Transcript: Nightly Business Report – March 12, 2018


drops as investors analyze the potential impact of the tariffs and wonder
what`s next for stocks.

cholesterol drug shows promising results, but will insurers pay?

GRIFFETH: Toy transformation. Why the industry synonymous with fun could
soon usher in a new era.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Monday,
March 12th.

Good evening, everybody. I`m Bill Griffeth. I`m not in for anybody

HERERA: No, you`re in for yourself.


HERERA: So great to have you here, Bill.

GRIFFETH: I`m thrilled to be here and especially to work with my college

HERERA: Right back at you.


HERERA: It`s a great new chapter for NBR.

So, we begin the program tonight with bill and the stock market. The blue
chip Dow index fell triple digits mainly on trade war concerns. Investors
are assessing the potential impact of some of the world`s biggest
companies, namely Boeing (NYSE:BA), Caterpillar (NYSE:CAT) and United
Technologies (NYSE:UTX). One strategist says the stakes are high. A
mistake in trade policy could be as big as a mistake in monetary policy.

The Dow Jones Industrial Average fell 157 points to 25,178, the Nasdaq was
up 27, and the S&P 500 was off 3. Despite today`s mixed market, the Nasdaq
closed at a record for the second straight session.

So, what is next for stocks?

Bob Pisani takes a look.


control of the market on Friday, but today, well, not much was swaying
stocks one way or the other. That`s a bit of a problem. The market
briefly rose on reports that CNBC contributor Larry Kudlow could be the top
contender to take over as President Donald Trump`s top economic policy
adviser, but drifted steadily lower after that.

The problem is there`s a bit of a news gap this week. With the jobs report
out and earnings season winding down, the markets are now entering a choppy
period that`s characterized by lighter trading volumes and a little bit of
intraday volatility. But there`s not a lot of conviction one way or the

Now, we did see defense stocks and industrial stocks like Boeing (NYSE:BA)
and Caterpillar (NYSE:CAT) lower today. Those were the big winners last
week, but not this week. What comes next? Investors will be watching a
couple of key inflation points this week, including consumer and producer
prices, but not much else until the Federal Reserve`s next meeting. That
won`t be until next week, March 21st.

The down side risk is stocks are still prone to the scary inflation
headlines, but the good news is we`re already retesting the record highs.
You know, the S&P 500 is just about 2 percent away from its old historic
high and the Nasdaq is already there.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.


GRIFFETH: Let`s turn now to Rich Guerrini. He is the CEO of PNC
Investments, joining us to talk about where we go in the stock market.

It happened again here, Rich, where stocks seemed to be most exposed to
tariffs, that you find them in the Dow and the S&P went lower, while those
not so exposed, those in the Nasdaq and the Russell 2000, went higher.

Do you see that continuing?

RICH GUERRINI, PNC INVESTMENTS CEO: I think we`re at a time, Bill, of high
volatility. I mean, when I look at the markets, it`s certainly a market
that`s driven by interest rates, concerns around inflations and then you
add the tariff issue. And I think you have a great combination for
continued volatility as we go forward.

GRIFFETH: So how do you invest against that type of a background for
clients? How are you advising them to deploy cash if they have cash and
let`s assume that they`re longer term investors?

GUERRINI: Well, at PNC investments, we continue to reinforce the idea of
long-term planning. Start with a financial plan. Start with a goal-based
plan. And really understand what your time horizon is, and make sure,
obviously, that in these types of markets, you don`t make any rash
decisions and really look and focus on the economy and just overall market

And we feel that the market continues to be a great place to be for our
long-term investors.

GRIFFETH: But in the short term you will have to face higher interest
rates. Everybody believes that the Fed this month is going to be raising
rates yet again and maybe as many as four times this year.

How do you change the investment mix if that happens?

GUERRINI: Well, I mean, I think certainly with the concerns around
inflation, there`s a realistic possibility that the Fed could raise four
times this year. The market certainly would have forecasted in three rate
increases and I think we`ll see one as soon as next week at the next Fed
meeting, but certainly for our — for your viewers and frankly our
investors at PNC, we continue to focus on the long term and we continue to
think that the market is a great place to be as long as you do have a long-
term time horizon.

But be ready for continued volatility and possible retesting of the lows
that we saw the first week of February.

GRIFFETH: Indeed. Rip, always good to see you. Thank you.

Rich Guerrini with PNC investments joining us tonight.

HERERA: Speaking of those tariffs, China is stepping up its criticism of
the tariffs introduced last week by the White House, warning that there
will be no winners in a trade war.

And as Eunice Yoon reports, steel producers in the world`s second largest
economy want the government to respond.


of a company that`s just one within the metals industry here that`s calling
on their government to retaliate against President Trump`s tariffs. The
associations that represent China`s steel and aluminum industries issue
statements strongly opposing the tariffs. And they`re now recommending
that the Chinese government take action against American imports in their
sectors and beyond.

For metal products, the manufacturers here say Beijing should target
stainless steel, galvanized sheet, seamless pipe and strap aluminum. In
other industries, they say China should punish agricultural products,
consumer electronics, luxury goods and coal.

This is the first time that coal has been mentioned as a possible target.
China has ramped up its imports of American coal to 3.2 million tons last
year, five times more than the previous year and worth $420 million. Some
Chinese analysts are now arguing that Beijing should go after products that
would affect President Trump`s political base like coal and states that
gave him the election win.

The steel and aluminum industries here don`t export a lot directly to the
U.S. and are not expected to be affected very much at all by these tariffs.
And, so far, officially the government has followed through with any of
these measures. However, based on this strong reaction, some analysts
believe that Beijing could face pressure to take greater countermeasures
any further U.S. action that could impact China`s companies.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon, in Langfang, China.


GRIFFETH: Meanwhile, Canada`s prime minister has now joined the chorus
accusing China of dumping steel on the global markets. And he said today
that his country has taken steps to stop it from happening.


JUSTIN TRUDEAU, CANADIAN PRIME MINISTER: We also are very worried about
the global oversupply, China dumping and other places dumping their steel
and aluminum, and it`s affected our workers here. So, we put in very
strong measures, some of the strongest in the world, against dumping. But
as I said to the president, as I said to congressional leadership, I`m
happy to work with the United States to go even further with them.


GRIFFETH: Canada, of course, is the biggest supplier of steel and aluminum
to the United States, and for now, it is exempt from those steel and
aluminum tariffs leveled by the White House last week. Last week, while
the NAFTA talks continue, during the interview with CNBC, Mr. Trudeau said
that he believes that the exception has nothing to do with the NAFTA talks
and that millions of job on both sides of the border depend on the
continued smooth flow of trade.

HERERA: One of the biggest banks on Wall Street may have just signaled who
will be its next CEO. Goldman Sachs (NYSE:GS) had two heirs apparent for
the top job. Well, today, Harvey Schwartz said he plans to retire in
April. That clears the way for fellow president and co-chief operating
officer David Solomon to become the next chief of one of the world`s most
powerful financial institutions whenever CEO Lloyd Blankfein steps down.

According to “The Wall Street Journal”, Schwartz was informed last week
that Solomon had the board`s backing.

GRIFFETH: Time to take a look at some of today`s upgrades and downgrades.

UBS is raising its rating on Time Warner (NYSE:TWX) to buy from neutral.
The firm believes that its merger with AT&T (NYSE:T) will go through, but
even if that deal does fail, Time Warner (NYSE:TWX) shareholders will still
win because of the strength of its assets like HBO. And the price target
was reaffirmed at $108 a share. The stock rose 1.5 percent to $96.75.

Meanwhile, Micron saw its price raise sharply to $100 from $55 at Nomura
Instinet, making it the highest price target on Wall Street now for that
company. The analyst expects higher memory chip prices to help and he`s
forecasting a dividend and share buyback announcement in the coming months
as well. The firm maintained its buy rating and the stock gained more than
8 percent today to $59.37.

HERERA: The Dow component Merck (NYSE:MRK) was upgraded to outperform from
market-perform at Leerink Partners. The firm says Merck`s key long cancer
drug will perform better than expected. The price target remains $66 a
share. Merck (NYSE:MRK) was up fractionally to $55.36.

Deckers Outdoor (NASDAQ:DECK) which makes UGG boots saw its rating
downgraded from hold from buy at Pivotal Research. The analyst there says
the company will face some tough comparisons following a good winter
season. The price target, though, was cut to $108 a share and the stock
fell 7 percent to $90.28.

GRIFFETH: Still ahead, the CEO of one drugmaker wants to lower the price
of an expensive cholesterol drug, but with conditions.


HERERA: A drug and a new class of cholesterol medicines was shown to lower
the risk of heart attacks and death. That`s good news, of course, for both
patients and the drugmaker, but the issue is the price.

Meg Tirrell has more.


have high cholesterol and heart disease is the leading cause of death in
the U.S. and worldwide. So, when a new class of cholesterol drugs called
PCSK9 inhibitors was approved in 2015, the medicines were expected to be
huge moneymakers for drug companies. That didn`t turn out to be the case.

The two drugs called Praluent from Regeneron and its partner Sanofi, and
Repatha from Amgen (NASDAQ:AMGN) have been commercial flops, bringing in
about $500 million combined in revenue last year, versus the billions
analysts had forecast. Why? One reason is their price, about $14,000 a
year before discounts and rebates. Data shows that even when doctors are
writing prescriptions for these drugs, they`re getting rejected more than
half the time by health insurers.

DR. LEONARD S. SCHLEIFER, RENEGERON CEO: Doctors are furious. They write
a prescription and most of them are getting rejected. Patients should be
able to get the drugs that they want.

TIRRELL: The other reason they weren`t selling was that while they`re
proven to lower levels of so-called bad or LDL cholesterol significantly,
they hadn`t immediately proven that translated into a reduction of heart
attacks, stroke and death. This weekend brought those data for Sanofi and
Regeneron`s drug. In a trial of 18,000 patients who recently had a cardiac
event like heart attack, Praluent was shown to reduce the risk of another
event by 15 percent. That`s similar to results from Amgen`s drug presented
last year.

But Praluent was also associated with a lower rate of death in the trial,
compared with placebo. Something analysts say may help boost sales. Both
results were most pronounced in patients with higher levels of LDL
cholesterol to start with. And in that group, Regeneron and Sanofi say
they`re talking with health insurers about providing steeper discounts on
the drug.

SCHLEIFER: One thing is for sure. We`re going to lower the price that
people are paying for the drug, which is whether their insurance company
and whether it`s patient making a co-pay. When m you add it all up, that`s
what it costs to get somebody our drug. We want that price to be lower,
but we want them to get the drug. That`s got to be the bargain.

TIRRELL: Competitor Amgen (NASDAQ:AMGN) says it`s also in negotiations
with insurers and has offered, quote, dramatic reductions in price for
those who significantly improve access.



GRIFFETH: Meanwhile, Sarepta Therapeutics plans to seek approval for a
second Duchene muscular dystrophy treatment, and that`s where we begin
tonight`s “Market Focus”.

The drug maker says that the FDA has agreed to review the company`s new
experimental treatment for this disorder. Sarepta said that it plans to
apply for approval by the end of this year. The company`s first Duchene MD
drug was approved back in 2016. Shares climbed 6 percent today and
finished the day at $79.10.

Meantime, short seller Citron Research said Netflix (NASDAQ:NFLX) could see
its stock fall to $300 a share. Citron says that the streaming giant`s
spending on original content is unsustainable long term and added that the
company faces a slew of competitors who have the money to create compelling
content on their own. Netflix (NASDAQ:NFLX) shares were off 3 percent to


HERERA: Bill, the longtime chief executive of Dow Chemical (NYSE:DOW) is
stepping down from his role next month. Andrew Liveris who led the company
for 14 years had said that he would retire once Dow completed its merger
with rival Du Pont. Liveris who is now executive chairman of the combined
company also plans to leave the board of directors. Shares of Dow Du Pont
fell 1 percent to $71.34.

And after the bell, Stitch Fix reported stronger than expected sales in its
second report since going public. The online personal styling company said
results were helped by more customers, but earnings for the quarter came in
below expectations. And with that, shares initially fell in the extended
session. They ended the regular day up, however, nearly 7 percent to

GRIFFETH: Toys “R” Us may be on the brink of liquidation. As we`ve been
reporting, the big box toy retailer is running out of both time and money
even though it still ranks as one of the biggest toy sellers around. So,
if it does go under, it would leave a big hole in that entire industry.


GRIFFETH: They could all be gone and soon. The logo, the giraffe and the
Toys “R” Us U.S. TV commercials we all grew up with.


GRIFFETH: Here at home, Toys “R” Us has already closed about 200 stores
since filing for bankruptcy last September. And in the U.K., it`s closing
another 200 stores, something once impossible to imagine.

UNIDENTIFIED MALE: It is simply one of the great post-war retail
businesses of America.

GRIFFETH: Toys “R” Us can trace its roots to 1948 when Charles Lazarus
opened a baby furniture store in Washington, D.C. In 1957, after expanding
into toys, he began using the Toys “R” Us name. Toys “R” Us went public in
1978, grew to some 350 stores in the 1980s and expanded internationally to
more than 1,600 stores.

CHARLES LAZARUS, TOYS “R” US FOUNDER: The kids sometimes asked me, how did
you ever get to be that big? And I said, well, one day, I decided to open
a second store. And after that, it seemed to get easier.

GRIFFETH: Yes, it all seems so easy until 1998 when Walmart overtook Toys
“R” Us to become the top U.S. toy retailer. And as quickly as you can say
high-speed Wi-Fi, online shopping, with the powerful ability to compete on
pricing, began to remake retail.

There are a number of folks who track toy sales, but one industry insider
says that the top U.S. toy seller today is Amazon (NASDAQ:AMZN) with almost
a quarter of the market, up 1 percent in market share since last summer.
Toys “R” Us is second. But it has lost more than 1 percent of market share
over that same time period. And Walmart is just behind, followed by Target
(NYSE:TGT) and the dollar stores.

Brick and mortar still accounts for roughly half of all U.S. toy sales.
But Toys “R” Us is coming up on a 200-day deadline to renegotiate its real
estate leases. And barring any last-minute deals to save the brand,
American shoppers may soon learn another American icon is disappearing from
the retail landscape.


UNIDENTIFIED FEMALE: If it`s true, I`m going to miss it.

UNIDENTIFIED KID: I do not want it to close. Do you know why? Because I
love toys.


HERERA: Stephanie Wissink joins us now to talk more about the changing
landscape of the toy industry. She`s a consumer research analyst at

And I agree with that little boy. I love toys, too.

So, Stephanie, you make the point in one of your reports that is going to
impact the entire toy industry. Not just the Mattels and the Hasbros, but
some of the smaller companies as well.

It`s really an end of an era of specialty toys. And many of these small
companies that relied on Toys “R” Us to be their first venue for
distribution, relied on Toys “R” Us to provide them an opportunity to grow
their brands and their business, those are the companies that we worry
about the most. Those are going to be the victims of this ultimately
consolidation event within retail.

If they`re great, I think they`ll find another home, particularly among
some of the larger companies. But we do expect there to be some fallout,
not only from the retail consolidation, but also from the vendor

GRIFFETH: I mean, kids don`t play with the same kind of toys they used to,
right? I mean, it`s more digital, not so much physical. Even Lego is
suffering right now.

But why couldn`t Toys “R” Us keep up with those trends? I know they had
too much debt. It`s tough to service all of that. Why couldn`t they just
keep up with the trends that the kids were heading into?

WISSINK: That`s a great question. I think there are a couple of dynamics.
First and foremost, we`re talking about what you just mentioned,
constraints on time. Kids today are far more active. They`re engaged in
organized activities and sports. And so, the amount of time devoted to
traditional play is starting to decline.

We`re also seeing electronics become an alternative form of entertainment.
I think, secondarily, the demographic shift we`ve seen has really been
unprecedented. We have millennial parents now which are digitally native.
They`re really driving the market place particularly for toys and baby
products. And then, lastly, you have this financial structure that
prohibited Toys “R” Us from making the investments they probably needed to
make to keep pace with those changes in the marketplace.

So, I think it`s been a combination of all those factors that probably have
led to this position where we`re now contemplating a world without Toys “R”

HERERA: Yes. What does it do to the big toy companies like a Hasbro
(NYSE:HAS), like a Mattel (NASDAQ:MAT)? They`ve kind of migrated already
to Walmart and also to Target (NYSE:TGT) and Amazon (NASDAQ:AMZN),
certainly. But does it have a material impact on them or have they seen
this pretty much coming?

WISSINK: I think there`s been some awareness that there`s risk. Certainly
when Toys “R” Us filed bankruptcy last September, it was a bit of a shock
to the industry. Both the fact that it happened, but also the timing in
which it occurred right in front of the holiday season when a lot of
product was leaving Asia on its way to the United States.

But I think the secondary fact is the one that you bring up just with
respect to these vendors have been building and fortifying the pipelines
into these other channels of distribution for many years. So, I think it`s
going to be disruptive certainly for this year. We would expect that
there`s some disruption over the course of the next couple of quarters just
depending on the timing of when the liquidations occur.


WISSINK: But by 2019, we would expect at least 90 percent, 85 to 90
percent of Toys “R” Us volume probably shifts to these other channels.


WISSINK: One big consideration for investors is just the margin
implications. Toys “R” Us was largely a favorable margin retailer. When
you look at the scale and strength of Walmart in combination with Amazon
(NASDAQ:AMZN), it changes the narrative around profitability pretty
quickly. So, we think both Hasbro (NYSE:HAS) and Mattel (NASDAQ:MAT),
among many of the other large toy companies are having to reflect on what
the margin implications might be as we do see this shift into maybe margin
dilutive or less than creative categories.

HERERA: OK. Stephanie, thank you so much. Stephanie Wissink with

WISSINK: You bet.

HERERA: Coming up, why the entrepreneurial spirit is alive and well at a
festival in Austin.


GRIFFETH: As you may know, South by Southwest started as a music festival,
but it has grown into a lot more than that. The event now tech centered
and a place where start-ups look for investors and media companies go all-
out to show off their latest programs.

And Julia Boorstin is in the middle of it in Austin, Texas.


Convention Center is packed with a window into the high-tech future,
artificially intelligent robots, and virtual reality experiences. South by
Southwest has a reputation for being the place where start-ups such as
Twitter and Foursquare broke out and drawing a range of entrepreneurs,
along with investors, such as Ashton Kutcher. Kutcher with music mogul Guy
Oseary, his partner in their Sound Ventures Fund, hosted a start-up

ASHTON KUTCHER, SOUND VENTURES CO-FOUNDER: Companies come from everywhere.
They come from the Midwest. They come from the South. They come from —
they come from all across the country, all across the world. And, you
know, we`ve been covering South by Southwest for years, but actually doing
something that is meaningful for companies that actually shows and inspires
the entrepreneurial spirit all across the country.

BOORSTIN: Also competing for attention at South by Southwest, media
companies creating Instagrammable experiences around their shows and
movies, like this western town HBO built to promote the second season of
“West World”.

About 4,000 South by Southwest attendees will get a chance to visit “West
World” town of Sweetwater. But because they`re all tweeting and
Instagramming their very unique experience here, HBO`s marketing message
will be heard around the world.

Attendees given hats to enter the two-acre town of Sweetwater, to talk to
60 actors who never break character. HBO says the investment is worth it.

armed with guns but the guests are armed with cameras. So, they`re out
here Instagramming, live streaming, you know, and really helping us extend
the reach.

BOORSTIN: Warner Brothers promoting Steven Spielberg`s upcoming “Ready
Player One” film invited fans into a space that recreated the world of the
movie. And ABC aiming to drive viewers to watch “Roseanne`s” return
replicated the show`s iconic living room, encouraging visitors to take and
share photos, hoping to turn the influencers here in Austin into
evangelists for their content.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Austin, Texas.


HERERA: Here is another look at the day on Wall Street. The Dow Jones
Industrial Average fell 157 points to 25,178. The Nasdaq was up 27, that`s
a record. S&P was off 3.

That does it for us tonight. I`m Sue Herera. Thanks for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great evening. We will both see you
tomorrow. Good night.


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
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.


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