Transcript: Nightly Business Report – May 22, 2017

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

turn of events puts a new CEO at the helm of Ford. But is it enough to get
the automaker back in the race and reverse the stock`s decline?

rise on a massive weapons deal. Could they climb even higher?

GRIFFETH: Safety concerns? Ten million people have osteoporosis but
serious side effects are now clouding a promising treatment.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Monday,
May the 22nd.

Good evening, everybody. I`m Bill Griffeth, in tonight for Tyler Mathisen,
just sitting here waiting patiently for everybody.

HERERA: He got stuck in traffic.


HERERA: Thanks so much.

All right. I`m Sue Herera.

We start out tonight with a shakeup at an iconic American company, the CEO
of Ford is out. Mark Fields is being replaced by a former office furniture
executive known for his ability to turn companies around. As we`ve been
reporting, pressure was mounting at the automaker to reverse the
floundering stock price and to better compete against General Motors
(NYSE:GM) and Tesla in developing the next generation of electric and self-
driving cars. The news sent shares of Ford accelerating, rising more than
2 percent in trading today.

Phil LeBeau has more on the surprising change and the future of Ford.


hanging close to a five-year low, Bill Ford and the automaker`s board of
directors made a dramatic shift, ousting Mark Fields less than three years
after he became CEO.

BILL FORD, FORD MOTOR EXECUTIVE CHAIRMAN: We need to be quicker in our
decision-making. We need to have clarity in our messaging and our
communication. And that`s something — and we also need a leader who has
transformed a company before.

LEBEAU: The new CEO is Jim Hackett, 62 years old. While his time at Ford
as a director and most recently running the company`s mobility division has
been limited, Hackett has seen enough to know the automaker needs a fresh
approach. One that echoes the winning formula of former CEO Alan Mulally.

JIM HACKETT, FORD MOTOR CEO: In Alan`s era, he did this really special
thing to get the company to be a community again, with this structure that
he created in the One Ford strategy. It worked really well. In fact,
we`re going to use parts of it in the way that we monitor our success.

LEBEAU: Ford is not a lost cause. It`s still on track for one of its most
profitable years ever. But it won`t be as profitable as General Motors
(NYSE:GM). Meanwhile, upstarts like Tesla and Waymo are well ahead of Ford
developing future technologies like self-driving cars.

But the biggest challenge facing Jim Hackett will be changing the culture
of a company more than 100 years old.

REBECCA LINDLAND, KELLY BLUE BOOK: He needs to hit the ground running and
be that person that makes people want to come to work in the morning. And
that`s really hard to do when you`re dealing with a company as old and
entrenched potentially as Dearborn really has shown itself to be.

LEBEAU: The initial reaction of Wall Street to Jim Hackett is to give him
the benefit of the doubt. He could revive shares of Ford, but until he
lays out his game plan, few expect Ford shares to move dramatically higher.



GRIFFETH: So, with Ford struggling, are there others in the automotive
industry better positioned for the future? Richard Hilgert is here with us
tonight to share his thoughts. He`s senior automotive analyst at
Morningstar (NASDAQ:MORN).

Good to see you, Richard. Thanks for joining us tonight.

tonight, Bill.

GRIFFETH: Before we get to the others, what about Ford? Is Jim Hackett
the guy? And what do you expect to happen there?

HILGERT: Yes. You know, I think that Ford Motor (NYSE:F) stock compared
to, say, for example, General Motors (NYSE:GM), Fiat Chrysler, some of the
other companies that compete in the U.S. market, they`ve gotten — Ford`s
gotten into a product cycle lull, in the near term here. And we`re seeing
more product come out from, say, for example, General Motors (NYSE:GM), or
Fiat Chrysler, you know. And because of that, there might be a little bit
more excitement in the dealerships at GM and at Fiat Chrysler.

But this isn`t to count Ford Motor (NYSE:F) Company out.

HERERA: Right.

