Transcript: Nightly Business Report – January 31, 2017

ANNOUNCER:  This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue

of Apple`s flagship product rose after three quarters of declines.  But are investors still waiting for a new breakthrough products?

President Trump calls drug companies to the White House and pledges fewer
regulations and lower taxes.

HERERA:  Long runway.  Airports are overcrowded and inefficient.  But now,
one city is building a brand new one, and it`s not waiting for money from

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
January 31st.

MATHISEN:  Good evening, everyone, and welcome.

This is the heart of earnings season.  And tonight, the most valuable
company in the world and one you likely own in a fund, 401(k) or outright,
reported a strong quarter.  Apple (NASDAQ:AAPL) beat both on earnings and
sales estimates and perhaps more importantly, it reported a rise in iPhone
sales after three straight quarters of declines.

And it cited strong demand for the newest version of its most popular
product, the iPhone 7.  Apple (NASDAQ:AAPL) earned $3.36 a share.  That was
a full 15 cents better than Wall Street forecasted.  Overall revenue up 3
percent to a record $78 billion in just three months` time.  And investors
like what they saw, sending shares initially higher in after-hours trading.

Josh Lipton has more on Apple`s results.


three million — that was the big number in Apple`s latest quarterly
report.  It was first to the number of iPhone units in the quarter.  And
that was better than expected.  The street had been at 77.4 million.  Of
course, all the talk of Apple (NASDAQ:AAPL) Pay, Apple (NASDAQ:AAPL) Music,
the iPhone does remain Apple`s flagship product, accounting for the bulk of
its revenue.

I did have a chance to speak briefly with Apple (NASDAQ:AAPL) CEO Tim Cook.
He said it was a dynamite quarter for the iPhone.  He pointed out strengths
specifically in the U.S., Japan, Western Europe, as well as emerging
markets like Turkey, Brazil and Russia.

As for looking ahead, I asked Cook why the optimism for the iPhone in the
quarters ahead, he said he had confidence in their current product lineup.
He pointed to strength in new areas like India where Apple (NASDAQ:AAPL)
does have relatively low penetration.  Still, Apple (NASDAQ:AAPL) hit an
all time record total revenue in India for the quarter.

And, of course, about that pipeline, Cook saying, “We are very excited
about the pipeline.”  I did ask him, certain skeptics, of course, point out
perhaps any changes that are coming to the iPhone in the fall will
necessarily be evolutionary in nature.  He said, well, they don`t work

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


HERERA:  Let`s turn now to Tim Lesko for more reaction to Apple`s earnings
results and what he sees ahead for the company.  He is principal portfolio
manager at Granite Investment Advisors.

Tim, welcome.  Nice to have you here.


HERERA:  It was almost like Apple (NASDAQ:AAPL) saying, you know, take
that.  The iPhone is doing well.  What did you think of the report?

LESKO:  Well, I thought it was good report.  You had a beat on earnings.
You had a beat on revenue.  You had a beat on iPhone numbers.

Certainly, the forward-looking guidance was conservative as Apple
(NASDAQ:AAPL) tends to be.  I`m not sure that Apple (NASDAQ:AAPL) thinks as
quarter to quarter as investors do or as the public does.  So, Apple
(NASDAQ:AAPL), you know, maps out their products years in advance and has a

And in many ways, they can`t divulge exactly what their plan is.  But I
guess they`re probably resting easier in Cupertino tonight.  But, you know,
it was a really nice number.

HERERA:  What`s next for them?

LESKO:  Well, I think the iPhone has shown that looking forward, you have,
you know, software as a service.  So, rather than necessarily needing a
device, you`re going to have, whether it be a wearable, whether it`d be
your phone or whether it`d be something else, that essentially tells
whatever device you`re near that you`re near it and it`s going to deliver
your services.

And Apple (NASDAQ:AAPL) has really been delivering that ecosphere for a
long time with iPhone and it bleeds over into the watch and it would bleed
over into the home kit where you`re going to have Internet connected
devices that are going to be running on Apple (NASDAQ:AAPL) software.
You`re going to bleed over into the car where you`re going to have Apple`s
car play software organizing your digital life for you.  So, I think the
ecosphere has, you know, a long way to go, long past maybe the evolution of
the iPhone.

HERERA:  You know, Tim, you said something interesting a moment ago.  You
said Apple (NASDAQ:AAPL) has a plan.  It doesn`t look at the timeline
basically the way some investors look at the timeline.  But isn`t that an
appropriate way to run a company?  Especially a technology company?

LESKO:  Well, absolutely.  And, you know, the advances in technology need
to come along with the advances in phone technology.  You can have a plan
for what you want to do in technology in five years, but you also need to
know what kind of hardware is going to be available to do that.  And that`s
why they have these long term road maps.

And I think that Apple (NASDAQ:AAPL) has done a really nice job.  They`re
very good stewards of capital.  They have a net balance larger than most
companies and they`ve been investing for the future.  So, as a management
of a company, we think they`ve done extraordinarily well.

HERERA:  On that note, Tim, thank you very much.

Tim Lesko with Granite Investment Advisors.

LESKO:  Thanks for having me.

MATHISEN:  Well, Apple`s numbers were quite nice.  But so far, earnings
have not been able, as an aggregate, to provide investors with clarity on
the strength of the economy.  Now, that seems to have stalled the stock
market rally, along with the concern that political drama out of Washington
may be overshadowing the push for pro-growth policies.

Today, the Dow closed down triple digits for the second consecutive day,
off 107 points to 19,864.  NASDAQ up by a little bit, about one point.  And
the S&P 500 dropped for a fourth consecutive session.  For the month of
January, there you look, the three indexes — of them, the NASDAQ rose the
most, up about 4 percent.

HERERA:  Dow component ExxonMobil (NYSE:XOM) saw its profits fall nearly 40
percent — though the results would have been better if a $2 billion
impairment charge was excluded.  Persistently low oil prices and weak
profit margins in Exxon`s refining business pull down earnings for the full
year.  Revenue, however, was higher but that wasn`t enough to lift the
shares which fell in trading today.

MATHISEN:  Pfizer (NYSE:PFE) reported disappointing quarterly profits.  The
drugmaker cited lower demand for its flagship vaccine and higher expenses.
The company also issued a downbeat sales outlook and said it expects to
lose billions in revenue as some of its drugs lose exclusive sales rights.

But there was a bright spot.  The revenue for the most recent quarter was
better than expected.

HERERA:  Well, the CEO of Pfizer (NYSE:PFE) was on his company`s analyst
call.  His peers were at the White House meeting with President Trump.  The
president called on them to manufacture more of their drugs in the U.S.
while vowing to cut taxes and roll back regulations.  That helped lift
stocks in the sector, with Dow components Pfizer (NYSE:PFE) and Merck
(NYSE:MRK) finishing higher on the day.

Meg Tirrell reports.


pharmaceutical industry is getting away with murder and pledged to bring
drug prices down.  But today, President Donald Trump struck a gentler tone
with the pharmaceutical industry, as leaders of some of its biggest
companies were summoned to the White House.

terrific job over the years, but we have to get prices down for a lot of
reasons.  You have no choice — for Medicare, for Medicaid.  We have to get
the prices way down.

TIRRELL:  Drug prices were still topic number one.  But the president also
pledged to reduce regulations, improve U.S. taxes and accelerate drug
approvals at the FDA.

TRUMP:  We`re going to streamline the FDA, and you`re going to get your
products either approved or not approved, but it`s going to be a quick
process.  It`s not going to take 15 years.

TIRRELL:  In return, many pharma CEOs emphasize their commitment to the
U.S., from California drugmaker Amgen (NASDAQ:AMGN) to pharma giant Merck

ROBERT BRADWAY, AMGEN CEO:  We`re confident about the outlook for
innovation in this country and I`m proud to say we`ll be adding 1,600 jobs
in Amgen (NASDAQ:AMGN) this year.

KENNETH FRAZIER, MERCK CEO:  We`re bringing manufacturing back for our
cancer drug.  You may have heard we have an immuno-oncology drug that
stimulates the immune system to kill cancer.  We`re bringing jobs here.

TIRRELL:  Shares of drug companies rose after the meeting as industry
watchers perceived drug to have stepped back his once aggressive stance on
drug pricing.

RON KLAIN, FORMER WHITE HOUSE SR. ADVISOR:  I think we`ve seen a pattern
where President Trump talks very tough in public.  But when he gets in
private with these business leaders, he likes to make nice.  He`s a deal

And so, you know, I think what you heard was softening of his position on
drug prices and a real willingness to give industry tax breaks and help
with them regulatory issues.  So, I`m not really sure this is an industry
he is trying to change.

TIRRELL:  Trump did focus on the Food and Drug Administration, saying he
has a, quote, “fantastic person” he`ll be naming soon to streamline the
industry.  Many in the drug industry though have already praised the FDA
for accelerating the drug approval process, leading some to wonder if the
new administration will strike the right balance between proving a drug
works and is safe, and speeding its path to market.



HERERA:  In addition to naming someone to head up the FDA, the president is
also scheduled tonight to announce his nominee for the Supreme Court.  It`s
widely expected to be one of two federal Appeals Court judges, Neil Gorsuch
of Colorado, or Thomas Hardiman of Pennsylvania.  Gorsuch`s judicial
philosophy is considered similar to Antonin Scalia`s.  Hardiman is
considered a law and order judge.

MATHISEN:  Well, the news out of Washington just keeps coming, but has it
all been too much, too fast for the stock market?

Mark Lehmann, president of JMP Securities, joins us now to discuss.

Mr. Lehmann, welcome.  Good you have to with us.

Let me — let me ask by twisting the question just a little bit.  And I
wonder whether this is something that has the market a little perplexed.
Can an administration be pro-business, avowedly so, aggressively so on the
one hand, and also, pro-protectionism on the other at the same time?

MARK LEHMANN, JMP SECURITIES PRESIDENT:  You know, that`s a great question
and it is one investors are going to have to wrestle with.  This is all new
territory for both the president and for a stock market to see that kind of
dynamic to play together.  I think it`s — if you start really a specter of
a protectionist president, I think it`s very, very difficult to see stocks
making new highs because this is uncharted territory.  We haven`t had a
trade war in a while.  There`s definitely that specter out there.

The pro-business side I think has got people excited.  The less regulatory
overhang and some of the other things that President Trump has talked about
obviously the market likes.  The more you talk about a protectionist
environment with the kind of trade partners we have, the more it`s
uncharted territory.  Before we find out those facts, people generally sell
and ask questions and then they decide to buy later, not right away.

HERERA:  We have seen do some executive orders on regulations.  But it —
are you one who thinks he should be talking more from the market standpoint
anyway about tax reform and things like that?  Instead of perhaps the
immigration side of things?

LEHMANN:  I think the market certainly appreciates what President Trump
stands for as it relates to the protectionist side, as it relates to the
regulatory side.  I think we know that.

On the immigration side, I think the kind of speed with which those orders
came out, the timing they came out and then other text that came out over
the weekend about who knew what when, is just not what the market is used
to and not what investors are used.  Frankly, I think some of the reaction
of the market has been muted, to be down as little as we are over the last
couple days in the face of the kind of rally we had and the kind of news we
had.  I think it`s quite impressive.

So, the market I think is giving the president the benefit of the doubt.
We`ve seen more of these executive orders and more of this kind of what I
like the call kind of ready, fire, aim politics.  The more the market is
going to be a little less, I think more susceptible to kind of downdrafts
we saw in the last couple of days.

MATHISEN:  So, it seems like what you`re saying here, it may not be the
speed, so much as it is the nature of the presentation, and that things
have not rolled out as smoothly and they`ve caused an uproar in some areas.

LEHMANN:  I think they have.  I mean, listen, we watched over the weekend
as the kind of rallies and the rallying cry that we saw over the weekend.
Everybody was either watching their Twitter or watching their Facebook
(NASDAQ:FB) feed, which is probably good for those stocks.  But probably
was keeping people over the weekend in a place that they`re not used to,
which is seeing actions on Friday night and watching their newsfeed over
the weekend.

I think you`re going on see that temper a little bit.  I think there`s
probably an uproar behind closed doors.  And whether the president decides
to listen to that kind of uproar is a question to be seen.  But I think the
odds are, we`re not going to be seeing as many of those because this was a
backlash that we just frankly hadn`t seen in a very long time.

MATHISEN:  Yes.  All right, Mark.  Thank you very much.  Mark Lehmann of
JMP Securities.

HERERA:  The Federal Reserve today began its two-day meeting on interest
rate policy.  And while a rate increase is unlikely to be announced
tomorrow, policymakers will be discussing their outlook for the economy.
And according to a new survey, there is one thing that economists and money
managers see as a threat to the recovery.

Steve Liesman has more.


for January finds that there`s a lot of support for the new policies of the
Trump administration but one huge concern.  Take a look here.

Individual tax cuts supported by 75 percent.  Business tax cuts by 80
percent or more.  And then deregulation is the favorite of the 41
respondents who are surveyed.  They include economists, fund managers, and
strategists, but more than 80 percent here have a negative view on Donald
Trump`s trade policies and that overshadows a lot of the good stuff that
they expect.  And that may be a reason why the idea of what`s behind the
recent market rallies come down a little bit.

Back in our December survey, 82 percent ascribed the market rally to policy
expectations from the administration.  That`s down to 72 percent.  And
those who say it`s merely economic fundamentals, that`s up to 26 percent.
It`s also a reason why these economists and fund managers think the market
overall is too optimistic, 56 percent saying that about expectations for
policies from the Trump administration, 39 percent say they are realistic.

And then, again, when we look at the biggest threats, take a look at some
of the history of this series of questions we`ve asked.  Back in April
2012, 37 percent thought the European financial crisis was the biggest
threat, 41 percent thought the fiscal cliff in July 2012.  Global economic
weakness, you remember early last year, sent the markets into a swoon, 44
percent thought that was the biggest threat to the economy.

And now, 51 percent, the first time we`ve had a majority focus on a single
threat to the expansion here in the history of this survey.  Fifty-one
percent saying now, protectionism is the biggest threat.



MATHISEN:  And, by the way, nearly all of the respondents in the survey say
the Fed will keep interest rates on hold when it releases its policy
statement tomorrow.  Economists, strategists and money managers predict
three rate increases this year with the next move likely to come at the
June meeting.

HERERA:  Still ahead, shares of Under Armour (NYSE:UA) plunge.  Is the
growth story over for this one time Wall Street darling?


HERERA:  Under Armour (NYSE:UA), once a dominant player in athletic retail
is stumbling.  The company is seeing its profits erode, sales slide, and it
says things may not approve anytime soon.  Add to those growth concerns,
and the departure of its chief financial officer, and you have a stock that
lost 25 percent in trading today.


HERERA:  Lots of alarm bells are when it comes to Under Armour (NYSE:UA),
as slowing growth pushes it further behind the global giants it wants to
compete with like Nike (NYSE:NKE) and Adidas.

Under Armour (NYSE:UA) sales grew by 12 percent last quarter.  The first
time it reported sales growth under 20 percent in more than six years.
This year, Under Armour (NYSE:UA) cut its sales forecast by more than half
a billion dollars to $5.4 billion.  The stock is now down more than 50
percent in a year.

The culprit: steep price cuts, according to CEO Kevin Plank.

KEVIN PLANK, UNDER ARMOUR CEO:  Slower traffic caused significant
promotional activities, earlier, deeper and broader than expected.  This
commoditized some of our more basic core product that had previously sold
through for us in years past.  This in addition to higher demand for more
lifestyle silhouettes caused us to be out of balance with our assortment.

