Transcript: Nightly Business Report – November 13, 2017

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Electric shock. GE cuts
its dividend for only the second time since the Great Depression. And
that`s not all it`s slashing.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Paying dividends. After GE`s
cuts, what are some safer investments that pay you back?

MATHISEN: Fueling up, as airlines pay more, will fares go higher?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday,
November 13th.

HERERA: Good evening, everyone. And welcome.

It hasn`t been a pretty year for General Electric (NYSE:GE). And today, it
was downright ugly. The embattled company outlined a new agenda with a
renewed focus, aggressive cost cutting and reduced dividend. On an
investor call, the CEO of the 125-year-old industrial conglomerate said the
changes marked an opportunity of a lifetime to reinvent to an iconic
company.

But on the same call, he also apologized for the company`s poor
performance. So far this year, shares of this widely held stock that you
probably owned in a retirement account, mutual fund or an ETF are down 40
percent. Today, after announcing GE`s turnaround strategy, the stock lost
7 percent of its value on very heavy volume. Its worst day since 2009.

Morgan Brennan takes a look at the road ahead for GE.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Cut
dividend, cut guidance, cut assets, those cuts are the crux of General
Electric (NYSE:GE)`s new strategy under CEO John Flannery. Today,
Flannery, who took the helm in August, outlined big changes for the
struggling industrial giant.

JOHN FLANNERY, GENERAL ELECTRIC CEO & CHAIRMAN: Going forward, we really
have to focus on how we can create the most value of portfolio of assets
that we have for our owners, and we`re going to do that with a very
dispassionate eye.

BRENNAN: For only the third time since 1899, GE`s dividend was cut today,
reduced by half, as the new CEO looks to drum up cash and remake the
company.

GE has long been bought for that payout, with about 40 percent of
shareholders retail investors, many dependent on that income. Still the
move was widely expected. What wasn`t was the guidance.

BARBARA NOVERINI, MORNINGSTAR ANALYST: The market is just having a really
difficult time at sort of envisioning what GE`s long-term trajectory is
going to be and where the company is going to sort of, you know, shake out
at the end of all of this.

BRENNAN: GE now forecasts profit of $1 to 1.07 per share next years, 50
percent less than originally anticipated. That sent shares of the Dow`s
oldest component tumbling.

But Flannery also outlined a new strategy, one focused on GE`s core
business of power, aviation, and health care. Over the next two years, he
plans to exit more than a dozen others, including transportation and
lighting. A GE business harking back to the days of Thomas Edison.

Even the stake in oil field services giant Baker Hughes (NYSE:BHI) could be
up for grabs.

(on camera): But it will take time. The reason Flannery says 2018 will be
a reset year, one that will be, quote, extremely hard with major changes
and detailed execution. After that, though, he says profits should grow,
and with it hopefully, finally the stock.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in New York City.

(END VIDEOTAPE)

MATHISEN: Well, Ivan Feinseth joins us now to talk a little bit more about
GE`s turnaround plan and the road ahead for the company. He`s a partner
and chief financial officer at tigress financial partners.

Ivan, good to have you in the studio tonight.

IVAN FEINSETH, CIO, TIGRESS FINANCIAL PARTNERS: Thank you.

MATHISEN: Is this the bottom for General Electric (NYSE:GE)?

FEINSETH: I think this marks the bottom. The sell off today on the
dividend cut I think is the reaction, the final sell-off where all of the
income funds had to sell it, I think it needed a bold move. And the
dividend cut was a bold move.

MATHISEN: Is it a parabolic move back or a little bouncing along the
bottom before it begins to get some traction?

FEINSETH: Well, I think that at current levels, it could represent a long-
term opportunity. I don`t think it goes right up, but what the CEO spoke
about today, Flannery spoke about, as being focused, he spoke about cost
cutting, and spoke about a company that`s focused in health care and in
aviation, and in power generation, so he pretty much said health, light and
flight is going to be the company`s focus.

