Transcript: Nightly Business Report – January 25, 2018

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

Dow closes at yet another all-time high as Caterpillar (NYSE:CAT) and 3M
(NYSE:MMM) ride the wave of a strengthening global economy.

Cheap tickets? Airlines are adding seats. That means fares could drop.
Good news for flyers. But a worrying development if you own airline

And the Amazon (NASDAQ:AMZN) race. Why the competition for Amazon
(NASDAQ:AMZN)`s second headquarters is taking a new secretive turn.

Those stories and more tonight on NIGHTLY BUSINESS REPORT, for Thursday,
January 25th.

Good evening, everyone, and welcome. I`m Tyler Mathisen. Sue Herera has
the evening off.

Well, the Dow closed at a record for the tenth time this year. For the S&P
500, it was its 13th record finish in just 17 trading days so far.
Earnings helped drive the blue chip index as some of the world`s biggest
global companies easily beat profit expectations. They also said things
are looking up for the rest of the year.

At one point today, more than 30 percent of all of the 30 Dow components
from at all-time highs.

Here are the closing numbers. The Dow Jones Industrial Average advanced
140 points to 26,392. NASDAQ fell nearly four, though. But the S&P 500
rose by about two. Once again, the dollar came into play, adding some
volatility to the trading day.

Now, yesterday, we told but the dollar`s impact on the stock market after
the U.S. treasury secretary said a weak dollar benefits U.S. trade. Today,
other officials chimed in, including President Trump.

Here`s Steve Liesman.


for the dollar today sent falling and then flying by comments first from a
European official and then from the president of the United States.

European Central Bank President Mario Draghi got the dollar off on the
first leg of its round trip journey can comments indicating he didn`t care
much that the euro had recently strengthen against the greenback.

MARIO DRAGHI, ECB PRESIDENT: We don`t target exchange rates. We say
exchange rates are important for growth and for price stability. Now, in
certain movements in the exchange rates to the extent that are justified by
the strengthening of the economy are part of nature.

LIESMAN: The euro surged from 1.24 to 1.25 against the dollar a level not
seen since 2014. The way traders saw it, Draghi didn`t much mind the
strength and didn`t sound like he was going to do anything about it. But
someone did mind. His name was President Donald Trump.

Speaking to CNBC exclusively in Davos, Trump came down firmly on the side
of a strong dollar.

stronger and stronger. And, ultimately, I want to see a strong dollar.

LIESMAN: The effect was immediate and dramatic. Within an hour, the
dollar regained all it lost on the day and then some, underpinning the
dramatic action. These are nervous times for economy traders and the
global economy.

Treasury Secretary Steve Mnuchin step out of protocol and said a weaker
dollar could help U.S. trade, which is true and not unprecedented, just not
very often said by a treasury official.

Trump meanwhile has controversial ideas about free trade, more bilateral,
less multilateral, willing to rip up trade deals if he doesn`t get what he
wants. But the president also told CNBC he doesn`t like talking about the
dollar and that, quote, nobody should be talking about it.

So, perhaps he is pushing his administration to walk the old line,
wherefore official purpose at least the only good dollar is a strong



MATHISEN: And now to those earnings we mentioned earlier. Caterpillar
(NYSE:CAT) had a quarter few investors saw coming. The world`s largest
heavy-duty equipment maker reported profits that trounced expectations.
The company also gave upbeat profit guidance for the full year and that
lifted shares.

Morgan Brennan has more on the Big Cat`s blowout quarter.


sales declines, the world`s biggest maker of heavy machinery snapping its
losing streak. Caterpillar (NYSE:CAT) reporting an 18 percent jump in
revenue for 2017, as mining and construction rebounded around the globe.

On a call with analysts, CEO Jim Umpleby saying economic indicators are
positive and he expects a strong start to the new year.

JIM UMPLEBY, CATERPILLAR CEO: We are expecting to capitalize on continued
sales momentum or quickly adjust should conditions change. We also plan to
profitably grow the company by investing in expanded offerings and
services, the two additional major focus areas in our strategy.

BRENNAN: After years long slumps tied to the collapse of commodity prices,
sales are picking up across all of Caterpillar (NYSE:CAT)`s major segments.
Construction, energy and mining equipment are all expected to grow this
year, and just as aggressive restructuring within the company has taken

Analysts say Caterpillar (NYSE:CAT) is poised to prosper.

ROB WERTHEIMER, MELIUS RESEARCH: Two or three years ago, it`s just
interesting that they had been in and still are really in the longest and
worst revenue downturn in all of Cat`s history. And really as they come
out of this is probably inclusive of the Great Depression. So, for
whatever reason, the mining bubble that popped in, and oil and gas bubbles
that popped, they happened to be quite low. And since they have come out
of it, they have got production systems working, they`ve got capital to
actually manufacture the product that`s coming back and there is a lot of
pent-up demand.

BRENNAN: Also in focus, tax reform. The company taking a one time charge
of nearly $2.5 billion to write-off changes in the way they have to account
for previous losses and also overseas cash. Overall, though, the company
says tax reform is a long term positive, an endless add that caterpillar
could benefit not just a lower U.S. rate but also from full expensing,
which incentivizes other companies to buy more equipment.

But there are challenges. Executives hope to get a resolution to an
ongoing tax investigation tied to a Swiss subsidiary soon, and as commodity
prices do recover, costs to make all those machines are rising.

Still it was a strong quarter for a blue chip stock that has already soared
70 percent in the past year.



MATHISEN: Fellow Dow component 3M (NYSE:MMM) also topped earnings and
revenue expectations, thanks to a strengthening economy across the globe.
3M (NYSE:MMM) almost raised its outlook for the year and boosted its
dividend. That t helped lift shares 2 percent to a new high.

Late today, the Dow component Intel (NASDAQ:INTC) blew past revenue
forecasts. The company reported growth in its data center operations.
Intel (NASDAQ:INTC) also raised its full year forecast even as it warned
investors that fallout from those security flaws could hurt future results.
That didn`t matter to shareholders in initial afterhours trading.

Josh Lipton has more on Intel (NASDAQ:INTC)`s results.


(NASDAQ:INTC) investors focused on right away in this report, $5.6 billion.
That was how much revenue the company`s data center group generated in the
quarter. That`s the unit selling chips for servers used by the big cloud
giant for example.

Christopher Roland of Susquehanna who covers Intel (NASDAQ:INTC) says that
was better than expected and that the business unit showed real signs of
pricing power in the quarter. Roland notes that visitors focus on that
business division because it`s the company`s highest margin business and
the fastest growing one. Client Computing Group, the division that sells
chips for PCs, came in at $9 billion, a dip of 2 percent but also better
than expected.

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


MATHISEN: President Trump arrived in Davos, Switzerland to attend the
World Economic Forum today. He is scheduled to deliver a major address
tomorrow to sell among other things his “America First” agenda to other
heads of state and global business leaders. Today, he dined with European
corporate chieftains including the heads of Adidas, Siemens and Nestle.

The improved business climate has been a dominant topic of conversation.
And in an exclusive interview with CNBC`s Joe Kernen, the president took a
slightly different tack on trade and the massive Pacific trade deal that he
symbolically pulled out of last year.


TRUMP: I like bilateral because if you have a problem, you terminate.
When you`re in with many countries, like with TPP, so you have 12 if we
were in, you don`t have that same — you know, you don`t have that same


TRUMP: But somebody asked me the other day, would I do TPP? Here`s my
answer. I will give you a big story. I would do TPP if we made a much
better deal than we had. We had a horrible deal. The deal was a horrible
deal. NAFTA is a horrible deal. We`re renegotiating it. I may terminate
NAFTA. I may not. We`ll see what happens. But NAFTA was — and I went
around and I tell stadiums full of people I will terminate or renegotiate.

KERNEN: Are you opening the door to reopening TPP?

TRUMP: I`m only saying this, I would do TPP if we were able to make a
substantially better deal. The deal was terrible, the way it was
structured was terrible. If we did a substantially better deal, I would be
open to TPP.

KERNEN: That`s interesting.

TRUMP: Are you surprised to hear me say that?

KERNEN: Yes, I am a little taken aback.

TRUMP: Don`t be surprised. But we have to make a better deal. The deal
was a bad deal like the Iran deal is a bad deal.

KERNEN: Maybe NAFTA, maybe not NAFTA — can you give me any indication
which way you are leaning? Because there`s a lot of the CEOs that have
been on here, they all seem to acknowledge that it`s 30 years later and
there is a lot of changes to make a lot of sense but not to abandon the

TRUMP: We have a trade deficit —

KERNEN: Right.

TRUMP: — with Mexico, Mexico, $71 billion a year, right? We have a trade
deficit with Canada of a substantial amount of money. I have a number but
they keep arguing it. They keep saying. So, I won`t say it. I won`t tell
you it`s $17 million (ph), OK?

We have a trade deficit with Canada. We have a massive trade deficit with
Mexico. Got to do something. We can`t continue to do this.

KERNEN: Are you leaning towards staying in or would you really go after —

TRUMP: I always said during the campaign. As you noticed and as you
actually said a couple times I have fulfilled a lot of what I`ve said. And
I`m only here a year. You know, I think I have four years, and maybe
another four years, OK? We`ll keep going and we`ll see what happens. But,
Joe —


TRUMP: We have a $71 billion trade deficit with Mexico. We`ve got to do
something. We can`t have that. So, will it be renegotiated? We are
trying right now with Bob Lighthouser and the whole group. I think we have
a good chance but we`ll see what happens.


MATHISEN: Overall, the mood among business people in Davos has been
exceptionally up beat, a change from prior years. Here`s a sampling of
executive views on globalization evolving attitudes toward it, and a
cautionary opinion on optimism overall.


that we continue what has been basically a global view of the world that
suggest that open borders without open — in an untoward or an awkward way
for us have served us all collectively as well, including in the U.S.

HIKMET ERSEK, WESTERN UNION PRESIDENT & CEO: I think global organizations
taking a break, some corrections in the developed countries. I think
globalization is good. We see it daily.

ANEEL BHUSRI, WORKDAY CEO: People are optimistic about the global economy
right now. It worries me how optimistic they are. Usually when you get
this optimistic, something goes wrong down the road pretty quickly.


MATHISEN: Well, as for the economy, IMF recently increased its outlook for
growth overall.

Well, time now to take a look at some of today`s upgrades and downgrades in
the marketplace. Da Davidson putting a $1,800, yes, $1,800 price target on
Amazon (NASDAQ:AMZN), the highest on Wall Street. The firm reiterating its
buy rating saying the recent Whole Foods acquisition coupled with Amazon
(NASDAQ:AMZN)`s cashier-less technology is a huge growth opportunity.
Amazon (NASDAQ:AMZN) shares up 1-1/2 percent to $1,377.95.

Telsey Advisory Group downgrade shares of Best Buy (NYSE:BBY) to market
perform from outperform, on concerns the retailer could report negative
same store sales in the upcoming quarters because of the lack of a highly
anticipated product launch or to. But the firm did raise its price target
to 81 bucks, upped from $62. Best Buy (NYSE:BBY) shares were off a
fraction today at $76.27.

Telsey feels a little bit differently about the arts and crafts retailer
Michael`s. The firm upgraded the stock from market perform to outperform
and hiked its price target there to $32 from $23. The reason? Michael`s
strength across a number of categories and it is expected to benefit from
the lower tax rates that start to kick in. Shares up nearly 3 percent to

And Pivotal Research initiates coverage on Foot Locker saying the shoe
fits. Buy it. The $65 price target the firm tags, it says it believes the
retailer is in a better position than its competitors at a time when
consumers are making more purchases online. Foot Locker shares rose
marginally to $52.44.

And still ahead, airline stocks have been on a steady climb over the past
few years. But is the sector about to hit some turbulence?


MATHISEN: Well, the selloff in the airline sector extended into this
second day now. We reported yesterday that investors became concerned that
United Continental`s expansion plans could trigger an industry fare war.

Today, both American Airlines and Southwest said they also have plans to
expand capacity. More flights and larger planes can put downward pressure
on fares but the heads of American and Southwest said they are not
concerned about adding extra seats.


These are the things, you know, that happen as an industry continues to
mature. But its maturity around what, you know, has become a much more
rational sort of structure in terms of long term competitiveness.

to compete. We have a great plan for 2018. We are looking forward to
continuing positive unit revenue trends, even with this competitive
capacity threat.


MATHISEN: Well, American and Southwest both topped earnings expectations.
JetBlue came up a little bit shy. United, which led the group lower,
yesterday fell again today by more than 4 percent.

So, are those air fare war concerns legitimate? And as fuel costs rise,
where can we expect to see the airlines make up that lost revenue.

Joining us to talk about that is Seth Kaplan. He`s an analyst and the
managing director of the industry publication “Airline Weekly”.

Seth, nice to have you back again. I thought airlines were doing pretty
well, i.e., in terms of profitability, by keeping capacity down and running
flights really close to full. Am I wrong about in that?

the playbook the past decade, right, Tyler? You know, match capacity very
precisely with demand. You are right.

The thing is, though, that, you know, if all that mattered was, hey,
cutting capacity to squeeze up unit revenues, the airlines would shrink
forever. Why wouldn`t you do that? Well, when you shrink capacity, you
also do something else. You push up union costs and become less

And what United is basically saying is this has gone too far in their view
basically. They feel there is room to grow a little bit more in their case
and actually have a more beneficial impact on unit costs, push those down
more than the negative impact it`s going to have on unit revenues.

MATHISEN: So if they do that, will there be as — as they add capacity,
will there be downward pressure on fares? If so, how much?

KAPLAN: Well, they sort of say that there is basically — not all growth
is created equal. You know, some of their growth is in market. Look, they
started flights from Houston to Sydney, let`s say. That puts a whole lot
of additional seat mile capacity as it`s called into the marketplace.

But it`s not going to have a broad impact on flight — you know, on core
markets, flight from New York to Chicago isn`t impacted in that. And also,
they have added a lot in smaller cities, focused actually, you know, adding
in placing like Wilmington, North Carolina. Well, that`s not going to
start a fare war with Spirit because you know, Spirit is not there.

But, look, overall, investors aren`t wrong that this is supply and demand
economics. And the more supply that`s in the marketplace, yes, it will put
downward pressure on airfares at a time, Tyler, when — you know, because
you have rising airfares, airlines are feeling squeezed cost-wise. And
what United is basically saying is, yes, that`s the problem, now there are
more cost problems than revenue problems basically —


KAPLAN: — and they are trying to get their hands around that.

MATHISEN: All right. Seth, we have to leave it there. Thank you very

Seth Kaplan with “Airline Weekly”.

Starbucks (NASDAQ:SBUX) brews up a mixed quarter and that is where we begin
tonight`s “Market Focus”. After the bell, the coffee giant topped earnings
expectations but disappointed the street with its revenue and same store
sales growth. Global sales did pick up but still lagged analyst`s
estimates. Shares initially fell in the extended section and they also
finished the regular day down fractionally. They closed at $60.55.

Tupperware (NYSE:TUP) maker Newell Brand said it plans to evaluate
strategic options for at least ten of its brand as it looks to focus on its
core businesses. The restructuring could cut in half the number of
factories and warehouses the consumer products company operates. Newell
also slashed its full-year earnings and sales outlook. Shares got
hammered. They fell 20 percent to $24.81.

Union Pacific (NYSE:UNP) said higher fuel prices caused its operating ratio
to rise in the last quarter. What is that? Well, that is the company`s
operating expenses as a percentage of its revenue. Lower is better here.

Earnings were in line with expectations, while revenue topped estimates.
The railroad operator`s CEO also said he hopes the new tax law will lead to
more jobs.


LANCE FRITZ, UNION PACIFIC CHAIRMAN & CEO: What I think the big impact of
tax reform is going to be is in our markets, it really does make our
customers more competitive, both globally and locally. That should
generate increased demanded. And as demand increases, we`ll be using that
cash to invest so that we can handle that growth and grow, hiring people
again at very attractive wages.


MATHISEN: Shares of Union Pacific (NYSE:UNP) down 5 percent on the session
at 1 $33.60.

Meantime, the upscale furniture maker Ethan Allen reported stronger than
expected earnings but said a drop in store traffic caused same store sales
and written orders to fall. The company plans a new marketing campaign and
hopes it will bring in more customers.


FAROOQ KATHWARI, ETHAN ALLEN CHAIRMAN & CEO: We now feel comfortable that
our products and offerings are in good shape, that our manufacturing is
better, and we are going to increase our advertising this quarter by 33


MATHISEN: Ethan Allen shares fell 7 percent to $25.05.

And the grocery chain operator Kroger (NYSE:KR) reportedly in talks with
the Chinese e-commerce giant Alibaba about working together. Reuter`s says
the discussions are at an early stage and may not result in any kind of
partnership. But Kroger (NYSE:KR) shares rose more than 2.5 percent to
$30.26. Alibaba gained 1 percent. They finished the day at $198.33.

And to the economy now, where the number of Americans filing for
unemployment benefits rebounded from a 45-year low last week. Jobless
claims for state unemployment benefits increased 17,000 to a seasonally
adjusted 233,000. That rise, less than expected, and points to a labor
market that is still getting stronger.

A key part of the economy, of course, is housing. And the housing market
slowed in December. New home sales last month fell sharply. So did
existing home sales, which we reported on yesterday. So, is this just a
winter slump or a warning for the spring?

Diana Olick reports tonight from Washington.


homes or newly built homes, fewer of each sold in December. And you can`t
really blame cold weather. For new home sales, the smallest drop was
actually in the Northeast where weather was worst.

UNIDENTIFIED MALE: There`s three bedrooms in here.

OLICK: For existing homes, the problem is likely lack of supply more than
weather. The number of listings in December was 10 percent lower compared
to a year ago. That`s the lowest supply since the realtors began tracking
it in 1999. Low supply continues to push home prices higher.

folks out there looking to buy a home are already facing affordability
challenge and we are expecting mortgage rates to go up, certainly, not down
for any reason. So, it`s going to squeeze affordability going forward.
So, it`s already a tough market, especially for first-time buyers.

OLICK: Mortgage rates have jumped significantly, just since the start of
this year, with the 30-year fixed at its highest level since last spring.
That could have buyers in the short-term trying to get in fast before rates
rise further.

GLENN KELMAN, REDFIN CEO: The increases we have seen so far have only
gotten people off the couch and into the market. So, people are worrying
that they need to hurry and buy a house now before rates go up further.

OLICK: That could mean an early start to the usually busy spring housing
market, as in right now. Builders especially could see a jump in demand as
mortgage rates rise because newly built homes are more expensive and
potential buyers have even less wiggle room in their budget.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.


MATHISEN: The home builder Lennar (NYSE:LEN)`s mortgage subsidiary is
under investigation by the Justice Department. Federal investigators have
subpoenaed records relating to the underwriting of Federal Housing
Administration loans. Lennar (NYSE:LEN) made the disclosure in its annual
report filed with the SEC.

Coming up, Amazon (NASDAQ:AMZN)`s hunt for a new home enters a new phase
and takes a secretive turn.


U.S. Conference of Mayors winter meeting in Washington, where the
sweepstakes to win Amazon (NASDAQ:AMZN)`s second headquarters is a big
topic of conversation. But a lot of those conversations are about to dry
up. We`ll tell you why, coming up on NIGHTLY BUSINESS REPORT.



MATHISEN: The competition for Amazon (NASDAQ:AMZN)`s $5 billion second
headquarters project is entering a new phase now that the company has
narrowed the 238 initial bidders down to just 20. All of the hype sounding
the start of process is going away, and with it, a lot of the transparency.

Scott Cohn reports tonight from Washington.


COHN: The hype has been impossible to miss, state and local officials
outdoing themselves to impress Amazon (NASDAQ:AMZN). Now, with the field
down to 20, finalists flock to the U.S. Conference of Mayors meeting in
Washington all for some good natured trash talk.

MAYOR MURIEL BOWSER (D), WASHINGTON D.C.: There is a lot of talking going
on. What you will find among these mayors is we are all pulling for
American cities.

COHN: But multiple mayors confirmed Amazon (NASDAQ:AMZN) is now telling
them to tone it down. Phase two of the process will be conducted largely
in secret. The company seeking more detailed information about what each
city has to offer in terms of work force, location, and incentives.

MAYOR FRANCIS SUAREZ (R), MIAMI: It is a very secretive process. And
obviously we are bound by confidentiality. But you know, we are continuing
to do what we did last week after the announcement. Which is sell Miami,
and broadcast to the world not just to the made to that Miami is the place
to be for Amazon (NASDAQ:AMZN).

COHN: But not included in the conversation for the most part, the
taxpayers who could foot the bill. Most of the finalists, like
Philadelphia, have been silent on the details of their bids, with no

MAYOR JIM KENNEY: If I were to lay out now what I think we should offer,
it would be criticized and, you know, looked at and determined whether or
not that`s good or bad.

COHN: The secrecy marks a more conventional approach to economic
development, experts say. Most projects are negotiated outside the public
eye. Like the giant Foxconn Electronics plant slated to be built in
Wisconsin. By the time a state economic development board finally got to
review the $3 billion incentive package last year, many of the details had
already been worked out and announced in a White House ceremony.

The stakes in the Amazon (NASDAQ:AMZN) race are even higher, with a few
places already showing their hands, like New Jersey and Maryland, talking
about billions of dollars in tax breaks for a project that will transform
wherever it winds up. Mayors are vowing not to be drawn into a bidding
war. But for now, control of that belongs to Amazon (NASDAQ:AMZN).

Scott Cohn for NIGHTLY BUSINESS REPORT, in Washington.


MATHISEN: Market recap now. On Wall Street, the Dow closed at its tenth
record close of the year. The blue chip index advanced 140 points to
26,392. Nasdaq dipped nearly four. But the S&P 500 added about two. It
also finished at a record.

And that is NIGHTLY BUSINESS REPORT for tonight. I`m Tyler Mathisen.
Thanks for joining us. Have a great evening, everybody. We`ll see you
right back here tomorrow night.


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