Transcript: Wednesday, February 12, 2014

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


SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Econo-winter impact. The South slammed, the Northeast is next. And the impacts will be seen in things like job growth, GDP and auto sales. Which numbers are most vulnerable and what do you need to watch?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: The opposite story on the West Coast where it`s dry, dry, dry. And that has farmers trying to stretch every last drop of water, relying heavily on the company that can help them out.

HERERA: High stakes vote. Workers at a Volkswagen plant in the Deep South could make history if they vote to unionize. But there`s also a lot on the line for big labor if it goes down in defeat.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, February 12th.

Good evening, everyone. I`m Sue Herera. Susie Gharib has the evening off.

MATHISEN: I`m Tyler Mathisen and I am not a winter-holic. In fact, I am so done with it. But our lead story tonight, it`s not about me, it`s about the economy and how it`s being affected and in a big way by the most brutal run of harsh winter weather in years.

Another massive ice and snowstorm called Winter Storm Pax slammed into Atlanta and North Carolina today and will be making its way through Virginia into the Northeast tonight and tomorrow. Some forecasts call for up to a foot of snow in and around Philadelphia, New York City, Boston.

About one out of every three Americans will feel this storm. It will close schools, snarl traffic, ground planes and more important for business, exact a toll on economic activity.

So, what is the real cost of all this wicked winter weather on the U.S. economy?

Our Steve Liesman takes a look.


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It`s pounded the Midwest, the South and the Northeast. So it`s no surprise that the weather is now expected to pound the national economy. Bone-chilling cold and wide-spread snow is likely a major culprit in the recent economic weakness. That`s turned Janet Yellen this week, the nation`s new chief of the Federal Reserve into something of a meteorologist.

JANET YELLEN, FEDERAL RESERVE CHAIR: There were weather factors. We`ve had unseasonably cold temperatures that may be affecting economic activity in the job market and elsewhere.

LIESMAN: If it feelings like there`s more snow this year, you`re absolutely right. Last year at this time just 43 percent of the nation was covered with snow, and a lot of those areas were sparsely populated. This year, even before the big storm hits the Northeast, 60 percent of the nation is covered in snow, and includes both heavily populated areas and places like the South that almost never see snow, making the economic disruption that much worse.

The ice and the snow in places like Atlanta has workers staying home this time instead of slip sliding to the office. Those are lost work hours for the economy. Shoppers also stay away from the malls, meaning lost sales that will show up in corporate profits and reduce national growth.

What winter weather taketh, it also giveth back. So, economists expect a snap up in the spring when Americans are expected to brush off the ice and snow and emerge at long last from their homes turned igloos.


HERERA: It feels that way.

All right. Steve Liesman joins us with more on the economic impact.

Also with us is Paul Walsh. He`s vice president at Weather Analytics.

So, Steve, how seriously do you think the Fed takes the economic impact that this is going to have on the economy, and does it change the way that they do the pull back in economic stimulus?

LIESMAN: I think they take it very seriously, because they really want to know what the underlying trend is. And then you have a situation where we have some weakness in the economy, and we don`t always know what`s attributable to weather and what isn`t, because a lot of times with corporations that miss on their earnings, it`s a convenient excuse. The same may also go for politicians, so we don`t know.

What we do know is we look at the graphics that I showed you earlier that my good friend Paul Walsh puts together for us. And we look at how much colder than normal and how much snowier it`s been than normal. And we see unusual data. And that makes us think that maybe some of the weakness is coming from the snow.

Tyler`s fact earlier, one in three, it`s the greater population that is affected by this that is really the key to what`s different about it.


Paul Walsh, let me turn to you. You know, Steve mentioned earlier that there may be a kind of a snap back effect after all this harsh winter gets away and maybe the spring is warmer and less rainy than last spring was. Do you see that? Do you expect that?

PAUL WALSH, WEATHER ANALYTICS: I do. I actually think that what`s going to happen for a couple of reasons.

Number one, cabin fever is a real factor in terms of getting people jazzed for spring. And when you have this kind of situation where you`ve got a long period of time where it`s brutally cold, which we`ve been going through, you don`t even need warm weather. You just need more seasonal weather to really drive a resurgence in demand.

So, what I think is going to happen is by the time we get into mid-March, maybe late March, when it becomes more seasonally warm, even if it`s colder than normal, it doesn`t matter at this point. It just needs to be not a polar vortex.

I think we`re going to see a resurgence in demand. I think that retailers stand to benefit actually. I think the comp works out really well because last year, we had a really cold spring that lasted all the way into May.

So, when you put those two things together, I think retailers are actually in pretty good shape for the balance of Q1 once we get through the balance of February and even into Q2.

HERERA: But, Steve, the economy has been recovering but it`s kind of a fragile recovery in a lot of ways. For some businesses, this can be a really lethal blow in some ways. Nobody saw — I`m not shopping and I`m a shopaholic. And I`m not doing it.

LIESMAN: Especially the retail business, which, you know, has been going through a lot of changes nothing to do with weather. They have to do with the balance of the Internet. You`re just barely hanging on. You get a winter like this. All of a sudden, you can`t make it.

Just before we came on there was a report from the Cheesecake Factory missing its earnings, blaming the weather.

HERERA: Really?

LIESMAN: So that`s the kind of thing that`s out there. I don`t think among the things that Paul was talking about snap back in cheesecake purchases come this spring. So, I think that`s an area that doesn`t make back for lost economic time.

MATHISEN: Paul, you`re agreeing with that. That is money that is not going to come back. You`re not going to eat twice as much cheesecake at the Cheesecake Factory simply —


MATHISEN: — because you missed it last week because of a winter storm.

So, some businesses will be affected.

Are there businesses that can take advantage of either the bad weather or that pent-up demand?

WALSH: Oh, for sure. And even from a bad weather perspective, the large retailers. For example, the Home Depots of the world, the Walmarts of the world, that have very advanced supply chains now are able to move products — they monitor the weather and they move products so they have just enough at the right time.

So, example, last week I live outside of Philly, had no power. Friday morning, I was at Home Depot (NYSE:HD). They had 120 generators. They`ve already sold 100 of them, but they still have 20 left. So they are able to actually take advantage of that.

And in terms from — taking advantage of the snap back, in I think retailers are also looking at that positively as well and taking action to get in front of it.

LIESMAN: There`s another thing out there which is that delivery companies are doing better, because people aren`t going out to get stuff. There`s also a bit of a cabin fever business. We heard a little bit of a surge in alcohol sales. And I haven`t heard this but I`m guessing the cable networks may do better because on demand, whatever people do when they`re in their house they may be spending that money they were going to spend out of the house.


LIESMAN: Netflix (NASDAQ:NFLX) is something that could benefit because of that. These cabin fever companies are out there that are making some money on this.

WALSH: And, Steve, there`s also a baby boom that typically happens about nine months after every one of these events. It`s a delayed reaction.

HERERA: Well, there`s —

MATHISEN: That would be a delayed reaction, wouldn`t it?


HERERA: There`s an up side to the polar vortex in there somewhere.

WALSH: There is.

HERERA: You know, Steve, the weather aside, how does the economic recovery look to you? Because the jobs figures have been a little squishy. Some of that`s weather related.

MATHISEN: And some of this data is going to be lumpy over the next few weeks.

LIESMAN: It could be a huge problem. I thought it looked really good going through the fourth quarter. We did 4.1 in the third quarter, 2.6, just so people know, two, 2.5 was about what we had been doing. So, we had a little bump up.

HERERA: Right.

LIESMAN: Everybody thought first quarter, you have a little run up in inventories. The stuff on the shelves, there`s a big swing factor in quarter to quarter growth. We thought we would have an inventory draw down. We`re going to sell those stuff on the shelves not necessarily replace it. That was expected in the first quarter.

What I think is happening right now, why you say that very technical term squishy, it`s absolutely accurate, Sue. You`re going to have this inventory draw down, a little bit of bounce back from that strength of the third and fourth quarter compounded with the weather. So, it`s not going to look good for probably January and February at this point.

HERERA: All right. Steve Liesman, Paul Walsh, thank you guys both very much.

WALSH: Thanks.

MATHISEN: Well, four-day win streak in the market stalled today. Proctor & Gamble didn`t help. It was the biggest decliner in the Dow, falling nearly 2 percent after warning of lower profits this year due to currency problems in emerging markets.

The Dow and the S&P closed modestly lower but the NASDAQ was able to squeeze out some gains for the fifth session in a row.

Let`s take a look at the final numbers, shall we? The Dow today down 30 points, NASDAQ was up 10, and the S&P ended just a fraction lower.

HERERA: Well, one top bond fund manager says the rocky start to the markets this year could spark the Federal Reserve to reverse course and actually increase its bond buying.

Jeffrey Gundlach, CEO of Doubleline Capital, says that even with a 50-50 chance of that happening, yields on the benchmark 10-year treasury note will fall to 2 1/2 percent.


JEFFREY GUNDLACH, DOUBLELINE CAPITAL: I always thought entering 2014, that the risk was greater, the bond yields would fall than rise, at least in the early part of 2014. I think you should see the 10-year dip down to 250 or a little bit lower.


HERERA: Gundlach also predicts that Puerto Rico`s sovereign bonds which you may know have been cut to junk status by two major rating firms will be volatile but eventually they will be fine.

MATHISEN: Earnings after the bell tonight from the Dow component Cisco (NASDAQ:CSCO). The computer network giant beating analysts estimates on both the top and bottom lines in its fiscal second quarter. It also raised its quarterly dividend from 17 cents a share to 19 cents. Cisco (NASDAQ:CSCO) made 43 cents a share excluding items, bettering estimates by a penny. Revenue was also a slight beat last quarter, topping $11 billion, though that was down from a year ago. Shares initially trended lower in after-hours trading as you see there.

Sheila Dharmarajan joins us now from the NASDAQ Exchange for a look behind the numbers.

Sheila, what did you see? What`s the one takeaway you pinpoint?


You know, Wall Street is always about looking ahead and forward expectations. What Cisco (NASDAQ:CSCO) said about its future, disappointing investors. The lower end of the company`s guidance range did fall below what analysts had expected. As a result we are continuing to see that stock trend down in the after market.

You know, Cisco (NASDAQ:CSCO) is in business in transition. Its core routers and switchers business is down double digits year-over-year. And certainly, that transition has been exacerbated by a weak emerging markets condition.

Now, Cisco (NASDAQ:CSCO) has talked a lot about its transition to its newer businesses, connecting everyday products to the Internet. As we all know, transitions take time. And, certainly, Cisco (NASDAQ:CSCO) has been struggling with that. Investors right now not impressed with that switch.

Back to you.

HERERA: Thank you, Sheila, very much.

Earlier today, Deere Company reported first quarter profits rose nearly 5 percent, with higher crop prices allowing farmers to buy more new equipment. Deere pulled in $1.81 a share, easily beating estimates by nearly 30 cents. But the good news ended right about there, as it projected a slow down in farm equipment sales for the year ahead, shares fell more than 1/2 percent during today`s trading session.

MATHISEN: Well, farming was the focus at a big agricultural show and the talk there was about California`s historic drought. While the East is getting slammed with snow, the West Coast is dealing with a severe dry spell. It is changing the way farmers are working their land and buying new equipment.

Jane Wells has more from Tulare, California.



JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): At the World Ag Show, tens of thousands of farms want to know how to stretch a gallon of water.

UNIDENTIFIED MALE: In the palm of their hand they can monitor their fleet, they can monitor irrigation.

WELLS: The problem is, there may be no water to irrigate.



