Transcript: Nightly Business Report – July 18, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Peak earnings? Not yet.
Corporate America is reporting blowout quarterly results and that may bode
well for the rest of the year.

Super-sized setback? McDonald`s (NYSE:MCD) was dealt a blow that could
shake up the franchise business model as we know it.

Retirement revamp. Why lawmakers are considering making changes to your
401(k).

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this
Wednesday, July 18th.

And we do bid you good evening, everybody. Sue is off again tonight.

We begin with earnings and late-day results from IBM. Big Blue reported
better than expected profit and revenue helped by growth in the higher
margin businesses like cybersecurity and cloud computing. That pleased
investors who are eager to see this company`s investments and other areas
pay off as IBM moves away from its legacy hardware and software units.

The company earned $3.08 a share. That was 4 cents better than
expectations. Revenue that has risen for three consecutive quarters was up
4 percent to $20 billion. And investors did initially like the results.
They sent the stock higher in the after-hours trading.

Fellow Dow component American Express (NYSE:EXPR) (NYSE:AXP) also reported
better than expected profit tonight and it rose more than 20 percent. The
company says that a strengthening economy prompted people to spend more,
but revenue wasn`t up as much as investors had hoped even though American
Express (NYSE:EXPR) (NYSE:AXP) did raise its revenue forecast for the whole
year. That stock fell in initial after-hours trading tonight.

Well, it is still early in this earnings season, but a number of positive
trends are already emerging and Bob Pisani tells us what they are tonight.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Peak earnings? Well,
not yet. With 10 percent of companies in the S&P 500 reporting as of this
morning, it looks like another above-trend quarters in the works, almost 50
companies in the S&P 500 have reported and the numbers are well above
expectations. Earnings up above 25 percent, revenues up about 10 percent.
That`s well above what was expected, almost 90 percent are beating
expectations and many have been beating by wide margins.

Textron (NYSE:TXT) beat by 25 percent. W.W. Grainger (NYSE:GWW) beat by 17
percent. Morgan Stanley (NYSE:MS) beat by 13 percent. Those are wide
beats.

More importantly, guidance has been strong. Textron (NYSE:TXT), CSX
(NYSE:CSX), United Airlines, W.W. Grainger (NYSE:GWW), all guided higher in
the last 24 hours on earnings or revenues. That means earnings
expectations remain strong for the third and the fourth quarter.

Now, if this keeps up, we`ll have a shot at passing our first quarter
earnings growth record of 26 percent. Now, what does it all mean? Well,
these are very early results and it`s clear the beats go beyond just tax
cuts. There`s been emphasis on the growing global economy. Revenues are
up and not just because of cost-cutting. Companies are buying back stock.
They`re generally raising dividends and guidance has remained roughly
intact or higher.

So the bottom line is this, we may be approaching peak earnings growth some
time this year, but we`re not hitting peak earnings. That will continue
into 2019.

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

(END VIDEOTAPE)

GRIFFETH: Well, as for the whole market today, the Dow extended its win
streak to five straight sessions as investors continue to focus on
corporate earnings. The Dow rose 79 points, today, the Nasdaq fell a
fraction, so that took it out of record territory, the S&P added six.

And as you know, policy out of Washington has been playing a key role in
this market. That was the major theme at CNBC`s Delivering Alpha
Conference in New York City. It`s an annual gathering in some of the
biggest names in investing.

Tyler Mathisen was there. He filed this report.

(BEGIN VIDEOTAPE)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Trade was the top
topic today at today`s Delivering Alpha Conference and it began with the
president`s chief economic adviser and unapologetic free trader Larry
Kudlow saying he has no quarrel with the president`s approach on China.

LARRY KUDLOW, NATIONAL ECONOMIC COUNCIL DIRECTOR: I have been a long time
critic of China and it`s all a matter of public record, on the tape, and I
think the president is doing exactly the right thing here. This should
have been done years ago. A, the world trading system is broken. The
World Trade Organization is broken. We just had this discussion at the G-
7. B, the biggest culprit is China.

