Transcript: Nightly Business Report – February 18, 2016

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

growth slows at Wal-Mart (NYSE:WMT) and it`s not going to get better any time soon.  So, when can                                                                               investors expect the company`s turnaround efforts
to pay off?

records held hostage.  And they`re worth a lot to people who operate in the
underground economy.

MATHISEN:  A home all their own.  We`ll visit a company that`s turning its
employees into homeowners.

The third part of our series “Bridging the Divide” tonight on NIGHTLY
BUSINESS REPORT for Thursday, February 18th.

EPPERSON:  Good evening, everyone.  I`m Sharon Epperson, in tonight for Sue

MATHISEN:  And I`m Tyler Mathisen.  Welcome, everyone.

Well, Wal-Mart (NYSE:WMT) continues to struggle.  The world`s largest
retailer reported slowing sales growth and said that won`t change much this
year.  Profit at the Dow component continued to come under pressure as a
result of multi-billion dollar investments in worker wages and e-commerce.
Investors were hoping to see those investments start to pay off in better

Apparently, it hasn`t happened yet.  And that weighed on the stock which
fell 3 percent, making Wal-Mart (NYSE:WMT) the worst-performing member of
the Dow blue chip index today.

Morgan Brennan has more on Wal-Mart`s gloomy outlook.


(NYSE:WMT) continues to bank on a turnaround, the effects of strengthening
dollar and heavy investments played out in holiday season earnings.
Investors were disappointed by America`s after key sales metrics fell short
of estimates.

U.S. comparable store sales grew modestly, marking the sixth straight
quarterly increase, but nonetheless were weaker than expected.

came out at 0.6.  Street was looking for 1 percent, that was a
disappointment.  Also, traffic growth slowed down a little bit.  Traffic
growth was about 0.7.  This is a deceleration.

So, the real fixation here is on comp store sales and kind of that top line
number.  They also guided this a little bit light.  That`s what investor
fears are all around in terms of the stock weakness.

BRENNAN:  Wal-Mart (NYSE:WMT) also forecast sales for this year would be
relatively flat due to store closings and the stronger dollar`s continued
impact.  In October, it had said net sales would increase annually at 3
percent to 4 percent over the next three years.

Another worrisome trend, e-commerce sales growth slowed during the holiday
season, rising just 8 percent versus previous years of double-digit gains.
Food price deflation most notably from meat and dairy also weighed on
results, more than offsetting any positives associated with low gas prices.

But it`s no secret that this will be a year of growing pains.  The
company`s in the midst of an attempted turnaround that involves heavy
investment, including $1.5 billion for labor, as it raises starting wages
and updates its paid time off policy.

a lot of the right moves now to do the investment spending.  And, you know,
cleaning up the stores, more labor and hours in the stores, paying people a
little bit better, improving the website — doing all the things you need
to do to have the better infrastructure.

BRENNAN:  The company raised its annual dividend by 2 percent, mark the
43rd year of consecutive increases.

Before today`s slide, shares of Wal-Mart (NYSE:WMT) had rallied 8 percent
for the year, versus a 6 percent drop for the S&P 500.  Investors had
flocked to the stock as a defensive play as recession fears began to
emerge.  But as the company invests heavily to stoke profits amid a number
of headwinds, analysts caution the safest way to approach this big box
behemoth may be with an eye to 2017.



EPPERSON:  So, what does this mean for Wal-Mart (NYSE:WMT) stock and should
you own it?

Ken Perkins is retail analyst at Morningstar (NASDAQ:MORN).  Ken, thanks
for joining us.

So, a lot of folks may already own Wal-Mart (NYSE:WMT) and, of course, a
lot of folks shop at Wal-Mart (NYSE:WMT).  Can Wal-Mart (NYSE:WMT) make a
comeback here — particularly with the picture and the outlook for net
sales being flat for this year?

KEN PERKINS, MORNINGSTAR RETAIL ANALYST:  We think so.  But we think that
if you`re going to own Wal-Mart (NYSE:WMT), you have to have a patient
attitude and long-term time horizon.

The investments that the company is making are the right moves, but when
you`ve put $3 billion into wages and several billion dollars into e-
commerce initiatives, those things don`t change overnight.  So, looking
quarter to quarter for Wal-Mart`s sales to tick up I think is just
inappropriate probably for a business this size.

MATHISEN:  What`s working for Wal-Mart (NYSE:WMT) and what`s not?

PERKINS:  Well, I think that`s the interesting question is because you look
at all the negative things that people are looking at with this quarter,
the international markets being struggling, the banner struggling, Amazon
(NASDAQ:AMZN) growing.

