Transcript: Nightly Business Report — April 23, 2015

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Fifteen years in the making. The NASDAQ finally closes at a record, topping its dot-com era high. And tech earnings tonight, from Google (NASDAQ:GOOG), Microsoft
(NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) could set the tone for tomorrow.

What Caterpillar (NYSE:CAT), 3M (NYSE:MMM) and Procter & Gamble (NYSE:PG), three of the world`s biggest global companies, are saying about the health of the world economy?

GRIFFETH: And why this earnings season is turning out to be a big one for small caps.

All of that and more tonight on NIGHTLY BUSINESS REPORT for this Thursday, April the 23rd.

Good evening, everybody, and welcome. I`m Bill Griffeth, in tonight for Tyler Mathisen.

HERERA: And I`m Sue Herera.

The NASDAQ closed at an all-time high. We`ll have more on that momentarily.

But we begin tonight with three of the world`s biggest companies and what they are saying about the global economy.

Caterpillar (NYSE:CAT), the maker of construction and mining equipment, which reaches more than 180 countries, blew past earnings estimates. But it also issued a warning.

Procter and Gamble, the world`s largest household product firms which touched consumers across the global said revenues fell from last year, a sign of weakening demand and perhaps something else.

And 3M (NYSE:MMM), a manufacturing conglomerate, cut its full year outlook.

Together these three companies are sending a message to the markets about the global economy.


HERERA (voice-over): Giant multinationals, Caterpillar (NYSE:CAT), 3M
(NYSE:MMM) and Procter & Gamble (NYSE:PG), all Dow components, are feeling the effects of a stronger dollar, the freefall in oil prices, and geopolitical uncertainties.

Caterpillar (NYSE:CAT) beat revenue and profit estimates, but says the road ahead looks bumpy. It`s holding to 2016 sales projections of $50 billion, but lower oil prices have cut demand for Cats exploration equipment. Other sore spots include mining hardware, locomotives, and in China, construction equipment.

DOUG OBERHLEMAN, CATERPILLAR CHAIRMAN AND CEO: I`m going to be very realistic with you. We`ll not repeat this quarter the rest of the year.

We`ve seen a real dichotomy here in the world. A U.S. growing fairly slowly but growing steadily and everywhere else, there is not much good news.

HERERA: In some locations it could get worse because Caterpillar
(NYSE:CAT) has yet to feel the full impact of oil`s free fall, and now, the Petrobras scandal in Brazil.

ELI LUSTGARTEN, LONGBOW SECURITIES: Brazil has sort of been a basket case. One thing to remember is that they`re sort of a manana economy.

Our survey told us that North America will be better than expected.
And that is going to continue. The next green shoot is going to come out of Europe. QE is going to make it happen.

HERERA: Europe`s economic stimulus is one reason the dollar has strengthened though and 3M (NYSE:MMM) joins the chorus of companies blaming a stronger dollar when it missed earning estimates. 3M (NYSE:MMM), which makes post-its and coatings and ceramics, lowered its outlook for the rest of year.

Procter & Gamble (NYSE:PG) also said the dollar is hurting sales, which dropped by more than 8 percent. P&G does about two-thirds of its business outside of North America. To cut cost, CFO Jon Moeller says it can change its product mix, source materials locally and work on efficiency.

JON MOELLER, PROCTER & GAMBLE CEO: The good news these are things we should do in the normal course of business and we just sharpen the focus and keep it going. It is part of everybody`s job.

Obviously, markets like Russia, the Ukraine, Venezuela, Argentina are very difficult right now. We need to be selective where we are targeting growth.

HERERA: P&G`s biggest markets, the U.S. and China, are a little better off, and that`s where they`re hoping to find growth.


GRIFFETH: Now to another global brand which late today issued a big earnings beat. We`re talking about Microsoft (NASDAQ:MSFT). They reported a profit of 61 cents a share, 10 cents better than estimates and revenue also topped expectations, coming in at almost $22 billion as sales of its hardware and cloud computing products helped offset a decline in its Windows business.

And investors liked what they saw, obviously, with shares rising initially after that report.

Josh Lipton has more now on Microsoft (NASDAQ:MSFT) and the one thing shareholders should pay attention to.


JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s the revenue Microsoft (NASDAQ:MSFT) generated in the commercial side of the business where specifically the software it sells to companies, remember, that is the real bread and butter for the software giant. Wall Street expected
$12.4 billion, with many expecting a real miss. So, that number was a welcome relief from the Microsoft (NASDAQ:MSFT) bulls.

And that commercial division isn`t growing as strongly as in prior quarters, thanks to certain headwinds, such as a rising dollar. But analysts say today`s report was a step in the right direction for CEO Satya Nadella.

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


HERERA: It was a different story for another big tech company, Google (NASDAQ:GOOG). The search giant reported earnings per share of $6.57, expectations were for $6.60. Revenue also missed, coming in at $17.3 billion, but up from a year ago, helped by a jump in the number of ads.
Investors initially brushed off that miss and sent shares higher.

Jon Fortt takes a look at the report`s key takeaway.


JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The most interesting thing out of Google`s earnings report, YouTube. It turns out that property is performing better than a lot of people knew and the auto play ads on YouTube, people are watching them. That had been making Google`s results look actually worse than they are because it looked like people were clicking on a bunch of ads that weren`t paying out a lot of money. It turns out they were just enjoying watching the YouTube ads.
That and tight expense controls at Google (NASDAQ:GOOG) sent the stock up after hours.



HERERA: And a little later in the program, we`ll look at one of Google`s big projects and how it`s changing the game for some start-ups in the Midwest.

GRIFFETH: Well, both Microsoft (NASDAQ:MSFT) and Google`s results could, of course, impact how the NASDAQ trades tomorrow. But after the record close today, its first all-time high in 15 years. By the end of the trading session, the Dow Jones Industrial Average rose by 20 points to 18,058, and there`s NASDAQ rising about 20 points. That was enough to take the index to where it hasn`t been since March of 2,000. We`re at 5,056 now. And the S&P just about closed at an all-time high, we`re five points shy, up about five points today.

HERERA: The nation`s biggest automaker hilting a speed bump. General Motors` recall issues are mostly behind it and solid sales in parts of the world, so expectations were pretty high. But the automaker missed analyst estimates for both earnings and revenue, and that weighed on the shares.
They were down more than 3 percent.

Phil LeBeau has more now on the road ahead for GM.


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): For General Motors (NYSE:GM), another quarter of solid profits that left investors saying it`s not good enough. The automaker made over $2 billion last quarter, but fell short of estimates. Blame it on currency issues in South America and higher than expected tax rate.

But the underlying business did well, with North America profits surging thanks to truck and SUV sales, and GM says it`s on track to hit all of its financial targets this year. But still GM shares have stalled. On the company`s earnings call, CEO Mary Barra downplayed the possibility of General Motors (NYSE:GM) merging with another automaker as some have suggested.

MARY BARRA, GENERAL MOTORS CEO: We have a well articulated plan.
We`re in the middle of executing that, and we`re not going to entertain anything that distracts us from accomplishing that.

LEBEAU (on camera): A big part of GM`s game plan is returning more cash to investors, which the company is doing through a higher dividend.
So far, that move has failed to have a big impact on GM shares.



GRIFFETH: And from cars to trains now. Union Pacific (NYSE:UNP), the largest U.S. rail, posted first quarter profits and sales below analyst estimate. The company cited congestion at West Coast ports and weak coal demand and it sent shares lower by more than 2 percent as a result.

But while Union Pacific (NYSE:UNP) and other rails come under pressure, it`s a different story for another transportation sector, trucks.

Morgan Brennan has more.


Trains versus trucks, are the tale of two emerging stories within transports. As the dollar strengthens and oil is stays weak, growth is shifting from transportation of commodities which trains haul, to more consumer related products to trucking`s bread and butter. Analysts this dynamic is playing out in earnings.