The dividend I think was the bold move that shows he`s committed to turning
the company around.

HERERA: Others on the street, though, think that the stock price and the
reaction today is telling a different story, that he needs to do more, that
he missed an opportunity, and that the company needs to be broken up.

FEINSETH: Well, I don`t think breaking up a conglomerate makes a better
company. If you break it up, there will be nothing left. I think being a
more focused company will be positive.

And everybody is going to wait and see what the results are, but I think
we`re probably close to a bottom in the stock, and I think the new
leadership and some of the new actions are usually what it takes to put it
in the bottom and change the direction of a company.

MATHISEN: He had to cut the dividend, right?

FEINSETH: Well, I think for two points, one, it does free up cash.
Second, it shows that he`s willing to take bold moves. And that is the
key. GE has needed a seismic shift for quite some time. And also, the
current dividend of 48 cents versus the new earnings per share guidance
puts it in line with the targeted dividend payout of 45 percent. So, he is
now going back to the disciplined ratios that they have tried to live
within.

HERERA: If you had a near-term target for the stock, and you`ve been
looking for a dividend cut for a while, so they have not achieved that
objective, in your mind. If you had a near-term target for the stock, what
would it be?

FEINSETH: Well, I think it probably staying around the $19, $20 range for
a while, maybe to the end of the year, because you`re going to have some
tax loss selling. And then I think that for the long term, this is an
opportunity to buy an iconic company. And in many cases, when you buy good
companies when they`re going through a hard time it has paid off.

HERERA: Yes.

FEINSETH: So, GE has had a hard time for a long time. So I think that the
things are in place for a bottom. The next thing we need is the catalyst
that will make the stock go up.

MATHISEN: If this were politics, the current CEO/president would be
blaming the predecessor CEO/president.

FEINSETH: Yes.

MATHISEN: How much of that would be valid criticism?

FEINSETH: Yes, I think he`s being politically correct by not doing that,
because the market has done that. There`s no point blame somebody else.
But the prior CEO made a lot of bad decisions, and timed a lot of his
decisions poorly as well, and I think it`s all about looking forward, and
he wants to change the company for the future.

MATHISEN: Right.

FEINSETH: I mean, GE is probably the leading jet engine manufacturer, and
there`s strong engine demand. Look how well Boeing (NYSE:BA) is doing, and
there`s big demand for jet engine upgrades in existing plane and greater
fuel efficiency and update engines for helicopters and all the kinds of
aircraft. Military orders are strong. They are winning a lot of contracts
for new military orders. So, the jet engine business —

MATHISEN: They`re in a good spot there.

FEINSETH: Yes.

MATHISEN: Ivan, thank you very much.

FEINSETH: Thank you.

MATHISEN: Ivan Feinseth with Tigress Financial Partners.

And later in the program, we`ll get some investing ideas from a market pro
who says the dividends are safe at the companies he recommends.

HERERA: Well, despite GE`s sharp decline, the broader market managed to
close slightly higher. Sentiment on Wall Street has been driven by deals
lately. And today reports, that Hasbro (NYSE:HAS) made a takeover offer
for Matel that we told you about on Friday, contributed to the buying. The
Dow Jones Industrial Average was up 17 points to 23439. The Nasdaq added
six. And the S&P rose two.

MATHISEN: New developments in a proposed megamerger. Qualcomm
(NASDAQ:QCOM) has rejected Broadcom (NASDAQ:BRCM)`s $105 billion
acquisition offer, setting the stage for possibly one of the biggest
takeover battles ever. Qualcomm (NASDAQ:QCOM) says the offer undervalues
the company and that putting the two together would spawn regulatory
issues. Broadcom (NASDAQ:BRCM) says it continues to believe that its
proposal is attracted and that it`s encouraged by the reaction of
stakeholders.

Both companies count Apple (NASDAQ:AAPL) among their biggest customers.

HERERA: A Federal Reserve official today said he expects to back an
interest rate increase next month. Philadelphia Fed President Patrick
Harker added that inflation, which has drifted lower, continues to make him
cautious. This has happened even as unemployment has fallen. The central
bank has raise rates twice this year. Harker is considered a centrist,
though, when it comes to monetary policy.

MATHISEN: Oil prices rose ever slightly to settle above $56 a barrel, to a
near 2 1/2-year high. Over the past month, domestic crude prices have
risen more than 10 percent. The increase is exactly what OPEC wants to
see. And the cartel hopes that the longtime glut of crude will soon turn
into a deficit.

Jackie DeAngelis explains.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: As crude oil
nears $60 a barrel, every move OPEC makes is being carefully watched. In
its October report, the powerful group of producers reported production
fell slightly by 150, 000 barrels a day, to a little more than 32-1/2
million barrels.

While the drop wasn`t dramatic, it did show that production is headed in
the right direction, and that compliance with the group`s promised
production cuts is high. Even more telling, where production dropped.
Iraq and Iran, countries that ramped up output in the past, reduced it a
bit last month. Saudi Arabia and Libya still showing increases.

While the market has been focused on these supply points, it`s also paying
careful attention to demand forecasts. This report increased expectations
slightly for next year to almost 100 million barrels per day, citing China,
Europe and India as the key drivers of growth.

JEFF KILBURG, KKM FINANCIAL FOUNDER & CEO: We`re all going to be focused
on OPEC member meeting November 30th. That has been the driver. They`ve
seen the effectiveness of their production cuts, but right now, it seems
like they want to extend those production cuts, be very clear and succinct
to the market that these cuts are going to be another nine months, all the
way through 2018. And that effectively takes 2 million barrels a day off
the market. And that is really focusing in drilling in on the supply
equation.

DEANGELIS: Meantime, here in the United States, higher prices have meant
more production. The Energy Information Administration reporting last week
that U.S. output eclipsed its 2015 high. The worry that shale`s emergence
as a swing producer could swing prices the other way.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

HERERA: Coming up, are companies bearing the brunt of the massive breach
at the NSC?

(MUSIC)

MATHISEN: Bitcoin has had a very volatile few days. The price of the
crypto currency rose today, rebounding almost after losing a third of its
value in less than four days. Many believe that the fall that began late
last week was because of a decision to abandon a software upgrade that
would have made the network more practical for users and ultimately help
lower fees. Bitcoin has gained nearly 600 percent still this year, but
investors remain divided on the future of the alternative currency.

HERERA: Wall Street bankers may see higher bonuses this year for the first
time in four years. According to a survey from a consulting firm Johnson
Associates, incentive pay is expected to rise by 5 percent to 10 percent.
Bankers who work on corporate debt and stock offerings will likely see the
biggest jumps. The traders are expected to see a drop in their bonus pay.

MATHISEN: The president nominated a drug company executive to be the next
secretary of health and Human Services. Alex Azar was until January the
head of Eli Lilly (NYSE:LLY)`s U.S. division. He also served as a deputy
at the HHS Department until George W. Bush. The announcement was made by
President Trump in a Twitter post while he was in Asia. He tweeted that
Azar, quote, will be a star for better health care and lower drug prices.

Former HHS Secretary Tom Price resigned in September amid controversy over
the use of chartered flights for government travel.

HERERA: The president will head to Capitol Hill on Thursday to speak to
House Republicans about their push for tax reform. House leaders could put
their tax bill on the floor that same day. Congress wants to finish the
legislation before the end of the year.

MATHISEN: The National Security Agency or NSA was a victim of a deeply
intrusive cyber-breach. That we know. What we didn`t know was that the
breach has taken a very big toll on the country`s most secretive
intelligence agency. And the business community has something to say about
it.

Eamon Javers reports.

(BEGIN VIDEOTAPE)

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The
headline in “The New York Times (NYSE:NYT)” was arresting. Security breach
and spilled secrets have shaken the NSA to its core. The fallout from the
paper`s reporting adding new details to an account of an anonymous group
call the Shadow Brokers, badly penetrating the American spy agency,
stealing some of its most valuable cyber weapons and selling on the black
market rippled through the cybersecurity industry Monday.

The extent of the damage is stunning. “The Times” reported the hack has
led to millions of computers shut down, thousands of corporate employees`
data wiped, and business disruptions from Britain to Brazil, all with cyber
tools that American taxpayers paid to develop. And it`s all reviving a
long-running debate inside the cyber security industry.

Should the NSA even be in the offensive cybersecurity business, or should
it just focus on cyber defense? And what about the companies that have
found themselves bearing the brunt of the damage so far?

Some argue the NSA has to stay in the offensive cyber hacking game, because
the secrets it can steal are vital to American national security, even
though American companies sometimes pay the price.

MICHAEL BOROHOVSKI, TINFOIL SECURITY CO-FOUNDER: Companies aren`t going to
get hurt unfortunately, and they will end up being effectively class real
damage, but it doesn`t make a difference as to whether that collateral
damage is caused by the U.S. and the NSA, or a foreign intelligence
service. If the NSA isn`t finding vulnerabilities, you can be — you can
be sure that a foreign intelligence service still is.

JAVERS: But others are questioning whether gathering these in one place is
actually making American companies more vulnerable.

AJAY ARORA, VERA CEO: The idea that we would put so much trust, so much of
the kind of single points of data, of failure in the hands of a single
organization is something that we need to reexamine not only as
corporations or as individuals, but I think as a country as a whole.

JAVERS (on camera): One analyst told me today that big companies have
always been damaged in warfare. Countries bomb ports, burn fields and
damage infrastructure in armed conflict, but this is peacetime. And the
biggest concern for Americans companies is that there`s no end in sight,
meaning that corporations are the soft underbelly that nation states are
attacking in this new below the radar type of conflict.

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Washington.

(END VIDEOTAPE)

MATHISEN: And the NSA had this to say in response to Eamon`s report,
quote: The NSA regularly discloses information concerning IT
vulnerabilities that NSA personnel discover during the course of their
foreign intelligence activities. If the government decides to whole a
vulnerability from release, it does so only after careful consideration of
the relative risks.

HERERA: Roku inks another licensing deal, and that`s where we begin
tonight`s “Market Focus”.

The streaming device maker said it signed a licensing agreement with
Japan`s Funai Electric to incorporate Roku Technology into Phillips branded
televisions. And that deal would begin this year. Roku`s operating system
is currently included on several television brands. Roku shares popped 28
percent to $42.71.

Tyson Foods (NYSE:TSN) reported a higher than expected profit as a drop in
animal feed costs helped to beef up results. The meat processor and
producers also topped analyst sales expectations and set the strong demand
for chicken and beef products in the latest quarter. Shares of Tyson Foods
(NYSE:TSN) higher by nearly 2 percent to $75.59.

The mall owner General Growth Properties (NYSE:GGP) received a nearly $15
billion offer from Brookfield Property Partners to buy the remaining GGP
shares it doesn`t already own. General Growth said it`s reviewing the bid.
Shares of Brookfield Property Partners fell nearly 5 percent to $22.50, but
shares of General Growth Properties (NYSE:GGP) took off 8 percent to
$24.05.

MATHISEN: A rise in sales helped China`s JD.com report an unexpected
profit. The e-commerce company managed to top expectations, even as it
lost about a hundred thousand merchants to competitors, leading up to
China`s major shopping event singles day. JD.com said it expects apparel
growth to be a weak spot for the company as it recovers from the loss of
major clothing brands. JD.com shares, though, up more than 3 percent on
the session at $41.34.

