Transcript: Nightly Business Report – January 24, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Inside Intel — and it’s not looking pretty.  The company reported disappointing earnings and it’s placing the blame on China’s slowing economy.  

Miles apart.  The commerce secretary says the U.S. and China are nowhere close to securing a trade deal, just days ahead of a critical meeting with Chinese officials.  

Back to the drawing board.  Two Senate bills to reopen the government failed, extending the shutdown.  

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday, January 24th. 

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

Today was a classic example of the tug of war between earnings, trade and the partial government shutdown.  

Tonight, we begin with earnings.  Intel reported revenue that was below expectations and forecast more of the same for the first quarter.  Profit will also come in below estimates, adding to concerns that China’s slowing economy and the trade war are impacting the entire semi conductor industry.  

Here are Intel’s numbers.  The company earned $1.28 a share, 6 cents above what was expected, but revenue missed expectations, coming in at more than $18 billion, and that sent the stock sharply lower in initial after-hours trading.  

Josh Lipton has more on Intel’s results.  

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  $9.8 billion, that was one big number in Intel’s report.  It refers to revenue that the CCG unit generated or chips for PCs and modems.  

Susquehanna’s Chris Roland says that was a disappointment with the company pinning the pressure on weakening mobile demand from Apple, which is a customer.  Roland also says DCG revenue was weaker than expected, chips for servers.  Company saying its cloud customers are not spending as much on new chips.  

Still, Roland is an Intel bull, says it’s a leader in the data center, with growing opportunities and memory and networking markets.  

For NIGHTLY BUSINESS REPORT, I’m Josh Lipton, San Francisco.  

(END VIDEOTAPE)

HERERA:  Now to trade, which kept a lid on the Dow’s gains and resulted in a mixed finish for stocks.  The Dow Jones Industrial Average fell 22 points to 24,553.  The Nasdaq rose 47 and the S&P 500 added 3.  

And it was comments from the commerce secretary on trade earlier today that rattled investors.  They came just one week before Chinese officials are set to arrive in Washington for negotiations.  

Kayla Tausche reports.  

(BEGIN VIDEOTAPE)

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Commerce Secretary Wilbur Ross says the U.S. and China may still be at odds over what a forthcoming trade deal looks like.  While Beijing is willing to buy more soybeans and natural gas, Washington wants more permanent changes.  

WILBUR ROSS, SECRETARY OF COMMERCE:  We’re miles and miles from getting a resolution, and frankly, that shouldn’t be too surprising.  Trade is very complicated.  

TAUSCHE:  At the White House later, National Economic Council Director Larry Kudlow tried to clarify that remark, while acknowledging there’s still a lot more work to do.  

LARRY KUDLOW, NATIONAL ECONOMIC COUNCIL DIRECTOR:  The scope of this thing is so grand.  Now, that’s a good thing because we’ve never been so comprehensive.  On the other hand, we have miles to go before we sleep.  

TAUSCHE:  China, however, is optimistic.  At the World Economic Forum in Davos, a top regulatory official saying he believes President Trump watches the stock market and doesn’t want it to drop.  

In recent weeks, the market has risen on news of a truce between the countries at the G-20, but since then advisers have said they don’t want to lose the opportunity to press China to make long-term changes.  

As the trade fight with China lingers on, House Republican allies wanting to arm Trump with more tools.  

REP. SEAN DUFFY (R), WISCONSIN:  They’re more of a bludgeon than a scalpel.  

TAUSCHE:  Unveiling a product that would let him put tariffs on countries with the stroke of a pen.  

DUFFY:  I’m a free trade guy, I don’t like tariffs.  But I guess I also want to be reciprocal as well.  And so, when the president says this tool is necessary and Mr. Lighthizer says I need this tool, I want to give them the tool to actually to win this for the American worker and the American future.  

TAUSCHE:  But it’s near future that has investors worried and the White House is not viewing next week’s meeting with China as the end of the road.  

For NIGHTLY BUSINESS REPORT, I’m Kayla Tausche in Washington.  

(END VIDEOTAPE)

HERERA:  Also in Washington, some movement late today on the shutdown.  President Trump said he would support a funding bill if Senate leaders McConnell and Schumer came to an agreement.  This after the Senate failed to pass two bills to reopen the government.  

Ylan Mui is on Capitol Hill for us tonight.  

Ylan, you’re a busy girl.  The bills failed today but the two sides are talking.  There’s some late developments.  So, handicap for us what you think is coming next?  

YLAN MUI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Yes, it does look like there is some real movement here on Capitol Hill.  We saw Chuck Schumer just as he was leaving Mitch McConnell’s office.  Reporters tried to ask him questions about what they were talking about and all he would answer was we’re talking, we’re talking, we’re talking.  

Now, the president, again, as you said, seeming to suggest that he would support any sort of compromise that these two Republican and Democratic leaders could potentially reach.  But the president did include an important caveat there.  He said he would support any reasonable agreement.  So, the question remains what is a reasonable agreement for the president.  We just don’t know.  

South Carolina Senator Lindsey Graham said that he has some indication of what the president might support.  He said that Democrats need to accept the fact that there’s going to need to be money for a barrier of some kind, it won’t be a concrete wall, but there will need to be some sort of border system funding.  Other than that, you know, could the government potentially open for three weeks to give leaders time to hash out these bigger, thornier issues?  We’ll have to see.  But certainly a lot of discussion and sort of movement percolating here on the Hill.  

HERERA:  It all comes as the public pressure seems to be mounting on both sides of the aisle, and we’re hearing a lot of stories of furloughed federal workers who are having a very difficult time making ends meet.  And some of them are not making ends meet.  Is some of that influencing the move to perhaps try to reopen the government on a temporary basis?  

MUI:  I think that lawmakers here have been hearing from their constituents.  They have seen the protests here in Washington and across the country from workers who are now going to be facing a second missed paycheck once it comes to Friday.  This is already the longest shutdown in American history.  And neither side wants to carry this sort of mantle much longer than they have to already.  

HERERA:  Indeed.  Ylan, thank you so much.  Ylan Mui on Capitol Hill.  

Well, the impact of the shutdown was on the minds of business leaders who were gathered at the World Economic Forum for its annual meeting in Davos, Switzerland.  

(BEGIN VIDEO CLIP)

JAMES GORMAN, MORGAN STANLEY CHAIRMAN & CEO:  It’s extremely negative if this shutdown goes on much longer.  Firstly, at a human level, you’ve got 800,000 families affected by this.  This is just not — this is not the way the U.S. should be working.  

And I truly hope the leadership of both sides come to some way of resolving what seems to be a relatively straightforward problem.  

DAVID TAYLOR, PROCTER & GAMBLE CEO:  Certainly, if it were to sustain itself, it would be a very high concern.  It is a concern for all of us.  We want our government operating.  I haven’t seen yet a big impact on the business, the category sizes, but do I think it will over time?  Certainly if it would extend.  

MARK WEINBERGER, ERNST & YOUNG CHAIRMAN & CEO:  We do a lot of filing with the FCC and it is slowing down IPOs, it is slowing down tax refunds.  There’s a real effect.  But as far as reducing the GDP over the long term, I think there are bigger issues.  

The real thing it does is undermine the confidence people have in the government working together over the next two years.  

BRUCE BROUSSARD, HUMANA CEO:  It’s not hitting us as much but it is hitting some of our customers.  And to me, that’s probably the worst.  You don’t know in the middle income and lower income how it’s affecting us.  

STACEY CUNNINGHAM, NYSE PRESIDENT:  It’s not yet having a major impact.  If it does a few more weeks, it will, especially for companies that need to raise money because they’ll have to choose a different path if they were counting on the public markets and can’t do that.  

(END VIDEO CLIP)

HERERA:  And one industry caught right in the middle of the shutdown is the airlines.  Despite that headache, though, a number of them reported better-than-expected earnings and gave early upbeat forecast for business this year, sending shares of American, Southwest and JetBlue higher.  

Phil LeBeau has more from Ft. Worth, Texas.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  These are interesting times for the airlines.  On one hand, business is strong.  American, Southwest and JetBlue all reported better-than-expected fourth quarter earnings.  

On the other hand, the government shutdown means TSA agents, air traffic controllers, and some in the FAA are working without pay, so the industry is feeling pressure.  

GARY KELLY, SOUTHWEST AIRLINES CHAIRMAN & CEO:  There is a risk that air traffic will have to be slowed down, because they will be safe.  They do a phenomenal job managing our airspace and they will be safe, but it may not be very efficient and it certainly puts a lot of stress on the people there.  It is a crazy way to run our country, absolutely absurd.  

LEBEAU:  The impact is noticeable.  Southwest is delaying the start of service to Hawaii because the FAA cannot certify its planes.  Alaska Airlines is awaiting approval to start flights into a new airport north of Seattle.  And airlines like Delta are flying fewer government workers and contractors, means they bring in less money.  

Still, airlines see no slowdown in the number of people looking to fly.  The outlook for the economy remains robust.  

DOUG PARKER, AMERICAN AIRLINES CEO:  As we go to ‘19, fuel prices moderate a little bit and, yes, as it relates to demand, demand for air travel remains strong, business and leisure.  We continue to see record revenue.  

LEBEAU:  With jet fuel prices still in check, this is a good environment for the air industry.  

The challenge for carriers is adding more flights so they can grow their business, while not flooding the market with too many seats that could spark a fare war.  That’s a tricky balancing act that will determine how the airlines do in 2019.  

Phil LeBeau, NIGHTLY BUSINESS REPORT, Ft. Worth, Texas.  

(END VIDEOTAPE)

HERERA:  Let’s turn now to Gary Bradshaw to talk more about the airlines and how everything from the shutdown to oil prices are impacting that industry.  He is the portfolio manager at the Hodges Capital Management.  

Welcome, Gary.  It’s nice that have you here.  

GARY BRADSHAW, PORTFOLIO MANAGER, HODGES CAPITAL MANAGEMENT:  Well, thanks for having me, Sue.  

HERERA:  We did hear from Southwest this morning that the shutdown so far has cost them between $10 million to $15 million.  What is the impact going to be if they can’t come to some agreement in the next couple of weeks?  

BRADSHAW:  Well, Sue, certainly there’s plenty of concern from these airlines’ executives out there.  And the fundamentals, though, as Phil alluded to, are extremely strong for all the airlines right now.  But as this government shutdown goes on, it will certainly impact and it will slow down security, affect the passengers, what have you, so the longer it goes, the bigger the impact to the airlines, to their earnings.  But today, the fundamentals remain extremely strong for the airlines.  

And at the Hodges funds, we think the airlines are some of the cheapest stocks in the S&P 500.  

HERERA:  And you own — you own Southwest, American and Delta.  And you think lower oil prices also have given them a bit of a tailwind, right?  

BRADSHAW:  No question.  American said today they’ll save $830 million this year on jet fuel.  It’s really a tailwind to all the airlines out there.  It will help them increase their margins, help them drive earnings, and the fundamentals are excellent, as we heard earlier, with passenger travel strong and the business travel is doing exceptionally well.  

So barring this government shutdown going much, much longer or the trade issues, if they got resolved, we think 2019 will be a great year for Southwest, Delta and American.  We think the stocks are way too cheap.  

HERERA:  You say the biggest risk perhaps to the airlines if they see all this customer demand and increase capacity by too much.  

BRADSHAW:  Well, that’s right.  There’s some capacity creep that takes place right now.  As these airlines are replacing their older jets with fewer seats, like Southwest, they’re adding the 737-8.  There’s more seats there, so capacity is going up.  And you don’t want too much capacity coming into the airline group because it will drive down prices as these airlines try to fill up those seats.  

So there’s a real fine line in there.  But we think the airlines in the last few years, Sue, have gotten disciplined.  They’re smarter.  They want to keep those airfares up and business strong.  So, we think they’ll be prudent about it this year.  

HERERA:  We will keep track of it.  Thank you so much, Gary.  

BRADSHAW:  Thank you.

HERERA:  Gary Bradshaw with the Hodges Capital Management.  

BRADSHAW:  It is time to take a look at some of today’s “Upgrades and Downgrades”.  

Sotheby’s was downgraded from market perform to outperform at Cowen.  That firm cites the softening luxury market.  The price target is $44.  The stock fell 6 percent to $38.56.  

Palo Alto Networks was upgraded to outperform from neutral at Wedbush.  The analyst say the growth outlook for 2019 is robust despite concerns around product strategy.  The price target is $265.  The stock rose 2 percent to $210.47.  

Still ahead, trade tensions ripple through the Pelican State.  

(BEGIN VIDEO CLIP)

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The commerce secretary says we’re miles away from a solution on the trade war with China.  I’m Contessa Brewer in the state of Louisiana.  Coming up on NIGHTLY BUSINESS REPORT, why this state has been hit by tariffs particularly hard.

(END VIDEO CLIP)

(MUSIC)

HERERA:  If Union Pacific is any indication, the economy is still growing at a solid pace.  The railroad operator reported better-than-expected quarterly profit helped by an increase in volume and pricing, and said its improved efficiency will drive profits throughout the year.  

(BEGIN VIDEO CLIP)

LANCE FRITZ, UNION PACIFIC CHAIRMAN & CEO: A lot of our results in the fourth quarter were specific to the Union Pacific team doing a tremendous job of improving our productivity and our service levels.  So, we’re exiting the year on a very good foot and entering 2019 with a bit of optimism in terms of how we’re running the network.  

(END VIDEO CLIP)

HERERA:  The results helped lift the stock more than 3-1/2 percent in trading today.  

People like their coffee and Starbucks is benefitting.  The coffee chain reported better-than-expected earnings and issued strong guidance.  The company earned 68 cents a year, three cents better than Wall Street’s estimates.  Revenue climbed 9 percent to more than $6 billion and investors cheered those results.  

Kate Rogers has the one key takeaway from Starbucks’ earnings.  

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Another strong quarter for Starbucks, proving momentum is stable at home and overseas.  The company beat on every metric on same-store sales with global growth at 4 percent.  Same-store sales in the Americas up 4 percent for the second quarter in a row, that’s a key metric for Wall Street.  

Sales in the China, Asia Pacific region grew by 3 percent and China in particular up by 1 percent.  

In the U.S., chief operating officer Rosalind Brewer told CNBC growth was due in part to continued streamlining of worker tasks during store hours so they can focus more on customer interactions and increase consumer connection scores.  Another takeaway from the takeaway from the quarter, cold beverages sell even in the winter.  Brewer highlighted sales of nitro cold brew, ice teas and refresher drinks during the quarter.  

For NIGHTLY BUSINESS REPORT, I’m Kate Rogers.  

(END VIDEOTAPE)

HERERA:  McCormick’s outlook is lacking some spice.  That’s where we begin tonight’s “Market Focus”.

The seasonings company reported earnings and revenue that missed expectations.  It was hurt by the retailers stocking fewer high margin holiday products.  McCormick’s also issued a disappointing profit forecast.  The stock dropped about 11 percent to $124.35.  

Bristol-Myers Squibb’s fourth quarter earnings topped expectations, with revenue roughly in line.  The drugmaker also said it was withdrawing its application seeking approval for a combination lung cancer therapy involving its blockbuster immunotherapy drug Opdivo.  And that sent shares lower, down nearly 2 percent to $49.02.

A regulator cleared California utility PG&E of the 2017 Tubbs Fire, saying that blaze was started by a private electrical system.  The company has been under pressure from mounting liabilities related to that fire as well as the wildfires of last year.  The official cause of the 2018 fires has not yet been determined.  Shares took off.  They rose 75 percent to $13.95.  

Copper and gold miner Freeport-McMoRan’s profit and revenue came in shy of Wall Street expectations.  The company cited a drop in copper prices and is forecasting a double-digit decline in copper production this year.  The shares fell 13 percent to $10.70.  

Ford is commenting on the Brexit situation in Europe.  According to “Reuters”, if the U.K. leaves the European Union without a trade deal, it could cost the automaker up to $1 billion.  Such a deal would result in the introduction of tariffs, the devaluation of sterling, and a deteriorating economic outlook.  For its current planning assumptions include a negotiated exit.  The shares rose 3 percent to $8.60.

A bit earlier in our program we talked about tariffs, and they are taking a particularly harsh toll on the state of Louisiana.  

Contessa Brewer is in Port Barre tonight.  

(BEGIN VIDEOTAPE)

BREWER:  As Daniel Richard surveys the ruins of his Louisiana soybean fields, he ponders the future for his son.  The family has been farming this land more than a century.  

DANIEL RICHARD, LOUISIANA GRAIN FARMER:  We’ve been through tough times, but definitely nothing, you know, of this magnitude.  

BREWER:  Richard had to leave 40 percent of his crop, about 800 acres, rotting in the fields.  

RICHARD:  A normal year, you know, we probably a million to a million and a half dollar operation.  

BREWER:  The rotted beans are worth about $400,000.  Another $400,000 worth of harvested soybeans are stored in full grain bins with no one to buy them.  

RICHARD:  We lost the demand in market.  With the tariffs, there was no exports.  They wasn’t shipping out, China wasn’t buying.  Of course, China buys a little over 50 percent of our crop.  

BREWER:  Tariffs have hit the trade-sensitive state of Louisiana particularly hard.  Businesses here paid $19 million in tariffs in October alone, more than eight times what was paid a year earlier, according to a bipartisan, anti-tariff lobbying group and an economic consulting firm.  

STEPHEN BARNES, LOUISIANA STATE UNIVERSITY ECONOMIST:  The effects to this point in Louisiana are perhaps a bit more acute and recognizable, given the size of the state’s economy and the kinds of industries we’re talking about being impacted here.  

BREWER:  Exports at the port of New Orleans declined 14 percent in 2018 year over year.  Imports dropped 26 percent.  Much of that decline driven by steel.  

BARNES:  Louisiana, because of our position at the mouth of the Mississippi River, handles an enormous portion of agricultural exports nationally.  So when we think about effects to farmers in Iowa and in Missouri, you know, a piece of that is going to hit Louisiana as well, because we’re no longer handling that cargo.  

BREWER:  Barnes says some steel mills in Louisiana got a competitive advantage because of the tariffs but the upside was tempered by the widespread downside.  Richard, a parish councilman and has used his political position to petition other local and national leaders.  

RICHARD:  I definitely wanted my voice heard, so I wrote this letter, make farmers great again.  I get emotional.  I’m good.  It hits the heart.  

BREWER:  Without solutions and soon, Richard worries there won’t be a farm left for a sixth generation.  

In Port Barre, Louisiana, Contessa Brewer, NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE) 

HERERA:  Trade was one of the reasons why the head of the European Central Bank issued a downbeat outlook and warned of weaker growth ahead for the Eurozone.  

(BEGIN VIDEO CLIP)

MARIO DRAGHI, ECB PRESIDENT:  The risk around the Euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to the geopolitical factors and the threat of protectionists, vulnerabilities in emerging markets and financial market volatility.  

(END VIDEO CLIP)

HERERA:  Draghi’s comments have some wondering whether the bank will delay any rate increases.  Its current guidance points to possible hikes later this year.  

Here in the U.S., the latest report on the labor market shows it’s still firing on all cylinders, despite concerns over slowing economic growth.  The number of Americans filing applications for unemployment benefits fell 13,000 to drop below 200,000 for the first time since 1969.  Economists note that a strong labor market is the pillar of consumer spending, and that could help offset fears of a slowing economy.  

Coming up, thinking twice.  Why homeowners aren’t as eager to remodel as they once were.  

(MUSIC)

HERERA:  Senator Elizabeth Warren is reportedly planning to propose a wealth tax on the richest Americans.  According to CNBC, citing an economic advisor to the senator, the proposal would only apply to those with more than $50 million in assets.  That is less than 0.1 percent of U.S. households and it’s estimated to raise $2.75 trillion over ten years.  

The economic and political turmoil in Venezuela lifted oil prices.  As we reported yesterday, Washington signaled it could impose sanctions on that country’s crude exports.  A further drop in exports could squeeze global supply.  

But the gains were capped by an unexpected build in crude inventories and domestic crude settled at right around $53 a barrel.  

Renault’s CEO and chairman has resigned.  Carlos Ghosn stepped down from his position.  The French automaker stood by him since his arrest in Japan two months ago.  Now, it appears as if the company is turning its focus to securing Renault’s partnership with Nissan and Mitsubishi, which is the world’s biggest auto alliance.  

As you may recall, Ghosn was charged with underreporting his compensation.  

After several years of booming business, home remodeling growth is expected to shrink this year.  Why?  Well, there are three reasons.  

Diana Olick tells us what they are.

(BEGIN VIDEOTAPE)

JUSTIN SULLIVAN, CONTRACTOR:  Breakfast table, it will be a little more traditional.  

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Contractor Justin Sullivan is plenty busy this winter, but less sure about how his business will be six months from now.  

SULLIVAN:  Generally, architects are six months ahead of us in terms of seeing slowdown.  So, we’re hearing a little bit that some of the architects, some of the design firms are slowing a little bit, which will probably hit us in six to 12 months.  

OLICK:  Home renovation demand is slowing because home values aren’t gaining as much.  Mortgage interest rates are rising and fewer homes are selling.  That last one is one of the top drivers of home renovations.  

ABBE WILL, HARVARD’S JOINT SESSION FOR HOUSING:  The first two, three years after purchase that new homeowner typically spends quite a bit more on home improvements, you know, making that home kind of fit their needs, customizing it, maybe doing some work before they move in.  

OLICK:  In fact, new owners spend about 30 percent more on fixing up their new purchases than long-time residents.  Just part of why growth in home renovations is expected to fall to the lowest level in three years, according to a new report from Harvard’s Joint Center for Housing.  

Spending, however, will rise slightly because builder costs are still very high, making renovations more expensive.  

SULLIVAN:  We’re looking to the folks that are in our industry to bring their prices down as much as possible.  That’s a little bit difficult with tariffs being what they are, with the cost of materials being what they are.  

OLICK:  And the slowdown in overall projects will hit home improvement retailers like Home Depot, Lowe’s, Sherwin-Williams.  Sherwin just reported a very disappointing fourth quarter.  Its CEO saying the weakness was across the board.  

And we’re now seeing weaker consumer confidence in housing overall because of rising mortgage rates and the growing belief that home prices have peaked.  

SULLIVAN:  I think any time they see the I think any time they see the value of their homes moderating or dropping, they’re going to think twice about how much they want to invest in their home.  

OLICK:  Because most people take money out of their homes to fund what they put into their homes.  

For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Washington.  

(END VIDEOTAPE)

HERERA:  Before we go, here’s a look at the final numbers from Wall Street.  The Dow fell 22 points, the Nasdaq gained 47 and the S&P 500 added 3.  

And that will do it for NIGHTLY BUSINESS REPORT for tonight.  I’m Sue Herera.  Thanks so much for joining us.  Have a great evening and we’ll see you tomorrow.

END

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