MATHISEN: And as for any hope that there might be a breakthrough on China,
Kudlow said that while he believes the Chinese do want a deal on trade that
the president of China, Xi, doesn`t and that they are waiting for him to
move. Kudlow struck a much more hopeful tone with respected negotiations
with Mexico over trade and NAFTA, and with respect to possible trade
breakthroughs with Europe.

He said he expects that an emissary of the European Union may indeed come
to Washington with a significant proposal on trade.

Top investors Ken Griffin had a similar view on trades far as the
president`s mission was concerned but a more nuanced view on some of the
tactics being employed.

KEN GRIFFIN, CITADEL FOUNDER & CEO: The president unquestionably has the
right mission. Over the years, we generally left the table with the deal
inferior to the trading counterparties and we need address that. We`ve got
an open battle with many of our allies on many fronts. To me, it strikes
me as an incredibly complicated set of negotiating tactics.

MATHISEN: Griffin for his part believes that a prolonged trade dispute
would be a real impediment to global growth but he sees no real impediments
to growth other than that over the next six to nine months. In fact, he,
like Larry Kudlow, sees 3 percent to 4 percent growth, may be even more
over the next couple of quarters.

As for the market, investor Howard Marks of Oak Tree Capital says he sees
us in a late cycle posture.

HOWARD MARKS, OAKTREE CAPITAL CO-CHAIRMAN: When you get to this point in
the cycle people start pushing out their horizon, you know? When it`s been
going on for five years, they say, well, I think we can make it three more.
When it`s going for 10 years, they think I could make it five more, which
is counterintuitive.

And people are doing that now, that shows optimism and it`s somewhat
dangerous.

MATHISEN: That late-cycle posture according to Marks can be dangerous as
people put money in at the top. He describes his firm as a cautious firm
that is exceptionally cautious now.

From Delivering Alpha, I`m Tyler Mathisen.

(END VIDEOTAPE)

GRIFFETH: Now to the economy and a rocky start to the summer for the
housing market. Housing starts which measure the beginning of the
construction process declined more than 12 percent in June from the prior
month. Economists say that the drop could be due to rising material costs
and that shortage of construction workers that we`ve been hearing about.

And despite that decline, the residential real estate market is still
growing in most districts, according to the Federal Reserve`s cross-country
economic survey. Overall, the latest beige book which was released this
afternoon said that economic growth was modest and it pointed to rising
crisis and wages as the labor market continues to tighten.

The big concern for business involves trade policy. Some manufacturers and
construction firms say the tariffs have led to higher prices and supply
chain disruptions.

Well, Fed Chairman Jerome Powell told lawmakers today that it is still too
soon to tell if tariffs will affect the central bank`s planned course of
interest rate hikes, but during his second day of congressional testimony,
he did say the potential impact of trade disputes is being monitored.

(BEGIN VIDEO CLIP)

JEROME POWELL, FEDERAL RESERVE CHAIRMAN: We hear from our extensive
network of business contacts, a rising chorus of concern. As you pointed
out, lots and lots of individual companies have been harmed by this. We
don`t see it in the aggregate numbers yet because it`s a $20 trillion
economy and these things take time to show up, but we hear many, many
stories of companies that are concerned in our — and now beginning to make
investment decisions or not make them because of this.

(END VIDEO CLIP)

GRIFFETH: Mr. Powell also commented on cryptocurrencies. He says that
they are not big enough to pose a threat to the economy and that the Fed is
not looking to regulate them, at least not yet.

Also on Capitol Hill, a bipartisan group of senators has drafted a number
of proposed measures that could make it easier for small businesses to
offer employees 401(k) plans.

So, what do these proposals look like and could this be an effective way to
get more Americans to save more?

Joining us to talk about that tonight, Cristina Martin Firvida is AARP`s
director of financial security and consumer affairs.

Thanks for joining us tonight.

CRISTINA MARTIN FIRVIDA, AARP FINANCIAL SECURITY & CONSUMER AFFAIRS
DIRECTOR: Thank you, Bill.

GRIFFETH: One part of this proposal are these multiemployer plans where
groups of small businesses can pull their employee resources to offer a
retirement plan at lower costs? How many employees do you think that would
affect?

FIRVIDA: Well, currently, half of all American workers have no access to a
retirement savings plan at work, and that`s very troubling because you`re
15 times more likely to save for your retirement if you can do that through
a plan, a savings plan that takes money straight out of your paycheck
through your job.

GRIFFETH: So are we talking about thousands of employees that don`t have
access now or, you know —

FIRVIDA: We`re talking about millions — we`re talking about millions of
employees and most of those employees, 32 million of the employees who lack
access to a savings plan at work are employed by small businesses.

GRIFFETH: Right. And it`s been too expensive in many cases for them to
put this kind of a plan together.

FIRVIDA: That`s right.

GRIFFETH: Now, another part of this is a little more controversial. It
would allow annuities to be a part of 401(k) plans and there`s a fear that
those can carry high fees and there`s always the risk of an insurance
company going under at the same time, right?

FIRVIDA: So, the big idea here is that it`s been very difficult for people
who are saving in a 401(k) plan to find an easy way to generate reliable,
lifetime income, a monthly check. And so, the plan to encourage more plan
sponsors and 401(k) savings plans to offer an annuity is a good one if the
choice of annuity offered is a prudent one. It is important to note, as
you said, an annuity is not for everyone. You have to look at the fees
very closely. They`re all structured very differently, but it`s good to
encourage 401(k) plans to include more annuities in their offerings.

GRIFFETH: By the way, another part of this plan is it would require 401(k)
plan administrators to tell employees how much income they would get
monthly from their current 401(k) plan. That would be pretty helpful,
wasn`t it?

FIRVIDA: That would be very helpful. Again, it`s very difficult for you
to know what the amount that you have saved will really look like when you
retire in terms of a monthly income stream. So, we think it would be
advantageous to have that reporting happen.

GRIFFETH: Well, they`re going to talk about that this fall as they talk
about tax legislation as well. We`ll see how it fares.

Cristina Martin Firvida with AARP, again, thanks for joining us tonight.

And later in the program, we`ll be looking at some of the myths surrounding
Social Security benefits. I know you want to stay tuned for that.

In the meantime, it`s time to take a look at some of today`s upgrades and
downgrades. We start with shares which were upgraded to neutral from
outperform at Macquarie. The analyst there says that product improvements
will fail to attract new users. Price target now $42. That stock fell
another 3 percent today to $43.34.

Meanwhile, shares of Clorox (NYSE:CLX) were downgraded to sell from neutral
at Goldman Sachs (NYSE:GS). The analyst cited the potential for lower
gross margins and renewed currency headwinds. The price target: $112.
That stock fell 4 percent to $129.53.

CSX (NYSE:CSX) was upgraded to buy from hold at Loop Capital Markets. The
analyst cited improvements in the railroad operations. CSX (NYSE:CSX)
easily topped earnings estimates as we reported for you yesterday. The
price target now is $78. That stock rose by 7 percent today to $69 even.

Still ahead, Intel (NASDAQ:INTC) marks half a century as a dominant
technology company and the anniversary comes at a critical juncture.

(MUSIC)

GRIFFETH: Believe it or not? Intel (NASDAQ:INTC) Corp is turning 50, but
the anniversary comes during a complicated time for the nation`s biggest
semiconductor company.

Josh Lipton explains for us tonight.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Intel (NASDAQ:INTC) is
a powerhouse in the markets for PC and server chips, and the company
expects to set a new revenue record in 2018, though the stock has lagged in
recent months.

In part, analysts say that`s because Intel (NASDAQ:INTC) investors are now
struggling with a big question, namely who is going to lead this company?

Last month, Intel (NASDAQ:INTC) announced the resignation of CEO Brian
Krzanich. He violated company policy by having a relationship with a co-
worker, bringing his five-year tenure as CEO to an abrupt end.

Now, the search is on for his replacement. RBC says there are a number of
candidates. Internally, there are two to watch who already have major
roles at the company.

Murthy Renduchintala, group president and chief engineering officer, he
came to Intel (NASDAQ:INTC) from Qualcomm (NASDAQ:QCOM) just a few years
ago, and Navin Shenoy, general manager of the company`s critical data
center group.

Externally, says RBC, Sanjay Jha is a possible contender. He`s the former
and CEO of Global Foundries.

There are also a number of former Intel (NASDAQ:INTC) execs who well
understand the company and its culture. Like Stacy Smith, the company`s
former president of manufacturing. Renee James, now CEO of Ampere, Diane
Bryant, former COO at Google (NASDAQ:GOOG) Cloud, and Pat Gelsinger,
VMware`s chief. Though Gelsinger tweeted: I love being CEO of VMware and
not going anywhere else.

The next CEO, whoever that might be, will have to deal with some real
complex challenges like manufacturing issues that the company is having
with its next generation processors that promise better performance with
lower power usage. There`s also increasing competition from rivals like
Nvidia which is trading specialized chips for new hot areas like artificial
intelligence.

If Intel (NASDAQ:INTC) can address those manufacturing challenges while
maintaining its dominant position in PC and server chips and diversifying
into potential growth areas like artificial intelligence and autonomous
cars, investors may cheer whomever is in the corner office.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, Santa Clara, California.

(END VIDEOTAPE)

GRIFFETH: Meanwhile, fellow Dow component McDonald`s (NYSE:MCD) was dealt
a setback last night when a labor board judge rejected the company`s
proposed settlement in a case that could have major implications for
nothing less than the American franchise business model. In response, the
stocks fell more than 1 percent today.

Kate Rogers (NYSE:ROG) has details now on this case.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The question at hand,
is McDonald`s (NYSE:MCD) viable for labor violations at its franchise
locations? If that`s the case, McDonald`s (NYSE:MCD) would be considered a
joint employer with its franchisees. If it`s a joint employer, that also
means the fast food giant would have to bargain with workers who form
unions.

The case began in 2012 after workers claimed they were retaliated against
for participating in a union and in campaigns for higher wages, like the
Fight for 15 Movement. In a statement, McDonald`s said it was disappointed
at the judge`s action, adding the NLRB, general counsel, McDonald`s
(NYSE:MCD) USA and various franchisees negotiated a settlement that is
fair, reasonable and provides the opportunity now for full and complete
relief for all current and former franchisee employees affected by the
litigation.

As we have maintained throughout this process, McDonald`s (NYSE:MCD) USA is
not and has never been a joint employer with its franchisees. For now,
McDonald`s (NYSE:MCD) and its franchisees are evaluating all options
including a potential appeal of the decision. Labor advocacy group Fight
for 15 said in a statement, this proposed settlement was nothing more than
a sham hammered out between McDonald`s (NYSE:MCD) and the Trump
administration in an effort to hand out the company a get-out-of-jail-free
card for illegally harassing, surveilling and firing minimum wage workers
who joined together and spoke out for a better life.

Uncertainty surrounding the joint employer standards is to negatively
impact the franchising industry.

ROBERT CRESANTI, INTERNATIONAL FRANCHISE ASSOCIATOIN PRESIDENT AND CEO:
It`s really quite terrible for our membership because most of the brands
that are out there and the small owners and operators don`t have the
resources of the large franchise system, so the confusion that`s been
created about a very simple question like who is your employer is causing
enormous pressure on people`s growth and getting into the franchise sector,
opening new businesses and hiring new employees.

ROGERS: Last year, the House of Representatives approved a measure that
provided a joint definition of employer. The Senate has yet to take action
on the bill.

For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

GRIFFETH: Novartis says it will not raise drug prices this year and that`s
where we begin tonight`s “Market Focus”.

Novartis is taking a page from Pfizer`s playbook by saying it will not
raise costs in 2018 following criticism from President Trump. Also,
Novartis said strong demand for two key drugs helped revenues and earnings
this quarter top expectations and it expects to meet the high end of its
yearly sales outlook. Novartis shares climbed nearly 3 percent today to
$80.96.

Abbott Labs raised its full-year earnings forecast after top quarterly
expectations. The medical device maker said that there was strength across
its businesses and noted that its medical devices unit saw considerable
growth thanks to a newly launched glucose monitor. Shares rose 3 percent
as well today to $64.75.

Morgan Stanley (NYSE:MS) beat expectations as revenue climbed higher in the
bank`s trading, investment banking and wealth management businesses.
Morgan also raised its quarterly dividend to 30 cents a share and launched
a nearly $5 billion share buyback program. Shares rose nearly 3 percent to
$50.56.

After the bell, eBay (NASDAQ:EBAY) beat on earnings but missed on sales,
even as it added more active buyers. The e-commerce platform also gave
revenue guidance for the current quarter and for the year. That was a
little bit light. Shares of eBay (NASDAQ:EBAY) fell initially in the after
hours, but finished the regular session up a fraction at $37.95.

Bargain hunters rejoice. By one estimate, there were more than 150
retailers offering deals over the past day or so to compete with Amazon`s
Prime Day. Target (NYSE:TGT) said yesterday it was its biggest online day
of the year so far for sales and traffic. As for Amazon (NASDAQ:AMZN)
itself, by its own estimate, Prime Day ended up being its biggest shopping
event ever.

Courtney Reagan has the details.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Even though Amazon
(NASDAQ:AMZN) Prime Day was plagued with glitches, preventing some U.S.
Prime members from shopping for at least the first seven hours, it was
still a record breaking day. Amazon (NASDAQ:AMZN) says Prime Day and a
half was the biggest global shopping event in its history, beating out
Cyber Monday, Black Friday and last Prime Day when comparing 36-hour
periods.

While comparisons are tough, here`s what Amazon (NASDAQ:AMZN) said: Prime
members bought more than 100 million item, a record and global sales by
small and medium-sized businesses on its site passed $1 billion. More
members joined Prime on the first day of the event than any previous day in
Amazon (NASDAQ:AMZN) history. Most retail experts agree, adding Prime
members is a true goal of the event.

While there are 100 million globally, analysts say there are still further
to go.

DANA TELSEY, TELSEY ADVISORY GROUP CEO: I don`t think there is a ceiling.
We had people in our office yesterday who weren`t Prime members all of a
sudden signing up. I think they`re still a long way to go. I think they
gave it away a lot of it and I don`t think they made a lot of money, but
they certainly drew traffic in.

REAGAN: It was the biggest day ever for Amazon`s own Echo devices, Fire TV
Stick and Ring Video Doorbell, top-selling non-Amazon (NASDAQ:AMZN)
products, the Instapot and 23 and Me DNA tests. Organic strawberries are
the best-selling deals at Whole Foods.

But some shoppers were frustrated with both the deals and the Website
glitches. We talked to shoppers that couldn`t search, checkout or even
access the Website or app.

UNIDENTIFIED FEMALE: I couldn`t get through. I got this lovely job which
I just never had time to go for each and I tried a couple of times and it
never worked.

UNIDENTIFIED FEMALE: It`s just unfortunate that I couldn`t get the good
deals that they`re promoting so heavily.

UNIDENTIFIED FEMALE: I was trying to get a lot of it. I got two kids. I
was trying to get diapers and all baby stuff, to be honest with you.

UNIDENTIFIED MALE: I`m an Amazon (NASDAQ:AMZN) investor. I do a lot of
shopping on Amazon (NASDAQ:AMZN), and it frightens me that the company with
the magnitude that Amazon (NASDAQ:AMZN) has would have glitches like this
in their biggest days of the year.

REAGAN: While many shoppers were frustrated with the glitches, very few
said they would cancel the Prime membership as a result. Some hoping
Amazon (NASDAQ:AMZN) will find a way to make it up for them.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GRIFFETH: By the way, for those of you keeping score, Amazon (NASDAQ:AMZN)
shares while they closed lower today for a time, they were higher. Midday,
Amazon`s market value reached $900 billion before pulling back.

So, we decided to take a look at where the race to $1 trillion stands right
now. Apple`s still in the lead. Its market cap is about $935 billion.
Amazon (NASDAQ:AMZN) stands at number two, followed by Alphabet.

Coming up, your financial future, common myths about Social Security that
could make or break your retirement.

(MUSIC)

GRIFFETH: Google (NASDAQ:GOOG) has been fined $5 billion by the European
Commission. It`s one of the steepest penalties ever made against an
American technology company. Regulators say that Google (NASDAQ:GOOG)
unfairly pushed its apps on to smartphone users and abused its dominant
market position.

(BEGIN VIDEO CLIP)

MARGRTHE VESTAGER, E.U. COMPETITION COMMISSIONER: This is an ongoing
abuse. This is very serious. It affects so many devices and, of course,
it`s a big company. So, you see the turnover that comes in. Well, this is
the thing that makes this a very hard find.

The thing that Google (NASDAQ:GOOG) has to do now is, of course, to stop.
It has to stop this behavior. It has 90 days to put an effective end to
this infringement and this, of course, will free up the market.

(END VIDEO CLIP)

GRIFFETH: If Google (NASDAQ:GOOG) does not comply with the 90 days, it
faces penalties of up to 5 percent of the worldwide average daily revenue
of its parent company Alphabet. It`s a lot of money.

Many Americans do worry about retirement and Social Security, that one in
four workers plan to rely on those benefits as their primary source of
income in their later years. Still, there are a lot of misconceptions
about how Social Security works and when you should take it.

Our senior personal finance correspondent Sharon Epperson joins us now to
dispel some of the common myths that are out there.

It`s a conversation you and I have all the time here.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes.

GRIFFETH: One question, one myth, one issue that comes up — some people
believe that it`s better to take it earlier. Take it when you can. It`s
your money, right?

EPPERSON: Well, a lot of people actually do that. About a third of people
actually get their Social Security benefits as soon as they can, and the
earliest age that you can get it is 62, but what they may not understand,
is that benefit is going to be reduced from the benefit that you could get
at your full retirement age, your full retirement benefit and more than
half your workers actually wait until — don`t wait and take it before
their full retirement age.

So, again, they`re getting that reduced amount. It`s not best to claim
those benefits early. It`s best to get them at the full retirement age,
which could be 67 for many people, and then wait even longer if you can to
70 to get an even increase in your annual benefit.

GRIFFETH: They are lathering the age of which you do get full benefits. I
mean, originally, we know it was 65 years old when it was originally set up
back in the 1930s. Is there an ideal age, though, to claim your benefits?

EPPERSON: Well, a lot of folks still think the ideal age is 65 because
that is the age that you need to claim your Medicare coverage, but you need
to figure that out. But it is not the ideal age for Social Security.
Again, you want to find out from the Social Security Administration when
your full retirement age to get your full benefit. And if you want an 8
percent increase every year that you wait until age 70, then you want to
wait until age 70 if you can.

GRIFFETH: Quickly, does it matter if you`re married or not?

EPPERSON: It matters in terms of your survivor benefit, so you want to
make sure that you wait if you have a higher earning spouse so that they
can get the highest benefit. And if you`re divorced, also think about the
fact that if you`re married 10 years, you can get your ex`s benefits.

GRIFFETH: There you are. Sharon Epperson, always good to see you. Thank
you for joining us.

EPPERSON: Good to be here.

GRIFFETH: That is NIGHTLY BUSINESS REPORT for tonight. We thank you for
joining us. I`m Bill Griffeth. Have a great evening. See you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. 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