Madison Square Garden (NASDAQ:MSG)`s chief executive officer David O`Connor
stepping down from his role, being replaced now in the interim by executive
chairperson James Dolan (NYSE:DM). The entertainment venue did not offer a
reason for O`Connor`s departure. Shares of MSG were off 2 percent to $225
on the button.

And after the bell, it was reported that the private equity firm Roark
Capital Group is invested in taking over Buffalo Wild Wings (NASDAQ:BWLD).
“The Wall Street Journal” says Roark offered more than $2 billion plus two
dozens celery sticks for the chicken wings chain. Shares initially took
off after hours trading, but ended the regular day off 1 percent to
$117.25.

HERERA: Uber has reached a deal with Japanese tech investor Softbank.
Uber has not disclosed exactly how much Softbank will invest in the ride-
hailing company. That deal comes after months of internal conflict within
Uber`s board. And it represents an early win for Uber`s new CEO and could
give the world`s most valuable start up an ally as it expands operations
across the globe.

MATHISEN: Well, Walmart reportedly has a new strategy to get customers in
the doors of its stores. The plan includes raising prices online, where it
costs less to sell something. According to “The Wall Street Journal”,
Walmart has already hiked the price of some household items, including
Colgate toothbrushes and Purina dog food. The world`s largest retailer
recently tripled its online selections for the holiday season.

HERERA: Well, from prices at Walmart to prices airlines pay to fuel up.
After two years of enjoying relatively low fuel prices, the industry is now
facing an old worry — dealing with higher costs. The question now is
whether those increased costs will make airfares more expensive.

Phil LeBeau takes a look.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Is this the return of
an old headache for airlines?

Jet fuel prices, which have been relatively low, are now moving higher, up
roughly 10 percent since the beginning of October. In fact, jet fuel
prices are now at their highest point since 2015. For airlines and their
investors, the rise in cost is a concern they haven`t had in several years,
but since jet fuel is the biggest expense an airline faces outside of
labor, the higher prices are worth watching.

What does it mean for travelers? Especially heading to the busy holiday
season?

Fares through the end of the year are unlikely to change much. And with
heavy demand, the few seats still unsold will likely demand a higher price.
But beyond that, the focus is on airfares in the first half of next year.

(on camera): Typically, airfares go up in the spring as airlines
anticipate more people flying. But next year, if jet fuel prices keep
rising, airlines could feel pressure to raise fares faster and more than
usual.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: Still ahead, the hunt for yield stocks that you can count on to
pay you back over the long term.

(MUSIC)

MATHISEN: We`d love to get your help for an upcoming program we`re putting
together on retirement. On Thanksgiving, we will examine the retirement
crisis we hear about all the time. And we want you to be a part of it.
So, go to our website, NBR.com, click on “contact us”, and tell us your
story.

Are you having trouble putting away enough money to retire? Why? What
happened? What if anything are you doing to fix it? You can also go to
our Facebook (NASDAQ:FB) page and post a comment or tweet us @bizrpt.
There`s a chance that your story will be part of our broadcast.

HERERA: As we told you earlier, GE cut its dividend today. And with many
investors turning to higher yielding dividend stocks for retire income,
where else should you be looking for yield that`s safe and not at risk of
being slashed?

Paul Schatz joins us now with some ideas to consider. He is the market
strategist and president of Heritage Capital.

Paul, welcome. Nice to have you here.

Just —

PAUL SCHATZ, MARKET STRATEGIST & PRESIDENT, HERITAGE CAPITAL: Good to see
you, sue.

HERERA: Just a brief note on GE, you say that dividend cuts are lacking
indicator coming mostly at the end of a long decline for the stock. That
certainly applies to GE, but what should you be looking for if you want
stocks where the dividend is safer than what we see at GE?

SCHATZ: That`s right. Dividend cuts really come — usually, if it`s a
football game, the fourth quarter of the game. The fourth quarter of a
decline when volatility expands. If you`re looking at the opposite, some
safer things to look at: one, stocks that are, quote/unquote, safer from
having different cuts are not in huge downtrend. They`re either going
sideways or stocks are rallying. So, that would be number one, which is
pretty simple to look at.

Number two, if you simply divide the dividend by the earnings — not to get
too technical, which is called the dividend payout ratio, it`s dividend
divided by the earnings, if a company is paying to which out in the
dividend, well, obviously, the dividend is in jeopardy of being cut. And
also, if it`s too good to be true, many times it is.

So, if people looking at dividends of 7 percent, 8 percent, 9 percent, 10
percent, not all companies are in jeopardy of cutting them. But there`s
certainly a higher risk to get cut if those dividend yields are very fat in
a very low dividend environment.

MATHISEN: Yes, some of those high yields are really siren songs, yet
Macy`s I think has the highest dividend yield in the S&P 500, but you point
to that one as one that might be in the untouchable category, right?

SCHATZ: No, to me Macy`s looks a lot like GE. So retail has a problem,
industrials don`t, where GE resides, but Macy`s to me looks like it`s a
dividend just waiting and craving to be cut, and probably will get cut.
Everyone is so freaked out about retail because of the Amazon (NASDAQ:AMZN)
bogey out there.

I wouldn`t go near Macy`s. I think retail in general is bouncing now. It
would get benefit from the January effect where the most beaten down stocks
rise in the year end and early in the New Year. But I think the bottom for
retail stocks is —

HERERA: OK.

SCHATZ: — down the road ahead of us, not right here.

HERERA: So, you`ve given you three names where you think the dividend is
safe. U.S. Bancorp (NYSE:USB), a little bit lower dividend, 2.3 percent,
but you think the stability of the stock really plays into the stability of
the dividend?

SCHATZ: It`s one of if not the most stable well-run banks on earth, so
yes, a different yield is a little lower, but I think they`re actually
underreporting earnings. They`re holding back. They`re reserving more for
bad loans, but the bad loans are not springing up for them.

So, I think that`s a great story for 2018, `19 and beyond, and the only
payout, 30 percent of their earnings to investors in the form of dividends.
That`s a really good one.

HERERA: OK. The other two, Pfizer (NYSE:PFE) and Brinker.

Paul, we have to leave it there. Thanks so much for joining us tonight.

SCHATZ: Thank you.

HERERA: Paul Schatz with Heritage Capital.

MATHISEN: Well, Bill Gates has a new mission. The founder of Microsoft
(NASDAQ:MSFT) is making a big investment for fight Alzheimer`s, and he`s
hoping big data can help find a solution. The philanthropist will invest
$50 million in the Dementia Discovery Fund to accelerate research. The
investment is a personal one, not part of his foundation. It will be
followed with another $50 million put into a number of start-up ventures
working on less mainstream approaches to the disease. More than 5 million
Americans live with Alzheimer`s, and that number is expected to grow.

HERERA: And finally tonight, if you are — forgive me — flush with cash,
listen to this. A fully functioning Louis Vuitton covered golden toilet
can now be yours. The artist behind the toilet used 24 different signature
Louis Vuitton bags and suitcase to cover the commode. The piece is on sale
for $100,000 on the online website Tradesy. Call it a lavish loo.

MATHISEN: The most expensive pay toilet of all time.

HERERA: Oh my goodness.

MATHISEN: That gives new meaning to that phrase.

HERERA: It does. It`s not even — I won`t — good night. That`s it for
us. I`m Sue Herera. Thanks for joining us.

MATHISEN: I`m Tyler Mathisen. Have a great evening, everybody. We`ll see
you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by ASC Services II
Media, LLC. Updates may be posted at a later date. The views of our guests
and commentators are their own and do not necessarily represent the views
of Nightly Business Report, or CNBC, Inc. Information presented on Nightly
Business Report is not and should not be considered as investment advice.
(c) 2017 CNBC, Inc.

 

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply