Transcript: Nightly Business Report – December 26, 2017

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Holiday cheer. Shoppers
hit the “spend” button, sending holiday sales higher by the most in six
years. The big winners, and what investors need to know about what going
on in retail.

Falling Apple (NASDAQ:AAPL). Shares have their worst day since August on a
report that demand for its iPhone X might not be up to expectations.

And three for 18. A trio of stock picks that our guest says need to be on
your shopping list for 2018.

All those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
December 26th.

Good evening, everybody. Welcome to the program. I`m Bill Griffeth here
at the New York Stock Exchange. Tyler and Sue have the evening off.

And it seems that many people this holiday season made their lists and
checked them twice, or by the looks of things, maybe even three or four
times. What I mean is, we were in a buying mood, as shoppers came out in
droves this year, driving holiday retails sales, by some estimates, to
their biggest increase since 2011. And that naturally sent the retail
sector higher on Wall Street today.

And as Kate Rogers (NYSE:ROG) tells us now, it might not yet be over.
She`s in West Nyack, New York, for us tonight at, where else, a mall.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Christmas may be over.
But retailers have a lot to celebrate. The latest numbers from MasterCard
(NYSE:MA) point to the best holiday season in more than five years. Retail
sales rose by almost 5 percent from November through Christmas Eve. Online
sales are up even higher, 18 percent. Overall sales are projected to reach
$682 billion.

UNIDENTIFIED MALE: I got an Apple (NASDAQ:AAPL) Watch and a hockey stick.

UNIDENTIFIED FEMALE: A laptop and universal for January.

UNIDENTIFIED MALE: My top gifts, time with the family. My son.

ROGERS: Shoppers aren`t slowing down anytime soon. In fact, they`re set
to spend some $69 billion in the week between Christmas and New Year`s.
Shopper Track projects today, December 26th, as the fourth busiest shopping
day of the season. Shoppers we spoke to were eager to take advantage of
the deals.

UNIDENTIFIED FEMALE: Macy`s (NYSE:M) has like a 40 percent to 60 percent
off. So, I got a great deal on the, you know, Calvin Klein coat. So, I
really look out today.

UNIDENTIFIED MALE: Maybe Foot Locker, maybe check out pants.

UNIDENTIFIED FEMALE: You get good prices. It`s like 50 percent to 75
percent off after Christmas. So, then you can save it for next year.

ROGERS: Because Christmas fell on a Monday this year, shoppers got an
extra Saturday. This weekend, dubbed Super Saturday, was set to be the
second biggest of the season in terms of in-store traffic with people
coming in for the last minute rush.

And while the holiday shopping season may be coming to a close, it`s just
the beginning for returns. An estimated 10 million people are set to
return or exchange gifts. And other shoppers, they`re just around for the
ride.

UNIDENTIFIED BOY: I brought money.

ROGERS: For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG) in West
Nyack, New York.

(END VIDEOTAPE)

GRIFFETH: And many of those sales were delivered right to people`s
doorsteps. As is always the case, there were a lot of them. Those extra
packages created extra logistical challenges for the delivery companies
like FedEx (NYSE:FDX) and UPS. So, how did the big boys do this year?

Morgan Brennan has our report card tonight.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: We won`t have the
full picture until earnings, but early readings suggest UPS and FedEx
(NYSE:FDX) pulled over a record peak season well, despite warning on
Saturday that wind shear had caused disruptions at the main express hub in
Memphis, FedEx (NYSE:FDX) managed to deliver 98 percent of its express
packages on time for the week ended December 23rd.

According to third party tracker, Ship Matrix, adding Christmas Eve, since
some deliveries did go out on the 24th, and FedEx (NYSE:FDX) delivered 99.9
percent of its packages on time. It was a similar performance for UPS.
After sorting a record number of shipments at its main air hub in
Louisville, 96 percent of its express packages got there on time, including
Christmas Eve, over 99 percent.

DONALD BROUGHTON, MANAGING PARTNER, BROUGHTON CAPITAL: Three things that
helped packages get delivered on time this season were, one, big
investments by everybody in the industry, and better service, better
equipment. Two, no bad weather. And three, customer expectations. People
in the last couple of weeks spent more time going to brick and mortar and
less time online.

BRENNAN: But getting there wasn`t easy. UPS repurposed several hundred
office staff to help sort and deliver packages this holiday season. The
company has assembled these so-called ready teams in the past. But this
year, it did so with less lead time as volumes turned out to be higher than
expected in some markets.

Drivers worked extended hours as well. Record volumes, strong service, but
executed in the midst of a tight labor market. UPS and FedEx (NYSE:FDX)
were looking to hire a combined 145,000 seasonal workers. It was tough
finding folks.

BROUGHTON: We`re going to see more automation. We`re going to see more
robotics. It`s going to happen. It`s coming. Like it or not, because
they can`t find people to do the job.

BRENNAN: But the pick shipping season isn`t over yet. Now returns start,
and as online shopping continues to soar, so too do the packages headed
back to retailers. UPS expects the busiest day for returns will be January
3rd.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

GRIFFETH: And it`s no surprise that Amazon (NASDAQ:AMZN) was one of the
big drivers of those package deliveries. This was its best holiday season
yet. Amazon (NASDAQ:AMZN) said more than a billion items were ordered
during the period, and that in one week alone, more than 4 million people
either became members of their Prime service or started a free trial.

Overall, Amazon (NASDAQ:AMZN) is expected to grab more than half of new
holiday sales this year online.

Shares were up a fraction today.

And looking at ahead, what does the New Year have in store for this online
retail giant?

Our Deirdre Bosa takes a swing for us tonight.

(BEGIN VIDEOTAPE)

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: 2017 was a big year
for Amazon (NASDAQ:AMZN). Its stock crossed $1,000 this year. It splashed
into brick and mortar with its purchase of Whole Foods. Jeff Bezos became
the world`s richest man. And Alexa — well, Alexa became a household name.

So, what`s in store for 2018?

Here are three predictions.

First, as Amazon (NASDAQ:AMZN) sells more smart speakers, consumers will be
more than ever with just their voice, from shopping online to controlling
the home. But it will be a high tech battle between tech titans as they
battle to get their devices into your home. So, expect more third party
developers for Alexa and a bigger skills catalogue.

Second, we`ll find out if 2018 is the year consumers finally embrace online
grocery shopping, this as Amazon (NASDAQ:AMZN) continues to lower prices
and integrate prime membership into Whole Foods. Other grocers you can bet
are watching closely and they`re already boosting their delivery
capabilities.

Third, next year, Amazon (NASDAQ:AMZN) will select its second home known as
HQ2. While the company`s Seattle hiring boom is cooling off, you can
expect a new growth spurt in a new city.

For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa in San Francisco.

(END VIDEOTAPE)

GRIFFETH: OK. So, it was the strongest holiday shopping season since
2011, but maybe not for everybody. Let`s talk about who might emerge as
the winners and losers this year.

Joining us tonight, Sucharita Kodali, who is retail analyst at Forrester
Research (NASDAQ:FORR).

Good to see you again. Thanks for joining us.

SUCHARITA KODALI, FORRESTER RESEARCH RETAIL ANALYST: Thanks, Bill.

GRIFFETH: You know, right out of the Black Friday weekend, we kept hearing
how strong sales were this year. Why this year? What was going on?

KODALI: Well, I think that there are a handful of macroeconomic factors.
You have low unemployment, which naturally enables consumers to have more
disposable income for shopping, in addition to just generally high consumer
confidence. So, those are really, really big factors.

And then you have the earlier-alluded to Monday Christmas, which allows
that extra weekend for last-minute shopping. So, all of those factors
together make for great shopping numbers, ultimately, for the retailers.

GRIFFETH: Eighteen percent gain for online, of course, those sales will be
smaller than the brick and mortar, so, you know, the law of big numbers,
they aren`t that big yet. But still a stellar increase this year. Who are
the winners in that category besides Amazon (NASDAQ:AMZN)?

KODALI: Well, you have a handful of pure plays. Pure plays are the online
only retailers, companies like FC will be doing well. EBay has had a great
Q4 over the last couple of years, they`ve had great management decisions
and a lot of good promotions for customers.

You have company like Howe`s. Howe`s which is an emerging player in the
home space. These are big players we see doing really well.

You also have a lot of really small lesser known pure plays that are likely
to be doing well also, companies like Warby Parker or Bonobos, which has
been getting a lot of traction with consumers in recent years as well.

GRIFFETH: And then you have those that blend the brick and mortar with e-
commerce, which I think you would agree with the business model for the
future. Walmart is one that stands out. Who else did you see that did
well this year?

KODALI: Well, you have a lot of the small format stores actually doing
really well, companies like five below, which are experiencing double digit
year over year growth and are just starting to invest in their dot-com
presence. You have the dollar channel doing really, really well these
days, and they`re really good about merchandising their stores with
seasonal assortment. Off-price retailers like T.J.Maxx and Ross, they`re
doing particularly well.

So, you have a lot of retailers with strong year over year growth, as well
as the stalwarts of retail like Costco (NASDAQ:COST) and Walmart,
naturally.

GRIFFETH: And then the losers, I keep hearing this is a make or break year
for some of the retailers, the Sear`s, the Toys “R” Us, you know, some
companies like that that have been struggling so much. What`s your outlook
there?

KODALI: Well, I think the issue with some of those retailers is that they
are particularly challenged. Their stores are not in great locations.
JCPenney is on that list too. So, we`ll see if Q4 gives them any boost and
any bit of a lifeline for the future.

GRIFFETH: All right. Sucharita Kodali, thank you so much for joining us.
Happy New Year.

KODALI: Thank you. You too, Bill.

GRIFFETH: Elsewhere, Apple (NASDAQ:AAPL) was one of the headwinds that the
market faced today. It was the biggest loser on the Dow and one of the
biggest on the Nasdaq. Why? Well, it stems from an article out of
Taiwan`s “Economic Daily” which said that Apple (NASDAQ:AAPL) is going to
cut its first quarter sales forecasts for the new iPhone X by 40 percent
and that possible lack of demand helped bring down Apple`s suppliers as
well.

Our Josh Lipton has more for us tonight.

(BEGIN VIDEOTAPE)

TIM COOK, APPLE CEO: This is iPhone X. It is the biggest leap forward
since the original iPhone.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Apple (NASDAQ:AAPL)
investors are counting on apple`s iPhone x being a big hit. Their bet is
that consumers all over the world are going to upgrade to this new device.
That optimism is what has helped drive a nearly 50 percent surge in Apple
(NASDAQ:AAPL) stock this year. Apple (NASDAQ:AAPL) calls the X the future
of the smartphone, with its edge to edge display, facial recognition
technology, and price tag of $999.

But new reports are throwing cold water on that bet. Apple`s stock was
down today on media reports citing Taiwan`s “Economic Daily” that Apple
(NASDAQ:AAPL) in the first quarter is going to cut its sales forecast for
the iPhone X to just 30 million units. That is down from what it said was
an initial plan of 50 million units.

Apple`s suppliers came under pressure too as investors worried about demand
for this new flagship phone. Qorvo, Cirrus Logic (NASDAQ:CRUS), Skyworks
and Finisar (NASDAQ:FNSR) all moved lower.

Analysts are weighing in two consumer intelligence research partners, notes
that the iPhone X accounted for just 30 percent of iPhone sales in the
month after its launch on November 3rd. The less expensive iPhone 8 and 8
plus, in contrast, accounted for 39 percent of sales.

MICHAEL LEVIN, CONSUMER INTELLIGENCE RESEARCH PARTNERS: But it clearly did
not meet the hype and expectations, at least based on percentage of share
or market share of the total phones. So, we were I suppose a little
disappointed at that point as well.

