Transcript: Nightly Business Report – May 11, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Retail rout. Macy`s
(NYSE:M) sales plunge deepens as Americans abandon malls. And the company
warns that the troubles could get even worse.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Leaders meet. Why the U.S.
will not discuss a very thorny economic topic with its biggest trading
partners.

MATHISEN: Doctors and data. Do mammograms contain clues detectable only
by computers to help find cancer earlier? Meg Tirrell reports.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, May
11th.

HERERA: Good evening, everybody, and welcome.

It looks like the magic is gone at Macy`s (NYSE:M). The country`s largest
department store saw sales fall sharply in the first quarter and its
profits fall even more. As we told you yesterday, the retailer has been
struggling for quite some time with declining mall traffic, increased
online competition, and a race to the bottom discounts. Investors did not
like what they saw, sending shares tumbling 17 percent to a nearly six-year
low.

This was the first earnings report for Macy`s (NYSE:M) new CEO. And as
Courtney Reagan reports, he has an even tougher job ahead of him than many
thought.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: There are no signs
of a turnaround in Macy`s (NYSE:M) latest quarter. Macy`s profit down
sharply over last year on comparable sales at the department store fallen
for a ninth straight quarter. On earnings call, executives said there were
no surprises in the quarter, though that`s not the case for investors.
Even low expectations weren`t low enough.

Still, the department store is reiterating its full year forecast, leaving
ground to make up for the rest of the year. If there`s no good news in the
results, it`s that most analysts say Macy`s (NYSE:M) woes are not a read-
through on the consumer. U.S. consumers are quite healthy. Department
stores just aren`t giving them what they want.

MATTHEW BOSS, JPMORGAN: We actually think the consumers are strengthening.
So, this is not a consumer issue. It`s legacy versus forward retail. It`s
convenience and value that you need to win and the department stores right
now are not checking either of those boxes.

REAGAN: Macy`s CEO Jeff Gennette took over the top job just seven weeks
ago. In his first TV interview, Gwinnet says he`s working on ideas to re-
excite consumers. Right now, the top 10 percent of shoppers make up half
of Macy`s (NYSE:M) sales.

JEFF GENNETTE, MACY`S CEO: The notion of the store and the experience you
have to put into it is different today and will be different in the future
than the way it has been in the past. And so, we`re working on the next
generation of stores, we`re experimenting with that, we`re looking at
smaller stores, we`re looking at massively reduced, edited assortments.
We`re putting more fashion in.

We`re adding experiences like food eateries into these stories — looking
at the role of service. You know, where does service play in a store
today?

REAGAN: But is that enough? Macy`s (NYSE:M) has a decent online business
and it`s expanding its own discount concept within stores, called
backstage. Executives say shoppers like it. And it is lifting sales
without cannibalizing them in the rest of the store.

But right now, it`s Amazon (NASDAQ:AMZN) that`s satisfying convenience for
shoppers, and discount stores like T.J.Maxx and outlets are giving
consumers value. Gennette says his head isn`t in the sand, he sees the
challenges and he`s facing them head on. But investors are getting
impatient.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: Meanwhile, the story at Kohl`s (NYSE:KSS) was a little
different. The retailer saw profits grow, thanks to low inventory levels,
higher store traffic, and its tie-up with Under Armour (NYSE:UA). But that
bet in athleisure did little to stem the decline in same store sales, which
shrunk for the fifth straight quarter, and that falloff was enough to send
shares nearly 8 percent lower on the day.

That`s not all. Dillard`s (NYSE:DDS) stock was slammed after it reported a
decline in quarterly revenue. And late today, it was a similar story for
Nordstrom (NYSE:JWN), which posted a decline in same store sales, its stock
falling in initial afterhours trading.

HERERA: It was a dramatic week in Washington topped off by the sudden
firing of FBI Director James Comey by President Trump. Though the stock
market did not react to the surprise move, investors have been following
the potential fallout closely.

Today, in a NBC News exclusive, Lester Holt asked the president about his
decision.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: He`s a showboat. He`s a
grandstander. The FBI has been in turmoil.

You know that. I know that. Everybody knows that.

You take a look at the FBI a year ago, it was in virtual turmoil, less than
a year ago. It hasn`t recovered from that.

LESTER HOLT, NBC NEWS ANCHOR: Monday you met with Deputy Attorney General
Rod Rosenstein.

TRUMP: Right.

HOLT: Did you ask for a recommendation?

TRUMP: What I did was, I was going to fire Comey, my decision. It was not

HOLT: You had made your decision before they came in the room?

TRUMP: I was going to fire Comey. There`s no good time to do it, by the
way. They —

HOLT: Because in your letter you said, I accepted their recommendation.
You had already made the decision.

TRUMP: Oh, I was going to fire regardless of recommendation. He made a
recommendation. He`s highly respected, very good guy, very smart guy. The
Democrats like him, the Republicans like him. He made a recommendation.

But regardless of recommendation, I was going to fire Comey.

(END VIDEO CLIP)

MATHISEN: Well, the market reaction, as we`ve been reporting, has been
muted to the recent events in Washington. Today, the focus was — on Wall
Street was on earnings and disappointing numbers from some major retailers.
That pressured the entire sector and the broader market. The Dow Jones
Industrial Average dropped more than 100 points early in the session but
ended down 23 at 20,919. NASDAQ was off 13, and the S&P 500 fell five.

HERERA: Inflation pressures are building in the economy. The producer
price index, which measures price gains before they reach the consumer,
rose 0.5 percent in April, exceeding estimates. And that broad-based gain
helped push the annual increase to its largest in five years. Reports on
inflation are being watched by the Federal Reserve as they consider whether
to hike interest rates and when to begin unwinding the balance sheet.

It also comes as the labor market tightens. New applications for jobless
benefits fell last week by 2,000, so it remains well below the threshold
associated with a healthy job market.

MATHISEN: Meanwhile, mortgage rates inched higher this week, but they
remain near their lows for the year. According to Freddie Mac, the average
30-year fixed rate mortgage is now at 4.05 percent. Experts say the mixed
economic data recently has anchored that 30-year rate around that level.

HERERA: After spending a decade on the sidelines the housing market,
millennials are finally doing what many thought they would never do. They
are buying homes. According to the “Wall Street Journal”, these first-time
buyers are buying starter homes at affordable low prices, igniting what
some are calling the next hot housing market.

Mark Vitner is senior economist at Wells Fargo (NYSE:WFC) Securities.

Mark, welcome.

MARK VITNER, WELLS FARGO SECURITIES SR. ECONOMIST: Good to be with you.

HERERA: You know, the thing we`re always hearing, though, lately is those
lower priced starter homes are few and far between. It seems like this
would make it even tighter.

VITNER: Yes, that`s been the problem for quite some time. We`ve got a lot
more people looking to buy a home. But there`s not a whole lot of
inventory out there for them to look at.

MATHISEN: But one of the things that “The Journal” story reported was that
some of the big major national builders are starting to transition to those
lower priced homes because they`re beginning to see demand. Even Toll
Brothers (NYSE:TOL), which is known for its $800,000 houses, has started to
come down in price point a little bit, and others as well.

Are you seeing that?

VITNER: We`re seeing that. And we`re seeing that in a number of markets,
particularly markets that are favored by millennials, a lot of those are in
the South and in the West. But markets like Houston and Dallas, which have
generally been affordable, had seen, up until recently, most of the action
at the higher price points. And now, we`re seeing a lot more interest in
building homes at lower price points.

That`s true in Atlanta, Nashville, Raleigh, Charlotte, Orlando. They`re
all seeing a lot more interest in what`s thought to be traditional starter
homes. But there`s one other catch there, and that is that land just about
anywhere outside of Texas has become very, very expensive. So, it`s very
hard to build homes at those lower price points.

HERERA: Yes, what is the broader implication for the economy if
millennials do continue on this path of deciding that they want to become
homeowners? I would assume, it means they`re more confident in their
prospects and then the economy if they`re willing to take on a mortgage.

VITNER: Well, I think the improvement in home buying is really a result of
the improvement that we`ve seen in the labor market. We`ve seen the
unemployment rate drop to 4.4 percent. We`ve seen the number of
involuntary part-time workers come down, and we`ve seen the quit rate go
up, which tells me that folks are moving out of jobs they took because it
was the only thing they could find and moving into something that they hope
to be more permanent. And that means it`s time for them to put down roots
and look to purchase a home or townhome.

I think this is the type of thing that typically happens early in an
economic recovery. I`m glad to finally see it happening. But it has
powerful carry-through to other parts of the economy. When you buy a
house, you buy things to go in it.

HERERA: Oh, yes, you do.

VITNER: And a lot of stuff is made here in the U.S.

HERERA: We`ll are watching home good stocks as a result of that.

Thanks, Mark. Appreciate it.

VITNER: Good to be with you.

HERERA: Mark Vitner with Wells Fargo (NYSE:WFC) Securities.

MATHISEN: And overseas, the Bank of England cuts slightly its outlook for
growth in the U.K. to just below 2 percent this year. Governor Mark Carney
also warned that 2017 will be more challenging for British households
because wages won`t be able to keep up with rising prices. But he did say
that growth overall could pick up if the government secures a smooth exit
from the European Union.

HERERA: Meantime, the U.S. treasury secretary and the finance ministers
from six other advanced economies are meeting to discuss some of the most
pressing global economic issues. But there`s one key topic that`s proving
tough to talk about.

Ylan Mui reports tonight from Bari, Italy.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The world`s most powerful
economic officials are gathering here on the southern coast of Italy in the
industrial port town of Bari. Security is tight as finance ministers and
central bankers from the G-7 countries hash out their differences, build
relationships, and try to find common ground.

But one of the most controversial topics of all is not on the table —
trade. That`s because back in March, Treasury Secretary Steven Mnuchin
refused to commit to a statement that defended the benefits of free trade
in his last meeting with our economic allies in Germany. Here at the 11th
century castle where the G-7 is taking place, officials want to avoid an
embarrassing repeat of what happened in Germany, so they did not put trade
on the formal agenda.

One analyst called that a red flag, a sign of how tough these talks could
be. It will be up to President Trump himself to tackle that discussion
when he comes to Italy in a few weeks to meet with his G-7 counterparts.

But Mnuchin likely won`t be able to avoid the issue of trade entirely. It
could come up during his one-on-one meetings with other finance ministers.
He held his first one today, almost as soon as he arrived. It was with
Italian Finance Minister Padoan and lasted a half hour.

Here`s what will be on the agenda here in Bari — inequality and how to
generate faster economic growth for more people, cyber security and
disrupting terrorist financing networks, the stability of the financial
systems. And, of course, officials here will talk about taxes.

There is widespread frustration over U.S. companies, especially in the
technology sector, shifting their profits to countries with the lowest tax
rate. Italy has been particularly aggressive about cracking down on this
behavior. It settled with Google (NASDAQ:GOOG) for over $334 million in
back taxes and reached a similar agreement with Apple (NASDAQ:AAPL) two
years ago.

But Italy isn`t the only country tightening its rules. France now requires
Airbnb to collect a tourist tax. And the European Union has been locked in
a court battle with Apple (NASDAQ:AAPL) for years, over more than $13
billion in back taxes. Almost every official here agrees that U.S.
companies should pay more. The fight is over who it should be paid to.

The G-7 meeting officially kicked off this evening with a formal dinner to
welcome everyone to Bari. The discussions here will help set the tone for
the president`s visit later on this month.

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

(END VIDEOTAPE)

MATHISEN: Still ahead, why the airline industry might be bracing for new
travel restrictions.

(MUSIC)

MATHISEN: Wells Fargo (NYSE:WFC) will double its cost-cutting program, the
third largest U.S. bank will cut cost by $2 billion. That`s on top of
previously announced cost cuts of roughly the same amount. The company
plans to use the savings to invest in technology to replace an aggressive
sales culture. Bank executives say the fallout from the fake account
scandal of last year is accelerating these changes as the industry
undergoes a shift.

HERERA: Ford held its annual meeting and faced some questions about where
that company is headed, along with its slumping stock price. Shares of the
automaker fell today and are now trading near a five-year low. And even
the chairman admits he`s frustrated by the stock that has stalled.

Phil LeBeau has our story.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Ford is the tale of
two companies. Its current business, selling trucks, SUVs, and cars, just
posted its second most profitable year ever. While earnings will be lower
this year, business is still strong.

Then, there`s the other Ford, the one spending heavily developing
autonomous drive cars, electric models, and mobility solutions. CEO Mark
Fields calls it one foot in today, another placed in tomorrow. And on the
company`s annual meeting webcast, he said the investments in the future of
transportation will eventually pay off.

MARK FIELDS, FORD CEO: So, we`re going through this transition. We`re
embracing it. I think you`ll see a lot more exciting news on this to come.

LEBEAU: Fields may be excited about Ford`s future, but investors are not.
Ford`s stock now hovers around $11. Even Bill Ford, chairman of the
company, admits he understands how investors feel.

BILL FORD, FORD MOTOR COMPANY EXECUTIVE CHAIRMAN: We`re as frustrated as
you are by the stock price. And a couple of people have said, does the
Ford family care about the stock price? The short answer is yes, a lot.

LEBEAU: That`s because the Ford family owns the majority of the voting
stock. So they profit when Ford shares go up. Is Mark Fields in danger of
losing his job? No. He still has the confidence of Bill Ford and the
board of directors.

But Fields` plan for the future of Ford is facing greater scrutiny,
especially since it`s unclear when autonomous drive and electric vehicles
might charge up the bottom line and shares of Ford.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: You can read more about the frustrations surrounding Ford`s stock,
head to our website, NBR.com.

MATHISEN: Emirates Air saw its profit plunge more than 80 percent for the
year ended in March. The Dubai-based airline was hit by greater demand for
travel in what it calls destabilizing events, including President Trump`s
policies. Emirates cancelled its dividend payment for the first time since
1996. The airline`s chairman calls it one of the most challenging years to
date.

HERERA: Airline executives are reportedly meeting with Homeland Security
officials to discuss the possibility of expanding a ban on bringing laptop
computers and other large devices as carry-ons. The ban would extend to
planes flying to the U.S. from Europe. Currently, there are more than 350
flights a day from Europe to the U.S. back in March, you may recall
restrictions on electronic devices larger than a smartphone were put in
place on flights from eight Middle Eastern and African countries.

MATHISEN: So with an expanded ban on laptops and other large devices on
flights to the U.S. from Europe were to happen, how would it impact the
U.S. airline industry?

Michael Boyd is chairman of the Boyd Group and he joins us now to discuss.

Mr. Boyd, do you expect there could be a ban on laptops or iPads in the
cabin on Intercontinental flights?

MICHAEL BOYD, THE BOYD GROUP CHAIRMAN: Absolutely. It could happen. If
they think there`s threat. And I can`t find where that threat is, I just
can`t get my arms around this one. But if they feel there`s threat with
someone using an iPad or a laptop in the cabin, yeah, they could ban them
everywhere.

HERERA: What about in the hold? There`s been some concern if they`re
checked with the luggage, it`s equally a danger.

BOYD: Yes, if it`s going to be used as an explosive device, whether it`s
in the cargo bin or in the economy cabin, it`s dangerous. I think what
they`re focusing on is some use of this device that could be negative. And
I don`t get — I just don`t understand what that might be.

MATHISEN: If it were to happen on Intercontinental flights inbound from
Europe to the United States, first, what`s to cause it not to happen on all
flights within the United States and I point out that some airlines,
notably United, have gone to in-flight entertainment that relies on your
personally either laptop or iPad.

BOYD: Exactly. This doesn`t — I don`t understand what the rationale is.
Because again, as you just pointed out, a lot of IFES, in-flight
entertainment systems, are based on me using my device and that means that
won`t be there.

I just don`t get a clear picture of what the threat is. We also have the
Pacific, we also have Latin America.

HERERA: Right.

BOYD: Why just from Europe? I don`t get it.

HERERA: Let`s take it further and look at the cost that it might — that
the airlines might incur. Business travelers use their laptops frequently
on flights, long or short, to do work. And will it cut back on those very
lucrative business travelers, do you think?

BOYD: I don`t know if it will cut back. It will certainly make it a very
difficult situation. It would for me if I didn`t have my laptop on an
eight-hour flight. So, I think that might have some diminutive effect upon
air travel going forward. I just don`t understand, it`s not bidirectional.
It`s just one way from Europe.

MATHISEN: Or the airlines figure out a way to rent you a laptop that has
been checked out. That would be one way around it, I suppose.

Let`s turn quickly to a J.D. Power Survey that we reported on yesterday
indicating rising metrics on the things that matter to consumers. For
example, on time performance, canceled flights, booking bumps and lost
bags, those metrics are higher, but it doesn`t seem to square with all the
air rage we`re seeing on viral videos.

BOYD: Well, I think it`s nice counterbalance to basically being convicted
by iPad or iPhone video. It`s a nice counter. But I`m not so sure the
metrics are all that real world as we need to be.

Somebody asked how the crew was on a flight three months ago, I don`t
remember. So, it`s OK, but I think it`s more anecdotal than it is anything
that really indicates better. On time performance is not better, by the
way. It`s about the same as it`s been for the past 20 years. So, I don`t
get where they`re getting these conclusions.

MATHISEN: And, of course, some of that data came out before this most
recent flurry of incidents involving the airlines.

Michael, thanks again. Always good to see you. Michael Boyd with the Boyd
Group.

BOYD: Good to see you.

HERERA: Verizon (NYSE:VZ) outbids AT&T (NYSE:T) for Straight Path
Communications. That`s where we begin tonight`s “Market Focus”.

Verizon (NYSE:VZ) will pay more than $3 billion to acquire the wireless
spectrum holder, trumping rival AT&T`s offer by double. The takeover will
help Verizon (NYSE:VZ) grow its spectrum portfolio for the development of
its 5G wireless network. Shares of Verizon (NYSE:VZ) fell a fraction to
$46.02. Straight Path plummeted 20 percent to $178.11. Investors were
hoping that AT&T (NYSE:T) would come back with a higher bid.

Teva Pharmaceuticals reported earnings that topped expectations, while its
revenue came up short. The drug maker reaffirmed its guidance for the year
and said it was looking to sell some of its non-core asset in an effort to
trim its debt. Shares rose 2 percent to $32.

The NFL says it has entered into an expanded partnership with Twitter to
provide the social media platform with live programming five days a week
during football season. The deal doesn`t include games but Twitter will
stream pregame coverage and other types of content year-round. Twitter
shares were down 15 cents to $18.39.

MATHISEN: One of Merck`s key medicines received approval from the Food and
Drug Administration last night to treat advanced lung cancer in combination
with other chemotherapies. The drug called Keytruda is already approved to
treat other types of cancer.

The company`s CEO says he`s already seeing promising results.

(BEGIN VIDEO CLIP)

KENNETH FRAZIER, MERCK CEO: We`re now studying this drug in almost 500
clinical trials. That`s unprecedented. We`re studying it across 30 tumor
types. We`re encouraged by data that we see in about 20 tumor types.