HILGERT: You know, we go through product cycles in the automotive

HERERA: But is he enough — is he enough of a disrupter as he was in his
previous category to turn a company like Ford around?

HILGERT: Well, you know, the only evidence that we have is what he did as
CEO of Steelcase (NYSE:SCS) for 20 years. And at Steelcase (NYSE:SCS), he
was a visionary enough to be able to tell the direction that the market was
heading, for office furniture, instead of having cubicles or individual
offices, it was going into more of an open environment.


HILGERT: And he saw that in advance. So, you`ve got to give him credit
for that. And changing the company`s culture and moving towards something
that was coming down the line that might not have been readily apparent to
others at the time.


HILGERT: So, you know, he might be able to transfer that visionary outlook
to Ford Motor (NYSE:F) Company.

GRIFFETH: Clearly, the automotive industry is in a transformation
technologically speaking. I mean, driverless cars, with all of the gadgets
and things that are in current cars, electric cars. Who do you think is
best positioned to take advantage of that? And is moving along at this

HILGERT: Yes, sure. And, you know, I`m going to segregate my comments
from the valuation of the stock versus where the companies are positioned.
But companies that we think that are really positioned well for
technological changes that are occurring in the automotive industry are
really in the supply base, companies like Autoliv (NYSE:ALV-Z) (NYSE:ALV),
BorgWarner (NYSE:BWA), Continental, Delphi, Lear (NYSE:LEA) Corporation.
These companies all predominantly have electronics and electrical
architecture. Borg Warner, on the other hand, is positioned within
propulsion. The parts that make the cars go.

So, you know, they`re really well positioned for the electrification. But
in terms of valuation, we think that Autoliv (NYSE:ALV-Z) (NYSE:ALV) is
fairly valued at this point, Continental, Delphi, Lear (NYSE:LEA) are


HILGERT: We like BorgWarner (NYSE:BWA), we think it`s undervalued. And we
like Magna. Magna has also similarities to BorgWarner (NYSE:BWA) that it
makes parts that make wheels turn, but they also have autonomous systems
that can go into these advanced electronic technologies that are going into

GRIFFETH: I got it. We`ve got it all written down. Thank you for your

HILGERT: All right.

GRIFFETH: Richard Hilgert with Morningstar (NASDAQ:MORN).

HILGERT: Thanks for having me.

GRIFFETH: You bet. Thanks.

HERERA: Meantime, on Wall Street, defense stocks helped lift the major
averages after more than $100 billion worth of arms deals were inked
between the U.S. and Saudi Arabia over the weekend.

On Friday, we told you that those deals were likely to happen. Investors
also brushed off North Korea`s successful test of an intermediate range
ballistic missile. Today, the Dow Jones Industrial Average climbed just
about 90 points to 20,894. The NASDAQ added nearly 50. And the S&P 500
rose 12.

GRIFFETH: More now on the defense sector that Sue just mentioned.

Shares of Lockheed Martin (NYSE:LMT), Dow component Boeing (NYSE:BA),
General Dynamics (NYSE:GD) and Raytheon (NYSE:RTN) all rose on the weapons
deal between the U.S. and Saudi Arabia reached over the weekend. The price
tag was massive and could potentially grow.

Morgan Brennan has more details for us tonight.


as usual when President Trump visited Saudi Arabia over the weekend. His
first international trip as commander-in-chief spurred a flurry of big
ticket business deals, many of them centering around security in the

in pursuit of shared interests and common security. But the nations of the
Middle East cannot wait for American power to crush this enemy for them.

BRENNAN: That sentiment was the impetus behind a new $110 billion weapons
package, one of the biggest arms deals ever struck, that could, according
to the administration, grow to $350 billion over the coming decade.
Lockheed Martin (NYSE:LMT) announced $28 billion in potential new business,
including Black Hawk helicopters, a revised deal for combat ships and the
prospective sale of an advanced missile defense system.

Raytheon (NYSE:RTN) and General Dynamics (NYSE:GD) announced deals and
Boeing (NYSE:BA) struck agreements for defense aircraft as well as for
commercial wide-bodied planes. Some sales had already been approved under
President Obama, but many more will require approval from Congress and the
Defense Department. Analysts say that timing and the details are less

But Commerce Secretary Wilbur Ross, who accompanied the president in
Riyadh, is optimistic.

WILBUR ROSS, SECRETARY OF COMMERCE: It will take congressional approval,
in some cases. I don`t think that`s going to be a big deal. These are our
allies. They`re important allies. And these weapons, if you analyze them,
are as much for defense as for anything else.

BRENNAN: But defense won`t be the only industry to reap the spoils of more
trade with the kingdom. General Electric (NYSE:GE) said it reached more
than $16 billion worth of deals. Blackstone Group`s infrastructure fund
picked up a $20 billion investment from the kingdom`s sovereign wealth
fund, and Saudi Aramco signed a $50 billion worth of deals with American
oil and services companies.



HERERA: Well, the defense stocks, many of them, are at record highs on the
Trump Saudi deal, and historically, following agreements like that one, the
sector outperforms the broader market over the next month.

Richard Safran is the aerospace analyst at Buckingham Research and he joins
us here on the set to talk more about that.

Welcome. Nice to have you here.


HERERA: And you`re relatively bullish on this sector.

SAFRAN: Not relatively, very bullish on this sector, absolutely correct.
I think this sector`s got plenty of ramp left in it. The deal we saw over
the weekend with Saudi Arabia is just one bit of evidence that defense
remains a very high priority, not only with international governments, but
the U.S. as well.

GRIFFETH: We saw, though, early in the Trump administration the president
was very concerned about costs. I know you like Lockheed Martin
(NYSE:LMT), for example. He was very concerned about the cost of the F-35
fighter jet.

Will their profit margins be squeezed if — even though we`re talking about
a big defense contract? They`re forced to bring those costs down.

SAFRAN: Well, first off, I tend to think that this is exactly what we want
from a president, from an administration. As taxpayers, it`s a good idea
when anybody says we want to get costs down. I think that that`s good.

But to your point about margins, no, actually, I don`t. I think this
president actually wants to get the best price for things, but he also
knows good business. He certainly knows about good business. And so, I
think that, you know, for example, Lockheed Martin (NYSE:LMT) recently
signed a contract, latest contract for the F-35 with double-digit margins,

So, I think that the president understands good business. I don`t think
there`s going to be margin pressure. But I think there`s going to be this
focus on cost.

HERERA: You also like L3 Technologies, and that`s against the background
of you`re expecting defense to grow on an average of 6 percent annually,
versus I think most street expectations are significantly lower than that.

SAFRAN: Absolutely right. So, I think that the addressable part of defense
spending, you know, defense spending is number of buckets in it, and it
pays for military personnel and things like that. I think that the
addressable part is going to grow at about 6 percent on average for the
next several years. I think that what that`s going to do is benefit
companies like L3, which benefit a lot from readiness. One of the things
that we`re going to need to spend on immediately is getting the state of
the force up and improve that, et cetera.

And, yes, I think that`s right. I think expectations are really for like 2
percent to 3 percent right now. And so, my bullish thesis would say that I
think that growth is going to be substantially more than what expectations

GRIFFETH: For the foreseeable future, very quickly, you believe that
spending cycles in defense over maybe 20 years or so.

SAFRAN: Right, absolutely right. I think that 2016 starts the next uptick
in the defense spending cycle. And, again, you`re right, you know, if I
look historically, defense spending generally moves in 20-year cyclical
patterns. I think we`re just starting the uptick of a new one right now.

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

SAFRAN: Oh, thanks for having me.

HERERA: Richard Safran with Buckingham Research.

GRIFFETH: Still ahead, 15 years after going public, Netflix (NASDAQ:NFLX)
looks a lot different today than it did then. And there could be even more
changes to come.


HERERA: The Trump administration asked a court to put on hold an Obamacare
related case. The case involves federal payments that insurers use to
lower deductibles and co-payments for some people who purchase individual
policies on the health exchanges created by the Affordable Care Act. The
delay increases uncertainty, though, for insurers who are trying to set
rates for plans that have to be sold next year. The payments amount to
about $7 billion. The president and Republican lawmakers are working on
legislation to overhaul the health care system.

GRIFFETH: An experimental breast cancer drug appears to be effective, but
a preliminary review by the FDA also shows there is some uncertainty as to
the magnitude of that benefit. The treatment is made by Puma Biotech, and
the initial reviews sent shares up by 39 percent. A panel of outside
advisers to the FDA will meet on Wednesday. They`ll be talking about the
drug and whether to recommend it to be approved.

HERERA: Amgen (NASDAQ:AMGN) no longer expects its experimental
osteoporosis drug to win U.S. approval this year. That is because serious
heart-related side effects observed in a late stage critical trial. The
setback pressured Amgen (NASDAQ:AMGN) shares. They fell more than 2

Meg Tirrell is following the story for us from the New York Stock Exchange

Meg, good to see you. The drug worked. The stock is down. And how
concerning are the side effects?

were concerning enough that Amgen (NASDAQ:AMGN) which had expected an FDA
decision on this drug by July, no longer expects the FDA to be able to
review the drug on that timeline.

You know, this is a late stage study. The drug had already been through a
lot of other clinical trials. And this is the first time anybody`s seen
this potential side effect.

Now, what they observed was a potential heart risk for the drug. They said
it was serious adverse related to cardiovascular issues. So, we don`t know
exactly what they were but clearly pretty concerning here.

GRIFFETH: What`s the future of the drug in the meantime and what does it
mean for Amgen (NASDAQ:AMGN)? I happen to know that they have, what, 59
percent of the market for osteoporosis, how big a hit is this for them?

TIRRELL: That`s right. So, they already do have some osteoporosis drugs
available. This one was going to be sort of continuation of that
franchise. You know, some analysts are taking their models for this drug
completely out of what they expect for Amgen (NASDAQ:AMGN) in the future.
Others say maybe a 50/50 chance. But there is going to be a significant

And so, you are seeing some competitors, including Radius Health, getting a
little bit of a boost today. They just had a new osteoporosis drug
approved in April, seeing perhaps less competition for them. In terms of
Amgen (NASDAQ:AMGN), though, this is a little bit of a blow today.

HERERA: Right, absolutely. Obviously, there are some other options for
osteoporosis, but how many?

TIRRELL: There are quite a few drugs out there for osteoporosis already.
We mentioned that one from Radius Health, which has just got approval in
April. A lot of the drugs that are available are generic drugs, which
makes this even more of a pressure-filled environment because generic drugs
are a lot cheaper, preferred by insurance companies, and doctors often
prescribe them a little bit more. So, newer, more expensive drugs already
have kind of an uphill battle in gaining market share.

But still, clearly, there is a need for new drugs in this space. A lot of
people have osteoporosis and need a better option.

GRIFFETH: And as just point out, you and I were discussing this earlier
today, the risks involved in this business, even for a large established
company like Amgen (NASDAQ:AMGN), it`s never a guarantee, is it?

TIRRELL: It never is. Drug development is an incredibly risky business.
And, you know, just last month we did a story with you guys in Iceland
showing how Amgen (NASDAQ:AMGN) uses genetics to help the discovery. Some
are wondering, you know, even when you have those clues, and that kind of
tool, it doesn`t make everything perfect. This is a really hard thing to

HERERA: Indeed it is. Meg, thank you so much. Meg Tirrell at the New
York Stock Exchange.

GRIFFETH: Agilent Technologies (NYSE:A) tops the street estimates and
that`s where we begin tonight`s “Market Focus”.

The lab equipment company saw both profit and revenue rise in the latest
quarter saying that strength in its chemical and energy business helped
results. Agilent also saw its strong revenue growth in Asia and Europe.
Shares initially rose in after-hours trading but finished the regular
session down slightly to $56.08.

And the months-long proxy fight between specialty metals maker and largest
shareholder appears to be over, Arconic and its largest shareholder appears
to be over. Arconic saying that it has agreed to let activist hedge fund
Elliott Management nominate three members to its board of directors, while
Arconic will name two candidates. Arconic shares rose fractionally to

And Advanced Micro Device shares took a hit after the CEO made comments
that seemed to squash speculation that the semiconductor maker entered into
a licensing deal with Intel (NASDAQ:INTC). AMD said that it`s, quote, not
looking at enabling a competitor to compete against our products, end
quote. That news sent shares down more than 3 percent to $11.04 today.

HERERA: U.S. space specialty chemicals maker Huntsman (NYSE:HUN) said it`s
merging with Switzerland`s Clariant in a $14 billion deal. The combined
entity will be called Huntsman (NYSE:HUN) Clariant and it has an enterprise
value of $20 billion. Huntsman (NYSE:HUN) shares were off 2 percent to

Former managers of the solar energy company Sun Run said they were
instructed by their bosses to delay releasing data ahead of that company`s
public offering in 2015. It showed canceled customer contracts. According
to “The Wall Street Journal,” one manager said there was an internal push
to get as many sales through, and not to report the cancellations. Shares
of the small cap fell almost 3 percent to $4.90.

And China`s Cheetah Mobile reported earnings for the latest quarter. The
mobile Internet company posted revenue that grew and said that much of that
gain was driven by demand for contest driven apps. Shares of Cheetah
Mobile rose about 7.5 percent to $11.34.

GRIFFETH: Netflix (NASDAQ:NFLX) has been a public company now for 15
years. How time flies. It started out, of course, as a DVD-by-mail
company. But today, it`s very different, a digital global powerhouse. And
get this — shares are up by more than 14,000 percent since it first
started trading.

Julia Boorstin takes a look at what lies next for Netflix (NASDAQ:NFLX).


(NASDAQ:NFLX) and its CEO Reed Hastings have changed quite a bit from the
days of red envelopes delivered by the postal service. Netflix
(NASDAQ:NFLX) had 600,000 subscribers only in the U.S., paying $20 a month
for DVDs by mail, with about 11,000 titles. Now, Netflix (NASDAQ:NFLX) is
a global entertainment powerhouse, with 100 million subscribers in over 190
countries, paying about $10 a month for streaming, distinguished by the
original content.

And according to an early shareholder, Netflix`s success is driven by its
CEO`s vision.

MIKE SCHUHU, FOUNDATION CAPITAL: Reed is an incredibly gracious and humble
guy. So, he`s probably going to cringe when I say this. But he is wicked
smart. And I don`t mean in the, I`m the smartest guy in the room sense, I
mean someone who`s capable of thinking of first principles yet also at the
visionary level.

BOORSTIN: Though the number of titles Netflix (NASDAQ:NFLX) offers varies
from country to country, the company says it streams more than 125 million
hours a day. Netflix`s growth will come from continued global expansion,
and more exclusive content. The company`s releasing more than 1,000 hours
of originals this year and spending more than $6 billion on content saying
it has no plans to do live news or sports, but it`s doing everything else.

ANDY HARGREAVES, PACIFIC CREST: Original content, it`s the marketing
engine for the company. People watch it for the shows that are on. And
you want the shows branded as your service. The other is people recognize
that they`re more and more competitive. And so, traditional players are
less likely to be open to licensing them content, or at least some of them
are. And so, you have to have the ability to fill the pipeline.

BOORSTIN: Hargreaves says that while he sees plenty of room for Netflix
(NASDAQ:NFLX) to continue its global growth and data about how and what
people watch, but the company`s biggest challenge is more alternatives from
traditional media companies. There`s also the question of whether the
company will have to get into live sports, which it says it`s staying away
from if it wants to be truly competitive.

Netflix (NASDAQ:NFLX), of course, needs to execute. CEO Reed Hastings
needs to make sure the company continues to have the movies and shows
people need to see.

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


HERERA: Coming up: so, you think you know economics?


Kapital” and what other famous book did he or she write?


HERERA: Well, 11,000 kids from 40 states test their knowledge in a
national challenge. But only team was victorious.


HERERA: And here`s a look to what to watch for tomorrow. The White House
releases its proposed budget for the 2018 fiscal year. With a supply of
existing homes for sale at historic lows, the focus will be on the release
of April`s home sales. Amazon (NASDAQ:AMZN) meets with its shareholders.
CEO Jeff Bezos is expected to lay out his vision for the company over the
next year, and that`s what to watch for on Tuesday.

GRIFFETH: Meantime, regulators are investigating a pair of recalls from
Hyundai and Kia. The National Highway Traffic Safety Administration wants
more information on the timing of those recalls. The agency is also
looking to determine whether it covered as many vehicles as it should have.
The recall is related to an engine defect, and currently affects more than
1 1/2 million vehicles.

HERERA: The United States collected less personal income tax revenue in
April than a year earlier. According to analysis done by “Reuters”, it
appears as if high earners shifted their income to next year, hoping that
the federal government passes tax cuts. Taxes on wages and investment
income are key revenue sources for the states that collect them. April is
the most important revenue month because, of course, it`s the tax filing

GRIFFETH: All right. High school wiz kids who could be the next Janet
Yellen. The best and brightest students are testing their knowledge of
economics challenge, our Steve Liesman, host of the competition. He got to
award the One Team (NASDAQ:TISI) Championship trophy.


LIESMAN: They`re dancers, musicians, basketball players and wrestlers,
11,000 unique kids from 40 different states. But they have something in
common. They`re just about as smart as they come. And they study and
really get economics. And the division winners faced off today in the
finals of the Annual National Economics Challenge. Call it the National
Spelling Bee for economics.

And you can`t believe the drama, and you can`t believe the brains.

UNIDENTIFIED MALE: Karl Marx and the other famous work is the communist

LIESMAN: After more than 20 questions, the teams from Mounds View High
School in Arden Hills, Minnesota, and Chattahoochee High School in Georgia
were neck and neck.

UNIDENTIFIED MALE: The score is now 12-11.

LIESMAN: In the end, Mounds View pulled out a win for the fifth time in
seven years.

UNIDENTIFIED MALE: The equilibrium price and quantity will not change.

UNIDENTIFIED MALE: That`s correct.


LIESMAN: Mounds View economics teacher credit her students` success to
hard work and making economics fun.

MARTHA RUSH, MOUNDS VIEW HIGH SCHOOL: You`re not going to get the kids
there by like beating them over the head and or, you know, take more tests.
They have to be doing it because it`s fun for them.

LIESMAN: The competition also featured a first-ever international round
with students from China competing against the U.S.

UNIDENTIFIED MALE: For country A, it`s 18 years. And for country B, it`s
9 years.

UNIDENTIFIED MALE: That is correct.

LIESMAN: The U.S. won both rounds, but China competed well, and they`ll be

The challenge is sponsored by the Council for Economic Education who
teaches teachers how to teach economics.

just like these engaged in economics so they can make great decisions and
understand how the world works.

LIESMAN: Among the products of this effort are kids like Dentner (ph) —



Friedrich Hayek is Austrian economist, Austrian school. Why?

UNIDENTIFIED MALE: Freer the markets, the freer the people.

LIESMAN: We could do a lot worse than raise a few more kids like that.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in New York.


HERERA: The freer the market, the freer the people.

LIESMAN: That`s our future and I`m very hopeful on that.

Not to take sides, but I was kind of rooting for Chattahoochee High School.
I have family in that part of Georgia. And I like saying Chattahoochee,

HERERA: They`ll be back next year.

LIESMAN: I suspect they will.

HERERA: On that, that`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue
Herera. Thanks for watching.

GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you


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
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Business Report is not and should not be considered as investment advice.
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