Transcript: Wednesday, January 22, 2014

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

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Netflix (NASDAQ:NFLX) beats. The stock surges. But there`s one number that may matter just as much as — if not more than — its quarterly results.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: He`s back. Carl Icahn upped his investment in Apple (NASDAQ:AAPL) and has pointed words for the company`s board as the heat gets turned up on one of the most widely-owned tech stocks. Is this good news for investors?

MATHISEN: Crude awakenings. Oil is being shipped through part of the controversial Keystone Pipeline. And it`s not just refiners who can benefit but consumers as well.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, January 22nd.

GHARIB: Good evening, everyone.

Netflix (NASDAQ:NFLX) dazzled investors today with spectacular earnings. After the market closed, the company reported fourth quarter earnings 245 far exceeded forecasts, gaining many more subscribers than predicted.

In the final three months of the year, Netflix (NASDAQ:NFLX) earned 79 cents a share. That was 13 cents more than estimates. Revenue also topped expectations. And then on top of that, the company gave a very strong outlook.

During trading day, shares of Netflix (NASDAQ:NFLX) rose 1 1/2 percent on anticipation of those strong results, and then surged as much as 17 percent, in after-hours trading.

Julia Boorstin has more on those Netflix (NASDAQ:NFLX) results and what the company`s predicting for the current quarter.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Netflix (NASDAQ:NFLX) didn`t just beat expectations on the top and bottom lines. The key number in focus, streaming subscribers, came in higher than projected as well, with the addition of 2.33 million U.S. streaming subscribers and more than 1.7 million overseas. And in the current quarter the company says it expects to add another 4 million streaming subscribers worldwide.

Netflix (NASDAQ:NFLX) also says it`s evaluating tiered pricing and experimenting with a higher-priced service, but existing members would be grandfathered in to current plans, so they wouldn`t have a price hike. As for concerns for the recent ruling on net neutrality would result in higher costs for the company, CEO Reed Hastings said in a letter to shareholders that he`s not concerned and he thinks it`s unlikely that Internet service providers will discriminate against Netflix (NASDAQ:NFLX).

Back over to you.

(END VIDEOTAPE)

MATHISEN: Our Julia Boorstin reporting there.

The new earnings news out of the luxury goods maker Coach (NYSE:COH), though, was not as encouraging as the numbers out of Netflix (NASDAQ:NFLX). Shares of Coach (NYSE:COH) fell 6 percent today after an earnings miss during the all-important holiday quarter. The problem, a substantial decline in sales here in the United States.

Courtney Reagan has more now on what Coach (NYSE:COH) plans to do to stay in fashion.

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COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Another retail for add to the just wrapped up holiday season`s “bah humbug” list. High end accessory maker Coach (NYSE:COH) posted a disappointing holiday quarter, missing forecast for profit and revenue. Sales fell by 14 percent in North American stores open at least one year.

Perhaps the one bright spot for Coach (NYSE:COH) is China, where the same metric rose at a double-digit rate.

Newly installed CEO Victor Luis said Coach (NYSE:COH) saw substantially lower traffic in stores, adding to the broader retail conversation about too many stores and not number customers visiting them.

DANIEL ARBESS, PERELLA WEINBERG PARTNERS: People are staying at home. They`re shopping on their mobile devices. The mobile Internet is a gigantic secular development that is killing companies like Coach (NYSE:COH), for example.

Coach (NYSE:COH) is making kind of old-fashioned belts that you have to go to the store and buy. Nobody`s buying them anymore. Therefore, they got killed on earnings.

REAGAN (voice-over): The high-end accessory maker is undergoing somewhat of a reinvention, at both the brand and executive level. The company is working to expand and improve its products, moving more into a lifestyle-brand strategy under new CEO Victor Luis, after long-time CEO Lou Frankfurt stepped down in December.

But a number of analysts think reinvention will be difficult and will take time. Time that Coach (NYSE:COH) may not have for spare as it seemingly continues to lose market share to rival Michael Kors.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

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GHARIB: On Wall Street, stocks ended the session mixed and little change with earnings keeping the major averages in check. The Dow ended lower again from pressure on IBM. Big Blue was the biggest decliner in the index, falling more than 3 percent after reporting weak results late Tuesday.

With that, the Dow lost 41 points but the NASDAQ added 17. That was enough for another fresh 13-year closing high. And the S&P up 1 point.

MATHISEN: Well, the NASDAQ got some help today from shares of Apple (NASDAQ:AAPL) which edged higher after the billionaire activist investor Carl Icahn tweeted about a big increase in his stake in the company. But not without sharply criticizing the company for not increasing the size of its share buy back plan.

Here`s Icahn needling Apple`s board to reward shareholders.

(BEGIN AUDIO CLIP)

CARL ICAHN, BILLIONAIRE INVESTOR: The decision to use a cash order of $150 billion just sitting there doing nothing and not use it to do huge buy backs I think is sort of disgraceful. And I think it`s doing a tremendous disservice to its shareholders and really to the smaller shareholders.

(END AUDIO CLIP)

MATHISEN: Earlier, Icahn surprised Wall Street by announcing on Twitter that he purchased another half billion dollars in the iPhone maker in just the past two weeks, upping his stake now to more than $3 billion.

I kind of say that he likes using Twitter because it makes it so easy to disseminate information, but he doesn`t like it enough to invest in it.

GHARIB: Well, back now to Apple (NASDAQ:AAPL). Our guest tonight says investors should date Apple (NASDAQ:AAPL) but not marry it. He`s Chad Morganlander and he`s portfolio manager at Washington Crossing Advisors.

Nice to have you on the set with me and Tyler.

Since you`re talking about relationships —

CHAD MORGANLANDER, WASHINGTON CORSSING ADVISORS PORTFOLIO MANAGER: Right.

GHARIB: — your fund has had an on again/off again relationship with Apple (NASDAQ:AAPL) stock. Currently, you don`t have any Apple (NASDAQ:AAPL) in your portfolios. What gives?

MORGANLANDER: Well, we`re rather neutral in the long term on Apple (NASDAQ:AAPL). Perhaps over the next 6 to 12 months you can get a nice pop in the stock price and perhaps the price goes to $650.

But nonetheless, we`re more concerned about the outer years and the growth trajectory. Let`s keep in mind this company`s had a wonderful move from — in 2008, revenues of $35 billion now to $180 billion. But the obsolescence of technology and the competition should start to kick in, in the next 24 to 36 months.

MATHISEN: It sounds to me like you`re hungry for a new product. You are worried that they are going to get surpassed as some would argue they have been by Samsung.

MORGANLANDER: Well, they`ve had the product, right? And they`ve enjoyed that over the last three to five years. But now, you have the likes of Amazon (NASDAQ:AMZN) with their Kindle, or Google (NASDAQ:GOOG) with their platform. That`s going to eat away at their operating margins and gross margins in the outer years. They`re not the only show. And that`s the issue at this inflection point.

It is cheap, nonetheless. The valuation does make sense. And that`s why I`m saying that the price target you could go to $650. But nonetheless, you don`t want to own this as think that you could own this for the next five to 10 years like Proctor & Gamble or perhaps, McDonald`s (NYSE:MCD).

GHARIB: Today, there were a number of people making predictions about where the stock could go. Some saying it could go to $1,000, you know, this year or next year. Then you have all these comments from Carl Icahn.

What do you make of all that in terms of giving some momentum to the stock and ensure investors pay attention to this?

MORGANLANDER: Well, they certainly could over the short run in the coming months. And perhaps you can get that 15 percent run. But the problem is, in order to create real shareholder wealth, you`re going to need innovation and revenues to accelerate again. Revenue growth has been decelerating into the mid-single digits, and potentially low single digits in the coming years. You`re going to need to see that get back into the teens.

As well that would work with the buy back. But if you just have a buyback with no innovation or revenue growth. Then, what do you get there? You really don`t get a whole lot.

MATHISEN: So, I get it. This is not a holding of you or your company right now. You say you`re neutral on it. What would be the trigger that would get you off the fence and say, OK, now`s the moment I`m going to get in here? Is it a decline in price where it becomes more value-oriented or what?

MORGANLANDER: Well, we would look for another generation of instruments and cell phones or consumer products that will really start to gin up the revenue line. And we`re not seeing that as of yet.

Nonetheless, you do have clarity over the next 18 months. That`s why the stock price target is $650 that I`m throwing out there. But to get this to a point where you get a $500 billion market cap of which it is, to a $750 billion or $1 trillion market cap, you`re really going to need that next great instrument.

GHARIB: We`re going to have to wrap up. But real quickly, earnings come out on Monday. That`s always a big event for investors looking at Apple (NASDAQ:AAPL).

What do you expect?

MORGANLANDER: I expect them to do terrific. They`ll probably be on the top line as well as bottom line. And the stock will probably have a nice move in the short run.

GHARIB: But you`re still going to be watching it.

OK, thank you so much, Chad. Real pleasure talking with you.

Chad Morganlander, portfolio manager at Washington Crossing Advisors.

MATHISEN: Well, even after that tremendous run-up in the averages last year, 2013, a lot of investors poured money into stocks just last week following strong economic reports. The Investment Company Institute says U.S.-based stock funds attracted $8.3 billion into those stock funds last week. And that was the biggest inflow in 10 weeks.

GHARIB: Surprisingly, money has also been flowing back into bonds. Nearly $3 billion went into mutual fund that specialized in bond investing, according to that ICI report Tyler just told you about. That`s a change from last year when investors pulled billions out of bond funds.

PIMCO, the world`s largest bond fund, was a victim of that trend. 2013 was its worst year since 1994. And then yesterday, PIMCO`s Mohamed El-Erian, said he`s resigning as co-chief executive.

So, what does El-Erian`s exit mean for PIMCO investors?

(BEGIN VIDEO CLIP)

JEFF TJORNEHOJ, LIPPER FUNDS HEAD OF LIIPPER AMERICAS RESEARCH: If you own this right now or you`re interested in them, I don`t think his departure should change your mind about any of them, even the one that he is currently co-managing. He didn`t have any under his belt that were entirely his own. He had co-managers with him who will remain on those funds. So, it`s still a nonevent even if you own some of those funds like the PIMCO Global Allocation Fund.

(END VIDEO CLIP)

MATHISEN: And still ahead, man versus machine. Why robots may shape the future of manufacturing in America.

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GHARIB: Crude is beginning to flow freely today as a major portion of the controversial Keystone Pipeline opened for business. But will that mean cheaper energy costs for consumers?

Jackie DeAngelis reports.

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JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): A tale of two pipe lines. The southern leg of TransCanada`s Keystone`s pipeline bringing oil from Cushing, Oklahoma to Port Arthur, Texas, where there are four major refineries, Exxon, Total, Motiva and Valero, that are likely to receive some of its 700,000 barrels of light sweet crude per day.

Not just Port Arthur will benefit. The entire Gulf Coast region could tap into this new supply, giving it greater access to mid continent crude.

ANDY LIPOW, LIPOW OIL ASSOCIATES PRESIDENT: As that oil arrives into the Port Arthur Area, it will now be accessible to about 25 percent of the nation`s refinery capacity because it will be connected by pipeline not only to Port Arthur but to Lake Charles and to the New Orleans refining centers.

DEANGELIS: The benefit of moving Cushing crude by pipe? It saves refiners big money.

BILL DAY, VALERO VICE PRESIDENT: The oil sells for around $15 to $20 a barrel less than the imported crude coming in by ship. The more you can reduce the cost of the crude oil, the better chance you have of seeing savings at the gas pump.

DEANGELIS: But the southern leg raises questions about the northern leg, still awaiting Washington`s approval. It could bring 830,000 barrels of heavier crude oil per day from Alberta, Canada, to the Gulf Coast.

DAY: We want to replace that diminishing supply of crude with ample supplies of crude from Canada — same kind of oil, just from a different place. So, that`s why we support the northern leg of Keystone to bring that oil all the way down to the Gulf Coast where the refining capacity exists to process it.

DEANGELIS: But Canadians are getting impatient with the U.S., saying recently that President Obama has punted on the issue.

Secretary Kerry saying last week that the U.S. won`t be pushed into making a decision.

At stake, however, tens of thousands of jobs to which the administration cannot turn a blind eye.

UNIDENTIFIED MALE: The vast majority of people in this area support it. Not only does it guarantee jobs, but it also is vital to our national security.

UNIDENTIFIED MALE: Hopefully it should bring quite a few jobs. We need jobs around here, brought to this area.

DEANGELIS (on camera): Whether or not the northern leg of the Keystone Pipeline gets approval from Washington, the industry says that oil will get where it needs to go, whether it`s by truck, by barge, by pipe or by rail. But remember, recent accidents have put rail transport under scrutiny because of safety issues.

DAY: The United States remains the largest consumer of petroleum and the largest consumer of petroleum-based fuels. That`s not going to change.

DEANGELIS (voice-over): But for now, as we wait to see what Washington will do, the southern leg opening today is hailed by the industry as a step in the right direction.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis from Port Arthur, Texas.

(END VIDEOTAPE)

MATHISEN: Well, if you`ve been waiting for Chrysler to go public, your wait just got a little bit longer. Italy`s Fiat, which now has total ownership of Chrysler, withdrew paperwork filed back in September for an initial public stock offerings slated to happen sometime this year. No reason was given for pulling the IPO plans.

GHARIB: Well, Fiat, along with some other automakers have a lot more to worry about right now like the safety of their small cars in crash tests. The latest crash tests of mini cars by the Insurance Institute for Highway Safety showed that only one of the 11 cars tested received a passing grade in a front end collision. The Chevy Spark was the only car to earn a top safety pick. The Honda Fit scored the worst.

MATHISEN: We begin “Market Focus” tonight with a huge after the bell spike in shares of e-bay. The company announcing a $5 billion buy back plan after its earnings beat estimates by a penny. It was also revealed that Carl Icahn — yes, Carl Icahn again — owns slightly less than 1 percent of the company and is nominated two directors to its board. Icahn also filed a nonbinding proposal urging eBay (NASDAQ:EBAY) to split PayPal and its marketplace businesses.

The stock initially surged after the close. Shares ended the regular session slightly higher at $54.41.

American Eagle shares falling in the after-hours trade. The struggling teen retailer said its CEO of two years, Robert Hansen, would leave the company effective immediately. The company named a chairman as interim CEO and stood by earnings guidance it gave earlier this month. Shares ended the regular session 2 percent lower at $14.31.

United Technologies (NYSE:UTX) saw profits plunge 29 percent in the fourth quarter. The maker of Otis Elevators and Blackhawk helicopters saw profits decrease from last year. But still, United managed to top estimates.

The company was actually helped by a delay in shipping a helicopter order because the helicopters are actually sold at a loss. Also, revenue came in a bit light. Still shares were up slightly to $116.12.

Totally different story for Norfolk Southern (NYSE:SO), the railroad operator said earnings increased by 24 percent as strong chemicals, construction materials and auto shipments offset a dip in coal volumes. The company also announced it will raise its quarterly dividend by 2 cents a share. That sent the stock up nearly 5 percent to $92.64.

GHARIB: Shares of General Dynamics (NYSE:GD) also soaring today. The military contractor CEO warned of a slight drop in earnings and revenue in 2014. Investors shrugged that off, focusing instead on his promise to aggressively return cash to shareholders who buy backs and dividends. The stock popped 4.5 percent to $99.65.

