Transcript: Nightly Business Report – May 17, 2018

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

international benchmark pierces a key level and there are a number of
companies that stand to benefit from a rally in crude.

online sales soar as the world`s largest retailer sets its sights on Amazon

HERERA: Daytime drama, but this one is playing out in CBS`s board room.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, May

GRIFFETH: And we do bid you a good evening, everybody.

Oil did hit a milestone today. Brent crude touched $80 a barrel for the
first time since 2014 before pulling back a bit by the close. The White
House`s decision to last week reinstate sanctions on Iran has helped fuel
this latest rally in the commodity. In fact, domestic crude is also
trading at a multi-year high right now. And it has changed the dynamic of
the entire energy sector, now attracting attention of investors once again.

Jackie DeAngelis has more on it for us tonight.


of the last year, oil prices have risen about 45 percent. The
international oil benchmark crossed $80 today. That`s a 3 1/2 year high.

So how did we get here?

Well, first off, supply and demand. They did see some rebalance. Better
demand for oil helped work through excess supply as OPEC and Russia stayed
true to their promised cuts.

Second aspect, geopolitics. This theme comes and goes but right now, it`s
back in focus. All eyes on Israel and also Iran for any disruptions that
could impact the market.

Third factor, foreign exchange impact. The dollar strengthening right now
but on a relative basis, it`s lower than it was this time last year and
that supports oil prices.

Things to watch, summer driving season. Nothing gets prices moving
seasonally more than consumers hitting the road. On the flip side, with
prices moving, so far so fast, there is a point when the price of oil can
have a chilling effect on its consumption. The IEA told us yesterday this
could be coming in the second half of the year.



HERERA: And that sharp rise in oil highlights just how far this once
beaten down sector has come. But can the rally continue and what names
might look attractive to investor right now?

Joining us is Jeff Kilburg, founder and CEO of KKM Financial.

Good to see you, Jeff. Welcome back.

JEFF KILBURG, KKM FINANCIAL FOUNDER & CEO: Thanks, Sue. Great to see you.

HERERA: You know, Jackie, really laid it out so well, pointing out that we
have a 45 percent increase in oil prices in this year. So how much more do
you think is left in this rally?

KILBURG: Sue, I think the trajectory is still higher. And we saw one
decertification. Once President Trump talked about the initial details and
decertified the Iran nuclear agreement, we saw a 5 percent move in crude
oil. So, right now, it`s $71.50 for WTI. The trajectory moves higher and
as she stated, the tensions, these geopolitical tensions, they are
mounting, not easing, Sue.

GRIFFETH: What about the oil stocks, the companies that either have to
drill for it or distribute it or whatever? How do you decide who to invest
in? Are there companies you like at this level?

KILBURG: Well, Bill, there are. Some of the best names we like are the
Chevrons, the ExxonMobils and even the Halliburtons and Schlumberger

But think about all these stocks in energy space. They were oversold.
They were really depressed when you saw crude oil go under $40 about two
years ago, they were thrown to the gutter. So, now, some of these names
we`ve really seen tremendous moves. We even like a name like Valero, up
nearly 27 percent year to date. But as long as this trajectory in crude
oil remains higher.

And don`t forget, Bill, the commitment by OPEC to curb that production,
that has been the wind in the sails for not only crude oil prices, but for
all of these energy names we like so much.

HERERA: Also Enterprise Partners, I`m looking at my notes. And you say
they`ve had a rough road, but they`re seeing some growth in outperforming
the S&P 500 by a full 10 percent.

KILBURG: Well, Sue, this is a great name. And think about the MLPs. MLPs
were also thrown away the last couple of years. Obviously, some interest
rates moving was an adversity for that.

But Enterprise, that is the blue chip name, EPV. We really like that name.
If you have exposure to energy, but not so much to crude oil, this is MLP.
This is natural gas, or potentially liquid natural gas, going through all
the pipelines.

So, as we`ve seen the increased production or maybe more demand from
overseas for that natural gas, EPV is the name you want to be in.

HERERA: All right. Jeff, thank you so much. We`ll leave it there. Jeff
Kilburg with KKM Financial.


GRIFFETH: Well, on Wall Street, stocks fell on concerns over the latest
trade talks with China, which we`ll get to. The technology sector also
pulled the major averages lower in part because of Cisco`s disappointing
outlook that we told you about last night. The Dow Jones industrial
average fell by 54 points to 24,713. The Nasdaq was down by 15. The S&P
lost two.

HERERA: Well, as Bill just mentioned, investors were focused on trade
talks between the U.S. and China after the president said the discussions
might not be successful.

Kayla Tausche has the details from Washington.


officials descended on Washington this week for trade talks with the Trump
administration. The president meeting with the delegations leader, Vice
Premiere Liu He, but throwing cold water on a deal before doing so.

tend to doubt it. The reason I doubt it is because China`s become very

TAUSCHE: Divisions among the U.S. team on display with China hawk Peter
Navarro sidelined in talks as cabinet members worked to get China to agree
to cut the trade deficit.

WILBUR ROSS, COMMERCE SECRETARY: I think they agreed to the concept of the
trade deficit reduction.

TAUSCHE: If talks fall short, tariffs from the White House loom. One
reason why China dispatched a dozen negotiators. Lawmakers who met with
the delegation are skeptical about a China deal as NAFTA talks have dragged

REP. RICHARD NEAL (D), MASSACHUSETTS: Just two weeks ago, we thought that
we`d be wrapping up a NAFTA renegotiation this week to be voted on later on
in the year, only to discover now that that process has slowed considerably
and maybe we won`t get there by the end of the year.

TAUSCHE: Radio silence from the White House as a NAFTA deadline came
Thursday. Canada`s prime minister said the North American neighbors are
close to a deal but the U.S. proposal to renew it every five years is a
deal breaker.

JUSTIN TRUDEAU, PRIME MINISTER CANADA: If you agree to build the building
on a particular parcel of land but only hold the lease for five years, and
after five years you actually lose the lease, you might not be interested
in investing in the building that`s going on that land.

TAUSCHE: Both sets of trade talks will continue tomorrow and into the
weekend, but even with deadlines looming, final deals appear elusive.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche in Washington.


GRIFFETH: Elsewhere, Walmart`s latest earnings did not help the broader
market today. The world`s largest retailer said profit margins during the
most recent quarter came under pressure due to the combination of price
cuts and higher freight costs. That sent the stock lower by nearly 2
percent. However, the company did report better than expected earnings in
revenue and it did show shareholders that its big investment in the online
operations is paying off.

Kate Rogers (NYSE:ROG) has the details for us tonight.


Amazon (NASDAQ:AMZN) a run for its money. The world`s largest retailer
reported a 33 percent rise in online sales, a sign that Walmart`s hefty
investment in digital is paying off.

JAN KNIFFEN, J. ROGERS KNIFFEN WWE CEO: When you`re up 33 percent on
ecommerce, you`re suddenly proving you can be competitive with the boys on
Amazon (NASDAQ:AMZN). They`re turning earnings with this, not just top

ROGERS: Walmart is hoping the dotcom redesign will increase online sales
even more for the full year. It`s all part of the company`s ambitious
long-term plan to make the brand more appealing to more people. The
retailer is also focused on the overseas markets. Many of those regions
saw sales increases in the most recent quarter.

Walmart says its new $16 billion stake in India`s Flipkart will continue to
power its growth internationally. But Walmart`s next leg of growth may
come from grocery, which already accounts for a large chunk of its revenue.
The company announced in its increase in pickup to 2,100 locations this
year for online grocery and rolling out delivery to 800 stores by year`s

Delivery will continue to be a focus for the brand as it offers shoppers
more ways to access Walmart`s goods.

OLIVER CHEN, COWEN SENIOR RETAIL ANALYST: We think the future of retail is
really emerging physical and digital. So, there`s 4,800 locations, 90
percent of America is within 10 miles of a Walmart. And what Walmart is
doing is transform how people shop. They have curbside pick up at 2,100
locations, 800 locations will have delivery and 700 locations will have
automated tower.

ROGERS: But increased competition in both online and at Walmart`s brick
and mortar locations has squeezed profitability. The challenge now will be
keeping the everyday low prices that consumers have come to expect.



HERERA: A different story, however, for JCPenney which reported a sharp
decline in sales and cut its profit outlook. That retailer is blaming the
shortfall on the weather and a cool start to the spring season. The
company has been struggling for years with ways to fix its apparel business
and trim costs.

Investors weren`t buying the excuse though. They sent the stock down more
than 12 percent in today`s session.

GRIFFETH: And, you know, for a time it seemed that all the headlines about
the retail sector were about store closures and bankruptcies, but lately
there have been signs of life in the sector. I mean, just yesterday, we
told you about Macy`s (NYSE:M) and their quarterly rise in sales after the
retailer experienced a dismal 2017. But, of course, not all retailers are
participating in this rebound.

Joining us tonight is Brendan Witcher. He`s Forrester`s vice president and
principal analyst. He`s here to lay out some of the winners and losers.

Good to see you. Welcome back.

you, Bill.

GRIFFETH: And your point is that those starting to show signs of life are
flourishing are those retailers that focus the most on their customer,

WITCHER: Absolutely. You know, the customer`s changed so much in the last
few years. These organizations still think in a lot of ways that they can
do business the way they used to, but actually customers have expectations
that are costly rising from every experience they have.

So, today, companies like Macy`s who showed some positive results, other
companies like Walmart who while they struggled a bit at first, you know,
they`ve had some ugly quarters. They`re moving along as well. Companies
like Amazon (NASDAQ:AMZN), Sephora. These companies are really
understanding what customer needs are and their building experiences around
tem and t winning with it.

HERERA: You make the point that basically Amazon (NASDAQ:AMZN) can be used
by a number of retailers that aren`t doing well as an excuse, but the
question that the CEO should be asking is basically what adds to the
customer`s life to pick up on what Bill was saying. But how do they do
that? It took Macy`s a while to turn around and —


HERERA: — it looks like they finally have.

WITCHER: Well, Macy`s (NYSE:M) is a great case study because if you look
at what they were saying, you know, about a year and a half ago or so, they
were saying we need to close down stores to focus on ecommerce. Well, you
know, that really doesn`t show that somebody really understands what`s
going on in the retail business right now.

When you think about consumers, you know, a lot of them are using buy
online pick up in store. A lot of them will buy from an online shop —
online retailer because they have a local physical store nearby that they
can return a product to. When you close the store, you lose the ability to
compete on that level. So, it`s not — there`s no online shopper, there`s
no offline shopper, we`re omnichannel shoppers.

And so, as we decide who to buy with, we`re looking for the company that
can deliver value to us at that moment in time when we need a product.
Amazon (NASDAQ:AMZN) is very good at selling us things online but to date,
they don`t really have the physical presence. A lot of retailers are
taking another look and saying, you know what, maybe we`ve got this wrong
and maybe we need to get back to basics and say maybe good physical
retailers with a vast majority of sales still happen —


WITCHER: — and be good in online as well. You know, you can`t miss the
boat on physical. It`s still — 85 percent of retail still happens in the
physical store.

GRIFFETH: Yes, but who do you think are doing the best job of the
combination now of brick and mortar and online? But those companies that
are able to find the good balance are the ones that are doing the best
right now. Who are they?

WITCHER: That`s a great question, Bill. I would say actually the
companies that are doing best have a good view and vision for what they
need to do to deliver great customer experiences by removing pain points
for customers. They`re using the stores to say, hey, I need to know what
makeup looks like before I buy it, so Sephora does a good job with that.
Lowe`s with their Holoroom, Starbucks (NASDAQ:SBUX) with a payment`s app.

These are tools that solve customer pain points. It`s not about having
stores. There`s plenty of companies that have stores and they`re doing
just fine. It`s about their vision for the customer.

So, that`s where companies today struggle. It`s mostly with culture,
organizational challenges, things like that are getting in the way and so –

HERERA: Right.

WITCHER: — I look for an executive to get a call and say, I`ve failed to
understand the customer and we need to address that problem. And that`s
really what`s happening.

HERERA: You have two that are not functioning well. The losers, as you
say, Sears (NASDAQ:SHLD) and JCPenney, perhaps better known as the usual
suspects lately.

WITCHER: Yes. JCPenney, they suffer from that whole debacle that they had
years ago where they just didn`t — they lost their way. They lost their
brand. They lost their customers as a result of that. It wasn`t about the

It was basically people were saying I don`t see a point in shopping at
JCPenney anymore. They`re moving at getting towards the better state.
Sears (NASDAQ:SHLD) is another brand. They`re in that state losing their
way for a little while.

It doesn`t bode well to say the lighter side of Sears (NASDAQ:SHLD), like a
lot of my business is power tools. That shows I don`t get who`s shopping
with me and why. I need to stick with who my customers are.

GRIFFETH: Brendan Witcher with Forrester — good to see you again. Thanks
again for joining us tonight.

WITCHER: Good to see you again. Thank you.

GRIFFETH: B.J.`s Wholesale wants to become a public company again.
They`ve filed for an initial public offering. Warehouse Club operators
have been able to avoid some of the other headaches that other retailers
have faced because their business model rely mainly on membership fees
rather than sales only.

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

We begin with Coke which was upgraded to overweight from equal weight at
Barclays. The analyst there expects Coke`s transformation plan to drive
better growth. The firm`s price target on the Dow component is now $48 and
shares rose more than 1 percent to $42.30.

AIG was upgraded to buy from neutral at UBS. The analyst says that
earnings estimates have bottomed out now and expectations have been reset
as a result. Price target now $65. The stock rose 2 percent to $54.79.

HERERA: Comcast (NASDAQ:CMCSA) (NYSE:CCS) was upgraded to overweight from
sector weight at KeyBanc. The analyst says the stock`s recent decline has
created a buying opportunity. The price target is $38. Shares were off
just a fraction to $32.41. Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent
company of CNBC which produces this program.

Molson Coors was downgraded to hold from buy at Stifel Nicolaus. The
analyst cites the lack of expansion opportunities for the beer brewer. The
price target is $65. The stock was up just a fraction to $60.26.

GRIFFETH: Still ahead, a story with a lot of hope. The changing way
cancer is being treated.


GRIFFETH: Remington has exited Chapter 11 bankruptcy after just two
months. The company says it now has less debt and more stable financing.
Remington, of course, is one of America`s oldest and best known gun makers.
It also makes the controversial AR-15 firearm and it still faces various
class action lawsuits.

HERERA: The CEO of Bumble bee Tuna has been charged in a price fixing
scheme. A federal grand jury indicted the executive with conspiring to
inflate tuna prices. He is the fourth individual charged in a federal
probe into the industry. If convicted, he could face 10 years in prison
and a $1 million fine.

GRIFFETH: CBS (NYSE:CBS) is starring in its own drama right now. The
network has been at the center of a battle for control, and today, CBS
(NYSE:CBS) suffered a stunning legal setback as it tries to break free from
its controlling shareholder. Today`s ruling sent the stock lower by more
than 4 percent.

But as Julia Boorstin reports, the story is still a cliffhanger.


currently playing out at CBS (NYSE:CBS) is the latest act in a long running
drama involving family infighting, corporate restructuring and one of the
media world`s most powerful CEOs.

On Thursday, a Delaware judge ruled against the CBS (NYSE:CBS) board
chaired by long-time CEO Les Moonves, and in favor of controlling
shareholder National Amusements owned by nearly 95-year-old Sumner Redstone
and his daughter Shari. CBS (NYSE:CBS) was aiming to use a special
dividend to reduce National Amusements` voting stake from its current 80
percent down to 17 percent, which is in line with its ownership stake.

The Redstone family has a long history in the entertainment industry, going
back to the 1930s when National Amusements was founded by Sumner Redstone`s
father as a theater operator. The company acquired Viacom (NYSE:VIA) for
more than $3 billion in 1987 and a little over a decade later, Viacom
(NYSE:VIA) merged with CBS (NYSE:CBS), and the media industry`s biggest
deal ever at the time. Seven years later, National Amusements and mogul
Sumner Redstone split CBS (NYSE:CBS) and Viacom (NYSE:VIA) into two
separate companies.

But after a tumultuous dozen years of family fighting and corporate court
battles, Shari Redstone is pushing to re-combine the two media giants,
which CBS`s Moonves opposes, saying Viacom`s lesser assets would diminish
CBS`s valu.e

What happens next?

The legal battle is just beginning and if Moonves loses, it could result in
CBS (NYSE:CBS) losing its veteran leader and board.

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


HERERA: Nordstrom (NYSE:JWN) reports disappointing same store sales, and
that`s where we begin tonight`s “Market Focus”.

The retailer said sales growth in the most recent quarter was weaker than
expected even as more customers visited its stores. Nordstrom (NYSE:JWN)
topped earnings expectations but that wasn`t enough for investors who sent
the stock lower in initial after-hours trading. Shares finished the
regular session up a fraction to $50.91.

Wells Fargo (NYSE:WFC) reportedly altered documents about its business
customers. According to “The Wall Street Journal”, the improper activity
took place in 2017 and into early this year. The changes were made without
customers` knowledge. The bank is investigating the matter and has
reported the issue to regulators. Stock fell 1.5 percent to $54.22.

GRIFFETH: World Wrestling Entertainment (NYSE:WWE) is reportedly shopping
its “Smackdown” television franchise. According to “The Hollywood
Reporter”, the company may move one of its shows to a different network
when its current contract with the USA network expires. Investors clearly
expect the price tag to be high. The news sent the stock up by 15 percent
to a record $50.31.

And Dillard`s (NYSE:DDS) reported better than expected earnings, strong
sales of furniture, lady`s accessories and children`s apparel helped offset
weakness in men`s apparel and shoes. The retailer attributed its results
in part to the strong economy right now. And the stock was up 6 percent to

Meanwhile, Kroger (NYSE:KR) is forming a strategic alliance with British
online grocer Okada. Kroger (NYSE:KR) hopes that the deal will give it a
bigger edge in the online delivery market. Okada is known for its use of
robots to run automated warehouse and to process online orders. Stock rose
more than 1 percent today to $25.30.

HERERA: The FDA calls out 39 drug companies for allegedly blocking access
to their medicines in the hope of delaying generic competition. The
companies include Celgene (NASDAQ:CELG), J&J, Gilead and Novartis. The
commissioner hopes the list persuades them to, quote, end the shenanigans,
end quote.

The new tact is part of a broader push to lower prescription drug prices.
Some companies, though, pushed back saying that list may be out of date.

GRIFFETH: More than 5,000 cancer research sets were released late last
night just ahead of the world`s biggest cancer conference. The new data
point to a possible shift in the way cancer is being treated these days.

Meg Tirrell follows that industry for us. She is in New York tonight.

What do the data releases tell us about the latest in cancer treatment
right now?

really two themes that kind of emerged from all of this data that we got to
see last night. Those were combinations of immunotherapies and a greater
use of extremely targeted therapies.

Now, what combinations of immunotherapies means is we`ve heard of this new
wave of cancer treatments that really unleash the immune systems to better
fight cancer. And now, researchers are trying to combine multiple drugs to
try to make them more effective for more patients. In terms of targeted
therapies, those are really figuring out what exactly is driving the cancer
and targeting the drugs towards that regardless of where the cancer is in
the body. Those are the two things we really got to see last night.

GRIFFETH: And which companies did you find out were working on some of
these hopefully very promising therapies?

TIRRELL: So, they`re both big companies and smaller bio techs in these two
spaces. In the immunotherapy space, the big companies we know, of course,
are Merck (NYSE:MRK) and Bristol-Myers. Some of the smaller companies
working in that space include Jounce Therapeutics and Nektar. Both of
those companies had some data in combination with Bristol-Myers` drug
Opdivo. Jounce didn`t look so good and you saw the stock go down quite a
bit today.

In terms of targeted therapies, some emerging biotechs there, Loxo Oncology
and Blueprint Medicines. Those companies are working on the same target
and their stocks went in opposite directions because the Loxo`s data looked
pretty good in this update that we got to see.

GRIFFETH: Effectiveness is important, but is costs, especially when you
have a combination of multiple drugs in these various treatments. What`s
the issue there now?

TIRRELL: Yes. So, at this conference there`s been a new side effect that
doctors have been talking about for the last few years that they`re calling
financial toxicity because the drugs can be so expensive. Opdivo and
Keytruda, for example, those big immunotherapy drugs from Bristol-Myers and
Merck (NYSE:MRK) can be more than $100,000 a year. So when you start
thinking about combining those with other new treatments, are we getting to
the multiple hundred thousands of dollars a year?

So, this is the key thing people are really about and talking about at this

GRIFFETH: Meg, I know you had a long day covering this conference and we
appreciate you staying late for us tonight. Thanks.

TIRRELL: Thank you.

HERERA: And coming up, with inflation rising, just how hot is too hot for
the economy?


HERERA: The number of 401k millionaires has hit a new high. According to
Fidelity, the number of accounts with balances of $1 million or more rose
to a record in the first quarter and contribution rates are now going up as
well, now averaging 8.6 percent, and that is the highest percentage in
almost a decade.

GRIFFETH: As we all know, the housing market is just one critical part of
the economy that Federal Reserve policy makers watch. Another is
inflation, and as more and more signs point to higher prices, a question
that central bankers are asking themselves is how much inflation is too

Steve Liesman takes a look for us tonight.


when it comes to inflation for the Federal Reserve? And what does that say
about the outlook for interest rates?

The Fed has made a huge deal of saying its 2 percent inflation target that
is symmetric, that is since it was below 2 percent for quite a while, it
will tolerate inflation above 2 percent for some unknown while. What`s
unclear is how much tolerance the Fed has and for how long.

Here are the numbers. Since April 2012, the Fed`s preferred inflation
indicator has averaged just 1.28 percent. Take out food and energy, and
it`s averaged 1.58 percent.

Now, remember those numbers. Let`s look at what Fed officials have said
about tolerating high inflation.

New Fed Chairman Jerome Powell in March said, quote: At times it may be
above 2 percent just as at times it may be below. Our inflation objective
is symmetric, he said.

Dove Charlie Evans, the Chicago Fed president, said, quote: 2.5 percent in
an environment where expectations are that it would come down longer term
and that it would be contained, I don`t think that`s a problem for our
symmetric definition. Put it altogether, and it seems there`s some, but
not a huge amount of tolerance for some overshoot on inflation.

What would it really take if the Fed meant what it said? We ran the
numbers. To undo the six years where the Federal Reserve was below 2
percent inflation, for the next six years would have to average 2.7 percent
on headline and 2.4 percent on core inflation. So, the bottom line is a
little bit of over shoot won`t change the outlook of two or three rate
hikes this year.

But the Fed is unlikely to be truly symmetric. It will probably accelerate
those rate hikes if the inflation overshoot is anything more than just a
few tenths, that is not very hot. It`s probably plenty hot when it comes
to inflation for the Federal Reserve.



HERERA: And before we go, here`s another look at the day on Wall Street.
The Dow dropped 54 points. The Nasdaq was down 15 and the S&P 500 lost

And that will do it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
Thanks for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you


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