Transcripts: Tuesday, January 28, 2014

NBR ThumANNOUNCER: 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: Stocks rebound. The Dow snaps a 5-day losing streak as the focus returns to earnings and the financial health of some of America`s biggest companies.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Center of the storm. The Central Bank of Turkey holds an emergency meeting as it tries to support its currency after a sharp decline. We are on the ground in Istanbul where tough action is being taken.

MATHISEN: State of the Union. Income inequality — the president takes aim tonight in front of Congress. What`s causing the widening income gap and what are some possible solutions?

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, January 28th.

GHARIB: Good evening, everyone.

Good news on earnings, the economy, and emerging markets added up to a positive day on Wall Street.

After six losing sessions in a row, the Dow finally saw some much-needed gains after the selloff in emerging market currencies seem to level off. Home prices in November shut up nearly 14 percent from the same month in 2012. And a batch of strong earnings reports before the opening bell prompted investors to buy stocks again.

Today`s gains happened despite a surprise drop in December durable goods orders and a big selloff in shares of Apple (NASDAQ:AAPL), following disappointing earnings late Monday.

So, here`s a look at the closing numbers. The Dow jumped more than 90 points, and NASDAQ added 14, the S&P up almost 11 points.

MATHISEN: More now on those earnings from some big-name companies out before the bell today. And that gave investors something to cheer about.

Morgan Brennan has our report.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Four companies posting fourth quarter earnings that beat Wall Street`s expectations today. Starting with Pfizer (NYSE:PFE), increased sales of drugs for cancer and arthritis, plus cost-cutting measures and lower tax rate helped the world`s largest drugmaker to beat estimates. And while key patent expirations pushed profits down 59 percent from a year ago, investors are focusing on Pfizer`s promising pipeline for new drugs.

Meanwhile, chemical maker DuPont saw its profit double, thanks to demand for pesticide and seeds. The company has been aggressively expanding its agriculture division, offsetting a volatile performance chemicals unit it plans to spin off. DuPont is also announcing a stock buy back program.

And Ford`s speeding past expectations thanks to record profits in North America.

Here`s what Ford CFO Robert Shanks had to say about it.

ROBERT SHANKS, FORD CFO: This was a great year. It`s one of the best in our history as you pointed out. So many accolades that we could talk about. A very, very strong year. And sets us up well for what we`re going to do this year with all the launch of new products that we`ve got ahead of us, including the all new F-series for that stronger growth and results in `15 and beyond.

BRENNAN: Ford is planning to introduce 23 new vehicles worldwide in 2014.

Lastly, American Airlines group. The newly created company posting stronger than expected profit and revenue as fares climbed and fuel costs fell. It`s the first time American has reported since merging with U.S. Airways, a move that helped parent company AMR (NYSE:AMR) emerge from bankrupt last December.

(on camera): Turning attention to tomorrow, the earnings parade will continue with such big names as Facebook (NASDAQ:FB), Qualcomm (NASDAQ:QCOM) and Boeing (NYSE:BA) reporting results.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: And here`s how shares of those companies finished today. The Dow component Pfizer (NYSE:PFE) up 2 1/2 percent, DuPont, another Dow member, down 1 percent, Ford, just a fraction higher, and the biggest gainer was American Airlines, up nearly 6 percent.

GHARIB: Also after the bell, another Dow member reporting a strong fourth quarter. AT&T (NYSE:T), it earned 53 cents a share. That was 3 cents more than estimates. Revenues also came in better than expected.

But the number two U.S. mobile provider`s wireless subscriber growth fell short of Wall Street expectations, and that`s what investors focused on.

MATHISEN: Yahoo (NASDAQ:YHOO)! also out with results after the closing bell. It earned 46 cents a share. And that easily topped estimates of 38 cents a share for the fourth quarter. Revenues matched forecasts but they were lower than a year ago. One key sore spot — display ad sales off nearly 6 percent.

Seema Mody joins us now from the NASDAQ, with more on Yahoo`s earnings.

What`s the one takeaway you saw in this report, Seema?

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Tyler, when it comes to Yahoo (NASDAQ:YHOO)!, the key metric analysts look at is display ad revenue. The amount of money Yahoo (NASDAQ:YHOO)! makes from selling display ads. That number was down year-over-year. Analysts say that probably was due to rising competition from other Internet giants like Google (NASDAQ:GOOG). Display revenue has been something that CEO Marissa Mayer has been working on ever since she became CEO in 2012, but those efforts don`t seem to have been paying off this quarter.

With that said, there were some bright spots in this report. Search revenue up 8 percent. Paid click excluding Korea up roughly 17 percent — Tyler.

MATHISEN: Seema, thanks very much.

Seema Mody reporting.

GHARIB: Switching now to emerging markets. Currencies have been under pressure this past week. And tonight, Turkey`s central bankers are holding an emergency meeting to prop up the currency after its sharp decline.

Michelle Caruso-Cabrera joins us now from Istanbul with more.

Michelle, over to you.

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hey there, Susie.

Extraordinary moves by the Turkish central bank tonight. They raised all their major lending rates between 4 percent and 5 percent. Consider that in the United States when we talk about the Federal Reserve, we talk about moves by the Fed of only a quarter of a percent. An extraordinary move would be a half of a percent.

So, a hike between 4 percent and 5 percent here shows you just how dire the situation was.

The reason foreign central banks raise interest rates is they need to keep capital in the country. They want to keep investors and offer them a more attractive interest rate. Turkey had to do that in particularly because recent political trouble here has gotten investors very nervous. Additionally, because the Fed is going to be tapering, it`s believed that interest rates in the United States will be going up and that investors maybe moving their capital back to the U.S. So, that`s why the Turkish central bank did this.

So far, we have seen the currency stabilize and rise in the wake of the decision. The question now is whether we`re going to see other emerging market currencies stabilize as well along with Turkey.

GHARIB: Michelle, you that is a dramatic raise in interest rates as you mentioned. What are the risks economically and politically?

CARUSO-CABRERA: Well, here in Turkey the risks of rising interest rates are that it slows down the economy. The prime minister here in fact was very against any hike in interest rates. He made that announcement before leaving on an overseas trip, there`s even been editorials here in the paper about it.

So, the head of the central bank here is very much under pressure. In theory, he`s supposed to be independent, but the government here hasn`t been acting that way. If we see a lot of instability within a lot of the emerging markets, remember, there are much bigger percentages of world GDP than they were, say, 20 years ago. And a lot of U.S. conglomerates get a lot of their overseas earnings from countries like this one.

MATHISEN: All right. Michelle, thank you very much.

From rainy Istanbul tonight, Michelle Caruso-Cabrera reporting.

And Turkey is not the only country facing and making some tough decisions. India`s central bank hike interest rates today, hoping to keep a lid on rising inflation there. The unexpected one quarter percent rate hike was the third increase over the past five months and it sent shares on India`s stock markets to a two-month low.

GHARIB: President Obama will give his sixth State of the Union Address tonight. And one of the major topics he`ll be addressing, income inequality.

Steve Liesman takes a closer look at the great divide betweens haves and have-nots.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: When it comes to inequality, the numbers are stark. Incomes from most everyone else barely budged between 1979 and 2010. But income from the top 1 percent surged by 201 percent, according to the Congressional Budget Office — numbers that have economist, politicians, and average Americans searching for causes and solutions.

Some researchers contend that the multimillion dollar salaries of top CEOs come at the expense of the poor and middle class. Add on top of that, the idea that in the new globalized economy, if you have a good idea, you profit globally. But if you`re low skilled, your wages compete globally as well.

The right wants lower taxes and less income redistribution and less government. The left argues for a higher minimum wage, more unionization and higher taxes. But there are also key areas of agreement between the two sides, like expanding the earned income tax credit which provide a credit to the working poor.

MICHAEL STRAIN, AEI RESIDENT SCHOLAR: We`re taking money from wealthy people and giving it to poor people. That`s the thing we should be doing, and we`re making the tax code more efficient by broadening the base.

LIESMAN: There`s also consensus that to battle inequality, we need to expand educational opportunities, everything from keeping teenagers in high school, to making vocational and higher education more accessible.

ROGER ALTMAN, EVERCORE PARTNERS CHAIRMAN: One of the things that doesn`t get much attention is the extent to which the measures you would put in place to raise the growth rate in this country — and we do need that — are essentially the same as the measures you would do to reduce inequality.

LIESMAN: Both right and left seem to support some form of pro-family policies that keep couples together, either through education or even tax incentives.

Finally, there is agreement that there is not a single silver bullet to solve the inequality problem, but it`s going to take a variety of programs.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

MATHISEN: And joining us now to talk more about earnings, the emerging markets, and what Wall Street expects, both from the State of the Union, and the Fed, is Byron Wien. He`s vice-chairman with Blackstone Advisory Partners.

Welcome back, Byron. It`s great as always to see you.

I could go a million different ways here and we will get to the markets and emerging markets and the Fed and all of that. But in light of what Steve was just talking about, I know you to be one of the most thoughtful guys on Wall Street. What do you think about income inequality in America? And what do you think — if you see it as a problem — would be the best way to address it?

BYRON WIEN, BLACKSTONE ADVISORY PARTNERS VICE CHAIRMAN: Well, Steve, I think there are very good job of talking about the fact that you have to have a number of programs. Income inequality is caused by globalization, it`s caused by technology, it`s caused by problems in our educational system. It`s caused by cultural problems, the number of kids being raised in a family without two parents. It`s caused by the concept of education in the United States where we put everybody in an academic track. We don`t have vocational training, at an early enough age.

So there are a lot of changes that would need to be made in order to bring the people who are disadvantaged up the social and economic ladder.

GHARIB: Byron, that is one of the themes that obviously President Obama is going to be talking about tonight. But, you know, Wall Street is focused on other issues like tax cuts, you know, lifting this debt ceiling. What does Wall Street want to hear from the president, and will there be market moving?

WIEN: Well, if he had growth policies, if he focused on growth, if we had ways to increase demand in this country, we would create more jobs. One of the ways to reduce income inequality is to reduce the unemployment rate. One of the reasons a lot of people don`t have rising incomes is there are too many people looking for a job willing to take a job at almost any compensation level.

So I think demand is one of the biggest problems we`re facing. And there is a lot of demand around the world, but there are a lot of people producing a lot of stuff. So, the United States is not the only country manufacturing. We`re competing with people all over the world, and many of them are producing quality products at an attractive price.

MATHISEN: Do you expect the president to talk much about growth-oriented economic policies? Or do you think the focus is going to be on such things as raising the minimum wage, health care and so forth?

WIEN: Well, I think he`ll talk — I think the president is going to be focused on what`s practical. So I think he`s going to talk about the minimum wage. I think there`ll be a round of applause for that. I think he`s going to talk about immigration.

I don`t think he`s going to talk about growth policies directly. I don`t think he`s going to talk about taxes at all. He just raised taxes on the upper brackets for the Affordable Care Act. My view is that increasing taxes on the wealthy is a nonstarter in the Republican Congress.

GHARIB: Byron, I want to skip ahead to the Fed. As you know, Fed policymakers are meeting and going to make an announcement tomorrow.

You`ve said that you`re expecting the Fed taper to be a nonevent for the stock market. Tell us why.

WIEN: Well, I don`t think the Fed is going to go forward unless they feel the economy has some momentum. And I think it does. My own view is we`re going to grow at better than 3 percent in 2014. But the durable goods orders that came in today were disappointing.

Remember, the Fed isn`t tightening. It`s just reducing the amount of expansionary monetary policy. It went from $85 billion to $75 billion. But $75 billion of bond buying is still an awful lot of bond buying.

If they think the economy is losing some of its verve they won`t take another step. But if they`re confident that momentum is increasing they`ll go from $75 billion to $65 billion and further steps along the way. It`s totally dependent on the pace of the economy.

The market and the economy and investors weren`t ready for it when Bernanke first talked about tapering in May of last year. But when he did it in December, the market sloughed it off. I think the market is a little ambivalent now, but I think before the year is out, we`ll see a lot more tapering.

MATHISEN: You know, your Wien surprises of 2014 a great read. Your first one indicates here, you say we experienced a Dickensian market with the best of times and the worst of times. The worst comes first as geopolitical problems coupled with euphoric extremes lead to a sharp correction of more than 10 percent, then followed by a return in the S&P to a gain of 20 percent.

Are we in very quickly, Byron, I`m sorry, we`re running out of time, are we in that 10 percent correction phase that you predict?

WIEN: I think so.

MATHISEN: Well, that`s a quick answer, Bryon.

WIEN: That`s the quick answer I can give you.

MATHISEN: And I love you for it.

Byron Wien, thank you very much. Have a great evening.

WIEN: Thank you.

MATHISEN: Byron Wien, vice-chairman with Blackstone Advisory Partners. A man of few but great words.

GHARIB: And still ahead of the program, Apple (NASDAQ:AAPL) shares tumble on weak iPhone sales and soft revenue guidance that we told you about last night. But the company is already making its next big bet — sapphires. We`ll explain.

(MUSIC)

MATHISEN: Global shipments of smartphones topped 1 billion units for the first time ever last year, a billion, up 38 percent from 2012. The research firm IDC says smartphones that can bring you e-mail and Internet access now make up more than half of all mobile phone shipments.

GHARIB: Meanwhile, Samsung held onto its title as the world`s biggest seller of those smartphones. The Korean electronic giant sold a record 86 million smartphones in the fourth quarter. That`s widening its lead over second place Apple (NASDAQ:AAPL) which sold 51 million. The biggest growth was in low-end smart phones made by Chinese manufacturers.

