Transcript: Nightly Business Report – July 18, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Subscriber slide. Netflix
(NASDAQ:NFLX) does not add as many new customers as hoped. And the stocks fall sharply in                                                                           initial after hours trading.

Floor flight. Delegates who opposed the nomination of Donald Trump stormed
the convention, putting a spotlight on the deep divisions within the party.

Drum beat of bad news. We`re being inundated by it globally and
domestically. And even with stocks at record highs, it`s something
investors need to pay attention.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, July
18th.

Good evening, everyone, and welcome. I`m Sue Herera. Tyler Mathisen is
off tonight.

A new record for stocks today. But we begin with two big tech earnings
that could change the tone of trading tomorrow.

First, Netflix (NASDAQ:NFLX), which disappointed investors when it said not
as many people as expected subscribe to the streaming service in the most
recent quarter. Price hikes put off customers and contributed to the sharp
slowdown in user growth. On the surface, the numbers looked pretty decent.
Netflix (NASDAQ:NFLX) earned 9 cents a share, beating estimates of 2 cents.
Revenue was in-line with expectations and up about 28 percent from a year
ago.

But it was that subscriber number that sent shares lower initially in after
hours trading.

Julia Boorstin has more on Netflix (NASDAQ:NFLX) results.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The big surprise in
Netflix (NASDAQ:NFLX) earnings — disappointing subscriber additions and
projections.

The company added 1.7 million members in the quarter, compared to the 2.5
million that Netflix (NASDAQ:NFLX) projected in its last earnings report.
Netflix (NASDAQ:NFLX) saying that while the number of new subscribers was
on target, the amount of turn or the number of people dropping the service
as a result of a price increase kicking in was higher than expected and
will continue to impact subscriber numbers in Q3.

Netflix (NASDAQ:NFLX) CEO Reed Hastings saying in his letter to
shareholders that the disappointing numbers are not the result of
competition or market saturation, finishing the quarter with over 83
million members. They believe that the opportunity ahead is as big as
ever.

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

(END VIDEOTAPE)

HERERA: And now to Dow component IBM, which saw its sales declined again,
and this came despite gains in its cloud and mobile computing units. The
company earned $2.95 a share, and that was six cents better than
expectations. Revenues also topped estimates. But when compared to last
year, the results were 2 1/2 percent lower. Shares of Big Blue rose in
after-hours trading.

And Susan Li tells us now, the key thing investors should focus on in IBM`s
support.

(BEGIN VIDEOTAPE)

SUSAN LI, NIGHTLY BUSINESS REPORT CORRESPONDENT: A 17th straight quarter
of revenue declines for Big Blue. But what analysts were looking for were
signs of improve in growth as CEO Ginny Rometty transitions IBM into cloud
and cognitive computing company. (INAUDIBLE) beat in profits and in
revenue, IBM`s cloud business grew 30 percent in the three months and the
business line that also houses Watson, yes, the cognitive computing
division, produced revenues that beat analyst estimates in the quarter as
well.

So, cloud, Watson, and cognitive computing, along with social and mobile
computing are the businesses that IBM is focused on to build their future.
They bundle this into the group called Strategic Imperatives, which IBM
hopes will make up 40 percent of revenues by the year 2018.

But if you look closer at the latest report card, the Strategic Imperatives
already make up 38 percent of IBM`s revenues, which seems to be way ahead
of schedule. Shares are up so far this year, way out performing the
broader markets.

For NIGHTLY BUSINESS REPORT, I`m Susan Li.

(END VIDEOTAPE)

HERERA: And now to politics and to Cleveland, where the first day of the
Republican national convention was not without drama. Opponents of the
presumptive presidential nominee Donald Trump failed in their attempt to
hold a roll call vote to oppose his candidacy. This is something the party
leaders had hoped to avoid.

John Harwood joins us from the convention itself.

And, John, a lot of frustration boiling over late in today`s session.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Donald Trump is a
candidate who aroused strong feelings on the positive and negative. He won
the primary fair and square. He deserves to be the Republican nominee.

Anti-Trump forces wanted to register their opposition. They tried to force
a roll call vote. They got signatures on petitions from a requisite number
of states. But then the pro-Trump forces pushed back hard, got delegates
from three states to withdraw their petitions, the result of that was very
loud booing and a chaotic scene on the floor when one side was shouting
“roll call vote, roll call vote.” The other side was shouting, we want
Trump, not what you want to see at a convention where the goal is to
present a united front to the rest of the country.

HERERA: Does it indicate that this is going to be kind of the business as
usual if you will for this particular convention? There are a lot of
issues that are dividing all of those delegates?

HARWOOD: Not clear. It depends on how strongly the anti-Trump delegates
feel. If they decide that they`ve had their say, they made their point.
If they`re influenced by those who say you`re only helping Hillary Clinton,
they may calm down and the rest of the convention may look — it`s not like
a typical convention, at least more like a typical convention.

But there are some people predicting Donald Trump could get booed during
his nomination acceptance speech. That would be an extraordinary scene.

HERERA: Now, Melania Trump, his wife, is going to be speaking tonight.
What do we expect to hear from her, and what is her role?

HARWOOD: I think she`s going to — even though she`s speaking on law and
order night at the Republican convention, try to display some of Donald
Trump`s softer side. She`s going to talk a little about immigration.

But the other thing to watch is that Donald Trump has indicated in
interviews, he may come to the podium and speak alongside Melania Trump or
before or after she speaks. So, that`s going to be quite interesting,
Donald Trump we know, likes microphones and there was —

HERERA: Yes.

HARWOOD: There were includes earlier about whether he was going to speak
on all four nights. Don`t know if that`s going to, but he may speak
tonight.

HERERA: What about the latest poll numbers, the NBC News “Wall Street
Journal” polls?

HARWOOD: Not good for Donald Trump. Even after the FBI investigation and
James Comey, with that harsh criticism of Hillary Clinton. Donald Trump
trails Hillary Clinton 46 to 41 percent. That`s a significant lead,
outside the poll`s margin of error. He trails in every region of he
country, except for the south, and he trails with all education categories
except those with only a high school education or less.

That is not a promising picture at this point. He`s lagging behind where
Mitt Romney was in similar groups in 2012. He`s going to have to pick up
his game and the convention`s game, the Thursday night convention
acceptance speech is going to be pivotal.

HERERA: Absolutely. John, thanks as always for joining us. We appreciate
it. John Harwood at the convention in Cleveland.

Well, the drama in Cleveland was not contained to inside the convention
center. There was also a lot of activity outside, and a lot of money is
being spent to make sure that the protests are peaceful and that everyone
stays safe.

Eamon Javers is there.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: For the party
faithful, the Republican National Convention in Cleveland is the place
where the party parties. And for others, it`s a place to protest, and make
themselves here.

(CHANTING)

JAVERS: But for law enforcement, it`s a massive national security event
that comes at a high cost.

The federal government made a $50 million security grant of which $30
million pays for employees here in Cleveland, $20 million pays for
equipment.

All that includes 5,500 total officers assigned to RNC security, 10,000
extra handcuffs purchased for this event. And 1,000 beds cleared in local
jails in case of mass arrests.

CALVIN WILLIAMS, CLEVELAND POLICE CHIEF: We want to make sure that the
demonstrators are safe walking through the streets of the city of
Cleveland, and we want to make sure we have enough officers to respond if
things turn otherwise.

JAVERS: To make sure it doesn`t turn otherwise, a massive maze of fencing
stretching for miles, portable barriers in places to stop vehicles, the
shore line protected by a fleet of coast guard boats. And on land, newly
purchased bikes and protective gear give police another option to stay
ahead of the protesters.

And, of course, all of this focus on security comes in the wake of
tragedies in Dallas and in France, and over the weekend in Baton Rouge.
The theme of tonight`s convention making America safe again.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers, in Cleveland.

(END VIDEOTAPE)

HERERA: And now to foreign relations. Turkey is one of America`s most
important allies. But in the days following the failed coup attempt, that
strategic alliance has been severely strained.

Hadley Gamble reports tonight from Istanbul.

(BEGIN VIDEOTAPE)

HADLEY GAMBLE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just days after an
attempted coup in Turkey, more than 7,000 members of the military judiciary
and security services have been detained, and with the country`s president
now calling for a reinstatement of the death penalty, many in the West
wonder how far this crackdown could go.

JOHN KERRY, SECRETARY OF STATE: A NATO ally and a key partner to the E.U.
We stand squarely on the side of the elected leadership in Turkey. We also
firmly urge the government of turkey to maintain calm and stability
throughout the country and we also urge the government of Turkey to uphold
the highest standards of respect for the nation`s democratic institutions
and the rule of law.

GAMBLE: For the U.S. and Europe, a strong relationship with Turkey today
is crucial. Turkey is supposed to be helping to send the flow of
terrorists along the so called jihadi highway, while putting a stop to the
flow of migrants and refugees overwhelming Europe. All while using your
military, NATO`s second largest, to shore up E.U. defenses in Europe.

But a crackdown that`s rapidly turning, critics say into a witch hunt is
worrying world leaders and international investors alike, the stability of
this country, literally the bridge between Europe and Asia.

Turkey`s stock market closed down 7 percent on Monday, after dipping down 9
basis points earlier in the day. And while the lira pared back last
Friday`s losses, the real concern continues to be foreign outflows and the
independence of the Central Bank, especially during this time of internal
crisis.

And as details emerge about just how close the failed coup attempt came to
success, many in the West won`t be reassured by just how close Turkey`s
government came to collapse.

For NIGHTLY BUSINESS REPORT, I`m Hadley Gamble, in Istanbul.

(END VIDEOTAPE)

HERERA: Back home on Wall Street, a new record was set for stocks as the
Dow`s win streak was extended to seven straight days. This despite that
political uncertainty in Turkey. A big merger and some positive earnings
momentums helped support stocks. And while the gains weren`t big, they
were gains nonetheless.

The Dow Jones Industrial Average rose 16 points to 18,533. The NASDAQ
added 26 and the S&P 500 gained 5.

Well, it does seem as though there`s been a drumbeat of bad news, globally
and here at home. And while stocks are near record levels, there are some
things investors need to pay at.

Jack McIntyre is Brandywine`s Global portfolio manager and he joins us
tonight. Good to see you again, Jack. Welcome back.

JACK MCINTYRE, BRANDYWINE GLOBAL PORTFOLIO MANAGER: Thanks, Sue.

HERERA: It does seem as though there`s kind of a litany of things. You
can talk about the Brexit vote, the Turkey situation in which we just
detailed and the violence that we`ve seen in the last few days here at
home.

Does it — is this a confluence of events that should normally upset Wall
Street? Or does it make our markets look better than other markets around
the world?

MCINTYRE: Well, I think when you take a step back — and you`re absolutely
right. There`s a headline of some negative news, but I think more
importantly, there`s actually some positive developments going on. It`s
just — you know, when you look at China is actually sort of doing some
pro-growth policies, the U.S., we`re actually seeing a better economic
growth so far.

These negative headlines haven`t impacted consumer confidence. I don`t
think it will as long as housing and other areas of the U.S. economy do
better, and therefore, you can kind of extrapolate U.S. equities, I think
overall risk assets should be able to weather this sort of litany of some
negative headlines.

HERERA: So, if you`re a long term investors, do you take a step back and
put all this negative news aside and revisit your plan and say, OK, we have
negative situations here, but I`m looking 10, 20 years out?

MCINTYRE: Yes. So, you don`t want to ignore it because a lot of this I
had — Brexit and some other things are symptoms of the broader disease and
the broader disease being we`re in a growth challenged world, but we`re not
going into global recession. You always want to have in your asset
allocation, some things that are a little more defensive that are going to
hold up in a risk off environment.

We just don`t think that you want to put your entire exposure in those
types of assets. I mean, those are the ones that, for instance, U.S.
treasuries, I think they`re over valued. We`ve seen yields back up a
little bit. I`m focusing on Fed policy, global monetary policy.

A lot of these things globally are going to keep the Fed sidelined. I
think that`s going to be welcomed news by the financial markets. I think
you`ve got to keep an eye on China. China, the second largest economy, but
they have the largest sort of global footprint in terms of global growth.

So, what comes out of China is more important than what happens in Turkey.

HERERA: You know, you mentioned the Fed, they`ve been pushed to the
sideline with all the headline risk news that`s out there. What camp do
you fall into? Do you fall into the one and done camp in terms of raising
interest rates? Or are you with those who say, we`re not going to see an
increase in interest rates until the next year?

MCINTYRE: Yes, probably the latter camp. The Fed is going to go slow.
This is a rate tightening cycle. They`re going to stay sidelined for quite
a while.

The last FOMC, or the minutes — you know, they talked a lot about global
development. As long as we have some of these global issues, and again,
you look at Brexit, it`s off the limelight, but we know there`s some
uncertainty around that. I think it`s going to keep the Fed sort of on
hold until they see sustainable inflation pressures.

HERERA: On that note, Jack, thank you very much for joining us. Jack
McIntyre with Brandywine Global.

MCINTYRE: My pleasure.

HERERA: And still ahead, why home builders surprise pretty much everyone.
Their latest read on the market is coming up.

(MUSIC)

HERERA: Japan`s Soft Bank is buying Britain`s Armed Holdings. The price
tag: Armed Holdings is one of Apple`s suppliers and marks a big investment
for Soft Bank into the Internet of things, which refers to how home devices
connect on line. The British government has called the deal a vote of
confidence in the country, following last month`s vote to leave the E.U.

