Transcript: Nightly Business Report – July 17, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: More shows, more viewers.
That`s what Netflix (NASDAQ:NFLX) ordered and that`s what it got. And the
stock took off late today.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Big showdown. A staunch
activist investor goes after a powerful corporation. And it could be like
no fight we`ve seen before. But are these boardroom battles good for
shareholders?

HERERA: The check is in the mail. Is the raise American workers have been
waiting for finally on its way?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday, July
17th.

MATHISEN: Good evening, everyone.

Two prominent household name companies are making news tonight. One
reflects the economy of the 21st century, Netflix (NASDAQ:NFLX). The other
was born in the 19th century, Procter & Gamble (NYSE:PG).

We begin tonight with Netflix (NASDAQ:NFLX) and the earnings story that
broke after the closing bell. Millions more people than expected
subscribed to the streaming service in the latest quarter. New shows
helped attract those new viewers at a time when competition in original
content is intensifying.

Here are the numbers. For the second quarter, Netflix (NASDAQ:NFLX) earned
15 cents a share. That was a penny below expectations, but revenue was
more than 30 percent higher than a year ago, beating forecasts at roughly
$2.8 billion.

And the stock took off as you see there — rising initially in after-hours
trading, hitting a new all-time high easily.

Julia Boorstin has more on Netflix`s quarter.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Netflix
(NASDAQ:NFLX) continues to grow subscribers faster than expected, adding a
total of 5.2 million new subscribers in the second quarter, that`s 2
million more than the company projected. Now, it looks like Netflix
(NASDAQ:NFLX) is going to continue to exceed expectations. Netflix
(NASDAQ:NFLX) projecting that a stronger than expected 4.4 million
subscribers in the third quarter.

So what`s driving that growth? A massive amount of new content including
14 new seasons of global Netflix (NASDAQ:NFLX) original series, 13 original
comedy specials, six original documentaries and 9 original feature films as
the company invests more in movies to debut on Netflix (NASDAQ:NFLX) first.

And it`s now easier for consumers to sign up for Netflix (NASDAQ:NFLX),
thanks to new product partnerships, such as one the company just announced
with cable carrier Altice in France, setting up the streaming giant for
more growth this year.

Back over to you.

(END VIDEOTAPE)

HERERA: Thank you very much, Julia Boorstin.

And now to the boardroom battle at Procter & Gamble (NYSE:PG) that could
mark a new milestone for shareholder activism. Investor Nelson Peltz of
Trian is taking on P&G, the world`s largest consumer products company,
becoming the biggest company ever to face a proxy fight.

Trian which owns roughly $3.5 billion worth of the company wants a board
seat and he wants a higher stock price. Shares of P&G which is widely
owned in mutual funds and controls brands like Bounty, Gillette and Tide,
has underperformed the market over the past year. Over the years, Mr.
Peltz has taken on other consumer companies like Heinz, Pepsi and food
maker Mondelez.

But as Leslie Picker reports, his focus now is on the Dow component,
Procter & Gamble (NYSE:PG).

(BEGIN VIDEOTAPE)

LESLIE PICKER, NIGHTLY BUSINESS REPORT CORRESPONDENT: A big investor
called Trian is pushing for one board seat at Procter & Gamble (NYSE:PG),
but to get there, the hedge fund needs to convince a majority of
shareholders to give it a seat. It`s the largest company to face such a
fight against an investor.

Trian`s CEO Nelson Peltz saying the company could use some fresh blood.

NELSON PELTZ, FOUNDER & CEO, TRIAN PARTNERS: You have people at P&G, for
the most part, no, not for the most part, but 99 percent, who never had
another job but P&G. You should have a soft target that at least 25 of
them come from other companies because these guys only know one playbook at
P&G, OK? When they get together to solve a problem, you know what they`re
doing? They`re talking to themselves.

PICKER: P&G responded to Trian in a statement saying, quote, :Trian has
not provided any new or actionable ideas to drive additional value for P&G
shareholders beyond the continued successful execution of the strategic
plan that is in place.

In a filing this morning, Trian said Peltz could help P&G`s excessive cost
and bureaucracy and improve market share and return. Peltz made it clear
he`s not looking to fire the CEO, break up the company or take on a bunch
of debt, he just wants to boost the stock price.

For NIGHTLY BUSINESS REPORT, I`m Leslie Picker.

(END VIDEOTAPE)

MATHISEN: So, what should you do if you own a stock that becomes the
target on an activist investor like Nelson Peltz?

Let`s turn now to David Nelson for some answers. He`s chief strategist at
Belpointe Asset Management.

David, you know, these situations can be good for the activist or work out
not so well for the activist. And I know you`ve got some examples in the
top of your head. But how do I, as an investor, determine whether these
activists are going to be good for me, a shareholder?

DAVID NELSON, CHIEF STRATEGIST, BELPOINTE ASSET MANAGEMENT: Well, like
most things in life, Tyler, the devil is in the details. And I think what
an investor needs to do is look at the proxy, look what the investor is
looking to accomplish. Is he looking at short-term value for the company,
maybe just returning some cash to share holders, boost the stock price and
get out, or is really looking like a Nelson Peltz is with Proctor and
Gamble, looking to enhance shareholder value by shaking up the company and
trying to get rid of some of the bureaucracy and get some better operating
metrics?

HERERA: Are there instances, David, when an activist investor could be a
negative for a stock?

NELSON: Sure. Unquestionably. For, you know, some activist investors,
they might be looking at nothing more than a quick buck and generally,
you`ll see them focus on financial engineering gimmicks, take on a lot of
debt, buy back a lot of stock that will boost the earnings in short run.

But it usually comes at the expense of R&D, and the long-term health of the
company. So, they`re out there and I think Nelson Peltz is on the other
side of that equation.

MATHISEN: But one of the examples that you cite as actually a positive
outcome —

NELSON: Yes.

MATHISEN: — is Carl Icahn`s involvement with Apple (NASDAQ:AAPL) a couple
years ago where basically what he wanted is what you just said was kind of
one of those telltales of maybe trouble and that is he wanted them to buy
back stock because they had all this cash on the sidelines.

Why is that the exception that may prove the rule?

NELSON: It`s clearly the exception. In the case of Apple (NASDAQ:AAPL),
there was just so much cash on the balance sheet. There was literally no
way they could invest it all in a productive manner. And I think Carl
Icahn recognized that. He came in and he looked to Cook and others to
return some of that cash to shareholders, and it was a home run for
investors and the stock, and the stock did very well with Carl`s
involvement in the country — company.

But it was clearly the exception to the rule.

HERERA: You know, David, there`s also, we cover it certainly, companies
that are considered, quote/unquote, ripe for activist investors. GE was a
focus for a lot of — for a lot of people. As an individual investor, do
you ever try and identify those and invest in them? I mean, it hasn`t
really moved the needle on GE`s stock recently, but it has on others.

NELSON: It can be easy to identify some of the companies, but you might be
sitting for a long time waiting for an activist investor to recognize that.
I think a lot of boards out there, they`re supposed to be an advocate for
the shareholder. But unfortunately, there`s a good number of them that act
as a little more than an agent for the CEO, awarding out, you know, very
large compensation packages, even when the performance is poor.

So, if you can identify that, you might be hanging out for a while waiting
for somebody like a Carl Icahn, a Bill Ackman or a Nelson Peltz to step in
and help you out.

MATHISEN: I`d like to see one of the boards work for me and get my
compensation package going.

David Nelson, thanks very much. David is with Belpointe Asset Management.

HERERA: On Wall Street, stocks were little changed as investors remained
reluctant to make any moves ahead of a busy week for earnings. Today, the
Dow Jones Industrial Average fell eight points to 21,629. The NASDAQ was
up nearly two. And the S&P 500 was off just a fraction.

And while the major indexes remain near records, the small cap index, the
Russell 2000, is at one, closing at its highest level ever.

Eric Marshall, co-portfolio manager at Hodges Small Cap Fund, joins us to
talk about the run in the small caps.

Nice to have you here, Eric. Welcome.

ERIC MARSHALL, CO-PORTFOLIO MANAGER, HODGES SMALL CAP FUND: Good to be
here.

HERERA: What do you think in general has been driving the performance of
the small caps?

MARSHALL: Well, we`ve definitely over the last couple weeks started to see
the market broaden out, meaning that we had more stocks participating in
this rally than we did in the previous first and second quarter. I think
part of that is a recovery that you`re seeing in some of the bank and
financial stocks, some of the industrials. And the consumer discretionary
stocks are doing a little better here and they tend to be more tied to the
Russell 2000 and the smaller cap indexes.

MATHISEN: Can this rally continue?

MARSHALL: We think so. You know, small caps are really well-positioned to
benefit from things like potential tax reform, which we`re starting to hear
more rhetoric about, and also M&A activity continuing to pick up. And it`s
probably the area of the market that is the most fertile for picking
individual stocks and there`s still a lot of opportunities out there to go
out and find companies that aren`t necessarily overvalued, even though the
market is hitting new highs.

HERERA: Are you doing some shopping?

MARSHALL: We are. And we found opportunities in things like Tower
Semiconductor (NASDAQ:TSEM) which is a semiconductor foundry. The stock
trades about 12, 13 times forward earnings.

And we also like companies like Cooper Tire which is a tire manufacturer.
Not necessarily tied to new car sales, but more replacement tires. We see
opportunities in low multiple stocks like that.

And we like LegacyTexas, which is a regional bank here in Texas that we
think is very attractively valued.

MATHISEN: You know, it`s interesting that when people think of small caps,
they often think of the little go-go high-tech companies but the ones you
just pointed to, I mean, Tower Semiconductor (NASDAQ:TSEM) obviously a tech
company, but a basic bank and a tire company.

MARSHALL: Yes. I think that`s the important thing is that within small
caps, there are companies that are really overvalued and very high-priced
biotech companies and really high-flying stocks that don`t have a lot of
earnings or fundamentals underneath them, but you can also find some more
basic companies out there that are underneath the radar that may have been
overlooked that really represent good values.

HERERA: On that note, Eric, thank you. Eric Marshall with the Hodges
Small Cap Fund.

MATHISEN: One of the biggest economic mysteries lately has been the lack
of wage growth, despite a tightening job market. But a new survey may
provide much-needed answers.

Steve Liesman reports.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: That check with your
raise in it might finally be in the mail.

A new survey from the National Association for Business Economics
suggesting that wages could already be on the rise. Forty-seven percent of
the 101 businesses surveyed said they`re hiking wages, that`s up eight
points from last quarter and the second highest reading since the end of
the recession. The same percentage said they expect wages to rise in the
next three months.

And those gains are not the type of wage inflation the Fed should be
worried about.

GLENN HUBBARD, COLUMBIA BUSINESS SCHOOL: We`ve been looking for wage
growth. It`s only when wage growth really outstrips productivity for a
period of time that you have trouble. I think this is good. It`s a sign
the labor market`s tightening. That`s a good thing. Not a bad thing. We
need to do more to bring people back into the workforces, but that`s a
tougher problem.

LIESMAN: A big problem in the survey, employers are saying it isn`t easy
to find workers. More than a third saying they`re having difficulty
hiring. In response, they`re employing several different strategies.
Twenty-two percent say they`re raising pay 19 percent or hiring more
internally, 10 percent turning to robots or automation, and 4 percent even
report lowering the job requirements.

The survey shows businesses are also reporting positive outlooks for sales
along with capital sending and offsetting some of the profit pressure from
higher wages. Fewer firms are reporting rising material costs so the
profit outlook remains positive.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: Still ahead, the GOP`s health care bill was supposed to come up
for a vote this week, but that`s now unlikely because of an improbable new
wrinkle — the health of a single senator.

(MUSIC)

MATHISEN: The U.S. has ended a laptop ban on Middle Eastern airlines.
Saudi Arabian Airlines is the final carrier of nine to be removed from that
laptop ban aboard flights heading into the U.S. from certain airports. The
restrictions were imposed last March on certain airlines based on
intelligence about the potential for hidden explosives in electronics.
More recently, the Department of Homeland Security said airlines could be
removed from the list if they met tougher security measures.

HERERA: And now to Washington where health care was expected to be the
focus this week but the Senate vote on the legislation has been delayed
following Senator John McCain`s surgery for a blood clot over the weekend.

John Harwood is in Washington.

John, we know that they`ve had to delay this because of Senator McCain`s
medical condition, but what does it mean maybe a little bit further down
the line for the Senate health care bill?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, as you
indicated, Sue, they cannot move forward on health care without John McCain
present because he is the 50th vote as we speak right now to even take up
the bill, much less pass it. The consequence of the delay is to give
opponents more time to hammer the bill, as Susan Collins, the moderate from
Maine, was doing over the weekend, saying it would shred the safety net for
vulnerable people, poor people, rural hospitals, that sort of thing.

So, it diminishes the prospect for the health bill by delay.

MATHISEN: The two most avowed GOP opponents of this bill, one, Rand Paul,
who thinks the bill doesn`t go far enough in repealing Obamacare, and Ms.
Collins who is concerned about what is getting repealed.

Are the other aspects of the administration`s agenda sort of postpone now
too because of McCain`s health?

HARWOOD: Yes, because the administration and Republicans in Congress need
to move past health care in order to pass a new budget resolution and take
up tax reform. They can`t do it until they`ve disposed of health care one
way or the other. If it fails, they can move immediately. If it passes,
they can move.

But it can`t be in limbo and move ahead on tax reform. That is very
important to the president, to Republicans in Congress. They`ve also, of
course, got to raise the debt limits sometime in the next couple of months
to avoid a debt crisis.

HERERA: Yes. The administration has had various weeks that they`ve been
highlighting, Infrastructure Week and the like. This week was Made in
America Week, or is Made in America Week. How did it start out?

HARWOOD: Well, it started with the president showcasing American-made
products and trying to cheer lead for manufacturing here. But there was
very odd moment at the White House today when Sean Spicer, the press
secretary, was asked the obvious question about Trump family businesses
that manufacture overseas, clothing, shoes, home products and the like.
And what Sean Spicer said was, well, there are supply chains and
scalability that are not available in the United States. Of course, that`s
precisely the argument that major American multinationals make about
shifting jobs overseas which President Trump`s been hammering them for.

HERERA: Indeed, John, thank you very much. John Harwood in Washington.

MATHISEN: Lower fees hurt results at Blackrock, and that is where we begin
tonight`s “Market Focus”.

In an effort to attract more customers, the world`s largest asset manager
cut product fees in the latest quarter, resulting in earnings that trailed
estimates. Investors funneled a record amount of cash into Blackrock`s
exchange traded funds business, low price business, by the way. But it
wasn`t enough to lift revenue above expectations. Shares fell 3 percent to
$424.63.

FedEx (NYSE:FDX) warned the cyber attack that recently impacted one of its
units would cut into full-year results. The delivery giant said its TNT
Express (NYSE:EXPR) division still experiencing severe disruptions from the
attack and doesn`t know when the issues would be resolved, causing lost
revenue and higher costs. FedEx (NYSE:FDX) shares off more than 1.5
percent, at $215.48.

Consumer products company Church & Dwight (NYSE:CHD) is buying privately
held oral health care company Waterpik for about $1 billion. Church &
Dwight (NYSE:CHD) also reaffirmed its profit outlook for 2017. Shares were
up 1 percent at $53.33.