And yet, you look at the company, that`s a very defensive company, and
total sales excluding foreign currencies still increased about 2 percent
for the year.  Traffic is increased for five quarters now.

So, the brand, as much as people are concerned about it, is not in
disarray.  Things are slowing but if you`re looking at a very volatile
market environment, you`re getting a pretty defensive company at a fairly
reasonable valuation.  I think that`s where over the next couple of years,
if Wal-Mart (NYSE:WMT) really turns its business around, investors could
realize some upside with some pretty good downside protection.

EPPERSON:  So, Ken, does that mean investors who don`t already own Wal-Mart
(NYSE:WMT) should jump in now?  You say it`s a long-term play, is there
another time that you should wait in here or do you get it right now?

PERKINS:  We do think that the shares are still undervalued.  It think what
will really take it to the level of about $75 mark, which is our fair
value, would be if the e-commerce and comp store sales trends really pick
up.  You know, we were admittedly much more bullish and optimistic on the
shares trading in the low 50s after they initially announced wage

But, overall, we still do see some upside.  When you look around the
investment universe, there are few companies that are trading at this sort
of valuation that also have the defensive nature that Wal-Mart (NYSE:WMT)
has.  I think that`s why we like it over near term but more so over the

EPPERSON:  All right.  Thanks so much.  Ken Perkins with Morningstar
(NASDAQ:MORN) there.

PERKINS:  Thanks for having me.

MATHISEN:  Of course, even if you don`t own individual shares of Wal-Mart
(NYSE:WMT), you may own it in your mutual funds, according to Morningstar
(NASDAQ:MORN).  The top fund-holders of the stock are as you might expect
some of the big index funds.  The Vanguard Total Stock Market Index fund,
the Vanguard 500 Index Fund, which represents the S&P 500, and one that`s
not an indexer, Dodge and Cox Stock Fund.

EPPERSON:  Tyler, declines in Wal-Mart (NYSE:WMT) were offset by big gains
in shares of IBM.  The stock rising 5 percent on an analyst upgrade and a
multi-billion dollar acquisition.  Morgan Stanley (NYSE:MS) raised its
rating on the stock to overweight from equal weight, saying that the
company`s transition to a cloud-based business was underappreciated.  And
as part of that transition, IBM is acquiring Truven Health Analytics for
over $2.5 billion, its fourth major health data-related deal this past

MATHISEN:  Well, those gains, Sharon, in IBM were not enough to lift the
major indexes today.  They flip-flopped around the unchanged mark all day.
By close, that three-day win streak was a thing of the past.  Energy,
financials, led to declines today.  The Dow Jones Industrial Average off
40, 16,413 was the close there.  NASDAQ lost 46 points, 4,487 was the
finish.  That`s more than 1 percent.  S&P fell 9 points.

As for oil, the commodity gave up most of its gains on a rise in
inventories here in the U.S. and after an official from Saudi Arabia was
reported as saying his country was not prepared to cut production.
Domestic crude settled higher by 11 cents.

EPPERSON:  Now to a big story out of California, where medical records were
held hostage.  A Los Angeles hospital was hacked, crippling the center
systems and blocking access to digital records.  This happened as
physicians continued to treat patients.

Bertha Coombs has more on the attack and how this was resolved.


Presbyterian hospital says it had no choice but to pay ransom demands after
its computer system was taken hostage, paralyzed by hackers since February
5th.  While officials say there`s no evidence patient information was
compromised, the hospital had to resort to using paper files and at times
sending people elsewhere.

that makes health care environments so vulnerable to ransom ware attacks,
you may have a radiology department talking to the laboratory, talking back
to the doctors down in ER, and all these different groups have to interact.
And to do that, you often have to create risk scenarios in the network that
allow hackers, once they`ve gotten through the initial firewall of the
hospital or health care organization that they can move around unimpeded.

COOMBS:  Hollywood Presbyterian has been working with FBI but says it paid
off the unknown hacker 40 bitcoins, estimated value $17,000, because it was
the quickest way to get its system back.

unbreakable.  So, in order to prevent this from getting onto machines, you
have to have good security in place.  That`s layered security.  Good
security on all your end points.

And training your end users, they may not — they may be fooled now and
then, but if you can stop them from getting fooled every time, you`re going
to have a lot less trouble.

COOMBS:  In 2015, there were over 260 health care breaches, just over half
involving hacking or theft of files.  There`s no hard data on ransom ware

Cyber security experts say most attackers target smaller organizations and
individuals whose security is more vulnerable with demands for payments of
less than $1,000.  But with the hospital headline-grabbing ransom payment,
the stakes may be rising.

JARVIS:  There`s the hard liners you say, you never negotiate with
criminals.  There`s certainly a lot of truth to that.  But unfortunately,
the people who are attacked by ransom ware are often left without any
leverage.  They don`t have any choice but to pay this ransom to get their
data back.

COOMBS:  The only defense, they say, is prevention with strong security.



MATHISEN:  So, how much are your medical records worth on the black market?
Among other questions.

Joining us to discuss this is Mahmood Sher-Jan.  He`s CEO of Radar, a
privacy and security incident response management company.

Mahmood, welcome, good to have you with us.

I hardly know where to begin here.  But in the case of the Presbyterian
hospital out in Los Angeles, patient records were not compromised.  What
were they after?  Were they simply after a ransom payment?

MAHMOOD SHER-JAN, RADAR CEO:  Well, first of all, thank you for having me.

MATHISEN:  Delighted to have you.

SHER-JAN:  We understand that every day, health care organizations are
under attack.  Incidents are happening all the time.  And the motive of
these attackers can vary.  And this case, obviously, was hopefully purely

But their motives can go further.  And they could get access to a treasure
trove of information in a health care institution, where you have personal
information, you have financial information, you have health care and
insurance information, all of them really combine to provide tremendous
value in the black market.

So, the motivations are very big to attack these health care institutions
where they`re very vulnerable.

EPPERSON:  We`ve seen a rise in the incidence of medical identity theft.
And, of course, there are protections consumers need to take.  But what
about the health care organizations?  What protections and processes are in
place to protect patients` information?

SHER-JAN:  Well, health care organizations in general have been a little
bit further behind some of the other industries like financial and retail
because they have been attacked for much longer and they have erected
better security measures.  Fraud and criminals always go after where
defense is lower.

But many organizations in the health care industry have begun to really
shore up their defenses.  The areas of compromise are really both within
the systems and all the electronic data that`s moved around.  But also
within just the employees and vendors and what is called business
associates within these organizations.

So, there are many areas of vulnerability.  These organizations have to
have a good risk assessment, the ability to respond to incidents as they
occur.  So it`s really — they have to have a good program in place.

MATHISEN:  I`m curious.  I mean, what are the identity thieves really after
here?  It`s hard for me to believe that they care very much about my
cholesterol or my blood pressure or what procedure`s been done to me per

Is it more that these medical places are such rich targets because
everything is there under one roof, from your Social Security number, to
your insurance carrier, to your home address, what?

SHER-JAN:  Absolutely.  You hit it on the nail.  It`s one place.  It`s
almost like coming to a mall where you can collect any type of information
that could have or offer value in the wrong hands.

So, you mentioned all of those factors that make health care institutions
very vulnerable to these attacks.  And what you have to keep in mind is
also the patients.  I mean, all of us should be concerned about this,
because at some point in our lives we become patients and customers of
these institutions.

MATHISEN:  Indeed we do.

SHER-JAN:  And one of the risks that often gets overlooked is the risk to –
– if that information is used in a way that pollutes our medical records,
then we actually can have life and death situations where the wrong
medication may be administered or the wrong patient may be given the wrong
type of information and data.

So, this is a serious issue that we all should be very concerned about.

MATHISEN:  Thank you very much for your insights.  Mahmood Sher-Jan with

SHER-JAN:  Thank you for having me.

EPPERSON:  Still ahead, a new report shows something we don`t hear that
often and that`s that the skies were a little friendlier last year than


MATHISEN:  You know that set top box on top of your TV?  Take a look at it,
it may change soon.  The government has apparently taken the first step to
opening up the set top box to more competition.  Right now, you generally
rent them from your cable provider, which according to a report costs more
consumers more than $200 annually.

Today, the Federal Communications Commission voted 3-2 to begin the process
of crafting rules that would let consumers own their boxes.  Something Pay
TV companies oppose.


it.  Technology allows it.  The industry at one time proposed something
similar to it.  And consumers deserve a break and a choice.


MATHISEN:  Comcast (NASDAQ:CMCSA) (NYSE:CCS) and AT&T (NYSE:T) called the
new rules unneeded because of advances in Internet and app-based
technology.  Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent company of
CNBC, which produces this program.

EPPERSON:  Now, if you fly a lot, this will come as welcome news.  A new
report from the Department of Transportation shows air travel in the U.S.
actually improved last year.  In fact, airlines had their highest
percentage of on-time arrivals since 2012.

But as Phil LeBeau reports, it was a good year for all but one carrier in


of people flying in the U.S. last year, the vast majority of them arrived
at their destination on time.  Overall, almost four out of every five
flights in 2015 were on schedule, the highest on-time arrival rate since

It`s a testament to airlines and airports doing a better job handling
storms and last-minute disruptions to schedules.  The report also shows
airlines have improved how they deal with customers.

For example, there was a lower percentage of luggage lost or mishandled,
perhaps because people are checking fewer bags and carrying more on board.
And despite airlines flying more planes with every seat sold, there was a
drop in the number of passengers bumped from oversold flights.

Last year, Hawaiian (NASDAQ:HA) Airlines had the best on-time arrival rate,
followed by Alaska and Delta.  Spirit had the worst on-time arrival rate,
behind Frontier and Envoy.

For Spirit, a low-cost carrier that charges passengers a variety of fees,
including for checked bags, last year was a rough one.  Spirit`s complaint
rate was substantially higher than the rest of the industry.

Spirit`s performance shows the growing pains that come from aggressively
adding more flights and more destinations, which is what the airline did
last year.  That growth is expected to be more measured in the future.



MATHISEN:  Coca-Cola (NYSE:KO) raises its quarterly dividend and that is
where we begin tonight`s “Market Focus”.

The sodamaker announced it would increase its dividend 6 percent to 35
cents which would be paid out to shareholders on April 1.  April Fools Day.
It`s no joke.  This marks the 54th consecutive year the company has hiked
its dividends.  Shares of Coke up fractionally to $43.61.

Caterpillar (NYSE:CAT), the construction and mining equipment manufacturer,
said its three-month machine sales fell sharply.  The company`s energy and
transport retail sales down 39 percent, while overall world retail sales
fell 15 percent for the three months ending in January.  An analyst from
Axiom Capital predicts the company will cut earnings estimates several
times this year.  Cat shares lost more than 1.5 percent to $66.12.

The sporting goods Cabela`s (NYSE:CAB) posted better than expected earnings
in its latest quarter.  Thanks in part to a strong focus on core
merchandise categories and an increase in online retail inventory
visibility.  Revenue also beat, despite what the company calls a negative
weather impact on fall and winter apparel.  Cabela`s (NYSE:CAB) also said
there`s no decision on whether to sell all or part of the company.  Shares
fell about 4 percent to $42.30.

EPPERSON:  Chip equipment maker Applied Materials (NASDAQ:AMAT) saw a drop
in first-quarter profit but they were still strong enough to beat Wall
Street targets.  Revenues fell 4 percent but that was good enough as well.
The company also issued a strong outlook for the second quarter.  Shares
rose in extended hours after the close to tick higher for the day to close
at $17.17.

Fashion retailer Nordstrom (NYSE:JWN) missed forecasts on both its top and
bottom line due to heavy discounts because of the unseasonably warm winter.
The luxury department store also issued a down beat outlook for 2016.
Shares initially fell sharply on the news in after-hours trading, but
closed the regular session up nearly 1 percent, to $52.72.

MATHISEN:  The Zika virus, which the World Health Organization calls a
public health emergency, could cost the Latin American region $3.5 billion
this year.  According to the World Bank, countries that depend on tourism
could be especially hard hit.  The organization said it is making $150
million available immediately to help fight the virus.

EPPERSON:  And there is a U.S. company that is also playing a part in the
fight.  SC Johnson, best known for household products like Pledge and
Scrubbing Bubbles, is becoming a critical player in the global effort to
combat the virus.

Mary Thompson has more from the company`s Waxdale plant in Mt. Pleasant,


from the epicenter of the Zika virus, near the icy shores of Lake Michigan,
Wisconsin-based SC Johnson is producing a key tool to battle the mosquito-
borne illness.

thing is to really prevent the bite.

THOMPSON:  The prevention provided to many by SC Johnson`s Off! and other
repellents.  To meet a Zika-fueled spike in demand, the family-owned firm
began boosting production at some of its South American plants two months

FISK JOHNSON, SC JOHNSON CEO:  What I can tell you is that in Brazil and
Argentina, we`re running about 900 percent of normal.  So, a huge increase

THOMPSON:  Declared a public health emergency by the WHO, the Zika virus is
suspected of causing a sharp increase in Brazilian babies born with
microcephaly, abnormally small heads.

The fifth generation of Johnsons to run the company, CEO Fisk Johnson
convenes daily meetings to track the progress of the virus and demand for
Off!, which is picking up here at home.

JOHNSON:  We`re seeing an increase for demand here in the United States, an
increase of about 40 percent from what would be normal at this time of

THOMPSON:  While there are no reports of Zika being contracted through
mosquito bites here in the U.S., entomologist Maude Meier says consumers
will need to protect themselves as the weather warms up.

MEIER:  I think people should be prepared.  Don`t wait until it`s
summertime and the mosquitoes are biting in full force.

THOMPSON:  That`s why this plant in Wisconsin is now producing pallets of
Off! like these 24/7 to stay ahead of demand.

But this also requires a consistent flow of key ingredients for its
repellents like DEET.

JOHNSON:  We have five or six suppliers around the world.  And each and
every one of them is beginning to ramp up their capacity now to help us.

THOMPSON:  A global effort to fight what health officials fear could become
a worldwide problem.

From Mt. Pleasant, Wisconsin, I`m Mary Thompson for NIGHTLY BUSINESS


MATHISEN:  Coming up, we will visit a unique company where your paycheck
can include home ownership, as our “Bridging the Divide” series continues.


EPPERSON:  The home ownership rate in America now sits at the lowest level
in half a century, just around 64 percent.  For African-Americans, it`s
even lower, less than 42 percent.  This as rents rise in small and large
cities alike.

And tonight, we continue our series on efforts to bridge the economic
divide with a look at one company in Cleveland that`s taking action.

Diana Olick shows us how it`s building its workforce and its community
through an innovative program that turns employees into homeowners.


TIM COLEMAN, HOMEOWNER:  It was a dream to own your own home.

that went unanswered for grandparents Tim and Charlotte Coleman for half a
century, until now.

COLEMAN:  I was out of work for about a year.  And I was looking for a job.

OLICK:  Tim found one at a unique Cleveland cooperative.

Founded in 2009, Evergreen is a worker-owned and operated business that
runs a commercial laundry and a greenhouse.  The business also helps the
employee owners become homeowners.

after we started.  You know, part of our challenge then and today, to some
extent, is as we are hiring from these Cleveland neighborhoods, oftentimes,
you know, one of the barriers to employment is just stable housing.

OLICK:  So with some help from the county on taxes and the local housing
authority, which had homes available through an existing program, Evergreen
offered employees a five-year plan to home ownership.

MCMICKEN:  After some financial training and some qualifications, our
eligible employees are able to purchase a home that they then pay for via
payroll deduction.

OLICK:  From Charlotte`s paycheck at Evergreen`s greenhouse and Tim`s at
the laundry.

COLEMAN:  It`s become a neighborhood.  That`s in your neighborhood where
you came from.

OLICK:  Together, they`re paying for and living in this house right in the
neighborhood where they work.

COLEMAN:  One thing I like about it, it comes out of your check before you
even see it.  So, that builds your credit up too.

OLICK:  Affordable housing has reached a crisis level.  More than 11
million Americans spend more than half their incomes on rents.

given the importance of housing.  You know, we go back to the housing act
of 1948.  A decent home and a suitable living environment for all Americans
was a national goal.  We have not achieved that.  And yet we`re not talking
about it.

OLICK:  Cleveland is ranked the most affordable urban housing market in
America.  Homes here are very cheap and there are still thousands of
abandoned properties left over from the foreclosure crisis.  That`s why
this program works so well here.  The question is, would it work as well in
a pricier city?

MCMICKEN:  If you were to attempt to do this somewhere else, you would
either, A, need more funding up front to catalyze it like we did, or more
time.  More time.  So, maybe you pay for it in eight years instead of five.

OLICK:  McMicken would like to see the program work in other cities and
he`s had plenty of interest.  But for now —

COLEMAN:  My son, my daughter —

OLICK:  — at least it`s working for the Coleman, who have always loved
their community and now finally have a real stake in it — a home all their

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Cleveland.


EPPERSON:  Evergreen says Detroit, New Orleans, and Baltimore have all
expressed interest in bringing the program to their cities.  And tomorrow,
the final part of our series will look at the efforts to close the wealth
gap between blacks and whites, with a look at how some financial adviser
groups are working to bring more blacks into the profession and share more
insights about saving and investing with African-American communities.

MATHISEN:  It`s interesting how using payroll deduction really helps.

EPPERSON:  It really helps.

MATHISEN:  Because then you don`t feel like you`re writing that check every

EPPERSON:  And you`ve started the discipline.  That`s really what it takes.
That`s really what it takes.

That`s NIGHTLY BUSINESS REPORT for tonight.  I`m Sharon Epperson.  Thanks
so much for watching.

MATHISEN:  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
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