Shares of Armed Holdings, which trade here as an ADR, soared 40 percent.
Take a look at shares of Spring which fell 5 percent. Soft Bank owns
nearly 85 percent of that company and investors are interpreting the
acquisition of Armed as a sign that Soft Bank is not planning to invest
more money into Sprint.

An earnings miss for Yahoo (NASDAQ:YHOO), highlighting the struggles the
Internet company faces. Revenue beat expectations and was up about 5
percent from a year ago. These results come almost four years to the day
that Marissa Mayer was named chief executive, with the goal of turning the
company around. Shares were volatile in after hours trading.

The bigger question, though, for investors about the future of the company
is Yahoo (NASDAQ:YHOO) is closing in on the final bids for its core
businesses.

Scott Kessler with S&P global market intelligence follows Yahoo
(NASDAQ:YHOO) and he joins us now.

Good to see you, Scott. Welcome back.

SCOTT KESSLER, S&P GLOBAL MARKET INTELLIGENCE: Thanks a lot, Sue.

HERERA: Let me start by asking you, whether Marissa Mayer has succeeded in
her mission of helping to turn the company around?

KESSLER: The answer in short is no. She`s been with the company for four
years. And when she joined, I think she attracted a lot of interest and
generated a lot of enthusiasm and excitement. But four years later, we`re
looking at a no growth company with declining fundamentals on a trend
basis.

So, you look quarter to quarter, you can see some upticks. But the
reality, I think, according to all accounts is that Yahoo (NASDAQ:YHOO) is
challenged at best and problematic at worst. And I think that likely
predicted for the beginning of this year, she will no longer be the CEO of
Yahoo (NASDAQ:YHOO) by the end of this year.

HERERA: All right. Hence the auction that`s coming up, who do you think –
– or what are your odds as to who will win this auction?

KESSLER: So, what`s interesting in our opinion is that Yahoo (NASDAQ:YHOO)
interestingly has said very little on this subject. Nonetheless,
unconfirmed reports have indicated multiple suitors, timelines, and
expectations for what`s going to happen next.

Our view is that the major U.S. telecommunications company is likely going
to be the prevailing suitor for Yahoo (NASDAQ:YHOO). They are most
obviously interested, they`re most obviously resourced, meaning having
balance sheet and company size and strength. And I think most importantly,
have the will to kind of take on what obviously is a pretty substantial
challenge.

HERERA: So, where does that lead? Once the bids are in, and the decision
is made and it`s awarded, where does that leave what`s left of Yahoo
(NASDAQ:YHOO)?

KESSLER: Well, what`s interesting is, a lot of people have been talking
about, how much will the core operations of Yahoo (NASDAQ:YHOO) be valued
at in the context of a transaction and whether you include patents and real
estate. The reality is, shorthand-wise, think of it like this, for every
dollar difference we`re talking about in the price of Yahoo (NASDAQ:YHOO),
that`s a billion dollars for the market cap.

So, if someone`s going to bid $6 billion versus $5 billion, that`s only the
difference of $1. It`s a reason why we don`t think this amounts to much
from a shareholder perspective, for employees of the company, we think this
is huge, because they`re going to have a new owner and new bosses and
arguably a new strategy.

HERERA: A new strategy. All right. Scott, thank you. Appreciate it.

KESSLER: Thanks, Sue.

HERERA: Scott Kessler with S&P global market intelligence.

Quarterly profit falls nearly 20 percent of Bank of America (NYSE:BAC).
That`s where we begin tonight`s “Market Focus”.

Lower interest rates weighed on earnings, those results came in ahead of
estimates. The bank also saw revenue decline, but that too was better than
expected as higher deposit balances and an uptick in bond trading helps
stabilize results. Shares were up 3 percent to $14.11.

The Brexit helped quarterly results at Charles Schwab. The bank said it
took on more clients during late June, when the U.K. vote to leave the
European Union happened. That helped revenue rise, and it topped
expectations. Analysts also noted that a reduction in money market fees
was a big factor in helping to lift results. Shares were up a tick to
$27.10.

Hasbro (NYSE:HAS) posted higher than expected profit and revenue, thanks in
part to strong demand for toys based off the Disney (NYSE:DIS) movie`s
“Frozen” and “Star Wars”. The makers of the Monopoly board game said,
starting in 2018 it will no longer sell products tied to the “Jurassic
Park” movies, after failing to reach a licensing renewal agreement with
Universal (NYSE:UVV) Studios. Shares fell more than 6 percent to $79.82.

U.S. authorities are investigating Fiat Chrysler. The SEC and the Justice
Department are looking into whether the automaker reported fraudulent new
car sales numbers after two auto dealers field federal lawsuit against the
company. Fiat/Chrysler said it`s cooperating with the authorities. Shares
were down fractionally to $6.73.

The nation`s home builders lost a little faith in their market this month.
Foot traffic thinned out, while construction constraints remain.

And as Diana Olick reports, the move lower in home builder sentiment was a
big surprise.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: From as far away as
London and its Brexit vote, smack into the middle of the nation, where
Republicans are choosing their nominee, the U.S. housing market is feeling
all the effects. Uncertainty is no longer the exception, but the rule, and
home builders are feeling each tremor. A monthly reading of builder
confidence dropped unexpectedly in July.

JERRY HOWARD, CEO NATIONAL ASSOCIATION OF HOME BUILDERS: Home buyers are
as skittish as everybody in the world is skittish right now. It`s not just
the political landscape. It`s the geopolitical landscape. You know, it`s
the 24 hour news cycle of people aware of what`s going on, that has to
impact everybody, including prospective home buyers.

OLICK: Builder confidence is still in positive territory, but it hasn`t
moved much since January. Despite spring being the busy season for housing
and builder`s especially.

Besides consumer uncertainty, builders are still stymied by land and labor
issues, as well as increased regulation, especially out west where Tri
Pointe Homes does much of its business.

DOUG BAUER, TRI POINTE HOMES CEO: When you`re dealing with those types of
headwinds, it causes — you know, it doesn`t allow you to generate as much
housing and develop as much land as quickly as you like. It just takes
longer over time. It will get done. But it just takes longer.

OLICK: Bauer says Tri Pointe is uniquely positioned with 17,000 lots ready
to build in California. Builders nationally recorded a slight drop in
current sales and buyer traffic, according to the monthly survey. Their
sales expectations over the next six months dropped even more
significantly.

BAUER: Home buying does have a certain amount of confidence factor to it.
So, you know, what happened in Britain and the political uncertainty of
going into this election cycle. It was a pretty warm late June, the number
of the southwestern markets. So, sales kind of tailed off a little bit.

OLICK: Builders are benefiting from the lack of supply of exiting homes
for sale. But newly built homes like this one are pricier than their
exiting counterparts. Even low mortgage rates are not making up for that
premium, in an economy where premiums are rising far faster than incomes.

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

(END VIDEOTAPE)

HERERA: Coming up, how the biggest energy reducing state lowered oil
prices and is now an economic success story.

(MUSIC)

HERERA: We recently reported that Utah was ranked by CNBC as the top state
for business. The annual survey is in its 10th year, and over the past
decade, there is one state with the best cumulative score, Texas. And it
wins by a mile.

Scott Cohn reports.

(BEGIN VIDEOTAPE)

SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Texas does everything
big — big places, big spaces, big energy, nearly twice as much total
energy production as its nearest competitor. And yet, as energy prices
have plunged, Texas has barely missed a beat.

NICK SAMUELS, MOODY`S VICE PRESIDENT: Very prudently, Texas has one of the
biggest budget reserves of any state. Its rainy day fund is $9.6 billion.

COHN: It is a far cry from 30 years ago, when collapsing oil prices
decimated the Texas economy. One of every seven Texans lost their jobs.
Foreclosures soared, hundreds of banks failed.

FEMALE TV ANCHOR: The most costly bank rescue ever. So big it will add a
burden to the national deficit.

COHN: Nothing like that to convince Texans to diversify.

Energy production including oil is still the largest industry in Texas, but
it`s no longer the only game in town. Twenty-five years ago, Texas was
relying on oil for 25 percent of state revenue. Today, it`s less than half
that.

The state`s largest employer is not an oil company, but a supermarket
chain. And while the energy industry has grown in the last 30 years, so
have other industries like health care. Texas has dominated the top states
for business rankings the past ten years, never finishing lower than second
place. Bu all that time, oil prices were high. No one knew for certain
what might happen in the next oil shock. Now they know.

SAMUELS: While the state`s revenues are down in the current fiscal year,
following very strong growth coming out of the recession, the economic
strength of those other parts of the states have mitigated how severe the
drop might have been.

COHN: But the story may not be over. The oil slump is less severe than
the `80s, and no one knows for certain how long it will last. That means,
the state could still face fiscal pressures for some time to come. But for
now, Texas is meeting the challenge in a big way.

Scott Cohn, NIGHTLY BUSINESS REPORT, San Antonio, Texas.

(END VIDEOTAPE)

HERERA: And that does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue
Herera. Thanks for joining us. Have a great evening, everybody.

We`ll see you right back here 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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