Transcript: Nightly Business Report – May 3, 2016

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

SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR:  Market slide.  Why three
factors that propelled the recent rally may be starting to reverse.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR:  Costly defeat.  Johnson &
Johnson (NYSE:JNJ) lost another talcum powder cancer case and a lot more
are looming.

EPPERSON:  And hitting the gas.  Why the boom in auto sales isn`t tapping
the brakes just yet.

MATHISEN:  All that and more tonight on NIGHTLY BUSINESS REPORT for
Tuesday. May 3rd.

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

MATHISEN:  And I`m Tyler Mathisen.  Welcome from me as well.

Well, global growth fears found their way back into the market today and
some of the reasons for today`s triple-digit decline are all too familiar:
a fall in oil prices, a drop in Chinese manufacturing activity, and signs
that growth in the eurozone may be weaker than previously thought.

That pressured stocks.  The Dow Jones Industrial Average dropped 140 points
to 17,750.  NASDAQ fell 54.  The S&P 500 was off 18.

And as Bob Pisani points out, the very things that had been driving the
market higher for nearly three months seem to be starting to shift.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Stocks were down today
as three key tenets of the recent market rally all reversed a bit.

First, there`s the China problem.  China`s been stable recently but the
economic data has been choppy, kind of hard to read.  Overnight, the
manufacturing numbers were weaker than expected, and that is predictably
causing commodities and commodity stocks to weaken around the world.

Second problem is the dollar.  It`s been notably weak this quarter and it`s
also been a big help to commodity stocks and U.S.-based exporters.  But
some are starting to question whether the dollar`s fall is now over.
Indeed, the dollar staged a big reversal today.

The third problem is oil.  We know that it`s off the February low of
roughly $26.  But it`s dropped about 5 percent in the last few days as it`s
become clear that production is still very high among the biggest players
around the world and that`s unlikely to come down much.

So, is all this the start of something?  If so it`s modest so far.  As with
all the market leaders — energy, materials and industrials — are now
susceptible should there even be a modest pull-back, that`s why they`re
down a lot today.

So far, modest is all we`re seeing in the broader market.  The S&P 500 was
at 2,100 at the end of April.  So, we`re only 2 percent off of that.  So
far, this is a modest garden variety pullback.  Not even a correction, at
least so far.

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

(END VIDEOTAPE)

EPPERSON:  An interest rate hike in June is a real possibility, so says the
president of the Atlanta Fed.  Dennis Lockhart said the financial markets
may be underestimating the probability of a central bank rate hike next
month.  Last week, the odds were halved when the Fed signaled little
urgency to tighten.

MATHISEN:  America`s appetite for new cars and trucks remains strong, after
a sluggish start to the year, automakers today reported healthy sales for
the month of April.  As had been the case for the last two years, pickups
and SUVs are the models most in demand.

Phil LeBeau explains why auto purchasers are back on track.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  As the weather warms,
so have auto sales, with three of the country`s four largest automakers
reporting a slight pickup in sales.  Speaking of pickups, sales of the
Chevy Silverado and Ford F-150 remain red hot, as do sales of SUVs which
are benefitting from relatively low gas prices and Americans continuing to
pass up buying a car in favor of a bigger crossover or SUV, which offers
more space and utility.

While automakers offered greater incentives to entice buyers last month the
deals were offset by consumers paying more.  TrueCar says the average
vehicle now sells for more than $33,000.

With the sales pace for April topping 17 million vehicles, the industry
remains on pace to match or maybe even exceed last year`s record run.

From now through August, will likely be the busiest stretch of the year for
auto dealers.  If consumer confidence remains high, this could be a record
summer for the auto industry.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN:  There were reports this evening that Takata is preparing to
recall at least another 35 million air bag inflators.  As first reported by
“The Wall Street Journal,” regulators have deemed these inflators a safety
risk.  The recall could affect tens of millions of cars in all and will
likely be made official this week.

EPPERSON:  New drugs for cancer and arthritis helped Pfizer (NYSE:PFE)
report a solid quarter and top earnings expectations.  The largest
drugmaker in the U.S. also raised its revenue and earnings forecast for the
year, the company signing the weakening dollar as part of the reason for
the improved outlook.

CEO Ian Read said the company is considering a potential separation of its
innovative and established businesses, and this follows the abandonment of
its $160 billion deal for Allergan (NYSE:AGN) last month.  Pfizer
(NYSE:PFE) shares rose more than 2.5 percent in a down market.

MATHISEN:  A former pharmaceutical executive may now face new legal
trouble.  Martin Shkreli appeared in court today where prosecutors told a
federal judge that they were considering additional fraud charges.  Shkreli
is best known for raising the price of a decades-old medication.  But this
case relates to alleged securities fraud and conspiracy to commit
securities fraud during his time as CEO of the pharmaceutical company
Retrophin.  He was arrested late last year.

EPPERSON:  Johnson & Johnson (NYSE:JNJ) is facing a growing threat of
losses related to a product that many of us have or have used in the past,
talcum powder.  A jury ruled against the pharmaceutical company for the
second time in three months.

Bertha Coombs looks at the legal issue and potential risk for J&J
shareholders.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Johnson & Johnson`s
baby powder has been one of the company`s iconic products for more than a
century.  But now, J&J faces more than $100 million in damages and
potentially a lot more from lawsuits claiming its talcum causes cancer in
women.

Monday, a jury awarded $55 million to a South Dakota woman who claimed
J&J`s baby powder caused her ovarian cancer.  Three months after a $77
million award to the family of Jacqueline Fox who died of ovarian cancer
four months before that trial.

Plaintiffs argued the company was aware of studies which raised an
association between the use of talcum powder used for personal hygiene and
cancer.  But in court and in a video statement on its Web site, J&J cites
research which finds no cancer link.

DR. JOANNE WALDSTREICHER, JOHNSON & JOHNSON CHIEF MEDICAL OFFICER:  The
safety of talc is based on more than 30 years of data generated by
authoritative researchers.  We are confident in our position that there`s
no causal association between talc and ovarian cancer.

COOMBS:  The company says it will appeal the jury awards, but there are
more than 1,000 cases pending of women claiming they contracted ovarian
cancer after using its baby powder for decades.

Eric Gordon of University of Michigan thinks it`s likely the company may
move to settle eventually.

PROFESSOR ERIK GORDON, UNIVERSITY OF MICHIGAN ROSS SCHOOL OF BUSINESS:
Johnson & Johnson (NYSE:JNJ) is going to maintain till the end that the
product is safe, but I think the strategy of how you handle these cases is
going to change.  It`s time for them to seriously think about settling as
many of the remaining cases as they can.

COOMBS:  Analysts say for investors the lawsuits don`t present a large risk
for now.  The company`s consumer division makes up less than 20 percent of
its business.  More losses could pose a PR problem for J&J.

GORDON:  So this isn`t some technical, scientific medical device that
nobody really understands.  This is something most of us have had in our
bathrooms.  The possibility that it could cause cancer is a real blow to
the brand.

COOMBS:  That could pose a big problem in the court of public opinion even
if the data is mixed.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.

(END VIDEOTAPE)

MATHISEN:  Let`s turn to our guest to talk more about what all this
ultimately might mean for Johnson & Johnson (NYSE:JNJ) and how it could
impact you and your money.  Catherine Sharkey is a law professor at New
York University, and Marshall Gordon is portfolio manager with Clearbridge
Investments.

Ms. Sharkey, I can`t imagine anything more damaging potentially to a brand
and a company than an accusation which has now been supported by two juries
that a product causes cancer.  Do they have to take this product off the
market immediately?  Or risk really even bigger judgments against it?

CATHERINE SHARKEY, NEW YORK UNIVERSITY LAW PROFESSOR:  Well, they certainly
do have a public relations issue on their hands.  This is not only an
iconic product, one that many consumers have in their bathrooms, but it
also has associations.  Omni present in the nursery, brand loyalty with
women who continue to use this product after their babies have grown.

So, there`s that dimension to it.  Whether they will decide to settle these
lawsuits as a result of this public relations issue remains to be seen.

EPPERSON:  Marshall, it of course is a public relations fiasco here.  And
brand damaging.  But what about for investors who may own Johnson & Johnson
(NYSE:JNJ)?  What impact will that have for them?

MARSHALL GORDON, CLEARBRIDGE INVESTMENTS PORTFOLIO MGR:  I don`t see this
as particularly consequential to the overall picture of Johnson & Johnson
(NYSE:JNJ).  Unfortunately, lawsuits are really part of doing business in
the medical world today and health care world.  And for a company as large
and as diversified as J&J, this is a company with a $70 billion sales each
year, about $1 billion or more in free cash flow per month and $300 billion
of market cap.  They can absorb what I think will eventually be a
relatively modest settlement, and really won`t impact investors terribly
much.

EPPERSON:  Really?  I mean, this goes right at the heart of the company`s
integrity, doesn`t it, Marshall?  In other words, if they are selling a
product to women and mothers that is a — has a carry-causing risk?  That
could seem to me to be a very serious threat to their basic image.

GORDON:  Well, I do believe that they need to be very careful about how
they handle this situation to avoid damage to their image.  One thing that
I would tell you is that this is a company that has been very adept at
managing situations in the past.

And if you look at J&J`s very long history, you know, look at what they did
with Tylenol many years ago.  That was a major risk to the business.  And
they had turned that recall around into something where they became an
industry leader in safety.

So, I think it really — I do acknowledge that there`s a risk but I think
the J&J management team is capable of navigating this.  And they need to
tread carefully to maintain the company`s image and limit the damage to
consumer brands.

EPPERSON:  Catherine, there are 1,400 or so pending lawsuits.  There`s
still quite a bit unknown out there about how much damage may be in the
future for J&JK just based on this alleged connection between talc and
ovarian cancer.  So, could that potentially be an even greater risk and a
greater investment risk because we don`t know the outcome of those
verdicts?

SHARKEY:  It could.  I guess the point that I would hit is there was a
component here of a punitive damages award.  So the jury in this case found
not only that the product caused cancer, not only in some generic sense but
in the particular situation, but they awarded punitive damages.  They
awarded $50 million of this verdict in punitive damages, which is supposed
to be for particularly reprehensible conduct.

And my understanding is that companies will often go to pretty great
lengths to settle out cases, to pay maybe larger awards in damages, to
avoid having punitive damages, because that can take a real reputational
hit for those.

MATHISEN:  All right.  Catherine Sharkey with New York University School of
Law, Marshall Gordon with Clearbridge Investments — thanks very much.

GORDON:  You`re welcome.

SHARKEY:  Thank you.

EPPERSON:  Still ahead, beating the odds.  The big money behind the
unlikeliest of winners.

(MUSIC)

EPPERSON:  Donald Trump and Hillary Clinton are hoping Indiana voters help
them seal the nomination.  Ted Cruz and Bernie Sanders are looking to
Indiana to give their campaigns some hope.

John Harwood is in Washington with a look at this critical primary.

And, John, how high are the stakes tonight?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Well, they`re
especially high on the Republican side, because the Stop Trump forces have
been looking to Indiana as the place they could plant their flag and say,
if we can beat him here, we can complicate his path to getting the 1,237
delegates he needs for a first ballot nomination.

If they can`t do it, if Donald Trump wins tonight, that suggests that the
opposition is collapsing to Trump and that by the time he gets to the
California primary on June the 7th, that he has the potential to go over
that number that he needs.

On the Democratic side, it`s pretty clear Hillary Clinton`s going to be the
nominee.  Bernie Sanders almost openly concedes that.  So the stakes are
lower on the Democratic side.  Polling has been close.  Hillary Clinton`s
had a slight lead.

MATHISEN:  How, particularly on the GOP side, have the candidates been
handling the pressure as we get down to the wire?

HARWOOD:  Not very well.  This campaign in the last 24 hours has really
gone off the rails.  You`ve had Donald Trump raising the specter of a
completely unsubstantiated “National Enquirer” story suggesting Ted Cruz`s
father, who emigrated from Cuba, might have somehow associated with Lee
Harvey Oswald, the assassin of John F. Kennedy.  Of course, Rafael Cruz
denies that.

And Ted Cruz went off on Trump today, said he was a pathological liar, said
that he had been a serial philanderer.  It really got ugly in this race and
suggests it`s going to be difficult to bring the party together, if in fact
Trump is able to nail down that Republican nomination.

EPPERSON:  Is it possible, John, that the outcome of tonight will let us
know that the general election is really beginning — that campaign is
really beginning tomorrow?

HARWOOD:  I think so.  That`s certainly the indication that we`ve gotten
from both the Trump and Clinton campaigns.  They believe it`s moving in
that direction.

I got to tell you, Sharon, this is going to be a nasty general election
campaign over the next several months.  Not an appetizing spectacle because
you`ve got two potential nominees, if in fact they do emerge as the
nominees, with very high negative ratings, very skeptical public looking at
them, and the opponents are going to try to maximize those doubts in the
public`s mind.

EPPERSON:  Unappetizing as it may be, we`ll be watching very closely.  John
Harwood, thank you, in Washington.  Thank you.

MATHISEN:  CBS (NYSE:CBS) gets a Super Bowl boost and that is where we
begin “Market Focus.”

First quarter earnings rose 20 percent, topping expectations.  Strong Super
Bowl ad sales the reason.  CEO Les Moonves said he expects to see even more
growth in advertising later this year, as political spending increases
closer to the political election, appetizing or not.  Shares of CBS
(NYSE:CBS) rose initially in extended trading.  They finished the regular
session down more than 1 percent to $55.65.

Revenue rose by nearly 19 percent at the drugstore chain CVS (NYSE:CVS).
Results there lifted by strong sales in the company`s specialty
prescription drug unit.  CVS (NYSE:CVS) reaffirmed its full year profit
forecast, but said it expects next quarter`s earnings to fall below
expectations.  Shares up more than 2 percent, they finished at $103.92.

“The New York Times (NYSE:NYT)” reported a loss for the first three months
of 2016.  Revenues also declined.  But not by as much as analysts had
feared.  Digital subscriptions did rise in the quarter and the CEO says he
remains confident in the company`s ability to grow its digital ad revenue.
Shares did fall more than 3 percent on the day to $12.45.

And biotech company Biogen will spin off its hemophilia drug business into
a publicly traded company a move Biogen said will create the best value for
shareholders.  The spinoff expected to be completed by later this year or
early next.  Shares of Biogen closed flat at $273.71.

EPPERSON:  Tyler, Sprint reported a wider than expected loss for the latest
quarter and added fewer subscribers than analysts expected.  Subsequently,
the wireless phone provider plans to trim more than $2 billion in costs
this the year, a move that prompted the company to raise its guidance for
the full year operating income.  Shares were up 5 percent to $3.67.

Low commodity prices continued to weigh on oil field service provider
Halliburton (NYSE:HAL), as the company reported losses in both profit and
revenue.  After a failed merger with Baker Hughes (NYSE:BHI), Halliburton
(NYSE:HAL) said it would consider other acquisitions in the future.  Shares
of Halliburton (NYSE:HAL) were off nearly 4 percent to $40.44.

MetLife (NYSE:MET) has agreed to pay $25 million to settle an investigation
by a securities industry regulator in which the company allegedly made
misrepresentations to customers regarding variable annuities.  As part of
the settlement MetLife (NYSE:MET) neither admitted nor denied the charges.
The shares MetLife (NYSE:MET) fell 2 percent to $44.79.

MATHISEN:  An incredible triumph in the sports world.  Leicester City
football club overcame 5,000 to 1 preseason odds to clinch the English
Premier League Title.  It`s one of the greatest upsets in sporting history,
especially for a team with a payroll a fraction the size of its rivals.

Eric Chemi is with us now to discuss the money behind the victory.

Let`s start with those who placed a bet on Leicester before the year
started.  I assume that most of the sports books, the house always wins
because it was more money moving on the favored clubs like Chelsea or Man
City, or Man United.  But they had to lose a lot of money on Leicester.

ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  They had to lose a lot
of money on Leicester because if you just put $20, then you win $100,000.
So, it just takes a few people to do this and blow it up for the
bookmakers.  In fact, the bookies that we talked to, not the street
bookies, but guys that are running real operations in the U.S. —

MATHISEN:  Yes, William Hill and so forth.

CHEMI:  William Hill in the U.S., in England, lost six figures in the U.S.
on all of their English soccer.  So even all the games that they got on
everyone else getting it wrong, they still lost a lot of money.  Numbers in
England, about $20 million or more, that`s what they`ll admit.  They say
it`s an eight-figure number, which means it could be up to $100 million in
losses just on soccer.

EPPERSON:  What about the players on Leicester team, the ones who were
making a fraction of what players on other teams were making.  I heard by
one account, there`s one player on Manchester United that`s probably making
as much as the entire team.

CHEMI:  That`s true.

EPPERSON:  How did they fare?

CHEMI:  Manchester United spent more in the last couple of years on players
than Leicester has spent in the entire 130 years they`ve been around.  So,
they have a really good scouting department and they found people that
other teams didn`t want.  They were able to get them for cheap.  They were
playing in other countries, other leagues, lower-division teams.  Nobody
wanted them, they found players and they turned them into value.

So, this is a story about deep value and turning them into profits.

MATHISEN:  You`re telling me.  Two questions in one here.  What do we know
or can we surmise anything about the value of Leicester City as a
franchise?  And have there ever been comparable long shots, payoffs like
this?

CHEMI:  The team`s owned by a group of Thailand investors.  By winning the
league, they get to be in the champions league, they get more money for
that, they get TV money next year.  So, $100 million is probably increasing
the value of the team, just in terms of next year`s revenues.

If they can repeat next year, that will be the story.  We`ve never seen —

MATHISEN:  Competitive, yes.

CHEMI:  We`ve never seen a long shot like this before, because this was an
entire season.  It wasn`t just a playoff, 100-1, those were the odds that
UConn had when winning the NCAA tournament a few years ago, but they had
just to win six games.  This was a 38-week season, like we know in the
stocks. You can have a good month or two, but it`s hard to have it for an
entire year.

MATHISEN:  All right.  Eric, fabulous story, thanks very much.

CHEMI:  You got it.

MATHISEN:  Eric Chemi.

All right.  Coming up, it`s where sports and fashion collide.  But not
everyone comes out a winner.

(MUSIC)

EPPERSON:  Grocery chain Fairway has filed for Chapter 11 bankruptcy
protection.  The company cited competition from other supermarkets,
including Whole Foods and Trader Joe`s, as well as online shopping and an
aggressive expansion plan.  The retailer plans to exit bankruptcy soon as
it revamps its balance sheet.

MATHISEN:  Aeropostale (NYSE:ARO) reportedly preparing to file for
bankruptcy according to the “Wall Street Journal”.  The teen retailer plans
to seek Chapter 11 protection in the next few days.  The retailer would
close more than 100 of its 800 stores soon after that filing.  Rival teen
retailer Pacific Sunwear sought bankruptcy protection just last month.

EPPERSON:  Sports Authority isn`t fully liquidating yet.  Attorneys for the
sporting goods retailer told a federal judge that the retail chain which
filed for bankruptcy protection last month is still pursuing a sale
process.  Last week, the company`s attorney said Sports Authority would not
emerge under a reorganization plan.

MATHISEN:  And while Sports Authority is one of a handful of athletic wear
retailers to come under pressure, some are in much better shape.

Courtney Reagan explains.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  While sales of
traditional apparel continue to be sluggish.  Sales of at leisure, or
athletic wear, or sports equipment, or simply leisure, continue to grow.

But not all retailers that sell athletic apparel and equipment are
thriving.  Sports Authority, Eastern Mountain Sports, and Sports Chalet are
all filing for bankruptcy.  While Lululemon, REI, Nike (NYSE:NKE), VF
Corp`s North Face are among the outperformers.

There are a number of factors separating the all-stars and those on the
disabled list.  First, many of the athletic brands own websites and stores
are hurting sales of their goods at retailers like sports authority.

For instance, you can only customize a pair of Nike (NYSE:NKE) shoes on
Nike`s website.  Second, off-price options like T.J.Maxx and outlets offer
consumers lower prices on athletic merchandise.  Plus, department stores
like Macy`s (NYSE:M), JCPenney, and others offer their own athletic wear
brands for often lower prices.

Also, Sports Authority, Eastern Mountain, and Sports Chalet are privately
run and laden with debt, making restructuring harder than it could be with
public competitors.

But perhaps the most important connecting the consumer to an experience.
Like being a part of the community of dedicated athletes plays a bigger
role in selling athletic wear and equipment than it does in other areas of
retail.

MATTHEW BOSS, JPMORGAN:  The game has changed.  It`s not about having a
brick and mortar store and putting a commercial on TV and selling the
product.  I think now it`s really becoming, to sell the product, you need
to be part of their everyday lifestyle, the cost of doing business so much
higher.  To do this, you have to spend the money and be ahead of the game.

That`s what I think the Nikes, the Under Armours, the Lulus, I think that`s
— I think that`s why they`re capitalizing.

REAGAN:  Consumers spend time in Lululemon stores, not only to buy yoga
pants but to practice yoga there too.  Nike (NYSE:NKE) and Under Armour
(NYSE:UA) have sophisticated apps to guide a consumer`s lifestyle but
insert product recommendations as well.

At Co-Op REI, shoppers are shareholders in the business.  2015 was a record
year for both.  The purchasing literally pays them back in the form of an
annual dividend.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

EPPERSON:  And finally tonight, history is made on Broadway.  “Hamilton,”
the hip-hop musical about America`s Founding Fathers, picked up 16 Tony
Award nominations.  That breaks the record set by “The Producers” in 2001
and “Billy Elliot” in 2009.

As of last month the show has grossed more than $60 million at the box
office.  Since Broadway previews began last July, that`s according to
“Billboard” magazine.  Premium tickets, well, they sell for about $550
each.

MATHISEN:  I think the show is why Hamilton is staying on the bill.

EPPERSON:  So wonderful.  It is just — it has such an impact.  Such an
impact.

MATHISEN:  It`s amazing.

EPPERSON:  It`s amazing show.

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

MATHISEN:  I`m Tyler Mathisen.  See “Hamilton” if you can.  Have a great
evening, everybody.  We`ll see you 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) 2016 CNBC, Inc.

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