Transcript: Nightly Business Report – April 27, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Red hot. Amazon
(NASDAQ:AMZN) and Alphabet blow past earnings expectations, as the tech-
dominated NASDAQ pushes further into record territory.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Passenger policies. United
settles with a man dragged off its plane and takes more steps to try and
improve its battered image.

MATHISEN: Drowning in debt. Americans owe a lot of money and the amount
is growing fast. But how much is too much?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
April 27th.

HERERA: Good evening, everyone, and welcome.

The NASDAQ closes at a record. And the way things shaped up late today,
that index`s hot streak my only get hotter.

Let`s start out with Amazon (NASDAQ:AMZN). The online retailer reported
strong quarterly results, blowing earnings estimates right out of the
water. The company reported a sharp rise in profit even as it spent a lot
in expanding its operations overseas.

Here are Amazon (NASDAQ:AMZN)`s quarterly numbers for you. It earned $1.48
a share, 36 cents better than what Wall Street was looking for. Revenue
climbed from a year ago and also topped expectations.

Investors liked what they saw, sending shares to a record in after hours
trading.

Deirdre Bosa has more on the results.

(BEGIN VIDEOTAPE)

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: $1,000 is the next
big number to watch for Amazon (NASDAQ:AMZN), blew its results, pushing its
shares within striking distance of that milestone. Now, the company is
pushing into a dizzying array of new businesses and regions and investing
huge to do so. This quarter alone, it increased its presence in India,
spent big on video content, like its partnership with the NFL, boosted its
logistics business, and introduced new features and eyes for its hit Echo
device.

Now, despite the heaving spending, though, Amazon (NASDAQ:AMZN) is making
money to — thanks to continued growth on online retail sales and its
profitable cloud business.

For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa, San Francisco.

(END VIDEOTAPE)

MATHISEN: Alphabet also out with the very big quarter. The parent company
of Google (NASDAQ:GOOG) saw a surge in ad revenue as it competes with
Facebook (NASDAQ:FB) to grab a larger share of this past growing market.
Its YouTube business is also strong, despite some brands recently pulling
some ad money because of placement next to controversial videos.

Alphabet`s results topped earnings and revenue expectations. Look at the
chart there. It saw shares rise in initial after-hours trading.

Josh Lipton now with more on the company`s big quarter.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: $21.4 billion, that
was one big number in Alphabet`s latest earnings report. It refers to
Google (NASDAQ:GOOG)`s advertising revenue. And again, this is how this
company does make money.

Some investors had expressed concern heading into this report. Remember,
in late March, some big brands had suspended campaigns on YouTube and that
was after ads were running alongside some offensive content. Google
(NASDAQ:GOOG) responded, implemented some new controls and policies to
safeguard those advertisers.

In a quick chat with a senior executive at Alphabet, they said that from a
revenue perspective, the near term impact from that controversy would, in
their words, be modest, and that long term, they would continue to benefit
from the secular shift in how consumers are indeed consuming content.
Investors certainly looked pleased with the results.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.

(END VIDEOTAPE)

HERERA: And while investors liked the results from those newer tech
companies, they were disappointed by old tech. Microsoft (NASDAQ:MSFT)`s
earnings topped expectations. Its revenue, though, slightly missed due to
weak growth in its personal computing business, its largest unit by
revenue. The bright spot was increased demand for the company`s cloud
business.

Shareholders expressed their disappointment, though, sending shares lower
initial in after-hours trading.

Julia Boorstin has more on Microsoft (NASDAQ:MSFT)`s results.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Microsoft
(NASDAQ:MSFT)`s cloud services driving better than expected results. CEO
Satya Nadella saying of one of his most important initiatives, that from
large multinationals to small and medium businesses, to nonprofits.
organizations are using Microsoft (NASDAQ:MSFT)`s cloud platforms to power
their digital transformation.

Microsoft (NASDAQ:MSFT)`s Azure cloud products saw 93 percent growth in the
quarter. While its productivity and businesses process division, which
includes Office 365, as well as cloud services, saw a 22 percent increase.

Back over to you.

(END VIDEOTAPE)

MATHISEN: Julia Boorstin reporting there.

And then there`s Intel (NASDAQ:INTC). The world`s largest chip maker
reported lower than expected revenue. Its data center business, which is
crucial to Intel (NASDAQ:INTC)`s transition from PC market to Internet-
connected devices, did not do as well as many had hoped. That said, Intel
(NASDAQ:INTC)`s CFO said he feels good about the quarter.

(BEGIN VIDEO CLIP)

BOB SWAN, INTEL CHIEF FINANCIAL OFFICER: The data center performed right
in line with our expectations for the full year. We`re looking at 8
percent growth for the year. And 6 percent is what we expected in the
first quarter and we feel like we`re well-positioned.

(END VIDEO CLIP)

MATHISEN: He may have been satisfied, investors were not. They were
disappointed, pressuring the stock in initial late day trading.

HERERA: So, lots to talk about. Let`s turn to Dan Morgan now for more on
how big tech names and the results might impact today`s record-setting
NASDAQ. He`s senior portfolio manager at Synovus Trust.

Nice to have you with us, Dan. Welcome.

DAN MORGAN, SENIOR PORTFOLIO MANAGER, SYNOVUS TRUST: Hi, Sue.

HERERA: You know, an awful lot of big names out with their earnings today.
And the NASDAQ sets a record high. There are those who say it`s looking —
the NASDAQ is looking a little frothy. Others say, no, with results like
this, it can power higher.

How do you feel?

MORGAN: Well, we look at the NASDAQ compost right now. It trades about 33
times earnings. S&P is about 21 times earnings.

But if you look at expected growth, Sue, going into this year, the NASDAQ
is like 53 percent compared to the S&P 500 at about 11 percent. So, I
think that the multiple commensurates the expectations in terms of earnings
growth.

The other point is, you have to remember only a thousand points above where
we were in March of 2000 when the NASDAQ hit 5,000. So, we`re not that
much higher than we were 16, 17 years ago.

MATHISEN: So, what`s driving the NASDAQ? Is it the names like the ones
that reported today, the Alphabet and Amazon (NASDAQ:AMZN)? Or is it ones
that fly a little bit below the radar screen?

MORGAN: Well, one area that, you know, wasn`t on the platform today was
the semiconductors. They have done extremely well. That is an area that
has really been doing well within technology, within the NASDAQ.

Apple (NASDAQ:AAPL) reports next week with their expectations on iPhone 8
or getting ready for that. Those are some other reasons that have been
pushing the NASDAQ. So, it`s been other names, Tyler, than just the names
we`re talking about today, which is obviously, Amazon (NASDAQ:AMZN) and
Google (NASDAQ:GOOG) with huge numbers.

HERERA: You mention in the notes I`m looking at here that the Commerce
Department is going to report the GDP number tomorrow, and that we`ve seen
business investment in software and business spending in software drop off
a little bit.

Do you anticipate that that will continue? And how worrisome is that for
you?

MORGAN: Well, it is somewhat worrisome, Sue. I mean, last quarter, it was
down 4.8 percent. If we got another bad number tomorrow on, you know,
business investment in software spending, that would give us some concerns
that going forward, growth in technology spending may be slowing, and
that`s something we have to be worried about within the NASDAQ composite.

MATHISEN: What`s your favorite tech stock? And why, Dan?

MORGAN: Well, I like Amazon (NASDAQ:AMZN) a lot, just because of AWS,
Amazon (NASDAQ:AMZN) Web Services, you know, it was up 42 percent growth on
their cloud —

MATHISEN: That`s pretty good.

MORGAN: I think that`s kind of a gem there with Amazon (NASDAQ:AMZN), it`s
done really well. That`s one of my top technology stocks right now.

HERERA: All right, Dan, we`ll leave it there. Thank you so much for
joining us tonight.

MORGAN: Thank you, Sue.

HERERA: Dan Morgan with Synovus Trust.

MATHISEN: Well, the tech sector helped lift the broader market during the
trading day, offsetting a decline in energy shares as investors shifted
their focus from Washington back to the health of corporate America. The
Dow Jones Industrials up 6 points to 20,981. NASDAQ up 23 to the record,
as we reported earlier. And the S&P 500, it was up 1 1/3.

HERERA: So, we are now at the halfway point of earnings season and some
positive trends are emerging.

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: We`re more than halfway
through earnings season, and so far, the market likes what it`s seen. Now,
stocks have rallied this week on a combination of lower geopolitical
worries, from the French election, long-awaited tax cuts now in play. And
this is perhaps the most important thing — earnings guidance that has
generally been better than traders anticipated.

Now, full year guidance has been strong, particularly in the industrial
space. So, the largest names like Caterpillar (NYSE:CAT) and 3M (NYSE:MMM)
and Honeywell, Stanley Black & Decker (NYSE:SWK), have not only beaten the
guidance but they`ve also raised their full year estimates. GE and United
Technologies (NYSE:UTX) both reaffirmed their full year outlook. That`s a
huge relief to the markets, because traders have been concerned because
stocks have expensive by historic standards.

Analysts have been modeling notable increases in earnings for the rest of
the year based — not on the Trump tax cuts but on an improving global
economy. That`s the key. And right now, the first quarter profits are
expected to jump 12 percent, that`s the best gain in six years. And they
have similarly high hopes for the rest of the year.

And, by the way, this is not just the United States. Earnings have also
improved in Europe. So, the STOXX 600, that`s the European equivalent of
the S&P 500, saw earnings grow about 13 percent in the fourth quarter.
That follows a year of declining earnings.

Now, first quarter earnings are expected to rise 5.5 percent in Europe.
That would be the strongest in five years for that quarter.

We`ll see if this is enough to keep the stock market near record highs.
That`s the key.

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

(END VIDEOTAPE)

MATHISEN: Still ahead, as Americans continue to borrow money, how much
debt is too much debt?

(MUSIC)

HERERA: The number of homes that were under contract dipped in March.
According to the National Association of Realtors, pending home sales fell
8 percent from a month earlier. The decline may be due to both the lack of
inventory on the market and also the increase in home prices which have
risen far faster in recent years than Americans` incomes.

MATHISEN: President Trump says the North American Free Trade Agreement,
NAFTA, will be renegotiated, not immediately terminated. The president
decided against abrogating the trade deal after speaking to the leaders of
both Mexico and Canada. He added that terminating the deal would be a
shock to the system, but if a fair deal cannot be renegotiated, NAFTA will
be terminated.

HERERA: One day after the White House released its tax outline, investors
want to know what impact if any it could potentially have on economic
growth. Steve Liesman did some digging.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The president`s tax
cut plan immediately launched a vigorous debate among economists. What
will it cost and how much growth will it generate?

But the president`s team threw a wrench in the argument. It didn`t release
enough input to really estimate the effects, and it did so on purpose.

MICK MULVANEY, WHITE HOUSE BUDGET DIRECTOR: There`s no way to score what
we put out yesterday. And we did it on purpose, not to try and hide the
numbers, but to say, look, this is the first discussion.

LIESMAN: To score the revenue effects of a tax cut, the models need the
actual numbers, most of which were not provided by the Trump
administration. And they need to know how the cuts are paid for to gauge
the deficit and interest rate impacts. In a debate, one side argues that
tax cuts could spark massive growth, so the tax cuts nearly pay for
themselves. Another says the effects will be modest at best and will
create huge deficits.

LARRY SUMMERS, FORMER TREASURY SECRETARY: This is a subject that`s been
enormously studied on economists on both sides of the aisle. We`ve got
lots of experience with broad-based tax cuts. The Bush tax cuts at the
beginning of the last decade, the Reagan tax cuts in the 1980s.

And you can argue about whether on balance they were good things or whether
they were bad things. But there is no, no serious reading of the evidence
that suggests that they came close to paying for themselves by stimulating
economic growth.

LIESMAN: The administration essentially acknowledges this. In announcing
the plan, they said they can bump up growth to 3 percent. But that won`t
be enough for the cuts.

STEVE MNUCHIN, U.S. TREASURY SECRETARY: This will pay for itself with
growth, and with reduced — reductions of different deductions, and closing
loopholes.

LIESMAN: The treasury secretary said a hundred people in his department
have been working on scoring the plan. But the administration has chosen
for the moment not to release any of that work, which would help the public
and investors score the tax plan for themselves.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: According to the Northwestern Mutual`s 2017 planning and
progress report, Americans are besieged by debt. Four in ten Americans say
they spend nearly half of their monthly income paying down debt. While
more than one in ten say their debt exceeds $100,000.

Chris Christopher is director of consumer economics at IHS (NYSE:IHS)
Markit and he joins us now to discuss why consumer debt is where it is and
why it is rising.

This study, Chris, excludes, as I understand it, most forms of mortgage
debt. So, what we`re talking about here is student, consumer, auto, and
other.

CHRIS CHRISTOPHER, IHS (NYSE:IHS) MARKIT DIR. OF CONSUMER ECONOMICS: Yes.
And not all type of debt is the same. That`s the key question. I mean,
student debt is a lot different than you see on credit card debt. It`s
more focused on a particular age cohort.

So, it`s an interesting study. However, you have to look at each piece of
it very carefully.

HERERA: Yes. And student loan debt tends to be at a lower interest rate
certainly than credit card debt. How worried are you, if at all, about the
amount of credit card debt that Americans are carrying?

CHRISTOPHER: The level of credit card debt has been sort of — it did fall
during the Great Recession, and it is creeping up. However, when you look
at, you know, the employment numbers, consumer confidence, wage growth, it
is sort of on pace with that. However, student loan debt and student loan
defaults, that is a worrisome issue. And that`s very focused on a certain
age cohort. And they are sort of bearing the burden of that.

MATHISEN: I would also guess that auto loan debt, which has now gotten out
to — it`s not just a three-year loan anymore, sometimes it`s a five, six,
seven-year loan to keep the monthly payments down, that can be a burden as
well.

What`s the best advice that you would give someone who is struggling with
these kinds of debts?

CHRISTOPHER: Well, I would tell everyone to sort of live modestly, make
sure you go to school, of course, you know, be a good student, and, of
course, don`t overspend. Try to live within your means.

Or if you`re buying that automobile, buy an automobile that`s sort of —
you know, you can sort of afford, and don`t be tricked by, you know,
stretching out the payments, you know? Therefore you sort of —

HERERA: Right.

CHRISTOPHER: — under the false illusion that you don`t have to sort of —
it`s not that expensive.

HERERA: Very quickly, we have about 30 seconds left, Chris, the auto loans
that are being made are being made, as I understand it, to riskier
borrowers. Is that a danger on a systemic level, kind of like what we saw
with the housing crisis, where you had subprime mortgages? Are we seeing
an increase in subprime debt in the auto sector?

CHRISTOPHER: Well, what we`re sort of seeing, this is data from the New
York Fed, is that auto loan debt has surpassed a trillion dollars overall.
It is increasing. And the defaults are increasing. In addition, the
credit scores of those who are getting these new loans, the originations
have been lower and lower. So, that is one concern.

However, it`s not like a housing bubble of any sort. You don`t buy a car
and then try to flip it and all that kind of stuff. It is used for a
purpose.

MATHISEN: Right.

CHRISTOPHER: But it is a concern, and we`re watching it very carefully.

MATHISEN: All right. Chris, thank you very much. Chris Christopher with
IHS (NYSE:IHS) Markit.

HERERA: Under Armour (NYSE:UA) tops earnings estimates, and that`s where
we begin tonight`s “Market Focus”.

The athletic footwear maker posted a loss but the street was expecting
worse. Overall sales rose as higher wholesale revenue and strong demand
for Under Armour (NYSE:UA)`s apparel lifted results. The company also said
it`s confident it will meet full year financial targets. Shares popped
nearly 10 percent to $21.67.

Ford`s profit fell as the automaker said earnings were hampered by recall
costs and investment in future products. Still, the results were better
than expected. Revenue rose, thanks in part to an increase in average
transaction prices in the U.S. Nonetheless, shares fell 1 percent to
$11.47.

UPS`s better than expected results were helped in part by a rise in e-
commerce deliveries. The company said all segments contributed to a solid
quarter.

(BEGIN VIDEO CLIP)

RICHARD PERETZ, UPS CFO: Overall for the quarter across the enterprise, we
are — we`re pretty happy with where we`re at right now. In the
international business, we saw exports grow at the highest we`ve seen since
the recession, at over 14 percent. And then on the supply chain and
freight business we saw profits up 22 percent. And in the U.S. business,
revenues were up about 5 percent.

(END VIDEO CLIP)

HERERA: UPS` shares rose 1 percent to $108.83.

MATHISEN: The railroad operator Union Pacific (NYSE:UNP) said an increase
in coal freight volumes helped it post an increase in profit that beat
estimates. Revenue also stronger than expected. And the company said it
expects shipping volume to rise in the low single digits this year. Union
Pacific (NYSE:UNP) shares up 3 percent to $113.53.

Starbucks (NASDAQ:SBUX) said global same store sales grew. But it wasn`t
at the clip analysts expected. The coffee chain did say it`s confident
future sales will be driven by a number of new products in the pipeline.
The company disappointed the street with its latest quarterly revenue while
its earnings were in line with estimates. Shares initially fell. After
hours, they ended the regular session down a fraction at $61.30.

HERERA: Coming up, not coming to America. Why fewer people are booking
flights to the U.S.

(MUSIC)

HERERA: American Airlines wants to increase pay for its pilots and flight
attendants. The airline said the employees will receive on average 5 to 8
percent increases in hourly pay. The adjustment matches rival carriers and
it comes mid-contract. The company also reported solid quarterly earnings
results and deferred delivery of several wide-body jets. But the pay
increase that could cost the company about $1 billion over three years
worried some investors and it pushed the stock lower in trading today.

MATHISEN: Meantime, United Airlines has apparently reached a settlement
with the passenger who was dragged off his flight a couple of weeks ago.
The sum, not surprisingly, not disclosed. Take your own guess there.

