Transcript: Nightly Business Report – October 25, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Volatility and volume. Stocks
tumble as bond yields rise. And a number of critical tech earnings are
just around the corner.

Put up or shut up. That`s what a number of lawmakers are saying to
President Trump when it comes to the high price of prescription drugs.

Winning over millennials. Can the world`s largest hotel chain compete with
Airbnb?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
October 25th.

Good evening, everyone, and welcome. I`m Sue Herera. Tyler Mathisen is on
assignment tonight.

Big moves, big volume. The market hasn`t seen that in a while. Today, the
run-up we`ve seen recently cooled off a bit, despite OK earnings and
positive reports on the economy. The Dow Jones Industrial Average dropped
112 points to 23,329. The Nasdaq was off 34. And the S&P 500 fell 12.

Bob Pisani has more on what drove today`s decline.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: A momentum selloff on
Wall Street today. U.S. stocks suffered their worst trading day in two
months. The market is very concerned about a sudden spike in interest
rates and it got a couple of reasons to be concerned.

First, durable goods, products meant to last three years or more, was much
more than expected. A good sign for the economy but it raised questions
about inflation.

Second, reports that John Taylor may be the frontrunner for the Fed chair,
spooking investors since Taylor is known to want to raise rates faster than
the Fed has been doing so far. That caused some investors to take some
money off the table, particularly with stocks that had strong gains this
year like semiconductors. Even stocks with a decent earnings report like
Boeing (NYSE:BA) sold off being Boeing (NYSE:BA) investors have had monster
profits this year. It`s been up more than 60 percent.

Then there is uncertainty on what`s happening on tax reform. The market
has priced in a lot of good news here, but it`s still not clear if it will
get done. And today, some Republicans said that a plan to cut
contributions to 401(k) plans was still on the table. That is deeply
unpopular with the investing public.

The bottom line, the market has told us it cares most about keeping
interest rates low and tax reform. And anything upsetting those two
pillars will cause stocks to move down.

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

(END VIDEOTAPE)

HERERA: And as Bob just mentioned, shares of Boeing (NYSE:BA) fell today.
The stock was down almost 3 percent in part because of profit taking after
its big run-up. The drop came despite a strong quarter that saw plane
deliveries hit a record and upbeat profit and cash flow outlooks as well.

Phil LeBeau tells us why Boeing`s business is expected to soar.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): To
understand why shares of Boeing (NYSE:BA) have risen almost 100 percent in
the last year, look at the company`s commercial airplane business, starting
with its signature wide-body, the Dreamliner. Not only is Boeing (NYSE:BA)
making more money on each 787 it sells, but it`s also ramping up
production. That`s because demand for commercial airplanes is not slowing
down. In short, more people around the world are getting on planes.

DENNIS MUILENBURG, CEO, BOEING: Airlines continue to report solid profits
and passenger traffic growth continues to outpace GDP. With traffic growth
of 8 percent through August. Also, cargo traffic is experiencing a healthy
recovery with 10 percent traffic growth over the first eight months of the
year.

LEBEAU: As airlines clamor for newer, more fuel efficient planes, Boeing
(NYSE:BA) may raise production plans for its most popular model, the 737.
In a couple of years, Boeing (NYSE:BA) is scheduled to crank out almost two
new 737s every single day.

On the defense side of the business, Boeing (NYSE:BA) is wrestling with
higher costs for the new Air Force refueling tankers. But the first planes
are still on schedule to be delivered next year.

(on camera): Overall, Boeing`s defense business remains strong, given the
Dow component a solid balance sheet as it heads into the end of the year.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: Boeing (NYSE:BA) is the best performing Dow stock this year, while
tech is the best performing sector this year. Earnings for the group
begins in earnest tomorrow with results from Microsoft (NASDAQ:MSFT),
Alphabet, and Amazon (NASDAQ:AMZN).

And as Josh Lipton reports, the biggest risk to this sector could come from
regulators.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tech has been on a
tear so far this year. The sector is up 30 percent, about double the
returns from the S&P 500. Tech portfolio managers expect the rally to
continue, pointing to attractive valuation and strong growth prospects.

But tech investors also point to one big caveat, the increasing drumbeat of
political and regulatory threats targeting mega cap tech companies, a clear
shift in political sentiment.

JEFF SCHUMACHER, BCG DIGITAL VENTURES CEO: Regulation is just bad. It`s
going to force innovation to happen where it`s not. So if you regulate
tech, you`re just telling them to go do their innovation elsewhere.

