Transcript: Nightly Business Report – February 27, 2018

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


economy has strengthened since December.


raises the possibility of four interest rate hikes this year. And stocks
turn south.

(NASDAQ:CMCSA) (NYSE:CCS) readies a surprise bid for the U.K. broadcaster
Sky, setting off a possible blockbuster battle between three media titans.

HERERA: Risky business. Protesters are pressuring companies to sever ties
with the NRA. But do boycotts work?

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
February 27th.

MATHISEN: Good evening, everybody, and welcome.

While the economy is strengthening, the labor market tightening, inflation
nearing the Fed`s target. That is what the new Fed Chief Jerome Powell
told lawmakers in his first big congressional testimony on the economy
today. And while all that sound like a good thing, to traders, it means
the possibility of more interest rate hikes this year than Wall Street
expects. And that sent bond yields a little bit higher and stocks sharply

The Dow Jones Industrial Average dropped nearly 300 points to 25,410. The
Nasdaq fell 91. And the S&P 500 was off 35.

Steve Liesman has more on the Fed chair`s public debut.


Powell in his inaugural testimony before Congress giving an upbeat view on
the economy, saying he expects inflation to return to the 2 percent target
and saying the Federal Reserve is trying to balance, bringing inflation up
and dealing with a potential overheated economy. And that gave the market
a spook.

In Powell`s premiere, he opened the door in a subtle way to a potential
fourth rate hike this year. He spoke with incredible authority and
specificity on bank regulations, saying he wanted the Federal Reserve to
reduce regulations on small and medium-sized banks. He was more market
centric than his predecessor Janet Yellen and showed less concerned with
inequality than Yellen had.

Powell was asked by a member of Congress what would it take for the Fed to
change its view on average, that there would be three rate hikes this year.

POWELL: We`ve seen fiscal policy become more stimulative. So, I think
each of us is going to be taking the developments since the December
meeting into account and writing down our new rate paths as we go into the
March meeting. And I wouldn`t want to prejudge that.

LIESMAN: JPMorgan (NYSE:JPM) in a commentary after the testimony said,
quote, today`s comments appear to open the door for others on the committee
to revise their forecast as they see fit and that Powell himself may be
inclined to look for four hikes this year.

The U.S. ten-year certainly got the message at 10:40, right, when Powell
made those remarks, the ten-year shot up by about five basis points into
the 2.92, 2.93 area.

The probabilities of Fed rate hikes this year also rose. Markets now see a
97 percent chance of a rate hike in March. A 71 percent of a second rate
hike in June and a 66 percent chance of a December rate hike. A fourth
rate hike, given a 27 percent probability. That`s low but higher than it
was before his testify.

Powell will testify again on Thursday before the Senate and his first
testimony next month when the Federal Reserve meets and is expected then to
raise interest rates.



HERERA: Joining us to talk about the takeaways of Mr. Powell`s testimony
and what might lay ahead for the economy is Michael Feroli, chief U.S.
economist at J.P. Morgan.

Nice to have you with us again, Michael. Welcome back.


HERERA: Was it the possibility of a fourth rate hike that struck you the
most in his testimony? Or were there other things that you found

FEROLI: There were a lot of interesting things. But, certainly, I think
his talking about the possible revision to the revision to the rate
forecast that we could see in March. That was surprisingly candid. We
have, you know, usually Fed chairs are quite cautious in how they predict
where interest rates are going. But you laid out a pretty clear case for
revising growth estimates higher next month relative to the last set of
forecast which is occurred in December.

So, I think a lot of interesting tidbits here in there today. But I think
really the confidence in growth and what that could imply for their pat of
interest rates was to me at least the most striking thing.

MATHISEN: He used a word at one point that we have not heard in Fed chief
testimony in a long time. And that was overheating, with respect to the
economy. Do you see any signs of that? Or do you see any insipient sort
of below the surface, where the crocus bulbs lie idea of that?


FEROLI: Right. I think right now you are only seeing, you know, vague
hints of that, right? So, inflation is well below — most measures of
inflation are still a fair bit below 2 percent.

That said, you know, there is a famous saying that monetary policy acts
with a long and variable lag. And so, they don`t want to wait until you
actually see overheating before tightening rates. And I think the concern
here is that as we get later into the year where there`s more fiscal
stimulus kicking in, that you want to have interest rates in a little more
restrictive stance than they are now.

So, right now, it`s really — you have to look under the magnifying glass
to see signs of overheating.
But I think the concern is that, you know, those signs are a little more
present than they were three or six months ago. So, if they`re going to
act proactively, they probably want to start moving interest rates as early
as next month.

HERERA: You know, I also was struck by how explicit the new Fed chief was.
Is this a new, much more explicit and transparent Fed? And is the market
really ready for that? They certainly weren`t ready for it today.

FEROLI: Well, you know, I think there is one thing you have to keep in
mind, which is was this a different change in style relative to Yellen? Or
had the facts actually changed?

In other words, the last time we heard from Yellen was before the spending
bill, before the tax bill. And so, a lot has changed in the time since we
heard from Yellen versus when we heard from Powell today.

So, I think it`s kind of difficult to distinguish if the change was a
change in messenger or change in what is actually affecting the economy.
That said, I do think Powell`s style is probably a little more
straightforward than either Bernanke or Yellen who are life long academics.
And Powell has a little more private sector experience. So, perhaps he is
going to be more candid in that respect.

HERERA: So, we should fasten our seat belts. Thanks, Michael. I
appreciate it.

FEROLI: Thank you.

HERERA: Michael Feroli with J.P. Morgan.

MATHISEN: An infrastructure bill may not make it out of the Senate this
year. Senator John Cornyn, the GOP`s number two in that chamber said the
Senate`s agenda is packed and that putting together an infrastructure
measure would be challenging. Earlier this month, of course, the president
released an outline for the legislation and the starting point for
negotiations, but that seems to have hit a pothole.

HERERA: A new report on housing today confirmed prices accelerated into
the end of last year. According to the case Schiller Home Price Index,
prices rose more than 6 percent in December. That`s the most since mid-
2014. And with a limited number of properties available for sale, home
buyers bid up prices which are rising faster than wages and inflation.

MATHISEN: Also in the economy, new orders for long lasting goods fell more
than expected last month. And orders for so-called durables, ranging from
washers and to aircraft fell 3.7 percent. That is the biggest drop in six
months. Economists say the decline could point to a little bit of a
slowdown in business spending after a rise late last year and suggested
economic growth may have moderated early in the first quarter.

HERERA: In deal news today, Comcast (NASDAQ:CMCSA) (NYSE:CCS) made a
surprise $31 billion bid for the British broadcaster Sky, which would
expand Comcast`s reach to key European markets. But the deal is
complicated. Twenty-First Century Fox owns a stake in Sky, and it`s been
trying to take full control of it. The bid from Comcast (NASDAQ:CMCSA)
(NYSE:CCS) could also disrupt Disney`s plans to acquire most of Fox`s
assets. Shares of all three media companies fell on the news.

Julia Boorstin takes look at the saga over Sky.


giant Comcast (NASDAQ:CMCSA) (NYSE:CCS) making a big bet on international
expansion. Looking to buy Sky, a U.K. media company with similar assets,
and 23 million customers. Sky offers satellite, broadband and mobile
services, plus broadcasting, including news and sports, with valuable
rights to English Premier League Soccer.

the perfect fit. We`re both leaders in creating and distributing content,
with innovation at the heart of what we do.

BOORSTIN: Comcast (NASDAQ:CMCSA) (NYSE:CCS) offering $31 billion all cash
for Sky, a 16 percent premium to what 21st Century Fox has offered for the
nearly two thirds of the company that Fox doesn`t yet own.

Comcast`s CEO Brian Roberts saying he`d be satisfied with a majority stake
in Sky, but that he would like to own all of the company to buy out Fox`s
current stake.

ROBERTS: As a European market leader, Sky would accelerate Comcast`s
international strategy, increasing revenues from outside the U.S. to 25
percent from current 9 percent. And as we said, we will bring investment
content and capabilities to drive the growth for the combined businesses.

BOORSTIN: This pits Comcast (NASDAQ:CMCSA) (NYSE:CCS) against Disney
(NYSE:DIS) again, as well as Fox and Murdochs who have been struggling to
gain regulatory approval for Fox`s deal to buy the rest of Sky that they
announced back in December 2016. And James Murdoch is Sky`s chairman.

Sky shares rallying dramatically, indicating that investors expect Fox and
by extension Disney (NYSE:DIS) to counter with a higher offer.

BRETT HARRISS, GABELLI & CO.: The way that the Disney (NYSE:DIS)-Fox deal
is structured is there is a sliding scale. So, if Fox ends up increasing
its bid for Sky, Disney (NYSE:DIS) ends up paying for that through this
mechanism in their acquisition of Fox. So, really, what does Disney
(NYSE:DIS) want to do.

BOORSTIN: Fox saying it, quote, remains committed to its recommended cash
offer for Sky announced on the 15th of December, 2016. Fox had said its
deal should close by the end of June. No word from Disney (NYSE:DIS) on
the bid and Comcast (NASDAQ:CMCSA) (NYSE:CCS) would not comment on
speculation that it`s interested in bidding more for all of Fox.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.


HERERA: Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent company of CNBC,
which produces this program.

MATHISEN: All right. Time to take a look at some of today`s big upgrades
and downgrades.

Intel (NASDAQ:INTC) added to Citi`s top pick list. The bank cites the chip
makers` strong corporate sales. The analyst maintains the buy rating there
predicts that the company will report profits above expectations this year.
Intel (NASDAQ:INTC) responded, rising more than 1 percent to $49.91 on this
otherwise down day.

Chipotle Mexican Grill (NYSE:CMG) upgraded to outperform from neutral at
Baird. The firm says the new CEO could help sales and traffic over the
next one to two years. The new price target there, $400. The stock gained
2 percent to $319.15.

HERERA: And Winnebago saw its rating raise to outperform from market
perform over at BMO Capital Markets. The analyst there says the RV boom is
about to enter it`s ninth year and expectations are for the market to
continue to grow. The revised price target is $60 a share. But despite
the upgrade, the stock fell 1.5 percent to $43.45.

MATHISEN: Still ahead, as the debate over gun control continues to heat
up, calls for company boycotts are being heard. But do boycotts really

Amazon (NASDAQ:AMZN) to buy digital smart doorbell maker ring, pushing
Amazon (NASDAQ:AMZN) into the home security market. Ring makes a popular
line of video camera door bells. The price tag was not disclosed. But
news of the deal sent shares of rival home security company ADT lower.

MATHISEN: And there are reports tonight that talks between Walgreens and
AmerisourceBergen (NYSE:ABC) has stalled. As first reported by CNBC, early
stage exploratory talks between the two companies ended without agreement.
It was also noted that meetings could resume once again at any time. The
report sent shares of both stocks lower in late trading today.

HERERA: The magic of Macy`s (NYSE:M) has returned, at least for now. The
department store reported strong earnings in the most recent quarter that
includes the key holiday period. The retailer also issued an upbeat
outlook for the year. And that helped send shares 3 percent higher in
trading today.

Courtney Reagan takes a look at what`s working at Macy`s (NYSE:M).


were strong for Macy`s. January was better. The department store not only
beat profit forecasts but its comparable far exceeded expectations. Macy`s
(NYSE:M) had said November and December sales grew more than a percent.
And while analysts expected sales to slow in January, typically a clearance
month, the opposite happened. January sales improved by 3 percent.

The average price of an item Macy`s sold in January was higher than it was
a year ago. There was less left over holiday inventory to sell on
clearance and shoppers bought more new merchandise. More shoppers came
into Macy`s (NYSE:M) stores, and online sales recorded double digits rates
for the 34th straight quarter.

DANA TELSEY, TELSEY ADVISORY GROUP CEO: We had a better holiday season.
Consumers had the ability to spend. Macy`s (NYSE:M) gave them the want to
spend. Retailers and brands were able to come out with products that
people wanted. We have a little bit of an apparel cycle. Essentially
where there was fragrances, whether it`s dresses, active or men`s,
tailored, it all seemed to work.

REAGAN: Macy`s (NYSE:M) CEO Jeff Gennette says he is confident about the
changing sales trend and plans to exceed analysts expectations this year.
Macy`s (NYSE:M) plans to grow sales through a combination of four main
factors — a strong consumer environment, overall better execution, a new
company-wide employee incentive plan, and expanding strategies it tested
last year, including a new loyalty program and merchandise changes.

Gennette will use part of savings from tax reform to help fund the new
incentive plan, giving all employees what Gennette classifies with a
regulatory as skin in the game. Gennette says the presence of a back stage
area in a store which is Macy`s (NYSE:M) outlet concept is lifting sales in
those locations by a full percentage point. A metric that`s been improving
over time. The concept is in 45 stores now with plans to expand to 100 or
more this year.

Analysts think Macy strategy is helping improve sales but also point to
demand for apparently and a generally strong U.S. consumer, which could
bode well for Kohl`s, JCPenney and other retailers when those results come
this week.



MATHISEN: Dillard`s (NYSE:DDS) reports a strong quarter. And that is
where we begin tonight`s “Market Focus”.

The retailers said strong demand boosted same store sales, revenue bettered
analyst forecasts. Profits also topped estimates. Shares jump 16 percent,
almost 17 percent to $82.91 there.

And despite facing pricing pressures in its generics business, the drug
maker Mallinckrodt reported results sees a number of opportunities for
growth this year, said it`s committed to expanding its product portfolio.
Shares up 15 percent to $18.66.

And the chip maker, Microchip Technology (NASDAQ:MCHP) reportedly nearing a
deal to acquire the rival Microsemi (NASDAQ:MSCC). “Reuters” says the
potential tie up could value Microsemi (NASDAQ:MSCC) around its current
stock price. A deal could be reached as early as this week. Microchip
chairs rose 2 percent to $88.55. Microsemi (NASDAQ:MSCC) up a fraction at

HERERA: Higher average selling prices helped Toll Brothers (NYSE:TOL)
deliver a profit beat. Overall sales were a little light. But the luxury
home builder also said it saw an increase in orders during that period.
Shares initially rose following the report but then finished down 5 percent
to $45.10.

SeaWorld`s CEO is stepping down from his position as the theme park
operator continues to contend with falling park attendance. Joel Manby
will leave the company and hand the reins over to John Reilly who will act
as interim chief executive. The company has struggled to win back
customers after the documentary “Blackfish” exposed SeaWorld`s alleged
mistreatment of orcas. Shares were off 5 percent to $14.92.

Flooring company Lumber Liquidators report a rise in sales that weren`t
strong enough to top analyst`s expectations. The company also warned that
its promotions may be losing steam and could result in a drop in sales in
the current quarter. Shared plunged 9 percent to finish the session at

And after the bell, the payment company square reported higher sales as the
company said more businesses took advantage of its expanded services. The
company did however you give an earnings outlook for the current quarter
that trailed estimates. Shares were volatile in the extended station but
ended the regular day one percent to $45.91.

MATHISEN: Delta Airlines (NYSE:DAL) dropped its discount for NRA members
and is now facing pushback. Georgia`s lieutenant governor threatened to
prevent the airline from getting a lucrative tax break which is currently
under consideration in the state legislature. Casey Cagle tweeted, quote,
I will kill any tax legislation that benefits Delta unless the company
changes its position and fully reinstates its relationship with the NRA.
Corporations cannot attack conservatives and expect us not fight back.

HERERA: FedEx (NYSE:FDX) has decided to keep its discount for NRA members
in place. In its statement, FedEx (NYSE:FDX) said that while it does not
agree with the NRA`s views on assault rifles, it clarified that the
discount program is for members, not the organization itself. FedEx
(NYSE:FDX) said it never provided any donation or sponsorship to the NRA.
Some pro-gun control supporters have called for a boycott of the company on
social media.

MATHISEN: So, do boycotts actually work?

Here to talk about that is Erik Gordan, professor at the University of
Michigan`s Ross School of Business.

Professor, welcome. Good to have you with us.

Here, some pro-gun control folks have said boycott FedEx (NYSE:FDX) because
they are not cutting their discount with the NRA. Do boycotts work?

usually don`t. Sometimes they start off pretty strong, a lot of
visibility. Six to 12 months later, they disappear, almost without a
ripple. They usually do not work.

HERERA: You know, Professor, it seems as though this discussion — and we
mentioned this last night with the guest that we had — is much more heated
than other social issues have been in the recent past anyway. Does that
change the dynamic for a company or not?

GORDAN: That could make this one — this boycott, these boycotts,
threatened boycotts the exception. What will be interesting is to see
whether the reaction, the sentiment, the emotions are just as strong 90
days from now as they are today. But if they are, this could be the
exception where the boycott actually does have an effect.

MATHISEN: If a company is pressured to do something, and let`s take the
case of FedEx (NYSE:FDX), get rid of its discounts for NRA members,
couldn`t you then have a counter boycott of individuals who say, well, you
just damaged me, I`m an NRA supporter, we are going to boycott you?

GORDAN: Yes, for every action, there is another reaction. The company is
in a very tough spot. They favor one side, the other side hates them. If
they don`t favor the other side, the other side hates them. They are in a
really, really tight situation from which I`m not sure there is not much

HERERA: You know, professor, are we now, as a society, and maybe as
shareholders, if it`s a publicly traded company, viewing businesses
differently? You know, the moral sense that apparently the expectation is
that a company needs to have, do the right thing, whatever that right thing
is, in the circumstance.

GORDAN: Yes, we do hold companies to moral standards. The old idea of,
well, business is business and has nothing to do with morality, those days
are long gone. People look to companies to be strong moral forces where
moral forces mean that the company does what you agree with.

MATHISEN: You seem to be saying that consumer boycotts tend to sort of run
out of steam, the issue gets out of the news cycle and moves on to
something else.

But what about disinvestment? What about investment companies that pull
their shares out because they don`t like a company`s environmental stance,
or the products that they sell, or whatever?

GORDAN: Yes, that can hurt a company. I mean, no CEO lives to see another
day if the stock price tanks. So, that`s one way of putting a lot of
pressure on the company.

The question is, at the margin, how many shares work that way and how many
shares are just in index funds where nothing happens.


MATHISEN: Yes, this has been — this has been raised in exactly this
context because Blackrock, the big index fund company, is a major holder of
a couple of the gun manufactures that make AR-15-style assault rifles. And
the company, Blackrock, has had a social responsibility core. So, it`s a
very tricky issue for them.

Erik Gordan with the University of Michigan`s Ross School of Business —
thank you so much for your time tonight.

GORDAN: My pleasure.

HERERA: Coming up, a plane makeover. Will changing the inside of an
aircraft drive revenue higher?


MATHISEN: Boeing (NYSE:BA) and the president have reached an informal deal
on new Air Force One aircraft. According to the White House, President
Trump negotiated a $3.9 billion fixed price contract for the new planes.
This follows years of intense negotiations between Boeing (NYSE:BA) and the
Air Force. The White House says the deal saves taxpayers more than $1.4
billion compared with the original price.

HERERA: JetBlue is reportedly looking to replace some of its jets.
According to “Reuters”, the airline met with Canadian plane maker
Bombardier and plans to meet with Brazil`s Embraer this month. JetBlue is
reportedly looking to replace the fleet of about 60 planes. The company
says it`s exploring a full range of its options.

MATHISEN: Well, airlines are trying a new approach to drive greater
profits. They are retrofitting the interiors of their planes so they all
have the same number of seats. It could lead to fewer passengers getting
bumped from flights when aircrafts get pulled out of service.

Phil LeBeau is in Everett, Washington.


makeover. American Airlines is retrofitting its fleet of Boeing (NYSE:BA)
777s, stripping out some of the plane`s standard main economy seats and
replacing them with premium economy seats that are slightly bigger and have
more leg room. American believes differentiating its cabins with more seat
choices will appeal to customers willing to pay a little more for a higher
level of service.

DOUG PARKER, AMERICAN AIRLINES CEO: There are certain products that
customers are willing to pay for and certain they aren`t. So, for example,
the basic economy today is a product of that, and it allows us to match the
fares that are on the ultralow cost carriers like the Spirits of the world
but it doesn`t have the same amenities like the ability to change your seat
or the ability to even bring on a bag that can`t fit under the seat.

LEBEAU: It takes less than a week to give a 777 a makeover. Workers not
only put in new seats. They are also rewiring the entire plane. And when
they are done, American will have standardized its fleet of 777s, so they
all have the same number of seats.

That`s important because for years, different planes within an airline`s
fleet have often had different numbers of seats. So if one plane has to be
replaced by another at the last minute due to an unexpected issue, there
are not always enough seats for the passengers booked on the flights.

oversold for whatever reason, or one flight gets cancelled and they have to
consolidate people on the remaining flights. That means that there is a
bit of Russian roulette going on and sometimes somebody gets bumped down.
Airlines want to try to reduce that from happening.

LEBEAU: American says there should be fewer last-minute rebooking
headaches once it finishes retrofitting its planes. That should not only
help with the bottom line, but make for happier travelers when their planes
are replaced at the last minute.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Everett, Washington.


MATHISEN: Before we go, here`s another look at how the major indexes fared
today. It was another yoyo of a day. The Dow dropped nearly 300 points
when it was all said and done to 25,410. The Nasdaq was off about 91
points, about 1.25 percent. And the S&P 500 was down off 35.

2018 is not 2017.

HERERA: No, it`s not. By the way it`s nice to be back together, right?

MATHISEN: Nice to be back together. It`s been a little while.

HERERA: That will do it for us tonight. I`m Sue Herera. Thanks so much
for joining us.

MATHISEN: I`m Tyler Mathisen. Good to be back.


MATHISEN: Have a nice evening, everybody. We`ll see you tomorrow.


Nightly Business Report transcripts and video are available on-line post
broadcast at 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
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Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.


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