LIPTON: Not everybody is so downbeat. Gene Munster of Loop Ventures says
his checks indicate strong or the X, that adoption of this smartphone is,
in fact, greater, not less, than what Wall Street expects. Others point to
China as a potentially surprising bright spot.

HANS TUNG, GGV CAPITAL: Early indication of this second largest market for
iPhone is that it`s doing surprisingly well until the first weeks of sales.
So, there could be some upside to prices to iPhone X. But overall, the
sentiment is down.

LIPTON: Apple (NASDAQ:AAPL) declined comment on these reports. Investors
should have a better sense of just how the iPhone X is really performing
when the company next reports financial results early next year.

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

(END VIDEOTAPE)

GRIFFETH: And that 2.5 percent decline in Apple (NASDAQ:AAPL) was the
biggest decline they`ve seen since August. It hit the entire market,
especially the Dow, where Apple (NASDAQ:AAPL) accounted for a loss of 31
points on the index. Otherwise, the Dow would have be higher today. It
was down just 7 when it closed at 24,746. The Nasdaq fell by 23. The S&P
500 was off by nearly three points.

But oil prices jumped to 2-1/2 year highs today, helped by news of an
explosion on a Libyan pipeline. Domestic crude oil closed at $59.97, its
highest level since June of 2015. The price per barrel briefly did touch
$60 a barrel early in the day, also for the first time since June of `15.

So, with oil sitting at those 2 1/2 year highs at that critical level of
$60 a barrel, what should we expect when the calendar hits 2018?

Jackie DeAngelis looks for answers.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: 2017 was a
volatile year for oil. With barrels from $40 to around $60, crude traded a
broad range. The fluctuations in price didn`t just impact the futures
market. They impacted stocks as well.

The S&P energy sector underperforming the broader market. Here`s what to
expect in 2018. Crude trades a range. Oil prices move because of supply
and demand. As a result of the U.S. shale boom, the market is still
oversupplied.

OPEC and Russia have made an effort to correct the imbalance, but it may
not be enough. As long as crude bounces around, energy stocks will too.
U.S. shale will pump. The name of the game is rebalance. But that`s
difficult to achieve when all the players aren`t cooperating.

In 2017, U.S. shale producers pumped at record levels. It`s likely that
trend will continue in 2018, especially if OPEC supports the market. OPEC
cuts will be unsustainable. OPEC producers extended their production cut
agreement through the end of 2018.

But many of the countries will have a difficult time adhering to these cuts
as they rely on oil revenue for survival.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

GRIFFETH: Coming up, now that we have that new tax bill in time for
Christmas, all the special stocking stuffers in it are starting to be
unwrapped. We`ll take a look at some of them, coming up.

(MUSIC)

GRIFFETH: For all the handwringing over whether the housing market has
peaked or not, home prices are still rising. The widely watched S&P Core
Logic Case-Shiller Index of national home prices in October rose by 6.2
percent year over year, double the pace of wage growth and more than three
times the current inflation rate. Strong demand and a shrinking supply of
homes on the market helped push those prices higher.

Of the 20 metro areas covered by the index, Seattle led the way with a
nearly 13 percent gain followed by Las Vegas and San Diego. The nation`s
capital showed the smallest gain at 3 percent.

Well, the tax bill was signed and hung by the chimney with care and in it
were some stocking stuffers, better known as special carve-outs for some
businesses.

Ylan Mui takes a look at some of them for us tonight.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: We`ve combed through the
tax code, checked it twice. And now, we found out who`s been naughty and
nice.

The beer industry is making the cut, tucked inside legislation as a
provision that lowers excise taxes or two years. For small brewers the tax
gets cut in half. For others, the tax is reduced by about 10 percent.

And the industry has been lobbying for this in the decade. It`s had
bipartisan support in the past. But it was Ohio Senator Rob Portman who
delivered this gift for Christmas.

It`s not just beer. Broadway also gets a tax break. Live theatrical
productions can take advantage of full and immediate expensing for the cost
of their show. The tax break was actually passed by President Obama and is
championed by a Democrat, New York Senator Chuck Schumer, but it expired at
the start of this year, and new law puts it back in.

Moving on down south, Santa also made a stop at Florida`s citrus farms.
They get a carve-out for replacing the cost of damaged plants. That is
particularly important after the hurricanes this year. Growers are upset
they still haven`t gotten the full disaster relief package yet. So, this
could help tide them over.

Florida Congressman Vern Buchanan worked on that gift. He also happens to
be a member of the Tax Writing Committee in the House. But perhaps the
biggest present goes to the accountants. They now get to spend 2018
unwrapping all of those tax reform stocking stuffers.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

(END VIDEOTAPE)

GRIFFETH: Mallinckrodt inks a billion dollar drug deal and that`s where we
begin tonight`s “Market Focus”.

Mallinckrodt said it`s going to buy Sucampo Pharmaceuticals (NASDAQ:SCMP).
It`s about a billion dollar deal, adding experimental rare disease
treatments to its portfolio. The deal comes at a time when Mallinckrodt is
looking to reduce its dependency on its top drug, which has experienced
declining sales. Mallinckrodt shares were fractionally higher on the day
to $23.48. Meanwhile shares of Sucampo climbed nearly 6 percent to $18
even.

Brookfield Property Partners is reportedly reworking its offer for mall
owners GGP after GGP turned down an earlier proposal. Last month,
Brookfield offered $15 billion for the shares of GGP that it doesn`t
already own. “The Wall Street Journal” says that the private equity firm
is now considering either creating a new form of stock offering or by
increasing its cash bid while still offering some stock. Shares of
Brookfield Property partners rose fractionally to $21.69, GGP shares were
up 8 cents to $23.48.

Samsung may dethrone Intel (NASDAQ:INTC) as the world`s largest chip maker.
A Japanese newspaper says Samsung is expected now to outpace Intel
(NASDAQ:INTC) in chip sales, potentially ending Intel`s 25-year streak.
Intel (NASDAQ:INTC) shares lost 1 percent today, closed at $46.08.

And aerospace parts distributor KLX may sell itself for one of its units.
The company said it`s exploring strategic alternatives after it received
inquiries from interested parties. KLX said it has yet to set a timetable
for that review. Shares of KLX popped about 10 percent on that news at
$69.28.

And get this: Garmin (NASDAQ:GRMN) has launched its new fitness tracker,
Vivofit 4, and says that it can hold a charge for more than a year. The
fitness and GPS device maker said that the $80 product has an always-on
color display and syncs up with your smartphone. And the company said the
enhancements were designed so that the user can set it and forget it,
literally. Garmin (NASDAQ:GRMN) shares up a tick to $59.27 today.

Finally, Tesla CEO Elon Musk said today that the automaker will begin
building its first electric pickup truck after it begins production of the
Model Y SUV. That`s either in 2019 or 2020. Musk tweeted that he`s been
dying to build that truck and has envisioned its design for many years.
Perhaps investors were hoping for an earlier time line, though shares of
Tesla finished down more than 2 percent today to $317.29.

Coming up, a special week of market monitor picks for the New Year. We`ll
get things started with a trio that our guest says will pay dividends for
your portfolio in 2018.

(MUSIC)

GRIFFETH: Here`s a look at what to watch tomorrow. We get a fresh read on
where consumer confidence stood this month. And housing will once again be
in focus with the release of pending home sales. And the latest data on
how many potential homebuyers applied for a mortgage. That`s what we watch
for on the final Wednesday of 2017.

Finally tonight, we have our market monitor segment, it`s the first of
several stock picking segments that we`ll be bringing to you during this
abbreviated holiday week. And tonight`s market monitor has three dividend
paying stocks that he says have strong fundamentals and attractive
valuations.

Now, the last time he was with us was December of 2016, and at that time he
picked Cypress Semiconductor (NASDAQ:CY), which is up 33 percent since
then, Cigna, which is up 49 percent, and Sherwin Williams up 52 percent.

Don Wordell is back with us, managing director and portfolio manager at
Ceredex Value Advisors.

Don, good to see you again. Welcome back.

DON WORDELL, CEREDEX VALUE ADVISORS PORTFOLIO MANAGER: Thanks for having
me, Bill.

GRIFFETH: Those were such great performers. Do you stay with those? Do
you sell them now? What are you doing with those three?

WORDELL: We still own Cypress Semiconductor (NASDAQ:CY) and think there`s
a runway of growth there, just because of all the products that their
analog semiconductors are in. And they have a big move in margins coming.
We think they can end the year with margins much higher than where they are
next year. I`m talking about, with margins much higher.

So, we think we`d stick with Cypress. I`m a mid-cap manager. So, you
know, it`s a great reason to sell. My favorite reason to sell, which is
when stocks like Sherwin Williams and Cigna get into the $40 billion range,
I turn it over to the big cap folks and let them have it.

But, you know, I think that — I think Cigna and Sherwin Williams are two
fantastic companies and, you know, would not be afraid of owning those
stocks in this environment.

GRIFFETH: They just outgrew your portfolio, got it.

WORDELL: That`s it.

GRIFFETH: All right. Let`s look at three stocks you like now. Do you
like them because of their dividends? Let`s go through each of them here.

The first one is Zimmer Biomet. Tell us about it.

WORDELL: Sure. So, Zimmer Biomet, a medical products company. And, you
know, we like the characteristics of dividend paying stocks. We`re not
yield investors. You know, we just like the dividends and what they
provide us, you know, more than just yield.

And so, when you look at Zimmer Biomet, the dividend yield is not, you
know, exceedingly great or anything. It`s just — again, it`s something we
like to see in all of our companies` capital allocation.

Zimmer, the catalyst here is the new CEO. They brought in a new CEO from
Medtronic (NYSE:MDT). The stocks got a big margin difference from its
competitors, as well as they`re — they`ve had some executions issues
getting new products to market. We think if they can execute over the next
12 to 18 months, the valuation gap closure will draw the stock price much
above where it`s trading at right now. So, really like Zimmer.

GRIFFETH: OK, very good. Let`s quickly get these other two in here. Here
is an infrastructure play, and I keep hearing infrastructure maybe big next
year. You were picking Martin Marietta Materials (NYSE:MLM).

WORDELL: Sure. So, Martin Marietta Materials (NYSE:MLM) is great. Again,
this is a company that`s going to benefit from the rebuild in Texas, the
rebuild in the Southeast from the natural disaster. And then you also have
just the state highway funding bills are going to provide a long runway of
growth for them. They have pricing power.

You know, rocks and aggregates, you can`t make them in China and you can`t
sell them on Amazon (NASDAQ:AMZN). So, this is a great business model,
great company. And if we do get a federal infrastructure bill, it`s going
to be icing on the cake for this company.

GRIFFETH: And finally, a familiar banking name, First Republic.

WORDELL: Yes, First Republic is great. They`re up with a growth strategy
that I really like. They`re going out and trying to grow their new
customers by refinancing their student loans at very attractive rates for –
– you know, they`re being very, you know, particular about the industries
that they`re doing that for, in the hopes of, you know, five, ten years
down the road, there will be wealth management, there will be home loans,
they`ll be other loans that these people will have that relationship with
First Republic and use them for.

So, we really like this company, great manage good company, and we think
they`re going to do very well over the next 12 to 18 months.

GRIFFETH: Very good. Great stuff. Don Wordell from Ceredex Value
Advisors, thanks for joining us, Don.

WORDELL: Thank you.

GRIFFETH: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Bill
Griffeth. Thanks for watching everybody. We`ll see you tomorrow.

END

END

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