar Shave Club and Jessica Alba’s The Honest Company, among others. Companies themselves recurring, subscription based and household items like diapers and razors online, that will only add to pressure on the consumer giants in the years ahead.

For NIGHTLY BUSINESS REPORT, I’m Sara Eisen.

(END VIDEOTAPE)

MATHISEN: Coming up, tropical diseases pose a growing threat to some areas of the United States and now, one company is looking into ways to fight them.

(MUSIC)

HERERA: Four hundred million people around the world are affected by a tropical disease that’s not widely discussed. It’s called dengue fever and there are no treatments or vaccines currently available. And now, the U.S. is starting to see some outbreaks.

Meg Tirrell has more from Key West, Florida, how one company that is doing something never done before to try and keep that disease at bay.

(BEGIN VIDEOTAPE)

PATTY SPRAGUE: This is one of the areas I need to crawl under.

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Patty Sprague is on the front lines of a fight experts hope to keep off U.S. shores.

SPRAGUE: These are my people. I don’t want my people to have — be bitten or to have mosquitoes. So, it’s like hide and seek every day.

TIRRELL: Mosquitoes, specifically, the Aedes Aegypti, carry diseases like dengue fever and chikungunya. They’ve been on the rise, and the disease saw some of its first outbreak of dengue in decades, in 2009 and 2010. The disease usually isn’t fatal, but can be incredibly painful. It’s nicknamed break bone fever and there are no treatments available.

Here in Key West, the southernmost part of the United States, mosquito control experts are doing everything they can to make sure dengue doesn’t return.

MICHAEL BOYLE: Dengue is kind of a sleeper disease. It comes — it can exist on low levels without us knowing it, and then flare up.

TIRRELL: One method has never been tried before in this country, officials here are working with British biotech company Oxitec, to unleash genetically modified mosquitoes, programs, to wipe out their own specifies.

Oxitec is now awaiting a go ahead from the FDA, to start a trial in the small area here in the Keys.

HADYN PARRY, OXITEC: What we’ve seen in all the trials we’ve done to date is we’ve actually brought down the population of this mosquito in the areas where we’ve released, way up to 90 percent.

Oxitec releases male mosquitoes to mate in the wild. The offspring they produced quickly die off. There’s been some local pushback to the plan, over concerns with genetic modification.

But Key’s experts and Oxitec say the method is safe and targeted specifically to the Aedes Aegypti mosquito, a non-native species here. And because Oxitec only releases mail mosquitoes, the genetically modified bugs won’t bite people. Only females do.

Meanwhile, big pharma companies are working on the problem. Both Merck (NYSE:MRK) and Sanofi have dengue vaccines in development, important as dengue cases have risen 30-fold in the last 50 years. Sanofi alone is reported to have spent more than $1.7 billion in the last two decades on the program. As the Florida Keys looks to test the bugs in the U.S., experts are also looking ahead to next year, when the Olympics land in Rio de Janeiro, Brazil.

BOYLE: It’s a huge focus. Having that many people from that many countries in a tropical area all crowded together, it’s — yes, it’s a big concern.

Oxitec has received initial approval in Brazil to release its genetically modified bugs there, among many efforts to control the mosquito population as the Olympics bloom.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell in the Florida Keys.

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. And we want to remind you, this is the time of year your public television station seeks your support.

MATHISEN: In behalf of your public TV station, thank you for your support. We’ll see you 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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