DONALD BROUGHTON, AVONDALE PARTNERS MANAGING DIRECTOR: Rails are struggling to put mid-single-digit earnings growth together. On the other hand, the truckers or consumer-oriented, less industrial oriented, and a big beneficiary of cheap diesel fuel are posting phenomenal earnings growth.

BRENNAN: U.S. railroad earnings have been largely disappointing, due to falling demand and rising service cost. Take Union Pacific (NYSE:UNP), which reported this morning. Until now, the Western had rock solid results, but the first quarter missed analyst estimates with volumes at 22 percent. That after Kansas City Southern (NYSE:SO) (NYSE:KSU) reported results that were even more disappointing than previously lowered guidance.

On the other hand, trucking demand is increasing as fuel costs fall.
Companies like Knight Transportation (NYSE:KNX), Werner Enterprises (NASDAQ:WERN), J.B. Hunt and Marten Transport (NASDAQ:MRTN) have all beat on earnings, posting big year over year growth.

BROUGHTON: Of all of the companies that reported so far on the trucking space, we`ve seen an average increase in earnings of 45 percent.
Of all the companies in the rail space that have already reported earnings, we`ve seen 12 percent if you include the Canadian, 10 percent if you include the Americans in earnings per rail. So, you pick your poison.

BRENNAN (on camera): For this Broughton and a number of others on Wall Street are recommending investors consider buying stocks, and steer clear of the rails.



HERERA: While much of the focus during earning season is on large companies, it`s small caps that are seeing big results. According to FactSet, small cap companies have seen their earnings grow nearly 3.5 percent so far this season, with revenues up 5 percent last year, while large caps are seeing a drop of more than 3 percent. The reason is likely because of the strong dollar which small caps tend to be insolated from.

Joining us to talk about this is Stephen Wood, chief market strategist with Russell Investments.

Good to see you again, Stephen. Welcome.


HERERA: Does it come down to something as simple as that, that small cap companies tend to be domestically based and so, they don`t have that currency exposure?

WOOD: I think a large part is that. By definition they can be exposed to foreign markets but only U.S. markets. So, currency for them has really become a nonissue, at least in this current earnings season.
Whereas, for large caps, with national exposure, euro, that becomes much more of an earnings consideration.

GRIFFETH: Where do you put small caps on the risk scale, Steve? I mean, are they riskier than if you want to invest in Europe? Everybody is investing in Europe right now because of this dollar currency exchange rate situation. Does that make the small caps riskier or not?

WOOD: Well, as a general statement, historically, we`ve seen small caps going to be volatile or riskier than many of the small large cap names. But I think the bigger issue in the U.S. one of valuation large or small. You know, markets are fully valued in the United States so valuation is something of a head wind even though the economy is improving and even though the Federal Reserve be very stimulative.

So, for our perspective, we do like Europe, we`ve upgraded Europe, and we think there is more opportunities based predominantly upon valuations in Europe.

HERERA: So, if we have pretty much full valuations, what does the upcoming quarter bode for the small cap stocks?

WOOD: I think small cap stock will probably continue in line with what we`ve seen in the first quarter with a little bit of a pickup. The first quarter, again, very, very cold and the winter played in. And we have the dollar which you mentioned appreciate considerably, but also, there was the oil story.

So, I think the second quarter will not look dissimilar from the first quarter, but by the backend of 2015, I think you`re going to see a pick up of earnings in small cap and in large cap space. But I think the dollar is not an issue for the small cap, but it will continue to be something of an issue in large cap space.

GRIFFETH: Very quickly, if you were to invest in small cap, who are the winners here? Who would you go with?

WOOD: I think right now, we look at health care, which is insulated from all these other factors. We`d also look at financials, and I think we`d also want to look at areas of the consumer which are going to benefit from oil prices coming down, and with the dollar being a little bit more powerful, they can add to their consumption.

HERERA: Stephen, thanks so much.

WOOD: Thank you.

HERERA: Stephen Wood with Russell Investments.

GRIFFETH: Coming up: California is drying up as the race to save the state from this epic drought continues. Some are looking to the Pacific Ocean for help.


HERERA: There are reports this evening that Comcast (NASDAQ:CMCSA)
(NYSE:CCS) plans to drop its $45 billion bid for Time Warner (NYSE:TWX) Cable and it could come as early as tomorrow. The reports follow meetings between regulators at the Federal Communications Commission, Justice Department and executives from the cable companies. Shares of Comcast
(NASDAQ:CMCSA) (NYSE:CCS), the parent company of CNBC which produces this company, rose a fraction. Time Warner (NYSE:TWX) Cable fell slightly.

GRIFFETH: And it was good for investors in Starbucks (NASDAQ:SBUX) and Dunkin Brands. After the bell, Starbucks (NASDAQ:SBUX) reported an increase in sales at its coffee shops, calming concerns about cooling growth there.

And it was a big earnings beat from Dunkin Brands. That company also raised its outlook for the whole year.

That CEO attributed the strong quarter to a few factors.


NIGEL TRAVIS, DUNKIN BRANDS CEO: We had great innovation. We had new products. We had our products boost in loyalty, so we kicked it out to the park in the market side of the business, but nothing works unless our franchisees are open. And despite all the snow, our franchisees got their stores open.


GRIFFETH: Starbucks (NASDAQ:SBUX) shares initially popped after the close, while shares of Dunkin had their best day ever, up 8 percent today.

We begin tonight`s “Market Focus” now with quarterly results from tech conglomerate Amazon (NASDAQ:AMZN).

That company reported a loss despite rising sales as they continue to spend heavily on projects like drone delivery. For the first time, it gave financial details about its secretive cloud computing business which posted revenue of about $1.5 billion. Guidance from the online retailer, though, was light for the futures. Shares there were volatile after the close.
Stock ended the day up a fraction to $389.99.

And just one day after Coke reported strong results, Pepsi disappointed the street. The soda and snack giant says that it expects to take a bigger hit from foreign exchange in 2015, and more than expected, and that overshadowed the better than expected earnings and revenue results overall. Shares were, though, down 1.5 percent to $95.73.

Eli Lilly`s profits beat by a margin. They were boosted by a jump in sales of its animal health products. Lower spending on research and marketing also help the drug maker`s bottom line. But revenue slipped as the strong dollar hurt sales outside of the United States — where have we heard that before. Shares were up a dime. It closed at $72.40.

HERERA: Dow Chemicals saw its earnings pop more than 40 percent as it focused on its high margin business that caters to the packaging and electronics industries. The company CEO explains how Dow managed to navigate around all of those headwinds.


ANDREW LIVERIS, DOW CHEMICAL CEO: We saw the same currency volatility. We saw the same oil price deflationary effects that are going on in lots of markets around the world. So, in terms of real-time growth –
– you know, the bottom line matters, and we managed strong volume and good margin management through productivity and launching new products.


HERERA: Shares closed up almost 2 percent to $51 per share.

Lower fuel prices helped United Continental post a record quarterly profit. But the airline carrier saw its sales dip and it cut its capacity forecast for 2015, as once again that strong dollar weaken demand from abroad. Shares slump almost 2 percent to $62.82.

Pulte Group surprised the street, not in a good way, though. The home builder saw its profits drop more than 20 percent as home closings fell and orders were soft. Part of the problem was the Northeast because of construction delays due to weather. Shares tumbled almost 8 percent to $19.97.

And Johnson and Johnson announced a dividend increase of about 7 percent to 75 cents a share. The company CEO says that increase is due to a strong financial position and confidence. The yield on the payout is now right about 3 percent. The stock was up a fraction to $100.46.

GRIFFETH: Now to the drought out west. California has for decades neglected to build new water infrastructure, no new reservoirs, no new dams. But now, everything is on the water table, if you will, even desalination, which removed salt from sea water.

Jane Wells reports from Carlsbad, California.


JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Bone dry California sits next to the largest source of water in the world, the Pacific Ocean. Turning saltwater into fresh is expensive, requires a lot of energy and isn`t good for nearby fish, but California is running out of choices.

JESSICA JONES, POSEIDON WATER COMMUNITY OUTREACH: We are standing in the middle of the reverse osmosis plant.

WELLS: Jessica Jones is showing off the $1 billion desalination plant being built by Poseidon, which will come on the line later this year and provide 70 percent of the water to the San Diego County.

JONES: We`ll be producing 50 million gallons per day from this plant.
Behind me is a 72-inch sea water feed line.

WELLS: Poseidon is financing the plant while San Diego has agreed to buy the water at a fixed price for 30 years.

JONES: Water from the desalination plant will be about the double the cost of imported water.

WELLS: That means water bills will go up an estimated 6 bucks a month for customer, but the plants price will never change and it will never run out of water. The water coming through this pipe will be pushed through fine filters to reduce the salt at 900 pounds per chance of pressure.

JONES: If that pipe were to break, water would shoot one mile into the air.

WELLS: It takes a tremendous amount of electricity to produce that kind of pressure, but the plant hopes to recapture some of the energy discharge in the process and use it as a sort of turbine to reduce costs.

JONES: The Carlsbad project has been under development since 2000.
So, at that time, we were not in a drought in San Diego, or in California.
But that has changed and we`re coming online at the perfect time.

WELLS (on camera): Now, this process does kill fish, but Jones says not as many as you may think, and it`s often the case with new developments, they are offsetting the damage they may do here by restoring some wet lands further down the coast. And while this may be the first plant, it won`t be the last. A dozen such desalination projects are being considered up and down the state.

For NIGHTLY BUSINESS REPORT, Jane Wells, Carlsbad, California.


HERERA: Back to Google (NASDAQ:GOOG) now, which reported a big miss on earnings this evening, the company has been working on the project called Google (NASDAQ:GOOG) Fiber, which provides super fast Internet to small number of locations. One of those locations is Kansas City.

And as Kate Rogers (NYSE:ROG) reports, many start-ups have flocked to the area because of it.


KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The Internet connection may be blazing fast, but the rollout an entirely different story.

As Google (NASDAQ:GOOG) Fiber gears up to expand its footprint around the country, businesses have flocked to Kansas City, Kansas and Kansas City, Missouri, to capitalize.

Google`s high speed Fiber product has brought entrepreneurs to the region from as far as Europe.

Jim Lysinger`s cloud-based business Bime Analytics relocated to the area from France in 2012. Three years later, he`s still waiting for Fiber to deliver.

JIM LYSINGER, BIME ANALYTICS: The business application hasn`t come as quickly as we had hoped. But certainly, we`re in the implementation process and we expect to have it here in the next couple of weeks.

ROGERS: But for those who have fiber, it has been a game-changer.

(on camera): Buffering is something you`re not going to see here in Kansas City, where Internet connectivity speeds are up to 100 times faster than what you see in homes across America, thanks to Google (NASDAQ:GOOG) Fiber.

(voice-over): The hype around the high speed service is very real, but some are still figuring how to leverage it. It`s brought innovation to the region, with more than 100 start-ups launch in the past few years.

(NASDAQ:GOOG) chose Kansas City to bring Google (NASDAQ:GOOG) Fiber, it was like it ignited passion and innovation just simply because they chose Kansas City, and people rallied around it. I mean, when Google
(NASDAQ:GOOG) comes to your town and brings a brand new service that`s nowhere else in the world, you`re going to get excited about it.

ROGERS: The energy reminds Google (NASDAQ:GOOG) of another game- changer from the past.

RACHEL MERLO, GOOGLE FIBER COMMUNITY IMPACT MANAGER: What we`re seeing so far is looking a little bit like the early days of going from dialup to broadband. We didn`t really know what to expect, but the innovation followed.

ROGERS: And while there`s no set time line for Google`s rollout into five new cities, including Atlanta, Charlotte, Nashville, Raleigh Durham, and Salt Lake City, both customers and Google (NASDAQ:GOOG) agree, speed is what matters.

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


HERERA: Coming up, with medical marijuana now legal in 23 states, one entrepreneur is hoping that she has found the next niche market. The final part of our “Marijuana and Money” series is next.


HERERA: Here is what to watch for tomorrow on the data front, we`ll have durable goods orders, an indicator of demand for big ticket manufactured items, earnings from Biogen Idec (NASDAQ:BIIB), American Airlines, and Xerox (NYSE:XRX) are due out, and consumers will finally get their hands on those Apple (NASDAQ:AAPL) Watches.

That`s what`s on the agenda for Friday, Bill.

GRIFFETH: Whoo-hoo. Big day.

Meanwhile, Brazil`s state-run oil company Petrobras put a price finally on that massive corruption scandal that we told you about last night. The company which trades on the New York Stock Exchange will write off $17 billion due to losses from graft and overinflated assets. The disclosure came in Petrobras as first financial statement in more than eight months.

In an interview today with our Michelle Caruso-Cabrera, the company`s chief financial officer said those charges could get even bigger as the criminal investigation into the case expands.


IVAN MONTEIRO, PETROBRAS CEO: That`s the best information that we have at this moment. But it`s impossible to say that you — that this number will cover everything because information that we don`t have access or that — or is available, all in the future, it`s impossible to know about that.

it`s possible there could be more down the road?

MONTEIRO: Or — or more or less. We really don`t know.


GRIFFETH: Well, some apparently had estimated the cost of the corruption would be greater it. It actually helped shares of Petrobras rising more than 5 percent today.

HERERA: And finally tonight, we all know that people spend a lot on their pets, to the tune of $58 billion last year. And with the legalized pot industry growing, some entrepreneurs have found a new niche market, pot for pets.

Dina Gusovsky has more in the final part of our series, “Marijuana and Money.”


UNIDENTIFIED FEMALE: Sprout, do you want a treat? Do you want a treatable?

This is Sprout. She only has three legs and that`s one of the reasons her mom is feeding her marijuana.

UNIDENTIFIED FEMALE: We are giving her treatables to help prevent arthritis down the road. A treatable is a dog treat or pet treat that is baked with CBD compound, which is the non-psychoactive substance of the cannabis plant.

GUSOVSKY: Dory suffers from separation anxiety. She gets these CBD treats daily.

As for the critics?

UNIDENTIFIED FEMALE: I think they would be crazy to give their dogs really strong pharmaceutical drugs that make them feel dopey and out of touch rather than happy and calm.

GUSOVSKY: Brother and sister Morgan and Emily Paxhia are investors Auntie Dolores, the maker of treatables.

JULIANNA CARELLA, AUNTIE DOLORES: They are actually delicious. They taste like Graham crackers. We`re not interested in getting our dogs high, but interested in providing a wellness regimen that is safe and nontoxic.

The idea is if adults can enjoy cannabis, animals should too, but we stick to the ones that are appropriate for them.

GUSOVSKY: And the kitchen has plenty of edibles for humans as well.

CARELLA: Last year, we sold about a quarter of a million units altogether. Our strawberry pretzels and this is our most popular products.
I think we sold about 50,000 of these last year.

GUSOVSKY: For NIGHTLY BUSINESS REPORT, I`m Dina Gusovsky in San Francisco.


HERERA: And last night, we told about a story offering a rare glimpse into the life of a marijuana farmer. That piece is on our Web site,

And that will do it for NIGHTLY BUSINESS REPORT, I`m Sue Herera.

GRIFFETH: And I`m Bill Griffeth. We`ll see you tomorrow.


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) 2015 CNBC, Inc.

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