Transcript: Nightly Business Report – April 27, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
Griffeth.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: What changed? The market
peaked three months ago and today, things are a lot different than they
were then.

Big oil boom, not so fast. Oil prices are rising, but Exxon and Chevron
(NYSE:CVX) can`t seem to capitalize.

Price hike. Amazon`s prime membership is one of the engines that drives
that company, and it`s about to cost you more.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday, April
27th.

Good evening, everyone, and welcome. I`m Sue Herera, Bill Griffeth is off
tonight.

Wall Street wobbled a bit. Stocks closed out one of the busiest weeks of
earnings kind of mixed. Not even those blow-out tech results that we told
you about last night were able to lift the market convincingly higher. It
seems as if investors are still debating whether better than expected
earnings will be enough to lift interest rates.

The Dow Jones Industrial Average fell 11 points to 24,311. The Nasdaq
added one point and the S&P 500 was up nearly 3. The major averages were
slightly lower for the week.

Despite declines this week, stocks are on track for monthly gains. Today
marks three months since the market peaked.

And as Mike Santoli reports, a lot has changed since then.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: It has now been three
months since the stock market hit its latest peak in a rush of New Year`s
enthusiasm over a humming economy and a big tax cut. Since then, the
market has turned volatile and tentative, dropping a quick 10 percent in
February and then struggling to cling to its long-term up trend as a side
effect of brisk economic growth and lower taxes gained more attention.
Namely, higher interest rates, a buildup of inflation and lofty equity
valuations.

The S&P 500 now sits about 7 percent beneath its late January high and
roughly flat on the year. One way of looking at this setback is a simple
payback for an overheated two-month surge of momentum that started at
Thanksgiving. In part, this payback is in response to higher borrowing
costs. The ten-year yield pushed up against a 3 percent level, up nearly
half a percent from three months ago.

So far, the market has managed to absorb this rising rates with the S&P 500
sitting a few percent over its February low, even as the yield struck
multi-year highs. The main result of the three-month rollover in stocks
has been to make them look a good deal less expensive and to cool off
runaway investor optimism. Strong gains, corporate earnings and sluggish
share prizes have dropped the market`s price to earnings multiple to around
16. Based on the coming year`s forecast profits. That`s right in line
with its five-year average.

Investor surveys and mutual fund flow trends show investors have turned a
good deal more cautious as well. The good news in all of this, so far, it
doesn`t appear that the stock market tick up has been indicating any
serious risk to economic growth. First quarter GDP came in ahead of
projections and companies have boosted capital spending, which both argue
against the idea that a recession risk is rising.

With investors newly sensitive to any signs of a rapid spurt in interest
rates or a chance corporate profits are peaking for this cycle, Wall Street
might well stay in its choppy tentative trading range for a while longer.
The good news of corporate prosperity now comes with partial offsets in the
form of higher rates and more inflation. So far, though, this anxious
three-month adjustment in stocks does not indicate that January`s peak was
the very top of this bull market.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

HERERA: As oil prices rise, you would think that big oil`s profit and
revenue would too. But that wasn`t necessarily the case for ExxonMobil
(NYSE:XOM) and Chevron (NYSE:CVX) in the most recent quarter. Their
results were mixed and so was reaction on Wall Street.

Jackie DeAngelis explains why.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oil prices are up
almost 40 percent in the last year, climbing closer and closer to $70 a
barrel. The reason, excess inventories are falling while global growth
looks strong. Still, some of the oil majors struggled with earnings.
ExxonMobil (NYSE:XOM) told investors that its quarterly profit was higher
year on year, but it still fell short of expectations.

Higher oil prices did help the company, but the company`s downstream
business which refines and sells fuels saw a slump because of higher
expenses abroad and lower profit margins on sales of assets. Chevron`s
profits were better than expected. However, its revenues while higher than
the previous year did not beat the street. Regarding expectations for oil
prices, the company said this on its conference call.

MARK NELSON, VP, MIDSTREAM STRATEGY AND POLICY: We`re not designing our
business on these kind of prices. We`re driving our business for a lower,
for longer assumption. I would expect prices to stay in a fairly tight
range over time and we`re going to design our business to deal with the
lower end of those assumptions.

DEANGELIS: Chevron (NYSE:CVX) stock price has seen a rebound of about 10
percent in the last three months in part because trouble in its refining
business, the previous quarter, took its stock price down.

Earlier this week, ConocoPhillips (NYSE:COP) beat expectations on profit
and revenue. Higher oil prices were part of the story, but so were cost
cuts. Energy was touted as a bright spot for investors this year because
of the oil price rebound and it`s definitely outperformed.

The S&P energy sector is up a little more than 2 percent year to date. One
of the four sectors showing a gain in that time period and second best only
to the technology sector. But experts say a full rebound in energy will
continue to take time, as $70 oil is better than sub $40 but not as good as
over $100.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

HERERA: Amazon (NASDAQ:AMZN) is hiking the price of one of its most
important services, its prime membership. It appears that people are
willing to pay up for what`s become one of the driving forces behind
Amazon`s dominance.

Deirdre Bosa has more.

(BEGIN VIDEOTAPE)

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Jennifer Greco has
been an Amazon (NASDAQ:AMZN) prime member for two years. She uses the
service about twice a week.

UNIDENTIFIED FEMALE: I use it for everything, like from books to health
products to displays. Everything. It has everything I need and I get it
right away. That`s the truth.

BOSA: And she says the upcoming price hike for her prime membership won`t
stop her from subscribing.

UNIDENTIFIED FEMALE: Honestly, considering that most of the time I don`t
even get charged for shipping, it`s really not a bad deal feel.

BOSA: Other reactions were a little more mixed.

UNIDENTIFIED MALE: Because I abuse it so much, it`s not as big of a deal
because I know I`ll get my $20 worth out of it.

UNIDENTIFIED FEMALE: That`s like $20 more than last year.

UNIDENTIFIED FEMALE: This is not the first time they have done this to me,
but I`ll eat it. I`ll eat the cost because I`m so addicted to my Amazon
(NASDAQ:AMZN) prime.

BOSA: Annual prime memberships will soon cost $119. That`s a 20 percent
increase from the current $99. It goes into effect May 11th for new
subscribers and June 16th for current members renewing. The company says
that as the prime ecosystem has expanded, so too have Amazon`s costs.

BRIAN OLSAVSKY: The value of prime to customers has never been greater.
And the cost is also high. As we pointed out, especially with shipping
options and digital benefits. We continue to see a rise in costs.

BOSA: The last time Amazon (NASDAQ:AMZN) raised the price of its prime
membership was back in 2014 when 20 million items were available for two-
day free shipping. Today, there are more than 100 million eligible
products as well as two-hour free whole foods grocery delivery in 10 cities
and a hugely expanded digital library of music and video content.

Analysts like RBC`s Mark Mahaney aren`t worried. He points out the extra
revenue will allow Amazon (NASDAQ:AMZN) to invest even more back into the
business.

MARK MAHANEY, RBC CAPITAL MARKETS: And you put in a $20 price increase on
100 million subscribers, that`s $2 billion in incremental revenue cash flow
that could drop down. Knowing Amazon (NASDAQ:AMZN), they won`t allow it to
drop down. They`re going to invest it in something. But still, it`s great
profit potential.

BOSA: But the stakes are high. Revenue from prime memberships is part of
one of the fastest-growing business segments for Amazon (NASDAQ:AMZN), a
unit that grew 60 percent year over year this past quarter. And more
broadly, prime itself is the flywheel in the Amazon (NASDAQ:AMZN) machine.

Research shows that members shop more often and spend more on the platform
than nonmembers. Once you`re in, Amazon (NASDAQ:AMZN) can upsell you on
prime upgrades like fresh grocery delivery and music unlimited.

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

(END VIDEOTAPE)

HERERA: So, what exactly is your $119 membership used for?

We`re joined now by Tom Forte who broke down those numbers for us to
determine what Amazon (NASDAQ:AMZN) does with your money. He`s managing
director and a senior research analyst at D.A. Davidson.

Welcome, nice to have you here, Tom.

TOM FORTE, D.A. DAVIDSON MANAGING DIRECTOR: Thanks for having me, Sue.

HERERA: Do you agree with those who say before we get into the breakdown
that people are going to be willing to pay up for this service that Amazon
(NASDAQ:AMZN) has that strong a pricing power?

FORTE: Absolutely. And what people are paying for, let`s be clear, is
convenience, the ability to get an increasing number of products on a two-
day basis, sometimes faster, and selection, being able to get so many
different products that quickly to your home. That`s really what people
are paying for. So, I do think that they will not balk at an incremental
$20-a-year fee for Amazon (NASDAQ:AMZN) prime.

HERERA: We had some people who did, but the vast majority of those who
Deirdre interviewed agreed with you. So, you worked up kind of a pie chart
for us to see where that money is allocated. So, let`s take a look at
that.

We have 2 percent goes to the headquarters, 34 percent goes to profits.
That`s a very large number. Tell me about that.

FORTE: So, generally speaking, if you look at Amazon`s buckets of
profitability, we usually think of cloud computing as their largest bucket
of profits. But on a relative basis, if you look at the cost structure, so
the notion of you just pointing out how much we estimate of that prime
revenue goes toward shipping and handling, how much of it goes toward
content costs, things of that nature, we`re estimating that about 34
percent ends up as profits to Amazon (NASDAQ:AMZN). So this would make it
one of the most profitable efforts by the company, which is why I think
investors are so excited at the $20 price increase.

HERERA: You know, I found it interesting that only 13 percent goes to
content, because we hear from so many companies that one of their major
costs and one of their major concerns is the cost associated with content.
That seems like a low number to me.

FORTE: It may be on the low side, but if you look at the content costs,
they`re almost at parity with shipping costs, so that is pretty expensive
costs for the company. And I would argue, and I suspect that when you
polled consumers, not many of them today are saying, I`m a prime member for
streaming video on Amazon (NASDAQ:AMZN).

So, they just re-upped their deal with the NFL, two more years of Thursday
night football. And they also have a new head of their Amazon
(NASDAQ:AMZN) studios, who has a strong background in television. So to
the extent that Amazon (NASDAQ:AMZN) prime can have more hits, more
mainstream content, then maybe you`ll see more consumers in the future
saying I`m a prime member, not just for fast and free shipping on so many
different items, but because I love the content.

HERERA: On that note, Tom, thank you so much for joining us tonight. Have
a great weekend.

FORTE: You too, sue, thank you.

HERERA: Tom Forte with D.A. Davidson.

Well, North and South Korea`s historic talks helped lift stock markets
across Asia, but investors are looking at the summit with both optimism as
well as caution.

Eunice Yoon is in Seoul tonight.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: South Korean officials
say that President Moon Jae-in is going to have a phone conversation about
the summit with President Trump and he`ll likely say that the dramatic
events today on the Korean peninsula will likely set the stage nicely for a
potential meeting between Kim Jong-un, the North Korean leader, and the
president. And that`s because this is potentially a major turning point in
a conflict that has been technically going on for decades.

After the summit, North Korea`s Kim and South Korea`s Moon held a joint
press conference where they vowed to end the Korean War. They agreed to
phase disarmament and the complete denuclearization of the Korean
peninsula. Now, this is a formal side of what`s been a fascinating day
here, probably the most talked-about moment was when Kim Jong-un, perhaps
the most secretive leader on the planet, walked over to a podium in front
of the media and gave an address live on TV.

He talked about how North and South Koreans are the same people and that he
hoped for a new path forward. It seemed to be having a dramatic effect.
South Koreans were saying that they were deeply moved and were wondering if
this conflict could actually end during their lifetime.

Now, that all sounds encouraging, but the Koreans have been down this road
before. Since 2000, there were two other summits, both ended in peace
declarations, but nothing came out of those meetings. This declaration is
meatier, but we still don`t know what Kim Jong-un`s true motivations are
and just how seriously committed he is to dismantling his nuclear program.

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

(END VIDEOTAPE)

HERERA: The Toronto and Montreal stock exchanges shut down early today due
to a technical glitch. This afternoon, the exchange operator reported that
its systems were down and no trades could be executed. Dual listed
Canadian stocks on the NYSE and the Nasdaq continued to trade normally
during that outage.

Normal trading in the Canadian exchanges is expected to resume on Monday.

It is time to take a look at some of today`s upgrades and downgrades.
Microsoft`s rating was raised to overweight from neutral over at J.P.
Morgan. The analyst cites strong growth in its cloud business. The price
target is $110. Microsoft (NASDAQ:MSFT) says rose more than 1 percent to
$95.82.

Facebook`s rating was raised to buy from hold over at Stifel. The analyst
says the stock is just too cheap to ignore. That`s a quote. The price
target is $202. The stock finished today down just a fraction to $173.59.

Nike`s shares were upgraded to buy from hold over at HSBC. The analyst
cites a turn in the U.S. market for Nike (NYSE:NKE) and a lower tax rate.
The price target is $77. Nike (NYSE:NKE) shares rose 2 percent to $69.56.

Still ahead, why the newest Avengers movie is box office gold for Disney
(NYSE:DIS).

(MUSIC)

HERERA: It is shaping up to be a blockbuster weekend for Disney
(NYSE:DIS). The latest Marvel Avenger movie is making its debut and it`s
already off to a running start.

Julia Boorstin looks at how big this super hero film is expected to be.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: “Avengers: Infinity
War” is a marvel extravaganza ten years in the making. The widely reviewed
film ties together the characters and story lines across the past 18 Marvel
movies, with Iron Man and Captain America teaming up with the Guardians of
the Galaxy, as well as record-breaking Black Panther for what looks like
the biggest super hero movie ever.

ERIK DAVIS, FANDANGO: Wow. I think it just says a lot about what they
have accomplished over 10 years. It just goes to show you that, you know,
they have taken this genre that a lot of people thought, you know, how long
can you make these superhero movies. While they`re 10 years in, it`s
stronger than ever. And so, I think it just bodes well for the future of
the genre.

BOORSTIN: “Infinity War” ticket sales on Fandango have outpaced the last
seven marvel movies combined, making it Fandango`s number three biggest
pre-seller of all time. That bodes well for the film, which is said to be
one of the most expensive ever, with a budget reported over $300 million.
Thursday night previews set a record for Marvel, selling $39 million in
tickets at the U.S. box office. That`s the fourth biggest Thursday opening
over, while overseas, the film brought in $95 million in two days and it
hasn`t yet opened in major markets, China and Russia.

This puts the film on track to gross more than $220 million in the U.S. and
as much as $500 million worldwide this weekend. That would be a record for
the spring and by getting audiences excited about flocking to theaters, it
sets the stage for a massive summer. Not just for Marvel`s parent, Disney
(NYSE:DIS), but for all the studios.

DAVIS: I think the summer movie season will be better than last year`s
summer movie season. I think just in May alone, between “Infinity War”,
“Deadpool 2” and “Solo: A Star Wars Story”, we could see one of the biggest
Mays we`ve ever seen on record at the box office.

BOORSTIN: And after the overall U.S. box office declined nearly 3 percent
last year, studios and theater chains could use a boost.

Avengers roughly 85 percent critics rating on Rotten Tomatoes and over 90
percent audience score bodes well for strong word of mouth for the team of
superheroes.

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

(END VIDEOTAPE)

HERERA: TV subscribers flee Charter Communications (NASDAQ:CHTR). That`s
where we begin tonight`s “Market Focus”.

The cable provider said it lost more than 120,000 video subscribers.
That`s almost triple the amount analysts had expected. It wasn`t just
weakness in TV. Fewer customers signed up for broadband services. But
still, Charter reported a rise in profits and revenue, thanks to higher ad
sales. Charter shares fell 11 percent to $263.33.

The drug maker Sanofi reported a greater than expected drop in earnings as
weak sales in the U.S. and Europe hurt its results. The company still
reaffirmed its guidance and announced a share buyback adding that it
expects to return to growth in the second half of this year. The shares
nonetheless fell 2 percent to $39.60.

The software maker DocuSign began trading on the Nasdaq today opening at
$38 a share. That was above its initial IPO pricing of $29. DocuSign sold
nearly 22 million shares, valuing itself at about $4.5 billion. The shares
finished higher than they started at $39.73.

And Boeing (NYSE:BA) is reportedly closing in on a deal to buy the
aerospace parts maker KLX. “The Wall Street Journal” says the move is part
of Boeing`s plan to grow its aircraft services business. Boeing (NYSE:BA)
shares were off a fraction on the news to $340.88. Meanwhile, shares of
KLX popped 9 percent to $80.05.

Sprint and T-Mobile are reportedly near a merger deal, which could be
announced as soon as Sunday. According to CNBC, the deal would be valued
at $26 billion, but it would face major challenges from regulators. The
report sent Sprint sharply lower in after-hours trading. Shares of T-
mobile rose initially in the after-hours session.

Time for tonight`s market monitor. He has some picks he says will rise
double digits over the next 12 months. Joining us is Craig Hodges, CEO of
the Hodges Capital Management.

Nice to see you again, Chris. Welcome back.

CRAIG HODGES, HODGES CAPITAL MANAGEMENT CEO: Thank you. Great being on,
Sue.

HERERA: And you are looking at what you say is a more business friendly
tax and regulatory environment, which is going to spur these businesses and
their ability to expand, correct?

HODGES: Yes, it`s a much better atmosphere than we`ve seen previous. I`ve
seen more optimism out of management teams, not just for the tax cuts but
the decrease in regulation and you can tell that they feel like the next
couple years are going to be a pretty good climate. And then you add on
the tariff situation, which, you know, there`s a lot of negotiations and it
causes a lot of volatility. But that`s going to be a good thing too for
U.S. companies. So I think we`re in a good spot.

HERERA: Excellent. And I called you, Chris. I know you`re Craig, I`ve
known you for years, so my apologies on that.

HODGES: No problem at all. No problem.

HERERA: Let`s get to your first pick, if we could, and that is Commercial
Metals (NYSE:CMC) Company, CMC. Why do you like it?

HODGES: Yes, it`s a small company, but believe it or not, this small rebar
company is going to be the number one U.S. producer of rebar in the United
States. They just made an acquisition, Gerdau (NYSE:GGB), the Brazilian
company, their U.S. rebar operations, and all of a sudden, here`s
commercial metals that`s going to have 50 percent of the world, the U.S.
rebar market. And rebar goes in from roads and bridges, you know, almost
all construction has rebar in it. So, that`s really going to be a big
beneficiary of infrastructure, and that sort of thing.

And here`s a company that`s trading around 21, 22, that probably in the
next couple of years will earn $3 a share. So, that`s a very inexpensive
kind of uncovered stock that we think there`s pretty big upside in.

HERERA: All right. Next on the list is International Paper (NYSE:IP), a
name that a lot of people know.

HODGES: Yes. International Paper (NYSE:IP) has really taken it on the
chin the last few months. They`re into somewhat negotiations to buy Smurf
It, the European corrugated paper company, and it`s knocked about 25
percent of the value out of International Paper (NYSE:IP). Meanwhile,
International Paper (NYSE:IP) has had two of the best quarters they`ve had
in a long time. They have had nothing but better results.

So I think the stock down 15 points from where it was, say, six weeks ago,
eight weeks ago got some real upside and you get 3.6 percent dividend while
you wait. So, I really like international paper here as well.

HERERA: You also like the airlines. You think they`re under-owned and
you`re picking that particular arena is American Airlines. Why American?

HODGES: Yes. American has really come down, surprisingly come down. It`s
— you know, this stock was, you know, 59 I think in the first part of
January, and here it is, I think the stock is kind of in the 42 range now,
trading about eight times earnings. They have slightly taken down their
earnings about 50 cents for next year because of some higher fuel costs,
but they`re still going to earn probably close to $6 this year, and I think
$7 next.

So, I think there`s pretty good upside. Plus, Buffett has been buying all
the airlines and I think there`s a Buffett bid in there. I think the
airlines at this level have very good upside with very limited downside.

HERERA: Craig, thank you so much. Have a great weekend.

Craig Hodges of Hodges Capital Management.

HODGES: You as well.

HERERA: To read more about those peaks, head to our Website, NBR.com.

HODGES: Coming up, how a woman combined yoga and her love of goat and
turned it into a big business.

(MUSIC)

HERERA: Here`s a look at what to watch for next week, on Tuesday. Dow
components Apple (NASDAQ:AAPL), Merck (NYSE:MRK) and Pfizer (NYSE:PFE)
report their earnings. On Wednesday, the Fed policymakers meet to make a
decision on interest rates. On Friday, the closely watched employment
report for April is due out and that`s what to watch for next week.

Well, you may have tried yoga before, but have you ever done it with goats?
One woman combined the two, created a following and now has a successful
business.

Jane Wells is in Corvallis, Oregon.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: I`m trying to hold a
plank position. But I have two baby goats on my back.

UNIDENTIFIED FEMALE: Did the goats ever jump from this? Because that
would be weird.

WELLS: It is weird, but also kind of a nice massage. Welcome to Oregon,
the place where the strangest fitness trend was born.

UNIDENTIFIED FEMALE: Focus on your breath.

WELLS: Goat yoga.

LAINEY MORSE, ORIGINAL GOAT YOGA FOUNDER: I lived in a spot where I could
have goats. I`ve wanted them my whole life.

WELLS: Lainey Morse had a career in marketing, then she got divorced, came
down with an autoimmune disease and was very depressed, but she bought some
goats and they made her feel better.

MORSE: So, I would go out in the field every day and spend time with my
goats. And I started calling it goat happy hour and inviting people over.

WELLS: One of those people was a yoga instructor.

MORSE: She`s like you should really let me have a goat yoga class out
here. And I said, OK, but the goats will be all over the humans. And she
was like cool. When I launched my classes in March, I had over 2,300
people on a wait list to do goat yoga.

WELLS: The goats are surprisingly soft and friendly and don`t smell,
though they occasionally leave presents.

UNIDENTIFIED FEMALE: I got poop.

WELLS: First year revenues were $160,000, a figure Lainey Morse expects to
double this year and turn her business profitable. She`s done corporate
events for companies like Nike (NYSE:NKE), expanded to three locations in
Oregon and licensed a business in four other states.

MORSE: You`re just blown away by how happy it makes everybody. So that`s
when I knew I had a business.

WELLS: Turns outcome combining downward dogs with upright goats wasn`t
such a baaad idea.

For NIGHTLY BUSINESS REPORT, Jane Wells, Corvallis, Oregon.

(END VIDEOTAPE)

HERERA: Christie`s is hosting what it calls the most anticipated art world
event of the spring. As we`ve been reporting the collection of Peggy and
David Rockefeller will go up for auction next month. Today, the exhibit of
2,000 items opened in New York. It is expected to be the largest single
auction ever, possibly reaching $1 billion.

Before we go, here`s another look at the day on Wall Street and the week.
The Dow fell 11 points, the Nasdaq added 1 point and the S&P 500 was up
nearly 3. The major averages were all slightly lower for the week.

And that does it for NBR tonight. I`m Sue Herera. Thanks for joining us.
Have a great weekend. We`ll see you Monday.

END

Nightly Business Report transcripts and video are available on-line post
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Business Report is not and should not be considered as investment advice.
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