Transcript: Thursday, February 6, 2014

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


The Dow marks the best day of the year after an upbeat reading on the job market. But tomorrow`s employment report will be the real test and could determine whether the rally keeps going.

General Motors (NYSE:GM) reports a big profit miss. And with its global market share under pressure, will the new CEO of the largest U.S. automaker have to shift her focus?

GHARIB: And new recipes. Shares of Green Mountain soar on its deal with Coca-Cola (NYSE:KO). And now, industry experts say the venture could change the way we drink beverages.

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, February 6th.

Good evening, everyone. I`m Susie Gharib.

GRIFFETH: And I`m Bill Griffeth. Tyler Mathisen is off again this evening.

It was buy, buy, buy. That was the order of the day on Wall Street, sending stocks into rally mode and leading the Dow and the S&P to the biggest one-day gains so far this new year.

And today`s gains came on encouraging news about jobs. First time jobless benefits claims fell by 20,000 last week, a sign of steady improvement in the labor market. And it arrived just one day ahead, of course, of Friday`s all-important January jobs report. Many economists are looking for as many as 189,000 new non-farm payroll jobs to be added in January, along with some upward revisions to December`s dreadful gains of just 74,000.

Here`s how the major averages each gaining more than 1 percent ended the session. The Dow up by 188 points, first time we`ve had a 1 percent gain of a Dow this year. Got a big boost from Disney (NYSE:DIS) shares which shot up by more than 5 percent, after strong earnings late Wednesday.
The NASDAQ was up by 45, the S&P added 21.

GHARIB: Our market guest describes himself as a long-term bull, but he says stocks are in for a, quote, “volatile” and flat year.

Jim Paulsen joins us now. He`s chief investment strategist at Wells Capital Management.

So, Jim, what do you make of this rebound? Is this for real or it`s just a pause before the other shoe drops?

JIM PAULSEN, CHIEF INVESTMENT STRATEGIST: Well, I think, Susie, that the issue all year long hasn`t been about Fed tapering, the emerging world slowdown, those are well-known things we newly about last year. I think it`s been about has the U.S. growth rate and the economy in this country slowed. We`ve had data that has been weather distorted on the weak side, giving us pause. And we`re going to find out I think tomorrow with this jobs report that Bill just mentioned with the other reports that have come of this week whether or not the economy is slowing down or not.

If it hasn`t, then I think we might be already seeing the bottom in this little market pullback that we could start moving higher again.

GRIFFETH: You know, Jim, we`ve had the rocky start to the stock market in 2014. But yet yields in the treasury markets have come down on the long end. We`ve flattened the curve here. The 10-year has come down from 3 percent to 2.58 percent at the low this week, which to some suggests that the bond market senses that maybe the economy is slowing down.

What do you think the bond market`s telling us?

PAULSEN: I think that`s what the bond market is saying, Bill, and that`s what the stock market was saying. Stocks sell off, bond yields come down. There`s concern about the pace of economic momentum. As you see in the last couple days, today particularly, that thesis is changing a bit.
So, bond yields go back up to 2.70 on the 10-year.

You know, all corrections large or small have good things in them.
And we — if interest rates were getting too high for stocks at 3 percent, we brought them down. We took one point out of the price earnings multiple, sort of improving the value of the stock market.

We`ve checked, you know, too much positive sentiment out there with this pullback.

All those things are setting themselves up, I think, for a nice rally.
The question is whether we`ve already bottomed here and we`re headed higher or whether we have to go a little lower before we rally again.

GHARIB: Jim, you and I were talking a little earlier this afternoon.
You said investors should just forget about 2014 and start planning for 2015. What do you mean by that? Because I think you need nerves of steel to do something like that.


PAULSEN: Yes. I just think, Susie, this is going to be a very frustratingly volatile but ends up about where it started type of year in the stock market. And for those that think they can time every little pullback and rally perfectly, there might be a lot of money to be made, but I think most of us, me included, are going to have trouble with that.

But I think the worst thing investors could do, get too wrapped up in the short-term movements. Are we going to go down to a full 10 percent correction here or not? Because I think the reality is that the economic recovery still got a few more years ahead of it, and so does the stock market.

And so, I think even if we have a flat year this year, I think it goes higher again starting next year or maybe even before then, and I don`t want to miss that longer-term move in the market because I was worried about another 5 percent decline in the short term.


GHARIB: OK. Everybody tries to time the market, but you can`t — you just can`t do that.

GRIFFETH: It`s hard.

GHARIB: All right, Jim, thanks a lot.

PAULSEN: Thanks.

GHARIB: Jim Paulsen, chief investment strategist at Wells Capital Management.

