Transcript: Thursday, January 30, 2014

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


Google (NASDAQ:GOOG), the top tech company in search, and Amazon (NASDAQ:AMZN), the number one online retailer, capped the busiest earnings day of the season. And we`ve got the key takeaways for investors like you.

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Snowed in. The nation`s housing market went cold in December because of the harsh winter.
Now, sellers and realtors are wondering when things will start to warm up.

MATHISEN: And health care checkup. A new study says the prices on health care exchanges are — well, pretty good, and that`s making companies take notice. Change is in the air.

All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, January 30th.

GHARIB: Good evening, everyone.

The U.S. economy is growing, earnings are coming in strong and that inspires investors to buy stocks today. Stocks came roaring back on news of the U.S. economy grew at a robust rate of 3.2 percent in the final three months of 2013. It was one of the strongest quarters in eight years. And credit goes to solid spending by consumers and businesses and a jump in exports.

Another batch of healthy earnings contributed to the rally. Today was the busiest day for earnings, with reports from Dow components like ExxonMobil (NYSE:XOM), Visa (NYSE:V) and 3M (NYSE:MMM), along with dozens more. And we`ll have more on that in just a moment.

But, first, let`s rundown the closing numbers from Wall Street. The Dow rose almost 110 points, and NASDAQ surged 71. That`s a gain of nearly
2 percent, thanks to a 14 percent jump in Facebook (NASDAQ:FB) shares. And the S&P was up 20 points.

GHARIB: As Susie said, some good earnings across the board, but a different story for Amazon (NASDAQ:AMZN) after the closing bell shares of the world`s biggest online shopping site plunging initially after a big profit miss. In the fourth quarter which included the holiday shopping period, the company pulled down 51 cents a share, that was far short of 66 cents.

Revenue disappointed last quarter, too, just missing forecasts as you see there. And add to that, a weaker outlook for the current quarter and shares came under pressure right after the report.

Sheila Dharmarajan joins us now from the NASDAQ exchange with more on those Amazon (NASDAQ:AMZN) numbers.

Sheila, what do you see? What`s the biggest takeaway?

SHEILA DHARMARAJAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, bottom line, Tyler, if you are priced to perfection as Amazon (NASDAQ:AMZN) has been, you have to got to deliver results. And if you don`t, investors have no problem punishing you up.

The results are raising questions about the retail sector in general.
Earlier in the year, we heard that bricks and mortars were losing shares to Amazon (NASDAQ:AMZN). Amazon (NASDAQ:AMZN) perhaps is not coming in with the strongest numbers that people were expecting. So, a lot of questions now of where those retail sales are going — are they going to other smaller e-commerce players or is the consumer not spending as much as we thought they did?

MATHISEN: All right. Sheila, thank you very much. Stick around though.

GHARIB: Google (NASDAQ:GOOG) shares rose as much as 4 percent in after-hours trading, even though its earnings came in below analysts estimates. The company`s core Internet search business grew, but grew
$12.01 a share — a rare earnings miss of 20 cents. Revenue was higher and slightly better than forecast, just under $17 billion for the quarter.

Now, ahead of the news, shares were up 2.5 percent of the regular session to $1,135.

Once again, let`s turn to Sheila Dharmarajan.

Sheila, as you look over these numbers, what was the key takeaway from this earnings report?

DHARMARAJAN: Yes, key takeaway here is that Google`s core business, online advertising, certainly on a role. But we are starting to see pricing pressure creep in. So, the volume of online ads is actually up 31 percent but pricing fell 11 percent. That is certainly not a trend that investors like to see.

Now, Google (NASDAQ:GOOG) is investing heavily into new businesses, we learned about their nest acquisition. So, investors are a little bit on the sidelines about what this all means for Google`s future. But again, that trend of volume up/pricing down, not necessarily the greatest news when it comes to Google (NASDAQ:GOOG).

GHARIB: All right. Thanks a lot, Sheila. And here`s another things investors should pay attention to. Google (NASDAQ:GOOG) is finally ready for a stock split, with shares going more than $1,100 each, the company is slated to split the stock this April, creating new shares that`s have no voting power.

Now, the move comes after Google (NASDAQ:GOOG) settled a shareholder lawsuit regarding a class of stock that allows co-founders Sergey Brin and Larry Page to retain control of the company — Tyler.

MATHISEN: And more Google (NASDAQ:GOOG) news as we told you last night. Google (NASDAQ:GOOG) is selling its Motorola Mobility handset unit to China`s Lenovo. But the failure of its biggest ever acquisition won`t stop Google (NASDAQ:GOOG) from putting its money into new and risky ventures.

Josh Lipton explains.


JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: At the time of the Motorola Mobility acquisition, Google`s Larry Page said a combination of the two companies would, quote, “offer consumers greater choice and wonderful user experiences.”

It didn`t exactly work out that way. Motorola released smartphones powered by Google`s Android operating system that did generate a lot of buzz but captured a tiny share of the market. Motorola`s performance consistently dragged down Google`s financial results. And the future didn`t seem any brighter. Analysts at Pacific Crest estimate Motorola would have lost $800 million this year.

MARK MAHANEY, RBC: Google (NASDAQ:GOOG) made this bet and unwound the bet on Motorola, isn`t a bad thing. That was a stretch acquisition that they made. But, you know, a company like Google (NASDAQ:GOOG), especially given its market cap, its presence across all Internet, they should be making a series of these relatively big bets and then, hopefully, they have the judgment to know when to unwind them when they`re not going their way.

LIPTON: Google (NASDAQ:GOOG) paid $12.5 billion for Motorola and sold it to Lenovo, a Chinese tech company, for $2.9 billion. One potential challenge for the deal, the worry about Chinese cyber spying could raise red flags in Washington. But if the deal does go through, Google
(NASDAQ:GOOG) will keep most of Motorola`s patents value at $5.5 billion.

Page says selling Motorola doesn`t mean that Google (NASDAQ:GOOG) is getting out of hardware. He says the focus will be on two emerging tech markets, wearables and home automation. On the wearables front, Google
(NASDAQ:GOOG) Glass is the computerized Internet connected glasses that offered displays screen right above the user`s eye.

MAHANEY: You`re removing friction. Wearable devices remove friction between users and Internet applications they want.

LIPTON: Page says another priority is home markets. Google
(NASDAQ:GOOG) recently bought Nest Labs for $3 billion, a company that builds thermostats that can use sensors to create a customized temperature schedule. Analysts say a dynamic company like Google (NASDAQ:GOOG) should be investing in all kinds of industries so they can get a foothold in the next hot sector.

But there are all risks for Google (NASDAQ:GOOG).

COLIN GILLIS, BGC: The risk is, is when their core business slows down, right, if it starts growing below that 20 percent and the company is still layering expenses faster than revenue, you just become — you go up from being an exceptional company to more of an average company. And, in fact, as Google`s revenue has slowed down, they have not tapered their expenses. Their expenses are growing faster than revenue. For a company that size, that`s not a trend you like to see.

LIPTON: Analysts expect Google (NASDAQ:GOOG) to continue on its aggressive acquisition path in putting its $56 billion cash hoard into what the company sees is the next big thing.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.


GHARIB: Continuing our earnings coverage. We now have more on the strong earnings for Dow component Visa (NYSE:V). The company CEO had lots to rave about, but he also warned about the risk of data breaches and the importance of improving security for credit customers.

Mary Thompson reports.


Visa (NYSE:V) beats the street in its fiscal first quarter, with profits rising 9 percent to $1.4 billion. Behind the increase, continued global growth in consumer spending, the growth in U.S. spending slowed from the prior quarter. Visa (NYSE:V) calling the growth tepid and consistent with the pace of the economic recovery.

Here`s analyst Tien-Tsin Huang.

TIEN-TSIN HUANG, J.P. MORGAN ANALYST: I think as the year progresses and jobs get better and wages get better as well, we should see steady to better performance as the year progresses.

THOMPSON: Visa (NYSE:V), which makes money by processing debit and credit card transactions, affirmed its earlier guidance for low double digit revenue growth for this year, while warning of higher marketing expenses mid-year link to the Winter Olympics and World Cup, expenses expected to fall in the fourth quarter.

(on camera): Visa (NYSE:V) issuing another warning on this conference call, this one to retailers. CEO Charlie Scharf saying many are being unconstructed in blaming others for recent data breaches at retailers like Target (NYSE:TGT).

CHARLES SCHARF, VISA CEO: We all share the same customer who`s going through this difficult experience. And our sales and long term relationship with that customer will suffer if we don`t work together to get to a better place.

THOMPSON: In an e-mailed response, the National Retail Federation saying it would work with Visa (NYSE:V) and others and customer security is one of the highest priorities. Visa (NYSE:V) wants retailers to adopt cards with chips to limit the creation of counterfeit cards and endorses tokenization, which scrambles card information, reducing the chance for fraud.

Retailers reluctant to change because of the cost.

A reluctant security expert John Kindervag says will come at a price.

JOHN KINDERVAG, FORRESTER RESEARCH: What we can say is that the cost of protecting an asset are miniscule compared to the cost of the breach.
So, pay a little bit now or a pay a whole lot more later. That`s what I tell my customers.



MATHISEN: The oil giant Exxon-Mobil also out with earnings before the bell today and even though profit topped $8 billion, that`s down 16 percent from a year ago.

Morgan Brennan has more with why energy giants are seeing their net income get drilled.


The fracking boom powering America to energy independence is not powering the big oil companies` bottom lines. Two of the world`s largest integrated oil corporations reporting earnings that fell short of Wall Street expectations.

Exxon Mobil (NYSE:XOM) and Royal Dutch Shell each seeing profits plunge in the fourth quarter as lower oil prices declining production and mounting cost for new projects wait on their earnings. Analysts say these companies face a number of challenges. These energy giants have long dominated the sector, rewarding investors with dividends and steadily climbing stock prices for decades.

But big oil was late to the fracking boom, higher values or passing on opportunities all together. That`s led companies like Exxon, Shell, and Chevron (NYSE:CVX) which reports on Friday, to invest in complex mega projects, many offshore in search of new reserves. But a number of these massive projects have been plagued by delays and higher costs.

Take the Gorgon natural gas complex in Australia, a joint venture cost haves ballooned 45 percent to an astounding $54 billion. So far, such big spending has not been rewarded by big growth. In fact, production at Exxon and Shell fell even though the companies usually see a seasonal increase in the fourth quarter.

Still not every integrated oil corporation disappointed, ConocoPhillips (NYSE:COP) also releasing its quarterly results. And despite lower revenues and production that was hurt by bad weather, the company welcomed a 74 percent jump in earnings as it sold off its volatile Algeria business to focus on the fast growing shale operations that are powering America`s fracking boom.

(on camera): Despite the challenges facing big oil, analysts say that over the long term, these companies could once again deliver strong growth as mega projects begin to come online, companies continue to spin off more assets and capital spending is reined in.



MATHISEN: Many more companies reported earnings today. Later in the program, we`ll tell you if Dow component 3M (NYSE:MMM), Under Armour (NYSE:UA), and the drugmaker Eli Lilly (NYSE:LLY) had any surprises for investors.

GHARIB: Some good news if you`re looking to buy a new home. Mortgage rates fell again last week. Freddie Mac says the average on a 30-year is now down to 4.32 percent. Now, that`s cheaper, but to put it in perspective, it`s also about a full percentage point more than it was a year ago.

But the housing news wasn`t all good. A sharp drop in contracts to buy existing homes in December has realtors crying foul. Foul weather.
But is it fair to blame the sudden slump in sales on the cold?

Diane Olick has some answers.


UNIDENTIFIED MALE: I`m getting tired of this.