MATHISEN: As some retailers close locations, Ross Stores (NASDAQ:ROST) is
opening them. The retailer said it opened 28 stores in new and existing
markets as part of the company`s plan to expand. Ross said it continues to
see plenty of opportunity to grow, and expects to eventually operate more
than 2,000 stores. Shares of the company fell fractionally to $54.73.

Sears (NASDAQ:SHLD) just received another line of credit from the CEO`s
hedge fund. A securities filing disclosed that Eddie Lampert`s ESL
Partners gave the struggling retailer a $200 million credit line so it
could generate additional liquidity on an as-needed basis. Over the past
two years, the hedge fund has loaned Sears (NASDAQ:SHLD) more than $1.5
billion. But shares of Sears (NASDAQ:SHLD) responded by jumping 12 percent
to $9.04.

And wire and cable maker General Cable (NYSE:BGC) could be considering
selling itself. The company said it was launching a strategic review to
increase shareholder value that could result in a potential sale. Shares
rose nearly 10 percent on the news to $18.20.

MATHISEN: China`s economy expanded faster than expected in the second
quarter. The world`s second largest economy grew at a rate of 6.9 percent.
The report puts China on track to meet its 2017 growth target of about 6.5
percent. The increase driven in part by firmer imports in production, in
particular, steel, which has been, of course, at the c enter of trade
tensions with the United States. And trade will be a major topic of talks
on Wednesday when American and Chinese officials gather for an annual
economic dialogue.

HERERA: Startups in China are a growing part of that country`s economy, of
course. Some of those fast-growing firms are in the financial services
sector. And one company in particular is using artificial intelligence to
change the way money is borrowed and spent.

Eunice Yoon has our story from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): When
Beijing restaurant owner Kong Defang is short of money, he pulls out his
smartphone. Not to make a call, but to click on an app called Yongqianbao.

This app is very convenient and practical, he says, when you`re dining out
with friends, shopping or traveling, and need a little extra cash.
Yongqianbao translates to “need money pal” in Chinese, is the brain child
of fin tech loan startup, Smart Finance. The Beijing-based company founded
by CEO Jiao Ke believes that compared to traditional loan officers,
artificial intelligence can more accurately assess if a customer is credit
worthy by collecting data on their mobile phone.

Traditional banks aren`t suitable to assess large amounts of data but A.I.
can, he says. Compared to humans, machines don`t tire out and are
unbiased.

Once a user agrees, the company reviews their data like bank account
information. The A.I. program also tracks that person`s mobile and online
behavior. And based on the action of millions of other borrowers, can
determine if they`re at a higher risk of default or fraud.

We can see the way users input data, he says. We find if someone is
honest, they fill out the forms differently compared to a fraud.

Loans are generally approved in about eight seconds. They range from $70
to $700 and most are due within one month, and if you don`t pay back the
loan, the company still has your contacts.

For 29-year-old Kong, privacy isn`t a problem. Like most Chinese, he has
no credit card, no credit score and makes most payments on his mobile
phone.

I don`t think there`s anything to worry about, he says. Many other online
services also require personal information just like this app.

But many borrowers do care about not losing face.

For Chinese people, it`s considered a disgrace to borrow money, he says.
They don`t want to ask friends, so we take pride in being a friend who
won`t judge them for their financial situation but who can help.

And who can go wherever they take their smartphone.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

MATHISEN: Meantime, the CEO of Tesla issued a warning about artificial
intelligence. Appearing before a meeting of the National Governors
Association over the weekend, the visionary called technology the greatest
risk we face as a civilization, and said the technology needs regulation.

(BEGIN VIDEO CLIP)

ELON MUSK, TESLA CO-FOUNDER & CEO: A.I.`s a rare case where I think we
need to be proactive in regulation instead of reactive, because I think by
the time we`re reactive in A.I., regulation is too late.