GRIFFETH: Elsewhere, General Motors (NYSE:GM) has come a long way since it was bailed out by Uncle Sam five years ago. Before today`s opening bell, the automaker reported profit rising by 2 percent from a year ago. But earnings did fall far short of Wall Street forecasts for last quarter. General Motors (NYSE:GM) took in 67 cents a share, way off the expectations of 88 cents a share. Revenue was just shy of estimates.

And despite those weak results and an initial selloff this morning, investors did a U-turn on that stock. It ended the day just one cent lower per share.

Phil LeBeau has more on why General Motors (NYSE:GM) is still attracting investors even though earnings shifted lower.


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over). It`s not often a company falls short of expectations and is given a pass by Wall Street. But that`s what happened today for General Motors (NYSE:GM). Its fourth quarter earnings were well below estimates. And yet, Wall Street took it in stride.

JOSEPH SPAK, RBC CAPITAL MARKETS: Piling on today seems a little bit overdone. We expect some better results in some of the one-time stuff that appeared in the quarter to start to dissipate throughout 2014.

LEBEAU: G.M. says earnings fell short of estimates due to a higher tax rate and cost of restructuring operations in Europe, where the company cut losses in half last quarter.

CHUCK STEVENS, GENERAL MOTORS CFO: We`re executing to the plan we laid out in 2012. We really got significant traction in 2013 on the costs side of the business. We narrowed our losses by $1.1 billion.

LEBEAU: If G.M. can finally make money in Europe, it would be profitable in all of the world`s key markets. In China, sales hit a new high last year. And in the U.S., G.M.`s profits surged almost 40 percent in the fourth quarter, thanks to new models selling at higher prices.

On a conference call with analysts, CEO Mary Barra said she`s not taking her foot off the accelerator.

MARY BARRA, GENERAL MOTORS CEO: As you look at the marketplace and what the customer is looking for in the vehicles.

So I feel very confident that we`ve got a good product cadence as we go out through the next several years.

LEBEAU: Skeptics point out G.M.`s market share is under pressure, both here in the U.S. and around the world. And historically, G.M. has struggled to keep costs in check over an extended period of time.

(on camera): Barra knows the bottom line for G.M. is making money, and to drive home that point, she repeatedly told analysts today General Motors (NYSE:GM) needs to be profitable wherever it does business around the world.



GRIFFETH: By the way, an interesting comment today about General Motors (NYSE:GM) from the automaker`s one-time long-time vice-chair Bob Lutz. He says despite loving G.M., there is another automaker that`s turning heads.


BOB LUTZ, G.M. FORMER VICE CHAIRMAN: I think, by and large, they`re doing the best product lineup of any manufacturer globally right now in terms of value for the customer. But when you look at who`s doing a great job, who`s the world`s biggest, who`s the most profitable, who`s expanding everywhere, it`s got to be Volkswagen. I mean, they are — they`re just hitting on all cylinders.


GRIFFETH: In 2013, Toyota (NYSE:TM) was the world`s top-selling auto brand, followed by General Motors (NYSE:GM), Volkswagen was third.

GHARIB: Shares of Green Mountain coffee roasters percolating hire today. Now, as we told you last night, Coca-Cola (NYSE:KO) is taking a 10 percent stake in Green Mountain. The folks behind those Keurig single serve coffee machines that many people have in their homes. Well, investors are bullish on the partnership on the belief it could be a game changer in the at-home soda-making industry.

Sara Eisen has more.


SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): K- cups for Coke, Sprite or Minute Maid juices. That`s what a new partnership between Green Mountain Coffee and Coca-Cola (NYSE:KO) is promising consumers. For Green Mountain Coffee Roasters (NASDAQ:GMCR), the company behind coffee and tea k-cups, it creates a whole new business, cold drinks, and represents a big endorsement and even a $1 billion plus investment from the world`s biggest drink company.

For Coke, analysts say it represents a new opportunity to make money in soft drinks which have been on the decline in North America for years, and a chance to break in new technology and innovation that consumers want.

CEO Muhtar Kent called it game changing. And many who analyze the industry agree.

JOHN FAUCHER, JPMORGAN S.R ANALYST: So now you go home, you`re not just going to have that 12-pack of Coke. You could have k-cups, or whatever they`re going to be called, of dozens of different beverages.

EISEN (on camera): What does it mean for Coke`s competitors and bottlers? Well, that remains to be seen.

PepsiCo didn`t comment. The new Coke/Green Mountain deal could pose a competitive threat for SodaStream, a popular Israeli company that lets you make generic colas and carbonated beverages at home.

