Transcript: Nightly Business Report – November 7, 2017

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Message of the market? Some
say all the talk of mega mergers is a sign the rally could fizzle. Others
say not so fast.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: New era for missiles
defense as countries look to spend more on defense. We will bring you
unprecedented access to Raytheon`s defense operations.

HERERA: Accelerating change. Will you own a car in 20 years or so? An
automotive veteran says no.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
November 7th.

MATHISEN: Good evening, everyone, and welcome.

The blue chip Dow index eked out a record close, it`s 75th since Election
Day last year. It appears as if dreams of deal-making are still dancing in
investors` heads, following yesterday`s report that Disney (NYSE:DIS)
approached 21st Century Fox about buying most of its assets. We also told
you that Broadcom (NASDAQ:BRCM) made an unsolicited massive $105 billion
bid for Qualcomm (NASDAQ:QCOM), the chip maker. And who could forget
recent reports that CVS (NYSE:CVS) Health may look to do a deal with Aetna
(NYSE:AET)?

Now, the deal talk was enough to send the Dow to an all-time high, up eight
points at 23,557, and its sixth straight day of gains. Nasdaq, though,
went the other way, down 18 2/3 at 6767. How about that, sixes and sevens?

But what could all of this merger talk mean for the broader market rally?

Dominic Chu takes a look for us.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It seems there`s a new
mega merger possibility being talked about every day. And there are hosts
of reasons why companies are looking towards bigger acquisitions given
current market conditions.

RICHARD PETERSON, S&P GLOBAL MARKET INTELLIGENCE: Companies are seeking
greater industry penetration, new geographic markets. They`re a bit under
pressure by shareholders and activists, also just the relative ease of
financing. Companies have access to credit lines from banks. They have
high cash levels on their balance sheets, in aggregate of over $2 trillion
among S&P companies. Also, their stock prices as a buyer are at very high
levels.

CHU: When companies are already that big, growing their business and their
profits gets harder and harder. That`s why buying someone else`s business
is often seen as a preferable option for using a company`s capital.

DAVID MARCUS, EVERMORE GLOBAL ADVISORS: What you really have is companies
buying growth. They add it on, and that sets a new base for their
business, and then as growth slowly comes back, their earnings can really
explode. So, there`s a lot of opportunities. But you have to do your
homework. Not every deal is a good deal.

CHU: So, are there really that many companies looking to do these big
transactions on this massive scale? Well, according to Peterson, there`s
only been 10 announced mergers of at least $20 billion in size so far
today. That compares to 17 last year and 22 in 2015.

We`re also seeing what`s on pace to be an overall decline in dollar volume
of merger activity. And that could mean potential upside for the stock
market.

PETERSON: We have five or six occurrences where M&A declined in one year.
The following year, equity prices improved.

CHU: Predicting the markets with a long term successful track record is a
fool`s errand. But many experts feel as though even with all the merger
activity that we`re seeing, it doesn`t necessarily mean we`re at a market
top.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

HERERA: So, let`s turn now to Mark Luschini to talk more about what all
that deal activity means for the stock market. He is the chief investment
strategist at Janney Montgomery Scott.

Nice to see you again, Mark. Welcome back.

MARK LUSCHINI, CHIEF INVESTMENT STRATEGIST, JANNEY MONTGOMERY SCOTT: Thank
you, Sue.

HERERA: Well, which is it? Is it companies buying growth or is a market
overheating? Or maybe somewhere in the middle of those two things?

LUSCHINI: I suggest it`s probably somewhere in between. I`m sure some
companies are going to be desperate to try to find growth by way of
acquisition. And as was mention income the previous segment, the cost of
capital is exceedingly low right now. So, to fund the acquisition instead
of using up cash through the credit markets is an option that`s available
to them.

But I think more so it`s indicative of two things. We`ve seen an increase
in CEO confidence levels that`s helping us to embark on a capital
expenditure up cycle that I think has some legs to last it. I think that`s
going to be a nice boost for economic activity overall. But there`s
confidence, though, in the sturdiness and the durability of this economic
expansion we`re experiencing at the moment.

I think secondly, it`s also a function of the fact that we`re in that
regulatory environment where we may not see necessarily massive roll back
of regulation, just not new regulation imposing on businesses. As a
consequence of that, I think the business community is finding this
opportunity ripe to make bold acquisitions.

MATHISEN: Election Day was one year ago tonight, Mark. How far we have
come? Are you surprised that the market has taken off the way it has?

LUSCHINI: Well, clearly. I mean, we`ve seen one of the best advances in
the first year term of a president in history. So, not necessarily because
it`s all attributed to Donald Trump and his administration. I think a lot
of it has to do with the improving economic fundamentals, not only here
domestically but on a global front.