LIPTON: President Trump targets Amazon (NASDAQ:AMZN), often incorrectly,
suggesting that it doesn`t pay its fair share of taxes. And Facebook`s
Mark Zuckerberg is in the crosshairs too, after acknowledging that Russia-
linked actors bought ads on his platform to interfere with the U.S.
presidential election.

But tech companies are facing other potential challenges as well outside
the U.S. European regulators now say that Google (NASDAQ:GOOG) is
breaching antitrust rules by requiring manufacturers to preinstall Google
(NASDAQ:GOOG) search on their devices as a condition to license certain
Google (NASDAQ:GOOG) apps. That`s important, because it encourages people
to see Google (NASDAQ:GOOG) search ads when they look for information on
their phones.

Google (NASDAQ:GOOG) disputes the E.U.`s claims, saying it`s actually
expanding competition, not hurting it.

Some of the biggest tech companies in the world enter earnings season with
a very different reality of increasing political pressure both here and
abroad.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.

(END VIDEOTAPE)

HERERA: So, joining us now to talk more about the potential risk to the
tech sector is Daniel Flax. He is the senior research analyst at Neuberger
Berman.

Welcome, Daniel. And I understand, it`s your birthday. So, happy
birthday. Thanks for spending part of your day with us.

DANIEL FLAX, SENIOR RESEARCH ANALYST, NEUBERGER BERMAN: Great to see you,
Sue. Thank you very much.

HERERA: Let`s pick up where Josh Lipton left off, and that is the specter
of regulation, specifically, perhaps not regulation here in the U.S. but
maybe regulation on more of an international basis.

Does that concern you at all?

FLAX: I think, Sue, it is a risk to these companies as we think about how
they`re going to evolve. So, for example, with Facebook (NASDAQ:FB) and
some of the scrutiny around the elections, I think it`s a factor. However,
the company in the case of Facebook (NASDAQ:FB) is responding. They`re
putting more people in place to try and do a better job managing some of
the ads. I think in many respects, what`s happening is that these giant
technology companies are really maturing, if you like, relative to some
other industries. Food, beverage, health care, all of these are regulated
industries.

HERERA: And so, perhaps, they`re growing up a little bit and becoming more
main line companies versus — not that they don`t innovate, but they were
always known as chiefly innovators. But the industry has matured.

FLAX: I think that`s right. I think whether one looks at how they`re
managing their businesses, obviously tax is becoming a bigger focus area
here in the U.S. as well as in some other countries. I think the key for
these companies over the medium to long term is to continue to innovate and
to continue to invest in their businesses so that they can deliver
attractive products and services to their customers. And that is really
the key to growth in their view.

HERERA: Now, a number of these companies are coming out with their
earnings beginning tomorrow. Your Neuberger Berman, I tried to say, owns a
Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Facebook
(NASDAQ:FB) and Microsoft (NASDAQ:MSFT). But you`re watching Microsoft
(NASDAQ:MSFT) most closely. Why?

FLAX: Well, we think Microsoft (NASDAQ:MSFT) is at the very interesting
juncture. If the company under the management team has really transformed
the business mix and really embraced the Cloud, so the move to the cloud is
really capitalizing on some of Microsoft`s core advantages in technology,
and importantly, their customer relationships.

And so, when we speak to their customers, they are telling us they`re
investing more with Microsoft (NASDAQ:MSFT) because Microsoft (NASDAQ:MSFT)
is bringing them along into the new cloud era.

HERERA: Where do you think the market is in terms of its expectations for
these earnings reports? I mean, the expectations have always been pretty
high. But is the market anticipating something that perhaps some of these
companies might not be able to deliver on?

FLAX: I think in the short term, the market is obviously very focused on
the results, in the case of Microsoft (NASDAQ:MSFT) tomorrow night. We
think that the company is likely to achieve or perhaps beat the consensus
expectations. But what we`re really trying to better understand from the
results and certainly in the quarters ahead is how the company is
continuing to transform its business. And that in our view is really going
to be critical to Microsoft (NASDAQ:MSFT), and these other giants, to
creating additional value for their customers and ultimately their
shareholders as well.

HERERA: All right. We`ll leave it there. Daniel, thanks so much.

FLAX: Thanks, Sue.

HERERA: Daniel Flax with Neuberger Berman.

Well, the cloud is fast becoming one of the most critical businesses for
tech companies. That`s the reason behind Google (NASDAQ:GOOG) and Cisco`s
agreement to join forces to take on Amazon (NASDAQ:AMZN). That partnership
combines Google`s expertise in building massive data centers and open
source software, with Cisco`s global sales force and customer support.
Together, both companies believe that they can develop products to use in
the cloud in a race to catch up with Amazon (NASDAQ:AMZN) which, of course,
dominates the cloud infrastructure.

Sales of Coke popped in the U.S. That company reported earnings and
revenue that topped forecast, helped by its new diet soda, Coca-Cola
(NYSE:KO) Zero Sugar. The new CEO says he`s pleased with the results and
backed Coke`s full year outlook. Fellow Dow component Visa (NYSE:V)
reported a double digit increase in profit, beating Wall Street
expectations, driven by its purchase of Visa (NYSE:V) Europe as more people
made payments using its network. Shares of both Visa (NYSE:V) and Coke
moved in opposite directions today.

A bit earlier in the program, Bob Pisani mentioned some of the positive
economic news. Well, there was more. Sales of new homes rose to their
highest level in a decade. Economists say that people unable to find
existing homes due to a lack of supply are turning to new construction.
Damage from last month`s hurricanes may have also inflated that data.

No position is more important to the economy than the chair of the Federal
Reserve. Last night, we outlined the five people on the short list to
become the next Fed chief. But today, there are reports that the White
House`s top economic adviser is out of the running.

According to Bloomberg, the president does not intend to appoint Gary Cohn
to the position. The president instead reportedly wants to keep him in his
current role as his director of the National Economic Council.

Some mixed messages for retirement savers. The top Republican tax writer
says changes could be part of his party`s tax reform overhaul. Today when
asked if the 401(k) tax break was on the table, the president backtracked a
bit from his recent tweet where he promised no changes.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Well, maybe it is and maybe
we`ll use it as negotiating. I think Kevin Brady (NYSE:BRC) is fantastic.
But he knows how important 401(k)s are.

(END VIDEO CLIP)

HERERA: There are reports that Republican lawmakers are considering
capping the amount Americans can contribute to these plans at $2,400 a
year.

Meantime, over at the FCC, that agency plans to vote on rolling back
landmark media ownership regulations. Those rules limit the ability of
companies to own multiple TV stations and newspapers in the same market.
Such a move would be a win for newspaper companies and broadcasters.
Others say it could usher in a new era of media consolidation.

Still ahead, the big push by lawmakers to lower the price of prescription
drugs.

(MUSIC)

HERERA: Dow component Nike (NYSE:NKE) setting aggressive new growth goals
today. The sporting goods company sees earnings per share growing in the
mid-teens over the next five years, driven by online sales and new
products. Nike (NYSE:NKE) also sees revenue up in the high single digits
over the same time frame.

CEO Mark Parker says naturally the U.S. is critical, but overseas markets
will also play a big role in that growth.

(BEGIN VIDEO CLIP)

MARK PARKER, NIKE CEO: We also see that in Asia-Pacific, Latin America,
and, of course, Europe. So, all parts of international business are going
to be growing. China is the biggest. If you look at the population, the
target population in China for Nike (NYSE:NKE), it`s really moving toward
ten times of what it is in the United States. And the appetite for Nike
(NYSE:NKE) in China as the number one brand is incredibly strong.

(END VIDEO CLIP)

HERERA: Wall Street liked what it heard, sending shares up nearly 3
percent, making Nike (NYSE:NKE) the best performer in the Dow today.

Shares of the health insurer anthem touched their highest level in a year
after higher premiums and stronger Medicaid and Medicare enrollment helped
that company easily beat quarterly earnings expectations. The insurer also
raised the lower end of its full earnings estimates. Anthem also says it
sees its participation in the Affordable Care Act plans to drop sharply
next year amid what it says is too much uncertainty around the future of
those marketplaces. Shares jumped 5 percent to break through the $200 per
share

The bipartisan Senate budget proposal currently on the table to help
support those ACA insurance market places would cut the deficit by nearly
$4 billion over the next decade. The nonpartisan Congressional Budget
Office says the plan wouldn`t substantially change the number of Americans
with health insurance. It is unclear if that legislation introduced last
week by Republican Senator Lamar Alexander and Democratic Senator Patty
Murray will ever be voted on by Congress.

This month, California passed a law hoping to rein in drug prices. And
today, four Democratic congressmen made their push.

Meg Tirrell explains.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was one of the few,
maybe only things both Donald Trump and Hillary Clinton agreed upon on the
campaign trail.

HILLARY CLINTON, FORMER DEMOCRATIC PRESIDENTIAL CANDIDATE: Drugs companies
have prevented us from enabling Medicare to negotiate for lower prices.

