Transcript: Nightly Business Report — January 15, 2019

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



prime minister`s Brexit plan suffers a crushing defeat and the economic 

consequences are anything but clear.  


House now estimates that the cost of the closure will be twice as steep as 

originally forecast.  

GRIFFETH:  Pricing power.  Netflix (NASDAQ:NFLX) is charging more, so are 

some drug companies.  And the ability to do that could separate the winners 

from the losers.  

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this 

Tuesday, January 15th.  

HERERA:  Good evening, everyone, and welcome.  

We usually start the show with news about the U.S. economy, American 

business, or the market.  Tonight we`re starting overseas in the United 

Kingdom, and the biggest money story of the day.  British Prime Minister 

Theresa May suffered an historic defeat.  Her plan to withdraw the country 

from the European Union failed, and it wasn`t even close.  Tomorrow, May 

faces a no-confidence vote.  

The deadline to leave the E.U. is the end of March, and there`s currently 

no plan on how to do that.  It is creating uncertainty for investors, who 

fear global growth could take a hit as a result of it, and that created 

volatility on Wall Street.  The Dow Jones Industrial Average added 155 

points to 24,065.  The Nasdaq was up 117, and the S&P 500 rose 27.  

We begin tonight with Willem Marx in London.  


JOHN BERCOW, BRITISH HOUSE SPEAKER:  The ayes to the right, 202.  The noes 

to the left, 432.  So, the noes have it.  The noes have it.  


major defeat tonight, one that she had warned would be cataclysmic and it 

was certainly historic, the largest government defeat in the House of 

Commons since 1924.  Rather than wait days for her reaction to this very 

but anticipated public loss, lawmakers had only to wait minutes.  

THERESA MAY, BRITISH PRIME MINISTER:  It is clear that the house does not 

support this deal, but tonight`s vote tells us nothing about what it does 

support.  Nothing about how — nothing about how or even if it intends to 

honor the decision the British people took in a referendum parliament 

decided to hold.  

MARX:  Prime Minister May had for months insisted the deal her government 

negotiated with the E.U. was the best option for Brexit, and ultimately, 

the only game in town.  But tonight, there was for the first time an 

acknowledgement that she would seek advice and input from her political 


Chief among those, of course, is Jeremy Corbyn, the leader of the Labour 

opposition party.  He was quick to respond to the prime minister`s setback.  


of no confidence in this government.  And I`m pleased — I`m pleased that 

motion will be debated tomorrow, so this house can give its verdict on the 

sheer incompetence of this government.  

MARX:  And so, tomorrow, the U.K. will once again face a parliamentary 

moment of truth.  It`s clear that lawmakers across the political spectrum 

are unhappy with the current set of Brexit proposals, but tomorrow, we`ll 

find out if any of May`s own conservative party are so dead set against her 

plan they`d vote against the conservative government and potentially open 

the door to a new general election.  

May had warned a defeat tonight would increase the chances of a second 

referendum on E.U. membership, and after this result, there are some 

opposition MPs who tell us they think she`s right and they would welcome 

the chance to reverse Brexit.  

For NIGHTLY BUSINESS REPORT, I`m Willem Marx in London.  


GRIFFETH:  So, with that defeat today on Brexit and the unknown economic 

implications, does this become a good time or not to invest in Europe?  

Joining us tonight, Andres Garcia.  He`s founder and CEO of Zoe Financial.  

Andres, good to see you again.  Welcome back.  


GRIFFETH:  I mean, major averages in Europe have been going down for about 

a year now.  Now you have the chaos in the U.K. over the Brexit vote.  Is 

this the kind of opportunity that presents itself for investors, do you 


GARCIA:  So the way that I would put this is, if you are trying to invest 

for the long term, you`re trying to one day buy a house, or you`re trying 

to save for retirement, or for your college education, you should not 

dictate those type of investment decisions based on geopolitical decisions.  

Why?  Because we don`t have an edge on what`s going to happen and tonight 

is a perfect example of that.  

So, I would take a step back and say, are you globally diversified?  Do you 

have any exposure outside of the United States?  If the answer is no, that 

actually might be the wrong answer.  Obviously, your risk tolerance comes 

into play, but the U.S. only accounts for roughly 50 percent of the global 

equity markets.  So, there`s a lot of stocks out there that you need to 

have some exposure to, regardless of the situation when it comes to their 


HERERA:  You know, but to bill`s point, this has been unfolding for more 

than a year now, so it`s a longer term political event than others that we 

have seen around the globe.  Should you not take that into consideration 

when you`re looking to divest your portfolio to European stocks?  

GARCIA:  Yes.  So, I guess two-part answer there.  One is valuations 

matter, right?  So, in essence, the market has been pricing European stocks 

at a much lower valuation, for instance, than U.S. stocks because of a lot 

of what`s going on.  

But two, longer term, if we look at what`s happening in England with Brexit 

and what we saw in Italy with their debt situation, a lot of that is the 

result of the inability of Europe to grow at a pace of the U.S., even 

though the U.S. hasn`t been growing very fast.  They have been unable to 

grow at a pace that they would want to, and that creates a lot of 

polarization politically, so it`s almost a result of their inability to 


GRIFFETH:  Before you go, and I suspect I know the answer, if you decide 

you do want to invest in Europe, do you pick a country, an industry, or you 

just pick a mutual fund or an exchange rated fund and diversify it that 


GARCIA:  I would say we have very little edge and tonight is a very example 

of dictating what`s going to happen in U.K. versus what`s going to happen 

in Italy.  So I would try to be diversified if you don`t have a specific 

knowledge base on that region.  

GRIFFETH:  Andres Garcia with Zoe Financials, always good to see you.  

Again, thanks for joining us tonight.  

GARCIA:  Thanks for having me.  

HERERA:  It`s the economy in focus here at home, especially when it comes 

to the impact of the partial government shutdown.  Today on an earnings 

conference call, JPMorgan`s CEO, Jamie Dimon, cited research that says if 

the shutdown extends through the quarter, growth could go to zero.  

He added that, quote: We need good government policy to help the economy 

and the shutdown is not going to help the economy.  We don`t know exactly 

what it is going to do, but it is not a positive, end quote.  

And the CEO of Delta today said his company is losing millions in revenue.  


ED BASTIAN, DELTA CEO:  We`re seeing a reduction in revenues the month of 

January.  Not huge, but about $25 million due to the fact that government 

contractors and some government officials are not traveling the way they 

would anticipate because of the shutdown.  


HERERA:  Now, according to CNBC, the White House is re-evaluating the 

shutdown`s effect.  

Here`s Steve Liesman.  



administration has doubled the estimated cost of the government shutdown.  

An administration official tells CNBC they now believe the shutdown will 

subtract 0.1 percentage points from the economy every week.  It appears the 

estimate, along with other economists, that the cost was 0.1 percentage 

points every two weeks.  

The increased estimate comes from bringing in more effects from private 

contractors who will be out of work and a greater impact estimated from the 

loss of other government functions.  So, the administration now sees a half 

point being shaved off first quarter GDP from the shutdown if it lasts 

through January.  

BRETT RYAN, DEUTSCHE BANK:  It certainly presents a risk.  I think the 

White House`s numbers make sense if you assume about a million federal 

contractors that are also not getting paid.  

LIESMAN:  The negative effects from the shutdown just adds to other worries 

about trade tensions and global economic weakness and the waning effects of 

stimulus.  Mark Zandi from Moody`s Analytics in a research report yesterday 

estimated a less severe impact.  He said there could be a half point to GDP 

if the shutdown lasts all the way through March.  

But Ian Shepherdson from Pantheon thinks it could cause GDP to go negative 

in the first quarter in part because the first quarter tends to be 

seasonally weaker than the other three.  

Some of the losses could be recovered next quarter when back pay is 

remitted to workers, but not all of it.  The irony?  Economists lack some 

of the data that show the shutdown`s impact because of the shutdown itself.  

Several key economic indicators are not being published because the number 

crunchers have been furloughed.  That means no December retail sales report 

for the critical Christmas holiday season and likely no GDP report for the 

end of this month.  

But you don`t need economic reports to know unpaid workers are bad for the 

economy.  They`ll just tell us eventually how bad it was.  And latest 

estimate is that it will be worse than originally thought.  



GRIFFETH:  Elsewhere, a Federal Reserve official says now may be the time 

to pause when it comes to increasing interest rates.  Kansas City Fed 

President Esther George said today that the central bank should proceed 

with caution and be patient.  She did acknowledge, though, that it`s 

possible some additional rate increases might be appropriate and that the 

economy is overall doing well.  

GRIFFETH:  A key gauge of inflation that the Federal Reserve watches 

moderated in December.  The producer price index, which is the measure of 

the prices that businesses receive for their goods and services, fell 0.2 

percent, mostly due to a steep drop in energy prices.  One economist said 

that faltering demand for new orders and market volatility could prevent 

companies from passing along price increases.  

GRIFFETH:  But that is not stopping Netflix (NASDAQ:NFLX), which today did 

hike prices for its streaming service by the most ever for its millions of 

subscribers.  Investors cheered the move, though.  They sent the stock up 

more than 6 percent today.  

Julia Boorstin has details.  



(NASDAQ:NFLX) is raising its prices by between 13 percent and 18 percent 

for its 58 million streaming subscribers in the U.S. and more in Latin 

America.  The price increases start today for new customers and will roll 

out in coming months for existing customers.  

The price for the lowest cost offering will increase by $1 to $9, it`s 

first-ever increase in Netflix` basic plan since launching online streaming 

in 2010.  The price for Netflix`s most popular plan has the biggest 

percentage increase to $13 per month from $11.  While the highest cost plan 

is increasing by $2.  

Netflix (NASDAQ:NFLX) telling us, quote: We change pricing from time to 

time as we continue investing in great entertainment and improving the 

overall Netflix (NASDAQ:NFLX) experience for the benefit of our members.  

Last year, Netflix (NASDAQ:NFLX) spent about $8 billion on content as 

rivals Amazon (NASDAQ:AMZN), Hulu and HBO ramp up their spending.  Netflix 

(NASDAQ:NFLX) will face new competition from Disney (NYSE:DIS) and AT&T`s 

streaming services set to launch later this year.  And NBCUniversal 

announcing just yesterday it will introduce an ad-supported free service in 


Despite the range of coming rivals, investors and analysts are so far 

largely optimistic that the investment in content will pay off and the 

higher prices won`t alienate subscribers.  

BILL NYGREN, OAKMARK FUNDS:  Their move today to increase prices again I 

think shows what a value Netflix (NASDAQ:NFLX) is to the customer.  And we 

don`t think they`ll lose subscribers or even slow their subscriber growth, 

despite having somewhat of a meaningful price increase here.  

BOORSTIN:  Since the last time Netflix (NASDAQ:NFLX) hiked prices October 

5th, 2017, the company`s shares are up over 90 percent.  Today`s price hike 

speaks to the company`s confidence that hit films and shows such as “Bird 

Box” and “Stranger Things” will convince consumers it`s worth paying a 

little more.  

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


HERERA:  And that brings us to pricing power.  What is it and why can some 

companies do it while others can`t?  

We`re joined right now by Nancy Tengler, chief investment strategist at 

Tengler Wealth Management.  

Good to see you, Nancy.  


Thank you, Sue.  You too.  

HERERA:  We tasked you with coming up with a couple of companies that have 

that pricing power.  First, you say there are two components to that, brand 

and competition, correct?  

TENGLER:  Yes, I do.  And you see it with Netflix (NASDAQ:NFLX).  Brand is 

driving — is driven by the content.  They know they have a great lineup 

right now.  And competitively they were priced below their competition and 

they knew that Disney (NYSE:DIS) was coming in shortly so they wanted to 

get that price increase before Disney (NYSE:DIS) came in with their 


GRIFFETH:  This is a favorite topic for Warren Buffett.  I mean, he loves 

to invest in companies that has pricing power.  How does a company achieve 

pricing power, in your view?  

TENGLER:  Yes.  So, Bill, good to see you too.  Listen, it is driven by 

brand and market share, which is a form of competition.  Just think back to 

Coca-Cola (NYSE:KO).  They were able to raise prices consistently for 

decades, and then finally consumers pushed back when either the company 

forgets to innovate and add value to those higher prices.  

And so, Coke spent years moribund and with no growth, and then they came up 

with a brilliant strategy.  They shrunk packaging size and that solved 

consumers` problems about not wanting to have too much sugar intake and 

they raised prices per ounce by 1.5 cents per ounce.  So they went from 3.5 

cents to 5 and suddenly sales took off again.  

So, great companies with strong balance sheets and brands are able to 

figure out the pricing problem eventually, and they almost always go too 


HERERA:  All right.  Disney (NYSE:DIS) is one of your other picks.  Coke 

was your first.  Disney (NYSE:DIS) is your second.  

They certainly have — I have three kids, so I know they have pricing power 

when it comes to the theme parks, but maybe not in other areas.  Why do you 

like Disney (NYSE:DIS)?  

TENGLER:  Well, and so you`re right, Sue.  What they have demonstrated is 

that they can pretty much with impunity raise prices at the theme park and 

people just keep coming.  So, they had a 17 percent increase about a year 

ago and now they`re up — 17 or 18.  Now they`re up 7 percent this year.  

And at some point, what we`ll have to see is if consumers start to pull 

back.  And certainly, they will during times of recession.  And that`s 

usually then what brings the companies back around to innovation.  

But what we don`t know is if they can stream as a competitor to Netflix 

(NASDAQ:NFLX).  We`ll find that out later this year.  

HERERA:  All right.  Nancy, thank you very much.  

TENGLER:  Thanks for having me.  

HERERA:  Nancy Tengler with Tengler Wealth Management.  

GRIFFETH:  Time to take a look at today`s “Upgrades and Downgrades”.  

Now, Oracle (NASDAQ:ORCL) was downgraded to equal weight from overweight at 

Morgan Stanley (NYSE:MS).  The analyst there cites a lack of catalysts 

drive that stock higher this year.  The price target was cut to $53.  That 

stock rose a fraction to $48.38 today.  

Citi was upgraded to outperform from market perform at BMO Capital, with 

the analyst citing the bank`s earnings that were out yesterday that we told 

you about, and the stock`s valuation.  The price target $92, and that stock 

was up 4 percent today to $61.38.  

And Viacom (NYSE:VIA) was upgraded to buy from hold at Pivotal Research.  

The analyst says that the company`s film studio, Paramount Pictures, will 

turn a profit this year, which in turn should lead to better overall 

margins.  The price target now $36 and that stock rose a fraction to 


HERERA:  Coming up, remember all of those big corporate buybacks?  They`re 

now showing up in profit reports, giving a boost to earnings per share.  


HERERA:  Two Dow components were out with earnings today.  

First, United Health Group which reported better than expected results 

helped by growth in its services business.  But it also saw higher than 

expected medical costs.  That didn`t stop investors who sent the stock 3-

1/2 percent higher.  

And then there was JPMorgan (NYSE:JPM) which posted quarterly profit below 

analysts` expectations for the first time in 15 quarters.  The biggest U.S. 

bank cited softness in its bond trading operations, but its more than $7 

billion in profit was a record.  

And both stocks rose in today`s trading session.

GRIFFETH:  It was a mixed quarter, though, for Wells Fargo (NYSE:WFC).  

That company today reported better than expected earnings per share, 

although its profit fell compared to a year earlier, and revenue came in a 

little lighter than forecasted.  The bank continues to deal with that cap 

on its assets that was put in place by regulators in response to the number 

of scandals that had plagued the bank.  That cap is expected to remain in 

place through the end of this year.  And the stock fell about 1.5 percent 

in today`s trade.  

HERERA:  Wells Fargo`s better than expected earnings per share was helped 

by the bank`s stock repurchase program.  Wells Fargo (NYSE:WFC) bought back 

more than $7 billion worth of stock in the fourth quarter.  Buybacks reduce 

the company`s share count, spreading the profits across fewer shares.  

And if you recall, buybacks hit a record last year of more than $1 


Rob Lambert, investment strategist at Strategic Wealth Partners, joins us 

to talk about that.  

Welcome, Rob.  Nice to have you here.  


having me.  

HERERA:  Do you expect that record-breaking pace of buybacks to continue 

now that we`re in a new year and a different economic environment?  

LAMBERT:  I do.  You see a lot of those buybacks in 2018 are going to 

trickle into 2019.  That number was over $1 trillion in 2018, but let`s 

remember, that number is approved purchases.  So, a lot of that was in 

2018.  It was a record year for actual purchases.  That`s going to continue 

into 2019 because a lot of tax savings in 2018 were actually used for 

bonuses and paying down debt as well.


LAMBERT:  So, you`re going to see that continue into 2019 and 2020 as well.  

GRIFFETH:  You know, we went through a period where companies were just 

buying back at a rapid pace because they couldn`t think of anything else to 

do with all the cash they had out there.  

But at the same time, it also improved their bottom line because as Sue 

pointed out at the top here, they have fewer shares that spread over the 

profitability there.  So, are we really growing when we see improved 

profitability because of this financial engineering that it`s known as?  

LAMBERT:  We are seeing strong EPS growth.  We are seeing strong net income 

growth but not as strong as EPS.  So, that`s where your share buybacks come 


GRIFFETH:  Has that become a red flag for you when a company has been 

buying back its shares then and improves their profitability at the same 


LAMBERT:  It doesn`t necessarily become a red flag because let`s not forget 

buybacks are a good thing.  You`re increasing your payouts to shareholders, 

but investors need to know what they`re paying a premium for as long as the 

P/E stays the same on that stock, it`s going to lift the stock up because 

as you said there`s less shares.  

So, investors just need to focus on the quality of the earnings.  Let`s 

focus on strong revenue growth and strong net income growth, rather than 

that EPS number that investors like to use to justify the price they pay 

for stock.  

HERERA:  Rob Lambert with Strategic Wealth Management — Rob, thank you.  

LAMBERT:  Thank you.  

GRIFFETH:  Well, the air was let out of the tires at Goodyear, and that`s 

where we begin tonight`s “Market Focus”.  

The company cut its full year operating income guidance and placed the 

blame on conditions in China and in Europe.  Goodyear also cited a decline 

in its tire unit volumes in the fourth quarter and a rise in raw material 

costs.  Shares fell by 13 percent today to $19 even.  

Sherwin-Williams (NYSE:SHW) is warning that 2018 earnings will come in 

below expectations.  The paint maker cited weak sales in North America, but 

the CEO says the demand decline was a blip, not a sign of broader economic 

troubles.  Shares, though, fell by 4 percent today to $381.44.  

And private equity firm Apollo Global Management is reportedly nearing a 

deal to buy an aluminum producer, Arconic.  According to “The Wall Street 

Journal”, the takeover would be valued at $10 billion.  It would be one of 

the largest leverage buyouts we`ve seen in recent years, and the deal could 

be announced this year.  Arconic shares rose 3.5 percent to $20.07.  

HERERA:  Walmart is splitting with CVS (NYSE:CVS).  The retailer`s 

pharmacies will no longer be part of CVS` health plans after a dispute over 

pricing.  CVS (NYSE:CVS) is one of the largest administrators of 

prescription drug plans in the U.S.  Walmart is complaining of what it 

calls unregulated power of pharmacy benefit managers.  Shares of CVS 

(NYSE:CVS) fell to $63.74 while Walmart rose to $96.25.  

Walgreens is entering into a strategic alliance with Microsoft 

(NASDAQ:MSFT).  The drugstore chain will use Microsoft`s cloud computing 

services to gather data in an effort to improve health outcomes and lower 

the cost of care.  Financial terms not disclosed.  Walgreens rose more than 

1 percent to $71.79.  Microsoft (NASDAQ:MSFT) gained nearly 3 percent to 


And United Airlines reported profit that topped Wall Street expectations, 

thanks to an increase in the number of flights out of its hubs.  The 

carrier also said it was able to win back customers after a series of 

public relations problems.  Shares rose in initial after-hours trading and 

finished the regular season 1.5 percent higher to $81.20.  

GRIFFETH:  Coming up, putting together the retail puzzle one piece at a 



HERERA:  Sears (NASDAQ:SHLD) Chairman Eddie Lambert reportedly presented a 

new bid for the retailer today to save the company from liquidation.  

According to “The Chicago Tribune”, the new offer includes terms that are 

more favorable to the chain and its creditors.  The overall value of 

Lambert`s deal is still pegged at more than $5 billion.  

GRIFFETH:  Well, there`s a big question mark hanging over the retail 

industry right now.  Just last week, Macy`s (NYSE:M) cut its profit 

forecast after seeing weak holiday sales.  And today, during a panel 

discussion, the company`s CEO said that Macy`s (NYSE:M) needs to do a 

better job of focusing on the customer.  


JEFF GENNETTE, MACY`S CEO:  I think the one word is experience.  We`ve got 

to figure that out.  We`ve got customers that have put us on notice.  The 

better the experience, the more we`re going to build their lifetime value.


HERERA:  As we told you earlier in our program, the retail sales number 

itself will not be released tomorrow because of the government shutdown.  

So, Courtney Reagan tried to piece together what we know about the state of 

the industry.  She`s in New York for us tonight.



shutdown is causing an economic data void.  With no one able to work in the 

Commerce Department to gather the data, there won`t be a December retail 

sales report tomorrow.  Without the Commerce Department`s December retail 

sales, the national retail federation can`t give its final retail sales 

tally because it uses certain categories of the government`s numbers for 

November and December.  

While most metrics put the online sales growth over the holidays between 16 

percent and 19 percent, when it comes to the in-store numbers and the 

overall results, it gets a little murky.  First data which processes 

payment when you swipe your card at check out says holiday sales grew under 

2.5 percent in 2018.  


mixed.  I`d say that`s a fair characterization.  I`ll call it varied.  I 

would say the season started strong, as it typically does over 

Thanksgiving, Black Friday through Cyber Monday.  And then as it usually 

does, it tapers off to kind of like a low single digit, even keel 

trajectory for most of December.  

REAGAN:  MasterCard (NYSE:MA) says it was the strongest season in six 

years, with shoppers spending 5 percent more in November and December than 

the year prior.  

While credit card purchase volume grew at Citi, JPMorgan (NYSE:JPM) and 

Wells Fargo (NYSE:WFC) during the holiday quarter, all three banks also 

said purchase volume decelerated from the prior quarter.  The mixed 

messaging continues with the retailers results.  Even as most saw holiday 

sales increase over last year.  

Target`s strong holiday sales put it on track to having its strongest sales 

results in 13 years.  However, Macy`s (NYSE:M) holiday sales while up, fell 

short of expectations and the department store lowered its annual forecast 

as a result.  Kohl`s (NYSE:KSS) saw its holiday sales grow similar to 

Macy`s (NYSE:M) and it increased part of its forecast.  

Lululemon, American Eagle and Tilly`s saw among the strongest sales growth.  

While Tailored Brands, the company that owns Men`s Warehouse and Jos. A. 

Bank reported a drop in holiday sales, along with JCPenney and Express 

(NYSE:EXPR).  But without the government data as a broad equalizer, it`s 

still hard to know exactly how the season averaged out.  

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in New York City.  


GRIFFETH:  And before we go, a final look at this day on Wall Street.  Of 

course affected by that historic Brexit vote in the U.K.  The Dow added 155 

points.  The Nasdaq was up 117, led higher by Netflix (NASDAQ:NFLX), by the 

way, on that price increase.  And the S&P 500 rose by 27.  

Of course, it would be very interesting to see how the European markets 

respond tomorrow to the Brexit vote.  We may have that no-confidence vote 

in parliament as well.  So another historic day could be in the offing 

tomorrow as well.  

HERERA:  And we will be here to cover it all for you.  That does it for 

NIGHTLY BUSINESS REPORT tonight.  I`m Sue Herera.  Thanks for joining us.  

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


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