Transcript: Nightly Business Report – May 16, 2018


greenback hits its highest level of the year, and its steady rise could
have implications for the stock market.

Macy`s (NYSE:M) reported earnings that were better than anyone expected and
it raised its outlook that confidence and momentum can continue.

GRIFFETH: Permian problems. Why there`s an embarrassment of oil riches
deep in the heart of Texas.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this
Wednesday, May the 16th.

HERERA: Good evening, everybody, and welcome.

Small cap stocks hit a big milestone, a record high, making it the first of
the major indexes to climb back to those all-time highs. Investors
shrugged off geopolitical concerns and rising bond yields and instead
focused on earnings and a solid report from Macy`s which we`ll have more on

The Dow Jones Industrial Average gained 62 points to 24,768. The Nasdaq
added 46, and the S&P 500 was up 11. As for those small caps, the Russell
2000 index advanced 16 points to an all-time high.

GRIFFETH: And those small caps are being helped in part by a strengthening
dollar which did hit its highest level of the year today. That`s not the
only dollar-related thing that investors are paying attention to right now.
Bob Pisani explains.


a burden for the stock market, but it can also be a boon as well. Dollar
strength is tough for U.S. companies that do business abroad are also hurt
because the income they earn from foreign sales will decrease in value.
Now, some large companies do hedge their currency exposure, but not all do
and not all will make the right bet.

Now, there`s other negatives. A stronger dollar is usually accompanied by
higher rates, which sometimes makes U.S. investors with money abroad, bring
the money back to the United States. Now, that often hurts emerging market
stocks because they`re very dependent on foreign investments. And, indeed,
we`ve seen markets in Turkey, Poland, Brazil, South Africa and other
emerging market countries drop since the dollar began rising a month ago.

Tourism also suffers because travel to the U.S. becomes more expensive.
That`s another negative.

Macy`s (NYSE:M) cited growth in international tourism as a big factor of
their earnings beat today. That business could take a hit going forward.

But there are some pluses with a stronger dollar. First, imports are
cheaper. That means more disposable income for U.S. consumers and U.S.
companies that import raw materials will have lower costs and higher profit

Small cap companies might get boost. Typically the small cap Russell 2000
index does tend to outperform during periods of sustained dollar strength,
largely because smaller companies are more insulated from a stronger dollar
than large cap multi-nationals. And if you`re a tourist, it`s much cheaper
to travel abroad if you`re an American.

And finally, the dollar is the major reserve currency in the world and it
can helpful to the prestige in the United States because a stronger dollar
keeps its demand as that reserve currency high. A lot going on here.

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


HERERA: So, for more now, let`s turn to Brad McMillan to talk about a
stronger dollar and how it might impact the markets and your investments.
He is the chief investment officer at Commonwealth Financial Network.

Good to see you again, Brad. Welcome back.

Glad to be here. Thank you.

HERERA: Put it into perspective. Bob Pisani laid out some of it, but the
stronger dollar is really a reflection of a stronger economy, right?

MCMILLAN: I think that`s exactly right. When you look at why the dollar
is going up, it reflects faster growth. It reflects higher interest rates
which, again, say the economy here is doing better. So, in that respect,
it`s a sign of success and the good effects are very likely to outweigh the
bad effects, at least here in the U.S.

GRIFFETH: You make the point, yes, we hit a high for the year today for
the dollar index, but if you go back a few years, we`re nowhere near more
recent highs. We`ve seen a declining dollar lately. So, at this point, do
you see us going back to those more recent highs at this point?

MCMILLAN: I don`t see us going back. The point you make, we need context
is critical. Yes, we`re at a high for the year, but it`s only may and
we`re still only at the levels that were pretty typical last year. Last
year was a good year. The dollar didn`t kill us then, and I don`t think
it`s going to kill us this year because I don`t see it rising to the highs
of past years.

HERERA: So, let`s apply it to the equity markets because those who are at
home, they wonder if the dollar is stronger, and you did put it in
perspective for us, what might the impact be on equities, specifically

MCMILLAN: It`s going to be a bit of a head dl headwind for multinationals.
Certainly, when you look at the points that Bob made, I think they`re
absolutely correct.

At the same time, if you look at where we were a year or two ago, we`re
still net better than we were. So, the effect is not going to be that
severe. We`re still ahead of where we were.

The other thing is this is something that companies have been kind of
expecting and the hedging is very real and companies also have the
advantage of reducing their costs. So there`s an offsetting tailwind as
well as a headwind. Net-net, probably not very much.

