Transcript: Nightly Business Report – October 10, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Growth track. Walmart
making a big prediction about its future, and many of its retail rivals
fight to hold onto sales.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Soap opera. Procter & Gamble
(NYSE:PG) declares victory in a contentious boardroom battle. But the
activist investor says not so fast.

MATHISEN: And up in flames. Vineyards and wineries destroyed as wildfires
rage through California`s precious wine country.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
October 10th.

HERERA: Good evening, everyone, and welcome.

The Dow closed at a record, thanks to a big move higher by Walmart. That`s
where we begin tonight.

Walmart wants to cement its title as the world`s largest retailer. The
company is forecasting huge growth in its online sales. And it predicts it
will happen in just a few years` time.

At its annual investor day, the big box retailer outlined plans to invest a
lot of money in its retail operations, a move that pits Walmart directly
against Amazon (NASDAQ:AMZN) in the race to win shopper dollars. That,
along with a $20 billion share buyback sent shares up 4.5 percent in heavy
volume to a two-year high.

Courtney Reagan takes a look at Walmart`s big plans for the future.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Walmart is making
a prediction you rarely hear in retail, it`s forecasting growth for
earnings and sales, including 40 percent online sales growth in the U.S.
next year. Executives spoke to analysts in its hometown of Bentonville,
Arkansas, explaining that progress has been made to fix the fundamentals.
But there is still some runway to go.

And the crux of the Walmart`s plan uses its stores and online business
together. The retailer says consumers that shop both in its stores and on
its Website spend twice as much as those who buy only in-store.

DOUG MCMILLON, WAL-MART CEO: We must make sure that we`re doing everything
we can to earn our customers` business. Growth in comp stores and through
e-commerce is a real priority for this company.

REAGAN: While Walmart`s online sales are growing rapidly, it`s starting
from a relatively small base compared to sales in its store, and the
growing the digital business has been costly.

CHARLIE O`SHEA, MOODY`S LEAD RETAIL ANALYST: When you`re building an
online business, you`re building a second business. At some point in time,
you`re going to start to see those two businesses converge. And you`ll be
able to shake expenses out of the system. And I think Walmart is in the
early stages of that.

REAGAN: Walmart is already the country`s largest grocer and food accounts
for more than half of its total sales. By the end of next year, it will
double the number of stores offering online grocery ordering with store
pickup, a major part of its plan to get new shopper dollars.

MARC LORE, WAL-MART U.S. ECOMMERCE CEO: If you can offer fresh produce,
consumables at the very best prices with a really good experience, whether
it be pickup or delivery, then you have a good chances to build a
longstanding relationship that you can then leverage to sell rest of
general merchandise.

REAGAN: Walmart isn`t the only retailer eyeing grocery as the way to
shoppers` loyalty. Amazon (NASDAQ:AMZN) is as well, with this recent
purchase of Whole Foods.

VICTOR ANTHONY, AEGIS CAPITAL: Grocery is a such a small percentage of
that is online. So, I think it`s a category that`s ripe for disruption in
the space. And who better to do that than Amazon (NASDAQ:AMZN)?

REAGAN: Beyond grocery, most analysts and shoppers agree that Walmart has
improved, both the stores and the Website in recent years. But that
doesn`t mean the work is done, especially as consumers` choices only grow.
Amazon (NASDAQ:AMZN) continues to reshape retail. And the all-important
holiday season is just around the corner.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: The fellow Dow component Procter & Gamble (NYSE:PG) was at the
center of the largest proxy fight ever. In one corner, the company and the
board, in the other, the activist investor Nelson Peltz. The battle
divided company investors. And today, it ended just as it began — messy.
In response, the stock fell.

Sara Eisen was at P&G headquarters in Cincinnati for the shareholder vote.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Procter & Gamble
(NYSE:PG) declaring victory today in the culmination of a months-long, very
costly and somewhat ugly proxy fight against one of its top investors,
Nelson Peltz of Trian, to keep him off the board. Peltz says the vote,
though, is too close to call. The margin: less than 0.4 percent. And he`s
going to wait for a final tally before he concedes defeat.

Either way, though, he says the message was sent to big companies around
the world loud and clear.

NELSON PELTZ, TRIAN PARTNERS CEO & FOUNDING FATHER: There might be arrows
in my back temporarily, but we`re a pioneer. The fact is, there is no
company today that can`t be called to task. Not one.

And heretofore, all of these companies, they were — you couldn`t — you
know, you could buy something from them if you were a private equity. But
you couldn`t call them on the carpet. That`s changed. And that`s changed
for us.

EISEN: CEO and Chairman David Taylor had a chance to respond in his
message to fellow CEOs when it comes to his playbook in defeating an
activist investor.

DAVID TAYLOR, PROCTER & GAMBLE CEO: There`s only one solution to this, to
deliver better results. The message that I`ve got to management team of
the board is, and what folks done, and we`ve started this process several
years ago, is deliver better results. You know, as I talk to other CEOs,
and I know they`re concerned with this, is that the pace that you have to
move in order to stay the lead in your industry gets increasingly
difficult, which is why the changes that we`re making to transform this
company are so fundamental to the future.

And message from — to me, to the board, to the company is, let`s do the
right things, do them faster and do them the right way.

EISEN: Procter & Gamble (NYSE:PG), a few years into its transformation,
it`s trying to adapt to the way that consumers have changed their behavior
around what they buy and how they buy it, also dealing with sluggish
economic conditions and the stronger dollar over the last few years.
Taylor says he got the vote of confidence he needs to continue that
transformation. But he also got the message that he needs to move faster.

From Cincinnati, for NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

MATHISEN: The Dow component Pfizer (NYSE:PFE) is considering spinning off
or selling its consumer health unit. The drug company said it has begun a
strategic review of that division that includes Advil and ChapStick among
many others. The unit is one of the largest health care businesses of its
type in the world. It makes up about 6 percent of Pfizer`s total revenue.
In response, the stock rose slightly in trading today.

HERERA: So, is it a good thing for investors when a company like Pfizer
(NYSE:PFE) decides to get back to its roots or refocus on its core
business?

Chad Morganlander is the portfolio manager at Washington Crossing Advisers
and he joins us now to talk about that.

Welcome, Chad. Nice to see you again.

CHAD MORGANLANDER, PORTFOLIO MANAGER, WASHINGTON CROSSING ADVISORS: Thanks
for having me.

HERERA: As I understand it, you think it is a good thing when a company
refocuses like this on its core business. Why is that?

MORGANLANDER: Well, it`s the evolution of a conglomerate that`s slowly
starting to break off. The management team is focusing their attention on
the properties that deliver high returns. And that`s what you`re seeing
with Honeywell, Pfizer (NYSE:PFE), and others that are going to come out in
2017, as well in 2018. So I believe that overall, that this is a positive
step for not only Pfizer (NYSE:PFE) but also for the other conglomerates.

MATHISEN: You know, I was amazed to see that it was only that the consumer
health care business, Chad, is only like 6 percent of Pfizer`s revenue.
What this is is really basically, isn`t it, a big bet on high end, high
margin, high growth pharmaceuticals where you`ve got pricing power. A
ChapStick is going to remain 98 cents for a long time.

MORGANLANDER: Right, no doubt about that. Now, they`re going to sell that
for a hefty premium. This consumer staples side of the market is really
selling at an elevated valuation at this point. They`re going to redeploy
that capital that they get from that and either buy an early stage suite of
health care or pharmaceuticals, or they`re going to buy back shares with
that, or go to capex to actually increase their portfolio.

HERERA: It would also give me them the money, would it not, if they have a
lot of outstanding debt, and I don`t know how much they have. But they
could basically right off that debt, pay off that debt, or refinance it at
a lower rate.

MORGANLANDER: Without a doubt, you`re going to continue to see that as
well, where you`re going to — they`re going to — many of these
multinationals are going to sell properties and then pay down their debt
burden after — or buy back stock to optimize their balance sheet. But
overall, what you`re going to see going into 2018, many multinationals are
going to continue to go through their portfolio, look to sell their
properties or spin them off, and you have to keep in mind that for a lot of
private equity firms, they have a tremendous amount of funding capability
to go buy these —

MATHISEN: Real quick, Chad, bottom line me. If I own or I`m interested in
a company that is slimming down this way, is it a good sign, yes or no?

MORGANLANDER: I would say it`s a great sign. We would be buying
Honeywell. We do own Honeywell, we own Pfizer (NYSE:PFE), we own Walmart.
We would continue to be buyers of these three companies.

HERERA: Excellent. Thank you, Chad. Appreciate it.

MORGANLANDER: Thank you.

HERERA: Chad Morganlander, with Washington Crossing Advisors.

Ty?

MATHISEN: On Wall Street today, Sue, Walmart and Pfizer (NYSE:PFE), just
talking about them, gave the stock market a lift. The Dow did close at the
record we mentioned earlier, closing in now on 23,000. The blue chip Dow
index up 69 points to 22,830, the Nasdaq added seven, and the S&P gained
nearly six.

As the stock market has moved to new highs, there are some stocks that are
attracting fresh interest.

Bob Pisani explains.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: We`ve seen a record
rally in all the major indices and investors have even turned their
interest to some very strange underperforming parts of the market. The
latest examples are microcap stocks. That`s right. The iShares Micro-Cap
ETF — IWC is the symbol — has been around for a decade but not attracted
in the interest until recently and with good reason.

It only owns the smallest of publicly traded companies, the bottom thousand
of the small cap Russell 2000 index and the remaining 500 or so stocks that
are even smaller than those in the Russell 2000. We`re talking companies
with typical market caps between $50 million and $300 million. These
micro-caps have outperformed the broader market recently. They hit
historic highs as well.

What`s going on? We have a confluence of rising rates and a tax cut trade.
All these things are positive for not only small cap stocks but especially
for micro-cap stocks.

A few other markets are helping out. First, the markets are lifting across
the board. So many micro-caps have a good chance of graduating into small
cap indexes like the Russell 2000. That would drive wider ownership.

Second, sector exposure. The IWC is 25 percent weighted to financials and
25 percent weighted to health care. Those are very hot spaces. So, I can
see momentum traders adding this to their broader stake just to get a
little bit of edge in performance.

Finally, there`s this whole ETF wrapper thing. By having an EFT, you allow
it to be traded on platforms provided by brokerage firms, it`s one of the
relatively safe ways to get into these darker, less exposed corners of the
market like micro-caps.

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

(END VIDEOTAPE)

MATHISEN: Still ahead, flying under the radar. You may not know its name
but this chip maker is definitely making a name for itself.

(MUSIC)

MATHISEN: The deadly fires racing across America`s California wine country
have burned hotels and some wineries, potentially hitting the multibillion
dollar wine industry hard.

Aditi Roy is in Santa Rosa tonight.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The flames
were fast and furious, springing from nearly a dozen and a half wildfires,
and ravaging more than 100,000 acres in nine California counties, leaving
behind a path of destruction. At least 15 people died as 20,000 had to
flee.

UNIDENTIFIED FEMALE: I mean, there`s ashes falling down everywhere.

ROY: Among the evacuated, roommates Shelby McClintock (ph) and Amanda
Bowen (ph). They left their home Sunday night when flames got too close
for their comfort.

UNIDENTIFIED FEMALE: I was woken up at 2:00 in the morning, the hills were
just glowing red. Our house mates were freaking out. I already knew from
the beginning just from like the coloration in the sky that — I was like,
I`m packing a bag.

