Transcript: Nightly Business Report – January 10, 2019

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

unemployment and strong consumer confidence was supposed to get consumers
into the stores, but not every retailer got their holiday wish.  

world`s largest airline says profits will not be as strong as expected,
raising the stakes for corporate America`s upcoming earnings season.  

HERERA:  Shifting gears.  The new Ford Explorer is sleeker and high tech.  
But can the iconic SUV generate big sales for the automaker under pressure?  

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for
Thursday, January 10th.  

And we do bid you good evening, everybody, and welcome.  

Well, it was another positive day on Wall Street today.  In fact the S&P
500 posted its first five-day win streak since September.  We`ll have more
on that in a moment.  

But we begin tonight with retail, which was not positive.  In fact, it was
more like a retail wreck.  Expectations were very high for a good holiday
shopping season and, in fact, we learned today that it was.  

But it turns out not all retailers benefited from rising consumer
confidence and strong spending.  That was the case with Macy`s, which
surprised investors today with downbeat holiday results.  The lackluster
performance prompted the company to cut its outlook for profits, sales and
gross margins and that knocked the wind out of the stock, sending it down
17 percent today, its worth one-day performance ever.  

Courtney Reagan starts us off tonight from Indianapolis.  


holiday sales report for Macy`s (NYSE:M) is the Grinch that stole Christmas
from other retailers today.  Macy`s (NYSE:M) comparable sales in November
and December grew more than 1 percent with a double-digit sales increase
online.  But that was below what the department store expected.  

Macy`s (NYSE:M) CEO Jeff Gennette said the Black Friday weekend was strong.  
Sales weakened in mid-December and didn`t return to expected patterns until
the week of Christmas.  Sales were weak in women`s sportswear, cosmetics,
fashion jewelry and watches.  There was a fire at a distribution center and
a sales event didn`t go as planned.  As a result, the retailer lowered its
earnings sales and margin forecast for the year.  

While Macy`s (NYSE:M) has reported four straight quarters of same-store
sales growth, investors are starting to wonder if that trend is at risk.  
Today, the stock is plunging, marking its worst day ever.  Macy`s (NYSE:M)
shares had grown 80 percent from Thanksgiving 2017 to Thanksgiving 2018.  

OLIVER CHEN, COWEN & CO.:  Macy`s (NYSE:M) being on mall, Macy`s (NYSE:M)
being an apparel retailer, those are tough structural places to be.  That
is a little bit different from the Kohl`s (NYSE:KSS) story, which has done
a great job in active and target, which has done great with toys, home,

REAGAN:  Like Macy`s (NYSE:M), Kohl`s (NYSE:KSS) holiday sales improved
more than 1 percent with double-digit growth online.  But unlike Macy`s
(NYSE:M), Kohl`s (NYSE:KSS) the lower ending of its full-year earnings

Target (NYSE:TGT), so far, reporting the strongest holiday results, with
comp sales up almost 6 percent, thanks to strong shopper traffic.  Toys,
baby and seasonal gifts were Target`s strongest categories during the
holidays.  Target (NYSE:TGT) is holding its previous earnings forecast

The good news is analysts say the U.S. consumer is healthy.  

JAN KNIFFEN, J. ROGERS KNIFFEN WWE CEO:  The consumer is fine.  They`re all
working, their wages are going up, they`re fine.  The problem is the cost
structure in retailing is dramatically going up.  

REAGAN:  E-commerce businesses are currently more expensive to run for
retailers that began as physical stores, making online sales less
profitable than sales in brick and mortar locations.  

DANA TELSEY, TELSEY ADVISORY GROUP CEO:  It`s a higher cost of doing
business today than what it was in the past for every one of these
companies.  Margin flow-through is going to be the theme of 2019 in the
face of what continues to be a strong consumer.  

REAGAN:  While MasterCard (NYSE:MA) said holiday sales grew 5 percent
overall, the strongest in six years, not every retailer had the jolliest

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Indianapolis, Indiana.  


HERERA:  American Airlines caused some turbulence in that sector today.  
The world`s largest airline trimmed its profit guidance for 2018 and said
that revenue didn`t rise as much as expected at the end of last year.  That
sent the stock down 4 percent in today`s session.  

The warning rippled through to other carriers on concerns that they may
report similar lackluster results, threatening a record stretch of
profitability for that industry.  

GRIFFETH:  So with the fresh rounding of profit warnings, American
airlines, what can we expect as fourth quarter earnings season gets under
way next week?  

Joining us tonight, Lindsey Bell.  She`s investment strategist at CFRA

Lindsey, always good to see you.  Happy New Year.  


GRIFFETH:  You know, what they report for the fourth quarter, I think you
agree won`t be as important as what they say they`re expecting for the
first quarter, right?  

BELL:  Absolutely.  It`s always about guidance when it`s earnings season.  
The fourth quarter is actually probably going to be a really good one.  
We`re going to get another double-digit quarter of earnings growth.  Of
course that will be a deceleration of three-quarters over 20 percent growth
for the S&P 500, but still very good by historical standards.

But looking out to the future, that`s where the big question mark is.  You
highlighted the two companies that cut guidance today.  We`ve heard from
companies like Apple (NASDAQ:AAPL), FedEx (NYSE:FDX) and several others
already warned that earnings are going to be worse than expected.  Samsung,
LG are another two companies, and these cuts were pretty substantial, by
the way.  

HERERA:  So what areas do you have the most concern or worry about?  Where
are the most vulnerable areas?  

BELL:  Well, I would say I`m most worried about the industrials and the
financials, because when I look at those two sectors, they have been
leading year to date so far.  I know it`s only been a couple of days the
stocks have been doing really well, but their earnings numbers have not
budged much for 2019.  The overall S&P 500 earnings rate for 2019 has been
reduced to 6.1 percent from 10 percent earlier in the year, but these two
sectors, their numbers haven`t moved lower.  

If you think about what we`ve heard from FedEx (NYSE:FDX) and Apple
(NASDAQ:AAPL), especially on the global front with regards to trade, with
regards to the slowdown that we`re seeing in China, the industrial sector
will be one that`s really at risk.  

GRIFFETH:  So the tariff tiff when it began last year, we had been told
maybe we won`t see an impact on the economy until the first quarter of this
year.  Is that what we`re going to start to hear about?  Is that what
you`re expecting?  

BELL:  Yes, exactly.  I think that you started to see some of the China
data in the last couple months come in much weaker than expected.  You see
the government over there trying to add stimulus to the economy to smooth
things out.  But I think you`re going to hear companies talk about how
they`re seeing the impact now, you know, as the year ended and going into
the first quarter.  

And you can`t forget that while we got some good news on the trade front
earlier this week, the situation still hasn`t been resolved.  There`s that
March 1st deadline that can get pushed out potentially.  Otherwise tariffs
could go up at that point in time.  

There`s a lot of uncertainties.  If you`re in the executive C-suite, you
have a lot of concerns with forecasting going into this first quarter
period, so you have every incentive to be conservative.  

HERERA:  So are your thoughts predicated on the economy continuing with the
growth that we saw in 2018, or is it predicated on 2019 being a little

BELL:  It`s predicated on 2019 being a little slower.  We`re starting to
see expectations of very — several economists are expecting growth to slow
in 2019 from 2018 here in the U.S., but also you`re already seeing early
signs in Europe, slowdown in Germany and the Brexit issue is hurting the
U.K., China, emerging markets are seeing a slowdown too.  

So all of that cumulated will impact the U.S.  But you got to remember,
almost 50 percent of S&P 500 sales come from overseas so that has a very
big impact.  

GRIFFETH:  As always, Lindsey Bell from CFRA Research, we appreciate your
coming by.  Thanks for joining us tonight.  

BELL:  Thank you.  

HERERA:  Concerns over earnings were not enough to pressure the broader
market today, sending the Dow and S&P 500 to their fifth straight day of
gains.  Industrial stocks and the real estate sector helped lift the market
overall as investors focused on comments from Fed Chair Jerome Powell.  
More on that later in our program.  

But, first, the closing numbers.  The Dow Jones Industrial Average climbed
122 points to 24,001, the Nasdaq added 28 and the S&P 500 rose 11.  

And as investors question where this market is headed, a top investor who
beat the market for years said today in an interview that the bull market
could last another decade.  


JEFF VINIK, VINIK ASSET MANAGEMENT CEO:  There`s plenty of opportunities
today, that`s what I`m looking at.  You know, in terms of different asset
classes doing well, my belief is that we`re in a secular bull market.  In
retrospect, I didn`t know it at the time, it started in 2009.  If I had to
guess, we`re halfway through it, driven by good economic growth and low

Secular — ten years in, ten years to go.  I don`t know, that`s my guess.  


GRIFFETH:  However, as you know, the market is still facing some major
obstacles, like trade tariffs and slowing growth, especially when it comes
to China.

Eunice Yoon has that part of the story for us tonight from Beijing.  


was generally positive about the trade talks.  The ministry issued a
statement saying that the two sides conducted in-depth and detailed
exchanges and laid the foundation for resolving mutual concerns.  

At a regular press briefing, the ministry spokesperson said the one-day
extension also showed that the talks were serious.  Now, in these trade
negotiations, a lot of focus has been on how to get Beijing to make good on
its promises.  One big complaint to the business community here has been
that Beijing doesn`t stick to the spirit of an agreement.  

The USTR expressed that in a statement after the talks, saying: Any
agreement should provide for complete implementation subject to ongoing
verification and effective enforcement.  

Well, the commerce ministry pushed back on that today saying China thinks a
mechanism is important too, and both parties have an obligation to keep
their promises.  The comment shows that China doesn`t particularly trust
the U.S. will hold up to its end of the bargain either.  

Amid all this talk, new data out of China showed that the economy here is
slowing at a faster pace than expected.  Both CPI (NYSE:CPY) and PPI missed
consensus.  Consumer prices dropped to a six-month low.  Producer prices
fell to their lowest point in two years.  

Nomura (ph) called the pace of the slowdown worrying.  This is an economy
carrying a tremendous amount of debt, and economists are now talking about
China entering a deflationary cycle that makes the debt more burdensome
than it already is.  The Trump administration already believes that it has
the upper hand in these trade negotiations, so this latest data will likely
only encourage the policy team that it has more leverage in the trade

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


HERERA:  There were reports that President Trump was planning on talking
about trade with Chinese officials on the sidelines of the World Economic
Forum in Switzerland later this month.  But today, the president tweeted
that he won`t be going to the gathering of world and business leaders, and
he cited the partial government shutdown and his standoff with Democrats
over border wall funding.  

GRIFFETH:  So far, the partial government shutdown has had only a minor
impact on the economy, but today, economists at Bank of America (NYSE:BAC)
Merrill Lynch said that it`s starting to sting.  They shaved their fourth
quarter earnings growth forecast and then said that first quarter growth
estimates could also be trimmed if the shutdown continues much longer.  

Right now, as Ylan Mui reports, there is still no end in sight.  


DEMONSTRATORS:  No paycheck, no peace!  No paycheck, no peace!  

their frustration with Washington crystal clear today.  In protests and
rallies across the country, they demanded an end to the government
shutdown, as they are set to miss their first paychecks tomorrow.  

MARAE PERSSON, FORLOUGHED TSA EMPLOYEE:  How long do you think our people
can afford to come to work?  You know, we`re required to come to work.  You
have to pay baby-sitters, and you have to pay for gas in the car.  

MUI:  It could be quite a while before government workers see money in the
bank.  Shutdown talks are stalled in Washington, and Democrats say they no
longer trust the president`s word.  

just keeps upping the ante.  In fact, he`s moving the goal posts so many
times, they`re out of the stadium.  

MUI:  Today, President Trump took his case for a border wall down to Texas
amid what he says is a humanitarian crisis of illegal immigration.  The
trip is fueling speculation that the president will declare a national
emergency and build the wall without congressional approval.  

TRUMP:  I have the absolute right to declare a national emergency.  I
haven`t done it yet.  I may do it.  If this doesn`t work out, probably I
will do it.  I would almost say definitely.  

MUI:  Some lawmakers here on Capitol Hill have been looking for another way
out.  So far, they haven`t found one and that means this shutdown could be
the longest in our nation`s history.  

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


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

Boeing (NYSE:BA) was upgraded to overweight from equal weight at Morgan
Stanley (NYSE:MS).  The analyst says strong airline sales could lift the
stock by 30 percent.  The price target is $450.  Shares rose 2.5 percent to

That same analyst at Morgan Stanley (NYSE:MS) downgraded Lockheed Martin
(NYSE:LMT) to equal weight from overweight.  The analyst cited headwinds
related to its pension program, which he says will be difficult for that
company to fully offset.  The price target is $300.  The stock was up 2.5
percent to $277.50.  

GRIFFETH:  Twitter was upgraded to buy from underperform at Bank of America
(NYSE:BAC) Merrill Lynch.  The analyst cited increased usage by younger
people and more engagement by its current users.  Price target $39.  The
shares gained about 2 percent to $33.09.  

Sticking with social media, Snap was upgraded to market perform from
underperform at Cowen.  The analyst cited that stock`s valuation after last
year`s plunge.  Price target, $6.  Nonetheless, shares fell a fraction
today to $6.22.  

HERERA:  Still ahead, Fed speak.  What the head of the Central Bank said
today that left some investors scratching their heads.


GRIFFETH:  A new survey points to a growing risk of recession here in the
U.S.  According to “The Wall Street Journal”, economists who were surveyed
pointed to a number of concerns, including the usuals, trade tensions with
China and rising interest rates.  

On average, economists surveyed said that there`s a 25 percent chance of a
recession in the next year, which is the highest percentage since 2011.  

HERERA:  Today, the chair of the Federal Reserve says he does not see a
recession this year.  Speaking in Washington, he repeated what he told
investors last week, that the central bank will be patient when it comes to
raising interest rates.  But he also said something else that caught our

Here`s Steve Liesman.  


appearance in the past month, Fed Chairman Jerome Powell sat down for a
chat with private equity mogul David Rubenstein and tried to ease market
concern over the outlook.  Powell suggested the Fed is in no hurry to raise
interest rates.  

JEROME POWELL, FED CHAIRMAN:  I think we`re actually in a good place.  I
think where that leaves us, particularly with inflation low and under
control, is we have the ability to be patient and watch patiently and
carefully as we see the economy evolve.  

LIESMAN:  The Fed chairman repeated that he sees the U.S. economy as strong
and expects momentum from 2018 to carry over into 2019.  His biggest
concerns, weaker global growth, trade tensions and an extended government

But markets sold out of during Powell`s comments, though several factors
were in play, including a soft 30-year bond auction and a tweet from
President Trump announcing he would not be going to Davos World Economic
Forum this year because of the shutdown.  But at some point to the Powell`s
comments saying the balance sheet will be substantially smaller than it is

POWELL:  We wanted to have the balance sheet return to a more normal level,
which is no larger than it needs to be to conduct monetary policy.  Don`t
know the exact level.  That will depend on really the public`s appetite for
our liabilities, specifically currency.  To us, that`s a liability and the
public has a large appetite for currency, and also reserves and other
liabilities.  So, it will be substantially smaller than it is now.  

LIESMAN:  Investors are watching what the Fed does with its balance sheet
because of its potential to raise interest rates.  The average market
expectation is for the balance sheet to decline to around $3.5 trillion
from the current level of $4 trillion.  Investors, though, will have to
wait until the next public appearance or press conference by Powell to find
out what substantially smaller means.  



GRIFFETH:  Meanwhile, Democratic House leaders and independent Senator
Bernie Sanders today unveiled a plan to put prescription drug prices.  They
proposed legislation that would open up generic competition to brand name
drugs.  It would allow Medicare to negotiate with drugmakers and give
consumers the ability to import cheaper treatments from Canada.  Already a
lobbying group that represents drug makers came out against the bill,
saying it would wreak havoc on the U.S. health care system by curbing
innovation and making treatments unsafe.  

HERERA:  An activist investor is reportedly making a bet on MGM.  That`s
where we begin tonight`s market focus.  According to “Reuters”, starboard
value is building a stake in the resort and casino operator.  The size of
the stake is unclear, but the report says starboard plans to push for
changes at the company.  

Last week, MGM announced a cost-cutting strategy.  MGM shares rose more
than 1 percent to $28 even.  

Barnes & Noble (NYSE:NE) (NYSE:BKS) is warning about the future.  The book
seller said it could cut earnings guidance as much as 10 percent due to
higher spending on advertising and promotional activity, but there was some
good news.  Holiday sales were up 4 percent.  And according to the company,
that`s the best in several years.  Nonetheless, the shares plunged nearly
16 percent to $6.36.  

And Mongo DB has new competition.  This after Amazon (NASDAQ:AMZN) launched
a new cloud-based data software.  But Mongo DB says the new service has
shortcomings and it plans to raise awareness of its brand.  Shares were off
13 percent to $75.20.

GRIFFETH:  L Brands reported a decline in sales, joining other retailers
that had a slow holiday season.  Profit margins at its Victoria Secret
stores were down significantly, but it wasn`t all bad news.  The company
does expect fourth quarter earnings to be on the higher end of its earlier
forecast.  But it wasn`t enough to send the stock higher.  Shares fell 4
percent today to $26.99.  

And investors had their first chance today to react to last night`s
quarterly results from WD-40 (NASDAQ:WDFC).  The household products
manufacturer delivered earnings in line with expectations, helped by strong
sales of its signature WD-40 (NASDAQ:WDFC) spray lubricant.  However, the
CEO did say that there may be future volatility in its sales levels due to
the timing of various promotional programs.  Sales fell nearly 7 percent
today to $171.04.  

And BlackRock (NYSE:BLK) reportedly plans to cut about 3 percent of its
workforce in the coming weeks.  That would work out to about 500 workers.  
The world`s largest asset manager said that it`s reinvesting in businesses
where it sees growth, like technology, retirement and nontraditional
alternative investments.  BlackRock (NYSE:BLK) shares were down just a
fraction today to $399.50.  

HERERA:  The chairman of Sears (NASDAQ:SHLD) late yesterday submitted a
revised takeover bid of more than $5 billion for that retailer.  Eddie
Lampert, who is also Sears (NASDAQ:SHLD) majority shareholder, sweetened
his offer in order to win approval from a federal bankruptcy court.  
Lampert`s hedge fund will take on about $660 million in additional

In an effort to strengthen its proposal before a Monday bankruptcy auction.  
The hedge fund said that the plan will, quote, provide more value to
stakeholders than any other option, in particular a liquidation.  

GRIFFETH:  Coming up, one of the most popular vehicles on the road is
getting a makeover.  


new redesign of the Ford Explorer in eight years.  But is it enough to hold
off the competition?  

I`m Phil LeBeau.  That story coming up on NIGHTLY BUSINESS REPORT.



GRIFFETH:  Some positive news for the housing market.  Mortgage rates have
fallen to a nine-month low.  According to Freddie Mac, the average rate of
the benchmark 30-year fixed rate mortgage dropped to 4.45 percent last
week.  That was the sixth straight week of declines, but it is also still
higher compared to last year.  The drop has prompted a rise in mortgage
applications and in refinancings, but as we`ve been reporting, the partial
government shutdown could keep some of those applications from closing.  

HERERA:  Fiat Chrysler will pay about $800 million in fines and costs to
settle allegations that it used what`s called a defeat device to pass
emissions tests.  The Justice Department sued the automaker in 2017,
claiming illegal software was installed on Cherokees and Ram pickups to
evade pollution controls.  Fiat Chrysler says the resolution will help
maintain customer trust.  

GRIFFETH:  Tesla said today it`s going to stop selling the least expensive
versions of its Model S and Model X vehicles.  Orders will end on Monday
for both of those.  Customers will still be able to purchase the higher-end
versions which come at a higher price point, upwards of $90,000.  Tesla did
not say why the lower priced models are being discontinued but experts are
guessing it may help the company control costs or reallocate materials and

HERERA:  Britain`s biggest car maker is cutting a lot of jobs.  Jaguar Land
Rover will reduce its global workforce by 4,500 as part of a plan to
control costs.  That is in addition to the 1,500 that left the automaker
last year.  The company has been under pressure in markets like China,
where sales were soft for the first time in 20 years.  Jaguar Land Rover
has also suffered from the uncertainty surrounding Brexit.  

GRIFFETH:  Ford is cutting thousands of jobs as well as it moves to
overhaul its global business.  The automaker said today it`s going to close
plants in Europe and end production of some low-profit models.  Ford says
that the restructuring will cost about $11 billion and it will take between
three and five years to reshape its overseas business.  

HERERA:  And Ford also sells America`s top midsize SUV.  And now, the Ford
Explorer is getting a makeover.  The automaker is rolling out the first
all-new model in eight years, as Ford pushes to rebuild sales that have
been under pressure.  

Phil LeBeau has the story from Detroit.  


LEBEAU:  On a big stage taking up a third of a football field, Ford rolled
out an all-new version of its biggest selling SUV, the Explorer.  Sleeker
and packed with the latest technology, the new explorer hits showrooms
during the busy summer sales season.  

JIM FARLEY, FORD MOTOR COMPANY:  This is a pace car for a whole new utility
lineup, Phil.  So this is really important not only for our brand but for
our business.  

LEBEAU:  Ford`s business is under pressure.  It`s downsizing in Europe,
rebuilding in China, and investing heavily in autonomous vehicles that may
not pay off for years.  All reasons Ford needs a new Explorer to generate
strong sales.  

The Explorer may be the best-selling midsize SUV in the U.S., but
competition is becoming more intense.  With a wave of new models rolling
into showrooms over the next three years.  

JEFF SCHUSTER, LCM AUTOMOTIVE:  You`ve got another six models or so coming
into the market this year and into next year, it`s going to be tougher for
each of those models, including the Explorer, to maintain their volume and

LEBEAU:  With gas prices still relatively low and job growth strong, Ford
sales should hold up early this year until the automaker`s redesigned
Explorer and an all-new Ranger pickup roll into showrooms and bring with
them an expected surge in business.  

FARLEY:  This is when the car business is great.  You have new models.  
Customers are coming in shopping the brand.  It`s going to be a lot of fun
for Ford.  

LEBEAU:  An iconic model capable of going offroad, trying to smooth out a
bumpy period for America`s second largest automaker.  



GRIFFETH:  Finally, Oracle (NASDAQ:ORCL) has entered into a new deal that
it hopes will deliver a home run.  The company has would be the naming
rights to San Francisco Giants waterfront ballpark, which will now be
called Oracle (NASDAQ:ORCL) Park.  

During an interview today, Oracle`s CEO and the head of the Giants called
it a perfect partnership.  


LARRY BAER, SAN FRANCISCO GIANTS CEO:  It`s a 20-year partnership with
Oracle (NASDAQ:ORCL).  I mean, the way we look at it is, look, we are in
Silicon Valley, within a 30, 40-minute drive from here, their company is
changing the world.  One of those companies is Oracle (NASDAQ:ORCL).  We`re
partnering with them for the foreseeable future.  


GRIFFETH:  It is estimated the deal is worth somewhere between $300 million
and $350 million.  

HERERA:  That does it for us tonight.  Thanks for joining us.  

GRIFFETH:  See you tomorrow.


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