Below average temperatures and above average snow in much of the nation kept potential home buyers at home in December, at least according to the realtors.

DANIELLE HALE, NATIONAL ASSOCIATION OF REALTORS ECONOMIST: You have to go out and you have to look at a house. If people are unable to get out of their houses and are able to get into new houses, people aren`t interested in hosting open houses because they don`t want to be in a place by themselves. So, that definitely played a role.

OLICK: Signed contracts to buy existing homes fell nearly 9 percent from November and from a year ago, to the lowest level since the fall of 2011.

STEFAN HILTS, FITCH RATINGS ANALYST: We need the demand to be coming from a strong home buying base. And what we see is that while there is improvement in the economy again, overall, we`re really lacking a broad demand base of workers. So, employment levels are increasing but they are actually still not where they were five years ago.

OLICK: While the Northeast saw the biggest drop in so-called pending home sales, the West wasn`t far behind, and it`s hard to blame that on the weather. It`s easier to blame it on weak wage growth and more Americans moving out of the labor force.

(on camera): The sales numbers for December do not bode well for January when the weather got worse, especially in the South. With its usually moderate climate, sales in that region do well in winter, but will likely get walloped this year.

(voice-over): This was the scene not far from realtor Ben Hirsh`s office. He spent much of Tuesday helping to dig neighbors out while at the same time trying to save his pending sale.

BEN HIRSH, ATLANTA REALTOR: One of the side effects is people being able to move out of their homes on schedule. And therefore, their closing being put off because the home is not yet vacant.

So, you know, I could see maybe 5 percent to 15 percent of closings for January, possibly getting bumped into February.

OLICK: So, we may see a sales bump in February and March. Still, as investors who initially drove prices so high start to slow down, regular buyers will need to pick up the slack.

And the demand is there but red hot prices are already putting a chill on people`s pocket books.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.


MATHISEN: Still ahead, why the cold outside has been very, very good for shareholders of the sportswear maker Under Armour (NYSE:UA).


MATHISEN: Several reports now say the search for Microsoft`s CEO may be coming to an end and that the job will go to Microsoft (NASDAQ:MSFT) insider Satya Nadella. He`d replace Steve Ballmer. But there may be a twist. One report says the Microsoft (NASDAQ:MSFT) board is discussing the possibility of replacing Bill Gates as chairman.

GHARIB: And switching back to more earnings news. This is the biggest day of the quarter for earnings, as we told you, with more than 10 percent of the S&P 500 reporting. And the results were pretty good.

Here`s a look at some of the other big names fared over the past three months.


GHARIB (voice-over): Some like it cold. No complaints about the winter chill from Under Armour (NYSE:UA). Its cold weather gear pushed up fourth quarter revenue by 35 percent. That warmed investors to the stock and CEO Kevin Plank`s stake in the company is now worth more than $2 billion.

KEVIN PLANK, UNDER ARMOUR CEO: There`s no question about it, when the weather gets cold, I think everybody in our industry definitely gets a little bit smarter. But, you know, there`s a lot more going on than just cold weather with the Under Armour (NYSE:UA) brand right now. So, we`re very proud of the result and especially the team that made them happened.

GHARIB: The cold weather and higher mortgage rates may be slowing home sales, but one of the biggest home builders, Pulte, posted an earnings win on both the top and bottom line, thanks in part to higher prices on the homes it did sell.

Defense contractor Northrop Grumman (NYSE:NOC) surprised investors by posted earnings of 18 cents above expectations, despite a big drop in government spending.

3M (NYSE:MMM) also beat with fourth quarter earnings up more than 11 percent, even though sales of its post-its and glues among other things were a little lower than expected.

Colgate-Palmolive (NYSE:CL), a maker of almost half the world`s toothpaste, came in one penny better than expected. A stronger dollar hurt its margins but cost cutting and sales of organic products were pluses.