ROY: They`ve been living in this shelter since.

The firestorm leveling entire neighborhoods like this one in Santa Rosa,
California.

Businesses are affected too. Like this Kmart burned to the ground. This
Hilton Hotel in Santa Rosa, also decimated.

Sonoma and Napa Valley wineries which play a critical role in local tourism
have been impacted as well. Among the wineries destroyed by the fire,
Paradise Ridge in Sonoma County and Signorello Estate and White Rock
Vineyards in Napa. The wineries that had been damaged includes Stag`s
Leap, Williams Hills, Chimney Rock, and Darioush.

As officials survey the damage, McClintock and Bowen are just worried about
what they will find when they get home.

UNIDENTIFIED FEMALE: I`ve lived here had I whole life. And I — you never
really think about stuff like this happening until it happens to you.

UNIDENTIFIED FEMALE: It does not feel real at all. I mean, we can`t even
see the sky right now.

ROY (on camera): As they brace to find out the damage of their home, the
Napa Valley Vintners Association reports that 90 percent of this year`s
harvest has already been completed and that it`s too early to tell the
impact of the wildfires on next season.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, Santa Rosa, California.

(END VIDEOTAPE)

HERERA: American and United see clearer skies ahead. That`s where we
begin tonight`s “Market Focus”.

Despite canceling thousands of flights due to hurricanes, American Airlines
raised its guidelines, I should say, saying unit revenue could grow as much
as 1.5 percent this quarter. United said it expects to report an improved
profit margin thanks to lower fuel costs. And also noted that revenue per
passenger mile wouldn`t fall as much as initially expected. Shares of
American rose nearly 5 percent to $53.03. While United shares were more
than 4 percent higher to $67.72.

Amazon (NASDAQ:AMZN) is reportedly beefing up its delivery services even
more. CNBC says the e-commerce giant is interested in partnering with
Frame. That`s a company that develops smart license plate frames which
would allow packages to be delivered right to customers` car trunks. CNBC
said Amazon (NASDAQ:AMZN) is developing a smart doorbell that gives
delivery drivers one-time access to a customer`s home. Amazon
(NASDAQ:AMZN) shares fell fractionally to $987.20.

And after the bell, I.T. security firm Barracuda Networks said an increase
in subscribers helped revenue rise at a faster clip than analysts were
expecting. Gross profits also rose, but higher marketing costs cut into
those results. Shares initially fell in the extended hour session but
finished the regular day up a penny to $25.74.

MATHISEN: The pharmacy benefits manager Express (NYSE:EXPR) Scripts will
buy privately held medical benefits company eviCore for more than $3.5
billion. Express (NYSE:EXPR) said the deal will help it better manage
patient costs. Shares of Express (NYSE:EXPR) Scripts off nearly 2 percent
to $15.18.

And after the bell, the memory chipmaker Micron Technology (NASDAQ:MU) said
it plans to offer a billion dollars` worth of common shares. Micron said
it will use the proceed to trim debt. Shares initially traded lower
afterhours but finished the regular session up almost 2.5 percent at
$41.98.

And the power management company Eaton (NYSE:ETN) said it expects net
income and operating earnings per share this quarter to take a 3 cent hit.
That`s following those recent hurricanes. The company said its facilities
in Puerto Rico suffered damage but are now back in operation. Shares were
up 30 cents to $77.98.

HERERA: Shares of Nvidia hit an all-time high. The stock isn`t a
household name, but it`s making a name for itself on Wall Street. The chip
maker today saying it built a powerful new computer that can turn semi-
autonomous cars into fully driverless vehicles, a technology that some are
calling a game changer. That sent its shares up nearly 2 percent to a
record. Over the past year the stock has been making impressive gains in a
very competitive industry, in part because of Nvidia`s ability to transform
itself from a video game chip maker to a leader in artificial intelligence.

(BEGIN VIDEOTAPE)

JENSEN HUANG, NVIDIA (NASDAQ:NVDA) CEO AND CO-FOUNDER: What we thought was
going to be science fiction for years to come is becoming reality as we
speak.

HERERA (voice-over): Nvidia`s latest advance, called Pegasus, speeds up
it`s Drive PX platform, already used by the likes of Toyota (NYSE:TM),
Audi, Tesla, Baidu (NASDAQ:BIDU), and European truck suppliers ZF in the
race to develop a fully autonomous vehicle.

Nvidia is used to driving leaps in technology. From its start in 1993,
Nvidia`s graphics processing units or GPUs aimed to make videogames ever
more realistic. Microsoft`s Xbox, Sony`s PlayStation, and Nintendo use
them. And Nvidia`s technology is used in smartphones, tablets, and these
days, your car`s infotainment system.

Gaming still accounts for nearly 60 percent of its revenue, more than $4.8
billion. But now, data center technology is its fastest growing segment,
used in huge build-outs by the likes of Amazon (NASDAQ:AMZN), Facebook
(NASDAQ:FB), Microsoft (NASDAQ:MSFT), Baidu (NASDAQ:BIDU), Alibaba, and
Tencent. Data is what makes artificial intelligence intelligent. The more
data used, the more a computer can learn, allowing it to make computers
better and more efficient. It can help computers find better answers to
our search queries, better advice for doctors, and better results for
Nvidia`s autonomous driving platform.

HUANG: This technique allows software to write software, allows computers
to learn from experience and data.

(END VIDEOTAPE)

MATHISEN: Here to talk more about Nvidia, its growth story, and where it
may grow from here is Stacy Rasgon. He`s semiconductor analyst at
Bernstein Research.

Stacy, thanks for joining us. Good to have you with us tonight.

I think a lot of investors —

STACY RASGON, SEMICONDUCTOR ANALYST, BERNSTEIN RESEARCH: Good to be here.
Thank you.

MATHISEN: — are very concerned about coming to a party late. This has
been a heck of a party. The company is firing on all chips, if you will.
Is there still room to run?

RASGON: Yes, I think there`s probably still room to run. This is a
company that is exposed to virtually every high growth and attractive area
in the semiconductor market today, whether it`s artificial intelligence,
data center, autonomous driving. Frankly, even gaming is a very good
market. They`re exposed to it all.

HERERA: How much in front of you everybody else do you think Nvidia is?

RASGON: You know, they are in front by a wide margin. They have been
investing in this space for many, many years. Many of their other
competitors are actually in the process of playing catch-up.

They`ve been developing not just the hardware but also the software
development environment that goes along with it that enables the
programmers to actually write to the hardware itself and they`ve been
developing this. It`s forming an ecosystem. They`ve been doing this for
close to ten years.

It`s creating almost a de facto standard in a number of — in many of these
markets today. Again, their competitors are catching up. In many cases,
they`re going to be coming up against a barrier that this has created for
Nvidia.

MATHISEN: In one of your recent reports, you say you think it is possible
that the stock might take a little bit of a breather after its run. But
you give it more room to run eventually. Why might it take a pause that
refreshes and then move? And tell us where you move your price target
recently.

RASGON: Well, I mean, any time a stock is up, you know, 80 percent to 100
percent in less than a year, it`s likely to take a pause. And if you go
back to their last earnings report, the stock did take a little bit of a
breather momentarily, only because the data center business, it grew
tremendously year over year. But expectations were even a little bit more.

I think many investors, though, want to own the stock. Many of them are
waiting for pullbacks. And frankly that little bit of a dip didn`t last
very long. It got bought as investors came in.

HERERA: So, what are you watching for that might trip up the company, or
might signal that there`s someone else in that particular space that`s
gaining on them?

RASGON: Sure. I mean, there are a number of competitors today, both from
chip companies, as well as cloud vendors, companies like Google
(NASDAQ:GOOG), for example. But I think what people need to be aware of
is, we`re almost in the first at-bat of the first inning right now.