But that said, I mean, the advances have come a long way in the course of
12 months and valuations are pretty demanding. So, it`s going to take not
only continued economic improvement but also I think an administration
that`s going to be careful about policies as it relates to their
activities, helping to understand what it will take to not only continue to
foster an environment that`s good for the business community but maybe even
accelerate growth by way of something like the corporate tax reform package
we`re expecting to see here over the coming months or even weeks.

HERERA: You said the valuations are somewhat demanding. Does that mean
that you would not be surprised to see a bit of a correction?

LUSCHINI: Sue, I mean, if you look at most indicators, the market is
overbought at this juncture. So, we may see a correction in time as
opposed to in price. But either way, should we see the market go more
sideways than up or perhaps pull back a little bit because we don`t have a
fresh catalyst to move stocks in a measured level higher from here, that
would not shock me nor would it derail me from my otherwise bullish
position in my belief that we`re going to see equities continue to advance
not only the remainder of this year but well into 2018 as well.

HERERA: On that note, Mark, thanks so much, as always.

LUSCHINI: You`re welcome, Sue.

HERERA: Mark Luschini with Janney Montgomery Scott.

MATHISEN: To the economy now. There are more than 6 million job openings
in the country right now. According to the Labor Department, that is close
to a record number and those that underlying demand for workers remains
healthy. The report also shows that Americans are quitting jobs at a
healthy pace, something that could help lift wages.

HERERA: In his first public comments as a Federal Reserve official,
Governor Randall Quarles said the Central Bank should take a fresh look at
regulations, including stress tests, capital holdings, and living wills.
Quarles is serving as chair of bank supervision, a position created as part
of the post-financial crisis reforms under Dodd/Frank. In his remarks
today, he said he would like to see the Fed become more transparent
especially when it comes to the annual bank stress tests.

MATHISEN: President Trump spent the day in South Korea, the first state
visit of a U.S. president to that country in 20 years.

And as Kayla Tausche reports, the president was measured in his remarks.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It was
a day of pomp and circumstance, with serious issues at the forefront, as
President Moon received President Trump at the blue house. The leader
calling on other nations to join them in pressuring North Korea to halt its
nuclear aggression. Even as President Trump suggests diplomatic efforts
are working.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: I think we`re making a lot
of progress. I think we`re showing great strength. I think they
understand we have unparalleled strength.

TAUSCHE: President Trump`s first stop in Seoul, Camp Humphrey, a military
base jointly funded by the two nations, home to 26,000 soldiers and their
families. In the city center, heavy police presence to keep demonstrators
at bay, supporters waving American flags and some praising Trump`s tough
talk.

Opponents criticizing him for provoking a war with North Korea and ramping
up military capabilities.

TRUMP: We have the greatest military equipment in the world. And South
Korea will be ordering billions of dollars of that equipment, which frankly
for them makes a lot of sense, and for us, it means jobs, it means reducing
our trade deficit with South Korea.

TAUSCHE: Trump says the new sales agreed to by the countries will boost
U.S. jobs and reduce its trade deficit. That deficit the reason Trump is
revisiting a five-year-old free trade deal with Korea.

Jeffrey Jones is with the American Chamber of Commerce in Seoul. He says
one industry in particular needs adjustment.

JEFFREY JONES, AMCHAM KOREA: Our biggest problem, quite frankly, with the
deficit is the automobile. The Koreans are sending more automobiles to the
United States than we are sending to Korea. This market here is very
small. The market in the U.S. is very big.

TAUSCHE (on camera): After addressing Korea`s national assembly, Trump`s
next stop is Beijing, where he`ll again home in on trade deficits, the U.S.
is with China is its largest, and ask China to keep exerting pressure on
North Korea.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, Seoul, South Korea.

(END VIDEOTAPE)

HERERA: And as Kayla just mentioned, the president does make his way
tomorrow to Beijing for high stakes meeting, where he will be discussing
things like trade, market access and investment with the head of the
world`s second largest economy.

Eunice Yoon is in Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chinese government
is promoting President Trump`s trip as a state visit plus. The foreign
ministry said today that the president would enjoy the same lavish dinners,
welcoming ceremony, and bilateral meetings as for any state visit, but that
the authorities here would add a few personal touches, cozy and casual
events so that the two state leaders could continue to get to know each
other personally.

The ministry said this is reciprocity for President Xi`s intimate trip to
Mar-a-Lago.

