Transcript: Wednesday, April 23, 2014

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

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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Apple (NASDAQ:AAPL) slices. The company announces a rarely seen 7-1 stock split after topping earnings estimates, potentially broadening the stock’s appeal to individual investors.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Coke’s controversial executive pay plan approved. And tonight, the company’s largest shareholder and the world’s most famous investor, Warren Buffett, reveals the shocking way he voted.

GHARIB: And sticker shock. New home sales plunge, dealing a blow to the housing recovery. Are higher home prices to blame for slowing numbers?

We have all that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, April 23rd.

Good evening, everyone. I’m Susie Gharib.

GRIFFETH: And I’m Bill Griffeth, in tonight for Tyler Mathisen.

We begin with this huge news from Apple (NASDAQ:AAPL) which just released its fiscal second quarter earnings, announced plans to buy back an additional $30 billion of its own shares. It’s raised its dividend by 8 percent. And then the surprise, a 7-1 stock split which would make shares about $75 apiece at today’s price.

Let’s get to the numbers, first, though.

Apple (NASDAQ:AAPL) easily beat Wall Street estimates by taking in $11.62 a share, with profits up 7 percent. Revenues also beat on blowout sales of the iPhone, but sales of iPad tablets were below forecast. Shares were halted in late trade on Apple (NASDAQ:AAPL) pending the earnings release, but when they did reopen, about 45 minutes after the close, shares initially soared by about 7 percent.

Josh Lipton joins us tonight from outside Apple (NASDAQ:AAPL) headquarters in Cupertino, California, with more on Apple’s news and he also spoke to CEO Tim Cook earlier today — Josh.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, here in Cupertino, California, I did get the chance to speak to CEO Tim Cook this afternoon.

Just to run through the numbers Apple (NASDAQ:AAPL) reporting, certainly pleasing investors 43.7 million iPhones. That was more than the street was looking for and Tim Cook telling me it was really broad-based strength there, good sales of 5C, 5S, strong demand he also said from China Mobile (NYSE:CHL).

Tim Cook also told me, listen, we realize we have more money than we need. So, we did see this news of Apple (NASDAQ:AAPL) extending its capital return program over $130 billion, increasing the re-purchase authorization to $90 billion, boosting the dividend to 18 percent.

And as you mentioned, bill, also this news, announcing a 7-1 stock split. Tim Cook telling me, listen, he realizes there are a lot of retail investors out there who might want to own Apple (NASDAQ:AAPL) shares. He wants stock to be as accessible as Apple (NASDAQ:AAPL) products.

Another issue, a lot of investors and analysts and traders certainly want to hear more about new products, what’s on the way. Tim Cook telling me he was not ready to give any new clarity right now on new products or other services. But he did tell me, there are new products in the pipeline, products that he’s very excited about.

And finally, with all that cash they’re sitting on, what about acquisitions? Tim Cook telling me, listen, they’ve done a lot of acquisitions in the past 18 months and he is on the prowl to do more.

Susie, back to you.

GHARIB: Thanks so much, Josh Lipton, reporting from Cupertino.

Joining us now to talk more about Apple (NASDAQ:AAPL) is Max Wolff. He’s chief economist and strategist with a venture capital firm Citizen VC.

Max, what do you think of all of this? I mean, here we’ve got a big stock split. You’ve got a big stock buyback and a dividend. Does this make Apple (NASDAQ:AAPL) the darling of Wall Street again?

MAX WOLFF, CITIZEN VC CHIEF ECONOMIST & STRATEGIST: Thanks for having me, Susie. Always a pleasure to join you.

I think certainly we see here Apple (NASDAQ:AAPL) making a lot of efforts to appeal to investors. Historically, Apple (NASDAQ:AAPL) had such enormous appeal to investors that they sort of sit back and let the adoration pour in, having had some — a bit of a bumpier road of late. They’re starting to offer more olive branch here. I think they’re buying back shares. They’re splitting them to make them about $75 each.

And they’re giving every indication that those who wait it out with them, during a period where they release fewer new whiz bang products that excite everyone, whether that’s new phones or new types of tablets, will be richly rewarded by a company that continues to sell an unbelievable number of premium products and has become the must-have status symbol brand both from the U.S., a story we know, and increasingly in their new partnership with China Mobile (NYSE:CHL), the absolute status brand in China, the largest and most fast growing of the major mobile markets.

GRIFFETH: Later today, Max, Carl Icahn, the activist investor who’s been on Tim Cook’s case to do something about a share buyback where things like that tweeted out that he was pleased with the results. With the buyback, with the stock split, but with a gentle prod there said, he also knows he’ll be happy when he sees new products from Apple (NASDAQ:AAPL), something I know you agree with, right?

WOLFF: Absolutely. So, it’s a good point.

We should keep in mind, though, he was prodding for a huge buyback, and what we saw was the largest buyback in history become even bigger. So, I think he’s pretty happy about that.

That being said, Apple (NASDAQ:AAPL) has very expensive phones, unsubsidized, we’re talking $750 for the basic, you know, the 5S, about to be the 6. I think the big story for Apple (NASDAQ:AAPL) is, if they could sell basically miniature phones, how many full size phones can they sell and the good news is we’re going to get a look at that with the 4.7, to 5-inch screen models that we expect to come out late in Q3 or early in Q4. So, coming soon, and it couldn’t be a moment too soon, or possibly, the sooner the better.

GHARIB: As you know, Max, Tim Cook of Apple (NASDAQ:AAPL) is not very good about giving any kind of clues about what these whiz-bang products might be. We all know about the phones.

But beyond that, what do you think that investors and consumers need to see come out of Apple (NASDAQ:AAPL) to make the success story of Apple (NASDAQ:AAPL) long-term?

WOLFF: So, I think consumers need to see Apple (NASDAQ:AAPL) as a very profitable massive company with one of the most valuable brands in the world, that’s trading in a pretty appealing valuation. So, against many of its peers, none of whom, by the way, are as profitable in most regards, it’s still at a discount, lower multiple to earnings, lower multiple to sales. So, it’s fairly reasonably priced, even if all their gadgets aren’t.

And I think we’re going to see the full-size phone and I think we have to see one other thing. We have to see Apple (NASDAQ:AAPL) take the sort of leadership position again, possibly with mobile payments. They have a chance there, because the fingerprint reader that’s on the 5S phone now, their top of the line cellular phone now, that’s going to be on the new models as well, we think, gives them a chance to allow people to make really easy transactions the way we’ve gotten used to in the iTunes universe and then the App Store, but now, outside of the iTunes and Apple (NASDAQ:AAPL) space, into the rest of our lives, with the phone as fingerprint reader and validator.

GHARIB: All right. A lot of good things coming hopefully.

Max, thank you so much for joining us, Max Wolff with Citizen VC.

WOLFF: Thank you.

GRIFFETH: Also reporting after the closing bell tonight, Facebook (NASDAQ:FB). It also topped Wall Street estimates, thanks this time to mobile ad sales which now account for about 59 percent of total ad revenue and a boost in daily average users, now over 800 million people every day on Facebook (NASDAQ:FB).

The social networking giant took in 34 cents a share, excluding certain items and easily beat the forecasts of 24 cents. Revenue also saw a slight beat at $2.5 billion. Shares rose better than 3 percent in after-hours trade tonight.

GHARIB: Well, it was a down day on Wall Street today as the major stock indexes broke a 6-day winning streak, despite a batch of solid earnings, investors got the jitters about weaker than expected revenue from Dow component AT&T (NYSE:T). Shares of the telecom giant tumbled nearly 4 percent. The Dow lost 12 points, the NASDAQ fell 34, and S&P down four points.

GRIFFETH: And the biggest gainer in the Dow today was Boeing (NYSE:BA). Shares there were up about 2 1/2 percent, thanks to a huge jump in commercial jet deliveries and much better than expected quarterly earnings. Boeing (NYSE:BA) also said it has a back log of 5,000 orders for new jets, and not surprisingly, it raised its full year earnings forecast as a result.

GHARIB: Executive pay was the hot topic at the Coca-Cola (NYSE:KO) meeting today, a controversial plan was up for a vote and lucky for Coke, shareholders overwhelmingly passed it, also elected all 15 nominees for the board of director.

Now, the plan which will generously pay Coke managers with shares of the company if they achieve set performance goals raised a lot of eyebrows with some big shareholders, saying it will transfer $13 billion to management in four years, even Warren Buffett, head of Berkshire Hathaway (NYSE:BRK.A), one of Coke’s biggest shareholders, disapproved of the plan deciding not to vote today.

(BEGIN VIDEO CLIP)

WARREN BUFFETT, BERKSHIRE HATHAWAY CHAIRMAN & CEO: We abstained because we didn’t agree with the plan. We thought it was excessive.

And I love Coke. I love the management. I love the directors.

But — so I didn’t want to vote no, kind of un-American to vote no at a Coke meeting. But they — I didn’t want to express any disapproval of management, but we did disapprove of the plan.

(END VIDEO CLIP)

GHARIB: Coke shareholders today also voted down a proposal that would require an independent board chairman.

GRIFFETH: Meantime, Warren Buffett rejected suggestions today that the U.S. stock market is too frothy.

(BEGIN VIDEO CLIP)

BUFFETT: Stocks ought to be higher every 10 years — I mean, there is a plow back of earnings every few years. Stocks will become more decade after decade, not in any precise manner, not in any manner or sort. But 10 years, 20 years, 30 years from now, stocks will be worth more than they are today.

(END VIDEO CLIP)

GRIFFETH: Mr. Buffett said that even though stock prices are up, it does not automatically mean that they are over-priced. He made these comments during a luncheon today in New York, dining with the winners of last year’s charity auction.

GHARIB: Turning now to the U.S. economy, a real setback in the housing recovery. Sales of newly built homes plunged in March, falling more than 14 percent. Those disappointing numbers combined with weaker than expected sales of existing homes last month are a real blow to the traditional start of the spring real estate selling season.

Diana Olick reports.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It is as blatant as the spring blossom. Home buyers are facing sticker shock. The price of a newly built home in March soared to a record-high $290,000, almost in direct response, sales volume dropped 14 percent to the lowest level in eight months.

How could it happen? The homebuilders raised prices throughout much of last year because there was so little on the market to buy and because existing home prices were rising as well, thanks to all-cash investors.

Now, as fewer foreclosures come to the market investors pull back and construction holds well below historical norm. Sales cannot match the hype nor the hope for this spring season. Tight credit isn’t helping either.

ANTHONY HSIEH, LOANDEPOT CEO: Lending standards, appraisal policies, regulations, licensing compliance have all tighten up to the point where it really is starting to hurt the recovery of the entire housing market.

OLICK: First-time home buyers continue to be sidelined, hit particularly hard by the combination of tough credit and higher prices. But there may be more to their absence than that.

JOSH BROWN, INVESTMENT ADVISOR: You have people that are more comfortable living with their parents for longer. You have people that would rather rent. They’re not interested in owning like previous generations.

OLICK (on camera): Much of the activity in housing today is coming from a smaller pool of buyers on the high end of the market. They have the cash and the credit to play.

The rest of the market, which is the bulk of potential buyers, are faced with that toxic cocktail of both high prices and a high barrier of entry for getting a mortgage.

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

(END VIDEOTAPE)

GHARIB: Still ahead on NIGHTLY BUSINESS REPORT: Amazon (NASDAQ:AMZN) seals the deal to stream some older and very popular HBO shows. But will Netflix (NASDAQ:NFLX) be the one to pay the price? That story, next.

(MUSIC)

GRIFFETH: Well, the battle to stream video into your living room just ramped up a bit with a breakthrough deal that could help Amazon (NASDAQ:AMZN) prime take on industry giant Netflix (NASDAQ:NFLX).

Morgan Brennan has more tonight.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: HBO striking a license deal with Amazon (NASDAQ:AMZN), marking the first time HBO has ever allowed its content to be streamed by an online video provider. The multi-year partnership means that private subscribers will get access to TV shows like “The Sopranos”, “The Wire”, and “Six Fix Feet Under”.

But you won’t be able to watch the newest HBO shows, like “Game of Thrones”. It’s a big win for Amazon (NASDAQ:AMZN), which gets HBO’s library exclusively, so competitors like Netflix (NASDAQ:NFLX) can’t ink a similar deal.

This marks a shift for HBO, which has clung to a premium content model where viewers had to subscribe to cable or pay per episode for digital downloads on platforms like iTunes.

JON STEINBERG, BUZZFEED PRESIDENT & COO: I think that these guys all like money and margins better than they care about their competitive instincts. And I think ultimately, just like the Hollywood studies, all compete with each other and all sell programming to each other, all have their networks and are selling to each other’s networks, that is the dynamic that will be involved here.

BRENNAN: The news has caused shares of Netflix (NASDAQ:NFLX) which just announced price increases for new subscribers to tumble. While the agreement with HBO is certainly a win for Amazon (NASDAQ:AMZN), the company still has a long way to go before it gobbles up market share.

According to broad band equipment provider, Sand Vine, Netflix (NASDAQ:NFLX) accounted for more than 30 percent of all video streaming during prime viewing hours in 2013. Amazon (NASDAQ:AMZN), less than 2 percent.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan in Los Angeles.

(END VIDEOTAPE)

GHARIB: Shares of Delta soared after the airline posted better-than-expected earnings and gave an upbeat guidance, and that’s where we begin tonight’s “Market Focus”.

The airline’s earning beat came despite the fact that it had to cancel more than 17,000 flights because of bad weather during the quarter. It lost $90 million in revenue because of those cancellations.

But the stocks still popped 6 percent to $37.09.

Dow chemicals cost cutting efforts helped it drive a 65 percent increased in its first quarter. The chemical maker saw margins expand in its unit that make coating plastics and crop protection products. And the CEO says the recovering economy is helping to grow some of Dow’s business. Shares rose nearly 1 percent to $49.37.

GRIFFETH: Meanwhile, the reports that Starbucks (NASDAQ:SBUX) may buy a stake in SodaStream sent shares of the soda machine maker surging in today’s session. Last week, there were reports that SodaStream was in early talks to sell a stake of itself to a large beverage company. Now, the reports are that Starbucks (NASDAQ:SBUX) is that company and it wants a 10 percent stake in SodaStream. Shares of SodaStream, as we said, up 10 percent, closed to $44.76. Starbucks (NASDAQ:SBUX) was down about a percent, to $70.39.

And Zynga (NASDAQ:ZNGA) reported a lost that matched estimates for the latest quarter, but the game-maker’s revenue surpassed expectations. Also, that company’s founder, Mark Pincus, will step down as chief product officer. He will remain as chairman, though. Shares of Zynga (NASDAQ:ZNGA) rose in the after-hours session. During the regular session, though, stocks fell 3 percent to $4.42.

GHARIB: And shares of Valiant and Allergan (NYSE:AGN) are also getting a lot of attention today. There are fresh questions about the hostile takeover valued at around $50 billion. And it’s not only because the offer came from the unlikely team of activist investor Bill Ackman and the Canadian drugmaker Valeant Pharmaceuticals, but also for the artful way the offer came to be.

Dominic Chu explains the story behind the headlines.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: It’s an unusual case where a hedge fund partners with a public company. Now, that’s what happened with Bill Ackman and Valeant Pharmaceuticals. Now, the unlikely pairing kicked off in February of this year, Ackman and Valeant CEO Michael Pearson struck up a pact to team up on buying Botox maker Allergan (NYSE:AGN).

Now, the buying of stocks started on February 25th. And you’re seeing a stock price chart here, right behind me, a purchase of 174,000 shares kicked things off. Then, another 422,000 shares just the next day. So, it’s working out to be somewhere around $76 million worth of Allergan (NYSE:AGN) shares in just those two days.

Now, fast forward over here to March. Ackman switches up the strategy and starts buying options to increase his share of the stock at Allergan (NYSE:AGN). By April 11th, he controlled over 5 percent of the stock which was important because it meant that Ackman had to tell regulators about this position within 10 days.

But he didn’t stop there. He kept buying those options and added another 4.7 percent stake by April 21st. Now, the stock keeps climbing here.

Now, for your numbers fans out there, that’s a 9.7 percent Allergan’s stake worth nearly $4 billion on the day when Valeant announced its hostile bid for Allergan (NYSE:AGN). It’s a takeover like nothing we’ve ever seen before and that’s what makes it so, so unique.

For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.

(END VIDEOTAPE)

GRIFFETH: Well, a potential deal has been described as bold, and audacious. It has raised questions about potential conflict of interest. But no matter how it’s described or the types of questions it’s raised, we need to point out that this maneuver is legal.

And today, Bill Ackman defended teaming up with Valeant to try to acquire Allergan (NYSE:AGN). He insisted there was no front-running or insider trading involved.

(BEGIN VIDEO CLIP)

BILL ACKMAN, PERSHING SQUARE CAPITAL MANAGEMENT FOUNDER: The way the rules with, you’re actually permitted to trade on insider information as long as you didn’t receive the information from somebody who breached the duty of — fiduciary duty or the duty of confidentiality, et cetera.

