Transcript: Nightly Business Report – July 25, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: New phase. The White House
and the European Union avert a transatlantic trade war, easing an
escalation of tensions as investors watch closely.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Pricing pressure. Some of
the world`s biggest companies are seeing their costs rise and they are
citing tariffs.

HERERA: Facebook (NASDAQ:FB) face plant. Revenue growth slows and now the
question is whether a series of recent controversies are taking a toll.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,
July 25th.

GRIFFETH: And we bid you good evening, everybody, and welcome.

There was a reversal of fortune on Wall Street today. Stocks started this
day lower on concerns about tariffs and the higher costs that they can
cause, but the markets ended the day sharply higher on late word of a
potential change in trade relations between the U.S. and the European
Union, following a meeting this afternoon at the White House.

The Dow rose 172 points after falling more than 100 points earlier in the
session. The Nasdaq gained 91 and that closed at a record and the S&P 500
added 25.

Kayla Tausche has more on the trade developments from the White House
tonight — Kayla.

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Bill, two months
into an escalating trade fight and after more than two hours behind closed
door, the leaders of the United States and the European Commission emerged
to announce a suspension of the tit-for-tat moves that have been escalating
relations between the two, and because of a new deal.

Here`s President Trump.

(BEGIN VIDEO CLIP)

DONALD TRUMP, PRESIDENT OF THE UNITED STATES: We also will resolve the
steel and aluminum tariff issues and we will resolve retaliatory tariffs.
We have some tariffs that are retaliatory and that will get resolved as
part of what we`re doing.

(END VIDEO CLIP)

TAUSCHE: So, those economic weapons will be laid down. The European
Commission said that as long as negotiations continue in good faith and no
new action will be put in place.

(BEGIN VIDEO CLIP)

JEAN-CLAUDE JUNCKER, EUROPEAN COMMISSION PRESIDENT: As long as there is
safety, unless one party would stop with the negotiations, we will hold off
further tariffs and re-assess the existing tariffs on steel and aluminum.

(END VIDEO CLIP)

TAUSCHE: So, what does this deal look like? Well, the European Union will
work toward buying more soybeans, buying more U.S. natural gas. They`re
going to try to streamline regulation in the medical industry for one and
both nations will be working toward lowering tariffs on non-auto industrial
goods, though we should note, a grain of salt, a spokesperson for the
European commission says no concessions were made and talks are ongoing.

You`ll remember the U.S. and China reached a similar truce back in May,
that lasted about three weeks before the administration revisited tariffs
on China and that situation is moving forward. We`ll see how the situation
with Europe pans out.

Back to you.

GRIFFETH: Kayla, you said non-auto tariffs. What about those auto
tariffs? We know that one of the focuses of President Juncker coming to
the White House today was to try and head off the threatened higher tariffs
that President Trump had talked about.

So, where do we stand on autos right now?

TAUSCHE: Well, it would seem that because of those comments that so long
as negotiations and talks continue that there will be no new tariffs put in
place, that would seem to suggest that the U.S. had agreed to Europe to not
put any new tariffs on autos in place, but by not committing to lower
tariffs on existing automobile imports and exports, that means that the
U.S. doesn`t have to reduce its tariffs, that it places on light trucks
that come into the U.S. and similarly, the E.U. doesn`t have to lower its
tariffs that the president criticized on cars going over to Europe.

GRIFFETH: Kayla Tausche at the White House for us tonight — thanks,
Kayla.

HERERA: As we mentioned, for most of the day, investors were focused on
tariffs and rising commodity and materials prices, and that was a big issue
for General Motors (NYSE:GM) and Fiat Chrysler in the most recent quarter.
Both stocks shifted into reverse in today`s trading session as they tried
to steer their way down a bumpy road.

Phil LeBeau has the details.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: The auto industry is
hitting a rough patch. The problem? Growing trade tensions are pushing up
costs. That prompted General Motors (NYSE:GM) to lower how much it plans
to earn this year.

CHUCK STEVENS, GENERAL MOTORS CFO: We have seen an escalation of commodity
prices across the spectrum of commodities including steel and aluminum that
has been driven by market forces.

LEBEAU: Those forces are also weighing on Fiat Chrysler which cut how much
revenue it plans to generate in 2018. For FCA, one concern is the impact
of tariffs in China.

Investors don`t seem to care that there`s been no drop in demand for new
cars and trucks. Instead, they`re focused on tariffs pushing up the total
price of a vehicle or how much automakers pay for raw materials like steel
and aluminum. And while GM says it expects higher costs to continue the
rest of this year, analysts believe today`s warning may be as bad as it
gets.

COLIN LANGAN, UBS AUTO ANALYST: I think this is a good move on their part
to set a very high price to set the bar here and not hoping that things
come down as many people might expect by the end of the year. It`s
possible that steel prices may actually soften a bit. That would just give
them the upside.

LEBEAU: The auto industry may get some relief for Congress. There are now
two measures proposing to limit the president`s ability to institute higher
auto tariffs. This as President Trump considers instituting a 25 percent
tariff on imported vehicles.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

GRIFFETH: And like other domestic automaker, Ford is contending with high
costs associated with those tariffs on steel and aluminum. The company
reported a decline in earnings of almost 50 percent and the company lowered
its 2018 earnings projection, citing among other things a disruption in
production of its popular F-150 pickup and weak sales in China, and that
sent shares of Ford lower in initial after-hours trading tonight.

HERERA: Higher costs are also being felt over at Boeing (NYSE:BA).
Despite posting better than expected earnings, the company`s full-year
earnings forecast missed estimates. The plane maker also cut its
projections for its key defense business. Boeing (NYSE:BA) which calls
itself the single largest exporter to China saw its shares fall in trading
today.

GRIFFETH: And you can add fellow Dow component Coke to the list of
companies seeing rising cost pressures because of steel and aluminum
tariffs. The company today said that that`s translating into higher prices
on its carbonated sodas in North America.

(BEGIN VIDEO CLIP)

JAMES QUINCEY, COCA-COLA CEO: The general cost inputs, the tariffs on the
metals, it`s one of many factors that caused us to go out in the middle of
the year with our borrowing partners and announced a price increase, which
is pretty unusual, but it was the right thing to do for the business for
the long term. We`re not a primary, direct impact from some of these
tariffs, but, of course, it flows through our supply chain in all sorts of
different ways and ultimately, that will have to pass through.

(END VIDEO CLIP)

GRIFFETH: In its most recent quarter, Coke reported better than expected
earnings and revenue thanks to rising demand for its new Diet Coke drinks
and that helped shares gain more than 1.5 percent today.

HERERA: So let`s turn to Mohamed El-Erian to discuss what we learned today
from all of those latest earnings reports that you just heard about it, and
also the fresh round of talks on trade out of Washington. He is the chief
economic adviser at Allianz.

Welcome, nice to see you as always, Muhammad.

MOHAMED EL-ERIAN, ALLIANZ CHIEF ECONOMIC ADVISER: Thank you, Sue.

HERERA: It`s hard to know where to start because there was so much news
today between the earnings, but also the late developments on trade, so let
me start there.

You have penned several pieces about the different scenarios for trade, one
of which you call a positive risk scenario, and something that goes beyond
a still free but fairer trade system. Did we start to see the seeds of
that this afternoon?

EL-ERIAN: We did. It`s still early days, but we did because we heard
about zero tariffs. We heard about reforming the WTO, which anchors the
rules-based system, and there was a positive risk scenario out there which
is that at the end of all of this tit-for-tat, on the tariff side, you end
up with a trade system that is structurally stronger.

It is not the baseline. I think the baseline is still the free trade that
we know, but a little bit fairer with a few tweaks. But it`s important to
recognize that there is a left tail, a bad risk of a full blown trade war
and there`s also a right tail, and I think markets are starting to
appreciate that.

GRIFFETH: But I am struck, Mohamed, that on the very day that we hear from
some of the big companies about the higher costs associated with these
aluminum and steel tariffs, the Boeings, and the General Motors (NYSE:GM),
the Coca-Colas, now, suddenly we are opening these negotiations with the
E.U. on those very tariffs. What`s an investor to do with this new
information?

EL-ERIAN: So, an investor is to be reminded of two things. One is that
the reason why economists are nervous about tariffs is because they are
stagflationary. The first part is the inflation part. Costs go up and
companies then pass on the higher cost into prices and normally do a little
bit more because they have the excuse to raise prices, and then demand
comes down, so you get the stagflation process.

And today was a reminder that phase one, and to some extent phase two, have
been triggered. But we got a second reminder which is that there was a
difference between the journey and the destination. The journey was always
going to be bumpy because of the risk of escalation, there`s a risk of a
mistake, there`s a risk of an accident.

But the big issue for the marketplace is the destination, to see through
the journey. And I think that today we improved the probability of a
better destination.

HERERA: Speaking of better earnings, let me turn you to earnings before we
have to let you go and a number of the earnings reports that we have gotten
have been pretty good. The economy seems to be firing on all cylinders,
certainly.

EL-ERIAN: It is. And the U.S. economy will continue to outpace others,
and you will hear me say on and on that America will outperform. But what
you also saw today is that there are international headwinds, that the
global economy as a whole is getting trickier and that the U.S. will
continue to register strong growth, but people have to also pay attention
that the neighborhood is getting weaker.

HERERA: Mohamed, thank you so much for spending time with us.

Mohamed El-Erian with Allianz.

Bill?

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

We begin tonight with Walmart shares which were downgraded to hold from
accumulate at Gordon Haskett. The analyst there cited margin outlook
uncertainty and he expects shares to be range bound for a while. Price
target: $92. Shares of the Dow component fell a fraction to $87.90.

And that same analyst at Gordon Haskett upgraded Target (NYSE:TGT) to
accumulate from hold. The analyst cited a recent acceleration in store
traffic at that retailer. The price target now: $86. That stock rose a
fraction to $79.99.

HERERA: Lockheed Martin (NYSE:LMT) was upgraded to outperform, from market
perform over at Cowen. The analyst cites the company`s improving growth
outlook and above average cash flow. The price target is $370. The shares
rose to $324.36.

Spotify was downgraded to hold from buy at Pivotal. The analyst cites
valuation given the stock`s recent run-up. The price target is $200. The
stock was up 18 cents to $187.99.

GRIFFETH: Still ahead, new hope. Biogen`s experimental Alzheimer`s drug
shows some promise, but experts say the latest study paints an unclear
picture.

(MUSIC)

GRIFFETH: Yet another weak reading on the housing market. A report out
this morning said that sales of new homes in June fell more than expected
to an eight-month low. The numbers for May were revised lower and that
pressured shares of homebuilders in today`s session. But the decline in
sales was not due to weak demand, and that`s what makes this housing market
so peculiar.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stephen Paul of
MidAtlantic Builders is still putting up homes in suburban Maryland, but he
admits the market isn`t what it was just a few months ago.

STEPHEN PAUL, MIDATLANTIC BUILDERS EXECUTIVE V.P.: The temperature`s
lowering a little bit. It was peaking in March. Sales were very strong in
March. We set a lot of records and it`s steadily been dropping.

OLICK: Sales of newly built homes nationally dropped just over 5 percent
in June compared with May and mortgage applications to buy a newly built
home were considerably lower than June of last year. But this is not about
weak demand. It`s all about high costs.

First, rising interest rates. The average on the popular 30-year fixed
shot up to start the year and then kept moving higher. That and builders
are having to raise home prices to account for higher labor and material
costs.

Duties on Canadian lumber imposed late last year vastly increased its cost
and recent tariffs on steel and aluminum are only adding to that.

PAUL: Builders have to be very careful, and it`s a fragile situation with
raising prices just to recapture costs, but right now we`re in a position
where we have to raise prices to break even on those price changes. I am
very nervous about these price increases. I don`t know where it`s going to
end.

OLICK: Demand for housing is incredibly strong especially in closed-in
suburbs like this one, but much of that demand is coming from younger
buyers who can`t afford to pay premium prices and builders right now say
they can`t afford to pay anything, but premium homes.

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

(END VIDEOTAPE)

HERERA: Facebook (NASDAQ:FB) shares hit a record during the trading day,
but the stock turned lower after the company reported a disappointing
quarter, despite reporting better than expected earnings of $1.74 a share.
Revenue of 13 billion was weaker than expected and investors, well, they
sent that stock lower by as much as 20 percent in initial after-hours
trading.

Julia Boorstin has more on Facebook`s results.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The big surprise in
Facebook`s earnings, the company fell just shy of expectations on revenue,
daily active users and monthly active users. This comes amid questions
about what kind of impact the Cambridge Analytica data scandal and new
European privacy regulations called GDPR are having on Facebook`s
advertiser and user numbers.

It looks like we`re seeing that impact in Europe in particular. The daily
active users in Europe dropped by 3 million from the prior quarter, the
first time European daily user numbers have declined. This surprising Wall
Street and investors had expected the company to continue to shrug off the
impact of the privacy scandal and regulations. Facebook (NASDAQ:FB) shares
had a new all-time intraday high before the company reported earnings.

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

(END VIDEOTAPE)

GRIFFETH: UPS delivers or investors and that`s where we begin tonight`s
very busy “Market Focus”.

The delivery giant`s profits and sales rose at a faster than expected clip
as international and e-commerce sales both took off. The company said it
is optimistic that it will hit the top of its guidance in the current
quarter as well, thanks to broad demand.

(BEGIN VIDEO CLIP)

RICHARD PERETZ, UPS CFO: The consumer continues to feel comfortable buying
online and increasing the sale of the consumer side. And then what we see
on the industrial side is we see things like healthcare, the industrial
side of retail, as well as some industrial manufacturing also increasing,
and that will maintain some of the strength that we started to see at the
beginning of this year.

(END VIDEO CLIP)

GRIFFETH: UPS shares climbed nearly 7 percent to $120.20.

After the bell, Visa (NYSE:V) set a rise translated to a better than
expected profit. Visa (NYSE:V) kept its revenue guidance for the year but
it said it expects earnings to come in even higher than initially thought.
Shares were volatile in the after-hours. They ended the regular session up
nearly 2 percent at $142.64.

Anthem`s decision to scale back its presence in its Affordable Care Act
market helped that insurer hold down patient medical costs this quarter.
The company said that the drop in expenses, along with higher premium rates
helped earnings rise and that topped expectations. And the shares rose a
fraction to $247.93.

HCA Healthcare treated more patients this quarter and that helped send
profits higher. The upbeat results prompted the hospital operator to raise
its full-year earnings outlook, as well. Shares climbed 9 percent today to
finish the day at $118.13.

Sue?

HERERA: Bill, Northrop Grumman (NYSE:NOC) said a recent acquisition and
stronger demand in the aerospace systems products helped revenue and
profits beat Wall Street expectations. The company also said it expects
sales for fighter jet parts to remain robust and as a result, it is raising
its earnings guidance for the year. But investors were hoping for an even
stronger outlook and they sent the shares down more than 6 percent to
$295.50.

After the bell, Mattel (NASDAQ:MAT) reported disappointing sales and said
it was cutting more than 2,000 jobs. The toymaker was reducing its global
workforce and planning to sell factories in Mexico as part of a cost-saving
initiatives. This quarter`s results were largely impacted however by
customers taking advantage of the liquidation sales held by Toys “R” Us.
The shares fell in after hours and also finished the regular session down 1
percent to $16.29.

Also after the bell, Mondelez reported a rise in sales driven by strength
across all markets. The maker of Oreo cookies also raised its quarterly
dividend 18 percent to 26 cents a share. Shares initially rose in the
extended session but finished down a fraction in the regular trading day to
$41.50.

And the drugmaker GlaxoSmithKline has struck — is taking a $300 million
stake in the genetics testing company 23 and Me to try and discover new
medicines. Glaxo said it hopes the collaboration will create more
effective research and development processes. Glaxo fell more than 1.5
percent to $40.52.

GRIFFETH: An experimental Alzheimer`s drug from Biogen and its Japanese
partner was shown today to slow the decline in a memory associated with
that disease and the results of the clinical trial were highly anticipated
because research in this area has been littered with failures in the last
few years.

And there are still concerns tonight. Shares of Biogen fell sharply in
initial after-hours trading after that report.

Meg Tirrell has more on the results here.

What are they showing? I mean, it sounded promising but the stock fell.
What happened?

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: That`s right, Bill.

Well, it`s important to remember that the stock had run up quite a bit into
these results and moreover, they were a little bit confusing, but on their
most basic level, the highest dose of this experimental Alzheimer`s drug
was shown to reduce the progression of Alzheimer`s by 30 percent compared
with placebo.

And on top of that, the drug was also shown to clear the amyloid plaques
from the brain that are associated with Alzheimer`s disease. Experts in
the field say this is very important. Those two things appear to be
linked, that removing those plaques perhaps had an effect on the disease
progression.

It`s important to note, though, that patients were still getting worse and
this is not improving the symptoms of Alzheimer`s, but it is slowing the
decline that lost the memory, and the ability to think clearly, guys.

HERERA: Might that be why the stock did fall in today`s trading session?
You did point out the big run-up that it had, but the lack of clarity on
those results may be hit the stock.

TIRRELL: Yes. Well, it was expected that it wasn`t going to improve the
symptoms of Alzheimer`s disease. We already knew that. We knew it was
just going to slow the progression.

What it looks like analysts are focusing on here in terms of the stocks
decline are a few things. While the highest dose appeared to work very
well, the lower doses didn`t appear to work quite as well. People like to
see a very balance response sort of through the doses in these clinical
trials.

There was also another measure of cognition in this trial that thinking
clearly in memory that didn`t meet statistical significance and people are
a little bit worried about that measure because it`s an important goal in
another study that Biogen is running.

GRIFFETH: Yes, I mean, let`s talk about that. I mean, the one you`re just
now talking about is we got this afternoon is for early onset Alzheimer`s,
but they have another study that they`re doing right now, another drug that
they`re working on on advanced Alzheimer`s.

What does that do to this?

TIRRELL: Well, so they do have a more advanced drug in clinical trials and
that`s just in the later stages of testing. So, it`s potentially closer to
market. Both of these drugs are being tested in early stage Alzheimer`s
patients, not necessarily early onset, those younger patients, but just
folks who are early in the stages of the disease.

But a lot of ducks — a lot of eggs are in the basket for Biogen for the
later drug. It`s called aducanumab. They`ve invested $2 billion in
running the clinical trial program. Some folks may say that because that
one measure didn`t meet statistical significance, that doesn`t bode well
for that trial. But others are saying that connection between clearing
your plagues and improvement in cognition is very important here.

GRIFFETH: As always, we just have to be patient and wait for the trials to
finish.

TIRRELL: That`s right.

GRIFFETH: Meg Tirrell, thanks as always.

TIRRELL: Thanks.

HERERA: And a legend in the auto business has died. Sergio Marchionne,
known for his bold decision making and that trademark black sweater, was
widely credited with turning Fiat and Chrysler around before combining
those two companies. Marchionne was suddenly forced to step down from his
dual role as CEO of Fiat Chrysler and Ferrera last weekend. The company
said he experienced unexpected complications from shoulder surgery that
left him gravely ill. Sergio Marchionne was 66 years old.

(MUSIC)

HERERA: It is officially hurricane season and some energy companies are
working hard to keep their customers from losing power. That is especially
true at Duke Energy (NYSE:DUK) and a special high-tech control room in
Charlotte, North Carolina.

Jackie DeAngelis is there for us.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Last year`s
hurricane season hit hard with severe power outages that lasted days and in
some cases weeks. With the season under way again, it`s no surprise that
utility companies are bracing for it, using technology to secure the power
grid to make it less vulnerable to Mother Nature.

Duke Energy (NYSE:DUK) is one, committing $25 billion in investment over
the next decade in the six states it serves to continue updating and
modernizing the electric power grid, 13 billion of that here in North
Carolina.

They call this the Star Wars Room, but what you`re seeing here isn`t
science fiction. It`s Duke`s Energy control center and it`s monitoring
energy transmission in real time.

What that means is power crises can be spotted and dealt with more quickly
using smart grid technology and in some cases, problems can be averted or
fixed remotely, or can even heal themselves.

In the case of Hurricane Matthew in 2016, outages that lasted six days
would now be cut in half because of control rooms like this.

JEFF BROOKS, DUKE ENERGY: With the click of a mouse you can restore power.
We have an intelligent smart-thinking grid that can actually anticipate
outages and re-route power to keep service on for customers.

DEANGELIS: And it`s not just hurricane, it`s cyber attack, too. Duke says
it`s not a matter of if, but when.

LYNN GOOD, DUKE ENERGY CEO: We talk about all of the new devices and
technologies that we can deploy. We actually have to think about that
within the context of cybersecurity because we can be increasing risk if
we`re not particularly vigilant, adding new digital devices to our systems.

DEANGELIS: But critics say rate hikes for consumers are estimated as high
as 17 percent and that the improvements that are being made like home
monitoring are not worth the cost. And that while the energy grid needs
upkeep, the efforts made to modernize it won`t offer consumers enough.

GOOD: We think these investments will deliver great value in the form of
reliability and in the form of more information, more options on energy
efficiency, more ability to add renewables to the system. So, finding that
equation that maintains the focus price, delivers value to customers but
also maintains a good investment for Duke Energy (NYSE:DUK) investors.
That`s the balance we`re always trying to achieve.

DEANGELIS: Companies across the U.S. including PG&E, Con Ed, they`re all
investing in the smart grid. Estimates suggest the global growth rate is 9
percent per year and likely to increase.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis, Charlotte, North
Carolina.

(END VIDEOTAPE)

GRIFFETH: Finally tonight, someone in California beat the odds. The lucky
winner of the mega millions jackpot worth more than half a billion dollars
purchased the ticket at Ernie`s Liquors in San Jose. And if that person
took the lump sum, he or she would be left with $308 million and even after
federal taxes, that`s still not too shabby.

HERERA: No. So, we didn`t win.

GRIFFETH: We would have taken it, yes.

HERERA: We would have come back to work, anyway.

GRIFFETH: We would have.

HERERA: That does it for us tonight. I`m Sue Herera. Thanks for joining
us.

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

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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