Transcript: Nightly Business Report – October 16, 2018

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Profit power. Earnings
from some of the biggest blue chips send the Dow soaring by more than 500
points.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Orange is the new green. And
Netflix (NASDAQ:NFLX) is seeing plenty of it. Crushing earnings estimates
and sending one of the best performing stocks this year even higher.

GRIFFETH: New options. Medicare open enrollment is under way with some
insurers now offering benefits to help keep you out of the hospital.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for this Tuesday,
October the 16th.

HERERA: Well, good evening, everyone, and welcome.

Wall Street was firmly in rally mode today. The gains were broad, seen in
everything from technology to financials. And the rise was sharp, thanks
to strong quarterly results from some of the largest U.S. companies,
including UnitedHealthcare, Johnson & Johnson (NYSE:JNJ) and Goldman Sachs
(NYSE:GS). We`ll have more on those results shortly.

But first, here`s the closing numbers for you on a strong day for the Dow.
It advanced 547 points to 25,798. The Nasdaq added 214, that`s a gain of
nearly 3 percent. And the S&P 500 was up 59.

GRIFFETH: And the positive earnings news continued after the bell tonight
when Netflix (NASDAQ:NFLX), which has been one of the best performing stock
this is year, blew past earnings estimates and added more subscribers than
expected. The streaming service earned 89 cents a share. That was 21
cents better than estimates. Revenue was up 24 percent to $34 billion.
And not surprisingly, the stock took off in initial after-hours trading.

Julia Boorstin is outside Netflix (NASDAQ:NFLX) headquarters in Los Gatos,
California.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The big surprise in
Netflix (NASDAQ:NFLX) earnings, subscribers are growing far faster than
expected and continue to outpace projections in the fourth quarter. The
company adding 7 million subscribers in the third quarter, that`s 2 million
more than the company`s own projections, and looking ahead for the fourth
quarter, Netflix (NASDAQ:NFLX) says it expects to add 9.4 million new
subscribers. That`s more than the 7.6 million analysts anticipated.

CEO Reed Hastings saying in his letter to shareholders that they under-
forecasted membership due to greater than expected acquisition globally,
with strong growth broadly across all markets, including Asia. He pointed
to the breadth of local language programming and content from the company`s
own film and TV studio, shows such “Stranger Things” and “The Ranch”, which
reduced the company`s reliance on outside studios and give Netflix
(NASDAQ:NFLX) more control over the content they create.

Julia Boorstin, NIGHTLY BUSINESS REPORT, Los Gatos, California.

(END VIDEOTAPE)

HERERA: But it was results from UnitedHealthcare, Johnson & Johnson
(NYSE:JNJ) and Goldman Sachs (NYSE:GS) that helped propel the Dow and the
broader market today. And what really got investors in a buying mood was
their upbeat outlooks.

(BEGIN VIDEOTAPE)

HERERA: A wave mergers deals propelled Goldman Sachs (NYSE:GS) group to a
big third quarter, with profits and revenue both beating estimates and both
higher than a year ago. Investment banking revenues rose 10 percent from a
year earlier. But as Lloyd Blankfein hands off to the new CEO, David
Solomon, this month, Goldman is focused on its consumer banking business,
to find growth moving forward.

DEVIN RYAN, JMP SECURITIES: A quarter of the employees are engineers,
technology engineers. So, there is a big digital push here at the firm, a
lot of it`s happening on a consumer side, the wealth management side, which
is obviously not historical Goldman businesses.

So, I think that`s where there`s going to be growth.

HERERA: Johnson & Johnson (NYSE:JNJ) says consumer sales, the best in two
years are driving growth right now, up 6 percent from a year earlier.

JOSEPH WOLK, JOHNSONAND JOHNSON CEO: We re-launch our iconic Baby
franchise brands. It`s much more receptive to the needs of millennial moms
and dads. And pharmaceuticals, you know, I just can`t say enough about
that division for us.

HERERA: Sales of Johnson & Johnson (NYSE:JNJ) treatments for cancer jumped
36 percent. J&J also raised guidance for the year. The nation`s largest
health insurer, UnitedHealth Group (NYSE:UNH) also beat earnings forecasts
on both lines. Revenue rose 12 percent from a year earlier and profits
were up 28 percent in a year. The company says prospect are good for
continued growth of its Medicare Advantage health plans and its pharmacy
benefits manager, OptumRX.

(END VIDEOTAPE)

HERERA: And all three stocks rose sharply in trading today with
UnitedHealthcare the top performing Dow stock today, up more than 4.5
percent.

GRIFFETH: But it was a different story for IBM, which late today reported
weaker than expected revenue. Big Blue`s bottom line earnings were better
than expected. They came in at $3.42 a share but revenue declined in the
recent quarter to a little over $18 billion. And that`s what investors
chose to focus on in initial after-hours trading tonight.

Josh Lipton has more for us now.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: $4.19 billion, that is
how much revenue IBM`s Global Business Services segment generated in the
quarter. That`s an important division that includes services like the
company`s consulting group.

CFRA`s David Holt, an IBM bull, says he liked what he saw there, that the
segment showed promising signs of stabilization in the quarter. He was,
though, disappointed, he says, by the lack of overall revenue growth for
the company in constant currency.

For NIGHTLY BUSINESS REPORT, Josh Lipton, San Francisco.

(END VIDEOTAPE)

HERERA: Walmart`s profit will be hit by its largest acquisition ever. The
retailer lowered its earnings target for this year and next following its
purchase of the Indian ecommerce company Flipkart. Walmart purchased
Flipkart for $16 billion and said at the time that it was a long-term
investment in a fast growing market but that it could depress earnings in
the near term. Nonetheless shares rose two 2 percent today.

GRIFFETH: So, overall, Wall Street`s expectations bar has been set pretty
high for this earnings season. And so far, for the most part, companies
have been surpassing it.

Bob Pisani explains why.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Rising costs are front
and center for investors, but revenue growth could be the answer the
companies are looking for to combat the higher cost corporate America is
now facing. Earnings season has begun. So far, the early signs looking
better than the bulls were expecting. Out of the first 41 companies in the
S&P 500 reporting, almost 90 percent had beaten on earnings, with earnings
growth at about 25 percent. That`s according to the earnings scout.
That`s above expectations.

But the key to the market`s upward momentum maybe in revenues, not
earnings. Why? Because higher costs without higher revenues will lead to
margin erosion. And that can be a rally killer. You don`t want that. But
the revenue has steadily improved as the economy has strengthened.

Revenue growth historically averages 3 percent to 5 percent process. Now,
we`re looking at estimates of 7 percent to 8 percent for the next few
quarters, that makes the company`s job a lot easier, with revenue growth in
the 7 percent or 8 percent range an increase in costs of say, 2 percent for
higher wages or interest rates, can be absorbed.

Last week`s market action tells us that investors are clearly worried about
a sudden spurt in interest rates. So, Bank of America (NYSE:BAC) Merrill
Lynch just leaked its global fund manager survey which showed that the
biggest fear for money managers right now is still the trade war but rate
hike fears are a close second worry.

The bottom line is this. If we continue to get strong and steady revenue
growth, it means the economy is still in good shape and tax cuts are
working. That should help offset higher rate concerns.

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

(END VIDEOTAPE)

HERERA: A stunning report on the labor market tonight. Where there are
now more job openings than ever. The latest Labor Department survey shows
7 million available positions in August, a reflection of a historically
tight labor market. The number of available jobs outnumbers people
actually looking for work by more than 900,000. That`s the biggest gap on
record.

And economists say the new reading could pressure more companies to raise
wages to attract employees.

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

And we begin tonight with shares of Tapestry, the parent company of brands
like Coach (NYSE:COH) and Kate Spade was upgraded to buy from hold at
Needham. The analyst there cited valuation after a recently double digit
decline in the stock price. So, the new price target is now $50. Tapestry
shares rose more than 3 percent today to $44.47.

Cracker Barrel was upgraded to outperform from market perform at Telsey
Advisory Group. The analyst expects the restaurant chain`s comparable,
customer traffic and earnings to improve. Price target $175 and Cracker
Barrel shares finished up nearly 3 percent to $157.28 today.

And Symantec (NASDAQ:SYMC) was upgraded to market perform from underperform
at Cowen. The analyst says that the stock may not fall much from current
levels, even though the company does still face some challenges. Price
target, $21. The shares rose more than 4 percent today to $20.66.

HERERA: Still ahead, is offshore drilling the answer to high oil prices.
We`ll take you on an exclusive tour of Shell`s largest floating oil rig in
the Gulf of Mexico.

(MUSIC)

GRIFFETH: A new report today that said that China continued to trim its
treasury holdings in August by nearly $6 billion. This is the fourth month
of declines. It now stands as the lowest level since July of last year.
Bond traders are watching very carefully to see if China is intentionally
reducing those holdings because of the trade war with the U.S., but most do
not think the reduction is meaningful enough yet.

HERERA: President Trump took aim at the Federal Reserve again, calling the
Central Bank his biggest threat because he believes it`s raising interest
rates too quickly. In an interview, the president added that he is, quote,
not so happy with some of the people he appointed to the Federal Reserve
other than Chairman Powell.

GRIFFETH: And the federal government late yesterday said it wants to force
drug makers to disclose prices for prescription medicines in television
commercials. Health and Human Services Secretary Alex Azar said today that
making pricing more transparent might force drug makers to slow future
increases. And he said this by the way would apply to all brand name
medicines covered by Medicare and Medicaid.

(BEGIN VIDEO CLIP)

ALEX AZAR, HEALTH AND HUMAN SERVICES SECRETARY: We think you have a right
to know not just when you have the TV ad what the drug ought to cost, but
actually at the point of prescribing, when you`re there with the doctor, we
need to get the tools so the doctor knows not just the list price but also
what under your health care plan, you would pay for that medicine, as well
as the competing medicines the doctor might prescribe. So, you can have a
more engaged, competitive discussion right there at the point the script is
written.

(END VIDEO CLIP)

GRIFFETH: The drug industry has objected to this proposal.

HERERA: Medicare enrollment is currently under way. And this year, some
private insurers offering a new option designed to keep you out of the
hospital.

Bertha Coombs explains.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Manuel Rivera has
had his share of hospital stays which were in a word —

MANUEL RIVERA, PATIENT: Lousy.

COOMBS: When the 87-year-old developed a serious infection last spring, he
was relieved when doctors at New York`s Mount Sinai Health System offered
to hospitalize him at home.

UNIDENTIFIED FEMALE: How are you feeling today?

MANUEL RIVERA: I`m feeling very tired.

BOORSTIN: A nurse administered his treatment just like in the hospital but
better, Manuel`s daughter says.

SANDRA RIVERA, PATIENT`S DAUGHTER: They have the luxury of a one-on-one.
They were able to do their jobs like at a fuller capacity instead of having
all the other patients around.

BOORSTIN: And Manuel could actually sleep.

MANUEL RIVERA: You can go to bed when you want, and not so many people
walking around making noise.

BOORSTIN: Mount Sinai CEO says the home program resulted in 25 percent
savings on average and they show readmissions were cut in half.

DR. KEN DAVIS, MT. SINAI CEO: We found patients were happier, costs were
lower, outcomes were better, and the patient satisfaction was higher. So,
on every metric we measured, this was a better way to deliver care.

BOORSTIN: But the pilot program was funded by a Centers for Medicare and
Medicaid grant and funding ran out.

Insurers who sell private Medicare Advantage plans have signed on to cover
the hospital at home program starting in 2019. But the federal
government`s traditional Medicare program isn`t there yet.

DAVIS: I think the concern might be whereas at Mount Sinai might be able
to do this easily. Not every hospital may have the resources or the
operational expertise to do it.

BOORSTIN: Part of the problem is that under traditional Medicare, hospital
and outpatient services are billed differently. And CMS chief Seema Verma
noted in a speech to insurers, the Medicare lacks the ability to provide
higher authorization for treatment that private insurers have.

Still, the administration has given Medicare Advantage insurers even more
flexibility to provide more home care supplemental benefits, for things
like housekeeping, day care services and caregiver support.

LEIGH PURVIS, AARP PUBLIC POLICY INSTITUTE: It really depends on the type
of care that you`re request. But it can easily run into the tens of
thousands of dollars. So, to the extent the Medicare advantage plan can
offer and help cover some of those services, that could certainly be a
financial benefit to some people.

BOORSTIN: Analysts say the insurers are rolling out the options slowly for
2019 and will likely ramp up offerings next year to help more seniors like
Manuel stay healthy at home.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.

(END VIDEOTAPE)

GRIFFETH: And health care will no doubt be one of the issues on minds of
the voters when they go to polls next month. And this year, the recently
enacted tax cuts are also having an impact in some close midterm races.

Ylan Mui is in Downers Grove, Illinois, for us tonight.

(BEGIN VIDEOTAPE)

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT: In this suburb of
Chicago, politics is at a crossroads. For more than a decade, this area
has been represented by Republican Congressman Peter Roskam, now, he`s
struggling to hold on to his seat.

Few people thought the race could be this close. Roskam was one of the
chief architects of the GOP tax law. He says it`s spurring places like
mining company Vulcan Materials (NYSE:VMC) to create jobs, boost wages and
invest in new equipment.

The economy is so hot, business owners tell him their biggest challenge is
finding enough workers.

REP. PETER ROSKAM (R), ILLINOIS: At its core, this tax law is about
growth. And what the other side of the aisle decided was, they are all
about the politics of redistribution.

MUI: But the GOP tax cuts are getting overshadowed by President Trump and
Roskam is falling behind in the polls to a political newcomer, Sean Casten.

Casten used to run his own energy company. He decided to get into politics
after Trump was elected. And he`s turned the tax cuts into a line of
attacks.

SEAN CASTEN (D), CONGRESSIONAL CANDIDATE: You`re not supposed to be
running huge deficits when unemployment is at lows and we`re in a nine-year
economic boom. And we`re at that point because we basically put fuel on
the fire of a booming economy.

MUI: Affluent, well-educated swing districts across the country will be
critical in determining which party controls the House. There`s only three
weeks left to go until election day. Candidates don`t have much time to
make their case.

For NIGHTLY BUSINESS REPORT, I`m Ylan Mui in Downers Grove, Illinois.

(END VIDEOTAPE)

HERERA: A congressional vote on the new trade deal between the U.S.,
Canada and Mexico will not happen this year. Senate Majority Leader Mitch
McConnell today cited procedural issues. Under Trade Promotion Authority,
certain steps have to be taken before a trade deal can be sent to Capitol
Hill. That leaves the issue in the hands of the next Congress.

GRIFFETH: The world`s largest asset manager reports a loss in asset
revenue and that`s where we begin tonight`s “Market Focus”.

Blackrock`s revenue totaled $3.5 billion for the quarter. That was less
though than Wall Street was expecting. The company said that the miss was
due in part to an acceleration in investor outflows.

(BEGIN VIDEO CLIP)

LARRY FINK, BLACKROCK CHAIRMAN & CEO: We saw huge movement from clients, a
lot of children. It was just I think the markets are showing that. But
investors are confused. But overall, because of expense discipline,
because of how we navigated, our revenues were up 18 percent in our Aladdin
business, in our technology business.

So, overall, it was a good quarter. But I was disappointed in our net
flows. But very explainable by some large de-risking.

(END VIDEO CLIP)

GRIFFETH: Blackrock shares fell more than 4 percent today to $408 even.

And Morgan Stanley`s profit rose 20 percent in the most recent quarter,
easily topping analyst estimates. Results were helped by a strong economy
and revenue gains across its major business units, including investment
banking. Morgan Stanley (NYSE:MS) shares rose more than 5 percent today to
$45.94.

And sales of Domino`s were weaker than expected, underscoring increased
competition for food delivery these days. The company has stepped up its
efforts to better compete with third party delivery companies like Grubhub
and Uber Eats, and Door Dash. And earnings for the recent quarter did top
estimates. Still wasn`t enough though. Domino shares fell nearly 5
percent on the big up day to $259.63.

HERERA: WW Grainger says tariffs on imports from China are expected to
increase costs by about 2 percent. The industrial supply company is
considering raising prices and finding alternative sources for its products
to offset those higher prices. WW Grainger reported a decline in profit
and weaker than expected revenue in its most recent quarter. Shares fell
nearly 12 percent to $280.01.

“The New York Post” is reporting that billionaire investor Carl Icahn has
taken a stake in discount Dollar Tree (NASDAQ:DLTR). The report said it
was unclear whether Icahn plans to push for management changes or strategy
changes at the company. Dollar Tree (NASDAQ:DLTR) shares popped more than
6 percent on the report to finish the day at $86.50.

And United Continental beat analyst earnings estimates and boosted its 2018
forecast for the third time this year. The company said its results were
helped by added flights in its hubs in Chicago, Denver and Houston. The
stock rose in initial after hours trading after rising more than 2 percent
in the regular session.

GRIFFETH: Tensions out of Iran and Saudi Arabia drove oil prices slightly
higher today. The price of domestic crude settled just around $72 a
barrel. But as prices rise, so too are the investments made in offshore
drilling, because it`s the very same investments that could help keep oil
prices in check.

Brian Sullivan is on a shell rig in the Gulf of Mexico off of the New
Orleans coast for us tonight.

(BEGIN VIDEOTAPE)

BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: We got a rare and
broadcasting exclusive opportunity to be on one of the biggest oil
platforms in the world, the Shell Olympus in what they called the Mars
field, about 130 miles out of the Gulf of Mexico. New Orleans, by the way,
is that way.

And this is a fascinating world because as a CEO of Shell told CNBC,
everything about the deep water gulf, the wellhead about 3,000 feet down
that way is big and it is expensive process. A platform like this, over $1
billion. Shell, by the way, has a new one rolling out next year, they`re
investing 3 billion over the next five years.

And after the price of oil collapsed a number of years ago, the whole deep
water offshore industry really had two options get smarter about costs or
go away. And the head of shell`s global deep water operations told us they
brought the price from a barrel of crude from 75 bucks on their cost way
down to about $40.

WAEL SAWAN, EVP SHELL DEEP WATER: Today, we`ve been able to bring the
costs down by anywhere from 45 to 55 percent. When you look at an activity
today, it won`t screen (ph) as equal for anything more than a $40 per
barrel break-even price process. On average, our portfolio is running just
under $30 at the moment.

SULLIVAN: The price of the barrel of crude above $70 and their costs
around $40, they can invest in more projects. Like we said, that`s what
they are doing that, $3 billion over five years.

And you wonder, what do they get? Well, a platform like this, the Olympus,
is about 100,000 barrels a day. A little portion of that goes to the
government. About 21 percent impose to the partner who`s BP. Overall,
this platform produces roughly 2 million gallons of gasoline for your car
every single day. And as the profitability comes up, investment has come
become.

If you look way off in the distance over there, there is a platform that
looks like this one. But in the middle, that`s a drilling rig. They are
drilling for a new well and then a platform kind of like this will
ultimately go on top of it.

Now, of course, there is something else that this industry faces. And that
is safety concerns. After the BP Macondo disaster, where 11 lives were
lost, and a massive oil spill, the industry effectively shut down here for
the better part of two years.

Well, we asked Shell about that. And they said that the safety and
technology especially around that wellhead has gotten a lot better.

RICK TALLANT, VP OF SHELL PRODUCTION OF GOM: The industry, we`ve improved
the dealing and the blowout preventers that sit on the sea floor that
prevent these things from happening. We have created organizations like
the Marine Well Containment Company that can come in and cap these wells if
anything ever happened. But, of course, we are focusing on making sure
something like that never happens again.

SULLIVAN: So, the industry is working its way through safety concerns as
well as bringing costs down. Of course the Trump administration has been
very sportive of the offshore oil and gas drilling industry. We`ll see how
long that lasts. Of course, if oil stays high, the investments will come
to the Gulf of Mexico if the price of oil turned south, look for new
investments like this to slow down as well. A lot of jobs are reliant on
platforms out here just like this one.

For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan, off New Orleans,
Louisiana.

(END VIDEOTAPE)

GRIFFETH: And coming up, the life and philanthropy of a Silicon Valley
legend.

(MUSIC)

HERERA: Wall Street banks are reportedly telling Uber that it could be
valued at as much as $120 billion if it goes public next year. At that
level, it would give the ride-hailing company a shot at being the biggest
initial public offering on record. That figure is higher than the
valuations of Ford, General Motors (NYSE:GM) and Chrysler combined. And
according to the “Wall Street journal”, it`s twice as high as the valuation
Uber achieved during a fund raising round two months ago.

GRIFFETH: Facebook (NASDAQ:FB) is facing a new lawsuit. According to a
complaint filed by some advertisers, the social media company knew of
problems with the video consumption metrics for more than a year before it
disclosed them back in 2016. The lawsuit alleges that Facebook (NASDAQ:FB)
engaged in unfair business practices and significantly overstated the
amount of time that users spent watching video ads.

HERERA: The business world today has been mourning the passing last night
of Microsoft (NASDAQ:MSFT) cofounder Paul Allen who succumbed to cancer at
the age of 65. He made his mark on the world as a philanthropist and
entrepreneur after leaving Microsoft (NASDAQ:MSFT) in the `80s.

Robert Frank takes a look at his lifetime of achievements.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was 1975 and a 22-
year-old Paul Allen and 19-year-old Bill Gates wrote a programming language
for the Altair computer, that would later become Microsoft (NASDAQ:MSFT)
installed in 90 percent of the personal computers in the 1990s.

Allen left the company after eight years to battle Hodgkin`s disease and
THEN channeled his fortune and energy into technology and media companies,
space exploration, museums, developing Seattle`s Lake Union District and,
of course, buying the Seattle Seahawks and Trailblazers. He gave more than
$2 billion to charity and his estate is likely to give even more since he
signed the Gates-Buffett giving pledge, promised to donate most of his $20
billion fortune.

He had no children and Vulcan, Inc, which holds his companies and his
investments will likely pass to his sister Jodie. But she has said she may
not be interested in owning the teams, so those could be up for grabs.

Some of his personal trophies, like his 414-foot yacht Octopus, his fleet
of private jets and his 15-plus mansions scattered from Mercer Island in
Seattle, to London and France could also be sold with the proceeds going to
charity.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

GRIFFETH: All right. One more look at the big rally on Wall Street today.
Thanks to the better than expected earnings, the Dow advanced 547 points.
The Nasdaq added 214. The S&P was up 59.

HERERA: And that will do it for us tonight. I`m Sue Herera. Thanks for
joining us.

GRIFFETH: 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.

 

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