Transcript: Nightly Business Report – June 6, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Tariff delay?  Stocks take  off on the hopes that new duties on Mexican imports will not go into effect  on Monday as originally threatened.  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Business as usual.  BMW opens  its first Mexican plant even as tensions between the two countries remain  far from resolve.  

GRIFFETH:  Antitrust trouble.  Amazon (NASDAQ:AMZN) is coming under  scrutiny and its prime membership program could be one of the reasons why.  
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for this  Thursday, June 6th.  

HERERA:  Good evening, everyone, and welcome.  
Stocks extended their gains for the third straight day on reports of a  possible delay in implementing tariffs on all Mexican imports.  The Mexican  ambassador described a second day of talks as being, quote, very good.   Negotiators are working to hash out a deal to address the flow of  undocumented migrants to the United States.  

Five percent tariffs on all Mexican imports are set to go into effect on  Monday and even the hope of a delay is enough to boost investor psychology  and send stocks higher.  The Dow Jones Industrial Average rose 181 points  to 21,720, the Nasdaq was up 40 and the S&P 500 added 17.  

GRIFFETH:  But the delay is not official and this evening the White House  said it plans to move forward with those tariffs at this time and that has  border towns preparing for the worst and hoping for the best.  
Contessa Brewer is on the border in Pharr, Texas, for us tonight.  

CONTESSA BREWER, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Last year, the  U.S. imported $352 billion worth of goods from Mexico and 10 percent of it  came across the Pharr International Bridge behind me, according to the U.S.  Census numbers.  On this side is McAllen, Texas, a center for international  trade and distribution.  Across the border is Reynosa, filled with  maquiladoras.  Those are the factories that take raw material and  manufacture parts and supplies to exports.  

STEVE AHLENIUS, MCALLEN, TX CHAMBER OF COMMERCE PRES. & CEO:  Any type of  border community recognizes that impact the maquila operations have on  their local economy, the jobs that are created not only in Mexico, but on  the U.S. side.  And so, it`s an important link that ties the two areas  together.  But more importantly, ties the two countries together. 

BREWER:  Across the border, Whirlpool (NYSE:WHR), Panasonic (NYSE:PC),  Alpine Audio, Black & Decker, and many others, a lot of these companies are  blaming China tariffs for increased materials costs and now, they`re facing  an additional 5 percent tariff on their Mexican manufactured goods starting  Monday.  
The industries most affected: cars and car parts, computer equipment,  electronics, oils, precision equipment and vegetables.  
This bridge is the top port in the nation for avocados.  
Villita sends avocados across the United States, to Walmarts and Safeways.   It accounts for nearly 10 percent of what we consume.  The company is  looking to absorb the 5 percent tariffs through cost efficiencies, but any  higher — 

AARON COSTA, VILLITA CORPORATE RELATIONSHIP MANAGER:  It wasn`t just to  open dialogues with retailers to make sure that they understand that these  costs at the end cannot be absorbed solely by our company.  Sooner or  later, they`re going to affect the prices.  

BREWER:  Villita worries higher prices mean fewer avocado buyers.  Business  leaders in south Texas generally worry how to manage the uncertainty and  the impact on the local economy.  

AHLENIUS:  I tell our folks it`s a tax on business.  

BREWER:  Already, bridge operators are pushing back and so are the customs  brokers.  In fact, they sent a letter to President Trump explaining they  don`t have the mechanisms in place for collecting or enforcing the tariffs  in time for Monday.  

In Pharr, Texas, Contessa Brewer, NIGHTLY BUSINESS REPORT.  

HERERA:  Autos are one of the biggest exports into the United States from  Mexico.  Despite the threat, most companies are not changing their plants  and that includes BMW, which just opened a new plant south of the border to  build new cars bound for the U.S. 
Phil LeBeau is in San Luis Potosi tonight.  

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  An hour before dawn in  San Luis Potosi, Mexico, and workers are headed into their jobs at the BMW  plant, building the company`s flagship car for 40 markets around the world,  including the U.S.  Even with the border tax looming, BMW is not changing  production plans.  

OLIVER ZIPSE, BMW BOARD MEMBER:  We will keep our plans and we will see how  far it goes.  And as I said before, our production is flexible, but at this  point in time, we would not see any reason to change our current plans.  

LEBEAU:  The BMW 3 series built here in Mexico will be sold in the U.S. as  well as other markets around the world.  Right now, there is no tax to ship  these cars to the U.S., but starting next week, it could cost BMW hundreds  of dollars more per vehicle to ship them north of the border.  

It`s unclear how much the price of a 3 series from Mexico would change if a  border tariff kicks in.  One estimate says the average price of a vehicle  from Mexico would increase $1,700 with a 5 percent tariff, and up to $8,500  higher if the border tax rises to 25 percent.  

CARLOS GUTIERREZ, FORMER COMMERCE SECRETARY:  We`re taxing American  consumers and American companies in order to punish Mexico for not doing  enough about asylum seekers.  So, there`s no logic to this.  

LEBEAU:  The tariff impact is unknown because hundreds of auto parts and  components are made in Mexico.  In fact, more than a third of all parts and  vehicles sold in the U.S. come from south of the border.  And figuring out  their exact impact is still unknown.  

KRISTIN DZICKZEK, CENTER FOR AUTOMOTIVE RESEARCH:  Many in the auto  industry, they see this tightening down on the U.S. market as potentially  temporary and tied only to the occupant of the White House.  

LEBEAU:  A tariff showdown that could change where cars in the U.S. come  from and how much they cost.  

Phil LeBeau, NIGHTLY BUSINESS REPORT, San Luis Potosi, Mexico.  

GRIFFETH:  Now, clearly, there are a lot of uncertainties facing the auto  industry right now.  In addition to the tariff issues in China Mexico and  elsewhere, there was a new report out today reporting that said average  vehicle prices are at all-time highs.  Will they go even higher if more  tariffs are imposed?  And what would that do to auto sales which would seem  to be leveling off?

Joining us to talk about this is Michelle Krebs.  She`s executive analyst  at Cox Automotive, which provides various services to the 40,000  dealerships around the country.  
Michelle, good to see you.  Thanks for joining us tonight.  


GRIFFETH:  You`re watching the Mexico tariff threats very carefully, aren`t  you?  

KREBS:  I would say right now, it`s the number one issue.  I`m in Detroit  and it`s the number one issue with automakers and auto parts suppliers.  


KREBS:  Because it`s so significant.  If tariffs go up 5 percent to 25  percent by October, the implications are tremendous.  The prices of  vehicles will rise and when prices rise, typically sales fall.  

HERERA:  What are you hearing from the suppliers that you talk to and the  dealerships that you service?  What are their concerns?  

KREBS:  Well, their concerns are that prices will rise, that customers will  be put off by the higher prices, and we`re at this point in the cycle, and  this is a cyclical industry where we`re coming off the peak and sales are  already dipping a little bit and we anticipate that will continue.  I think  the fear is that this will make it a more precipitous drop than  anticipated.  

GRIFFETH:  And as we just mentioned that report out today with prices that  have hit an all-time high, that goes for auto loans at the same time and  we`re seeing this migration now from new cars to used cars, and that`s  having an impact in the industry right now, too, isn`t it?  

KREBS:  Right.  So, the prices of vehicles are increasing and so are auto  loan rates.  They`re at a nine-year high and for the consumer, that monthly  payment is what`s so important and when that rises to a level that they  don`t feel they can afford, unfortunately, they have other options and  there is a very vibrant used car market.  

HERERA:  What if they don`t come into a deal and the tariffs do go into  effect, how long before — if they are in effect, how long before we start  to see that impact on prices?  

KREBS:  I would think fairly quickly.  Automakers are really worried about  their bottom lines and so they are — I would expect they don`t absorb at  all, that they will pass it along to consumers, so it could be pretty  quickly.  

GRIFFETH:  Michelle Krebs with Cox Automotive — again, thanks for joining  us tonight.  

KREBS:  Thank you.  

HERERA:  Meantime, there appears to be no movement on trade relations  between the U.S. and China, but there is some movement in relations between  China and Russia as the president of those two countries meet.  
Geoff Cutmore reports tonight from St. Petersburg.  

GEOFF CUTMORE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Meetings between  Chinese and Russian presidents used to be full of symbolism and very little  substance.  But there are signs with this meeting that things could be  changing.  The Chinese and the Russians now find themselves on the same  side diplomatically when it comes to their relationship with President  Trump and Washington right now.  They both have issues that unite them.   With Russia, it`s the ongoing sanctions and, of course, China the ongoing  trade war.  

But beyond the diplomacy, we also have more economic integration.  It`s  been some years since Russia announced its pivot east, but increasingly at  this event here in St. Petersburg, deals are being signed between the two  countries.  And in a very obvious snub to the United States and the White  House, one of the biggest deals down here is between Huawei and the Russian  telecom company MTS.  

So, tomorrow at the St. Petersburg forum, the keynote event will be the two  presidents taking to the stage to once again express how united they are in  their common view of America.  
This is Geoff Cutmore at the St. Petersburg International Economic Forum in  St. Petersburg, Russia.  

GRIFFETH:  And investor tension now turns to the job market.  A new report  out today showed the number of Americans filing applications for  unemployment benefits was unchanged last week, thereby suggesting that the  labor market does remain on solid footing.  But a separate report signaled  the job creation could be slowing.  Outplacement firm Challenger, Gray &  Christmas said that companies announced 46 percent more layoffs in May when  compared to April, and the government releases its monthly employment  report which is expected to say an increase of 180,000 jobs and an  unemployment rate of about 3.6 percent.  

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

Advanced Micro Devices (NYSE:AMD) was upgraded to equal weight from  underweight at Morgan Stanley (NYSE:MS).  The analyst says the chipmaker is  in a position to gain market share.  The price target is $28.  The stock  surpassed that, closing today at $31.82.

United Continental was upgraded to buy from neutral at Goldman Sachs  (NYSE:GS).  The analyst says the stock is set to rebound in the second half  of the year.  The price target is $108.  The stock rose 1 percent to  $82.96.  

GRIFFETH:  Whirlpool (NYSE:WHR) was upgraded to overweight from sector  weight at KeyBanc.  The analyst cited the company`s focus on the U.S.  market, as well as the recovery in its European profit margins.  The price  target now, $150, and shares rose about 2 percent today to $128.17.  
Travelers was downgraded to market perform from outperform at Keefe,  Bruyette and Woods.  The analyst cited the stocks valuation after a 23  percent run-up so far this year.  Price target, $153.  That stock fell a  fraction to $149 even.  

HERERA:  Still ahead, the FCC says Americans are united against robocalls  and today, that agency moved to do something about it.  

HERERA:  The FCC moved to crack down on robocalls.  The agency voted to  allow phone carriers to block suspicious calls by default.  The measure  also lets phone companies give customers the option to block any number  that is not pre-approved.  

AJIT PAI, FCC CHAIRMAN:  The one thing in our country today that unites  Republicans and Democrats, liberals and conservatives, socialists and  libertarians, vegetarians and carnivores, Ohio State and Michigan fans, it  is that they are sick and tired of being bombarded by unwanted robocalls.   My message to the American people today is simple.  We hear you and we are  on your side.  

HERERA:  The FCC chairman also said that today`s vote will make it easier  for consumers to benefit from robocall blocking programs.  

GRIFFETH:  Google (NASDAQ:GOOG) parent Alphabet is buying a big data start- up called Looker for more than $2.5 million.  The deal will increase its  cloud services offerings.  It is Google`s largest deal since it bought Nest  back in 2014.  

HERERA:  As we`ve been reporting, Apple (NASDAQ:AAPL) is investing heavily  in its services business, but that`s also the very thing that government  regulators could go after as part of a potential antitrust probe.  
Josh Lipton has more.  

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Apple (NASDAQ:AAPL) is  putting a lot of focus on its faster growing, higher margin services  business which includes everything from the App Store to Apple  (NASDAQ:AAPL) Music, but can some of those very services now come into the  crosshairs of the U.S. government?  

Some question whether Apple (NASDAQ:AAPL) is using anticompetitive tactics.   Take Spotify`s complaint.  Apple (NASDAQ:AAPL) competes with Spotify and  others in the music streaming market with its own service, but then also  decides the rules that govern the App Store.  
Some critics including U.S. presidential candidates suggest that violates  the law.  

SEN. ELIZABETH WARREN (D-MA), PRESIDENTIAL CANDIDATE:  My view on this is  it`s a little like baseball.  You can be an umpire, a platform or you can  own teams.  That`s fine, but you can`t be an umpire and on one of the teams  that`s in the game.  The monopolist will make fewer monopoly profits.  Boo- hoo.  

LIPTON:  Apple (NASDAQ:AAPL) rejects this argument and notes that it  actually approved and distributed 200 app updates on Spotify`s behalf.   Some have questions about another Apple (NASDAQ:AAPL) service, too, Apple  (NASDAQ:AAPL) News Plus, a new service that brings together hundreds of  magazines, newspapers and publishers.  

ALEX HARMAN, COMPETITION POLICY ADVOCATE:  The problem that we`re concerned  with is that publishers are not giving the opportunity to negotiate and are  not able to negotiate together and are — are being exploited and their own  subscription services being undermined by a coercive News Plus that gives  them an option to participate or not and if they participate, they get a  very small portion of the revenue and Apple (NASDAQ:AAPL) has all of the  power in this situation.  

LIPTON:  But other legal experts say that would actually be a tough case to  make because the content isn`t exclusive to Apple (NASDAQ:AAPL), thereby  reducing legal risk for the company.  
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.

GRIFFETH:  And Apple (NASDAQ:AAPL) is not the only company vulnerable to  antitrust scrutiny right now.  Experts also point to Amazon (NASDAQ:AMZN),  which controls around half of all online retail in the U.S., in addition to  being the world`s largest cloud provider.  
Deirdre Bosa takes a closer look for us.  

DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Amazon (NASDAQ:AMZN)  is confident that by focusing on the consumer, it will pass any antitrust  scrutiny with flying colors.  

JEFF WILKE, AMAZON WORLDWIDE CONSUMER CEO:  We`re just focused on  customers, really.  I mean, we are trying to invent things that customers  are going to love and we think that`s our primary job.  

BOSA:  But that drive to deliver the lowest prices is combined with a  willingness or an ability to forego profit creates a hard ball competition  for other companies.  On top of that, Amazon (NASDAQ:AMZN) is creating more  and more of its own private label products, from diapers, to electronics,  to bed sheets.  Critics have argued that Amazon (NASDAQ:AMZN) can use the  data it collects as a platform from third party sellers to help its private  label business, which would allow it to unfairly compete.  

ALAN PATRICOF, GREYCROFT VENTURES:  The fact is that they`ve had access to  data that they`ve used which we have given them voluntarily at no cost, and  they`ve been able to use that data to effectively bring down prices and be  more economic than anyone else who competes with them.  
BOSA:  Regulators could also take a look at the Amazon (NASDAQ:AMZN) Prime  flywheel, if Amazon (NASDAQ:AMZN) is using revenues from its other  businesses, to bundle and subsidize free video or music services, how can  other companies that have to make a profit compete?  

Amazon (NASDAQ:AMZN) has been famously secretive about the number of Amazon  (NASDAQ:AMZN) prime memberships.  The company may have to open up its books  to prove it doesn`t need to use unfair tactics to stifle competition.  
For NIGHTLY BUSINESS REPORT, Deirdre Bosa, San Francisco.  

HERERA:  Strong quarterly results for Sienna lights a fire under stock, and  that`s where we begin tonight`s “Market Focus”.  
The networking equipment maker reported better than expected earnings and  revenue, thanks to what the company called improving industry dynamics, as  well as growing market share and competitive advantages.  The stock soared  more than 26 percent at $45.49.  

Arts and crafts retailer Michael`s matched earnings estimates, but revenue  in same-store sales fell short.  The company said the drop in net sales was  primarily because of the closings of its Pat Catan`s and Aaron Brothers  stores.  Michael`s also gave weak full-year guidance.  And as a result,  shares fell more than 12 percent to $8.18.  

Signet Jewelers which owns Kay`s, Zales and Jared beat estimates but it saw  a decline in same-store sales due to a drop in transactions and currency  volatility.  It also narrowed its full-year guidance.  Signet was down more  than 1 percent to $19.18.  

GRIFFETH:  J.M. Smucker (NYSE:SJM) reported mixed results.  It beat profit  estimates but fell short on revenue.  And that was due to a stronger dollar  and lower prices for its coffee and peanut butter brands.  The food  conglomerate also gave a better than expected full year earnings outlook.   Shares fell more than 2 percent, though, to $132.37 today.  

Anthem says it`s going to buy Beacon Health, which is the nation`s largest  independent behavioral health organization.  The health insurer says that  the deal fits its strategy to diversify health care services, including  patients with complex and chronic conditions.  Financial terms were not  disclosed, though.  Anthem shares were up a fraction to $277.50.  

And after the bell, Beyond Meat reported its first earnings since going  public.  The company topped both earnings and revenue expectations.  Net  sales also grew more than expected.  The stock initially rose in after- hours tonight, but it did close the regular session down 3 percent to  $99.50.  
HERERA:  There was some side court drama at last night`s NBA finals game.   A fan was ejected, but it wasn`t just any fan.  It was a prominent venture  capitalist and a part owner of the Golden State Warriors who was booted  after he pushed Raptors player Kyle Lowry.  The man has been identified as  former Sequoia Capital managing partner Mark Stevens.  Late tonight, the  NBA banned Stevens for one year and fined him $500,000.  
GRIFFETH:  Coming up, dog food even humans may love.  

FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT:  You`re looking at  the hottest trend in the pet care industry.  This is premium dog food  ingredients that even you can eat.  I`m Frank Holland.  I`ll have that  story coming up on NIGHTLY BUSINESS REPORT.

HERERA:  We all know that pet owners will spend just about anything on  their furry friends especially when it comes to keeping them healthy and  the fastest growing segment of the $30 billion pet food industry is made of  stuff that humans can eat.  
Frank Holland is in New York tonight.  

HOLLAND:  This looks like a kitchen that you would see in any restaurant,  but these culinary creations are for canines.  
It is the fastest growing trend in pet care, using human-grade ingredients  to create fresh pet food.  It`s only about 2 percent of the $30 billion  U.S. pet food industry, but sales have increased 70 percent since 2015.  

RUPESH PARIKH, OPPENHEIMER:  Right now, you`re still very much in the early  infancy of this product and in the fresh offering.  I think consumer  awareness is starting to build, and I think it`s still fairly low, and  retailers love this product.

HOLLAND:  This is the fresh pet food kitchen in a Petco store as part of a  partnership with Just Food For Dogs.  

SHAWN BUCKLEY, JUSTFOODFORDOGS FOUNDER:  The idea is that it`s local.   Everybody likes local.  We want to eat local.  We want to eat fresh and  it`s no different for dogs.  It`s not because it tastes better, but because  it`s healthier.

HOLLAND:  Petco stops selling food with artificial ingredients last month  which will reduce annual revenues by $100 million, but it`s a hit the  company is willing to take.  

NICK KONAT, PETCO CHIEF MERCHANDISING OFFICER:  The driver was our consumer  and they said we`re confused.  Half of our guests are confused on what pet  food they should feed their pets.  

HOLLAND:  The move and the fresh dog food is part of the overall strategy  for Petco.  They`re hoping that this product will increase customer traffic  and reach the average purchase by mid-single digits.  

KONAT:  We`re going to drive share growth.  In that space, we`re going to  outpace the market.  So, you are talking well above, you`re talking 20, 30,  40 percent growth.  

HOLLAND:  Fresh pet is the only publicly traded company in the fresh  segment reporting strong sales growth last quarter.  Its competitors are  private companies.  The cost varies, but fresh dog food is more expensive  than dry kibble.  

BUCKLEY:  What makes it unique and different is that some of the guys that  go online they make food in a kitchen that you`re not allowed to visit and  you can`t see the food, et cetera.  We`re about transparency.  

HOLLAND:  Ninety-one percent of Americans see their pets as a member of  their family.  That`s according to a 2018 study from UBS, more and more of  those pet parents are willing to pay a premium.  
For NIGHTLY BUSINESS REPORT, Frank Holland, New York City.  

GRIFFETH:  And finally tonight, World War II veterans and world leaders  marked the 75th anniversary of D-Day today.  President Trump, French  President Macron and other heads of state gathered on the beaches of  Normandy, France, to commemorate those heroes of the allied invasion that  became the turning point of the war.  More than 150,000 allied troops  stormed the coastline in northwest France leading to Nazi Germany`s defeat  a year later in May of 1945.  

HERERA:  Before we go, a final look at the day`s numbers on Wall Street.   The Dow rose 181 points, the Nasdaq was up 40, the S&P 500 added 17.  

And that is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks  for watching.  We`d like to remind you this is the time of year the public  television station seeks your support.  

GRIFFETH:  I`m Bill Griffeth.  Thank you very much for that support.  Have  a great evening.  See you tomorrow.  

Nightly Business Report transcripts and video are available on-line post  broadcast at 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) 2019 CNBC, Inc.

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