The passenger, Dr. David Dao, was hospitalized after he was forcibly
removed from the plane to make room for transiting crew members. That`s
not the only thing the airline is doing as it continues to grapple with the
fallout from the incident.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: With the video of the
doctor being dragged off a United Airlines plane still swirling on social
media, United Airlines is hoping new policies and more apologies will help
mend the company`s battered image.

For starters, it`s changing how it treats overbooked flights. Passengers
will now be offered up to $10,000 to voluntary give up their seat. Once a
passenger is on the plane, they cannot be bumped. While United says it
will reduce the amount of overbooking, CEO Oscar Munoz says the practice
will continue because it helps the bottom line.

OSCAR MUNOZ, UNITED AIRLINES CEO: The reason we do it is to fill up the
plane, plain and simple. If we didn`t fill up the plane, the economists in
the world all talk about the fact that prices might indeed rise.

LEBEAU: Munoz admits United has not calculated how much this controversy
has cost the airline, but it`s clearly sparked the change in the industry.
Delta has already increased how much it will offer passengers to give up
their seats.

Southwest Airlines (NYSE:LUV) says it will soon stop overbooking flights.

GARY KELLY, SOUTHWEST CEO: We`re seriously reconsidering that practice.
And I`ve made the decision, the company`s made the decision that we`ll
cease to overbook going forward.

LEBEAU: For United, the lesson is clear. America service must improve.

MUNOZ: Our shared purpose in our company is about connecting people and
uniting the world. And that came from a lot of input from a lot of our
family here at United. Connecting people. Simple words. What they mean
is connecting you to the things that are important to you, regardless of
where you`re sitting.

LEBEAU: United is implementing some of these changes immediately. Others,
like more training for gate agents and flight crews, will start over the
next couple of months.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: And while United is dealing with issues here at home, the travel
airline industry is also dealing with a drop-off of visitors to the U.S.
According to software company Adobe, people booking flights from overseas
destinations to the U.S. fell 6 percent in the first quarter. What`s
keeping them away?

Hannah Sampson joins us. She`s the associate editor at Skift.

Nice to have you here, Hannah. Welcome.

HANNAH SAMPSON, SKIFT ASSOCIATE EDITOR: Good to be here. Thanks.

HERERA: I also noted from Adobe survey that an additional 26 percent
dropped their plans or changed their plans for coming to the United States
the week that the travel restrictions were announced in February. So, it
seems as though they have had quite a chilling effect.

SAMPSON: There was a lot of disruption, especially around those few days,
around the travel ban, because it was just so tumultuous, it was such an
uncertain time. And the images of protests at airports and people being
detained was really very chilling to travelers all over the world.

MATHISEN: Are people also worried about the strong dollar?

SAMPSON: I think that is a big underlying factor, and it`s been a problem
for the U.S. for the last — you know, more than a year they`ve been
dealing with the fact that it`s a little more expensive for international
travelers. So they had to work that much harder to get people to part with
their vacation dollars. And now, with that kind of extra problem of having
an unwelcoming message, it`s presenting some new challenges.

HERERA: There are a couple of states, you point out, that are trying to
combat that a little bit. They`re putting out PR campaigns of a welcoming
nature. Does that tend to have an impact or not?

SAMPSON: Well, I mean, we`ll see. It`s only been not that long since L.A.
and New York City specifically started to roll out these messages that
said, you`re welcome to be here, we want you to be here.

They show people speaking different languages. They kind of highlight the
diversity of those destinations. And really drive home the point that
diversity is welcome, at least in those cities, even if the U.S. all
together isn`t sending that message.

MATHISEN: Is the falloff in demand for U.S. travel resulting in cancelled
flights by big airlines?

SAMPSON: We have seen at least one international airline, Emirates, pull
back the number of flights that it`s flying to the U.S. and they`re tying
that directly to Trump`s policies, both the travel ban and the crackdown on
in-cabin personal electronics, you know, you have to stow your laptop in
checked luggage. And that`s inconvenient. And both of those things are
really contributing to a drop in demand. So that airline is taking the
action they have to take.

HERERA: Right. Travel for business purposes, now that equipment issue
certainly hit business travelers very hard. But the survey also said that
37 percent of managers anticipate a drop in business travel, and 47 percent
of Europeans said they expect a reduction.

SAMPSON: Yes. So, that`s something that the — especially the business
travel industry is really, really concerned about right now. They have
Europeans who are saying, we`re going to plan our meetings somewhere else –

HERERA: OK.

SAMPSON: — in other countries. So, that`s — that`s a big concern for
them.

HERERA: Thank you, Hannah. Hannah Sampson with Skift.

SAMPSON: Thank you.

HERERA: And that is 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. We`ll see you tomorrow, Friday.

END

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