Transcript: Nightly Business Report – September 4, 2018

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Just do it. But investors
might think Nike (NYSE:NKE) just blew it by featuring a controversial
athlete in its new ad campaign.

Here come the bulls. Wall Street`s first outlook for 2019 is here and it
just might please investors.

Picking up speed. Auto dealers are busy especially if they`re selling
large SUVs and trucks.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
September 4th.

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

Stocks fell on the first day of September trading. We`ll have more on that
in a minute.

But we begin tonight with one of the biggest drags on the market today,
Nike (NYSE:NKE). The shares came under pressure after the sports apparel
company signed a multi-year deal with former NFL quarterback Colin
Kaepernick and make his face the next face of Nike`s 30th anniversary ad
campaign.

And what makes this unusual is the controversy surrounding Kaepernick who
took a knee during the national anthem before NFL games in 2016, and Nike`s
long-standing business relationship with the National Football League.
Shares of Nike (NYSE:NKE) were off more than 3 percent in trading today.

Sara Eisen has more.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Consumer companies
usually try hard to stay out of politics and controversy, but Nike
(NYSE:NKE) just firmly planted itself at the center of the culture wars.
Just days before the launch of football season, Nike (NYSE:NKE) included
Colin Kaepernick in its 30th anniversary campaign of “Just Do It”. His
face appearing on some West Coast billboards and across social media.

Sources say Nike (NYSE:NKE) doesn`t plan on having Colin Kaepernick`s
signature shoes as some are reporting but you very well could see clothing
product extensions of this ad.

The backlash was fierce. Boycott Nike (NYSE:NKE) hashtag was trending all
across social media and the stock took a hit.

But will it really impact Nike`s business? Speaking to folks inside the
company, I can tell you that the refresh of this “Just Do It” campaign is
aimed squarely at millennials.

Nike (NYSE:NKE) is trying to communicate what they think is an
inspirational message to a younger generation. That`s why it features
other fighters across sports like Lacey Baker, a skateboarder who has
broken through gender barriers. Shaquem Griffin, a linebacker who is also
an amputee. But clearly, including Kaepernick, became the only story
everyone was talking about.

Here are some business talks behind Nike`s calculation: two-thirds of
Nike`s wearers are under the age of 34 years old. Forty-five percent of
its consumers are under 25 years old and there`s proof that Colin
Kaepernick and his message are marketable. Last May, the NFL controversy
was flaring and despite the fact that Kaepernick wasn`t on a team, his
jersey within the top 20 sales of players according to NFL.com ahead of Cam
Newton and Adrian Peterson.

But no doubt in a polarized country, there is a risk here that Nike
(NYSE:NKE) is taking. Kaepernick is the face of the protests of the
national anthem that President Trump has railed against. Kaepernick is
also embroiled in a lawsuit against the NFL owners for collusion to keep
him out of the league. No comment from NFL on Nike`s move, but the company
did just fine a long-term deal with the NFL to outfit the NFL players on
the field through 2028.

So, it could complicate that relationship and make it a bit more awkward.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen in New York.

(END VIDEOTAPE)

HERERA: And the president is now weighing in. In an interview with a
conservative “Daily Caller”, the president said Nike (NYSE:NKE) was
sending, quote, a terrible message but he also said that the deal is what
this country is all about.

So, what happens when a company like Nike (NYSE:NKE) starts wading into
politics? Could the move have a long-lasting negative impact on the brand
or not?

Here to explore that is Dean Crutchfield. He is the brand and crisis
management expert with his own firm Dean Crutchfield Associates.

Welcome back, Dean. Always nice to see you.

DEAN CRUTCHFIELD, BRAND AND CRISIS MANAGEMENT EXPERT, DEAN CRUTCHFIELD
ASSOCIATES: Great to be here.

HERERA: So, weigh in on this. What do you make of Nike`s move?

CRUTCHFIELD: Well, Nike`s move has just earned it over $50 million of free
advertising today, so that`s a question. Is it smart marketing or a dumb
decision?