Eli Lilly (NYSE:LLY) says last year, it sold $5 billion worth of Cymbalta, a drug for depressing, making it one of the all time best sellers. Sales fell after its U.S. patent expired in December, opening the door for generics. But demand Lilly`s other products grew and earnings came in as expected.

In March, Lilly loses another patent on Avista (NYSE:AVA), a popular drug that treats bone disease. But Lilly CEO says he`s confident about bringing new cancer and diabetes drugs to market.

JOHN LECHLEITER, ELI LILLY CO. CHMN., PRES., & CEO: We`ve been investing in our pipeline. We have four medicines under regulatory review currently and we could launch as many as three of those this year. So, this is really the inflection year for us and we hope those launches will put us back on a growth track starting next year and beyond.


GHARIB: And here`s how shares of those companies ended the trading day. Under Armour (NYSE:UA), Pulte Homes and Northrop Grumman (NYSE:NOC) all rose, with Under Armour (NYSE:UA) to stand out, up 23 percent. Dow component 3M (NYSE:MMM) fell, as did Colgate-Palmolive (NYSE:CL) and Eli Lilly (NYSE:LLY), which was off more than 1 percent.

MATHISEN: Earning, earnings and more earnings. We begin tonight`s “Market Focus” with strong earnings out of Viacom (NYSE:VIA). The media giant saw its first quarter profit increased by 16 percent as cost-cutting made up for a big decline in movie revenue. Viacom (NYSE:VIA) told investors it expects ad revenue from its cable networks like MTV to improve this quarter, and that sent shares up nearly 4 percent today to $84.01.

Time Warner (NYSE:TWX) Cable also saw a rise in fourth quarter profit.
The cable operator`s revenue from its business services and residential high speed data kept those results afloat despite a drop in overall subscribers. The company has rebuffed now three takeover offers from the smaller rival Charter Communications (NASDAQ:CHTR), but the CEO says they haven`t completely ruled out the possibility of a buyout.


ROBERT MARCUS, TIME WARNER CABLE CHAIRMAN & CEO: What was important to us was to make clear we weren`t just saying no. We were saying that the offer the Charter made under-valued our company, but there was a price at which we would transact that we thought maximized value for shareholders.


MATHISEN: And shares today up 1 1/2 percent to $134.20.

The world`s biggest distilled drinks company, Diageo, says slow growth in emerging markets is taking a toll on liquor sales. The maker of labels like Johnny Walker and Smirnoff saw sales rise about 2 percent. But that was only half of what analysts have been looking for. Shareholders tumbled down more than 5 percent to $120.48.

GHARIB: But investors had a sweet tooth for Hershey`s. Earnings rose by 24 percent, with market share for candy, mints and gum rising in every measured channel for the third year in a row. The stock was up more than 2
1/2 percent to almost $100 a share.

Sales also surged at Whirlpool (NYSE:WHR), thanks to strong business in North and South America. But earnings came in below analyst estimates because sales in Asia fell, primarily due to weakness in India, and that worried investors. Shares plunged more than 6 1/2 percent to $132.22.

And Facebook (NASDAQ:FB) hit a record high after we reported better than expected quarterly earnings and revenue. Strong revenue from mobile ads is the reason for the beat. The social media company said, overall, more than half of its ad revenue now comes from mobile. That`s an impressive move since Facebook (NASDAQ:FB) introduced mobile apps just recently in 2012. Shares jumped 14 percent to $61.08.

MATHISEN: And the Justice Department wants Bank of America (NYSE:BAC) to pay up for selling bad mortgages to Fannie Mae and Freddie Mac, ahead of the housing bust. The government is asking a judge to order the bank to pay more than $2 billion in penalties after a jury found its Countrywide financial unit liable for fraud over those defective home loans.

GHARIB: And the changing of the guard at the Federal Reserve is now official. Janet Yellen was elected to be the Fed`s next chairman after a formal vote by the board of the nation`s central bank. Tomorrow is Ben Bernanke`s final day at the Fed. Yellen will be sworn in on Monday.

MATHISEN: Coming up, a new study says those on the public health exchanges are getting a pretty good deal and that may be very appealing to your employer.


MATHISEN: A warning about those heated seats in your car. Toyota
(NYSE:TM) is halting sales on thousands of top selling late model vehicles because the fabric used on their heated seats may not be entirely flame resistant. Toyota (NYSE:TM) is working on a fix for the problem and says there have been no reported incidents.

GHARIB: Many American businesses are taking a fresh look at the government`s health exchanges. It now appears that consumers who have purchased health insurance through a state or federal exchange are getting a pretty good deal. Lower insurance rates are one reason business owners are now thinking about making a switch as well.

Bertha Coombs has more.


Starting in April, Target (NYSE:TGT) will stop offering part-time employees health insurance. The retailer told its part-timers buying government subsidized plans on the new health exchanges will likely be a better deal for them. Despite this fall`s rocky rollout on, Target
(NYSE:TGT) isn`t the only large employer eyeing the new public exchanges according to a new PWC study.

MIKE THOMPSON, PWC PRINCIPAL: I think many people have wondered how would our cost compare to what`s being offered in the public changes. And if they are able to manage the costs over time, if they get the right pool of people into these exchanges and they sustain this level of premiums, they actually would be pretty attractive as an alternative come 2017.

COOMBS: For now, only small employers can offer coverage on the public marketplaces but large companies could gain access in 2017. And prices could be a big attraction.

PWC found large employers are paying an average of $6,119 to insure a single worker this year, a comparable plan on the exchange averages $5,844.
The lowest cost exchange plans average $1,000 less than that.

THOMPSON: I think every employer is going to be different. Many employers are going to continue offering the plans they have. All employers are concerned about the cost and they need to find options that maintain the benefits for their employees on a reasonable basis.

COOMBS: We`re already seeing a trend of companies such as Sears
(NASDAQ:SHLD) and Darden moving their full-time employees to private health insurances, to stream-line their benefit programs. Employees get money to choose among a range of insurance plans. Insurers have focused on growing that business so it`s unclear whether they`ll undercut that effort by offering lower pricing on public exchanges.

SARAH JAMES, WEDBUSH SECURITIES ANALYST: In the public exchanges, it`s really set by the government. There`s defined benefit levels.
There`s certain percentage that you have to contribute. So, it`s more into government control. So, I think what`s attractive to employers is having more control. So, I think that we`re going to see a very vibrant private exchange market.

COOMBS (on camera): What does that mean for those of us who get insurance through our jobs? Analysts say in the same way that companies shifted from pension plans to 401(k)s, they will increasingly shift the decision-making on health plans to us. Big question is, whether we`ll reap the savings or pay more?



MATHISEN: And finally tonight, a little hometown pride for the Seattle Seahawks who will take on the Denver Broncos in Sunday`s Super Bowl. A Boeing (NYSE:BA) 747 freightliner — look at that — a jet normally used for testing has been decked out for the big game in the full Seahawks colors, including the team logo and that 12 on the tail. That`s a salute to the fan`s rabid and very, very noisy fans who are often referred to as the team`s 12th man.

Boeing (NYSE:BA), of course, a long time corporate sponsor of the Seattle Seahawks, and many of its planes are manufactured in plants there, along the Puget Sound in Renton.

It`s going to — and here`s again — and it sounds like they are going to get a break on the weather. It`s going to be 45, maybe 50 degrees.

GHARIB: Yes. All those worries about doing it in cold New York City and New Jersey, it`s going to work out —

MATHISEN: I live not far from there — no, I`m not going near it.
I`m telling you. I live not far from there.

It`s going to be interesting to see how the traffic works. They said they`re going to have route 3 ready for the traffic. It`s still under construction, forget about it.

GHARIB: We`ll talk about that on Monday.


GHARIB: That`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib. Thanks so much for joining us.

MATHISEN: I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. We`ll see you back here tomorrow night.


Nightly Business Report transcripts and video are available on-line post broadcast at 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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