My biggest worry today is not really so much competition. It`s more the
pace of market adoption. When you have an exponential market growing, when
you`re right at the beginning, people tend to do two things. Number one,
they tend to overestimate how quickly we`ll get to the knee of that curve.
Once we get to the knee, they underestimate how quickly the ramp will be.
I want to get to the knee of the curve as quickly as possible.

And frankly, I believe what everybody is doing in a space, it`s actually
accelerating adoption. I think that`s a good thing.

MATHISEN: What a great story this company and you have to tell. Stacy,
thanks vey much. Stacy Rasgon with Bernstein Research.

RASGON: Thank you.

HERERA: And coming up, is the corporate jet business ready for takeoff?

(BEGIN VIDEO CLIP)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: These are the newest
wings for the high fliers of the corporate world. But are companies ready
to buy even more business jets? I`m Phil LeBeau. That story coming up on
NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow.

We`ll get the minutes of the last Federal Reserve meeting. Investors will
be looking for clues on the timing of the next interest rate move. Delta
Airlines (NYSE:DAL), the second largest carrier in the U.S. will report its
earnings. And the fourth round of NAFTA negotiations will take place in
Washington.

That`s what to watch for on Wednesday.

MATHISEN: The NFL Commissioner Roger Goodell says the league believes
players should stand during the national anthem and that team owners will
discuss a plan when they meet next week. In a memo released today, he
stopped short of saying that the NFL would require players to stand. It`s
been reported that some sponsors feel the national anthem controversy is
putting them in a tough spot.

HERERA: While many sectors of the economy may have rebounded in recent
years to precession levels, the corporate jet market has been very slow to
take off. But executives in that industry say a big liftoff could be
coming.

Phil LeBeau reports from the National Business Aviation Association
convention in Henderson, Nevada.

(BEGIN VIDEOTAPE)

LEBEAU (voice-over): For high fliers in the corporate world, this is
heaven. The latest business jets from the smallest to the largest on
display for buyers who want new wings.

SCOTT ERNEST, TEXTRON AVIATION CEO: We`re seeing a good uptick in the
amount of people that are interested with respect to the different products
that we`re investing in. We`ve got a good long lead list of individuals
that are coming out to the show, that are going to look at some of the new
products that we`ve been able to demonstrate.

LEBEAU: These jets may be spectacular. But business jet sales have not
been as impressive.

In fact, they`ve failed to climb back to the lofty levels seen before the
recession. And this year, deliveries are expected to edge lower. With
stock prices and corporate profits near record highs, why have corporate
jet sales failed to soar?

Industry leaders say potential buyers are waiting for the U.S. economy`s
growth to kick into a higher gear.

ED BOLEN, NBAA PRESIDENT: What we`re seeing is kind of 1 and 2 percent
growth year over year. And I think that we`re expecting, particularly as
the economy begins to grow over 3 percent, that`s usually a key area, where
over 3 percent growth leads to some pretty strong growth in the business
aviation community.

LEBEAU: Jet makers believe it`s not just companies primed to buy but also
fractional ownership programs, and the trend of the ultra wealthy needing
to fly further, faster, is creating a market for higher end jets like
Embraer`s top of the line Lineage model.

MICHAEL AMALFITANO, EMBRAER BUSINESS AVIATION CEO: Lineage is our ultra-
large aircraft, $55 million. It`s considered a home away from home. It
allows for our customers to have a bespoke interior experience just like
they would at their house.

LEBEAU (on camera): Adding to the optimism of the business jet market is a
global economy, where nearly every region in the world is experiencing
growth that many hope will lead to greater demand for these planes.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Henderson, Nevada.

(END VIDEOTAPE)

HERERA: And that does it for us tonight. I`m Sue Herera. Thanks for
joining us.

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

END

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