Transcript: Nightly Business Report- October 27, 2015

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

that`s exactly what investors wanted to see in Apple`s results, sending
shares initially higher.

pharmacy. Late news tonight, two of the nation`s largest drugstore chains
will merge.

HERERA: Turn up the heat as the temperature drops because this is
winter, it may not cost as much.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
October 27th.

MATHISEN: Good evening, everyone, and welcome.

Apple (NASDAQ:AAPL) may be asking what global slowdown? The world`s
most valuable company reported strong demand for iPhones over in China, and
a sharp rise in profits and revenue overall.

For the quarter, the Dow component earned $1.96 a share, and that was
eight cents better than expectations. Revenue also beat estimates. It
climbed 22 percent from just a year ago, and that sent shares of the widely
held company in mutual funds and retirement accounts among other places,
initially higher in extended trading.

Our Josh Lipton has more on Apple`s quarterly results.


million, that was the big number in Apple`s latest earnings report. That`s
the number of iPhones that Apple (NASDAQ:AAPL) shipped in the quarter. And
that was up 22 percent year over year. It was in line with what Wall
Street had forecast.

Remember, we can talk about Apple (NASDAQ:AAPL) Pay or Apple
(NASDAQ:AAPL) Music, but the end of the day, this is an iPhone company. It
is the iPhone that generates the bulk of this company`s sales. Some
investors and certainly some analysts on Wall Street concerned about
whether Apple (NASDAQ:AAPL) can meaningfully grow iPhone units in the
quarters ahead, a maturing smartphone market, a slowing China and certainly
tough comps.

I did, though, have a chance to speak to Apple`s CEO Tim Cook. He
remains confident. He knows that more people than ever are switching over
from Google`s Android, and he notes that 70 percent of the install base is
on the iPhone 5S or earlier. And that implies a lot of potential upgrade

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in Cupertino, California.


HERERA: So let`s turn to our guest, David Garrity, to talk more about
what lies ahead for Apple (NASDAQ:AAPL) and what it may mean for you and
your money. He`s principal of his own tech firm GVA Research.

Good to see you, David. Welcome.

DAVID GARRITY, GVA RESEARCH: Sue, thank you very much.

HERERA: So, let`s talk about this report. Were you as impressed as
those who traded the stock in after hours were?

GARRITY: Well, certainly we had a lot of investor concern about China
going into the quarter`s report and if you look at China, revenues from
China are about 24 percent of the total company`s revenues compared with
less than 14 percent a year ago.

Looked on a percentage basis, China revenues are up year over year by
about 114 percent. So, obviously, that was a major driver for the 22
percent revenue gain. Certainly, you have to look at China and say that
fine, revenues might have been downtown quarter over quarter by 5 percent.

We`re still in a situation for Apple (NASDAQ:AAPL) globally that China
is a significant geography to them. And we think that with the holiday
shopping season coming up over the next two quarters, obviously in the
December quarter here in the western hemisphere, and, obviously, the lunar
new year falls in the first quarter of next year, we think Apple
(NASDAQ:AAPL) has got a good six months in front of them.

MATHISEN: You know, some nitpickers found this nit to pick, and that
was that the guidance for the upcoming quarter to some was a little softer
than they had hoped. But is this just Apple (NASDAQ:AAPL) being Apple
(NASDAQ:AAPL) and setting the bar at a level where they`re comfortable that
they can meet or exceed it?

GARRITY: I think Apple (NASDAQ:AAPL) has always shown a strong
pattern of trying to lower expectations after they release a quarter. So,
from that standpoint, Apple (NASDAQ:AAPL) is being consistent with their
historical pattern.

There is a debate though that investors have, and that certainly is to
what extent do we think that Apple (NASDAQ:AAPL) has saturated the high end
of the smartphone market. One would argue, though, there`s still a very,
very large market out there as was mentioned earlier. You still have a
substantial base of Apple (NASDAQ:AAPL) iPhones that are out there that are
not yet upgraded to the 6 or 6S. And from that standpoint, there`s
significant pent-up demand in our view.