Brinker International (NYSE:EAT), the owner of Chili`s, posted better than expected second quarter earnings on higher sales. New menu items helped Chili`s increase sales for the first time in a year. Shares climbed to a record high, up 6.5 percent to $49.72.

And Sears (NASDAQ:SHLD) is closing its flagship downtown Chicago store in April. It`s a move to cut costs and focus on online retailing. According to a company spokesperson, the store has lost millions of dollars since opening in 2001. Shares of the retailer fell slightly to $37.59.

MATHISEN: Some health care changes to tell you about at Target (NYSE:TGT). The retailer announced it will no longer offer health coverage for its nearly 36,000 part-time workers. Target (NYSE:TGT) said that by offering the insurance, it might disqualify them, at least some of them, from the eligibility for subsidies in plans offered through the Affordable Care Act.

Separately the company announced plans to lay off 475 workers at its Minneapolis headquarters and says it won`t fill 700 open positions there.

GHARIB: As American manufacturing rebounds and profits grow, another trend is taking hold in plants across the country, the rise of machines as robots work alongside humans. The latest wave of robots are smarter and less expensive, allowing small manufacturers to expand and even hire more people.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Meet Baxter, a small, easily programmable robot now working side by side with the men and women at Vanguard Plastics in Southington, Connecticut.

RAFAELA VENTURA, VANGUARD PLASTICS: At the beginning I was kind of nervous. It`s the first time I`ve been working with a robot like that. But I like it.

MILDRED MARTINEZ, VANGUARD PLASTICS: I love working with Baxter. He`s amazing.

LEBEAU: Vanguard paid $25,000 for Baxter, a steal of a deal according to Vanguard`s CEO who says Baxter makes his company more productive by freeing up workers to do other jobs.

LARRY BUDNICK, JR., VANGUARD PLASTICS CEO: They do not mind the employees on the floor, because they know that that technology is going to help them keep whatever job that they have now.

LEBEAU (on camera): Manufacturers have been adding robots and automation for decades. It`s made plants around the world far more efficient. It has also sparked a debate about whether or not robots have made manufacturing companies so efficient they don`t need to hire as many workers. In fact, the drop in manufacturing jobs over the last 15 years has happened at the same time the number of industrial robots around the world has surged.

ERIK BRYNJOLFSSON, “THE SECOND MACHINE AGE” AUTHOR: You know, employment is falling off a cliff. Median income is lower now than it was in the 1990s. So, there are definitely some troubling trend.

LEBEAU: Science fiction has long predicted robots would eventually have the artificial intelligence to interact with people and perhaps even think like a person. The makers of Baxter say that`s why their robot is a glimpse of the future, because he can easily be programmed by workers on the floor and moved into a variety of different jobs.

SCOTT ECKERT, RETHINK ROBOTS CEO: Baxter paired up with American workers means the overall output of the productivity of that factory goes up, because the people are doing the interesting value-added work.

LEBEAU: The new age of the robot — smaller, smarter, and working closer than ever with blue-collar America.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Southington, Connecticut.

(END VIDEOTAPE)

GHARIB: And coming up, as some of the nation`s biggest banks abandon short-term, high-interest loans, are consumers better off?

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MATHISEN: The bankrupt city of Detroit is getting more financial help to keep itself afloat. Michigan Governor Rick Snyder announced his support for $350 million in state funding to protect the pensions of Detroit`s city retirees, and to help preserve the city-owned art collection at the Detroit Institute of Art.

Just last week, a group of private foundations pledged more than $330 million to shore up Detroit.

GHARIB: Some big banks are trying to make things safer for some of their customers, ending the practice of borrowing money against upcoming paychecks.

Kayla Tausche has more.

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KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Need some cash before your next paycheck? Now there`s one less place to look. Traditional banks are ditching the business of advance deposits, payday loans supposedly at lower interest rates, culprit regulatory pressure.

The OCC and FDIC in 2013 issuing stern warnings to financial institutions over such predatory lending practices. Both agencies argue advanced deposits with their steep interest rates and short pay back windows pose big risks to consumers. Many of those consumers would agree. Just ask the handful who are suing Cincinnati-based Fifth Third Bank over its so-called early access program.

The Third Service, like other banks, lets a customer take out an emergency loan, up to $2,000, charging $1 for every $10 borrowed. The bank then pays itself back no later than a month afterward when the next paycheck hits, automatically deducting the amount from a direct deposit.

It seems simple enough. Banks warn its expensive credit, up to 120 percent annualized. But advocacy groups say it`s actually far higher, since these loans are outstanding for just an average of 10 days, the Center for Responsible Lending says the real interest rate, 365 percent. At the end of this month, Fifth Third will end is access program. Similarly, Wells Fargo (NYSE:WFC), Regions Financial, and U.S. Bank will also phase out theirs.

While consumer groups applaud the change, they acknowledge the alternative is risky.

NESSA FEDDIS, AMERICAN BANKERS ASSOCIATION: Customers who value and use these products will have to go to unregulated or under-regulated nonbanks and pay more, or suffer their harsh consequences of not being able to get a loan when they need it.

TAUSCHE (on camera): That`s a big concern given the typical payday loan customer has less money in his or her account and relies regularly on these programs, eight times a year on average, according to the Consumer Financial Protection Bureau.

TOM FELTNER, CONSUMER FEDERATION OF AMERICA: What we consider these loans to be is an entrance into a cycle of debt — again, long-term use, long-term reliance on triple digit interest rate credit. So, using these loans back-to-back again and again and again. And that cycle of debt leads to long-term financial insecurity.

TAUSCHE: Chuck Fitz (ph) of Austin used Wells Fargo`s program, tweeting the loans, quote, “helped me get through rough patches in 1998. Misguided regulation that hurts consumers.”

A spokesperson for U.S. Bank, which is also ceasing its program said it is, quote, “committed to finding new solutions that meet the needs of all of our customers and regulators”, a common dilemma in a post-crisis economy.

For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche.

(END VIDEOTAPE)

MATHISEN: And, finally, two milestone birthdays to recognize tonight. CNBC, the producer of NIGHTLY BUSINESS REPORT turns 25 this year. To help commemorate that event, CNBC will nominate a list of leaders, icons and rebels who have had the greatest influence on the global economy and business over the past quarter century.

To see an initial list of 200 candidates, go to NBR.com. The final list will be revealed in April.

GHARIB: Well, as Tyler mentioned just a moment ago, the other milestone is about NIGHTLY BUSINESS REPORT. Today is our 35th anniversary.

Back on January 22nd, 1979, Miami`s public television station launched NBR. It was the first daily business news program on television.

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ANNOUNCER: THE NIGHTLY BUSINESS REPORT

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GHARIB: Dell (NASDAQ:DELL) Frank and Linda O`Brien were the first to anchor. Paul Kangus did the stock market commentary and then, Alan Greenspan, he was a private economist back then, was the first regular commentator and continued in that role until he became chairman of the Federal Reserve.

You know, over the years, Tyler, there have been so many recognitions, so many awards, too many to mention here. But one of them was partnering — NBR partnering with CNBC last year. And as a result, you and I will be celebrating our one-year anniversary.

MATHISEN: I`m ordering the flowers now, I`m wondering the flowers now. What is it? March 4th, I think, is our first day.

GHARIB: March 4th, it`s been great fun. A lot of fun working with you.

MATHISEN: Absolutely.

GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks for watching tonight and for the past 35 years.

MATHISEN: And, hopefully, for the next 35.

I`m Tyler Mathisen. Have a great evening, everybody. We`ll see you right back here to begin the next 35 tomorrow.

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) 2014 CNBC, Inc.

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