GRIFFETH: Dollar`s going up. Oil is also going up. That`s counter
intuitive. You see that lasting any time soon? I mean, there are people
who are talking about $90 oil in the not-too-distant future.

MCMILLAN: When you look at the oil market, I think there are two things
going on.

First is we`ve seen demand increase, and that`s continued. For all the
talk about electric vehicles, almost all vehicles are still oil and oil is
still very much in demand.

Second of all, we`ve seen significant supply disruptions. We`ve seen
Venezuela go pretty much offline. We`ve seen Iran, there`s an issue there
as we know.

So there are factors driving markets up. At the same time, U.S. production
is continuing to increase. So I think we`re probably going to be at a
higher plateau, but I don`t see prices continuing to rise forever. And, in
fact, they`re probably getting close to their peak.

HERERA: All right. So, with everything that you have laid out for us,
Brad, where would you deploy capital in the equity market?

MCMILLAN: I think the U.S. markets are continuing to stay in an uptrend.
We saw a bit of a pull back on some concerns about economic weakness, but
that`s actually starting to reverse. We`ve seen markets start to go back
up. I think small cap continues to be a healthy place.

Small caps benefitted more from the tax act than multinationals. They`re
more exposed to the positive effects of U.S. growth and, in fact, they`re
less exposed to the negative effects of the dollar. Their input costs can
go down. So, I think that makes sense.

But within those I think consumer discretionary makes a lot of sense
because they`re going to be able to buy things. Imports are going to
become cheaper. People are going to be able to spend more.

HERERA: On that note —

MCMILLAN: And financials with Washington continuing to deregulate also
have a tailwind.

HERERA: On that note, Brad, thanks so much.

MCMILLAN: Thank you.

HERERA: Brad McMillan with Commonwealth Financial Network.

GRIFFETH: As we mentioned, Macy`s (NYSE:M) reported better than expected
earnings. It also raised its outlook for the year. The strong quarterly
results helped lift that stock today. It was up more than 10 percent,
making it the best performing stock in the S&P 500 today.

And as Courtney Reagan reports now, it may be a sign that the department
store`s turnaround is on track.


many headlines about the death of department stores, but today, Macy`s
(NYSE:M) results show it`s alive and well. The retailer outperformed
expectations across the board, leading it to raise its forecast for the
full year for the first time in seven years.

It`s also the second straight quarter that Macy`s (NYSE:M) comparable sales
grew after three years of decline. Macy`s (NYSE:M) says sales strength
came from a number of factors, including updated stores, online
improvements, new merchandise, healthy U.S. consumer and the strongest
spending from tourists in four years. It also helped that after a strong
holiday season, Macy`s (NYSE:M) started the quarter with less merchandise
to clear out at clearance prices, which means the retailer sold more
merchandise in the first quarter at higher prices.

JAN KNIFFEN, J. ROGERS KNIFFEN WWE CEO: They`re going to have a great
second, third, fourth quarter of this year because they`re just doing a
much better job than they have been doing. I attribute a lot of that to
their new advertising methods that are more narrow-cast than broadcast and
much better inventory controls.

REAGAN: While Home Depot (NYSE:HD) said usually cold and snowy weather
hurt sales of seasonal merchandise, Macy`s CEO Jeff Ginette said weather
didn`t have a measurable impact and that most categories were stronger than
the retailer expected throughout the quarter, especially shoes and homes.

It`s only one quarter into a new year, but so far, Macy`s (NYSE:M) is
springing to life.



HERERA: But it was a different story for Cisco (NASDAQ:CSCO) which
reported quarterly results that were pretty much as expected but a tepid
profit forecast disappointed investors. Cisco (NASDAQ:CSCO) earned 66
cents a share, one penny better than estimates. Revenues rose more than 4
percent to more than $12 billion, but the company`s outlook sent shares
initially lower in after-hours trading.

Josh Lipton has more on Cisco`s results.


became a Silicon Valley titan by selling hardware, switches and routers
that direct Internet traffic now transitioning, offering more software and
services to its customers.

Piper Jaffray`s Jim Fish said the big number in this report, products and
revenue growing almost 5 percent in the quarter to $9.3 billion. That`s
important Fish says because it`s one of the leading indicators for future
growth as Cisco (NASDAQ:CSCO) now attaches more software to its products.
He also notes that basically inline guidance for a stock that went up so
strongly this year might have disappointed some investors.

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


GRIFFETH: And fellow Dow component Johnson & Johnson (NYSE:JNJ) said today
it is revamping its iconic baby products line. Some of those products are
over 100 years old. The company is hoping the move will reverse years of
declining sales. This morning`s announcement was made ahead of its annual
analyst`s day.

Meg Tirrell has details now from New Brunswick (NYSE:BC), New Jersey, where
J&J is based.


Conrad shops for products for her 3-month-old daughter, she always checks
the label.

MEG CONRAD, MOM OF 3-MONTH-OLD GIRL: I try to avoid products that have
sulfates, parabens, phthalates and artificial fragrances.

TIRRELL: She uses an organic brand called Erbaviva. What you won`t find
in her bathroom, Johnson`s Baby. This shift away from the iconic brand has
attributed to a 20 percent decline in sales of J&J`s baby care products
since 2011.

because of our success we became a bit complacent and did not want to mess
with success. And so, frankly, we failed to see evolving needs from
millennial consumers, millennial moms.

TIRRELL: So, J&J is revamping the century-old brand, a process that began
three years ago by talking with thousands of moms.

TRISHA BONNER: What we learned is they were looking for fewer, simpler
ingredients, more naturally derived ingredients in their products. And
from that, we knew we had to completely make a change to our brand.

TIRRELL: The new Johnson`s baby line hit shelves in August. It contains
half as many ingredients, removes dyes and sulfates, in addition to
parabens phthalates, and comes with packaging designed to be more
convenient and easier to recycle.

Mesquita says the reboot should improve profit margins because of
simplification of its supply chain.

MESQUITA: We`re very convinced that this stage will get Johnson`s Baby
back to growth.

TIRRELL: It comes after J&J has been hit with a slew of lawsuits claiming
its talc baby powder is linked to cancer. The company is introducing a new
baby powder product containing cotton powder. In addition to continuing to
sell its products that include talc and corn starch. Mesquita says the
company disputes the claims in the lawsuit.

MESQUITA: We are absolutely certain that science shows that our talcum
product is safe and we will defend our brand and we`ll defend our product.
But we`re always innovating. We`re always trying to evolve and upgrade, so
we`re looking at a new version of baby powder that has got a combination of
cotton powder, which consumers are very excited about, and that will be
added to our lineup.

TIRRELL: Will it be enough to win over young moms like Meg Conrad? She
says she`s not supposed to giving older brands a new try.

CONRAD: If one of the major brands came out and said, you know, we`re
going completely clean, I would certainly get behind that and consider
using that on my child.

TIRRELL: For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell in New Brunswick
(NYSE:BC), New Jersey.


HERERA: It is time to take a look at some of today`s upgrades and

Dow component 3M (NYSE:MMM) was downgraded to hold from buy over at
Jefferies. The analyst thinks the stock valuation will decline in the
latter part of the economic cycle. The price target is $220. The stock
fell 1 percent to $221.

Shares of Micron were given an outperform rating by RBC Capital Markets in
new coverage. The analyst says Micron offers investors a unique way to
gain exposure to certain semi conductor markets. The price target is $80.
The stock rose more than 4 percent to $56.50.

GRIFFETH: Urban Outfitters (NASDAQ:URBN) was upgraded to neutral from sell
at MKM Partners. The analyst there cites improving fundamentals at its
anthropology chain. The firm also predicts a rebound in sales and margins.
Shares rose more than 3 percent to $42.32.

Meanwhile, Trip Advisor`s rating was lowered to sell from neutral at
Guggenheim. The analyst cites increased competition and trip advisor`s own
decision to cut back on its ad spending. Price target now at $40. That
stock, though, rose a fraction today to $48.71.

HERERA: Still ahead, teachers march for more pay as cash-strapped states
try to balance their budgets.


HERERA: Just days after the Supreme Court lifted a ban on sports betting,
a number of deals are in the works. Paddy Power Betfair located in Dublin,
Ireland, is reportedly in talks to merge its U.S. business with FanDuel, a
daily fantasy sports company.

Separately, Churchill Downs (NASDAQ:CHDN) is entering the market in three
states. The Kentucky Derby owner signed an agreement with SBTech which is
a sports betting technology company that offers bets in New Jersey,
Pennsylvania and Mississippi. The deal sent shares of Churchill Downs
(NASDAQ:CHDN) nearly 3 percent higher.

GRIFFETH: And Ford is confirming late today when production of its best-
selling F-150 pickup truck will resume. Its Dearborn, Michigan plant will
be up and running this Friday. F-150 production will resume at its Kansas
City plant on Monday. As you probably remember, production of its most
profitable vehicle was halted last week because of a fire at one of its
supplier`s plants.

HERERA: The International Energy Agency has a warning for the oil market.
That organization says rising prices could curb consumption and as a result
lessen demand for crude. At the same time, the group warned of a price
spike due to a potential supply shortage from both Iran and Venezuela.
Domestic crude rose today to settle above $71 a barrel.

GRIFFETH: And as prices rise, shale drillers have been ramping up
production, and now one part of the state of Texas is swimming in oil, but
is it too much of a good thing?

Brian Sullivan is in Houston, Texas, for us tonight.


few years ago has turned back into an oil boom. Average daily oil
production in America now stands at 10.7 million barrels per day. That`s
an all-time record and more than double the pace of just a decade ago.

Much of that boom has come from one spot, West Texas, in the so-called
Permian basin, perhaps the single hottest oil play in the world. But
suddenly, there`s concern that it could cool down fast because there`s so
much oil coming out of the ground that pipe lines, trucks and trains are
full and for companies without pipe lines, they may have to sell their oil
at a discount to get it transported to market.

DAVID HAGER, DEVON ENERGY CEO: The growth has been so much has outpaced
the growth in pipeline capacity out of the basin. So, in order to get it
moved out of the basin you have to be willing to take a discount. And so,
that will be remedied, but in the short term, it`s caused this
differential, as we call it, to go up.

But we — again, we anticipated that issue. We have a lot of long haul
capacity out straight to the Gulf Coast and then the rest, we locked in our
basis differential as we call it at WTI prices sometime ago.

SULLIVAN: The CEO of Occidental Petroleum (NYSE:OXY), one of the biggest
players in the Permian, is confident that next year, new pipelines will be
built, but it may be finding enough qualified workers that is the issue

VICKI HOLLUB, OCCIDENTAL PETROLEUM CEO: I think that there`s — there`s
still a significant amount of oil in the ground. I think what`s going to
be a governor on the construction on the Permian will be takeaways
sporadically, but the pipes will be built. The bigger governor on pace,
activity, production will be the availability of competent crews. And so,
I think that`s where the next bottleneck will be for all of us.

SULLIVAN: Despite those concerns though, many investors remain optimistic.
Occidental stock is up 12 percent in just one moment, Devon, 23 percent,
and Dow component ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) have both
outperformed the index. But convincing others may be more difficult
especially in an industry that has suffered through price collapses in a

So, here at this conference, we asked the CEO of oil and gas research firm
Tudor, Pickering and Holt, if the industry is doomed to make the same
mistakes again or if it has finally gotten smarter?

HAGER: Companies have gotten their act together. The balance sheets are
in better shape, the return is in better shape. The mentality is in better
shape. Supply and demand looks good. I think it`s a great time to look at

SULLIVAN: With $70 barrel oil, stocks up, and production soaring, no doubt
many people are looking at oil. But as gasoline and the cost of business
are on the rise, investors are keeping a close eye on what happens here in

For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan, Houston, Texas.


HERERA: Office Depot (NYSE:ODP) gives an upbeat outlook and that`s where
we begin tonight`s “Market Focus”.

The office supplies company says its turnaround is taking hold. It expects
sales in 2018 to be nearly 5 percent higher than last year. Office Depot
(NYSE:ODP) also sees operating income increase as much as 5 percent between
2019 and 2020. As a result, the shares rose 5 percent to $2.46.

Southwest Airlines (NYSE:LUV) is raising its dividend 28 percent to 16
cents a share. The airline also said it plans to launch a $2 billion share
buyback program. That`s helped lift shares by 2.5 percent to $53.01.

And Zoetis which makes medicine for pets said it was buying veterinary
diagnostics firm Abaxis for just under $2 billion. Zoetis says the deal
makes sense because it expects the veterinary diagnostics market to
experience strong growth. Shares of Zoetis were off a fraction to $82.85.
Meanwhile, shares of Abaxis jumped 16 percent to $83.34.

GRIFFETH: Packaging company International Paper (NYSE:IP) said today it
will not make a hostile offer for Ireland-based rival Smurfit Kappa.
Smurfit has already rejected an earlier bid, saying that it undervalued the
company. International Paper (NYSE:IP) there has offered now to meet
directly with Smurfit executives to talk about ways to sweeten its bid
either with more cash or more stock, whatever combination they want.
Shares rose 2 percent today of I.P. at $55.03.

GameStop shareholder Tiger Management is urging that company to adopt a
turnaround plan. The hedge fund would like to see the company buy back
stock, hold off on making acquisitions and instead divest some businesses.
Tiger added that it wishes to remain a passive shareholder and it will sell
shares if a turnaround is not successful. Shares rose a fraction today to

And after the bell tonight, Jack in the Box reported a surprise in decline
in same store sales. The fast food chain also said earnings and revenue
came up short. As you might imagine, shares were initially lower in the
extended session, but finished the regulation session up 1 percent to

HERERA: Thousands of teachers in North Carolina walked off their jobs
today to rally in the state capitol for higher wages and better funding for
education. It is just the latest in a wave of protests happening across
the nation, and it comes as states try to balance their budget.

Scott Cohn is in Raleigh for us tonight.


strengths, North Carolina falls short on education. High school test
scores among the lowest in the nation. Spending per pupil ranked 41st.

JANET DEATON, TEACHER: If they funded per pupil what they funded for
prisoners, then our prisons wouldn`t be so overcrowded.

COHN: And teacher pay ranked 39th.

PAULA HASTINGS, TEACHER: Teachers are leaving North Carolina state because
of the lack of pay and support from our legislators.

COHN: The one day walkout on the first day of the legislative session is
the latest in the nationwide movement, including Arizona, Colorado,
Kentucky, Oklahoma and West Virginia, with the promise of more to come.

continue through spring, through fall and all the way to the ballot box on
November the 6th.

COHN: No matter what the outcome, the protests in each invariably, more
money from the schools comes at the expense of something else.

Already states that have given in to teacher demands have had to make tough

they actually put together a revenue raising package that includes
cigarette tax increases, motor fuel tax increases. In Arizona, they`re
combining growth in revenues they hadn`t yet budgeted, combined with the
vehicle registration fee increase and some transfers of funds from other

COHN: In North Carolina, the Democratic governor has proposed a higher pay
raise than the one already in the budget, but Republicans in control of the
legislature say that would come at the expense of tax cuts.

taxes. We think we raise taxes that`s going to slow down the economy.

COHN: Teachers here say it`s about more than just their pay.

MICHAEL CROWDER, TEACHER: I`m using textbooks that are 30 years old. I
have one 30-person class.

COHN: Officials across the country trying to solve a complicated equation
involving education, the economy and the workforce of the future.

For NIGHTLY BUSINESS REPORT, I`m Scott Cohn in Raleigh, North Carolina.


GRIFFETH: And coming up, a career choice that could really take off.


Phoenix, Arizona, looking for a hot job with a hefty signing bonus? How
about becoming a pilot? We`ll take to the skies and explain why pilots are
in demand when NIGHTLY BUSINESS REPORT returns.



GRIFFETH: So what is one of the hottest jobs that companies are struggling
to fill? That would be pilots. In fact, a looming shortage of people
qualified to sit in the cockpit is creating a huge opportunity for those
looking to fly for an airline.

Phil LeBeau, as you saw, is in Phoenix for us tonight.


LEBEAU: Twenty-three-year-old Amanda Larson is sitting in the proverbial
catbird`s seat, which happens to be in a cockpit. She`s been flying for
more than four years and is currently being recruited by three regional

AMANDA LARSON, AIRLINE PILOT RECRUIT: I know it`s competitive, that they
need to offer the best in order to get the pilots because we`ll just go
somewhere else with a little bit better pay and flying the same thing.

LEBEAU: Amanda`s in demand because of a looming pilot shortage, partially
because so many will soon hit the mandatory retirement age of 65 while
their airlines continue adding flights, so airlines around the world will
need an estimated 637,000 new pilots over the next 20 years.

The demand for pilots is not only a problem in the U.S., it is worldwide,
and it`s easy to see why. The number of people around the world who are
flying commercially has soared to more than 3 billion annually, so
universities that train pilots increasingly find themselves educating
students from overseas — most notably, China.

contract with companies like ourselves, send their cadets to the United
States to train from anywhere from 12 to 15 months, and once that
requirement is fulfilled, they will return to China and begin flying within
one year of that time.

LEBEAU: In recent months, some foreign airlines like Emirates have cut
flights due to a shortage of pilots. While that hasn`t been a problem for
the big U.S. carriers, regional operator Great Lakes recently suspended,
blaming a shortage of pilots, a situation analysts fear we will see again.

MICHAEL BOYD, BOYD CONSULTING: What we`re going to see is air service that
might have been viable ten years ago won`t be viable in the future.

LEBEAU: For now, pilot recruits like Amanda Larson are landing the jobs
they want, with the perks to match.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Phoenix, Arizona.


HERERA: Here`s a look at the day on Wall Street one more time. The Dow
gained 62 points. The Nasdaq added 46. S&P 500 up 11, and the small cap
Russell 2000 advanced 16 points to an all time high.

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

GRIFFETH: I`m Bill Griffeth. Have a great evening. 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
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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