Transcript: Nightly Business Report – June 26, 2018




UNIDENTIFIED MALE: Are you done? Is this it? Is this G.E. that I`m going to be sitting here talking about it two years from now?



says it`s done slimming down and will focus the once sprawling conglomerate
on just a few businesses.

Crude realities. The State Department wants our allies to cut oil imports
from Iran and oil prices rise.

And shelf life. A startup devises a way to keep produce fresher longer and
it could save billions in food waste.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, June

Good evening, everyone, and welcome. Bill is off tonight.

General Electric`s extreme makeover is over. The industrial company is
spinning off its health care business and shedding its ownership in the oil
company Baker Hughes (NYSE:BHI). The CEO says the move concludes a year-
long strategic review that he hopes will get the one-time bellwether out of
its rough patch.

Investors seem to agree at least for today, sending the stock up better
than 7 percent, its best one-day gain in quite a while.

Morgan Brennan has more on GE, the shrinking giant.


stronger GE. That`s the vision unveiled by General Electric (NYSE:GE) CEO
and Chairman John Flannery today.

FLANNERY: We laid out a package of about $60 billion of potential value
sources, 25 of that goes to the deleveraging of the company. That leaves
an immense amount of surplus, if you will, to deal with leverage and risk
going forward or — you know, so I looked carefully at the balance sheet.
It`s clear we know how to get to the end point and how we`re going to do it
and we have surplus.

So, you know, I think when we spend some time with people, they`ll see

BRENNAN: The plan, establish GE as a company focused solely on aviation
power and renewable energy. That means spinning off GE`s health care
business as a standalone company. A process expected to take up to a year
and a half to complete. It also means exiting its majority stake in Baker
Hughes (NYSE:BHI), which was merged with GE`s oil and gas business last
year. That, too, could take up to three years.

Flannery believes the moves will unlock shareholder value and help shore up
finances for a company that`s seen its dividends slash and its shares
halved over the past year.

FLANNERY: I share in every sense the pain, if you will. You know, my —
my life`s savings is in the stock, so I have the same sort of connection to
the issue.

The second thing I`d say is we`ve gone through a tough patch. We`ve faced
into the issues. We`re dealing with the issues. We have a plan.

We know where we are. We`re realistic about that. We know exactly where
we want to go with the portfolio, with the balance sheet, with how we run
the company and we know exactly how to get there and stay tuned for the
ride here.

BRENNAN: The long-term strategy, which investors have been waiting for
months sent GE soaring, with the stock having its best day in nearly three
years. Even despite being booted from the Dow.

So, analysts say it`s all going to take time.

BOB DOLL, NUVEEN ASSET MANAGEMENT: We`ve been short the stock for 18, 24
months, covered a little bit a couple of months ago and we`re going to use
this excuse to cover the rest of it. I think the story from here is very
complicated, requires a lot of analysis, but at least they`re taking the
bull by the horns and trying to do something after I would argue years of

BRENNAN: The devil will be in the details. GE is also cutting its
corporate foot print and shifting more responsibilities back to the
business itself. A move expected to shave off at least $500 million in
costs and Bill Flannery did not elaborate likely results in more layoffs.

Also in focus, the dividends which GE said it would maintain today until GE
health care, the company, is established. At that time, the board will
adjust the payout to be in line with industrial peers, meaning it is likely
to go lower.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan at the New York Stock


HERERA: So is the worst over for the stock? It is the question that many
long-timeshare holders certainly want answered.

With us now to talk about that is Scott Davis, CEO of the research firm
Melius Research.

Good to see you, Scott. Welcome.

SCOTT DAVIS, MELIUS RESEARCH CEO: Thanks, Sue. Happy to be here.

HERERA: You have been calling and your firm has been calling for a full
breakup of GE for sometime now.


HERERA: Is this good enough?

DAVIS: I think it`s what we`re going to get. I think it`s — I mean, I
think it`s as best as we could have really expected given that a full
breakup would have included the power business which I don`t think could
stand alone right now. It`s not strong enough. You have a great aerospace
business that`s left, health care business. It`s going to be a good show.

HERERA: Mr. Flannery said: Ultimately, our mission is better return, less
cost, less bureaucracy, and that we`re going to see a dramatic change.

Does this plan, do you think, achieve less bureaucracy and better returns?

DAVIS: Yes. I mean, the answer is yes, but you didn`t have a choice. I
mean, the company was so big, how do you take costs out and bureaucracy out
of something? It is just so broad. And I think this gets it down to
something manageable where you can identify compensation for, you know,
each of the CEOs now that, you know, is directly tied to the business
itself. Whereas, before you could be running the aerospace business and do
a wonderful job, but if somebody messes up in power, then you don`t get
paid for it.

HERERA: Right.

DAVIS: And morale is terrible for that.

HERERA: You have a buy or accumulate on the stock. You were out early
with a stock price of I think the mid-20s.


HERERA: Now you say 27, but that`s a longer term price target, right?

DAVIS: Yes, it`s two years. And we do think it can get there. I know it
sounds crazy from $14 to, you know, $27, $28, but you can get there in two
years. I mean, gosh, I mean, two years ago, it was up — it was at $28 or
so. So —

HERERA: That`s right.

DAVIS: It fell, but it can go back.

HERERA: What about, you know, Morgan`s last comment about the dividend.
Mr. Flannery said today on CNBC that they want to maintain the dividend.
Given what you know and you follow this company so closely, that may be his
best of intentions, but a lot of our viewers bought the stock for the


HERERA: Do you think it`s safe?

DAVIS: The answer is yes, but you have to — you have to understand when
you spin off health care, health care will have its own dividend policy and
health care is a growth year asset. so it`s more likely to have a lower
payout ratio. But the other businesses should be growing cash flow over
the next couple of years and into that spinoff.

So, the odds of maintaining most of that dividend is pretty high. I mean,
could be a couple of pennies below or lower, yes, it could be. But I don`t
think it`s going to be material.

HERERA: All right. Scott, thank you so much as always.

DAVIS: Thank you.

HERERA: Scott Davis of Melius Research.

Morgan, of course, just a moment ago mentioned GE`s exit from the Dow which
became official today. After more than a century as part of the blue chip
index, it`s being replaced by Walgreens. Walgreens fell 1 percent in its
Dow debut today.

On Wall Street overall, stocks bounced back after yesterday`s steep
selloff. Tech stocks rebounded but confusion over trade policy capped some
of the gains. The Dow Jones Industrial Average was 30 points to 24,283,
the Nasdaq added 29 and the S&P 500 was up about six.

In Washington, President Trump took aim at Harley-Davidson (NYSE:HOG). As
we`ve reported, the iconic American company announced yesterday that it was
going to move some factory production out of the U.S. citing tariffs. The
president threatened to tax the, quote, like never before, end quote.


is using that as an excuse and I don`t like that, because I`ve been very
good to Harley-Davidson (NYSE:HOG). They used it as an excuse. I think
that people that ride Harleys are not happy with Harley-Davidson (NYSE:HOG)
and I wouldn`t be either. But mostly, companies are coming back.


HERERA: Shares of Harley-Davidson (NYSE:HOG) finished the day slightly

An automotive trade group plans to tell the White House that a 25 percent
tariff on imported passenger vehicles would cost consumers $45 billion
annually. The Alliance of Automobile Manufacturers says the tariff would
cancel out the benefits of the tax cut.

New report from the Congressional Budget Office says rising interest rates
will pressure government finances. That could push interest payments to
record levels in the coming decades. Currently, debt payments are 1.6
percent of gross domestic product but that could rise to more than 6
percent by the year 2048, and at that point, interest payments would equal
spending on social security.

Well, the State Department threw the energy market for a loop today. The
Trump administration is pressing allies to end all imports of Iranian oil
by November or risk sanctions. The administration`s hard line approach
sent the price of domestic crude above $70 a barrel.

John Kilduff of Again Capital is with us now to discuss how all of this
might play out.

Good to see you as always, John.


HERERA: To say it threw the energy market for a loop was perhaps maybe
downplaying a little bit. No one really saw this hard-line approach

KILDUFF: No. Historically, whenever sanctions were imposed on a country,
be it Iran or Iraq or others, these are usually implemented in stages to
give the tariffed country the opportunity to correct its behavior and
potentially, you know, return to the market. We`ve known that the Trump
administration has been very forward leaning against Iran by pulling out of
the nuclear deal, and this to sever Iran`s ability to sell oil into the
market on November 4th full stop was a bold move that really was a
broadside to the market today.

HERERA: What do you think the motivation is for that and what has been the
response from some of our Middle Eastern partners, such as Saudi Arabia?

KILDUFF: Well, Iran is teetering. Their currency has collapsed. There
have been rare protests in the streets the past couple of days because of
the inflation of that currency collapse has wrought. You have to believe
that the administration feels that by implementing this, by cutting off
really their economic life line, that they could tip over the regime
potentially and get regime change in Iran.

It`s something that would be very welcomed by others in the Middle East
like Saudi Arabia who see Iran as interfering in Middle East politics, in
and countries like Syria and Yemen. They have become almost mortal
enemies, so the Saudis have stepped up today and told us that they`re going
to be putting 11 million barrels of oil today on the market starting next
month, starting July 1st to help offset the pain and problems that this
Iran severing is going to cause.

HERERA: Now what does this do near term for the price of oil? Because
obviously now there are a lot more moving parts than there were just 24
hours ago. We moved above $70 a barrel. Is there more up side to oil

KILDUFF: There`s more up side. The market was already tight going into
the recent OPEC meeting, that`s why you had a response from OPEC members
over the weekend to increase oil production. This also adds to it, because
there`s a deficit. We`re consuming more than is being produced and put out
in the market, because countries like Venezuela, for example, had a 50-year
production low.

The troubles that we`ve seen over years in Libya keep revisiting
themselves. Nigeria is only a pipeline bomb from oil off the market. So,
we are within the five year average and they`re only coming down and we are
now set up to really spike higher if we lost even another battle.

HERERA: Very quickly, if, indeed, we see these higher prices, how
inflationary is it for the overall economy?

KILDUFF: Well, it`s quite inflationary because it rips through to the food
sector first because they`re constantly delivering things. But it will
affect pricing really across merchandising for consumer goods, cruise
lines, the gasoline pump will be back to $4, $5 a gallon. Consumer
sentiment takes a big hit.

HERERA: All right. John, we will be watching. Thank you.

KILDUFF: Thank you, Sue.

HERERA: John Kilduff of Again Capital.

And from oil to natural gas, the U.S. is producing a lot of it, and that is
changing the key dynamics of a key part of the energy industry.

Brian Sullivan is at the World Gas Conference in Washington.


headlines, but natural gas is shaking up the geopolitical energy game even
more than its crude cousin. In just the past few years United States has
become a gas powerhouse, so for the first time in more than 30 years, the
World Gas Conference is taking place in America.

Energy Secretary Rick Perry spoke at the event and highlighted America`s
gas boom.

RICK PERRY, ENERGY SECRETARY: We will set a record this year for dry
natural gas production with an average of 81.2 billion cubic feet per day.
And we`ll break that record next year.

SULLIVAN: We`re now producing so much gas that America is now a net
exporter for the first time ever. And the International Energy Agency
believes that liquefied natural gas from the U.S. will surge from just 4
percent global market share now to more than 20 percent in just five years.

DR. FATIH BIROL, IEA EXECUTIVE DIRECTOR: In the next five years, about 45
percent, almost half of the global gas production growth comes from the
United States.

SULLIVAN: That`s good news for companies like Cheniere Energy and Dominion
Resources (NYSE:D), which export American liquefied gas around the world,
but it could also put us on a collision course with Russia, which is
building a new $12 billion pipeline to double natural gas capacity to
Europe. That might explain why Russia`s energy minister is at the
Washington conference and is expected to meet with Secretary Perry.

Both the United States and Russia see mainland Europe and Asia as big
markets for their same product. So, the two old adversaries are going to
have to learn to play nicely in the same global gas sandbox, or risk
sparking another fight on the global trade front, this time over natural

For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan, Washington, D.C.


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

Intel`s rating was cut again this time by Bernstein which now rates the
stock an underperform. The analyst cites structural issues at the company.
The price target is $42. The stock fell to $49.67.

SiriusXM was downgraded to underweight from equal weight at Barclays. The
analyst says the company is entering a more mature phase of growth which
presents a new set of challenges. The price target is $5. The stock fell
about 2 percent to $6.92.

And TJX Companies (NYSE:TJX) was downgraded to neutral from overweight at
Atlantic Equities. The analyst cites valuation given the stock`s 24
percent gain so far this year. The price target is $90 and the stock fell
slightly to $95.17.

Still ahead, why renovating your home could cost you a lot.


HERERA: Strong housing demand and an expanding economy help the nation`s
largest home builder Lennar (NYSE:LEN) easily beat estimates last quarter.
While both earnings and revenue grew strongly, the company also said
average sales prices of their homes jumped more than 10 percent to
$418,000. The shares rose nearly 5 percent on the day and that, in turn,
helped lift the rest of the home builders in today`s session.

Home price gains surged in April, but slowed ever so slightly from the
previous month, a possible sign that higher mortgage rates may have been a
factor for buyers. The S&P Case Shiller national home price index rose 6.4
percent in April year over year. That was down a tick from March. The
national number tracks average prices from metro areas all around the

And in today`s pricey and competitive housing market, it is no surprise
home remodeling is soaring as more homeowners choose to stay put, but some
of the same factors making home buying so expensive are also making home
remodeling more expensive.

Diana Olick has more.


around, there`s more of this going on. If you can`t find a better
bathroom, rebuild your own. More and more homeowners are doing just that.

for a house in the right neighborhood at the right price point and it does
generally make more sense to just customize your own home.

OLICK: And while kitchens and bathrooms are always most popular, the
master bedroom suite has moved up to number three in most popular remodels,
according to a new survey from Houzz, a remodeling Website.

the third most popular to renovate. The spent on the master bedroom has
increased 33 percent. And that`s pretty consistent with the online of over
40 million unique monthly users on Houzz.

OLICK: Likely because today`s homeowners are increasingly focused on
resale value.

RODRIGUEZ: You will get more bang for the buck and a better return when
you go to sell to have that full master suite.

OLICK: But getting the best bang for your renovation buck is getting
harder because it`s harder to find contractors to do the work. The same
labor shortage that`s keeping more new homes from being built is putting
renovation projects on hold.

SITCHINAVA: Homeowners are looking at much longer duration for both the
start time and the completion of the project. That combined with the
rising costs of labor and more recently products and materials, we are
looking at rising prices for home renovation services.

OLICK: But for now at least, home owners are choosing patience over paying
even higher prices to move.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.


HERERA: Conagra may gobble up Pinnacle Foods, and that`s where we begin
tonight`s “Market Focus”.

CNBC says Conagra Brands is in advanced talks to acquire the owner of the
Bird`s Eye label. A deal that would create the nation`s second largest
frozen fruit company, trailing only Nestle, and it would have a combined
market value of more than $23 billion. There has been speculation about a
merger between the two for several months now. Shares of Pinnacle rose
more than 2 percent at $67.86. While Conagra was off nearly 2 percent to

The metal recycler Schnitzer Steel beat estimates with revenue rising 36
percent. Adjusted earnings beat by 8 cents. But the company issued a
fourth quarter output that was for the most part below consensus. And that
disappointed investors. The shares fell 3 percent to $33.65, but they are
up about 60 percent over the past 12 months.

And Rite Aid (NYSE:RAD) sent a letter to the shareholders detailing the
merits of its proposed $24 billion merger with a grocery chain Albertson`s
ahead of a stockholder`s vote on August 9th. The company filed their proxy
today, setting the vote process into motion. The merger is facing
opposition by some shareholders that are holding out for a better offer and
others who just want to kill the deal. Rite Aid (NYSE:RAD) shares fell 7
percent to $1.96.

You know, it is still tough to be a woman on Wall Street, but men
apparently don`t always notice. That is the finding of the first ever
joint gender gap survey by CNBC and LinkedIn (NYSE:LNKD).

Julia Boorstin joins us to discuss the result.

Julia, it`s good to see you here in New York.

We hear a lot about the gender gap on Wall Street. So, basically, what
were some of the details of the survey? Is it as dramatic as some people
perceive it to be?

there are a lot of rumors about people saying women have a hard time
breaking the glass ceiling. But one thing we really found is that women
see a lot of bias that men oftentimes don`t see. And, of course, there`s a
lot of talk about equal pay, and one thing that`s really interesting is
only 40 percent of women think they believe that men and women are paid

Whereas 75 percent of men say they think that men and women are paid
equally at their companies. So, big discrepancy in how people perceive
just that issue of pay.

HERERA: Now, the promotion issue has been historically a big one on Wall
Street. What did the survey tell us about whether or not men and women in
finance see this issue the same way?

BOORSTIN: So, we asked the question of whether men and women, we asked
both of them, whether they think that men and women are promoted at an
equal rate. Less than half the women think that men and women, with the
same experience, are promoted in equal weight. But, wait, rates, but
again, about 3/4 of men say they see relatively equal promotions.

So, it`s interesting that about 1/4 of men don`t see equal promotions.
Even men see a promotion gap there the same way that roughly the same
percentage of men saw a pay gap there, but women see much bigger gap in
both pay and promotion than men do.

HERERA: That`s a surprising finding to me. But you`ve gone through all
the details of this survey. What was the biggest surprise to you? What
stood out?

BOORSTIN: You know, the thing that really struck me is we talk about
whether women are opting out, they`re taking themselves out of the game
because they`re not a fan of the culture or whatever it is. And it turns
out that almost no one said the reason we aren`t taking women to the
advanced to senior levels is because they are opting out of that process.

So, obviously, we are pulling people who are still in the process, who are
still working on Wall Street and so, there might be some bias there. But
the people who are in Wall Street see no reason than you can attribute to
the fact that women are opting out and to the reason they`re not.

The good news is that there are a lot of easy solutions to this problem,
good ways to close the gap which is changing corporate culture and little
things like making work life balance a little more flexible, allowing
people to work from home in different hours.

HERERA: I know. That`s big for both men and women.

BOORSTIN: Absolutely.

HERERA: Julia, great to see you.

BOORSTIN: Great to be here, Sue.

HERERA: Julia Boorstin for us tonight.

Coming up, switching gears. An avocado that stays ripe longer and the
science behind it could fight food waste.


HERERA: Here`s a look at what to watch for tomorrow. We get a look at
durable goods orders in May and Wall Street focuses on this number since it
is generally a leading indicator of industrial production and spending.

And with all of the talk of trade, tomorrow`s May trade deficit number will
be of interest, of course. With oil breaking 70 today, the markets will
likely focus on the weekly inventory report and that`s some of what to
watch for tomorrow.

J.M. Smucker (NYSE:SJM) is looking to innovate. The food company is
partnering with Rev One Ventures. It invests in startups and the move will
help Smucker`s find startups that can help out in areas like process and
supply technology.

And once a startup is hoping to tackle a big problem for retailers. It is
food waste. Food waste costs U.S. companies nearly $20 billion a year.

And as Aditi Roy tells us, this startup is trying to help out by upending
produce and is teaming up with a big retailer. She`s in Goleta,
California, for us tonight.


in this sprawling corporate office building near Santa Barbara, California,
are literally giving new life to produce. They work for Apeel Sciences, a
startup that produces a plant-based coating for produce that the company
says extends the shelf life of fruits and veggies by weeks and sometimes
even doubles it.

JAMES ROGERS, APEEL SCIENCES CEO: These lemons are now four month old.
These are untreated and then these are treated lemons.

ROY: James Rogers (NYSE:ROG) founded Apeel when he was still a PhD student
in material science at UC-Santa Barbara. Back then, he knew little about
polymer physics but little about produce.

ROGERS: I told my mom about this idea, she said, that sounds really nice,
sweetie, but you don`t know anything about fruits and vegetables.

ROY: But Rogers (NYSE:ROG) went ahead with this idea anyway and it proved
fruitful. Today, Apeel is backed by some of tech`s top investors,
including the Bill and Melinda Gates Foundation. And now, Apeel coated
avocados will be in select Costco (NASDAQ:COST) stores across the country.

Just the same with regular avocado?

ROGERS: That`s right. That`s right. It`s an avocado.

ROY: Rogers (NYSE:ROG) say retailers who use the products can dramatically
reduce supply chain costs by reducing food waste which one study says costs
U.S. retailers $18 billion a year.

ROGERS: At the store level, this is one of the biggest challenges that
most retailers face is the amount of shrink that they see on their shelves.

ROY: The coating is made of peel of fruits and vegetables. It starts out
as a powder but then mixes with water to become a solution into which
produce is dipped. Rogers (NYSE:ROG) says the coating strengthens the
existing peel of the produce, which helps it last longer in your

ROGERS: We`re slowing down the rate the clock is ticking.

ROY: But there are obstacles. While the FDA says Apeel`s invisible and
tasteless coating is generally recognized as safe, we talked to some
customers skeptical of biting into a piece of fruit dipped into a solution,
natural or not.

UNIDENTIFIED MALE: Well, I would prefer to pick up my apple from the tree.

ROY: Rogers (NYSE:ROG) answers those critics by urging them to take a bite
for themselves before making a decision.

ROGERS: We`re not thinking about this as only being a solution in one
small area of the world. We`re thinking big and other folks are with us.

ROY: The company says Apeel coated avocados will sell at the same price at
Costco (NASDAQ:COST) as regular avocadoes, because the retailer will be
picking up the cost of the product. Why? Apeel says by reducing food
waste costs, the companies they`re working with will still come out ahead.

For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, Goleta, California.


HERERA: And before we go, let`s take a look at the final numbers on Wall
Street for you. The Dow had an upside day. It rose 30 points. The Nasdaq
added 29, and S&P 500 was up about six.

And that will do it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
Thanks for joining us. Have a great evening and we`ll 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.

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply