Transcript: Nightly Business Report – May 25, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Huge recall. Chrysler recalls
nearly 5 million vehicles. The stock falls and it comes at the start of a
busy holiday weekend on the road.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: A matter of trust.
Amazon`s Alexa recorded and shared a couple`s conversation, raising privacy
concerns about the growing smart device market.

HERERA: “Airbnb: Unwelcome Guests”. An investigative report inside the
world of illegal short-term rentals and the tense battle with regulators.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday, May
25th.

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

The timing could not be worse for Chrysler — Fiat Chrysler. Ahead of a
long weekend when millions of Americans are expected to hit the road, the
automaker issued one of the largest recalls in American automotive history
today. The company is warning owners to stop using their cruise control
immediately because of a software defect in nearly 5 million vehicles. And
that sent the stock lower in trading today.

And as Phil LeBeau reports right now, the recall also occurs just as the
industry kicks off its summer selling season.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is one of the
largest recalls ever, impacting some of the most popular models in the
U.S., including the Jeep Grand Cherokee (NASDAQ:CHKE) and the Ram 1500
pickup. They are part of a recall covering 4.8 million Fiat Chrysler
vehicles, 15 different models, covering the last five model years, with
Jeep, Ram, Dodge and Chrysler brands all impacted.

The issue: a defect with the cruise control. In rare circumstances,
drivers may not be able to turn off the cruise control unless they shift
the vehicle into neutral and eventually park it. While Fiat Chrysler knows
of no accidents or incidents with runaway cruise control, it is warning
drivers not to use cruise control until the software can be updated. That
warning comes as millions prepare for a road trip over the holiday weekend.

It`s also a huge weekend for people to buy a new car or truck. Whether the
recall and headlines impact sales is too hard to tell. Under CEO Sergio
Marchionne, Fiat Chrysler has more than doubled its U.S. sales in the last
decade. Jeep and Ram have become hot brands with strong sales.

But overall, Fiat Chrysler`s track record in reliability and dependability
studies has been lackluster.

It`s unclear how long it will take Fiat Chrysler to get the updated cruise
control software to dealers and fix all of the recalled vehicles. But
until the defect is corrected, drivers are being told to steer clear of
cruise control.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: And as drivers hit the road this weekend, they`re also paying more
for gas. A rise in crude oil prices and increased demand for gasoline has
lifted the national average to nearly $3 a gallon. According to AAA,
that`s up about 30 percent from a year ago.

GRIFFETH: And wouldn`t you know that oil prices went in the other
direction today. Two influential oil ministers said some oil-producing
nations could ease production limits that were put in place last year.
Officials in Saudi Arabia and Russia say that there is a need to compensate
for declining production in Venezuela and the anticipated export disruption
from Iran.

So, the price of domestic crude settled lower by 4 percent today.

HERERA: On Wall Street, energy stocks followed oil prices lower. Exxon
and Chevron (NYSE:CVX) were the two worst-performing stocks on the Dow
today and geopolitical risks kept investors cautious ahead of the long
weekend. The Dow Jones Industrial Average fell 58 to 24,753. The Nasdaq
was up nine and the S&P 500 dropped six. For the week, all of the averages
recorded gains.

Mike Santoli takes a look at what might happen to stocks in the weeks
ahead.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stocks are heading
into summer stuck right in the middle of their 2018 range. And a swirl of
opposing currents threatens to keep the market from making much progress as
the weather heats up and the trading slows down. The S&P 500 has had an
eventful first five months of the year, but the net movement has been
slight.

The index is up a bit less than 2 percent year to date and is almost
exactly halfway between its late January peak and the February lows, just a
bit more than 5 percent away from each extreme.

Seasonal factors suggest a choppy path into the summer with June being
among the weaker months of the year. Historical record of midterm election
years also points to nervous back-and-forth trading in the coming months.
This would fit with the interplay of fundamental factors that have been
driving stocks so far this year. Corporate profits are growing briskly and
companies are buying back their shares aggressively.

Yet the threat of higher interest rates and questions over the durability
of economic growth are constant. And while Wall Street has tuned out much
of the drama from Washington, the jarring headlines on geopolitical flux,
trade tensions, the Russia collusion investigation and a contentious
congressional campaign might only become more intense. None of this
suggests stocks are doomed to a summer of discontent. The market`s winter
setback and springtime recovery acted as a sort of stress test to make
stocks less expensive and turn investor expectations more realistic.

But the forces that have held the market in check for months continue to
indicate that stocks might be in for a staycation, at least for the start
of summer.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

GRIFFETH: To the economy now where orders for durable goods, those long-
lasting items like computers and refrigerators, those orders fell last
month. But much of that decline stemmed from fewer contracts for Boeing
(NYSE:BA) planes. Otherwise, most businesses did report a modest
improvement in equipment spending in April and again an overall rise in
orders.

HERERA: The Trump administration has reportedly reached a deal that will
allow the Chinese telecom company, ZTE, to remain in business. As first
reported by “The New York Times (NYSE:NYT),” the White House told Congress
that ZTE will pay a bigger fine, hire American compliance officers and
shake up its management team. In exchange, the Commerce Department will
lift an order under which that company had been cut off from American
suppliers. It is unclear, however, how firm the reported deal is at this
point.

GRIFFETH: Elsewhere, President Trump said today that the summit with North
Korea is still possible, less than 24 hours after he sent a letter to
Pyongyang cancelling next month`s talks. The president said that the two
countries are talking again and he seemed to like the conciliatory tone of
a statement issued by North Korea offering to meet any time.

So what`s next?

Eunice Yoon picks up the story from there from Beijing tonight.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: North Korea left the
door ajar on rescheduling a summit. In a statement in the official KCNA
news agency, the North Koreans describe President Trump`s decision as
unexpected and said: We are willing to sit face-to-face to resolve problems
at any time in any way.

I spoke to one diplomat here who follows North Korea who said that the
language of the statement suggested that it came directly from Kim Jong-un.
It used the words “upon authorization” which is code for Kim. He said the
two are like a husband and wife who just got into an argument and we`re
waiting to see who`s going to make the first move to kiss and make up.

There are few things, though, that don`t bode well for the optimists. The
North Koreans said that solving the nuclear problem in a phased way would
make the relations get better rather than making them get worse. This is
not new, but it shows how North Korea wants to approach the nuclear issue
in a step-by-step process. That happens to be very different from what the
Trump administration wants, a front-loaded, verifiable denuclearization
with major promises of economic relief. This is where the two are very far
apart on how the process will work.

On top of that, North Korea said Trump`s decision has caused them to think
over if they were truly right to have made efforts and opted for this new
path. That raises questions as to whether or not North Korea will continue
with its general outreach to the United States and South Korea.

There are also some interesting comments out of China. The foreign
ministry reiterated today that the two sides should continue with their
dialogue, but the more interesting comments were in response to questions
about President Trump`s implied accusation that China is behind North
Korea`s more hostile attitude. To this, the ministry said we have no
secret intention.

And the ministry also dismissed the suggestion that China could use its
relationship with North Korea as leverage in trade talks with the United
States, saying: I would say you`re overthinking it.

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

(END VIDEOTAPE)

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

Paypal`s rating was upgraded to buy from hold at Stifel Nicolaus. The
analyst there cites its addition of new financial services and the global
growing payments market. The price target is $99. The shares fell
fractionally to $80.96.

Colgate-Palmolive`s rating was raised to buy from hold over at Argus
Research. The analyst cites the potential for earnings growth given its
strong focus on emerging markets. The price target is $72. The shares
closed up 2 percent to $63.75.

GRIFFETH: Still ahead, the area of retail where there is still a lot of
growth and where our market monitor says might be a good place to invest.

(MUSIC)

HERERA: As we have been reporting, data privacy laws went into effect in
the European Union today. It`s considered the biggest change to data
privacy in 20 years. The rules give E.U. citizens more control over their
personal data. Users will be able to know how their data is being used and
users can also have their data erased.

Most analysts say the financial impact on big tech companies will be
minimal, although smaller ones could face more of a challenge with
increased regulatory expenses. But some American publishers are struggling
with the new law. Sites like “The L.A. Times” and “Chicago Tribune” were
taken down in European countries.

GRIFFETH: And another privacy debate is brewing, you`ve probably heard
about this, over Amazon`s smart speaker Alexa, which one couple says
secretly recorded their conversation and sent it to a random contact.

Aditi Roy has the details for us tonight.

(BEGIN VIDEOTAPE)

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Amazon`s Alexa devices
are in 40 million homes across the country. Their job: to always be
listening for voice prompts.

But in what Amazon (NASDAQ:AMZN) is calling an unlikely chain of events, an
Amazon (NASDAQ:AMZN) Echo device inside a home of a Portland, Oregon,
couple accidentally recorded their private conversation and then sent the
audio file to a phone contact. The story is unsettling to Echo customers,
like Alyssa Chu (ph).

UNIDENTIFIED FEMALE: That`s not what I would intend it to be used for.

UNIDENTIFIED MALE: I`m pretty surprised. I mean, that sounds like a lot
of mistakes to happen.

ROY: According to Amazon (NASDAQ:AMZN), Echo woke up due to a word in
background conversation sounding like Alexa. Then the subsequent
conversation was heard as a send message request at which point Alexa said
out loud, to whom? At which point, the background conversation was
interpreted as a name in the customer`s contact list.

STEPHANIE MEHTA, FAST COMPANY EDITOR-IN-CHIEF: I think this will have
ramifications for people`s trust level for Alexa and other in-home devices.
The creepy factor on this is huge.

ROY: Amazon (NASDAQ:AMZN) is already in a battle for market share in the
home speaker category, and some industry watchers say an incident like this
could tip the scales.

According to e-marketer, Amazon (NASDAQ:AMZN) dominates two-thirds of that
market now, but the market research group projects that lead will drop by 6
percent in two years, while products including the Google (NASDAQ:GOOG)
Home will see a corresponding increase.

BOB O`DONNELL, TECHNALYSIS: This is the consumer privacy fear that
everyone was afraid of when Alexa came into people`s houses.

ROY: On the other hand, other analysts say what happened to that Oregon
couple is so unlikely that it won`t keep people from buying and using their
Alexa devices.

GENE MUNSTER, LOUP VENTURES: I think it should be statistically about one
in a million concern.

ROY: The company says it`s working to make sure it doesn`t happen again.
And despite her disappointment over the incident, Chu says she`s not
unplugging her Echo any time soon.

UNIDENTIFIED FEMALE: Probably still use it, just being more aware.

ROY: The case does bring up privacy concerns. The group consumer watchdog
is already calling on Amazon (NASDAQ:AMZN) to have a dedicated internal
privacy watchdog at the company.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.

(END VIDEOTAPE)

HERERA: A bit earlier this week, we ran a story about Amazon`s Alexa,
teaming up with the home builder Lennar (NYSE:LEN). Lennar (NYSE:LEN)
issued the following statement following the Alexa privacy story. Quote,
with all — as with all new technologies, this is a process of continued
refinement, including the coexistence of things like security and privacy.
That said, we have a lot of respect for Amazon`s technology, security and
privacy capabilities. Homeowners can always remove their Alexa-enabled
device if they choose, end quote.

GRIFFETH: Footlocker (NYSE:FL) raced past earnings expectations and that
is where we begin tonight`s “Market Focus”.

Strong demand for Nike (NYSE:NKE) and Adidas shoes helped the retail chain
beat sales estimates by the most in at least two years. The company also
benefited from its strategy to streamline its inventory. Shares soared by
20 percent to 55.74, making Footlocker (NYSE:FL) the best performing stock
by far in the S&P 500 today.

But it was a different story for sporting goods retailer Hibbett Sports
(NASDAQ:HIBB). The company missed both earnings and revenue estimates in
the most recent quarter. Strong online sales were not enough to offset a
decline in comparable store sales. And as you might imagine, shares
finished lower, the day down 15 percent to $24.43.

Meanwhile, a drop in same-store sales caused revenue to miss forecasts at
clothing retailer Buckle (NYSE:BKE). Net income did rise and those results
beat street targets. Shares, though, fell nearly 2 percent today to
$25.25.

HERERA: One of AstraZeneca`s cancer drugs showed promising results in a
study. The pharmaceutical company said its immunotherapy medication
improved overall survival in lung cancer patients who were given that
treatment. The drug is already approved in the U.S. to treat a certain
type of non-small cell lung cancer. Shares of AstraZeneca were up a
fraction to $37.04.

Herbalife`s largest investor is reducing his position. A securities filing
revealed that billionaire investor Carl Icahn is cutting his stake in the
nutrition and weight loss company simply because his investment has become
too large. Icahn added that he still believes in the business and sees
strong performance ahead. Herbalife (NYSE:HLF) shares fell 9-1/2 percent
to $48.70.

And a federal court late last night handed Apple (NASDAQ:AAPL) a legal
victory against its rival, Samsung. Samsung has been ordered to pay Apple
(NASDAQ:AAPL) $500 million in damages for illegally copying patented
smartphone features. The two companies have been involved in this patent
lawsuit since 2011. Shares of Apple (NASDAQ:AAPL) were up a tick to
$188.58. Samsung trades in South Korea.

GRIFFETH: Tonight`s market monitor says he is finding opportunities in
online retail stocks. He expects online retail companies to account for 20
percent of all U.S. retail sales within five years. Right now, that figure
sits just below 10 percent.

This is his first time as our market monitor. He is Christian Magoon,
founder and CEO of Amplify ETFs.

Christian, good to see you again. Thank you for joining us tonight.

CHRISTIAN MAGOON, AMPLIFY ETFS CEO: Good to see you as well. Thanks.

GRIFFETH: We`re going to talk about three companies here. You see, what,
20 percent by the end of the year. What`s going to be the catalyst for
those gains, do you think?

MAGOON: Well, most of the catalyst for online retail stocks is really
growth in sales and market share, but then overall growth in online retail
sales. Right now, online retail sales are growing 16 percent year over
year, whereas department store sales are actually shrinking.

So, they`re in a sweet spot where they`re carving out market share from
brick and mortar, but also increasing their customer penetration rate.

HERERA: And you point out that it`s not just Amazon (NASDAQ:AMZN). A lot
of people think of online shopping as simply, you know, they always go to
Amazon (NASDAQ:AMZN), but you picked three stocks that you think are very
interesting niche plays.

Etsy is your first pick. Why do you like it?

MAGOON: Yes, so this is an online platform for handmade and vintage goods.
We think it`s a very unique platform to get — to buy things that really
have an experience with them. They`re not just something you`d find in a
typical brick and mortar store. They`re very unique.

And this could be an interesting play for a merger or acquisition, whether
it`s a brick and mortar company trying to get their toe wet in online
retail and buying a platform like Etsy or somebody already in the retail
space trying to expand into this handmade and vintage item area.

GRIFFETH: Then there`s a company in a very competitive part of the online
world in food and meal delivery, you`re talking about Grubhub here.

MAGOON: Yes, Grubhub is definitely in competition with companies like Uber
Eats, for example. But they have some strategic advantages. One is this
recent exclusive deal they signed with Yum Brands (NYSE:YUM) to exclusively
deliver KFC, Pizza Hut, Taco Bell, et cetera.

They`re becoming kind of the largest entity in the U.S., but it`s a
competitive space — it`s a competitive space, Bill, and it will be
interesting to see what happens in this marketplace. But we see it going
higher over the course of the year.

HERERA: And let`s finish up with Carvana. I was stunned with the amount
of revenue growth this company has, up 127 percent year over year. That`s
obviously one of the reasons why you like it.

MAGOON: That`s right. It goes hand in hand with their car sales. So,
they sold over 18,000 cars, pre-owned cars last quarter. That was the
growth of about 127 percent year over year. They`re building this online
platform to buy, inspect, finance pre-owned cars.

And that`s becoming a growing area here in the U.S. They`re national and
we think they can continue to improve. Their big challenge is they`re
still not profitable yet, unlike the other two stocks that we spoke about.

GRIFFETH: Well, that`s certainly a big growth area, that`s for sure in
online retail.

Christian, thanks for joining us. Appreciate it very much.

MAGOON: Thanks, Bill.

GRIFFETH: Christian Magoon with Amplify ETFs.

And to read more about his picks, you can head to our Website at NBR.com.

HERERA: Coming up, a months-long exclusive investigation into the emerging
battle between illegal short-term rentals and the law.

(MUSIC)

GRIFFETH: Here is what to watch next week on Wednesday. The second
estimate for first quarter GDP will be out. Also on Wednesday, the Fed
will publish its Beige Book, the anecdotal look at the economic conditions
across the country. And then on Friday, the all-important jobs report for
the month of May will be on tap first thing in the morning. That`s what
we`re watching for next week.

HERERA: An emerging turf battle is under way between cities and upstart
tech companies like Airbnb, for example, that have been capitalizing on the
Wild West landscape of the share economy. Valued at $31 billion, the
company is currently worth more than most of its publicly traded hotel
rivals. But gigantic growth means some big growing pains as well.

GRIFFETH: Indeed. “Airbnb: Unwelcome Guests”. That`s a CNBC
investigation into that clash between illegal short-term rentals and
restrictive regulations.

Airbnb says it has worked with cities around the world to craft reasonable
regulations, but not in Miami Beach, where the fight has no end in sight.

Morgan Brennan has our special report for us tonight.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s 9:00 on a
Saturday night and we`re riding along with Miami Beach code compliance, on
the lookout for illegal short-term rentals.

And what are you looking for tonight?

VIJMA MAHARAJ, MIAMI BEACH CODE COMPLIANCE: Hopefully, we can establish
contact if it`s occupied and determine whether it`s a violation or not.

BRENNAN: Code compliance officer Vijma Maharaj has seen it all. Large
noisy late-night parties in residential neighborhoods, commercial video
shoots with scantily clad women in a home investigated for short term
rental claims, and unwitting tourists who say they unknowingly booked
Airbnbs in prohibited areas.

UNIDENTIFIED FEMALE: You shouldn`t be able to do this. This is messed up.

BRENNAN: All captured on body camera videos recorded over the past two
years.

UNIDENTIFIED MALE: Hello.

BRENNAN: Some are so blatant as these house rules show what to do if
someone asks. They`re told to lie by saying they`re a friend and certainly
don`t mention they rent this place.

UNIDENTIFIED FEMALE: You`re not allowed to rent this house for less than
six months and one day.

UNIDENTIFIED MALE: Everybody has to leave.

UNIDENTIFIED FEMALE: This party needs to clear up.

BRENNAN: At a loud party in Millbrae, California, in the San Francisco Bay
Area, shots rang out.

Guests seen on surveillance cameras running down the street. Airbnb says
it has zero tolerance for this type of behavior and permanently banned the
guests. Airbnb says these incidents don`t represent the overwhelming
number of satisfied hosts and guests in 8,100 cities and 191 countries.
And it has successfully worked with lawmakers around the world.

Back on the streets of Miami Beach, it`s not long before we roll up on a
group of vacationers. The building has telltale signs of an illegal
rental. Two of the units advertised on Airbnb have lockboxes and key pads.

Do you live there?

UNIDENTIFIED MALE: We do.

BRENNAN: How long have you been living there?

UNIDENTIFIED MALE: Actually, we just rented with Airbnb.

BRENNAN: Are you guys surprised to hear that it`s not legal here?

UNIDENTIFIED MALE: Actually, yes, because, I mean, it`s something that`s,
you know, it`s just out there for people.

DAN GELBER, MIAMI BEACH MAYOR: You would say when you hear that story —

BRENNAN: To Miami Beach Mayor Dan Gelber, the issue is clear cut.

GELBER: They may work in some places but they really don`t work here,
because at the end of the day, it`s not the mom and pops we are seeing
here. We`re seeing commercialized predatory companies that are trying to
commercialize our residential communities.

BRENNAN: Predatory seems like a strong word. What do you mean by that?

GELBER: It is predatory, because it`s not about a mom and pop or
grandmother wanting to bring in a college kid to make him chicken soup at
night. It`s people taking very nice properties, buying them, and turning
them into essentially a flophouse.

BRENNAN: Gelber, a former prosecutor and former state lawmaker, says
Airbnb and other $ home-sharing platforms must abide by the law.

Have you spoken to Airbnb or any of the other companies that operate here?

GELBER: I`ve spoken to some of the representatives before I was elected.
I`d like to send them a message. I`d like them to be corporately
responsible. I`d like them to do the right thing.

BRENNAN: Why do you think they haven`t done that?

GELBER: Look, these are not charities. These home-sharing platforms, they
want to make money.

BRENNAN: In an interview at Airbnb`s San Francisco headquarters, Chris
Lehane, the head of global policy, strongly defended the company`s track
record.

CHRIS LEHANE, AIRBNB HEAD OF GLOBAL POLICY: I have yet to see a program
being run by any mayor, any elected official in this time of economic
inequality that`s generating $6,100 for a typical middle class family, all
without the expenditure of a single taxpayer dollar. That is what Airbnb
is about at its core, trying to use technology to create economic
empowerment.

BRENNAN: Should Airbnb responsible for what is in that market illegal
activity on the platform?

LEHANE: I think what seems to be a common sense solution for Miami Beach,
happy to do this if they want to sit down and have a constructive
conversation, is you can take that 35 percent of the city that`s a
residential area, make that an exclusionary zone. Allow the activity to be
able to take place in the 65 percent of the city that`s actually explicitly
zoned for this type of activity.

BRENNAN: In the meantime, you have illegal listings on your site.

LEHANE: Well, first of all, I think if you actually look at the underlying
law in the city in Miami Beach, right, Miami Beach allows for this activity
to take place. $20,000 fines on someone making their home available a few
times a year to actually help make ends meet? It doesn`t sound like they
want to make this work as well as possible for as many people as possible.

BRENNAN: The American Hotel and Lodging Association tells us that instead
of supporting common sense regulations, Airbnb has opted to deploy a
massive campaign of dirty tactics, deceptive messaging and personal attacks
against anyone who raises a concern.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

HERERA: Whether it is Airbnb or booking.com or HomeAway, which is owned by
Expedia (NASDAQ:EXPE), all of these companies have had clashes to varying
degrees with regulators in different cities. Officials in many cities
across the country, whether it`s Boston or Los Angeles or New York say
there are issues. That said, Morgan found in her reporting, the company
brought up most frequently is Airbnb.

GRIFFETH: Before we go, one more look at the day on Wall Street. The Dow
fell 58 points today. The Nasdaq was up nine. The S&P dropped by six.

And for the week, all of the averages recorded gains.

HERERA: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera,
thanks for joining us.

GRIFFETH: I`m Bill Griffeth, have a wonderful long weekend. We will see
you Monday for a special edition of NBR. But have a good night.

END

Nightly Business Report transcripts and video are available on-line post
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and commentators are their own and do not necessarily represent the views
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Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.

 

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