TRUMP: Drugs with Medicare, they don`t bid them out. They don`t bid them.
They pay like this wholesale incredible number, hundreds of — they say
like $300 billion could be saved if we bid them out. We don`t do it. Why?
Because of the drug companies, folks.

TIRRELL: And when Trump was elected, he continued to insist that drug
prices should come down. But so far, there`s been no major action from the
government.

REP. ELIJAH CUMMINGS (D), MARYLAND: We have not heard a peep. Radio
silence.

TIRRELL: Four congressmen today introduced a bill that would give Medicare
the power to negotiate the price of drugs.

SEN. BERNIE SANDERS (I), VERMONT: It`s so simple, because it exists in
every other major country on earth. It is time for Medicare to be able to
sit down with the drug companies and negotiate prices.

TIRRELL: Senator Bernie Sanders, along with Representatives Elijah
Cummings, Lloyd Doggett, and Peter Welch cited Kaiser Family Foundation
data showing more than 90 percent of Americans favor giving Medicare the
power to negotiate. Those congressmen are all Democrats.

Republicans in Congress have typically blocked any attempts to give
Medicare that power, attempted time and again by Sanders, Cummings and
others.

The drug industry opposes the bill. Lobbying group PhRMA said it would
bring about, quote, government-imposed price controls and jeopardize access
to critical medicines for seniors and people living with disabilities,
allowing the government to decide which medicine patients can and cannot
get.

And the Republicans have typically sided with the drug industry on issue.
The party`s major exception has been Donald Trump. But with no major
action since he took office, drug stocks have rallied.

Drug price increases don`t appear to be slowing either. This week,
analysts reported that drug maker Celgene (NASDAQ:CELG) raised the price on
two medicines, each by 9 percent.

For the $7 billion blood cancer drug Revlimid, it was the third price
increase this year, bringing the list price of 28 pills to more than
$18,000. Celgene (NASDAQ:CELG) said in a statement that its, quote,
pricing decisions reflect the benefits that our innovative therapies
provide to patients, the health care system and society, and said it
continues to invest in more than 43 potential treatments currently in
clinical trials.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

HERERA: Glaxo sinks on concerns about its dividend. And that`s where we
begin tonight`s “Market Focus”.

Glaxo posted higher quarterly results helped by stronger sales of
prescription drugs and consumer health care products. The company also
said it would consider a bid for Pfizer`s over the counter business should
Pfizer (NYSE:PFE) put it up for sale. But the prospect of that kind of
deal could top $10 billion. And that stoked fears of a dividend cut. That
sent Glaxo shares down 6 percent to $38.19.

Profit at the world`s largest biotech company Amgen (NASDAQ:AMGN) beat Wall
Street expectations, helped by lower costs and higher operating margins,
that helped offset a drop in sales of the company`s more established
products. Amgen (NASDAQ:AMGN) also raised its full year adjusted profit
forecast despite taking a hit to its Puerto Rico operations from Hurricane
Maria. Shares initially fell following the after the bell earnings and
also ended the regular session down about 1.5 percent to $177.50.

Shares of advanced micro devices continued to get hammered today following
the company`s earnings which came out late yesterday. The chip maker`s
profit and revenue beat expectations, but the company says it sees revenue
falling 15 percent quarter over quarter. And that sent shares down more
than 13 percent to $12.33.

International Paper (NYSE:IP) beat earnings expectations, thanks to price
hikes in some key businesses, and lower outage costs despite being hit by
two hurricanes. The company says it is confident it will hit its full year
earnings target. IP`s shares slipped 1 percent to $57.99.

Late last night, the Senate by the narrowest of margins took a final step
to keep new rules from going into effect that would make it easier for
consumers to sue banks.

Kayla Tausche explains.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A late
night vote in the Senate rolled back a rule that would let consumers band
together in suing banks and credit card companies, rather than fighting
issues alone through a process called arbitration.

Vice President Pence cast the deciding vote.

MIKE PENCE, VICE PRESIDENT OF THE UNITED STATES: And the joint resolution
is passed.

TAUSCHE: The Consumer Financial Protection Bureau introduced the rule this
summer to give consumers the chance to hold banks accountable over small
sums of money. It would have taken effect next year. Congress moved
almost immediately to toss it out, using power to overturn regulations
drafted only recently. The House voted to do so in July as industry groups
argued that scrapping it will mean banks won`t be weighed down by lawsuits.

RICHARD HUNT, CONSUMER BANKERS ASSOCIATION: Had they gotten rid of this
rule and accepted the CPFB rule, I think it would have been much more
costly for the consumer to do business at a bank.

TAUSCHE: Treasury says the move will spare banks from 3,000 lawsuits and
nearly $2.5 billion in legal and settlement fees. Democrats point out the
move protects companies recently embroiled in consumer scandal like Wells
Fargo (NYSE:WFC) and Equifax (NYSE:EFX). CFPB found 75 percent of
consumers don`t know whether their financial accounts carry this fine print
barring lawsuits.

SEN. ELIZABETH WARREN (D-MA), BANKING COMMITTEE: This bill is a giant wet
kiss to Wall Street. Bank lobbyists are crawling all over this place,
begging Congress to vote and make it easier for them to cheat their
customers.

TAUSCHE: President Trump is expected to sign the bill which the White
House in a statement called a win for everyday consumers and community
banks and credit unions.

(on camera): Republicans continue to take aim at what they call an
overreach of power at the CFPB. A senior White House official says
overturning these new agency rules is one way to keep pressure on Richard
Cordray, the sole figurehead running the CFPB tapped by President Obama.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, Washington.

(END VIDEOTAPE)

HERERA: Coming up, Marriott gets hit.

(BEGIN VIDEO CLIP)

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: One legacy hotel
operator is flipping the script in their strategy to appeal to millennials.
This includes an urban amusement park on the roof and this rotating
carousel. The full story coming up on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

(MUSIC)

HERERA: President Trump is launching a program to expand the testing of
drones in order to speed up the integration of those unmanned vehicles into
the National Aerospace System. A White House adviser said the expanded
testing will open up the skies for delivery of medicine, packages,
inspection of critical infrastructure, and support for emergency management
operations.

But the White House stopped short of proposing new regulations allowing
broader use of drones.

Starting tomorrow, new security measures will take effect on all U.S.-bound
flights, including stricter passenger screening. The measures are in order
to comply with U.S. requirements put in place to avoid an in-cabin ban on
laptops. Some of the new steps could include short security interviews
with passengers. More than 300,000 passengers arrive daily on about 2,000
commercial flights to the U.S.

And the NAACP has issued a travel warning for American Airlines. The group
is cautioning African-Americans that if they travel on American, they could
be subject to discrimination or possibly unsafe conditions. The group says
it has seen a pattern of, quote, disturbing incidents over the past several
months reported by passengers, including some being removed from planes and
others required to give up their seats.

The NAACP says the incidents point to a corporate culture of racial
insensitivity and possibly racial bias at the airline. American says it is
disappointed by the announcement and it will invite the civil rights group
to meet.

And finally tonight, millennials make up the largest part of the workforce.
And Marriott is looking to attract the growing number of young
professionals traveling for leisure and also for work, particularly since
corporate travel makes up half of Marriott`s total revenue.

But will the strategy work?

Seema Mody has more.

(BEGIN VIDEOTAPE)

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Marriott is opening its
newest MOXY Times Square. But it`s definitely not your father`s Marriott.
From rooms that have wall pegs to hang clothing, to the largest
indoor/outdoor rooftop bar in New York City, Marriott is going after the
millennials, who would rather city at an Airbnb than a hotel. The hotel is
catering to the mindset of those 24- to 34-year-olds.

Starting with the layout of the room, many of which are geared towards the
modern traveler, like this 220-square foot quad bunk room outfitted with
four twin size beds, a foldable table, and chair all starting at a price of
$139.

Marriott`s chief global development officer says the room is intentionally
small, since young travelers spend most of their time outside of the room.

ANTHONY CAPUANO, MARRIOTT INTERNATIONAL EVP: You`ve seen the guest rooms,
while very well-appointed are quite small, but a big, big focus on the
public spaces in this hotel. And when you look at economic and demographic
trends for the next generation of traveler, they want to be out in public.

MODY: But there`s still some places inside MOXY to socialize, like that
rooftop bar that has mini golf and a rotating carousel, and for those who
come here purely to grab a drink but decide at the last minute, they want
to spend a night, MOXY has a room called the crash pad, which guests can
book only from the rooftop cocktail menu for $99.

But the competition is fierce. Marriott`s main rival Hilton has launched
two brands aimed at the millennial-minded, True and Canopy. Radisson`s Red
and Starwood`s Aloft, which is now owned by Marriott, plus, Yotel, an
independent brand, all geared towards the young.

Travel experts say in order to stand out, Marriott will have to be
strategic in its marketing approach, relying heavily on social media to
target millennials, especially as more enter the workforce and spend a
larger percentage of their discretionary income on travel.

For NIGHTLY BUSINESS REPORT, Seema Mody, New York.

(END VIDEOTAPE)

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
Thanks for joining us. Have a great evening. And we will see you right
back here tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
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