HERERA: The comments about the Apple (NASDAQ:AAPL) Watch were
encouraging as well, weren`t they, David? Talk about some of the other
products other than the iPhones.

GARRITY: Yes, in terms of the Apple (NASDAQ:AAPL) Watch, we`re in a
position right now going into the year end holiday shopping season where we
think the Apple (NASDAQ:AAPL) Watch is going to be an important gift for
people to consider. This is something that`s slowly going to build up over
time. We don`t necessarily have expectations for the Apple (NASDAQ:AAPL)
Watch to ramp as rapidly as we`re seeing with the iPhone.

Certainly, Apple (NASDAQ:AAPL) is sensitive to the competition in the
market. So, they`re not breaking out the Apple (NASDAQ:AAPL) Watch results
separately. We do think it`s going to be an important driver. We would
look near term for Apple (NASDAQ:AAPL) TV. They`ve come out with a new
version of their set top box, which is going to be offering far more
content and access to the App Store off of people`s television.

MATHISEN: Where do — very quickly, where do you see the stock in a

GARRITY: A hundred fifty dollars over the next 12 months. We think
that also we`re going to see nice gains in terms of dividends and buybacks.

MATHISEN: All right. David, thank you for joining us tonight. David
Garrity with the GVA Research.

GARRITY: Thank you.

MATHISEN: Shares of the Dow components Pfizer (NYSE:PFE) and Merck
(NYSE:MRK) rose today on better than expected is profits. Both companies
were helped by growing sales of expensive drugs, including new cancer
medicines and both raised their profit forecasts. Shares of Pfizer
(NYSE:PFE), the world`s second largest drug maker, rose almost 2.5 percent.
Merck (NYSE:MRK) which also benefited from cost cuts last quarter. It saw
gains of 1 percent.

HERERA: Fellow Dow component DuPont saw its sales and earnings drop
in the third quarter. The strong dollar and weak agricultural demand in
emerging markets contributed to the decline in profits, but the interim CEO
said he was considering potential deals in the ag industry. The stock
however climbed more than 2.5 percent.

MATHISEN: IBM said the SEC is investigating the way it accounts for
certain revenue from transactions in the U.S., U.K. and Ireland. IBM says
it learned of the investigation in August but disclosed it today in a
required regulatory filing. IBM says it is cooperating fully with the
regulators. The disclosure sent shares of big blue down 4 percent, didn`t
need that. Separately, the company`s board has approved a $4 billion share

HERERA: Well, IBM shares weighed on the blue chip index along with
some disappointing economic data just one day ahead of a policy statement
from the Federal Reserve. The Dow Jones Industrial Average fell 41 points
to 17,581. The NASDAQ dropped 4 and the S&P 500 was off 5 points.

MATHISEN: In merging news, Walgreen (NYSE:WAG) Boots Alliance will
buy Rite Aid (NYSE:RAD). The deal which was confirmed after the closing
bell is valued at around $17 billion, a huge premium for that stock. It
will combine two of the nation`s largest drugstore chains. There was
speculation an agreement was close during the day, and that sent shares of
Rite Aid (NYSE:RAD) up 42 percent, but that`s before the deal was
consummated. Walgreen (NYSE:WAG) up 6.

And as Bob Pisani explains, there are reasons why this tie-up makes


cost savings. The Affordable Care Act is putting pressure on
pharmaceutical companies and the retail drugstore chains to keep drug costs
down. So if you`re a Walgreens or a Rite Aid (NYSE:RAD) or a CVS
(NYSE:CVS), you want to get bigger so you can have lower administrative
costs and also be in a better negotiating position against the pharmacy
benefit managers that sell you all those drugs.

OK, what about antitrust issues? The deal will certainly be
scrutinized by regulators, but Rite Aid (NYSE:RAD) is much smaller than
Walgreens or CVS (NYSE:CVS) and it only has a large presence in a few
regions like the Northeast. But there is speculation the deal might be
able to go through with Walgreens selling only a small amount of Rite Aid
(NYSE:RAD) stores.