(END VIDEO CLIP)

MATHISEN: Musk described the worst-case scenario which included massive
job loss to robots, and the potential for war. It`s not the first time he
has warned of the risks posed by artificial intelligence, but others in
Silicon Valley do not necessarily share Musk`s skepticism.

HERERA: Coming up, while Amazon (NASDAQ:AMZN) is looming large over a
large number of consumer-related companies that are set to go public.

(MUSIC)

MATHISEN: Here`s a look at what to watch tomorrow. Dow components Goldman
Sachs (NYSE:GS), J&J, UnitedHealthcare, IBM all report their profits. Big
day for that. Senate Finance Committee will hold its first hearing on tax
reform. And a report on the home builder sentiment will show us whether
the sector is upbeat about the housing market and ready to build more.
That`s what to watch Tuesday.

HERERA: It seems like there`s an Amazon (NASDAQ:AMZN) story every day and
tonight is no different. The e-commerce company appears to be getting into
the meal kit delivery business. It recently registered a trademark for a
service described as, quote, we do the prep, you be the chef, end quote.

Amazon (NASDAQ:AMZN) has already been testing both food delivery and meal
kits with its Amazon (NASDAQ:AMZN) fresh business. But shares of Blue
Apron, the largest meal kit provider in the U.S., which recently went
public, fell 10 percent.

MATHISEN: And it is not just the meal delivery business, or the grocery
industry or all retail that Amazon (NASDAQ:AMZN) is changing. The company
may also be shaking up the market for initial public offerings.

As Bob Pisani explains.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Amazon (NASDAQ:AMZN) is
putting retail IPOs on notice. The announcement today that Amazon
(NASDAQ:AMZN) would be entering the meal kit delivery business that
hammered competitor Blue Apron for another 10 percent decline. It`s been
pretty much straight down since the second day of trading and broke below
$7 today.

This is leading to a wider discussion within the IPO market mace. How much
can Amazon (NASDAQ:AMZN) disrupt other retail operations particularly those
waiting to go public?

John Fitzgibbon from IPOScoop called Amazon (NASDAQ:AMZN) the 800-pound
gorilla in the room. They have the money and the facilities, he says, to
make anything work if they want it to.

Now, Pet IQ, this is a distributor of low-cost pet medications, plans to go
public on the Nasdaq this Friday. While they don`t mention Amazon
(NASDAQ:AMZN) as a direct competitor, they note the companies you might not
think of like Nestle, Mars, and J.M. Smucker (NYSE:SJM) all compete with
them in the pet health and wellness category. Several other retail and
food IPOs could go public in the next few weeks, including Sun Basket,
which does meal delivery, Torrid, which is plus-size clothing, FreshDirect,
also meal delivery in Germany, and YETI, which makes coolers.

Amazon`s aggressive moves will make any of these easier to get out of the
gate but it doesn`t spell the death of retail IPOs, either. Jabel for
example is only slightly below its IPO price of $13 partly because of its
low valuation but also strong brand loyalty. And retailer Floor and Decor,
which went public in April, at $21, is now $39.

So, many retailers could end up selling directly to Amazon (NASDAQ:AMZN) as
well. Pet IQ, for example, already sells to Walmart and Sam`s Club.
Regardless, Amazon`s aggressive moves in the clear impact it`s had on
retailers since the Whole Food announcement has served notice that with a
company for the size and scale of Amazon (NASDAQ:AMZN), the barriers to
entry are not nearly as great as they used to be.

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

(END VIDEOTAPE)

HERERA: And that does it for us tonight. You got to get home and make
your meal kit.

MATHISEN: I got to chop up my meal kit, yes.

HERERA: There you go. I`m Sue Herera. Thanks for joining us.

MATHISEN: I`m Tyler Mathisen. Thanks from me as well. Have a great
evening, everybody. We`ll see you back here tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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Business Report is not and should not be considered as investment advice.
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