WELLS: This massive farm show is taking place in the area hardest hit by California`s epic drought. But Mother Nature`s losers become technology`s winners.

Netafim, for example, makes drip irrigation systems and expects a parched west to help sales grow double digits.

(on camera): Is drought good for you?

JOHN VIKUPITZ, NETAFIM USA PRESIDENT & CEO: Drought is good to a point. When drought drives growers to be concerned about their future, about the ability to have any water at all, that`s not a good thing for us or the industry in general. But when we have a relatively dry year, it can drive some increased demand for sure.

YRIBARREN: This is alfalfa.

WELLS (voice-over): Jeff Yribarren says he`s been buying drip irrigation equipment for the last decade. But without enough water to go through it, a third of his land will be dust this year.

YRIBARREN: I don`t put one extra gallon of water onto the plants that I need more than I need in order to harvest the plant to make the fruit or the vegetable.

WELLS (on camera): But here`s the thing. Farming has gotten so efficient that even though costs are going up, often so are profits.

An example, California`s the number one dairy state. And dairy men are paying at least 20 percent more for hay to feed their cows. Does that necessarily mean milk prices will go up? No, they already have.

BARCELLOS: The milk price is at an all-time high. We do have some margin. And we`re just going to have to bank that margin and make sure we can have adequate feed supplies.

WELLS (voice-over): So, even though some warn California is facing a dust bowl, this isn`t your grandfather`s farm.

VERNON CROWDER, RABOBANK SENIOR ANALYST: We have some of the highest prices right now in California agriculture, in part because of the drought, but primarily because of demand from abroad. So, farmers will survive this. It will cost a lot of money and there will be changes. But they too will survive this.

WELLS: For NIGHTLY BUSINESS REPORT, Jane Wells, Tulare, California.


MATHISEN: Still ahead, the United Auto Workers Union attempts to make history at a plant in Tennessee. We`ll tell you what`s at stake whichever way the vote goes.


HERERA: A recall to tell you about. Toyota (NYSE:TM) recalling nearly 2 million Prius Hybrid vehicles worldwide, about 700,000 of them here in the U.S. A software glitch can cause the engines to stall. Thankfully no accidents or injuries have been reported due to that problem.

MATHISEN: Meantime, the overall quality of autos made in the United States slipped for the first time in 16 years. A new JD Power vehicle dependability survey of owners of 3-year-old cars and trucks found that engine and transmission problems especially in smaller, more fuel-efficient four-cylinder cars caused quality to fall from last year`s record high levels.

Bucking the trend, G.M.`s luxury Cadillac brand, rising 11 places this year to rank as the third most reliable name plate behind Lexus and Mercedes Benz.

HERERA: Well, Ty, Ford is selling a lot more cars these days in China. The automaker and its Chinese partners sold nearly 95,000 vehicles in China in January. That`s an increase of 53 percent from the same month a year ago and a 35 percent leap from December.

MATHISEN: A historic vote, Sue, for U.S. auto workers today. Employees at the Volkswagen plant in Chattanooga are casting ballots on whether or not to join the United Auto Workers Union. If approved, it would be the first foreign-owned auto plant represented by the UAW in the U.S. in 27 years, and the first ever in the South.

Phil LeBeau has more.


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): On a cloudy day in Chattanooga, Tennessee, workers at the Volkswagen plant are starting to clear up their future. Voting on whether or not to join the United Auto Workers Union, a move some workers believe will make their plant more competitive.

MIKE CANTRELL, VOLKSWAGEN CHATTANOOGA EMPLOYEE: We will have an opportunity to voice our concerns and the things that we hope to improve the company. And I think that will work better for us than the current system.

RICHARD ISBELL, VOLKSWAGEN CHATTANOOGA EMPLOYEE: I want us to have a voice in the Global Works Council. And I want us to be able to bring more products, more cars here to Chattanooga.

LEBEAU: VW`s plant in Tennessee is a rare opportunity for the UAW to add members after a foreign-brand plant in the Southern (NYSE:SO) U.S., something it`s never done. Over the last 35 years, as foreign automakers like BMW, Toyota (NYSE:TM), and others started building cars in right to work states in the South, their workers have never moved to join the UAW, even though their pay and benefits would have likely increased. Meanwhile, as big three plants primarily in the north shut down, UAW membership began to drop.

After peaking at 1.5 million in 1979, it fell as low as 355,000 just a few years ago, before edging slightly higher in 2012.

HARLEY SHAIKEN, UC BERKELY LABOR PROFESSOR: What`s at stake here isn`t simply a unionized plant, but a new way for U.S. firms to compete in the global economy.

LEBEAU: There are many fighting to keep the UAW out of VW Chattanooga. Senator Bob Corker says unionizing the plant would be a mistake. And anti-union groups think workers are being misled about life in the UAW.

MAURY NICELY, SOUTHERN MOMENTUM: We`re trying to get out there to make sure that employees, team members of Volkswagen have all the information that they need so they can make reasoned, informed choice.

LEBEAU (on camera): Approximately 5,000 workers are casting secret ballots through Friday evening. The National Labor Relations Board is overseeing the vote. If approved, it will be the first UAW organized plant in the Deep South.



MATHISEN: And read more about this historic union vote at the VW plant in Tennessee. Head to our Web site,

HERERA: CVS (NYSE:CVS) saw fourth quarter profits jump 20 percent. And that is where we begin tonight`s market focus. The network topped estimates on the strength of content and licensing and distribution revenues, even though advertising was basically flat.

The company also announced a $1.5 billion buy back plan. Shares initially spiked after the announcement. The stock ended the regular session up 1.5 percent to $61.85.

Mondelez International reported weaker than expected earnings and revenue after the market closed. The Oreo cookie maker said weak global demand for packaged food weighed on its sales. The company did offer an upbeat outlook, but the shares still fell following that report. At the end of the regular trading day, the stock was down slightly to $33.21.

Owens Corning (NYSE:OC) (NYSE:GLW) swung to a fourth quarter profit, earnings topped estimates and the company announced its firth quarterly dividend in 14 years, 16 cents a share. The company`s CEO said the cold weather actually helped sales.


MICHAEL THAMAN, OWENS CORNING CEO: It`s been a very, very cold winter. Generally, what we find is when people have severe weather conditions they appreciate really good roofs. They appreciate very well-insulated houses.


HERERA: Indeed. And that sent the stock up almost 9 percent to $43.20.

MATHISEN: Dow Chemical (NYSE:DOW) rejected activist investor Dan Loeb`s call for the company to split itself in two. Dow said it already examined the possibility of separating its petrochemical operations from its specialty chemical business and decided the move wouldn`t be productive. Loeb fired back at the company, saying its lack of transparency makes it very difficult to figure out how that decision was reached. Shares today fell 1 percent to $46.37.

Last fall`s government shutdown delayed the tax filing season. That is causing intuit to lower its outlook. Lobe fired back at the company saying its lack of transparency makes it very difficult to figure out how that decision was reached. Shares today fell 1 percent to $46.37.

Last fall`s government shutdown delayed the tax filing season. That is causing Intuit (NASDAQ:INTU) to lower its outlook. The tax software company said revenue and earnings expectations will shift to the third quarter instead of the second since Americans will file later. That worried investors, shares down 4 percent to $69.72.

And Amazon (NASDAQ:AMZN) plans to hire 2,500 new full-time workers at its order fulfillment centers around the U.S. But today, investors were more focused on the downgrade the online retailer received from UBS. The firm lowered its rating on the stock to neutral from buy and slashed its price target by $50 because of concerns that Amazon (NASDAQ:AMZN) may raise the price for its prime service. Shares of Amazon (NASDAQ:AMZN) down 3.5 percent today to $3.49.

HERERA: Mammography is a multimillion dollar business, as you may know, in America. Tonight, a new study is casting doubt on the value of that screening. A 25-year Canadian study which tracked almost 90,000 women found that having an annual mammogram between the ages of 40 and 59 did not reduce the chance of dying from breast cancer and may increase the number of women getting treated unnecessarily. The researchers say the current guidelines should be reconsidered.

Coming up tonight, why is this bus carrying tech workers to and from the office making some in San Francisco so very angry?


MATHISEN: Good news about the federal deficit. Uncle Sam`s budget shortfall for January was less than half what economists expected, just $10.4 billion. Some say that`s a sign of stronger federal tax receipts last month.

HERERA: On Tuesday, it was the House and today, it was the Senate passing a bill to raise the nation`s debt ceiling, allowing the treasury another year to borrow more money. Today`s vote was a close one, though, 55-43. And the bill now heads to President Obama`s desk where he`ll sign it into law.

MATHISEN: The president also signed an executive order today, raising the minimum wage for all federal contractors from the current $7.25 an hour to $10.10 an hour. That pay scale only applies to new contracts with the government, not existing deals which employ about 2 million people.

HERERA: In California, some Silicon Valley tech companies are facing a lot of criticism about company-run private buses taking employees to work, which is escalating tensions about income inequality and leading to some ugly protests.

Josh Lipton has more.


JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Tech works in Seattle this week suffered a small taste of what their colleagues in San Francisco have been dealing with for months — anger from activists protesting gentrification. Mass protesters holding a banner reading gentrification stops here, stood in front of a Microsoft (NASDAQ:MSFT) shuttle, preventing it from moving. Similar demonstrations have been going on in San Francisco. Protesters are targeting the private buses operated by Google (NASDAQ:GOOG) and other tech companies which shuttle workers from bus stops to their offices.

The protesters say that they`re not just angry about the buses but broader issues of gentrification and income inequality.

TONY ROBLES, SENIOR & DISABILITY ACTION: The buses really are kind of emblematic of this class privilege people have. Are they too delicate to take public transportation?

I take public transportation all the time. I`ve lived here 50 years. I`ve taken public transportation for 45 of those 50 years. I`ve turned out just fine.

LIPTON: As well-paid tech workers moved to San Francisco, the cost of living in the city has skyrocketed. Home prices and rents have soared 15 percent, and 13 percent respectively in the last year alone. Many long-term residents of the city have also been forced out of their homes. Evictions are up 40 percent in the last three years.

The business community counters that the protesters represent a small but vocal minority. They acknowledge that home prices are surging, but they blame the increase on a lack of housing inventory. Demand they say is outstripping supply.

BOB LINSCHEID, SAN FRANCISCO CHAMBER OF COMMERCE PRES. & CEO: For every tech job that`s created, five other jobs are lost.

LIPTON: Bob Linscheid, president and CEO of the San Francisco Chamber of Commerce, makes another point. Tech is a job multiplier, he says — meaning that every well paid engineer is supporting restaurants, retailers and personal services.

LINSCHEID: From taxi drivers, people working in restaurants, people working in hotels, those are all the jobs being created, which primarily taken up by San Franciscans.

And so, if you want to solve the problem of underemployment or unemployment, you hire more tech jobs, those create all the other ones.

LIPTON (on camera): San Francisco is booming, which is deepening the divide between the haves and have-nots. The question is whether there`s enough common ground between the two to ease tensions.

Josh Lipton, NIGHTLY BUSINESS REPORT, San Francisco.


MATHISEN: And finally tonight, Paula Deen is cooking up a comeback. The disgraced TV chef who lost her Southern (NYSE:SO) cooking show and some lucrative endorsements deals after using racially insensitive language has formed a new company. It`s called Paula Deen Ventures. She got upwards of $100 million in financing from the private equity firm Najafi Company. A spokesman for that firm said the money will be used to establish new deals with broadcasters, retailers and other outlets.

HERERA: And that does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for watching.

MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. And we`ll hope to 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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