FAUCHER: I think it`s going to put a little extra pressure on SodaStream to probably raise their household penetration.

EISEN: But SodaStream downplayed the competitive threat from the Coke/Green Mountain deal, saying it`s proof that custom carbonation is the future of the $260 billion at-home carbonated beverage industry. No details yet on when Keurig Cold will hit the shelves, what exactly the technology looks like, or who else may sign deals with Green Mountain to participate. But, certainly, many industry watchers say this announcement has the potential to be transformative, not only for the companies involved, but in the way we consume soft drinks.



GRIFFETH: And from one of the day`s best performing stocks to one of the worst, Twitter. Still ahead, how concerned should investors be about the social network`s growth prospects?


GRIFFETH: Guilty on all counts. Mathew Martoma, that former portfolio manager at hedge fund SAC Capital, was convicted by a federal jury in New York City today on all three insider trading counts that he faced. Martoma helped his company net more than a quarter of a billion dollars in profits through illegal trades based on inside information about disappointing results of tests on an Alzheimer`s drug. Martoma is the eighth person at SAC Capital who has either been found guilty or actually pled guilty to insider trading charges. This was by far the biggest case of insider trading.

GHARIB: We have a follow-up to a story we brought you last night.
Mixed results from twitter`s first ever quarterly earnings report. Twitter earned more money than forecast, but it reported a sharp slowdown in new user growth which was less than expected. That spooked investors and the stock plunged today, down 24 percent, closing at $50 and change. Still, Twitter shares are nearly double November`s initial public offering price of $26 — Bill.

GRIFFETH: And our next guest has doubts about the future of Twitter at this point. He`s Ben Schachter, senior Internet analyst at Macquarie Research.

And, Ben, you downgraded your view of Twitter in December before all of this. What were you looking at, at that time?

BEN SCHACHTER, MACQUARIE RESEARCH SENIOR INTERNET ANALYST: Well, the stock had really just run too far too fast. It was when the stock was actually at its all-time high of about 73. We simply felt like the stock had gotten away from itself and still had a lot to prove. And I think this quarter sort of showed us that it really does still have a lot to prove.

GHARIB: So, Ben, what everybody was focusing in on in yesterday`s report was that the number of new users just wasn`t as much as they were expecting. It was puny. But, you know, when you talk to most people, I`m just talking average people about Twitter, they`re not thinking about signing up and having a Twitter account and sending out messages.

Is that what the problem is that people just can`t relate to it? If so, what can Twitter do about that?

SCHACHTER: Yes, I think that`s absolutely correct. The real problem here is this going to turn into a mass market product or not? They`re able to monetize the users very well. They did have some positive metrics in the quarter.

But the fact is, new users are not signing up. And it`s really given a very big surprise given the IPO happened so recently. People thought that the IPO, the publicity around it would really drive a lot of positive steps for the company. We just didn`t see that materialize in the quarter.

GRIFFETH: CEO Dick Costolo after earnings report admitted they need to come up with a better Twitter. What would that look like?

SCHACHTER: No, I think the reality it looks a lot like Facebook (NASDAQ:FB). It`s just much more accessible. It enables people from all sorts of walks of life and all demographics to really get in, understand what it is and begin to use it in a way that they`re very comfortable using.

Right now, it`s fairly complicated. It`s complex to use this thing.
So, it`s really I think limiting the growth of the new users.

GHARIB: All right. So, how do you feel about the stock now? I mean, at $50, is it a buy? Or at what price would you be recommending it?

SCHACHTER: Well, listen, we still have a $46 target. I think there`s a lot of optionality left for the company. It`s obviously very early stages.

And the truth is if they can turn around that usage, the metric there, and really start to grow users, it could potentially be a lot of upside here. The issue is not the fundamentals of the business. I think Twitter and Facebook (NASDAQ:FB) are both showing that there`s a very large appetite for advertising on these kinds of platforms, but they simply must get more users there.

GRIFFETH: You know, you look at the other social media companies and the stutter steps they`ve made, Facebook (NASDAQ:FB) — there were questions about its ability to adapt to mobility out there. They seemed to start doing that right now. Is Twitter just in that awkward phase where they`re trying to find their niche and their way down the road? And are you hopeful they will be able to do that?

SCHACHTER: You know, listen, I say I`m cautiously optimistic they can turn things around. If you look at the report from last night, it was really very mixed. On the one hand, you had very strong monetization growth. You had the revenue per user going up. However, we just didn`t have enough users.

If they can turn that around, it shows that they can make a lot of money per user. They just need to grow the users. So, it`s a relatively simple issue. The question is there`s not a simple fix. And there`s not a lot of visibility to fix.