One analyst estimates that Walgreens would only have to divest about
10 percent of the acquired Rite Aid (NYSE:RAD) outlets.

And remember, the retail drugstore business has a lot of competition,
everyone from Walmart to Target (NYSE:TGT) to Kroger (NYSE:KR), even the
small local grocery stores are in this game. So, that greatly diminishes
the chances that antitrust alone would blow up the deal.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock


HERERA: Starwood is reportedly being pursued by Chinese buyers.
According to “The Wall Street Journal,” three Chinese companies submitted
proposals to Beijing. The government is expected to select a bidder in the
next few weeks. Such a deal would likely be the largest ever Chinese
takeover of a U.S. company. Shares of Starwood rose 9 percent.

MATHISEN: Now to the economy, consumer confidence fell in October in
part because Americans were feeling less optimistic about job prospects.
Separately, orders for long lasting manufactured goods, so-called durable
goods, dropped 1.2 percent in September. Following a 3 percent decline in
August. And within the durable goods report was a key gauge of business
investment. It fell for a second consecutive month.

HERERA: The price of homes went up in August. The S&P/Case-Shiller
home price index rose a little more than 4.5 percent. That was greater
than July`s increase. San Francisco and Denver saw the biggest gains, both
up double digits.

MATHISEN: The data dependent Federal Reserve is taking note of the
incoming economic reports. The central bank began a two-day policy meeting
today. It will release its statement tomorrow.

But as Steve Liesman reports, many expect the Fed will wait a bit more
before raising interest rates.


hiring, weaker overall economic growth. They`ve combined to convince Wall
Street the Fed won`t hike rates at this week`s meeting and maybe not even
this year. The CNBC Fed survey finds that the median of the 41 respondents
who include economists, analysts and fund managers see the Fed hiking in
December. That`s three months later than the last survey.

JOSEPH LAVORGNA, DEUTSCHE BANK: My guess is the reason the Fed won`t
raise rates this year is the job market is decelerating. I expect job
growth to remain on the relatively soft side through the rest of this year.
At the same time, I don`t see the much inflation pressures developing.

LIESMAN: But the group is split. About half see a hike this year.
The other half, next year or even 2017.

PETER BOOCKVAR, MARKET ANALYST: If they didn`t find reason to do it
in September when they had this great opportunity to do so, I don`t see how
they`re going to rationalize doing it tomorrow or even in December, because
not much is going to change.

LIESMAN: The weak economic data has made Wall Street more worried
about recession. The chance of a downturn in the next 12 months rose for
the fourth time in a row. The measure the highest in two years since the
nation last struggled with a debate over a government shutdown.

LAVORGNA: There`s a rising chance of recession but the base case
spells an economy that`s limping along at roughly a 2 percent pace but the
second half of this year growth will probably be under that, and that`s the
reason why the Fed`s not going.

LIESMAN: All the on again, off again talk of rate hike has many on
Wall Street criticizing the new Fed chair. The survey shows Janet Yellen
gets an overall grade of just C-plus, a full grade below of her mark six
months ago.



HERERA: Still ahead, the new face of blue collar America and why the
manufacturing sector is still struggling to create jobs.


MATHISEN: Oil prices slid to a two-month load today but crude isn`t
the only thing that`s sliding. The price of natural gas is falling, as
well, dropping about 15 percent in the past week alone. And if the trend
continues as some say it will, that could mean lower heating bills for many
this winter.

Jackie DeAngelis has more.


prices hitting a three-year low this week as warmer than normal
temperatures spook the market ahead of Halloween. In the case of nat gas,
it`s a classic supply/demand story. Not only are total inventories nearly
14 percent higher than they were last year at this time, that`s according
to Platt`s, but expectations for soft demand are leading some analysts to
believe we could see prices fall to levels not seen in more than a decade.

Why weaker demand? Well, U.S. weather models are calling for
temperatures to remain above normal in the Northeast and the Midwest. Both
key regions for usage. El Nino is being cited as a reason. As prices
fall, consumers are hoping their heating bills will, too.

More than 50 percent of U.S. homes run on nat gas and it supplies more
than 20 percent of energy needs overall in the United States.

DENNIS GARTMAN: The trend is clearly down and the weather continuous
to be extraordinarily good. We`re probably going to be one or two or three
degrees warmer this year than last year. And if that happens, as long as
there`s no shutdown continuing in production, you`re going to — you might
just to do it put a one handle up on nat gas. That`s hard to believe. But
we might well get there.

DEANGELIS: For homeowners using heating oil, warmer weather could
help us well. Prices are down more than 5 percent in a month. Propane
prices down 12 percent in the same time period.

But, buyer, beware. When futures prices drop, that typically is a lag
effect before we see bills drop. The last time that nat gas was under $2
was 2012. It was the fourth warmest recorded winter in history. Still,
Mother Nature could throw us a curveball and if she does, all bets are off.



HERERA: In Washington, the House of Representatives passed a highway
and railway safety bill. The measure will fund road and bridge
construction projects into late November. And it gives the House more time
to work on a longer term bill. It also extends a key rail safety deadline
to the end of 2018. The measure now heads to the Senate.

MATHISEN: And a tentative budget deal has been reached in Washington
but not everyone is praising it, not by a long shot, or praising the
process — not even the current speaker of the House.


agreement, it stinks. This is not the way to run a railroad. But when
you`ve got a situation that we`re dealing with today, it`s — there wasn`t
any choice.


MATHISEN: Last night, we told you a deal was near and tonight we can
tell you that the agreement increases federal spending by $80 billion over
two years, and raises the federal borrowing limit through 2017.

Ed Mills, senior financial policy analyst at FBR Capital joins us now
with his analysis of what is happening in Washington.

You know, Mr. Mills, there`s so much to cover here. It sounds like
not anybody is really very happy with that which may mean as the speaker
just said, it`s the best deal they can come up with. Will it pass?

EDWARD MILLS, FBR CAPITAL: This bill is going to pass. It`s because
there`s something in it for everyone. Democrats do not want to kind of
change speakers unless the debt limit`s increased. Republicans have the
talking point that Obama, you know, didn`t want to negotiate with the debt
limit, but he did and we`re able to see entitlement reforms for the first
time since Reagan was in the White House.

HERERA: So what — do you anticipate that there will be any pushback?

MILLS: Oh, absolutely. I mean, members of the Freedom Caucus voting
against this. Maybe even a majority of the House Republicans vote against
this. But all you need is about 30, 40 Republicans to come on board with
the vast majority of Democrats in the House and it gets sent over to the

In the Senate, they have a different problem. There`s a lot of
Republicans in blue states who don`t want to have this brinksmanship for
the next two years. And they`ll very willingly kind of have a filibuster
proof majority in the Senate by the end of the week.

MATHISEN: Let`s talk a little bit, we talked about the overall
parameters of the deal. I want to zero in on two things that are part of
this deal. One is of high interest to seniors. And that is the matter of
rising Medicare premiums that were expected for some to go up 52 percent.

Does this solve that one, and does it solve the questions about the
disability payments under Social Security?

MILLS: Absolutely. So under this bill, it doesn`t completely solve
those Medicare increases. But it does cap that increase at about 20
percent rather than 50 plus percent. And on Social Security disability,
this was something the trust fund didn`t have a lot of news but this fund
was going to go bankrupt next year. So, instead of having a fiscal fight
over that and another fiscal cliff, what they`ve done is reworked some of
the formulas and added fraud prevention provisions in here to make sure
that the people who are on disability who the should not be on disability
are more audited and kicked off, making sure this fund will have the funds
to stay on for years to come.

MATHISEN: All right. Ed, thank you very much for your insights
tonight. Ed Mills with FBR capital markets.

HERERA: Light guidance weighs on shares of Twitter. That`s where we
begin tonight`s “Market Focus”.

The social media firm reported slower user growth and gave a
disappointing revenue forecast. This is Twitter`s first earnings report
with Jack Dorsey as its permanent CEO. Shares tumbled in initial after-
hours trading. During regular session, the stock was up 1.5 percent to

Ford reported earnings that missed estimates. The automaker`s revenue
topped forecasts in the company`s North American unit had its best quarter
ever. The company`s chief financial officer says he doesn`t see that
flowing down anytime soon.


BOB SHANKS, FORD: We`re growing the top line, we`re growing the
bottom line, the cash generation that was also a record in the quarter.
It`s very positive.

And in the U.S. which is critical for us and for many in the industry,
we don`t see any signs whatsoever that the industry is going to be slacking
off at all from the very high levels that it`s at.


HERERA: Nonetheless, shares tumbled 5 percent to $14.89.

UPS reported earnings that topped consensus even though its revenue
dipped in its most recent quarter. The package delivery giant also says it
is expects holiday season deliveries to rise at least 10 percent from a
year ago. The stock fell nearly 3 percent to $103.10.

And JetBlue saw earnings rise in its third quarter, helped by lower
fuel costs. Also charging for checked bags bolstered the company`s bottom
line. Still, revenue came in just below consensus. Shares slipped 3
percent to $25.36.

MATHISEN: And Coach (NYSE:COH) also came out with some mixed results.
The handbag maker`s revenue was shy of analysts` estimates but sales
declines. But at the lowest pace in over two years as demand in North
America rebounded. Saw some bright news there. Shares up today almost 4.5
percent to $31.65.

Bristol-Myers Squibb (NYSE:BMY) saw shares rise after it posted a beat
on both the top and bottom lines. It hiked its full year guidance as one
of its cancer treatments performed. Shares up 3 1/2 percent to $66.80.

Cummins (NYSE:CMI) slashing up to 2,000 jobs or 4 percent of its
workforce is attributing the move to weaker demand for its engines. If
you`re an engine maker, weaker is not a good thing. It cut revenue outlook
for the year. Shares off nearly 9 percent today to $102.35.

HERERA: Tomorrow night in Boulder, Colorado, the Republican Party
will hold its third presidential debate. This one will focus on the
economy. We will likely hear every candidate talk about creating more
jobs, especially manufacturing jobs.

But as Phil LeBeau reports from Colorado Springs, getting millions of
jobs back on the shop floors is a promise few politicians have fulfilled.


talking about creating more blue collar jobs. Jim James has heard it for
years. He runs Ideal Industries which employs almost 2,000 people making
tools at 16 U.S. plants. He says, to manufacture in America, you have to
compete globally.

JIM JAMES, IDEAL INDUSTRIES: Our customers can only afford so much to
pay for certain products. And if we can`t get our costs in line, then you
know, you`ve got to go where you can get your costs in line. So, unless
our product can differentiate greater than what`s coming in from offshore,
we`re going to be at a disadvantage always.

LEBEAU: So, Ideal has to do more with fewer workers. In fact, the
company is laying off up to 150 employees at this plant in Colorado
Springs, while investing in automation and in some cases robotics. This is
the new face of blue collar America — leaner, smarter, with more skilled
workers — factors that explain why President Obama is falling way short of
his promise to create 1 million manufacturing jobs in his second term.

BILL STRAUSS: It`s been a real struggle to bring even more people
into this industry. And I think to focus on that as your crux of judging
the health of an industry is a mistake.

LEBEAU: Still, candidates like Donald Trump keep making big promises.

from China, from Mexico, from Japan, from so many places. I`ll bring back
our jobs and I`ll bring back our money.

LEBEAU: Jim James is skeptical.

JAMES: I think it`s really hard to think you can force people back
here and still be able to get somebody to buy your product at a higher
cost. It really comes down to, can your customers afford the price of your
product? That`s really what it comes down to.

LEBEAU: James is optimistic the jobs being cut at this plant here in
Colorado may eventually return. Once the company invests in new technology
which will allow Ideal Industries to be more competitive globally. He says
those investments not political promises, are the key to growing
manufacturing jobs in the future.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Colorado Springs.


HERERA: Northrop Grumman (NYSE:NOC) has won a $60 billion Air Force
contract to build bombers. This ends a four-year long competition between
Northrop, Boeing (NYSE:BA) and Lockheed Martin (NYSE:LMT). Shares rose
initially after the close on that news.

MATHISEN: And coming up, will Microsoft`s new video game release be
enough to power up its lead against rival Sony (NYSE:SNE)?


HERERA: Here`s a look at what to watch for tomorrow. The Federal
Reserve will deliver its post-meeting statement. Anheuser-Busch InBev and
SABMiller have until tomorrow to complete discussions on a potential
merger, which would be the biggest beer deal ever. And House Republicans
will vote on a House speaker to replace John Boehner. And that`s what to
watch on Wednesday.

MATHISEN: A new study shows that families spend a lot more caring for
dementia patients at the end of life than other diseases such as cancer or
heart disease. According to research published in the “Annals of Internal
Medicine”, average out of pocket spending for dementia patients was 81
percent higher than it was for those with other diseases.

HERERA: Microsoft (NASDAQ:MSFT) is the launching the latest
installment of its biggest video game franchise and it may turn out to be a
key part of the company`s strategy to compete with the Sony`s PlayStation.

Julia Boorstin has our story.


Microsoft`s most valuable game franchise by a long shot, generating $4.6
billion in sales for the tech giant. And “Halo 5: Guardians” is
particularly important and not just because it costs a reported $100
million to produce. “Halo” which is exclusive to Microsoft`s Xbox is
considered a key way to help the tech giant recoup its investment in the
Xbox 1, which is lagging its rival Sony`s PlayStation 4.

Xbox chief Phil Spencer says Microsoft (NASDAQ:MSFT) knows consumers
carefully evaluate a console`s exclusive games and “Halo” is Microsoft`s
biggest exclusive.

PHIL SPENCER, XBOX CHIEF: It`s critical to Xbox`s success that “Halo”
is successful. They`re a very symbiotic relationship between Xbox and
“Halo`s” success and the success on Xbox Live. I`m really encouraged by
the early signs that this is going to do well for us.

BOORSTIN: But Microsoft (NASDAQ:MSFT) faces plenty of competition.
Sony`s PlayStation 4 has outsold Xbox One by nearly 2 to 1 and “Halo” is up
against an even bigger franchise, Activision`s Blizzard`s “Call of Duty”
games have sold over $11 billion at retail.

Activision`s next installment “Call of Duty: Black Ops 3” launches a
week from Friday. It has the advantage of selling versions for both major

Still, Xbox`s Spencer says he`s not concerned about the competition.

SPENCER: It`s really a great time in the game industry. You see Sony
(NYSE:SNE) having great success with their console. We`re selling more
Xbox Ones than we`ve ever solved of any previous Xbox this point in the
generation. We`ve got more players on Xbox live. And it`s just a really
healthy time in the game industry. And I think the success of many
companies shows that.

BOORSTIN: People certainly seem invited at midnight events at stores
around the world and the six-hour YouTube stream last night. Reviews have
been positive particularly of a new 24-player mode. We`ll see how that
helps it stick from its the competition this crowded holiday shopping

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.


MATHISEN: There will be no promotions, no doorbusters no waiting in
line at outdoor retailer REI on Black Friday. The store will be closed, on
one of the year`s biggest shopping days. The company is encouraging would-
be shoppers to spend the day outside. REI also says it will pay its 12,000
employees for the day, even though they`re not working, which makes me like
them even more.

HERERA: I think so. I think so. They`re true to their mantra of
being outdoors and communing with nature.

That does it for us on NIGHTLY BUSINESS REPORT. I`m Sue Herera.
Thanks for joining us.

MATHISEN: And thanks from me, as well. I`m Tyler Mathisen. Have a
great evening, everybody. 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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