HERERA:  Lifestyle hasn`t been adding life to Under Armour`s numbers.  The
company has been investing in lifestyle offerings and performance measuring
gear, think Fitbit, but those sales have lagged.  The company gambled big
on lifestyle, hoping to attract millennial buyers by spending on
sponsorships with the likes of Tom Brady (NYSE:BRC) and Steph Curry to
create its own sportswear brand — a big payout that has yet to pay off.

There`s also the troubling overall retail picture, with companies like
Sports Authority declaring bankruptcy, Under Armour (NYSE:UA) has fewer
places to sell its products.

And Under Armour (NYSE:UA) announced its CFO, Chip Molloy, will be leaving
at the end of the week, after only a year on the job.  Senior VP David
Bergman will step up as acting CFO, with the company looking to
reaccelerate in a choppy retail market.


HERERA:  Under Armour (NYSE:UA) isn`t only competing with companies like
Nike (NYSE:NKE) and Adidas.  Kohl`s (NYSE:KSS), the Gap (NYSE:GPS), and
even luxury brand Chanel are now selling their own lifestyle apparel

MATHISEN:  Well, it would seem like a slam-dunk.  As more people order
goods online, delivery companies should benefit, right?  Well, that`s not
what happened at UPS.  In the latest quarter, the world`s largest package
delivery company reported earnings and revenue that missed expectations.
It issued weak guidance about the future and that pressured shares today,
as you see right there.

So, why didn`t UPS get a big lift from the surge in online shopping?

Morgan Brennan explains.


made in it time for Christmas but UPS failed on deliver for investors.  The
big culprit: the gangbusters growth of ecommerce.

RICHARD PERETZ, UPS CFO:  We actually had a good fourth quarter.  But what
we saw was a tremendous shift in the amount of volume that went to the
consumer versus to the business.  In fact, we looked over the last ten
years and this is the fastest rate of change.

So, while volume continued to grow, opportunity continues to grow because
of the B to C, or business to consumer, we saw the impact.

BRENNAN:  As consumers turned to the Internet to buy more and more goods,
delivery companies are scrambling to keep up.  During the holiday season,
UPS moved a staggering 712 million packages, 16 percent more than in 2015,
with nearly two thirds headed to homes, including 2.5 million new
addresses.  Higher volumes put more strain on the network and more pressure
on margins.

It`s much costlier to deliver individual packages to individual doorsteps,
rather than to one location with business shipments.  As e-commerce surges,
UPS is doubling down, with plans to spend $4 billion, a third more than
last year, to automate facilities and expand capacity.  It`s also raising

But while it`s accelerated, this trend has played out in UPS`s earnings
before.  One reason Avondale Partners` Donald Broughton rates the stock a

takes advantage of the ecommerce market and gets tons of volume and is
unable to get things delivered on time.  Then it says, well, we`re not
going to let that happen again.  We`re going to spend our money on
infrastructure.  We`re going to spend money on technology, people, and the
following year, it gets things delivered on time but it spends so much
money, it doesn`t result in incremental margins.  This year, those service
issues, but no margin either.

BRENNAN:  UPS was also impacted by weak industrial production and a strong
dollar.  The company expected better economic growth in the U.S. this year
and management says, it, quote, “looks forward” to working with a Trump
administration, as tax reform and infrastructure spending and new bilateral
trade agreements are potentially rolled out.



HERERA:  Higher premiums help Aetna (NYSE:AET) top earnings expectations
and that`s where we begin tonight`s “Market Focus”.  The health insurers
said lower than expected medical costs also help overall.  Profit was hurt,
though, by higher restructuring cost and after a federal judge blocked the
company`s proposed $34 billion takeover of Humana (NYSE:HUM) last week.
Aetna (NYSE:AET) says it isn`t giving up just yet.


MARK BERTOLINI, AETNA CEO:  I think one of the things we need to consider,
and we have until February 15th to make this decision, that`s when our
merger agreement ends, is one the various options we could pursue to try
and get this combination done.  We believe this combination will provide a
better product for seniors, a better product for the Medicaid population,
more affordable and simpler.


HERERA:  Aetna (NYSE:AET) shares were up more than 1 percent to $118.61.

Eli Lilly (NYSE:LLY) said strong demand for its diabetes drugs led to
higher revenue in its latest quarter.  The pharmaceutical company also saw
profit rise and it reaffirmed its full year earnings guidance.  Shares of
Lilly were up 3 percent to $77.03.

Sprint`s subscriber growth topped expectations and beat rivals Verizon
(NYSE:VZ) and AT&T (NYSE:T).  It was the most subscribers Sprint has had in
four years.  On the earnings front, the wireless company also posted a
narrower net loss, but it was still wider than expected.  But Wall Street
focused on the subscriber growth and it sent shares up 12 cents to $9.23.

HERERA:  MasterCard (NYSE:MA) posted a better than expected profit as an
increase in customer spending during holidays lifted results.  But the
company did miss revenue targets, citing a stronger dollar and more
rebates.  MasterCard (NYSE:MA) also warned the dollar would hurt revenue
growth and net profit this year.  That sent shares nearly 3 percent lower
at $106.33.

The handbag maker Coach (NYSE:COH) also said the strong dollar would cause
revenue growth to slow this year.  The company saw its quarterly profit
beat expectations, thanks to strong demand for its pricier 1941 collection
and strong overseas sales.  Coach`s same store sales also beat estimates.
Shares were up nearly 4 percent at $37.35.

And coming up, fixing our nation`s airports.


Salt Lake City, Utah, where they`re building a brand new airport.  Why
aren`t more cities doing this?  That story coming up on NIGHTLY BUSINESS



MATHISEN:  San Francisco has become the first city to challenge President
Trump`s order over sanctuary cities.  The order directs the federal
government to withhold money from cities that do not cooperate with
immigration officials.  If San Francisco does not comply, it could lose
more than $1 billion.  The lawsuit calls the order unconstitutional.

HERERA:  One reason for the recent optimism on Wall Street is the
expectations that billions of dollars will ultimately be spent on fixing
America`s aging infrastructure.  That includes dozens of airports that are
overcrowded, inefficient, and in need of being either renovated or
replaced.  In Salt Lake City, they`re already building a new one.

Phil LeBeau takes a look at the long runway from approving a new airport to
getting it up in the air.


LEBEAU:  Fly into Salt Lake City and you`ll find an airport that looks far
better than others in America.  But underneath, it is straining, handling
twice as many passengers as it was designed for or when it was built in

So, right next on old terminals, Salt Lake is building an all new airport.
The cost?  $2.9 billion.

process.  There`s an environmental process you have to go through.  There`s
a procurement process you have to go through, and then, there`s the actual
construction process you have to go through.

In many cases, airports, particularly, you end up building on the same foot
print you`re occupying.  So, oftentimes, you`re trying to remodel the
kitchen while you`re trying to cook Thanksgiving dinner.

LEBEAU: Phase one of Salt Lake`s new airport won`t be done until 2020, when
it`s completely finished in 2023, even more people will fly into Utah`s
capital.  The fact is, the number of people flying in the U.S. keeps
soaring.  There are more flights, more congestion and more talk that fixing
America`s airports will have to include alleviating traffic jams on the

money that`s needed to invest in airport terminals.  But also on the
runways, we need more runways, because a great terminal isn`t great if you
can`t land or takeoff.

LEBEAU:  It`s estimated fixing all of America`s airports could cost up to
$75 billion, more money than what Congress is likely to authorize.  So
airlines like Delta are stepping up.

It`s investing in new terminals, including at its hub here in Salt Lake

HOLDEN SHANNON, DELTA AIR LINES SVP:  Security, gate boarding, it will all
be revamped and offered in a way that reduces stress, reduces variability
and creates a more service-oriented and less stressful experience.

LEBEAU:  And investment in the future of travel as more Americans than ever
take to the sky.



HERERA:  And that`s NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.
Thanks for joining us.

MATHISEN:  And thanks from me as well.  I`m Tyler Mathisen.  Have a great
evening, everybody, and we will see you right back here tomorrow night.


Nightly Business Report transcripts and video are available on-line post
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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
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