And given that it was such a new IPO, I think the real problem here is the market does not like to be surprised when a company has run as far and as fast as Twitter has.

GRIFFETH: Yes, clearly, there were high expectations for that that were not met last night, that`s for sure.

Ben Schachter, senior Internet analyst at Macquarie Research, thanks for joining us tonight, Ben.

SCHACHTER: Thank you.

GHARIB: Aetna (NYSE:AET) says that it expects to lose money on the new health exchanges and that`s where we begin tonight`s market focus. The nation`s third largest insurer reported earnings that trail estimates and said, so far, customers signing up for the health plans are slightly older and therefore more expensive.

CEO Mark Bertolini addressed some of the uncertainties surrounding the Affordable Care Act.


MARK BERTOLINI, AETNA CHAIRMAN & CEO: We need to get the back end accounting systems working properly. We need to understand where we`re headed with a number of programs like any willing provider. Are we going to require to have a larger network than the ones we have today?

Secondly, you know, are we going to require to have people keep what they have for another year or more. All of those questions need to be answered in anticipation of understanding the data we need to know in order to price products properly for 2015.


GHARIB: Well, the stock missed out on today`s rally, falling slightly to $67.92.

A lot of attention on LinkedIn (NYSE:LNKD) after the market closed.
Investors were disappointed that the company`s revenue forecasts for the current quarter and for 2014 were lower than expected. And even though the company posted earnings that were higher than estimates, investors dumped the stock in after hours.

But in the regular session, shares were up 4 percent to $223.45.

A different story for job search site Shares soared on a good earnings report, thanks to increased demand in North America and Europe. Monster also repurchased $46 million of its stock in the quarter.
Shares rose about 23 percent to $7.24.

Revenues at AOL (NYSE:AOL) jumped 13 percent last quarter, helped by higher global ad sales, but earnings missed estimates because of restructuring charges. They were mostly because of the sale of its patch global news network. The patch sale was an attempt to move into ad- supported content. AOL (NYSE:AOL) slipped a fraction to $47.15.

GRIFFETH: Meanwhile, Duncan brands brewed up an earnings beat as traffic and spending rose at its chains. The parent of Baskin Robbins and Dunkin Donuts was helped by strong sales of ice coffee and breakfast sandwiches. Dunkin also upped its dividend and issued positive guidance for the future. Shares rose by more than 3 percent, closed at $48.89.

Cereal sales are still soggy, which is eating away at Kellogg`s revenue. That company did swing to a profit, thanks to a restructuring.
The snack and cereal-maker, though, has a four-year cost-cutting program in place under which it will cut about 7 percent of its workforce by 2017.
Shares rose slightly to $57.74.

And a handful of chain stores updated investors on their sales in January. The parent company of Victoria`s Secret, L Brands, said January same store sales were up by 9 percent. That crushed consensus estimates.

Kohl`s (NYSE:KSS) reported a decline in same-store sales and cut its profit forecast for the fourth quarter.

Warehouse retailer Costco (NASDAQ:COST) said that sales rose by 4 percent last month. That beat estimates.

And Ann Inc., the new name of owner Ann Taylor said it expects gross margins for the quarter to be higher than the prior year.

Now, shares of all four retailers rose in today`s rally. L Brands finished at $53.98. Kohl`s (NYSE:KSS) at $51.55. Costco (NASDAQ:COST) was up to $114 plus, and Ann Inc., the big winner, was up 4 plus percent, $32.67.

GHARIB: And Sony (NYSE:SNE) was out with its earnings today, but the news was not good. Josh Lipton takes a look at the missteps that have left this once popular electronics giant trailing its rivals, and some of the bold moves it`s now making to transform itself.


JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It was once the shining symbol of Japan`s technological might. Sony
(NYSE:SNE) was a tech titan that achieved fame and fortune by wowing consumers with gadgets like the Walkman.

Today, it`s a different story. Sony (NYSE:SNE) is bleeding red ink and fighting to stay relevant. The company says it will lose $1.1 billion in its current fiscal year. It`s selling its PC business, spinning off its TV operations and cutting 5,000 jobs.

Sony (NYSE:SNE) had attempted overhauls before, but this time feels different.

ROB ENDERLE, THE ENDERLE GROUP: Sony`s been a core company in the PC market for almost 20 years. And the fact that they don`t feel like they can be successful there anymore is clearly an indication of them really needing to find ways to cut and find ways to get back to profitability.

LIPTON: Sony`s fall from grace, analysts say, isn`t due to missing big tech trends but a failure to execute on its ideas.

ENDERLE: They were one of the first companies in the U.S. in e-book market. They`ve always been very successful with small compact (ph) or notebooks. They`ve always had great headphones. But all those categories someone else has come in and kind of overtaken them.

LIPTON: Apple (NASDAQ:AAPL) and Samsung now control sales of consumer gadgets like smartphones and tablets. Amazon (NASDAQ:AMZN) took share in e-books and Beats made big gains in headphones.

Sony`s share price is down 90 percent from its all-time high in February 2000. Its market value is now just $17 billion. Apple`s market cap by comparison is $458 billion.

For Sony (NYSE:SNE) to bounce back, it`s going to have to make some big gambles.

STEPHEN BAKER, NPD: I honestly think they ought to go back, cut themselves even farther back and anticipate the future, maybe home automation, robotics. I mean, they were early on in robotics. Some of this new — 3D printing, some of this new efforts coming forward, see if they can get ahead of the curve and re-establish themselves much like they did earlier on in consumer electronics in an emerging market.

LIPTON: While the PlayStation has been a bright spot for the company, Sony (NYSE:SNE) is going to need to move quickly or risk becoming a technological dinosaur.

Josh Lipton, NIGHTLY BUSINESS REPORT, Silicon Valley.


GHARIB: And coming up on NIGHTLY BUSINESS REPORT, the costly effects of this relentless winter and how some towns are dealing with their now busted budgets.


GRIFFETH: Chances are it is cold where you live, real cold. And Chesapeake Energy (NYSE:CHK), the nation`s second biggest natural gas producer, says the brutally cold weather is slamming much of the country over the last few weeks is hurting its output. Just today, we learned that natural gas inventories declined this week and prices for the fuel are currently sitting around six-year highs.

GHARIB: Well, this snowy winter has depleted supplies of road salt and increasingly precious and expensive resource that cities need to keep streets clear. If this nasty weather continues, could cities be snow balls into financial trouble?

Morgan Brennan reports.


As storm after ferocious storm walloped the country this winter, cities and towns have plowed through their salt supplies, which are critical for clearing snow from streets. The need for more salt has caused prices to skyrocket as bad weather and high order volume has delayed deliveries.

New York Governor Andrew Cuomo has called the situation dire, and on the local level some suburbs outside of Chicago ran out of supplies in January. As have many counties in Michigan.

In Milwaukee, officials were eagerly awaiting a delivery that finally arrived yesterday.

WAYNE JOHNSON, MILWAUKEE PORT OPERATIONS MANAGER: The supply has been diminished pretty bad by the recent weather and stuff, with the ice and snow. So, we`re pretty low on salt, so we`re glad to see the shipment come in.

BRENNAN: As prices climbed, many municipalities have been scrambling to find funding especially since many budget for winter weather months in advance, in many cases locking in on fixed price contracts for set amount of salt, as contracts exceeded, costs can rise fast.

ROBERT CULVERT, DIRECTOR OF PUBLIC WORKS, TENAFLY, NJ: We have approximately 600 tons at this point. We`re waiting for a delivery of 400 tons.

BRENNAN: Robert Culvert is the director of public works in Tenafly, New Jersey.

CULVERT: I`ve been preordering, whenever possible, to keep my supplies up and I`ve been reordering after every storm to replenish whatever materials we used during the storms.

BRENNAN: While inventory here remains in good shape, other places have gotten creative stretching supplies. Parts of Pennsylvania, New York and Iowa are mixing salt with sugar beet juice, a combination said to prevent ice from bonding to the road. Others are experimenting with molasses and potato juice.

And Milwaukee has been adding cheese brine which acts as a substitute for calcium chloride pretreatments and only costs the city the price of transportation.

(on camera): For this town of 15,000 residents, a storm like
(INAUDIBLE) requires 150 tons of salt. So, Tenafly, it could weather four more blizzards with this supply.

(voice-over): Others have not been so lucky. By the end of January, Wisconsin had already used 62,000 tons of salt, 5,000 more than a typical winter uses for the entire season. Some northeastern states have used even more. New Jersey had gone through 277,000 tons through January, not including this week`s storms, a sum that`s already 19,000 tons higher than all of last winter combined.

And remember, the groundhog did see his shadow.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Tenafly, New Jersey.


GHARIB: That`s the best line (ph).

GRIFFETH: And with the beet juice and the potato juice and all those things, if you have a surplus of the salt, you don`t have to put it on the road. You can make a salad dressing, too.

GHARIB: I`ve got to go check my chemistry book.

GRIFFETH: Yes, all those things.

GHARIB: And come up with some new solution.

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

GRIFFETH: I`m Bill Griffeth. Have a great evening, everybody. We`ll see you tomorrow.


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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