Transcript: Nightly Business Report – October 24, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Industrial strength. The
Dow soars triple digits to another record with Caterpillar (NYSE:CAT) and
3M (NYSE:MMM) doing the heavy lifting.

Drama in D.C. Another Republican takes a stand, raising questions about
the president`s economic and tax agenda.

And up in smoke. Northern California`s cannabis crops destroyed by
wildfire and the timing couldn`t be worse.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
October 24th.

Good evening, everyone, and welcome. I`m Tyler Mathisen. Sue Herera has
the evening off.

Well, stop me if you`ve heard this one before. The Dow closed at a record,
its 54th of the year. It was powered by two stocks, Caterpillar (NYSE:CAT)
and 3M (NYSE:MMM), both of which reported better than expected profits and
offered up an even better outlook, thanks to a growing global economy. 3M
(NYSE:MMM) and Caterpillar (NYSE:CAT) together accounted for the majority
of the Dow`s 167-point gain.

And that dynamic duo helped the Dow close at 23,441. Nasdaq was up 11.
And the S&P 500 added four.

Morgan Brennan has more on Caterpillar (NYSE:CAT) and 3M (NYSE:MMM), and
what is driving the industrial sector to those new highs.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: If industrial
stocks are a bellwether of economic growth, then growth is brisk.
Caterpillar (NYSE:CAT) got the most attention after the machinery maker
crushed profit estimates and hiked its four-year forecast by an eye popping
25 percent.

It was a similar story for 3M (NYSE:MMM) as well. With a maker of Post-It
notes and industrial coatings posting growth across its businesses, and the
stock having its best daily performance in eight years.

Even United Technologies (NYSE:UTX) which slid on weaker margins, raised
guidance for the second time this year.

Analysts it all speaks to the underlying strength of the sector.

DEANE DRAY, RBC CAPITAL MARKETS: What`s been surprising to us is how
strong the quarter has gotten off so far and the expectation that there`s
nice momentum into the fourth quarter. And so, if you look at how
evaluations of these industrials, they look stretched, but now, we`re
beginning to see the growth coming through to justify those higher
multiples.

BRENNAN: After years of slumping sales, industrial production has picked
up, commodity prices have risen, and the global economy is expanding.
That`s fueling sales growth across many different businesses. Factor in
investments to streamline manufacturing, major cost cutting initiatives, a
flurry of asset sales and new product offerings, and companies like Cat, 3M
(NYSE:MMM) and Honeywell are beginning to reap the rewards. More than a
dozen industrials hit all-time highs today. But there was one notable
exception.

DRAY: To call GE as an outlier is an understatement. You`re in the middle
of the throes of a management change, a complete reset of earnings
expectations. And we`re all now waiting for news about the dividend as
well as the blueprint for CEO John Flannery that he`ll unveil in this
upcoming meeting on November 13th.

BRENNAN: After dismal earnings last week, analysts say, in light of
rival`s results, General Electric (NYSE:GE) increasingly appears to be the
sector`s outlier, with that stock hitting a fresh multiyear low today.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: With industrial companies like Cat and 3M (NYSE:MMM) fueling the
market to new highs today, does this mean that the market rally is
broadening out as the saying goes?

Kristina Hooper is global strategist at Invesco and she joins us now to
discuss.

Kristina, welcome, good to have with us.

You know, for so much of this rally at least recently, it`s been tech and
financials. Today, a couple of sort of old line industrials helped along.
Is this a good sign? Is it a sign that there is a rotation going in the
market?

KRISTINA HOOPER, INVESCO GLOBAL STRATEGIST: Well, there`s certainly a
rotation going on. And this particular one has been fueled not just by the
global economic recovery, but by a weaker dollar, which is certainly
helping a number of industrials. But I think the key point is that the
advances being made by the stock market for the most part are fairly
narrow. And it does suggest some underlying vulnerability. That coupled
with, of course, stretch valuations.

MATHISEN: Give me some detail on that. Give me some detail on where it is
narrow and why that is a vulnerability.

HOOPER: Well, it`s narrow in that we just don`t have that many stocks on a
given day participating in a rally, if we were to look back over the last
few months, for example. So, we certainly had something of a rotation.
But what we have, the net result has been that we have pretty stretched
valuations. And much of it hasn`t been fueled necessarily by earnings
improvement, but by expectations. Expectations about a legislative agenda
that has not yet come to fruition, in particular the tax reform package.

MATHISEN: So, what should I do if I am at my sort of full investment
threshold in my personal portfolio, given what you seem to be suggesting,
that stocks are fully or even a little overvalued?

HOOPER: Well, there`s nothing to say this rally can`t continue for a
while. And I would argue there is an upward bias for the stock market, at
least in the shorter term, given that we do have two key drivers, that
global economic recovery as well as fairly accommodative monetary policy.
So, the key is to participate in capital appreciation, but be very well
diversified so you can protect on the downside.

So that means exposure to equities. But we want to be not just within the
U.S., but have a robust exposure outside the U.S.

MATHISEN: All right.

HOOPER: Have — be diversified even in 16 common (ph), have an adequate
exposure to alternatives.

MATHISEN: All right. Kristina, thanks so much. Kristina Hooper with
Invesco from Dallas tonight.

Well, investors were loving it also at McDonald`s (NYSE:MCD), the world`s
largest restaurant chain reported strong sales, thanks to cheap soda and
build your own burgers. The company has been working to increase traffic
at its U.S. restaurants after losing share to fast casual rivals.

The CEO told investors that the business has regained its stride. And that
sent shares of the Dow component higher

Late this afternoon, attention was on Washington. Republican Arizona
Senator Jeff Flake announced he will not seek reelection, expressing dismay
with President Trump and the direction of his party.

(BEGIN VIDEO CLIP)

SEN. JEFF FLAKE (R), ARIZONA: We must never adjust to the present
coarseness of our national dialogue, with the tone set at the top. We must
never regard as normal the regular and casual undermining of our democratic
norms and ideals. We must never meekly accept the daily sundering of our
country.

(END VIDEO CLIP)

MATHISEN: Senator Flake`s speech on the floor of the Senate came hours
after Republican Senator Bob Corker and President Trump renewed their
attacks on each other. And, of course, it comes as tax reform talks gain
momentum and where every vote counts.

John Harwood is in Washington for us tonight.

John, I haven`t seen a day like this in my memory, where two members,
staunch conservative members of a president`s own party, were so directly
critical of the man in the White House.

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stunning rebukes of
the president, Tyler. Bob Corker suggested the president was dangerous to
national security, would not say he was comfortable with the president`s
fingers on the nuclear button. And Jeff Flake was challenging his
colleagues to join him in standing up to President Trump. He talked about
assaults on decency and truth. That`s just an extraordinary thing you
don`t see. And it`s a reflection of the extraordinary nature of the Donald
Trump presidency.

And as you indicated at the top, there are 52 Republicans in the United
States Senate. To pass the tax bill, they need at least 50 of them. There
are several Republicans who are at risk of flaking off and stopping tax
reform. And President Trump is not making the task of holding them
together any easier.

MATHISEN: No, and the president obviously is not on such great footing
with Senator McCain, also of Arizona. Certainly, Rand Paul has different
ideas about what should happen with tax reform.

Do you think that these Republicans in the end will go along with a
Republican tax bill or is it just too early in the process to say?

HARWOOD: Most of them will, Tyler. And I talked to two McConnell advisers
today who said they are very confident that Jeff Flake, despite that
blistering criticism, will go along with the tax bill.

But there are at least three Republicans who are vulnerable to defecting.
One is Bob Corker, the other is John McCain, the other is Rand Paul, for
different reasons. Bob Corker, for example, says that he`s not going to
vote for anything that adds to the deficit. Rand Paul wants to see a
bigger middle class tax cut. John McCain also has concerns — longstanding
concerns about the deficit.

So, this is not going to be easy for the president. And the more he
engages in these skirmishes, the harder he is making it.

MATHISEN: All right. John Harwood in Washington tonight, thank you very
much.

Well, during a lunch meeting today with Senate leadership, the president
asked who the Senate members, the GOP, would like to see him nominate to
lead the central bank. One report indicated that Stanford economist John
Taylor, a so-called hawk, won the informal vote.

And as Steve Liesman reports, he is just one of five on a short list of
candidates.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Trump has
narrowed his choice for Fed chair down to five names. One group of
nominees, they bring change to the Fed, perhaps dramatic change. The other
more or less would maintain the status quo.

The choice, which is effectively for the most powerful economic position in
the world is seen as one of the most important the president will make, and
it could come as soon as or early than November 3rd.

The leading candidate is believed to be Jerome Powell, over here. He`s a
Republican nominated by President Obama. Federal Reserve governor since
2012 to the present he`s on the board. He was previously a partner at the
private equity firm the Carlisle Group and favors rolling back some
financial regulation, keeping some as well.

Powell is seen bridging the gap between a desire for change at the Fed
among some Republicans and a desire to maintain the status quo which Wall
Street seems to prefer. Treasury Secretary Steve Mnuchin said to favor
Powell.

Former Fed Governor Kevin Warsh, he`s seen as the second most likely
choice. Hoover Institution fellow, Stanford University. Most importantly,
Warsh served during the financial crisis on the Federal Reserve from 2006
to 2011, but he broke with Fed officials when he left in 2011. He thought
the Fed had gone too far in keeping rates and policy too low for too long.
The question is whether or not Warsh being the fed chair would mean higher
rates.

Along the same lines, President Trump is also considering Stanford economic
professor John Taylor, really seen as a leading light in monetary policy.
He has strongly advocated for the Fed to follow rules for setting Fed
policy. Fed officials have opposed this, saying it takes away discretion
during critical times, for example, like financial crises.

Meanwhile, the president has said he likes and respects current Fed Chair
Janet Yellen and she remains among the top five. But her candidacy is seen
as a long shot as most believe the president wants his own person in the
job. The president could face opposition, for example, from Republicans
who have been critical of the Fed. Still, Yellen has more experience at
the Fed, as you can see here, than all of the other candidates combined.

Gary Cohn, the director of the National Economic Council, a top economic
adviser to the president, was once a leading candidate but his odds fell
almost to nothing after he criticized the president`s response to the
violence surrounding the Charlottesville protest. The predictive futures
market gives him less than a 2 percent chance of being named Fed chair.

Now, while those markets rate the probabilities. They try to price them
in. White House insiders say the only list that matters is in the
president`s own mind and no one has seen that list yet.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: And now to the housing market. Home prices are higher and many
are expected to tap into that newfound equity. And that means more people
are likely to take out home equity lines of credit. But not in the same
way they did a decade or so ago.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Since the housing
crash, homeowners have regained over $6 trillion in collective home equity.
But they haven`t been tapping it. Part of that is stricter mortgage
underwriting and just a hangover fear from the housing crash.

But that`s all changing now. About 10 million homeowners are expected to
take out a home equity line of credit in the next five years, according to
TransUnion. That`s more than double the $4.8 million originated in the
last five years. Why? Well, people are not moving so much because of the
limited supply of homes for sale.

Also, lenders had pulled back on these riskier loans after the crash but
now they`re looking for more business because refinances have dried up.
So, what will people do with the money?

Well, Harvard`s Joint Center for Housing says we will spend over $300
billion renovating and repairing our homes just in the next year. Home
equity lines will be used to consolidate debt and lower interest rates and
to refinance old lines that may be hitting the end of the draw period.
That`s when you have to start paying principal along with interest.

It`s home as ATM again. But this time, lenders will limit how much you can
take out. In other words, you can`t take all of it.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

MATHISEN: And to read more about the expected rise in home equity lines of
credit, head to our Website, NBR.com.

And still ahead, a big breakup. The relationship Sears (NASDAQ:SHLD) will
end after 100 years.

(MUSIC)

MATHISEN: A 100-year marriage is over. After a century-long history
together, Sears (NASDAQ:SHLD) will stop selling Whirlpool (NYSE:WHR)
appliances effective immediately. Shares of both Sears (NASDAQ:SHLD) and
Whirlpool (NYSE:WHR) fell with Whirlpool (NYSE:WHR) shares also pressured
by a profit warning late yesterday. The losses were steep.

Seema Mody takes a look at this washed up relationship.

(BEGIN VIDEOTAPE)

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: After working together
for more than a century, Sears (NASDAQ:SHLD) and Whirlpool (NYSE:WHR) have
cut ties due to a pricing dispute — meaning customers can no longer buy
Whirlpool (NYSE:WHR) products, which includes Maytag, KitchenAid, and Jenn
Air appliances from Sears (NASDAQ:SHLD) Department Stores.

In an internal memo to employees, Sears (NASDAQ:SHLD) wrote that Whirlpool
(NYSE:WHR) had sought to use its dominant position in the marketplace to
make demands that would have been prohibited us from offering Whirlpool
(NYSE:WHR) products to our members at a reasonable price.

The breakup with Sears (NASDAQ:SHLD) comes as Whirlpool (NYSE:WHR) just
reported disappointing earnings and cut its 2017 guidance, citing sustained
inflation in raw materials. But on a cool with investors, Whirlpool
(NYSE:WHR) CEO Marc Bitzer made the point that cutting ties with Sears
(NASDAQ:SHLD) won`t be a big loss for the company.

MARC BITZER, CEO, WHIRLPOOL: To give you a perspective of the magnitude of
the entire Sears (NASDAQ:SHLD) business has declined overtime and now
represents about 3 percent of our global business of which the brand
portion is only a small fraction.

MODY: Whirlpool (NYSE:WHR) has been dealing with heightened competition in
the appliance market, from General Electric (NYSE:GE), but has also argued
that South Korean players, Samsung and LG, are selling their products in
the United States below cost, making washing machines a controversial trade
battleground. And Sears (NASDAQ:SHLD) is also dealing with a challenging
environment as it rivals Lowe`s, Home Depot (NYSE:HD), and Best Buy
(NYSE:BBY).

Sears` market share has been on the decline in the U.S. appliance market
and experts say this breakup with Whirlpool (NYSE:WHR) could serve as yet
another roadblock for the department store.

For NIGHTLY BUSINESS REPORT, I`m Seema Mody.

(END VIDEOTAPE)

MATHISEN: Former Dow component AT&T (NYSE:T) reported earnings that missed
Wall Street forecasts. The number two wireless carrier also posted a loss
of video subscribers. The company earned 74 cents a share, a penny shy of
expectations. Revenue down from a year ago to about $39 billion.
Investors were left wanting more. The stock lower in initial after-hours
trading.

And Julia Boorstin now has the one key takeaway in AT&T`s results.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: AT&T`s results were
a bit lighter than expectations on both the top and the bottom line. But
while AT&T`s video numbers disappointed, there was a bright spot. Its
wireless subscriber gains were stronger than Wall Street expectations.
This after the company preannounced the loss of 90,000 video subscribers in
the quarter, saying that while it added more digital video subscribers than
expected to its DirecTV Now service, that couldn`t make up for traditional
video losses.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin.

(END VIDEOTAPE)

MATHISEN: Hurricane disruptions hit results at JetBlue, and that is where
we begin tonight`s “Market Focus”.

Flight cancellations due to two hurricanes along with higher operating
costs eat into earnings and revenue at the airline. And JetBlue says those
factors will likely carry into the fourth quarter as well. Still, the
company`s profit numbers managed to top estimates. And as such, shares
finished up nearly 4 percent to $20.62.

The drugmaker Biogen reported results that beat street expectations. Sales
of the company`s spinal muscular atrophy drug Spinraza beat expectations
but concerns arose about future revenue growth for the treatment. Shares
of Biogen were off nearly 4 percent to $315.73.

Eli Lilly (NYSE:LLY) raised its full earnings forecast and said it`s
considering selling its animal health business. The company, which
reported stronger that expected result said robust demand for its newer
drugs will help offset a decline in sales when some of its older
medications lose patent protections in 2018.

(BEGIN VIDEO CLIP)

DAVID RICKS, ELI LILLY CEO: Some of our brands that have been with us for
a while, like Effient and Strattera, losing intellectual property here in
Q3. At the same time, we`re growing through that, 9 percent growth. If we
exclude the old products, our newest products drove almost 14 points of
growth for the company. And so, that`s the power of our innovation story
as we return to growth, is the newer products are getting bigger faster
than we`re losing revenue on the patents.

(END VIDEO CLIP)

MATHISEN: Eli Lilly (NYSE:LLY) shares fell to $85.17.

The online brokerage TD Ameritrade (NASDAQ:AMTD) saw profit and revenue
rise above street expectations. The CEO said investor engagement remains
strong despite low market volatility.

(BEGIN VIDEO CLIP)

TIM HOCKEY, TD AMERITRADE CEO: We see quite an engagement uplift. Our new
accounts are going up. And we have significant increase in our net
accounts year over year. So, for example, we`re up about 30 percent in our
accounts this year, over 2016. So, market participation is broad.

(END VIDEO CLIP)

MATHISEN: The company also hiked its quarterly dividend 17 percent.
Shares finished up almost 4 percent to $50 on the nose.

Chipotle served up a disappointing quarter. After the bell, the burrito
chain reported that both profits and sales missed analysts` estimates. The
company said while it saw some encouraging signs, quarterlies were impacted
the hurricanes and cost from a previously disclosed date breach. Shares
initially fell in extended hours, as you see right there. They did finish
the regular session, however, up 1 percent at $324.30.

While California wineries are trying to recover from those recent
wildfires, there`s another industry that is taking a big hit from that
natural disaster — marijuana. Some cannabis growers are still reeling
from the fires just months before the legalization of recreational
marijuana in the state.

Aditi Roy reports tonight from Santa Rosa.

(BEGIN VIDEOTAPE)

DAMON CRAIN, CANNABIS FARMER: This is how you got to my front door right
here. We`ll go up and go in the second floor.

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Damon Crain
can tell you exactly where everything was in his house, even though there`s
nothing left of it.

CRAIN: And then this was a doorway going into my lower part of my house.
And my sister`s room is right here in the corner.

ROY: He lost virtually everything, and barely escaped him with his family
when the flames came over the hill and peered into his home.

CRAIN: It just looked like a wall of flames coming straight towards me.
It took 10 minutes for us to get going and I started using the hose to wet
the house but I knew instantly that the flames were too close, right on top
of us. And so, we jumped in the car and took off.

ROY: But he didn`t just lose his home. He lost his livelihood.

(on camera): What did this used to look like?

CRAIN: Well, it was green. That`s for sure.

ROY (voice-over): Crain is a marijuana grower. He`s been farming this
land for two years and was getting ready to tap into a growing market with
the state`s legalization of recreational marijuana just two months away.

Crain had already spent tens of thousands of dollars to meet the regulatory
requirements of selling recreational cannabis. That`s money he won`t get
back, because marijuana is still illegal on a federal level, he can`t get
crop insurance for what he says was going to be a banner harvest.

CRAIN: It was two days away from harvest. We have already pre-harvested
some of the products and it was coming out really amazing.

ROY: Crain is one of at least 34 pot farmers in California who lost
everything in the wildfires. It`s still a small slice of the 50,000
growers in the state. But for those who were affected, the losses are
huge.

Unlike wine grapes which were mostly harvested, marijuana was at the end of
the growing season, which meant most of the crops were still out.

(on camera): The facilities here were all full of cannabis?

DENNIS HUNTER, CANNACRAFT CO-FOUNDER: Yes.

ROY: And you can`t even make out —

HUNTER: You can`t even tell. Like I`m trying to tell the difference
between the dry room and some of the storage areas.

ROY (voice-over): Dennis Hunter is co-founder of Cannacraft, which grows
and distributes medical marijuana to 500 dispensaries. He showed us entire
green houses and processing facilities that were once full of cannabis,
leveled. The barrels containing weed reduced to mere rings.

Hunter says they lost a third of their crop. They`re now examining the
crop that did survive in their lab to make sure there`s no smoke damage.

HUNTER: It will definitely affect how we do business, and having that
working capital to keep growing and providing more products for our
patients.

ROY: Despite their losses, both Hunter and Crain vow to rebuild and
replace what Mother Nature took.

(on camera): What are you going to do?

CRAIN: Start over. That`s what we do. I mean, I`m going to clean it up
and keep going.

ROY: Here at Cannacraft, Hunter says they expect to make up for the losses
by relying more heavily on the growers who were not impacted by the
wildfires. Statewide, insiders say they do not expect pot prices to go up
since the majority of growers throughout California were not affected by
the wildfires.

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

(END VIDEOTAPE)

MATHISEN: Coming up, the new kings of the road.

(MUSIC)

MATHISEN: General Motors (NYSE:GM) reported a drop in profits, but its
results were still better than expected. The largest U.S. automaker
reported strong sales of crossovers in the U.S. and sales in China, and
came despite a planned decline in production in North America.

(BEGIN VIDEO CLIP)

CHUCK STEVENS, GENERAL MOTORS CFO: With that, we still generated very
solid results. We`re very pleased with the position of our U.S. dealer
inventory and reduced that by 120,000 units. And I think that sets us up
not only for a good strong fourth quarter, but going into 2018.

(END VIDEO CLIP)

MATHISEN: Shares of GM gained almost 3 percent.

So, are ride-sharing companies Uber and Lyft killing the taxi business?
Two new reports show those companies are becoming more popular, especially
in New York City, where the yellow taxi has long been the king of the road.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It`s not
the death of the cab. But there`s little doubt fewer people are hailing
taxis. In fact, Morgan Stanley (NYSE:MS) says more people took an uber
instead of a taxi in New York City last July. It says Uber snagged 36
percent of all rides in New York just ahead of taxis and other ride share
operators.

Uber`s rise in popularity means it is now the dominant choice for those
using a ride share app, and increasingly, that includes business travelers
who are hailing an Uber instead of renting a car or waiting for a taxi.
But Uber`s competitor, Lyft, is gaining ground. The corporate travel
expense firm Certify says corporate travelers chose Lyft 11 percent of the
time when choosing transportation out on the road. The growth in ride
sharing is one reason why rental stocks have fallen out of favor.

(on camera): Hertz, Avis, and other rental car companies say it`s a
mistake to write off their businesses. After all, there`s still demand for
their rental cars.

But as these new reports show, increasingly, ride sharing is how more and
more people are choosing to get around.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: And to read more about the road ahead for Lyft and other ride-
sharing companies, head to our Website, NBR.com.

And that, folks, is NIGHTLY BUSINESS REPORT for tonight. Thanks for
watching. I`m Tyler math. Hope you have a great evening and we`ll see you
back here tomorrow night.

END

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