To me, this isn`t about getting involved in politics. This is getting
involved in a politically sensitive issue. They`re not saying they`re
Democrat. They`re not saying they`re Republican but they believe
Kaepernick is a major face to celebrate they`re just do a campaign.

So, is it is this a positive for Nike (NYSE:NKE)? I actually believe it
is.

HERERA: Longer term. But short term, expect some waves which we`re seeing
today.

CRUTCHFIELD: Short term, yes, exactly. I mean, even if you look —
millennials is the market they want, of course. They don`t want a 60-year-
old going to buy a pair of sneakers. They want a 16-year-old going to buy
a pair of sneakers. That`s clearly it.

But also when you look at some recent research, 38 percent of millennials
were against the kneeling of the NFL. So, it`s still a very sensitive
issue even with millennials. But here`s the thing, the younger generation
tend to be more open-minded, a bit more flexible and so, therefore, I think
Nike (NYSE:NKE) knows that its message can resonate across a broad spectrum
of the millennial appetite for this type of marketing.

HERERA: So, how do they handle the pushback? Do they say nothing? Do
they come out and you know double down on the campaign?

CRUTCHFIELD: Well, they double down. I mean, basically, you have to
communicate while you`re doing this you know and what`s the strategy behind
it, what`s your intent behind it and why you`re so confident that it`s
something that sits well with your brand. I think brands are all about
brand purpose and Nike (NYSE:NKE) clearly are saying we have a brand
purpose and these types of individuals exemplify what makes Nike (NYSE:NKE)
great.

So, I think at the end of the day there is some downside. There are going
to be people you know cutting up socks and burning shoes but what we`re
going to see over the next few days and maybe even the next few weeks as it
rolls out is a huge groundswell of support for the campaign and the reason
why Nike (NYSE:NKE) has done that campaign.

HERERA: And —

CRUTCHFIELD: But this is this is the test market, right? We`re in Q4,
Christmas is coming.

HERERA: Right.

CRUTCHFIELD: We`ll know, you know, why people voting with their feet.

HERERA: You know, this isn`t the first time that that Nike (NYSE:NKE) has
taken a risk. When Tiger Woods was mired in controversy, obviously not
political controversy, personal controversy, they backed him.

CRUTCHFIELD: Yes. Well, that`s — again, that`s Nike (NYSE:NKE) style.
It`s very much about, you know, its brand message, and I don`t want to go
on about brand but for Nike (NYSE:NKE), it is such a powerful, awesome
brand that we all love and know. So, to me, this is about brand building,
it`s about staying relevant in the market, it`s about staying valid in the
market.

And this is something that`s very relevant and it`s very valid for Nike
(NYSE:NKE) in terms of its standing in the marketplace.

HERERA: So, you — I would have to imagine that they, you know, research
this, did some critical research on what the impact might be, probably
expected a stock market reaction. So, what do you say to those who say
they should ditch the campaign and apologize?

CRUTCHFIELD: Well, I think that there`s no apology needed here. It`s —
again, it`s a politically sensitive issue. Even Trump himself has actually
backed that up that this is our country, we have freedom of speech and
that`s really what this about — this is about as well. So, I think that
Nike (NYSE:NKE) is on to something here. They`re on to something that`s
really powerful as a platform. It`s going to, you know, continue going
forward. There`s obviously lots of other players they`re bringing into the
mix.

So, it`s a very robust campaign that`s got a lot of legs as we can see, and
there`s going to be a lot of play time.

HERERA: Dean, as always, thank you so much.

CRUTCHFIELD: Thank you.

HERERA: Dean Crutchfield with Dean Crutchfield Associates.

Well, Amazon (NASDAQ:AMZN) made history today, becoming the second publicly
traded U.S. company to ever be valued at $1 trillion. Its shares hit that
valuation in late morning trading before pulling back a bit. It took the
online retailer just 165 trading days to grow from $600 billion in January
to $1 trillion today.

As we reported, Apple (NASDAQ:AAPL) was the first company to hit that
milestone last month. Amazon (NASDAQ:AMZN) shares closed up 1 percent.
And the rise in shares of Amazon (NASDAQ:AMZN) though was not enough to
lift the broader market. Stocks started September with small losses as
investors returned to work from the long weekend concerned about trade
between the U.S. and its key partners. We`ll have more on that in just a
moment.

Today, the Dow Jones industrial average fell 12 points to 25,952, the
Nasdaq was down 18, and the S&P 500 declined four. A little bit later in
the program, we`ll talk to one prominent market watcher who`s looking past
the next few months and says next year will be a good one for investors.

Oil prices saw some modest gains in today`s session as a storm churns
through the Gulf of Mexico. The tropical storm forced offshore oil
producers to cut production and there is some concerns that refineries
could be impacted. The National Hurricane Center said the storm will
likely be upgraded to a hurricane by the time the eye reached landfall near
the Louisiana-Mississippi border. Domestic crude settled just under $70 a
barrel.

On the eve of the U.S. and Canada resuming trade talks, Canadian Prime
Minister Justin Trudeau said that he always knew that the discussions would
be long and involved, but he also said, quote, no NAFTA is better than a
bad NAFTA.

Ylan Mui takes a look at some of these sticking points between the U.S. and
its key trading partner.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The president canceled a
labor day outing, instead staying at the White House to make phone calls on
trade and other international issues.

Meanwhile, Canadian Prime Minister Justin Trudeau had calls with labor
leaders over the weekend. One of the big sticking points in the talks,
protections that Canada provides to its dairy farmers. The U.S. wants more
access to that market but Canada says the U.S. already heavily subsidizes
its own agricultural sector.

Today, the Trump administration launched what it`s calling a trade
mitigation package, $12 billion in aid for farmers, particularly those hurt
by China`s soybean tariffs.

Other thorny issues include the process for settling disputes between
countries and whether this agreement should have an end date. The
administration has just 30 days to produce the text of an agreement to
Congress, and the president doesn`t appear to be budging from his hard line
with Canada. He tweeted over the holiday weekend that there`s no political
necessity to keeping Canada and NAFTA.

LAURA DAWSON, WILSON CENTER`S CANADA INSTITUTE DIRECTOR: These deadlines
tend to be artificial, but at the same time with President Trump, he really
appears to be willing to do anything and everything, including, you know,
massive retaliatory tariffs on its allies. I think negotiators have to be
mindful of the power of the clock and get things done while they have the
opportunity to do so.

MUI: Several influential Republicans have warned that Canada must be a
part of any deal and it`s Congress that gets the final vote on an
agreement.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Washington.

(END VIDEOTAPE)

HERERA: Construction spending rose slightly in July led by an increase in
home building and the publicly funded building of schools and highways.
Economists watch construction spending closely because growth helps support
the expansion of the broader economy, creating jobs both directly and
indirectly.

Meantime, manufacturing activity unexpectedly hit its highest level in more
than 14 years. According to the Institute of Supply Management, sales of
factory made products output and employment all increased last month, but
manufacturers have expressed concerns about cost pressures due to rising
wages and the impact of tariffs.

The auto industry heads into the fall coming off another strong month of
sales as auto showrooms remain busy to close out the summer.

Phil LeBeau has the details.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s long been known
in the auto business: sales rise and fall with consumer confidence. And
right now, the American consumer is brimming with confidence which can be
seen in stores, a surge in new houses being built and at dealerships where
business remains robust. While August sales from each automaker were mixed
when compared to the same month a year ago, the industry is still on pace
to post a fourth straight year of sales topping $17 million vehicles in the
U.S., which has never happened before.

The good news for automakers, demand for trucks and SUVs, their most
profitable models is not slowing down and inventories are relatively lean.
Yes, the average monthly payment for a new vehicle continues to climb. On
average, it`s now about five hundred and twenty-five dollars a month.

But with the hot jobs market in the U.S., Americans are fairly comfortable
with the price they need to pay to climb into a new model.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

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

Verizon (NYSE:VZ) was downgraded to equal weight from overweight at
Barclays. The analyst says the stock`s high valuation will cap its
potential upside. The price target is $50. The stock was also downgraded
to neutral by MoffettNathanson and shares fell 2 percent to $53.19.

Facebook (NASDAQ:FB) was downgraded to neutral from by over at
MoffettNathanson as well. The analyst cites the deceleration in growth and
continued regulatory scrutiny. The price target is $175. The stock
dropped more than two and a half percent to $171.16.

UPS was upgraded to strong buy from market perform at Raymond James. The
analyst cites the outlook for its domestic business and its free cash flow.
The price target is $150. The shares rose 1 percent to $124.34.

And Nordstrom (NYSE:JWN) was added to Goldman Sachs (NYSE:GS) conviction
buy list.

The analyst says headwinds facing that company will fade resulting in
growth and returns. The price target is $73. Te stock rose more than 3
percent to finish at $65.02.

Still ahead, double-digit returns, Wall Street makes its first call on
2019, and investors just might like it.

(MUSIC)

HERERA: Business groups are urging the Senate to block President Trump`s
labor board nominee, calling him bad for American business and their
employees. The president last week re-nominated a Democrat with close ties
to labor unions. The National Labor Relations Board referees union
management disputes.

Well, the tech CEOs will be heading to Capitol Hill tomorrow to address
online election meddling ahead of the midterm elections and to respond to
criticism about how social media companies police their content. In
testimony released today, Twitter`s CEO Jack Dorsey defended his company,
saying Twitter, quote, does not use political ideology to make any
decisions, end quote.

Facebook`s Sheryl Sandberg is scheduled to testify and will touch on issues
that she has discussed before like security, the shutting down of fake
accounts and the elimination of incentives for fake news.

And Google (NASDAQ:GOOG) is expected to say that it believes it has a
responsibility to prevent the misuse of its platform.

JD.com CEO was arrested in the U.S. just a few days ago. He was later
released and is now back in Beijing. But given the executive`s control of
the company and the looming uncertainty, investors sent the stock down
nearly 6 percent in trading today.

Eunice Yoon has the details.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Chinese internet
is obsessing over the founder of JD.com. Last Friday, founder Richard Liu
was arrested in Minnesota on charges of sexual misconduct. He was released
the next day and has since returned to China though Minnesota police say
that the investigation is still active.

JD says that the accusation is unsubstantiated and the company issued a
statement saying he has been released without any charges and without
requirement for bail. Mr. Liu has returned to work in China. Today,
Chinese social media was circulating photos of Liu and an event at JD`s
headquarters here in Beijing.

“Liu shows up at HQ” is currently the number one search phrase and that
could help ease concerns at least momentarily of the company`s investors.
Liu is the founder and CEO of the Nasdaq-listed company. He started JD in
1998 with only a couple thousand dollars, moved it online a few years later
and managed to turn it into a retailing giant and the main competitor to
Jack Ma`s Alibaba.

Liu has celebrity status here and dominates the company`s decisions, so
whatever happens to him has a big influence on JD`s future.

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

(END VIDEOTAPE)

HERERA: And late this afternoon, the Minneapolis Police Department
released some specifics saying Mr. Liu was arrested on suspicion of rape.

The advertising giant WPP (NASDAQ:WPPGY) warns of squeezed margins and
that`s where we begin tonight`s “Market Focus”.

WPP`s North American business was a source of pain as major clients spent
less on traditional advertising, causing a key measure of revenue to fall.
The company said it was unhappy with the quarter and as a result it plans
to launch a strategic review and invest in restructuring the business. WPP
(NASDAQ:WPPGY) said that strategy though comes with the price of weaker
2018 margins. Shares of WPP (NASDAQ:WPPGY) fell nearly 8 percent to
$76.22.

Shares of Dunkin Brands moved higher on speculation the coffee chain is
ripe for a takeover. Research firm Gordon Haskett said Coca-Cola (NYSE:KO)
may have its sights set on Dunkin for a potential deal. On Friday, we told
you, Coca-Cola (NYSE:KO) inked a $5 billion deal to buy a British coffee
chain. Shares of Dunkin Brands 4 percent to $76.06.

After the bell , enterprise software company Coupa Software said that arise
in subscription sales helped overall revenue grow. The company also turned
a profit. In addition, Coupa said that it landed a deal with a workforce
management firm to expand its services. Shares were initially higher after
hours and they also ended the regular session up a fraction to $72 even.

Also after the bell, the cloud software company Workday raised its full-
year outlook for a subscription revenue, but saw its quarterly profit come
up short. Shares initially fell after hours but they finished the regular
day of 1 percent to $156.62, and they hit a -week high.

Our market guest tonight is bullish on the market and one of the first who
is predicting double-digit gains for stocks next year. Joining us is
Jonathon Golub. He is the chief U.S. equity strategist at Credit Suisse.

Good to see you, Jonathan.

JONATHAN GOLUB, CREDIT SUISSE CHIEF U.S. EQUITY STRATEGIST: Good to be
here.

HERERA: Welcome.

So, what is going to drive this market higher? We`ve seen records earnings
are good certainly but there are those who are saying it`s getting a little
frothy out there. Why do you think we have considerably higher to go?

GOLUB: You know, I think there`s a number of stories here but the most
important one is that not only the economy`s strong, but the likelihood
that this business cycle is going to continue is really the most important
thing. And by and large, if you don`t have a recession over the next 12 to
18 months, you find the stock market tends to move meaningfully higher and
that really is a key. On top of that, you have an economy which is in
really solid shape and corporate profits are terrific with U.S. companies
just delivering really good profit growth.

HERERA: So let`s talk about your targets. They`re being called bold and
bullish and that certainly is appropriate. You see 3,350 on the S&P 500,
the broader-based index. That`s about 15 percent from current levels.

GOLUB: Right. Yes, and it`s about 1 percent a month, which is the way I
like to think about it. Obviously, there`s volatility on that, and that`s
more or less in line with the trend that we`ve seen the last several years.
So, what I`m really saying here and that`s really why I wanted to put this
forecast out for 2019, when I did, is that the trend that we`ve seen it`s
likely to continue.

And that I want people to you know basically move their focus not on what`s
going to happen this month or the next, but what`s going to happen on the
next one year to 18 months and that`s a pretty positive view.

HERERA: Yes. You do say that that the next 16 months might be a little
tricky in some pockets. How so? What are the risks to the forecast?

GOLUB: Right. Well, you know, that`s — I think that`s key and is this
phrase that people on Wall Street like to use that the markets climb a wall
of worry, that it needs something to fret about in order to propel it
forward. So, what do we have? The Federal Reserve is tightening interest
rates.

That`s something as people concern. You have inflation beginning to pick
up which is very typical late in the cycle and we`re in the ninth year of
the business cycle, so that has people concern. Midterm elections and we
don`t know what that`s going to look at, and then you have the issue of
trade disputes.

The real question, is there any of these going to derail the successful
economy that we have right now and I think the answer is no.

HERERA: On that note, Jonathan Golub, thank you so much for joining us.

GOLUB: Pleasure.

HERERA: Jonathan is with Credit Suisse.

Coming up, college athletes have their day in court and it`s all about the
money.

(MUSIC)

HERERA: Here`s a look at what to watch for tomorrow.

New data for the month of August will tell us whether the trade gap
continued to widen from the previous month and speaking of trade, we
reported earlier that Canada and the U.S. will resume their trade talks.
And executives from Facebook (NASDAQ:FB) and Twitter will head to Capitol
Hill to testify before committees on the misuse of their services by
foreign operations.

That is what to watch for on Wednesday.

Investors put nearly $1 billion into Fidelity Investments to zero fee index
funds during their first month in operation. Experts call the number
impressive as we reported the zero cost funds were the latest salvo in the
ongoing price war among asset managers. Vanguard, Blackrock and Charles
Schwab have all been cutting fees on investments that attract mostly retail
investors.

Pizza Hut is the new official pizza of the NFL. That agreement was sealed
months ago after the NFL and rival Papa John`s ended their relationship.
The president of the Pizza Hut says the deal is a perfect fit and is
hopeful it will elevate the brand status.

(BEGIN VIDEO CLIP)

ARTHUR STARR, PRESIDENT, PIZZA HUT: We have big expectations of the NFL
partnership, but, you know, primarily we just want to elevate the fan
experience and get customers really, really excited about bringing the NFL
and Pizza Hut together.

(END VIDEO CLIP)

HERERA: For Pizza Hut, football season is a strong time for sales. The
company hopes its new relationship with the NFL will make those sales even
stronger.

And speaking of sports, college sports is a multi-billion dollar business
as you probably know. And today, college athletes are challenging the
industry with a lawsuit questioning the NCAA`s power to limit their
compensation.

Eric Chemi is covering this story for us.

Good to see you, Eric.

ERIC CHEMI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to see you, Sue.

HERERA: So, some quick background on why they brought the lawsuit. What
is this about?

CHEMI: So, this has been going on for years. It`s actually two different
college athletes that individually sue the NCAA. It`s been joined up.
It`s a broader class-action lawsuit.

Today was the first day of the real trial and the idea is that the students
are saying the NCAA limits the scholarships is the only way that we can get
paid, so every school is all — it`s paying you the same amount. So,
they`re saying that`s kind of like an antitrust monopoly cartel, whatever
word you want to call it.

HERERA: Regardless of the specific athlete`s talent?

CHEMI: Right, like we should be able to get more than this broad limit
that every school hits the limit and they can`t give you anything else.

HERERA: So, they want a so called open market.

CHEMI: Exactly.

HERERA: How would that work? What does that actually mean?

CHEMI: So, one version is every school could pay you whatever they want to
pay you, or let`s say every conference could agree these ten schools in the
Big 10, these ten schools in the PAC-10, whatever conference it is, I know
it`s not 10 anymore, but whatever those schools can make it, all agree in
our conference, you could get lifetime medical benefits. You could get
graduate school tuition. You could get straight cash.

You can get whatever you want as long as the all the schools agree in those
conferences. As opposed to right now, which is, nope, that`s it.

HERERA: That`s it.

Well, but that obviously is the NCAA stance. Do you see any softening in
that? Obviously, they`re going to court about it.

CHEMIA: The NCAA stance is, look, you`re not employees. You`re student
athletes. This is an amateur thing. These are colleges. These are not
companies and that it`s pro-competitive to keep it this way, it would
actually be anti-competitive to make it a free market in this case because
it would disrupt the current process.

HERERA: All right. So, I`ll take the other side of that being a football
buff both college and pro.

CHEMI: What`s cool?

HERERA: Notre Dame.

CHEMI: OK.

HERERA: There you go.

CHEMI: Independent, no conference.

HERERA: That`s right. So, take a look at coaches` salaries regardless of
which team you`re talking about. The enormous amount of money that comes
in from college football. I mean, some would say that the athletes
basically bring in all of those people, bring in all that money to the
college.

CHEMI: Right. And so, some argument is that, look, the best athletes they
go to the best schools anyway. They go to the Notre Dame`s because they`ve
got the big coach salaries, the big stadium financing, the great weight
rooms, the great facilities. They`ve got all the money.

HERERA: The games, yes

CHEMI: They`ve got all the money anyway, so they`re going regardless of
getting paid so that even if you pay them, the best schools would get the
best students anyway. So, you can make either argument that you don`t need
to pay them, because they`re coming but you should pay them because
everyone else is getting paid anyway.

HERERA: All right. Eric, it`s not over yet.

CHEMI: No, I —

HERERA: Thanks so much, Eric Chemi.

And that will do it for us tonight. I`m Sue Herera. Thanks for joining
us. Have a great evening. See you tomorrow.

END

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