Transcript: Nightly Business Report – May 2, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Surprise decline. Shipments
of Apple`s flagship product, the iPhone, fell, ramping up pressure that its
next model be a blockbuster.

(BEGIN VIDEO CLIP)

OSCAR MUNOZ, UNITED AIRLINES CEO: We will work incredibly hard to re-earn
not your business necessarily, but your trust.

(END VIDEO CLIP)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: United`s CEO apologizes
again for that infamous incident last month when a doctor was dragged from
his flight. But lawmakers made clear that either he fixes the mess or they
will.

HERERA: Deep cuts. Kansas slashed taxes to revive the economy. But what
happened next?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, May
2nd.

MATHISEN: Good evening, everyone, and welcome.

Well, the numbers are enormous — but perhaps not enormous enough. Apple
(NASDAQ:AAPL), the world`s most valuable publicly traded company, sold more
than 50 million iPhones in the most recent quarter. That was a decline,
though, from a year ago. Though that could be a sign that consumers are
actually just waiting to spend their money on the next 10th anniversary
edition of that smartphone.

Let`s get right to the numbers right now. This is the late news of the
day. For the quarter, Apple (NASDAQ:AAPL) earned $2.10 a share. That was
eight cents better than forecast. Revenue up from a year ago to nearly $53
billion in three months. But that revenue number missed expectations
slightly. That sent shares lower in initial afterhours trading, as you see
there.

But there`s more. Apple (NASDAQ:AAPL) boosted its dividend by 10.5 percent
and its share repurchase program by $35 billion. It is also sitting on —
get this — more than $250 billion in cash.

HERERA: So, what will all of this mean for Apple`s stock?

Nancy Tengler, chief investment officer at Heartland Financial, joins us
now to talk about that.

Welcome back, Nancy. Nice to have you here.

NANCY TENGLER, HEARTLAND FINANCIAL CIO: Thank you, Sue.

HERERA: You have been very bullish on this name for some time. Does the –
– not miss necessarily, but the disappointment in unit sales worry you at
all? Or not?

TENGLER: Not entirely. I mean, one of the things that Tim Cook said, Sue,
is that he also drew down inventory. So, the miss wasn`t really 2 percent,
it was more like half of 1 percent. But I do think your lead-in is
correct, that consumers are sitting on the sideline and that what — until
the iPhone 8 comes out.

And what investors should be thinking about is the two reasons they own
stocks: dividend and dividend growth, and capital appreciation. And Apple
(NASDAQ:AAPL) has delivered on the capital appreciation over the last year.
As it takes a breather, we think investors should be counting on the
dividend.

MATHISEN: Is this — is this really, Nancy, now fundamentally a one-
product company? It`s almost as though the iPad and the Mac are
afterthoughts.

TENGLER: I think you`re right about that, Tyler. But if you look at
services, services grew at 18 percent last quarter. And that`s the second
largest revenue line item for the company.

MATHISEN: Fair point. Yes.

TENGLER: Yes. So, it`s iPhones and services. What we hope to see is some
new products, right? I mean, that`s what everyone is waiting for.

HERERA: Now, would you accumulate the stock on weakness? Because it did
sell off a little bit after the results were announced. Would you be in
buying the stock if you`re a long term investor?

TENGLER: Yes. We have — as portfolio managers, we have to follow certain
guidelines, right? So, the stock had gotten to about 6 percent of our
portfolio. And we recently sold it back to 4.5 or 5 percent, depending on
the strategy.

If the stock sells off more than 2 percent, which is where it was when I
looked last, we`ll be back in picking away at it to round our holdings back
up, and then hold on again for the next move. But it`s not going to take
off in the next few months. So, I think investors have time to accumulate
at lower prices, and then hold on for the next three to five-year period,
because this company is doing a lot of things right. And there`s a lot of
skeptics.

And so, when the skeptics — you know, at $89, when I was recommending it,
I took a huge beating, and I`m certainly glad. I wished I had bought more.

HERERA: All right. On that note, Nancy, thank you for joining us.

Nancy Tengler with Heartland Financial.

MATHISEN: On Wall Street, a small gain helped push the NASDAQ further into
record territory as investors assess today`s mixed bag of earnings reports
from corporate America, and the Feds started a two-day policy meeting, more
on that one in just a moment. The Dow Jones Industrial Average rose 36
points to 20,949. NASDAQ added three. The S&P 500 up two.

HERERA: Those mixed earnings were reflected in results from Pfizer
(NYSE:PFE) and Merck (NYSE:MRK). Pfizer (NYSE:PFE), the largest U.S. drug
maker, said soft sales of some key drugs weighed on revenue which missed
estimates. Legacy medicine lost market exclusivity, though the company did
report better than expected earnings, thanks to reduced costs.

Rival Merck (NYSE:MRK) saw its profit top expectations. The drug maker
raised its full year revenue and earnings forecast and said a key cancer
drug is gaining market share. So, as you might expect, shares of Pfizer
(NYSE:PFE) and Merck (NYSE:MRK) moved in opposite directions.

MATHISEN: A weak month for auto sales also weighed on the market today as
Americans didn`t buy cars in April at the pace they had been. General
Motors (NYSE:GM) saw a nearly 6 percent drop in monthly sales. Fiat
Chrysler a bit more than that. And Ford sales down more than 7 percent.

Declines could signal that demand is slowing after seven straight years of
sales growth. Automakers are also offering more deals so that they don`t
lose sales in the very hot SUV market. Increased incentives is a concern
for investors. And they sold shares off today of the automakers in
trading.

HERERA: From driving to flying. After a stream of incidents where airline
crews had altercations with passengers, Congress called industry leaders up
to Capitol Hill, including the CEO of United Continental. Lawmakers today
asked them why flying in America has so many problems.

As Phil LeBeau reports, the questions came with the threat of more
regulations to protect passengers. Phil LeBeau is in our nation`s capital
tonight.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: For airline
executives, most notably, the CEO of United Airlines, Oscar Munoz, the
message was clear. Americans are fed up with the flying experience.

REP. DUNCAN HUNTER (R), CALIFORNIA: I guess my first question I was going
to ask, slightly in jest, is why do you hate the American people? But I`m
not going to ask that. I was going to ask how much you hate the American
people. I`m not going to ask that either.

REP. MICHAEL CAPUANO (D), MASSACHUSETTS: We have a problem that shouldn`t
be as bad and unpleasant as it is. And you`re the only people that can fix
it.

LEBEAU: The hearing comes three weeks after Dr. David Dao was dragged off
a United Airlines plane because he refused to give up his seat on an
oversold flight. United has since settled with Dr. Dao for an undisclosed
amount.

But Oscar Munoz is still apologizing for what happened.

OSCAR MUNOZ, UNITED AIRLINES CEO: And in that moment, for our customers
and our company, we failed. This has to be a turning point for the 87,000
people and professionals here at United. And it is my mission to make sure
that we make the changes needed to provide our customers with the highest
level of service. If we break it, it`s incumbent on us to fix it.

LEBEAU: United says it`s reducing the amount of overbooking it does on its
flights. And Southwest will completely stop doing it next week. But other
airlines are hesitant to give up the practice. They say it keeps flights
full and airfares down.

But members of Congress says none of that matters if passengers are left
without a seat they thought they had reserved.

REP. BILL SHUSTER (R), PENNSYLVANIA: That should be the takeaway from
today, seize this opportunity, because if you don`t, we`re going to come,
and you`re not going to like it.

LEBEAU: Some on Capitol Hill may push for more rules to protect
passengers, but don`t expect too much. After all, this is a Republican-
controlled Congress, and there is a Republican in the White House who has
promised to ease, not increase, regulations on companies.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Washington.

(END VIDEOTAPE)

MATHISEN: Federal reserve policymakers began a two-day meeting today with
a statement on interest rates expected tomorrow. But many on Wall Street
are looking past this meeting and ahead to possible moves later this year.

Steve Liesman has more.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall street not
expecting much from the Fed tomorrow, but debating what happens with
monetary policy the rest of the year. Ninety-eight percent of respondents
to a CNBC survey expect the Central Bank to stay on hold at its meeting
this week. But looking ahead, 65 percent say the next rate hike is in
June, some say a little bit later, 53 percent say there would be three rate
hikes this year. Some say two, some say four, but 71 percent say the
balance sheet, that $4.4 trillion of assets the Fed has, it will begin to
decline by January 2018.

As for where the Fed funds rate goes, we`re at 0.8 now. Look for 1.4 in
2017, 2.2 in 2018, 2.7 in 2019. We get up to that long run rate, call it 3
percent thereafter. That`s where the long rate is supposed to be.

As for the outlook for stocks, you can see not much more expected for
current levels this year, just about a percentage point is the average
forecast for the S&P to 2409. But a little more next year, a 7 percent
gain seems to occur at levels up to 2564. The reason is because they`ve
moved the expectations for fiscal policy from the Trump administration from
2017 to 2018.

And now, looking ahead at what`s behind the rally, back in December, 18
percent thought it was economic fundamentals and earnings, 82 percent said
policy expectations. Big change in that right now. Fifty percent say it`s
economic fundamentals and corporate profits, 48 percent say it`s policy
expectations.

Respondents looked for 2.25 percent GDP growth this year with a small bump
from fiscal policies from the Trump administration. The biggest risk,
though, protectionist policies from the Trump administration.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Still ahead, the great tax debate.

(BEGIN VIDEO CLIP)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Ylan Mui in Topeka,
Kansas, where a real world economic experiment is taking place. And the
results are dividing the business community. That`s coming up on NIGHTLY
BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

MATHISEN: The tax plan released last week by the Trump administration
looks quite similar to the tax reform Kansas voted into law a few years
ago.

Ylan Mui traveled to Topeka to see how those steep cuts are playing out.

(BEGIN VIDEOTAPE)

MUI: It`s been called the Kansas experiment, a package of deep tax cuts
that the governor promised would be a shot of adrenaline for the state
economy. Instead, it`s blown a billion dollar hole in the budget, cut
funding for schools, and divided the business community.

Five years ago, Kansas cut personal income taxes and became the only state
in the country where small firms, known as pass-throughs, have a tax rate
of zero. It was a real world test of the controversial economic theory
that tax cuts lead to growth. But almost immediately, the drumbeat to get
rid of them began.

Now, more and more businesses are speaking out against it, even though it
benefits them.

Matt Condon, a local entrepreneur, runs one of them.

MATT CONDON, BARDAVON HEALTH INNOVATION CEO: Like many things in
government, there are unintended consequences, laws that were passed with
originally positive intent.

UNIDENTIFIED FEMALE: I want to see 400 plus.

MUI: That`s because the state is in a budget crisis, a $1.4 billion
shortfall over the next two years. And unlike the federal government,
Kansas has to balance its books. Schools are getting hit particularly
hard.

Kansas City, Kansas, is one of the districts suing the state over lack of
funding. Schools chief of staff David Smith said if they can`t come up
with a compromise and come up with more money, by June 30th, the system
could shut down.

DAVID SMITH, KANSAS PUBLIC SCHOOL CHIEF OF STAFF: More than 80 percent of
our kids live in poverty. They are the kids who most depend upon school
for their future success. So we feel like it`s our responsibility as the
adults to give them whatever they need.

It`s been a challenge. We`ve really had to struggle, both sacrificing
money in some places in order to make sure our kids get what they need.

MUI: There are businesses fighting to keep these tax cuts alive.

Wenger Manufacturing is a family business that makes food processing
equipment. They`ve reinvested $18 million from the tax cuts back into new
technology and new jobs.

LAFE BAILEY, WENGER MANUFACTURING CO-CEO: The current pro-business
environment in Kansas allows companies like Wenger to continue to grow and
expand. That translates into continued jobs for people in this and other
communities.

MUI: Governor Sam Brownback says that`s evidence that the policies he
ushered in five years ago are succeeding.

GOV. SAM BROWNBACK (R), KANSAS: If you want to get people back to work, if
you want to get America working again, cut taxes on small business.

MUI: The Republican-controlled state legislature passed a bill earlier
this year that would have repealed the cuts. But Kansas Governor Sam
Brownback vetoed it. He blames the state`s budget woes on downturns in the
agriculture and oil industries instead.

BROWNBACK: They`re so big pieces of our economy that the tax policy
couldn`t overcome the big global commodity drops in prices.

MUI: Nationally, though, his ideas are gaining traction. The White House
is taking a page from the Kansas playbook, proposing big reductions in the
tax rate for small businesses all across the country. But here in the
Sunflower State, momentum is moving in the opposite direction. Schools,
businesses, and even many Republicans say they`ve had enough.

State lawmakers are convening here this week to debate once again whether
to repeal these tax cuts and put an end to the Kansas experiment.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Topeka.

(END VIDEOTAPE)

HERERA: Fewer discounts helped results at Coach (NYSE:COH). And that`s
where we begin tonight`s “Market Focus”.

The luxury handbag maker reported profits that rose and topped estimates
thanks in large part to the company`s push to scale down on promotional
activity. And as Coach (NYSE:COH) removed its brand from hundreds of
department stores, revenue took a hit, but sales were still above
estimates. The company also reaffirmed its guidance for the year. Coach
(NYSE:COH) shares jumped 11 percent to $43.15.

Aetna (NYSE:AET) said costs related to its failed merger with rival Humana
(NYSE:HUM) caused a loss in its latest quarter. Still, the results were
better than expected. Following its exit from many Obamacare markets, the
company said it`s still assessing its future participation in the Obamacare
exchanges where it currently offers plans.

(BEGIN VIDEO CLIP)

MARK BERTOLINI, AETNA CEO: We expect to lose around $200 million, $220
million this year on the exchanges with only a quarter of the membership we
had last year, which substantiates our view of a year ago, when we withdrew
from a number of other exchanges, that we had the potential to lose as much
as $900 million. And we`re sort of on that track. So, we`re evaluating
those markets as we speak.

(END VIDEO CLIP)

HERERA: Aetna (NYSE:AET) raised its 2017 earnings forecast and with that,
shares rose more than 1 percent to $138.91.

Molina Healthcare (NYSE:MOH) said it was replacing its CEO and CFO, who are
the sons of the company`s founder. Molina Health said the moves were the
result of a, quote, “the company`s disappointing financial performance,”
end quote. Both executives are expected to remain on the board. The
company will immediately begin searching for a permanent CEO. Wall Street
liked the move, sending shares up more than 17 percent to $59.75.

MATHISEN: The hardwood flooring retailer Lumber Liquidator said a rise in
average transactions helped overall sales improve and top expectations.
The company also posted a narrower loss, but that one missed targets.
Shares plunged as a result more than 13 percent. They finished at $21 and
a nickel.

Infosys is pledging to create more jobs in the U.S. The India-based
information technology company said it will bring on 10,000 American
employees over the next two years with plans to begin the hiring in
Indiana. Infosys also said it will build four technology hubs across the
country. Shares down fractionally at $14.52.

Meantime, shares of Advanced Micro Devices (NYSE:AMD) were crushed today
following the company`s disappointing profit outlook. That one came out
after the bell yesterday. The computer processor developer swung to a loss
in the latest quarter and reported revenue that was in line with estimates.
Shares down more than 24 percent, a bad day there. $10.32, the close.

HERERA: As we`ve reported, President Trump yesterday said he was looking
into breaking up the large banks by reviving an old law that prohibits
commercial banks from engaging in investment banking. Last month, the
president`s top economic adviser, Gary Cohn, reportedly said something
similar. And some Democrats, including Senator Bernie Sanders, have
supported the idea. So, while the concept is not new, the drumbeat is
getting louder.

MATHISEN: But politics aside, would breaking up some or all of Wall
Street`s big banks make shareholders richer?

Dick Bove, vice president of equity research at Rafferty Capital, says, no,
a breakup wouldn`t make the assets worth more. But Lindsey Bell,
investment strategist at CFRA Research, disagrees. She says it would.

Folks, welcome.

Dick, you get to go first. Why is this not a good idea for shareholders?
I can see why it`s a good idea for investment bankers, they make fees.

DICK BOVE, RAFFERTY CAPITAL V.P. OF EQUITY RESEARCH: Well, it`s not a good
idea because it`s not a good idea for the customers. In other words, if
you think about it, if you start to lose the scale advantages of big banks,
the prices of the products that they sell tend to go up. Secondly, if you
take away the cash flows that they have, the innovation that they have to
bring things like mobile banking go away.

In addition, if you start thinking about the history of banking, that you
know that for roughly every day, every day, going back to 1987, we`ve lost
one bank in the United States. Why? The reason is because they`re one-
trick ponies. You have to have more than one set of products in order to
be successful in this business.

HERERA: All right. Lindsey, you disagree. And you say that the banks, it
would be a positive move, and it would make them more valuable, which
should benefit shareholders.

LINDSEY BELL, CFRA RESEARCH INVESTMENT STRATEGIST: Yes, we think that
breaking up the banks, our view at CFRA Research, is that they would be
more valuable as separate entities. The fact of the matter is, the
increased amount of regulation and the large amounts of capital that these
banks have to hold and are restricted to use has really created
underperformance for both sides of the bank.

And to Dick`s point, I think that if you break up the banks, you will
create more competition which will help keep prices down.

MATHISEN: But what about Dick`s point that there are benefits from the
scale, that they allow innovation, they allow some products to be sold less
expensively. Address that one specifically.

BELL: Well, I think innovation is something that these banks are — both
sides of the bank are clearly zoned in on. You know, fin tech companies
are coming in here and, you know, potentially they are disrupting this
industry left and right. So, you see big banks cutting expenses across the
board. But this is one expense on innovation and technology that they will
not cut because they know that they need to keep up with innovation and
keep their customers happy, because that`s what the customer demands.

HERERA: What about that, Dick?

BOVE: Well, basically, if we take a look, I would like to go back on one
point Lindsey just made — in the years 2014, 2015, and 2016, the banking
industry in the United States had all time record profits. They had all
time record profits operating under these, if you will, regulations and
limitations created by the government.

So, the fact of the matter is that the limitations that were placed on the
banks by the government did not restrict them. They also were able to
provide lending power that the economy needed. That was not — you know,
there was no sector of the economy that needed, if you will, loans that
didn`t get it.

And so, the fact of the matter is, that, you know, if you crimp these
companies, if you take away their cash flows by reducing their size, you
make them more risky for the American taxpayer. You do that because there
is no FDIC insurance, you know, for all segments of the entity, number one.
And number two, you know, these companies, when you see interest rates rise
sharply, if history is any gauge, they go out of business. In addition, if
you run into a recession, they go out of business.

HERERA: OK.

(CROSSTALK)

BOVE: So, we got a good system.

MATHISEN: Lindsey, you get the last word there. Why don`t you address
particularly Dick`s point about the regulatory burden, which seemed to be
sort of central to your argument. Might these banks make even more money
broken up if the regulatory costs were as a result lower?

BELL: Yes, I think they would. In fact I think you would see, if you
looked at the stock performance of these banks over those several years,
they lagged the broader market. They have popped since the election, since
Donald Trump was elected, given the fact that investors are expecting less
regulation.

So, shareholders will certainly benefit, return on equity for these banks
has been in the low double digits for quite a while, which is very low by
historical standards. So, from that perspective, they will be making more
money.

MATHISEN: Lindsey and Dick, thank you very much for a kind and polite
conversation. We covered a lot of turf there. We appreciate it.

BOVE: Thank you.

HERERA: And coming up, celebrities head to Wall Street to make trades and
raise millions for charity.

(MUSIC)

HERERA: Hollywood has averted a writers` strike. The Writers Guild of
America and a group of studios and networks say they have agreed to a
three-year deal. The union told its 9,000 members that they would earn
$130 million more over the lifespan of the agreement. Media analysts said
any strike would likely have pushed more viewers to streaming services like
Netflix (NASDAQ:NFLX) and Hulu.

MATHISEN: Sports stars, celebrities, fashion designers, they were all Wall
Street traders for the day, all in the name of giving back.

Bob Pisani reports from BTIG`s trading floor in New York City.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The annual BTIG charity
day raised millions for charity, but most importantly, it was a chance for
dozens of celebrities to shout up their favorite cause.
DEREK JETER, FORMER NY YANKEES SHORTSTOP: Turn 2 Foundation, a foundation
that started 20 years ago. Prevention of drug and alcohol use for kids.

ALEX RODRIGUEZ, FORMER NY YANKEES PLAYER: I`m representing the Boys and
Girls Club from Miami. That`s where I learned how to play baseball when I
was 10 years old. It`s a wonderful organization.

STEVE BUSCEMI, ACTOR/DIRECTOR: I`m here with a charity that was founded by
Nancy Carbone right after 9/11. It`s called Friends of Firefighters. And
they provide therapeutic services to firefighters that are active and
retired and for their families.

KRISTEN DAVIS, ACTRESS: I`m a new goodwill ambassador for the U.N. Refugee
Agency. I`ve been working with them for years, because we`re having an
unprecedented crisis. We have 65 million people worldwide who are
displaced. And over half of them are children. The U.N. is there to help
them. And I just wanted to be part of that.

PISANI: And Mark Cuban spoke about how artificial intelligence is changing
the investment landscape. And then, surprisingly, he cited Twitter as an
example of a company that was getting its act together with AI, harnessing
big data to be smarter in ad delivery. That moved the stock 4 percent.

MARK CUBAN, DALLAS MAVERICKS OWNER: The key to artificial intelligence is
data. And Twitter hasn`t been able to hand egg harness the data to be
smarter in how they deliver tweets and how they use information and how
they deliver ads. Now, they`ve started to hire the right people. They
started to get starter.

PISANI: The celebrities all lined up to make an honorary trade on the BTIG
trading desk. The firm donates all its commissions to charity for the day.

STEVE STARKER, BTIG CEO: It started out small with a few Yankees coming
here 14 years ago. And, you know, it`s really developed into something
really special where everyone gives their time and energy to give back and
show kind of the good side of Wall Street.

PISANI: That humble beginning with a few Yankees has blossomed into a
major event involving business leaders, fashion icons, actors, and sports
celebrities that`s raised over $40 million for dozens of charities. And
it`s getting bigger every year.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani in New York City.

(END VIDEOTAPE)

HERERA: Good for them. Good for them.

MATHISEN: Very nice, very nice. Well done.

HERERA: On that note, 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. We hope to see you back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post
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Media, 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) 2017 CNBC, Inc.

 

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