MATHISEN: And with all those smartphones, you need a lot of glass screens. That`s where Corning (NYSE:GLW) comes in, the maker of Gorilla Glass, supplies screens for Samsung and Apple (NASDAQ:AAPL) smartphones, as well as for TVs made by Sony (NYSE:SNE), LG and Lenovo.

But Corning (NYSE:GLW) shares took a hit today, big one. They fell more than 6 percent after the company warned about price declines for its LCD glass screens. They are under pressure from a rival product called Sapphire Glass.

Corning`s chief financial officer talked about why his products are better than Sapphire Glass.

(BEGIN VIDEO CLIP)

JIM FLAWS, CORNING CHIEF FINANCIAL OFFICER: Our job is to make a Gorilla product that`s better than Sapphire. We think Sapphire has a number of weaknesses. Number one, it`s at least 10 times more expensive than Gorilla. It transmits less light. It`s actually heavier than Gorilla and it`s thicker. It does have better scratch resistance, but it can fail when it has any kind of scratches.

(END VIDEO CLIP)

MATHISEN: Well, despite that competition from Sapphire, Corning (NYSE:GLW) says it expects glass price declines to moderate later in the year.

GHARIB: Now, one of the companies making a big bet on Sapphires for its glass screens is Apple (NASDAQ:AAPL). And Apple (NASDAQ:AAPL) could use a little shining up right about now, that`s because shares of the company plunged 8 percent today because of disappointing iPhone sales last quarter. And we told you about that yesterday.

So, what is sapphire glass? And why does Apple (NASDAQ:AAPL) think it`s worth investing in?

Josh Lipton has more.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Forget diamonds, emeralds and pearls. Apple (NASDAQ:AAPL) thinks the gem to own is sapphire. We don`t know the new ways in which Apple (NASDAQ:AAPL) intends to use sapphire, but we do know it`s investing a lot of time and money in the gemstone.

Apple (NASDAQ:AAPL) signed a nearly $600 million deal with GT Advanced Technologies to become its producer of sapphire glass. It`s filed a patent detailing ways in which sapphire can be secured to various devices.

Sapphire does have its advantages. It`s durable and scratch resistant. Here`s the big draw back. It`s expensive to manufacture and produce.

Eric Voray (ph), an analyst at Yolay (ph), a technology research firm, says a layer of sapphire glass for a smartphone costs $17. The equivalent for glass that is simply chemically strengthened, which is the material Apple (NASDAQ:AAPL) has used in the past, is about $4.

Sapphire Glass at its current price point is probably too expensive to use for large screens like iPads. As for iPhones, Peter Misek of Jefferies estimates 115 million users will be eligible for upgrades when the iPhone 6 launches. It doesn`t appear like Apple (NASDAQ:AAPL) right now has enough Sapphire Glass to cover that many displays.

PAUL SEMENZA, NPD DISPLAYSEARCH PRESIDENT: They could have very tight control.

LIPTON: But Paul Semenza, president of NPD Displaysearch, a market research firm, says GT Advanced Technologies does have new manufacturing technologies that could lower the cost of manufacturing sapphire, which would allow for greater production to cover all those iPhone displays.

SEMENZA: It`s conceivable if the process ramps up, and that`s a big if, because it`s a new manufacturing technology. But if it did ramp up, you could get to large numbers and then they would have complete access to that.

LIPTON: Apple (NASDAQ:AAPL) could also keep using sapphire to cover smaller areas of its devices as it does now, such as the camera lens on the iPhone 5.

There`s also speculation that Apple (NASDAQ:AAPL) could expand into the jewelry business and use sapphire glass for an iWatch.

At the end of the day, the real appeal of sapphire glass is that it`s a better material. Using the gem makes Apple`s products that much more distinctive from its rivals and would remind consumers and investors that Apple (NASDAQ:AAPL) is still the innovator.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.

(END VIDEOTAPE)

MATHISEN: D.R. Horton (NYSE:DHI) stocks soared on news that its profits rose 86 percent last quarter. And that is where we begin tonight`s “Market Focus”.

The homebuilder upped its revenue forecast because of higher closings, orders and sales prices. The company says improving housing market conditions helped drive the earnings beat last quarter. Shares surged almost 10 percent today to $23 even.

Comcast (NASDAQ:CMCSA) (NYSE:CCS) added video customers last quarter for the first time in more than six years. And that helped the cable operator offset a slight profit miss. Earnings came in below estimates as its tax rate was higher than expected, but revenue beat Comcast (NASDAQ:CMCSA) (NYSE:CCS), the parent of NBR`s producer, also upped its dividend and buy back program. Shares were up more than 1 1/2 percent to $53.35.

Susie?

GHARIB: After the bell, Electronic Arts (NASDAQ:ERTS) reported a third quarter profit that topped analyst estimates, but revenue fell short as shoppers spent less on games for older consoles and the industry introduced new devices like Xbox One and PlayStation 4. Shares sold off in after hours trading. But during the regular session, Electronic Arts (NASDAQ:ERTS) rose more than 1 1/2 percent to $24.87.

JCPenney took action today to make it more difficult for a hostile takeover. It slashed the threshold on its shareholder rights plan by about half. Now, activists will need board approval to purchase more than 4.9 percent of the retailer shares. It also extended this poison pill plan until the year 2017. Shares were off more than 1 percent to $6.42.

And activist hedge fund Casablanca Capital disclosed that it has a 5.4 percent stake in Cliff Natural Resources. The firm is urging the mining company to spin off its international assets.

Donald Drapkin, the chairman and cofounder of Casablanca, says he also has some other changes in mind.

(BGIN VIDEO CLIP)

DONALD DRAPKIN, CASABLANCA CAPITAL CHAIRMAN & CO-FOUNCER: Double (ph) with dividend, MLP (ph), as I said, there were refinements to that. But bottom line, you can see a $50 stock on a clear day. This is a no-brainer. The company just lacks the urgency to get this done. We`re trying to light a fire.

(END VIDEO CLIP)

GHARIB: All those comments fired up shares by more than 2 percent to $19.81.

MATHISEN: And coming up, a deal has been reached on the long-awaited farm bill. What`s in it? Which programs are cut? And why is this piece of legislation so important to America`s economy?

(MUSIC)

GHARIB: Congressional negotiators have finally come up with a new farm bill.

Hampton Pearson has more on what`s in the bill, what`s out, and how close it is to becoming law.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The massive five-year farm bill headed to the House floor is a bipartisan compromise nearly three years in the making. It calls for spending almost $100 billion a year with savings of $2.3 billion, including an $800 million a year cut in the food stamp program. And the elimination of $4.5 billion per year in direct subsidies now paid to farmers whether they grow crops or not.

With the shift to crop insurance programs, so farmers would have to incur losses before receiving payouts. House Agriculture Committee Chairman Frank Lucas calls the bill nothing short of a miracle.

REP. FRANK LUCAS (R-OK), HOUSE AGRICULTURE CHAIR: Even though raising food is important to every consumer in the United States and around the world, we just had a tough situation. A bad political environment, no money to work with, diversity, half the United States House was in the round for the last farm bill in 2008. So, no experience, just the most difficult set of circumstances.

PEARSON: House Speaker John Boehner has endorsed the compromise but leading conservative groups, including the Club for Wealth are pressuring House Republicans to vote no. They argue agriculture is big business that doesn`t need to be subsidized by taxpayers.

CHRIS CHOCOLA, CLUB FOR GROWTH PRESIDENT: This is business like any other business. These are big, sophisticated producers that can measure the risk and can anticipate market conditions, and they can supply the need of the American people through food. Ag policy does not reflect that. It is an antiquated system based on 100 years ago or 50 years ago that doesn`t exist today.

PEARSON: Liberal Democrats, meanwhile, say the cuts to food stamps and other parts of the social safety net are still too big.

REP. JIM MCGOVERN (D), MASSACHUSETTS: Vote against this farm bill. Do not make hunger worse in America.

PEARSON (on camera): The legislation is comprehensive, buried in the 900-plus pages, definitions on everything from industrial hemp to farm-raised fish, even calls for more kosher food and the government`s emergency food programs. The House is scheduled to vote on the measure on Wednesday. It could be close. The timetable for Senate action is more uncertain.

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

(END VIDEOTAPE)

MATHISEN: And finally tonight, a historic move in the world of big money college sports aimed at protecting student athletes. Northwestern University`s football team is asking to be represented by a labor union. The first time that`s ever happened. Thirty percent of team members had to support the move before paperwork was filed at the Chicago office of the National Labor Relations Board today. The next step, a formal vote by the whole team supervised by the NLRB. Very interesting development there.

GHARIB: It is interesting. Who else is going to sign up? What other schools?

MATHISEN: Yes, we`ll see.

GHARIB: Or does it fizzle out? We`ll see.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks for watching.

MATHISEN: And we hope you`ll join us tomorrow night. I`m Tyler Mathisen. Have a great evening. And again, we hope to see you back here 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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