On the agenda, North Korea and trade. Both Chinese and U.S. officials say
that the focus is going to be to address the trade deficit. The
expectation is that the two will announce concrete deliverables. And based
on the delegation traveling with the American president, the deals with
center on energy, agricultural products, planes and other equipment.
Goldman Sachs (NYSE:GS) CEO is also traveling with the president and is
expected to announce a partnership with the Chinese sovereign wealth fund,
CIC, to co-investment $5 billion in American manufacturing.

Many in American business community here are worried that the emphasis on
the trade deficit could potentially distract from some of the larger issues
that they feel are important, like market access, tech transfers and
competition in the industries of the future.

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

(END VIDEOTAPE)

Still ahead, a business that`s skyrocketing.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Morgan Brennan
in Huntsville, Alabama. Behind me, defense missiles built by Raytheon
(NYSE:RTN) and ready to be deployed to help counter the growing threat of
North Korea. We`re bringing you unprecedented access into America`s
missile defense system, coming up on NIGHTLY BUSINESS REPORT.

(END VIDEO CLIP)

MATHISEN: On his trip to Asia, President Trump is urging our nation`s
allies to spend billions on American military gear, including missile
defense systems.

Morgan Brennan traveled to multiple cities for unprecedented access to
Raytheon`s operations. She went to Huntsville, Alabama, Tucson, Arizona,
and more.

(BEGIN VIDEOTAPE)

BRENNAN (voice-over): Tucked behind security gates in the Arizona desert,
Raytheon (NYSE:RTN) is building three new facilities, to better handle a
business that`s skyrocketing. Raytheon (NYSE:RTN) makes missiles, radars,
and sensors, key technology that contributes to America`s missile defenses.

DR. TAYLOR LAWRENCE, RAYTHEON PRESIDENT OF MISSILE SYSTEMS: Basically this
is all spacecraft that once it`s released, it has to maneuver going over
10,000 miles an hour to get to the target and hit in a very specific place
to take out a nuclear warhead that`s coming in.

BRENNAN: That little spacecraft sits inside a rocket buried underground in
an Alaska or California. It`s a crucial piece of the Homeland Missile
Defense System made by Boeing (NYSE:BA), a system in place to counter an
intercontinental ballistic missile attack.

The mounting threat of such an attack by North Korea is fueling demand for
missile defense, benefiting companies like Lockheed Martin (NYSE:LMT),
Boeing (NYSE:BA), and Raytheon (NYSE:RTN), which has a hand in all of
America`s missile defense systems.

LAWRENCE: We`re definitely seeing a very strong demand signal for
increases in missile defense just because of the threat situation in the
world today.

BRENNAN: There are four different types of missiles defense. Boeing`s
Homeland System, Raytheon`s Patriot, Lockheed Martin`s Terminal High
Altitude Area Defense or THAAD, and Lockheed`s Aegis System.

(on camera): Here in Huntsville, Alabama, Raytheon (NYSE:RTN) is storing
its missiles in here before they`re sent off to U.S. and Japanese warships
in the Pacific to help defend against a potential North Korea attack.
These structures are filling up and more orders are likely to come.

(voice-over): Experts say demand is broad based across all systems,
ushering in a missile renaissance.

THOMAS KARAKO, CSIS SENIOR FELLOW: Both strike missile capability and
missiles defenses are ramping up in terms of the interest for them, both
with the United States, with our partners and allies and also among our
adversaries. There`s a lot of air defenses, there`s a lot of missile
defenses out there. And you see a lot of really big buys, not measured in
millions but in billions of dollars.

BRENNAN: U.S. lawmakers are looking to boost the missile defense budget.
And President Trump requested even more funding this week.

Allies are buying these big ticket systems as well, including Saudi Arabia,
Poland, Japan, and now, Sweden. As government spending increases and the
technology continues to evolve, it`s driving growth for those in the
business of keeping America and its allies safe.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Huntsville, Alabama.

(END VIDEOTAPE)

HERERA: Valeant posts a profit and that`s where we begin tonight`s “Market
Focus”.

The drug maker said strength in its Bausch & Lomb eye care business led to
stronger results that topped expectations. The company also maintained its
full year guidance for earnings, and said it paid off about $6 billion in
debt. The shares pop 17 percent to $14.10.

Mallinckrodt is warning that its sales of its top selling drug are
declining. The pharmaceutical company reported weaker sales of its costly
multiple sclerosis treatment and said pressures from payers resulted in
unfilled prescriptions. In the latest quarter, the company`s overall
revenue disappointed, while earnings were a beat, but shares got crushed
nonetheless. They fell 35.5 percent to $20.11.

