Transcript: Nightly Business Report – August 20, 2019

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

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Win streak snapped.  The  Dow falls for the first time in four sessions, taking a spill right before  the closing bell rang.  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Bolstering the economy.   President Trump said he`s considering a number of tax cuts as growth  concerns mount.  

GRIFFETH:  Speedy delivery.  Domino`s is creating an innovation lab, and it  has nothing to do with its menu.  
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday,  August 20th.  

HERERA:  Good evening, everyone, and welcome.  
The strong run of the past few days did not last.  Stocks slipped as, you  guessed it, bond yields retreated.  Global growth concerns hung over Wall  Street as did geopolitical uncertainty, and all of that made for a down day  that saw losses accelerate into the close.  

The Dow Jones Industrial Average fell 173 points to 25,962.  The Nasdaq was  down 54 and the S&P 500 slipped 23.  

GRIFFETH:  One of the bright spots today was Home Depot (NYSE:HD).  The  world`s largest home improvement retailer reported better-than-expected  earnings and that sent its shares up more than 4 percent, making it the top  performing stock in the Dow today.  But the company did lower its sales  outlook for the whole year amid concerns about the economy and the trade  war.  
Courtney Reagan has more.  

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  While, recession  fears loom and there are signs of slowing economic growth, Home Depot  (NYSE:HD) executives say the consumer remains healthy and the housing  market is stable, though it wasn`t a perfect quarter for the home  improvement retailer.  

Lumber price deflation continues to weigh on sales.  Prices are more than  50 percent lower than a year ago, and a big reason comparable sales  disappointed.  Unseasonable weather delayed some home improvement projects  early in the quarter, though as the weather improved so did sales.

However, sales of big ticket items like flooring and appliances were strong  as were sales to professionals like contractors as pros continue to work  through a backlog of projects from poor weather earlier in the year.

But Home Depot (NYSE:HD) did lower its annual sales forecast as it expects  lumber price deflation to continue and the broader impact tariffs could  have on consumer spending.  Chief financial officer Carol Tome told me she  estimates total tariff exposure to Home Depot (NYSE:HD) is around $2  billion or 2 percent of U.S. sales, which she calls, quote, manageable for  our scale and size.  

Home Depot (NYSE:HD) is taking a three-prong approach to manage tariffs.   Negotiating with vendors, finding other ways to mitigate higher costs,  moving products production and, lastly, making careful decisions about  which items it can increase prices on.  

While Tome is confident Home Depot (NYSE:HD) can manage the tariffs, she  added, quote, what happens to consumers more broadly with tariffs?  If  consumers start to slow down spending more broadly, could it have an impact  on GDP?  A concern echoed by Wall Street.  

CHRIS HORVERS, JP MORGAN RETAIL ANALYST:  The risk around tariffs I think  is very manageable.  We estimate the average retailer will only have to  raise prices 5 percent to 7 percent, and that`s assuming that vendors don`t  help them out.  So, it is really going to be a question of what happens in  2020, because if they don`t go away, that`s a whole another discussion. 

REAGAN:  But even if it can manage tariffs, not all analysts are convinced  Home Depot (NYSE:HD) will continue its strong run.  

LIZ SUZUKI, BANK OF AMERICA MERRILL LYNCH:  When we look into at the full- year 2019, you know, we are past Home Depot`s peak, same-store sales growth  year which was 2017.  We are past the peak growth years which was 2018.   So, now, we are cycling through all these peaks and we`re at a point of  deceleration.  

You know, the stock is up 25 percent this year.  Have the fundamentals  improved 25 percent year-to-date?  Like I don`t think that we are at that  point.  

REAGAN:  Leaving a lot of uncertainty in the wake of a relatively stable  quarter.  

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.  

HERERA:  Sales also missed the mark at Kohl`s (NYSE:KSS) despite reporting  better than expected earnings.  The retailer forecasted a steeper than  expected decline in profit margins due to a potential hit from new tariffs  on imports from China.  

That sent the stock down by more than 6 percent.  Shares of TJX companies  were also lower.  The parent company of T.J. Maxx and Home Goods warned  that third quarter profits will come in below estimates on an increase in  competition.  

GRIFFETH:  And in Washington, the focus is very much on the economy right  now, even though the president has said we`re far from a recession.  He  admitted today that he is examining a number of stimulus measures including  more tax cuts.  
Eamon Javers is at the White House for us tonight.  

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Some back and forth  over the past 24 hours here at the White House over the idea of a payroll  tax cut.  Yesterday, the White House denying the news report that suggested  that the White House wanted to move forward on a payroll tax cut.  

Well, today the president said he`s considering it.  Here is what the  president said today talking to reporters in the Oval Office, and also  mentioning the idea of indexing capital gains, another tax cut proposal the  White House is considering.  

DONALD TRUMP, PRESIDENT OF THE UNITED STATES:  A lot of people have been  talking about indexing for many years, and it is something that I am  certainly thinking about.  I can say that a majority of the people in the  White House at the level that does this kind of thing, they like indexing.   So, it is something I`m thinking about.  

Payroll taxes, I`ve been thinking about payroll taxes for a long time,  whether or not we do it now or not is — it`s not being done because of  recession.  

JAVERS:  the president there obviously sensitive about the idea that  there`s a recession looming.  He insists there`s not and that`s not why  they`re considering these ideas.  Nonetheless, he is also pushing the  Federal Reserve today for 100-basis point cut in interest rate, although  the president says he doesn`t want that cut all at one time.  We`ll see  what the Fed has to say about that too.  

For NIGHTLY BUSINESS REPORT, I`m Eamon Javers at the White House.  

HERERA:  Overseas, the British economy shrank for the first time in almost  seven years.  Economists cite a combination of Brexit uncertainty and  slowing global growth.  The slowdown occurred across Britain`s  manufacturing, construction and agriculture sectors.  According to official  statistics, only the services sector showed growth.  

GRIFFETH:  Italy has its own economic challenges right now, and tonight, it  also is without a prime minister.  Giuseppe Conte abruptly tendered his  resignation today after days of political infighting, adding a new level of  uncertainty to a country with an enormous pile of debt.  
Willem Marx reports for us tonight from Rome.  

WILLEM MARX, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Italy`s professor  turned premier, Giuseppe Conte, faced down rows of unruly opposition  senators Tuesday afternoon.  

The country`s political class was forced back early from summer recess and  the school`s new rebels came out in force.  
When Conte lectured, they hectored, including many members of a party that  until today had served with him in government.  Conte`s antagonist in chief  remained as in recent weeks his deputy and interior minister, Matteo  Salvini.  

GIUSEPPE CONTE, ITALIAN PRIME MINISTER (through translator):  Dear Matteo,  by starting this government crisis, you take a great responsibility towards  the country.  You announce this crisis asking full powers to rule the  country, and again recently, I have heard you calling the people in the  squares to support you.  This idea, allow me to say, is preoccupying me.  

MARX:  Seated at his right-hand side, Conte`s very own Judas smirked and  sarcastically shook responsibility for the failures of the government he  helped form just last May.  

MATTEO SALVINI, DEPUTY PRIME MINISTER (through translator):  I`m sorry you  had to put up badly with me for a year.  I didn`t understand that.  I`m  sorry for that.  

MARX:  Salvini with his populist power formed (ph) has stayed in campaign  mode much of the summer, but even his natural political allies say he`s a  mistimed the push to seize power with his demand for fresh elections.  

LUCIO MALAN, ITALIAN PEOPLE OF FREEDOM PARTY:  He thought that only he was  the wise guy to make the moves and the others would stay there waiting for  him to — to have his final blow.  But they did what he did. 

MARX:  Salvini`s former partners, the Five Star Movement, could now join  unexpectedly with the opposition Democratic Party to form an alternative  coalition, but that`s a tie-up that could prove just as tortuous.  

Conte`s decision to resign leaves a large vacancy tonight in the building  behind me, the Palazzo Chigi, the powerful center of Italy`s executive  branch.  And as investors and businesses follow the consultations and  negotiations that will now be spearheaded by Italy`s president as he tries  to craft a new parliamentary majority, the political uncertainty and the  potential risk that may accompany that could will remain rather high.  

Italy`s financial ministry must submit a draft proposal for its annual  budget to European commission by mid-October.  Last fall, Italy`s budgetary  battles in parliament spooked global markets.  

And despite record low yields elsewhere in Europe, Italy remains an  economic outlier with its massive debt pile and little political will to  trim spending.  The jeers and jokes in parliament suggest far too few  politicians here are prepared to take those challenges as seriously as  markets might like.  
For NIGHTLY BUSINESS REPORT, I`m Willem Marx in Rome.  

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

AbbVie was upgraded to overweight from neutral at Piper Jaffray.  The  analyst says the worst may finally be over for the drugmaker`s stock which  is down more than 25 percent so far this year.  The price target is $80.   Despite the upgrade, the stock fell a fraction to $66.41.  

Beyond Meat was upgraded to overweight from neutral at J.P. Morgan.  The  analyst cites the potential for the plant-based burger market to acquire  new customers.  The price target is $188.  The stock rose 6.5 percent to  $153.97.  

HP was downgraded to neutral from buy at Citi.  The analyst cites limited  catalysts that would move the stock.  The price target is $21.  The stock  slipped 1.5 percent to $18.91.  

GRIFFETH:  Still ahead, investors first, CEOs say maybe not.  Yesterday, we  brought you one side of the debate.  Tonight, the other.  

HERERA:  A top antitrust official at the Department of Justice said today a  couple of dozen states have expressed interest in investigating big tech.   Makan Delrahim made the comments at the Technology Policy Institute.  

MAKAN DELRAHIM, ASSISTANT ATTORNEY GENERAL ANTITRUST DIVISION:  I think it  is safe to say that we`re all in the same place, having had conversations  with the state attorneys general.  At the federal level and the state  A.G.s, I don`t think — you know, they`re at different stages of  investigation.  

HERERA:  The investigation is expected to be bipartisan, and as we reported  last night the state attorneys general want to examine whether some  dominant companies are using their power to limit competition.  

GRIFFETH:  Apple (NASDAQ:AAPL) is reportedly spending a lot of money to  compete with Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX).  “The  Financial Times” says that the company has committed more than $6 billion  for original programs as it prepares to launch its streaming service called  TV Plus sometime this fall.  

Yesterday, Apple (NASDAQ:AAPL) released a trailer for a new original series  called “The Morning Show” starring Reese Witherspoon and Jennifer Aniston,  which reportedly cost more per episode than “Game of Thrones” cost in its  final season.  

HERERA:  And it is not just Apple (NASDAQ:AAPL) spending more.  Consumers  as well when it comes to electronic devices.  And like other areas of  retail, how and where those purchases are being made is changing.  

Josh Lipton has the next installment in our look at the American consumer.  

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It used to be that  shoppers wanted to touch and feel cool, new electronics before buying them,  but not anymore.  Many are OK spending money sight unseen, which is why  sales of devices in store are falling and purchases online are rising.  And  they`re willing to pay up for what they want.  

STEPHEN BAKER, NPD GROUP:  The math here tells you that average selling  prices are going to be going up as consumers make those choices to spend a  little bit more than they might have in the past.  

LIPTON:  the industry is entering a new phase.  Many consumers already have  the gadgets they want and need, so when they buy new electronics, they  often trade up for more expensive items.  

UNIDENTIFIED FEMALE:  I`m looking to buy a new phone actually.  I`m using  the iPhone 6 right now, but it`s — it`s pretty old.  

UNIDENTIFIED MALE:  I really like air pod.  They`re pretty convenient.  
UNIDENTIFIED FEMALE:  My roommates and I own a TV.  

LIPTON:  That`s where demand is strongest, for things like high-end  wireless headphones as well as health and fitness devices.  That benefits  Apple (NASDAQ:AAPL) with its watch and air pods.  

Another hot area, smart home products like Amazon (NASDAQ:AMZN) and  Google`s smart speakers, thermostats and doorbells.  When consumers watch  sports and movies, they want large screen televisions like the 65-inch ones  sold by Samsung, LG and Sony (NYSE:SNE), which are about 35 percent more  expensive than the average TV.  

As for PCs, that market sure isn`t growing like it used to, but certain  segments within that market like gaming PCs made by Dell (NASDAQ:DELL) and  HP remain in demand.  

What categories are under pressure?  Basic headphones, small screen TVs and  thanks in part to smartphones, traditional point-and-shoot cameras.   Speaking of smartphones, the U.S. smartphone market this year is expected  to decline nearly 9 percent.  
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.  

GRIFFETH:  U.S. Steel is making cuts and that is where we begin tonight`s  “Market Focus”, with the company saying it plans to layoff nearly 200  workers at a Michigan plant because of low prices and soft demand for  steel.  The steelmaker says that the lay-offs will affect employees in  nearly every area of the facility and it could last beyond six months.   Shares were down a fraction today to $12.31.  

Medtronic (NYSE:MDT) saw an increase in its demand for its surgical  instruments and diabetes devices, which helped the company top Wall Street  estimates.  The medical device maker also raised its full-year outlook.   Stock rose more than 2 percent today to $106.91.  

Madison Square Garden (NASDAQ:MSG) posted a wider than expected loss, and  it fell short of expectations.  The entertainment and sports operator was  hurt by increased personnel costs and expenses connected to a proposed  spin-off of the company`s sports business.  Shares dropped nearly 9 percent  today to $267.33.  

HERERA:  Cigna is reportedly seeking a sale of its group benefits insurance  business, which could be worth nearly $6 billion.  Reuters says the health  insurer is working with an investment bank to sell the unit which includes  life insurance and disability coverage for groups of company employees.   The stock was down more than 1 percent to $161.15.  

Endo pharmaceutical is reportedly close to making a deal over opioid- related charges.  The “Wall Street Journal” says the drugmaker is looking  to finalize a $10 million settlement with two Ohio counties that named the  company.  Endo`s shares rose more than 18 percent to just about $3.02.  
Boeing (NYSE:BA) plans to hire a few hundred temporary employees to work on  its grounded 737 MAX fleet.  The workers will be providing aircraft  maintenance and customer delivery preparations.  Boeing (NYSE:BA) was off a  fraction to $331.75.  

And after the bell, the homebuilder Toll Brothers (NYSE:TOL) posted better  than expected results.  The company cited low mortgage rates, a limited  supply of new and existing homes and strong employment.  Shares were  volatile in the after hours trading.  They closed the regular session up  more than 1 percent to $36.91.  

Last night, we told you that the Business Roundtable is redefining its  statement of the purpose of a corporation, to better reflect decisions  based on stakeholder values and not solely on shareholder values.  Last  night`s guest thought that move was a bad idea.  

Joining us to show an opposing view of that is Martin Whittaker.  He`s the  CEO of the nonprofit research firm Just Capital.  
Welcome.  Nice to have you here, Martin. 

MARTIN WHITTAKER, JUST CAPITAL CEO:  Thank you, Sue.  Thanks for having me  on.  

HERERA:  Our guest last night made the point he thought it was a bad  decision.  He said it had been put in place before and it didn`t work, and  because shareholders are basically giving their money to the corporation,  they should be put first.  What`s wrong with that argument?  

WHITTAKER:  Well, for one thing, it`s not really the case that looking  after your workers or treating your customers well or making great products  or investing in the communities, where you operate is antithetical to  serving your shareholders well.  It`s not an either/or game.

What we found is the businesses that look after stakeholders do better in  the market.  So, we think it`s a great move.  We applaud what Business  Roundtable has done.  You know, this is an historic moment we think.  It  also aligns with how the American people want companies to behave.  
We have surveyed thousands of people over the last five years all across  America, all different backgrounds, and this is exactly what they tell us.  

GRIFFETH:  This guest from last night that we`re referring to was Charles  Elson.  He runs the Weinberg Center for Corporate Governance at the  University of Delaware.  His point was, look, when you are trying to please  everybody, you end up pleasing nobody.  
Here`s what he said.  Listen.  

CHARLES ELSON, UNIVERSITY OF DELAWARE:  The watch stops, it still gets the  time right twice a day.  You have multiple constituencies you answer to,  you`re going to get it right for somebody, but it doesn`t mean a healthy  business.  And for shareholders, being deep-sixed like this, particularly  given the fact that today, everyone is a shareholder through the retirement  plan, state pension plans and whatnot, it really will harm I think  accountability of management to the shareholder and the public.  

GRIFFETH:  Essentially maybe the company loses focus when they get away  from the idea that it is all about profitability.  What do you think?  
WHITTAKER:  I think he`s completely wrong.  You only have to talk to  leading CEOs today to understand that the way to build a healthy company is  to look after all of your stakeholders.  Shareholders will win in the end.   Our own research and our own data and our own funds show that.   Unfortunately, I think this is a view that I think, you know, reflects  history, not the future.  

HERERA:  You know, also there are those making the point that income  inequality has partly been a product of companies putting the bottom line  before other things.  I would assume you would agree with that.  

WHITTAKER:  Absolutely.  When you look at the income inequality in this  country, when you look at how we need businesses working for more  Americans, you know, we need to get the American dream back.  We need life  breathed into it.  

Jamie Dimon, chairman of the Business Roundtable, said the American dream  is fraying, but it`s alive.  Our own work shows that people just want a  fair shake, and I think if they think the business is working for them, not  against them, and they think that people are going to be, you know, sharing  fairly in a company`s profits, that`s going to make them better employees.   They`re going to serve their customers better.  

And guess what?  Management, shareholders, they`re going to win.  Now, it  is not easy to do, but we see companies doing that all the time.  
That`s what we do for a living at Just Capital.  We track that.  The time  has come we think to really, you know, put that center stage, and now the  next stage is, OK, let`s track companies and see how they`re actually doing  on implementing this new stakeholder model.  

HERERA:  Mr. Whittaker, thanks so much for spending time with us.  
WHITTAKER:  My pleasure.  
HERERA:  Martin Whittaker with Just Capital.  
GRIFFETH:  And coming up, why a fast food company`s secret sauce has  nothing to do with food.  

HERERA:  Here is a look at what to watch for tomorrow.  Retailers report  earnings including Target (NYSE:TGT), Nordstrom (NYSE:JWN) and Lowe`s.  And  we`ll find out if lower mortgage rates helped lift sales of existing homes  in July and the Federal Reserve releases its minutes of the last meeting  where it lowered bench mark interest rates.  And that`s what to watch for  on Wednesday.  

GRIFFETH:  When you think of innovation, you likely think of Silicon  Valley, not fast food.  But Domino`s is very much into innovation, and it  is one example of a company that will not rest until it figures out how to  improve not pizza but pizza delivery.  
Kate Rogers (NYSE:ROG) is in Ann Arbor, Michigan, for us.  

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Domino`s may be an  established global pizza powerhouse, but in its innovation garage, it`s  looking more like a startup.  It`s here where teams from across the country  come to collaborate and brainstorm new ideas that are not related to the  menu.  

RITCH ALLISON, DOMINO`S CEO:  We put this in place really to help us  continue to accelerate innovation in all things delivery.  So, we`re able  to stand up or break down a store in a matter of hours.  We can look at how  we interface with things like this Nuro robot, how team members utilize the  technology in the stores to make sure we`re as efficient and cost effective  as we can possibly be.  

ROGERS:  Delivery has become a focal point for the industry, so there`s a  dedicated space for testing new offerings including GPS tracking for  orders, which is expected to roll out by the end of the year.  E-bikes are  being looked at as a way to delivery food in certain geographic areas. 

And there`s this.  The Nuro robot is also being deployed in Houston later  this year.  It is an unmanned vehicle that could show up at your door.  To  use it the customer enters a code right here.  

VOICE PROMPT:  Enter your four digit access code.  Great.  Opening door.  

ROGERS:  The doors open on up.  You grab your pizza and go.  There`s always  no tipping necessary.  
Domino`s isn`t the only major restaurant letting investors and shareholders  behind the scene as it innovates.  Starbucks (NASDAQ:SBUX) also has a hub  called the Tryer Center where it is testing out new menu items, delivery  techniques, and the store formats at its headquarters in Seattle.  

For Domino`s it`s important to develop new delivery ideas on its own.   Unlike many of its competitors who have teamed up with companies like  DoorDash and Grubhub, Allison maintains keeping delivery in house as  Domino`s continues to expand and put stores closer to one another will be  the right strategy for the brand long term.  

ALLISON:  The first reason is we`re not going to out source the customer  experience to someone else.  So, we want our customers interfacing with us  through any one of number, you know, 20-odd ways that they can order pizza  from us, but when that delivery happens the only human interaction is when  that delivery expert.  We want that to be a Domino`s trained delivery  expert, so we own that process from start to finish.  

ROGERS:  As the battle heats up in the fast food space with the delivery  now available for nearly any type of food customers are craving, companies  are working overtime to stay ahead and innovate.  
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG) in Ann Arbor,  Michigan.  

HERERA:  Before we go, here is another look at the day`s final numbers on  Wall Street.  The Dow fell 173 points to 25,962.  The Nasdaq was down 54,  and the S&P 500 slipped 23.  

That`s NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks for  joining us, and we would like to remind you that this is the time of year  your 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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