So, for us, it`s all about making sure that we do the right studies, both
monotherapy and in combination, to make the drug broadly available for
patients who need it.

(END VIDEO CLIP)

MATHISEN: Shares rose marginally today to $64.43.

The gun and ammo company Vista Outdoor reported a decline in sales and
profits, saying it experienced a, quote, unprecedented drop in demand for
its weapons and other products, following Donald Trump`s presidential
victory. Vista Outdoor also gave full year guidance that was below street
forecast but said it expects that excess inventory caused by the demand
drop to stabilize, and that comment gave investors hope that the slump in
gun sales may be nearing an end and shares rose more than 4 percent to
$21.49.

HERERA: Coming up, using computers to detect a type of cancer earlier than
the human high is capable of. The future might be closer than you think.

(MUSIC)

HERERA: Yesterday, we told you how artificial intelligence could one day
revolutionize the field of medicine. Tonight, Meg Tirrell looks at how
computers could help detect a certain type of cancer.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: MIT professor Regina
Barzilay teaches computers how to learn. Her work focused on areas like
translation of ancient languages until a breast cancer diagnosis three
years ago.

REGINA BARZILAY, MIT PROF. OF ELECTRICAL ENGINEERING & COMPUTER SCIENCE:
Going through it, I realized today we have more sophisticated technology to
select our shows on Amazon (NASDAQ:AMZN) than to adjust treatments for
cancer patients.

TIRRELL: So, she set out to change that, using her expertise in artificial
intelligence and machine learning. In collaboration with doctors at Mass
General Hospital, Barzilay`s group is training computers to analyze
mammograms. The hope, detect signs of cancer earlier than the human eye is
capable of.

BARZILAY: And I was wondering — you know, looking back, there was clearly
no tumor on the previous mammograms. But was there something in these very
complex images that would hint us that, you know, there`s a development?
For a human who looks at it, it`s very hard to exactly quantify the change.
But for a machine which looks like millions of these images, people like
me, this should really help people to learn what are those early signs.

TIRRELL: Experts say artificial intelligence will change the practice of
medicine, starting with diagnosis.

Andy Beck and Aditya Khosla founded PathAI a year ago, after winning a
competition to teach computers to diagnose breast cancer from digital
images. Overtime, their system became so smart, its accuracy surpassed
that of an expertly pathologist. They see the biggest potential in teaming
up computers and doctors.

DR. ANDY BECK, PATHAI CEO: The combination of human plus AI in this
example reduced the expert`s error rate by 85 percent. So, that was, you
know, a really exciting finding. For certain tasks, it`s getting very
close and combining the two gives you the optimal solution.

TIRRELL: PathAI is working with tech company Phillips to advance the
technology. It`s an increasingly crowded field as pharmaceutical companies
partner with tech giants and startups for a piece of a market expected to
grow by 40 percent annually, to more than $6.5 billion in 2021.

DR. ERIC TOPOL, SCRIPPS TRANSLATIONAL SCIENCE INSTITUTE DIRECTOR:
Basically right now, it`s getting validated. It`s ready now to move on to
how we look after patients. So, it`s just right at a transition from
validation to the initiation of clinical practice.

TIRRELL: Regina Barzilay hasn`t given up her focus on computer language
processing. Only now, she`s teaching computers to read health records.
The goal: to incorporate all the data collected on patients make more
personalized treatment decisions and improve the practice of medicine.

BARZILAY: Now after being a patient, I really very strongly feel that, you
know, it`s my duty to go and change it. That`s what I`m trying to do.

TIRRELL: For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

HERERA: To read more about how artificial intelligence is changing
medicine, you can head to our website, NBR.com.

That will do it for us on NBR, 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`ll see you back here tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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and commentators are their own and do not necessarily represent the views
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Business Report is not and should not be considered as investment advice.
(c) 2017 CNBC, Inc.

 

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