Despite facing hurricane disruptions, Royal Caribbean grew profits at a
more robust pace than the street was expecting. Sales were also higher
than expected. The cruise operator said it is seeing strong demand for
2018 bookings. Royal Caribbean shares made waves. Get it? They rose 3
percent to $129.23.

MATHISEN: Tapestry, the company formerly known as Coach (NYSE:COH),
reported revenue in same store sales that fell short of estimates. The
luxury goods maker blamed the miss on inventory issues and the hurricanes.
But it did note it has returned to growth so far this quarter. Earnings
topped expectations and the company said it is on track to meet its full
year outlook. Shares of Tapestry up a percent at $41.93.

After the bell, the online real estate company Zillow reported results
ahead of street estimates. The company also said it saw a rise in the
number of users. Shares initially higher in the extended session but they
finished the regular day down 2 percent to $39.97.

Snap also reported after the bell but its results struck a different tone
entirely with investors. The parent company of Snapchat saw sales for the
quarter fall well below estimates and said daily active users, a key
measure, grew at slower than expected rates. Snap narrowly beat
expectations. Shares were pressured in after hours. They did end the
regular session, as you see there, up almost 2 percent at $15.12.

HERERA: The activist investor Bill Ackman lost his proxy battle with ADP,
the $50 billion payroll processing term. Ackman failed to gain any board
seats after shareholders voted to reelect all of its directors. But
despite today`s loss, Ackman says he wants to see the company be
successful.

(BEGIN VIDEO CLIP)

BILL ACKMAN, PERSHING SQUARE CAPITAL CEO: We`re rooting for them. We hope
they`re successful. If they are successful, the stock price is going up a
lot. If they disappoint, we`ll get in there and we`ll be able to make the
necessary changes to make this a much more profitable business. That is
the business of shareholder activism.

So, we have won and we have lost proxy contest in our history. We`ve run
very few. But it`s one of the tools that we use in order to influence a
company.

(END VIDEO CLIP)

HERERA: Ackman had called ADP`s management inefficient and blamed them for
the company`s poor performance. But after today`s results, the CEO of ADP
says it`s time to move on.

(BEGIN VIDEO CLIP)

CARLOS RODRIGUEZ, ADP CEO: I think it`s the largest margin of victory of
any large cap proxy contest ever. And so, I think that would hopefully be
the message to Bill that it`s time to move on. I think that the pension
plans and other investors that put money into this fund and charge him and
pay the exorbitant fees he charges and give up 30 percent of the upside
will be well served to deliver a message to him that he should move on and
focus on something else.

(END VIDEO CLIP)

HERERA: Shares of ADP rose today and are up about 9 percent so far this
year.

MATHISEN: Apple (NASDAQ:AAPL) has denied accusations it moved its
operation from Ireland to an offshore tax haven to avoid taxes. The denial
follows the release of the so-called “Paradise Papers” which we told you
about yesterday. Those leaked documents reportedly show that the company
shifted key parts of its business to the Isle of Jersey as an offshore tax
haven. According to a statement, Apple (NASDAQ:AAPL) is the largest
taxpayer in the world, paying $45 billion in corporate income taxes over
the past three years.

HERERA: Coming up, own a car? Why some say that may very quickly become a
thing of the past.

(MUSIC)

HERERA: Toyota (NYSE:TM) apparently hitting some roadblocks in its biggest
market. Japan`s largest automaker said sales in North America dropped to a
nearly three-year low. The company now struggling to sell cars, and as a
result, it`s increasing incentives. It`s also dealing with a shortage of
its popular RAV4 crossovers.

But there was good news: Toyota (NYSE:TM) upgraded its full year operating
profit forecasts on expectations of a weaker yen.

HERERA: So, are you ready to hail a ride in a self-driving minivan? Well,
there`s new service starting up that will give people rides in advance
where there is no one in the front seat.

Phil LeBeau explains.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Get ready
for driverless cars that take you around town, or at least around the
Phoenix area. Waymo, formerly known as Google`s self-driving car project,
will soon start offering rides to the public in self-driving vans where
there is nobody in the front seat.

JOHN KRAFCIK, WAYMO CEO: A lot of these studies, if you put them all
together in one meta-analysis, the basic number is about 50 percent of
folks, it seems, are ready to experience a true driverless ride. We think
that`s a great show of confidence in the technology. We think getting
people in our cars is going to help increase that level of confidence.

LEBEAU: Waymo`s ride sharing service will directly compete with Uber and
Lyft who pioneered the market. In fact that he dominate it, with Uber
giving an estimated 70 percent of the rides in the U.S., while Lyft drivers
provide 25 percent. Others have the remainder of the market, including
BMW`s Reach Now Service.

Meanwhile, GM`s cruise automation is developing self-driving vehicles, as
automakers and tech companies rethink how we get around.

Even a former executive for General Motors (NYSE:GM) believes it may not be
long until most of us give up buying or driving a car.

BOB LUTZ, FORMER GENERAL MOTORS VICE CHAIRMAN: It is absolutely
inevitable. I mean, human-driven vehicles are on their way out, except at
automotive country clubs and off-road dude ranches.

LEBEAU: After testing its self-driving vehicles over 3 million miles on
public roads, and millions more in simulation, Waymo says its minivans are
not only safe but also ready for paying customers.

KRAFCIK: You`ll see us over the course of the next several months and
quarters, beginning service, that same sort of service in other parts of
the U.S.

LEBEAU (on camera): At least initially, Waymo`s self-driving mini vans
will have a Waymo representative sitting in the third row to answer any
questions or in case there`s a problem. But over time, it will eventually
be either the passenger or passengers sitting all alone with no one behind
the steering wheel.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: And Phil says he would happy ride in one of those driverless
cars. In his report, you heard the former GM executive Bob Lutz say human-
driven vehicles are on their way out. He said it could happen in 20 years
or so, essentially ending the auto industry as we know it.

Rebecca Lindland is an executive analyst with Cox Automotive and she joins
us now to discuss.

Is Bob Lutz right, Rebecca?

REBECCA LINDLAND, EXECUTIVE ANALYST, COX AUTOMOTIVE: He`s right in that I
think eventually we will get there. His timeline is very, very aggressive,
though, for seeing no cars on the road, because you`re talking about in the
next 10 to 15 years, and then that gives five years for people to get rid
of their cars, to scrap their cars, and that leaves 20 years.

I think it`s right in that we are definitely heading in that direction.
But actually getting there, I think is a very aggressive timeline.

HERERA: So where are you on the timeline in terms of what the progression
will be?

LINDLAND: Well, you know, sue, we`re already starting to see more vehicles
with autonomous vehicles or self-driving features, automated driver assist
systems. Those are things like lane keep assist. And you`ll actually be
driving down the road and the car will actually move you back into your
lane if you start drifting.

So, we`re already — that`s called level 2 in autonomous vehicle lingo.
And so, we`re already starting to see more and more vehicles moving into
that direction. But getting to level 5, which is what Bob is talking
about, where no steering wheel, no brakes, you`re basically in just a pod,
that`s — I equate that to getting to, you know, the top base camp at
Everest and not actually getting to the very top of Everest. It`s really
going to be difficult moving past and get full autonomous pod-like
structures.

MATHISEN: I`ve got a lot of questions but let me start with a couple of
them. My sense is that people actually like to drive.

LINDLAND: Absolutely, Tyler. I started out my morning in a $2 million
Bugatti Chiron. So, and let me —

MATHISEN: Oh, name dropper.

LINDLAND: I know, right? That`s a not so humble brag. And that was a
spectacular experience, I`m not going to lie, you know?

So, it`s absolutely a joy to drive. I lived for two years in Saudi Arabia
and I wasn`t allowed to drive. And so, there is this element of enjoyment,
of freedom that you get from driving.

Now, people will say, well, that`s because you`re old, and young people
don`t want to drive. But we`re actually still — we`re continuing to see
an evolution in terms of younger people.

MATHISEN: My second question is, I have some of those autonomous features
on my car, lane assist. But I know better than those things. I know that
I can get over, and they`re beeping at me, and it gets me frustrated,
Rebecca.

LINDLAND: Absolutely. I was on a test track, and they actually had to
turn them off because the steepness of the hill as we were driving up, the
car would stop just as we were coming out of the straightaway, because the
hill was so steep.

MATHISEN: Yes.

LINDLAND: So there`s actually — there`s a ton of stuff still to work out.

MATHISEN: All right. Rebecca, thank you very much. And I`ll keep you
posted. Rebecca Lindland with Cox Automotive.

(LAUGHTER)

HERERA: And finally tonight, United Airlines is bidding farewell to the
Boeing (NYSE:BA) 747. The double-decker plane is widely credited with
making air travel more affordable for millions of people. United`s final
747 flight took off from San Francisco in route to Honolulu, the same route
as its first flight in 1970, complete with cabin crew that will be dressed
in uniforms from that decade.

Delta is the only U.S. carrier still flying the 747. Its final flight is
scheduled for next month.

MATHISEN: Wow, the passing of an era.

HERERA: It definitely is.

That does it for us tonight. I`m Sue Herera. Thanks so much for joining
us.

MATHISEN: I`m Tyler Mathisen. Have a great evening. See you tomorrow.

END

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