Transcript: Nightly Business Report – January 23, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: New highs. The S&P 500 and
NASDAQ close at records as four big blue chips report their quarterly
results.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Trade tariffs. The White
House slaps barriers on imported solar panels and washing machines, aimed
at protecting American business. But will they?

GRIFFETH: Free checking? Not anymore. Bank of America (NYSE:BAC)
eliminates its popular account as banks look for new ways to increase
revenue.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Tuesday, January the 23rd.

Good evening, everybody. I`m Bill Griffeth, in tonight for Tyler Mathisen,
coming to you once again from the New York Stock Exchange.

Hi, Sue.

HERERA: Good to see you, Bill.

I`m Sue Herera. Welcome, everybody.

Earnings season is in full swing. Four Dow components spread across
different key sectors of the economy all reported their results today,
Johnson & Johnson (NYSE:JNJ), Procter & Gamble (NYSE:PG), Verizon
(NYSE:VZ), and Travelers. This quarter is expected to be a strong one.
Analysts are forecasting profits to rise by more than 11 percent,
potentially making this the second strongest earnings growth period since
2011. The lofty expectations come at a time when U.S. economy appears to
be firing on all cylinders.

Today`s reports have one thing in common. All of the companies had
something to say about the impact of the new tax law, and these blue chip
results could set the tone for things to come.

(BEGIN VIDEOTAPE)

HERERA: Johnson & Johnson (NYSE:JNJ) topped earnings and revenue estimates
helped by growth in new cancer drugs and sales from its international
operations. But the drug company will take a $13.5 billion charge related
to the new U.S. tax law, and plans to bring back billions of dollars from
overseas immediately. J&J`s tax hit is the biggest announced in the
pharmaceutical industry so far.

Procter & Gamble (NYSE:PG) also took a charge related to tax overhaul but
was able to report better than expected sales and profit. That wasn`t what
investors focused on, however. The world`s largest consumer goods maker
posted a drop in gross margins because of higher commodity costs and
investments. P&G also fell victim to intensifying competition, which led
to price drops in some key units like its Gillette shaving business.

For Verizon (NYSE:VZ), it was a mixed quarter. The company missed Wall
Street earnings expectations, but wireless revenue grew for the first time
in two years. It gained subscribers, and more customers paid for high-
speed cellular Internet. Verizon (NYSE:VZ) took a charge related to the
new tax law but also said the changes would increase cash flow from
operations by as much as $4 billion this year.

And the CEO made it clear that workers will share in the company`s success.

LOWELL MCADAM, VERIZON CHAIRMAN & CEO: We are giving 50 shares of stock to
the non-executive. So, 155,000 employees will get 50 shares of Verizon
(NYSE:VZ) stock. They get to ride the dividend. They get to ride the
appreciation of the stock over the next two years. So, that`s a very
positive sign to our employees.

HERERA: And finally, there is Travelers. The wildfires in California, the
most destructive in that state`s history, hurt the Dow component`s bottom
line. But those wildfire losses were offset by growth in premiums at the
property and casualty insurer.

As for the tax bill, Travelers also took a charge. The CEO says while the
overhaul helps create a more level playing field, the company still has a
lot of ground to cover to reach its own goals.

(END VIDEOTAPE)

HERERA: Of the four Dow companies that reported earnings, just one traded
higher. In fact the two worst performing stocks in the blue chip index
today were J&J and Procter & Gamble (NYSE:PG) — Bill.

GRIFFETH: Meantime, Sue, here on Wall Street, as we mentioned, the S&P and
NASDAQ finished at records today. Netflix (NASDAQ:NFLX) helped push both
of those indexes higher with a 10 percent of its own after reporting those
strong quarterly earnings that we told you about last night.

Here are the closing numbers for this Tuesday. The Dow actually fell three
points, closed at 26,210. The NASDAQ added 52. And the S&P was up six
points.

And as the market climbs the manager of the world`s largest hedge fund says
it could go even higher. And if you are sitting on cash he says you could
be making a big financial mistake.

(BEGIN VIDEO CLIP)

RAY DALIO, BRIDGEWATER ASSOCIATION FOUNDER & CIO: We are in this
goldilocks period right now in which we have had a beautiful deleveraging.
Inflation isn`t a problem. Growth is good. Everything is pretty good,
with a big jolt of stimulation coming from the changes in tax laws and
such.

That is going to, at the part of the cycle, we are at the later part of the
cycle. So if you look at the operating rates and you look at the GDP gap
and measures, we are going to have a jolt of stimulation into that.

And there is a lot of cash on the sidelines. I don`t mean just investor
cash. I think banks have a lot of cash. Corporations have a lot of cash.

So, we are going to be I think inundated with cash. I think that that`s
going to produce a lot of stimulation. And I think perhaps a market blow-
off. In other words, we are in a situation where if you are holding cash
you are going to feel pretty stupid.

(END VIDEO CLIP)

HERERA: Ray Dalio was being interviewed at the World Economic Forum in
Davos, Switzerland. It`s an annual meeting of business and political
leaders held in the Swiss Alpine town of Davos.

And that`s where Andrew Ross Sorkin is for us tonight.

(BEGIN VIDEOTAPE)

ANDREW ROSS SORKIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m Andrew Ross
Sorkin at the World Economic Forum in Davos, Switzerland where hundreds of
CEOs from around the world and 70 heads of state gather to tackle some of
the biggest issues, the economy.

BRIAN MOYNIHAN, BANK OF AMERICA CHAIRMAN AND CEO: The real thing we
benefit by is the general economy. And it`s in pretty good shape in the
United States and we`re projected to grow by 2.7 percent versus say (ph),
and this year in the low twos.

SORKIN: The state of the local markets.

STEVE SCHWARZMAN, BLACKSTONE GROUP CHAIRMAN & CEO: I look at some of the
geopolitical risks rather than the economics risks. Economically right
now, the world is expanding almost every place. And things look good and
probably will continue to stay good.

SORKIN: And politics.

DAVID RUBENSTEIN, THE CARLYLE GROUP CO-FOUNDER & CO-CEO: If President
Trump came here, I suspect his message is going to be one that will be
reasonably well-received. You now can`t expect everyone to love everything
he says, but I think he`s going to have a message that will be reasonably
well-received.

SORKIN: He`s going to arrive later this week and give closing remarks at
the forum on Friday. No word on what he is going to say, but his America
first stance is in sharp contrast with the globalism theme here in Davos.

MARC BENIOFF, SALESFORCE.COM CEO: I want him to bring everybody together
in a positive way. I think it`s really important. I think it`s really
important that it`s not about isolation but it`s about integration.

SORKIN: For NIGHTLY BUSINESS REPORT, in Davos, Switzerland, I`m Andrew
Ross Sorkin.

(END VIDEOTAPE)

GRIFFETH: And just ahead of the president`s trip there to Davos, that
American first stance that Andrew just mentioned was front and center in
Washington today when the White House slapped hefty tariffs on solar panels
and washing machines. The move was designed to help American
manufacturers.

Kayla Tausche is in our nation`s capital tonight.

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: In an Oval Office
ceremony, President Trump signed an order for steep penalties on washing
machine and solar producers outside the United States.

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: Our companies will not be
taken advantage of anymore. And our workers are going to have lots of
really great jobs with products that are going to be made in the good old
USA, and that`s what this is all about.

TAUSCHE: Effective February 7th, companies like Samsung and LG will pay a
20 percent levee on the first million machines they import. Above that, 50
percent. A complaint by Ohio-based Whirlpool (NYSE:WHR) in May kicked off
a months long investigation by the International Trade Commission resulting
in these tariffs. Goldman Sachs (NYSE:GS) estimates the price tag`s
shoppers fee could rise between 8 percent and 20 percent, a point raised by
South Korea-based Samsung and LG, who say the move hurts customers and
competition.

Both are planning to make more appliances in the U.S. Samsung says its
South Carolina plant has already hired 600 workers.

South Carolina Congressman Mark Sanford praised the Samsung investment and
says the tariffs are short sighted and will cost American jobs, including
7,000 in the solar industry in Sanford`s state. Solar companies like
Customers outside the U.S. will pay 30 percent for parts they import. That
fee declines over time and hopes Chinese companies send fewer underpriced
products.

The catalyst for these tariffs: complaints from Solar World and Suniva,
which declared bankruptcy in August. But while those companies may
benefit, many in the industry will see costs increase.

ABIGAIL ROSS HOPPER, SOLAR ENERGY INDUSTRIES ASSOCIATION CEO: Most of the
industry is really going to struggle with this increased cost. They are
going to try to figure out, you know, are there still customers that want
to buy solar if it`s more expensive? Are they still going to need as many
inverters, as many racking systems, as much wiring? If not, people are
going to get laid off.

TAUSCHE: President Trump spent his first year in office searching for
industries where he could implement tariffs he promised on the campaign
trail. Today`s move could be a precursor for harsher action in year two.

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

(END VIDEOTAPE)

GRIFFETH: By the way, in response to those tariffs, shares of Whirlpool
(NYSE:WHR) got a lift today, rising more than 3 percent.

HERERA: So, do these new tariffs accomplish what they were set out to do,
revive and protect U.S. manufacturers?

Joining us to talk about that is Chad Brown. He is a senior fellow at
Peterson Institute for International Economics, and a co-host of
“Peterson`s Trade Talks” podcast.

Welcome. Nice to have you here, Chad.

CHAD BROWN, PETERSON INSTITUTE FOR INTERNATIONAL ECONOMICS: Thanks for
having me.

HERERA: You say these tariffs are unlikely to accomplish much that is
economically positive. Tell me more about that.

BROWN: Well, I think if we look at solar panel tariffs, for example, you
know, there may be a handful of manufacturing jobs that are sustained by
those sorts of tariffs and the protection from imports. But it`s going to
hurt many more jobs in the solar distribution and installation industry.
So, there`s more expensive solar panels are going to mean less demand from
consumers, less of these things being put on your roofs and fewer jobs by
all the folks that would do that kind of activity. So, it`s not clear that
this is going to be a positive win for the U.S. economy.

GRIFFETH: Chad, let me play devil`s advocate for a moment. You know, the
globalists will tell you that globalization is inevitable. Capital goes
where it can get the best return on its money no matter where it is in the
world.

But do you think the president has a point when he says that maybe we have
been too generous, we haven`t done a good job protecting our own jobs with
some of these trade deals that we have signed in the past?

BROWN: No, I would disagree with that. I think the president is focused
very narrowly on a number of industries that the United States isn`t really
producing effectively in anymore. But at the same time, the United States
has experienced considerable growth and expansion in other sectors, the
services area of the economy and the internet area of the economy. And
even in the areas of advanced manufacturing that the president really
hasn`t talked about at all.

So I think the president`s trade policy is really just singularly focused
on the industries of say 30 or 40 years ago.

HERERA: What does it mean for relations between the U.S. and some of its
trading partners such as Asia, among others?

BROWN: So, I think that`s the really big unknown to come out of the
announcements yesterday. What`s going to be the trading partner response?
President Trump, with his America first policy, has had — you know, there
has been a lot of protectionist rhetoric. Are they going to interpret
these as they should be interpreted? These are just kind of normal trade
policy actions that any administration might take. Are they going to react
normally or are they going to overreact and want to retaliate?

And I think another big question is, is this just the first types of these
actions that we have seen out of the second year of the Trump
administration, or is this really just a salvo and we can expect to see a
lot more of these types of trade barriers going forward? And that would
really be worrisome.

GRIFFETH: You know, the White House has said other industries are welcome
to come to them and make requests for future import tariffs. Who do you
think that might be? Who is ripe for making those kinds of requests in
your view?

BROWN: Well, what`s interesting right now is the Trump administration
faced a number of decisions about whether to impose protection. The ones
it made yesterday are the least controversial. Over the next couple of
weeks, it`s also going to make decisions on whether imports of steel and
aluminum should receive protection. They are under a different law. They
are alleging it`s a threat to national security.

They are also looking at whether imports from China, China`s theft of
intellectual property should be sub to trade barriers or other kinds of
retaliation as well. So, there is a number of very controversial trade
policy decisions that the Trump administration has to make over the next
couple of weeks as well that are going to be key.

HERERA: Chad, thank you so much.

BROWN: Thanks for having me.

Chad Brown with Peterson Institute for International Economics — Bill.

GRIFFETH: Elsewhere, Kimberly-Clark (NYSE:KMB) is closing or selling about
ten of its manufacturing facilities around the country. It said today that
it`s cutting as many as 5,500 jobs worldwide in an effort to cut costs in
the face of sluggish sales. The maker of Huggies and Kleenex said that
competition is driving down prices for personal care products. And low
birth rates are also cutting demand for things like diapers.

HERERA: It is time to look at some of today`s upgrades and downgrades.
Morgan Stanley (NYSE:MS) downgrading shares of HP to equal weight from
overweight, saying that while the PC and printer maker still have the
ability to create shareholder value, there are no near term catalysts for
that stock. The firm kept its price target at $25 a share. HP shares were
off four cents at $23.81.

But Morgan Stanley (NYSE:MS) feels a bit better about the other half of the
former Hewlett Packard, Hewlett Packard Enterprises. Morgan upgrading HPE
to overweight from equal weight. The price target was raised to $19 from
$14. Hewlett Packard Enterprises hit a 52-week high, adding about 4
percent to $16.67.

GRIFFETH: And Morgan Stanley (NYSE:MS) wasn`t done either. It raised
Apple`s price target to $205 from $200, while keeping the iPhone maker`s
rating at overweight. Apple (NASDAQ:AAPL) closed the session up 4 cents to
$177.04.

And Susquehanna is upgrading Dick`s Sporting Goods to positive from
neutral. The analyst says there are signs that same store sales trends at
the sporting goods retailer have improved primarily due to the recent cold
weather. Shares of Dick`s up about 1 percent on the day as a result.

HERERA: Still ahead, while you are looking for free checking accounts, the
banks are looking for new ways to make money.

(MUSIC)

HERERA: A bit earlier in the program, we reported that Verizon (NYSE:VZ)
is giving its employees shares of restricted stock. Fellow Dow component
Disney (NYSE:DIS) is also going to give back to its employees, with a
$1,000 bonus. The company says that 125,000 workers are eligible for the
extra cash. Disney (NYSE:DIS) will also make an initial investment of $50
million in a new education program designed to cover tuition costs for
hourly employees.

GRIFFETH: And Dow component JPMorgan (NYSE:JPM) is raising hourly rates
for its work force as well. The company is also adding jobs and opening
400 new branches in new locations around the country. The bank says that
tax breaks and reduced regulations made the clangs possible. JPMorgan
(NYSE:JPM) reported it will increase small business lending 20 percent over
the next few years.

HERERA: When it comes to deal making, 2018 is off to a hot start.
According the data compiled by Bloomberg, the value of mergers announced
worldwide has totaled more than $150 billion just three weeks into the New
Year. That is the highest since the tech deal craze of 2000. Many say
that tax cuts, rising stock markets and strengthening economies are giving
executives the confidence to enter into big acquisitions.

GRIFFETH: Higher ticket prices helped United Continental`s results take
off and that`s where we begin tonight`s “Market Focus”.

Despite reporting a rise in fuel costs, the airline after the bell says
more expensive fares and last-minute ticket purchases did help the company
deliver a profit beat. Revenue also topped street expectations. United
Continental shares were initially higher in after-hours but then sold off.
They ended the regular session up 1 percent to $77.97.

Also after the bell, Texas Instruments (NYSE:TXN) said unexpected expenses
stemming from the new tax legislation caused its earnings to slip as the
technology maker in the latest quarter. Still those results along with
revenue were in line with Wall Street`s estimates. Shares at TI initially
fell in the extended hours, but did finish the regular day up fractionally
to $119.89.

And shares of toy makers Mattel (NASDAQ:MAT) and Hasbro (NYSE:HAS) saw
their shares jump today. No immediate known reason as to why though. It
has been reported in the last several months that Hasbro (NYSE:HAS) has
approached Mattel (NASDAQ:MAT) about a potential merger. Both companies,
though, declined to comment on today`s stock moves. Look at this, Mattel`s
stocks up 10 percent to end the day at $17.76. While shares of Hasbro
(NYSE:HAS) rose by 4 percent to $94.56.

HERERA: The railroad operator Norfolk Southern (NYSE:SO) is hiking its
quarterly dividend by 18 percent to 72 cents a share. The annual yield on
the stock is just under 2 percent. Shares of Norfolk Southern (NYSE:SO)
rose marginally to $151.66.

Regional bank Fifth Third said it would raise the minimum hourly wage and
pay out $1,000 bonuses to the majority of employees, thanks to that new tax
law. The legislation also helped Fifth Third report a rise in profits,
which beat expectations. Revenue also improved. Shares of Fifth Third
were up 15 cents to $32.92.

And the financial services company State Street (NYSE:STT) reported a drop
in profit that said it was caused by restructuring costs associated with
the company`s five-year plan to digitally connect all of its system.
Revenue picked up gains and the company said it`s well-positioned for
growth this year. Shares were up nearly 3 percent to $112.18.

GRIFFETH: Bank of America (NYSE:BAC) is eliminating its free checking
account option that does not require account holders to maintain a minimum
balance. Now, that news has caused an uproar among some customers who have
now launched an online petition which has already garnered thousands of
signatures urging the bank to drop this new account maintenance
requirement.

But let`s broaden this out and talk about the service fees that many banks
are charging customers even as interest rates rise and presumably improve
their profit outlook.

Kimberly Palmer is a banking expert at personal finance Website Nerd
Wallet.

Thanks for joining us tonight.

KIMBERLY PALMER, NERD WALLET BANKING EXPERT: Thanks for having me.

GRIFFETH: Banks started introducing these fees about a decade ago when
interest rates fell and there went their profitability. But now, rates
presumably are going to be rising with the Fed raising rates this year.
But we`re still getting new fees.

Why do you think that is?

PALMER: Well, banks are, of course, interested in maximizing their
profitability. And we are seeing one way for them to do that, of course,
is by raising fees. So, we`ve really seen across the board fees going up.
And it is a challenge for consumers. On average now, consumers pay over
$100 on checking account fees alone. And, of course, for some people, they
are paying even more than that. And it can really strain people`s budgets.

HERERA: You know, it kind of reminds me of the airlines. It started with,
you know, baggage fees. Then it went to, you know, if you want this seat,
you have to pay more. And they have been able to get away with that.

It seems as though consumers don`t have much of a choice. What can they do
if they disagree with Bank of America (NYSE:BAC) or other banks that are
doing this?

PALMER: Well, this is actually a great time to shop around for a different
bank because if you feel like you are paying too much in fees, you are not
satisfied with the service you are getting, then you do have the power to
shop around. It`s easier than ever to comparison shop online.

Banks are competing in other ways. We are not necessarily seeing fees
going down but they are competing by raising interest rates, other offers
and incentives to open new accounts, especially at online only banks. You
are often seeing no fees or low fees. Credit unions are another great
place to look.

So, this is a really great reminder to consumers to shop around so you feel
satisfied with where you are putting your money and you don`t feel like you
are overpaying in fees.

GRIFFETH: You know, B of A`s chief financial officer said that what they
are trying to do is balance the interests of their customers with their
shareholders. And I wonder with the kind of response that some customers
have already made — I mentioned that online petition. At last count, it
had more than 46,000 signatures online there.

Is that the kind of pressure that you think a bank would respond to or not?

PALMER: Absolutely. We have seen in the past that kind of grassroots
pressure work. I mean, it is — it is a lot of power that consumers hold
to really raise attention to this issue. So it really can help to raise
your voice. Of course, nothing is more powerful than voting with where you
put your money. So, if you`re not satisfied with your bank, put your money
elsewhere.

GRIFFETH: Indeed. Kimberly Palmer from Nerd Wallet, thanks again for
joining us.

PALMER: Thank you.

GRIFFETH: And coming up, the $31 billion surprise hidden in the government
funding bill.

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow. The Dow components
General Electric (NYSE:GE) and United Technologies (NYSE:UTX) are slated to
report their earnings. President Trump and other members of his
administration will head to Davos, Switzerland, to attend that world
economic forum annual meeting. And a look at how many existing single-
family homes were sold during December.

And that is what to watch for tomorrow.

GRIFFETH: Well, the number of people coming down with the flu continues to
climb according to the Centers for Disease Control and Prevention,
transmission is now the most intense it has been since 2009. Now, during
that year, a new strain of the flu, to which no one had immunity, was
spreading globally. As we have been reporting, the rise in the flu this
season is costing about $9 billion in lost productivity.

HERERA: Montana has become the first state to set its own rules for the
Internet. That state is barring telecom companies from receiving state
contracts if they interfere with Internet traffic. The move is intended to
protect so-called net neutrality.

Governor Steve Bullock`s executive order comes after the FCC rolled back
rules that more tightly regulated Internet service providers. He has urged
other governors to do the same.

GRIFFETH: Yesterday, we reported on the short term government funding bill
that was passed by Congress and keeps the government up and running for at
least a few more weeks. But there was a surprise inside.

Ylan Mui has details for us tonight from Washington.

(BEGIN VIDEOTAPE)

UNIDENTIFIED MALE: The motion is agreed to.

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: When Congress voted to
end the government shutdown, it also voted to hand a big win to the health
care industry. Tucked inside the federal spending bill was a special
provision rolling back $31 billion in Affordable Care Act taxes. The
Cadillac tax on pricey insurance plans will now take effect in 2022 instead
of 2020, an annual fee on insurance providers will be suspended for 2019,
and an excise tax on medical device is now lifted until the end of next
year.

That`s a huge relief for Jon Rennert, CEO of Zoll Medical (NASDAQ:ZOLL).
His company is best known for making defibrillators at its headquarters
just outside of Boston.

JON RENNERT, ZOLL MEDICAL CEO: There`s been broad bipartisan consensus
that the medical device tax is poor public policy.

MUI: The medical device tax went into effect this month after a two-year
moratorium. Before that, Rennert said, it cost his company $10 million,
money that he would have spent making his products work even faster.

RENNERT: Every minute that a patient is in cardiac arrest without being
defibrillated, their chances of survival decline by ten percentage points.
So, time to therapy, both CPR and a defibrillation shock is critical.

MUI: But the politics around the Affordable Care Act taxes remain
perilous. Fiscal hawks in Washington aren`t happy that the bill to reopen
the federal government also included billions of dollars in tax breaks for
businesses.

MAYA MACGUINEAS, COMMITTEE FOR A RESPONSE FEDERAL BUDGET: There are
certainly some tax cuts that can grow the economy but not so much as to pay
for themselves. But the ones that were kind of snuck into this continuing
resolution really aren`t going to do anything significant for economic
growth. Not even close, but except for possibly damage it because the
higher debt you have, the lower your economic growth is.

MUI: All of these taxes will kick back in within just a few years. So
businesses like Zoll may have won this round, but both sides know they will
be back at the bargaining table again soon.

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

(END VIDEOTAPE)

HERERA: And late tonight, the Senate approved President Trump`s pick to
lead the Fed. Jerome Powell will begin in his term at chairman next month.

That will do it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera.
Thanks for joining us.

GRIFFETH: I`m Bill Griffith. 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) 2018 CNBC, Inc.

 

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply