Transcript: Tuesday, November 12, 2013

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you in part by —

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SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Cleared for takeoff. American and U.S. Airways settle antitrust charges and will merge to become the world`s largest airline. How the deal affects investors, fliers and what you pay for a seat?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Heart healthy. New guidelines from the American Heart Association on the use of statin to fight high cholesterol. Will it be a game changer for the makers of the drugs?

HERERA: Happy holidays ahead? The Retail Industry`s biggest names reports earnings over the next couple weeks — providing investors with a look at the strength of the consumer.

All that and more on NIGHTLY BUSINESS REPORT for Tuesday, November 12th.

Good evening, everybody. I`m Sue Herrera, in tonight for Susie Gharib.

MATHISEN: And I`m Tyler Mathisen. Welcome, everybody.

Well, the world`s biggest airline is about to take off. The Justice Department settled antitrust charges, clearing the way for the planned merger of American Airlines and U.S. Airways, but not before resting concessions aimed at protecting the consumer and making sure the new airline won`t be too big.

Investors did welcome the news. Shares of U.S. Airways ended about 1 percent higher. Shares of American Airlines, which began trading on new exchange after it went bankruptcy shot up a whopping 26 percent.

Let`s take a look now at what the changes may be in store at the combined airlines and what it means for travelers and investors.

(BEGIN VIDEOTAPE)

MATHISEN (voice-over): With more than 6700 flight as day, the new American airlines will be the world`s largest, but both partners must pay a price. To get the $16 million deal done and settle antitrust charges brought by the Justice Department, both American and U.S. Airways, will give up, take off and landing slots and gates at seven congested big city airports such as boston, Chicago, Dallas, Los Angeles, Miami, New York and Washington, D.C.

Some of the more noticeable changes will be in the nation`s capital with a new American will operate 44 fewer departures a day than two partners currently have, giving up 104 take off and landing slots. Sixteen of those slots will be offered to JetBlue, the 88 others will be distributed to other airlines. At New York`s LaGuardia Airport, they`ll give up 34 take off and landing slots and five gates.

Assistant Attorney General Bill Bear of the DOJ`s antitrust division said the settlement will, quote, “disrupt the cozy relationships among the legacy carriers,” increase access to congested airports and provide consumers with more choices.

Why was the DOJ so wary of the American/U.S. Airways merger? Well, for one thing, it will be the fourth big merger in the past five years. And once the deal closes next month, the nation`s four largest airlines will control roughly 85 percent of all domestic airline seats.

(END VIDEOTAPE)

HERERA: And joining us now to talk more about the airline industry is Helane Becker. She`s an airline analyst with Cowen Securities.

Good to see you, Helane. Welcome.

Let`s start, first of all —

HELANE BECKER, COWEN SECURITIES AIRLINE ANALYST: Thank you very much for having me.

HERERA: — with who the big winner is, in all of this. Is it the larger carriers because now they have access to new gates, or is it the smaller carriers because they have access to new gates?

BECKER: Well, of course, U.S. Airways and American are going to have to sell those gates and they will go to auction, the slots at LaGuardia and DCA, specifically. So, it will go to auction and the highest bidder will be the winner. You know, if Southwest and JetBlue which are operating some of the slots now, if they choose not to bid, of course, any else can bid.

MATHISEN: What is going to happen to fares as a result of this, Helane?

BECKER: You know, I think that`s a really good question. On balanced, over the last couple of years, we`ve seen costs really increase but that said — as a result, fares have gone up and we expect that fares are likely to go up because cost is going up. And I think that`s really the way to think about that.

Now, having said that, we expect that the slots and the gates that will be divested will encourage other participants to come into the market. We know, for example, JetBlue is already expanding in Boston. We expect them to continue and obviously that will help consumers in terms of giving them more choices.

HERERA: Are most of the mergers in the airline industry behind us? It seems, as though, we`ve seen so many. Are there less out there that seem logical to you?

BECKER: Right, I think not. I mean, that doesn`t mean after a few years there won`t be others. We`ve — this is the second time in my career that I`ve seen major technology improvements in aircraft and a major consolidation cycle. The last time we were talking about the top 10 airlines controlling 85 percent of the industry`s capacity. Now, we`re seeing the top four. So, I don`t think there is a lot left to consolidate.

MATHISEN: You know, I was looking at a list of the best performing S&P 500 stocks and I believe delta was on it. Is there any particular stock in this sector that you are more high on than others?

BECKER: Well, I guess no pun intended there, right? The airlines have been really high flying stocks all year long. We really like Delta. That`s been a top pick of ours all year. We like United. That`s been another. Spirit.

We`ve been pretty over rate on the group all year long, primarily because we`re encouraged by the fact that airlines are focused on returning and capital to shareholders. They are focused on limiting capacity group, limiting capital spending.

So, you know, we`re pretty optimistic about the group and as I said, you know, we think technology improvements in the aircraft will be hugely beneficial and so will consolidation.

So, we`re looking at the industry being able to report profits in 2014, as well as 2013.

HERERA: All right. Thank you so much, Helane, for joining us tonight. Helane Becker —

BECKER: Thanks for having me.

HERERA: — airline analyst with Cowen Securities.

MATHISEN: Well, stocks ended mostly lower today but not by much, with some blaming mixed messages from Federal Reserve officials. Traders got spooked after one Fed president said the central bank stimulus program can`t go on forever. Later, another said he could see tapering begin in March, and then a third Fed bank president said that the Central Bank`s monetary easing plans should remain in place.

The Dow backing away from Monday`s record close. It was off 33 points. The NASDAQ ended a fraction of a point higher, and the S&P was down four.

Treasury prices were under pressure today on fears about the Fed tapering the stimulus program. The yield on the benchmark 10-year note fell slightly to finish at 2.77 percent.

And crude prices fell more than $2 a barrel, closing at the lowest level since the end of May.

HERERA: Well, despite today`s dip, the Dow is up more than 20 percent this year.

But Ray Dalio, the founder of the hedge fund Bridgewater Associates has a much more bleak outlook for the decade ahead. At today`s “New York Times (NYSE:NYT)” DealBook Conference, Dalio said if stock prices continue to rise, expected returns will head lower.

(BEGIN VIDEO CLIP)

RAY DALIO, BRIDGEWATER ASSOCIATES FOUNDER: I think over the next 10 years, equities will have about a 4 percent return. As you lower the expected return and do not lower the expected risk of equities, then increasing — there is a movement more to cash. So, as you have a greater appreciation in the price because of that, you have less wealth effect and each increment of wealth effect has less impact on spending.

Federal Reserve will not be able to raise interest rates for a number of years.

(END VIDEO CLIP)

HERERA: Dalio advised investors to create a proper balance between stocks, bonds and cash on account of the narrowing return rates on each investment.

MATHISEN: Wal-Mart (NYSE:WMT) wants a jump on this year`s Black Friday bargain hunters. The world`s largest retailer will open its doors at 6:00 p.m. local time on Thanksgiving evening this year. That`s two hours earlier than it did last year. It`s also offering some exclusive Black Friday deals at Walmart.com, and those begin early on Thanksgiving morning.

HERERA: And Wal-Mart (NYSE:WMT) is among some of the nation`s biggest retailers reporting the latest quarterly earnings this week, and more importantly, giving investors their outlook on the all important holiday shopping period.

Courtney Reagan has more.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It`s been a tough few quarters for retailers, with traffic down in shopping malls and lackluster sales, investors are wondering how much pressure the government shutdown and new health care laws are adding to consumer spending, and how much falling gas prices are helping.

As a flurry of retailers report earnings in the coming days, Wall Street will find out. But while investors want to know how the back to school third quarter ultimately turned out, that`s in the past. Holiday hopes are hanging on those all important fourth quarter forecasts.

JAN KNIFFEN, ROGERS KNIFFEN WWE CEO: We`re very concerned what they will all say about the fourth quarter. We`re not so concerned what they report in the third quarter, especially if they say something like it strengthened every month of the third quarter.

REAGAN: First out of the gate will be Macy`s (NYSE:M), reporting its earnings before the opening bell tomorrow. The department store disappointed last quarter, though, suggested the sales weakness was only temporary. Many believe the magic of Macy`s will again surface this holiday weekend.

The world`s largest retailer reports early Thursday and like usual, what Wal-Mart (NYSE:WMT) says will send ripple effects throughout the market. A lot is weighing whether the Dow component will post a third disappointing quarter, or if the weakness has passed.

But not everyone thinks Wal-Mart`s outlook will set up a pool in the stocking holiday season.

KNIFFEN: My anticipation is that sales have been pretty good at Wal-Mart (NYSE:WMT) for the last three weeks — the last two weeks of October and first week of November. If that`s true, I think they are likely to be less guarded on their commentary.

REAGAN (on camera): While Wal-Mart (NYSE:WMT) will set an early tone, retail earnings really heat up next week, was closely watched and widely names reporting, including Best Buy (NYSE:BBY), Home Depot (NYSE:HD), J.C. Penney or TJX.

So, the big question remains, will the result be naughty or nice?

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: And still ahead, new guidelines from the nation`s leading heart organization could reshape how cholesterol lowering statins are used. But what does this mean for the drug companies that make them?

(MUSIC)

MATHISEN: A big set back for a promising medication aimed at treating heart disease. GlaxoSmithKline`s drug failed in a late stage trial to produce a significant reduction in heart attacks, strokes or death when added to a patient`s care, which may include a cholesterol treatment, aspirin or even blood pressure medications. Shares of Glaxo fell more than 1.5 percent today.

HERERA: So, new recommendations out tonight affecting millions of Americans currently at risk for serious medical conditions and the guidelines center around statins.

What will that mean to the health of some of the nation`s biggest drugmakers?

Well, Hampton Pearson has that story.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The new guidelines from the American Heart Association focus on the use of statins, not just to control cholesterol levels, but to lower the risk of heart attack, stroke and diabetes.

DR. LORIS MOSCA, NEW YORK PRESBYTERIAN HOSPITAL: Well, this is certainly a departure from prior guidelines where the focus was really on trying to get your cholesterol to goal. And now, the focus is on trying to get started on medication and take the highest dose that you can tolerate.

PEARSON: The Heart Association and American College of Cardiology identify four major patient groups for whom taking statins lowers risk. Patients with cardiovascular disease, those with high LDL or bad cholesterol levels, patients with type 2 diabetes and patients between 40 and 75 years of age, with a 10-year high risk cardiovascular profile.

MOSCA: The new recommendations really reaffirm the importance on treating cholesterol levels in the highest risk populations, those with established heart disease, those with diabetes and those who have genetic cholesterol problems.

PEARSON: Analysts say there is no question statins are the big gorilla, in the cholesterol fighting prescription drug market, 214 million prescriptions a year, a 17 percent increase just in the last five years.

But two of the biggest sellers, Pfizer`s Lipitor and Merck`s Zocor have now gone off patent. AstraZeneca`s Crestor will go generic in 2016. Even if the new guidelines lead to more people taking statins, analysts say it won`t offset the lost revenues from those expiring patents.

DAMIEN CONOVER, MORNINGSTAR ANALYST: It`s really going to benefit just the generic market, and they at that point in the generic life cycle really doesn`t even help the generic firms because it`s really a commoditized product.

PEARSON (on camera): The next generation of patented statins is in the pipeline. Meanwhile, doctors emphasize drugs are no substitute for a heart healthy lifestyle, that includes a good diet, exercise and a lot less stress where possible.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson in Washington.

(END VIDEOTAPE)

MATHISEN: And here to talk more about the new cholesterol treatment guidelines and what they mean for investors is Barbara Ryan. She`s a managing director with FTI Consulting (NYSE:FCN).

Barbara, you — presumably, you heard that package that Hampton just filed for us. Do you have anything you take issue with there, or do you think this is really not a needle mover for the drug companies.

BARBARA RYAN, FTI CONSULTING MANAGING DIRECTOR: It`s absolutely not. I mean, I think as was mentioned, given the fact that both Lipitor and Zocor have lost patent protection, they are mere shadows of their former selves and not financially relevant to Merck (NYSE:MRK) and Pfizer (NYSE:PFE).

I think there maybe more increased attention on obviously products like Vytorin for Merck (NYSE:MRK) and Zetia, as well as Crestor, which were mentioned. But since their patents go off in 2016, their investors are not going to get too excited.

We do have new drugs coming from — down the pipeline, one in phase three, a novel target that could be given once every several weeks from Sanofi and Regeneron is in phase three.

But I think the other message communicated earlier serves really been a movement from treat to goal and a focus on what the actual cholesterol number is, but rather the patients at high risk should be treated, number one, irrespective of their cholesterol levels and two that they should be treated aggressively with higher doses of statins, which I think that — those are the change here.

HERERA: And does that change the guidelines in your opinion for other chronic diseases like diabetes which is on the rise and the like or not?

RYAN: Well, I think, you know, in some respects, I mean, keep in mind that the statins have been on the market for a long, long time, and are fairly safe drugs, but I do think this issue of early and aggressive treatment and prevention, you know, with good healthy lifestyles is probably ubiquitous to a lot of chronic diseases.

HERERA: Do you have any estimates, these new guidelines, as to how much the marketplace in terms of number of individuals will expand as a result of it? Are we talking about a 20 percent expansion, an 80 percent expansion? Do you have any guess?

RYAN: My guess would be, you know, that maybe you`re talking 10 percent to 15 percent, and I think that would largely come from the fact patients would be targeted for treatment, sort of irrespective of what their cholesterol level is, but rather as a function of their risk for cardiovascular disease and morbidities associated with that.

HERERA: You know, it sounds as, though, also, it`s going towards the trend which seems to be expanding quite rapidly towards wellness, general wellness and general well being and intervening in your lifestyle earlier in your life so that you don`t have some of these issues later on, or they aren`t as extreme later on.

RYAN: I think it`s a great point, Sue, and I think it`s absolutely true and will continue to be the case for a lot of different reasons. One is, we as consumers are going to bearing more of the burden of our health care. So, we`re going to have an economic incentive as well as a health outcome incentive to do that.

And the other is that I think, you know, the therapies and awareness and availability of better treatment regiments early on. You know, cancer is becoming a chronic disease, rather than an acute life-threatening condition.

MATHISEN: Barbara, thank you very much as always.

RYAN: Thanks for having me. Great to see you.

MATHISEN: Likewise.

RYAN: Thanks a lot. Bye-bye.

MATHISEN: You bet.

Barbara Ryan is managing director at FTI Consulting (NYSE:FCN).

HERERA: The largest U.S. home builder reported a big rise in sales and that`s where we begin tonight`s “Market Focus”.

D.R. Horton`s profit increased nearly 40 percent in the third quarter as the company`s higher closing prices boosted revenue. The home builder benefitted from a pickup in home sales as mortgage rates eased just a bit in October. The stock popped almost 5 percent to $18.91.

Dish Network added more subscribers than Wall Street expected in the third quarter, helping lift that stock. The satellite TV provider also easily beat revenue estimates. The 35,000 new Dish subscribers topped estimates, but the increase was well short of the 135,000 customers that its rival DirecTV tacked on. It didn`t seem to shake investors much today. The shock jumped 6 percent to $50.35.

And Jos. A. Bank upped its third quarter outlook, thanks to a rise in sales. The retailer isn`t set to report its earnings until December but the company announced the positive outlook just two days before its proposed takeover bid for Men`s Warehouse will expire. Shares of Jos. A. Bank rose 3 1/2 percent to $50.26.

MATHISEN: An arbitrator says Starbucks (NASDAQ:SBUX) must pay Kraft (NYSE:KFT) nearly $2.25 billion in damages after the coffee chain`s early termination of a grocery deal. Starbucks (NASDAQ:SBUX) also has to pay about a half billion in interest and attorneys fees. The decision came after the closing bell prompting Starbucks (NASDAQ:SBUX) shares to move lower initially, closing the regular session at $80.61, down just a bit. Now, Kraft (NYSE:KFT) shares initially popped. They finished the trading day at $51.96.

The activist investor Dan Loeb disclosed he has a stake in FedEx (NYSE:FDX). He did so at “The New York Times (NYSE:NYT)” DealBook Conference today. The hedge fund titan said he met with FedEx (NYSE:FDX) CEO and doesn`t want to see him replace. The news sent FedEx (NYSE:FDX) shares higher, even after the stock was downgraded by Cowen this morning for lack of a major near term upside. The stock popped 1 1/2 percent to $134.63.

And Leap Frog, the maker of toys and kids` tablets, was upgraded by BMO from a market perform to an out-perform rating. Analysts cited the company`s well-known name and leadership position in educational toys is the reason why the stock looks attractive to them. The report sent shares up a fraction to $7.97.

HERERA: And tablet sales are expected to be strong this year but tablet makers have come under fire lately for targeting those devices to young kids who critics say are spending too much time in front of the screens.

Josh Lipton has more.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Kids are using mobile devices including tablets a lot more. In the past two years, the average amount of time children eight years old and younger are spending on mobile devices has tripled from 5 minutes a day to 15 minutes a day, according to Common Sense Media, an advocacy group.

Stephanie Wissink of Piper Jaffray says it`s big business.

STEPHANIE WISSINK, PIPER JAFFRAY: The total toy industry size is about $20 billion and certainly electronics and entertainment properties are a growing percentage of that. So, I think it`s viable to say this is about a billion-dollar market in the U.S.

LIPTON: Samsung is the latest tech company moving into the market. Its new Galaxy Tab 3 kids tablet is now available in the U.S., in Amazon (NASDAQ:AMZN), Best Buy (NYSE:BBY) and Toys “R” Us. It comes with a 7-inch display, the cost, $229.

Leap Frog is also a player in the space with it`s Leap Pad Ultra designed for the 4-9-year-old set and has all the bells and whistle, 7-inch display, camera and MP3 player. Kids can also browse videos, images and sites approved by Leap Frog. The cost, $149.

Or VTech`s InnoTab 3 which costs $69.

But parents do have concerns about tablets and pediatricians say they are justified. The American Academy of Pediatrics discourages screen time for kids under two, pediatricians I spoke to say research does suggest screen time can impact cognitive development.

But despite the concerns, there is no deny thing is a potentially lucrative area for tech.

(on camera): For older kids, pediatricians tell me parents should at least be aware of the time their kids are spending in front of screens and limit screen time to just one to two hours per day.

I`m Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.

(END VIDEOTAPE)

HERERA: Hope my kids were watching that report.

Coming up, Mexico quickly becoming a major hub of auto manufacturing, but will it come at the cost of American jobs?

(MUSIC)

MATHISEN: A merger between the NYSE and Euronext and the Intercontinental Exchange is now complete and they will begin trading tomorrow, thus ending the independent run of the New York Stock Exchange. The origins of the NYSE, the big board, can be traced back to May of 1792.

HERERA: The president of the Philippines now says the death toll from last week`s devastating typhoon will likely be no more than 2,500, far less than the previous estimate of 10,000. Meantime, risk assessment firm Eqecat estimates the total insured losses from that storm will be less than $100 million. But to be clear that is just insured losses. Damages to uninsured homes and businesses are expected to be far greater.

MATHISEN: With the new car sales in the U.S. climbing to their highest levels in six years, auto manufacturing has also revved up. Auto plants in the U.S. are now close to full capacity. So big auto makers are expanding and adding more assembly lines. Not here in the U.S. but in Mexico.

Phil LeBeau has the story.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It looks like any other auto plant in the world, but Nissan`s new assembly lines in Aguascalientes, Mexico, represent the latest surge in North America for the Japanese auto maker.

CARLOS GHOSN, NISSAN RENAULT CHAIRMAN & CEO: We`re building a second plant, 175,000 cars a year capacity. Capable of doing four cars, Mexico is becoming the kind of export hub for Americas.

LEBEAU: Nissan`s expansion is one reason why Mexico has passed Canada and is closing the gap with the U.S. for car production.

JIM FARLEY, FORD MOTOR COMPANY MARKETING EVP: Mexico is proven for a long time and not just years but for a long time. For us, it`s a fantastic world class quality operation.

LEBEAU: What`s driving Mexico`s auto boom? The country`s central location and numerous trade agreements allow auto companies to export from there to North and South America, Europe, even Asia.

(on camera): But more importantly, auto makers here in Mexico make a fraction of the wage line workers earned north of the border.

HARLEY SHAIKEN, UC BERKELEY LABOR RELATIONS PROFESSOR: Somebody in Mexico might make $3 or $4 an hour in an auto plant. An auto worker in Ohio might be making five to eight times more than that.

LEBEAU: The Brookings Institute estimates half of the North American auto jobs will be in Mexico by the end of this decade. That growth may limit the expansion and hiring at U.S. auto plants, another sign of surging Mexican auto industry is impacting lives north and south of the boarder.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Aguascalientes, Mexico.

(END VIDEOTAPE)

MATHISEN: And for more on the rapidly growing auto manufacturing industry in Mexico, head to our Web site, NBR.com.

HERERA: And finally tonight, Tuesday is not usually a popular day to say I do but today`s calendar date is 11/12/13, a highly desirable wedding day for thousands of couples. According to a study conducted by David`s Bridle, more than 3,300 brides will marry today, almost 800 percent more than just one year ago and next year maybe even bigger, December 13, 2014, or 12/13/14, will be the last calendar date this century with three sequential numbers and that falls on a Saturday.

All right. That will do it for us tonight on NIGHTLY BUSINESS REPORT, I`m Sue Herrera. Thanks for joining us.

MATHISEN: And thanks from me as well. I`m Tyler Mathisen, have a great evening, everybody and we`ll hope to see you back here tomorrow night.

END

Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, 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) 2013 CNBC, Inc.

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