What’s happened her is we teamed up with Valeant, or Valeant came to us and said, “Look, you can help us acquire Allergan (NYSE:AGN). We’d like to work with you.”

And we said, “Great”. We formed a partnership. And the partnership has various terms. It gives us the right and the permission from the company to go buy a stake in Allergan (NYSE:AGN).

(END VIDEO CLIP)

GRIFFETH: Allergan (NYSE:AGN) has also adopted, by the way, a so-called poison pill — a shareholder rights plan aimed at preventing Ackman from acquiring even more shares in the company as the board gets more time to consider whether to accept, to reject or try to negotiate with Ackman on this bid.

GHARIB: So, let’s explore a little bit more whether Bill Ackman’s nearly $4 billion stake in Allergan (NYSE:AGN) is legal or illegal, and let’s turn for some answers from a former lawyer with the Securities and Exchange Commission, Adam Pritchard is currently a professor at the University of Michigan law school.

So, Adam, is this insider trading? And if not, should investors be troubled that it is legal?

ADAM PRITCHARD, UNIVERSITY OF MICHIGAN LAW SCHOOL PROCESS: It is trading on inside information, but the securities laws prohibit fraud not trading on inside information, because Mr. Ackman got the information from Valeant, not Allergan (NYSE:AGN), it’s not fraud.

So, the — Mr. Ackman knows more than other investors in the market? But he got the information legitimately from Valeant.

GRIFFETH: But you have to admit, it smells bad. I mean, back in the ’80s, there will be those high profile investors that I won’t name names, who would accumulate shares of a company, and then publicly announced not only that they own shares, but they were going to attempt to buy the company, shares would pop, company would sell, buy those shares back from that person. We call that green mail, I’m not saying that’s where Bill Ackman is going with this, but there is a precedent for somebody to accumulate shares, make a bid for a company, and then profit from that in the ensuing time.

Is there a need for a new rule to prohibit that kind of trading? What do you think?

PRITCHARD: Well, you mentioned in your lead-in to the story that the green mail practices of the ’80s — part of the reaction to that was the innovation of the poison pill, which protects companies to a considerable extent from having to pay green mail. Once they have adopted the poison pill, they can sit still and ignore Mr. Ackman if they do not want to proceed with the merger.

So, the question would be whether investors should be entitled to know about large accumulations of stock being assembled by activist investors. The SEC has had the authority to require disclosure faster than it currently does. It now says 10 days after you pass the required trigger. The SEC has the authority to shorten that period but they have never exercised it, including during the ’80s when certainly a lot of people would have favored that move.

GHARIB: Do you think that they will make a change on that calendar date, and also related to that, if they don’t, is this trend of activist investors teaming up with corporations who do perhaps hostile takeovers. Is this good or bad for the individual investor?

PRITCHARD: So, will the SEC act? My guess is probably not. They have had over 40 years to act in similar trends before and they didn’t act. So, I’d be surprised if they did now.

For individual investors, this cuts two ways. Yes, they would like to know when activist investors are accumulating large blocks of stock. But there is an important effect from hostile takeovers in disciplining management, right?

The companies that are subject to hostile takeovers are the ones that have under-performed in some way. And if that threat is hanging over every public company, it is not just the activist investors who can profit from that. But the average retail investor benefits if public companies are run better because executives are afraid of a hostile takeover.

GHARIB: Well, it is a whole new interesting conversation I’m sure we’ll hear more about.

Thank you so much, Adam. Adam Pritchard, securities law professor at the University of Michigan.

GRIFFETH: Coming up, when the markets soars, do you want to follow the herd into stocks? When the market stumbles, are you ready to get out? Advice on how to keep your emotions in check and stick to your long-term financial goals, coming up.

(MUSIC)

GRIFFETH: Retirees looking to safeguard their money and stretch out their nest eggs in their later years are hit, of course, with a barrage of financial advice, and minute-by-minute market coverage and analysis.

So, how do you cut through all the clutter and formulate a retirement plan and stick with it?

Sharon Epperson takes a look tonight.

(BEGIN VIDEOTAPE)

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It’s easy to get caught up following market gyrations, but many experts warned that focusing on market momentum can sabotage your retirement.

RIC EDELMAN, EDELMAN FINANCIAL SERVICES: People get overly excited or overly scared, because as emotional creatures, we tend to get very happy when the market is up, and very scared when the market is down. And that causes us to buy high or low, which is the exact opposite of what you’re supposed to do.

EPPERSON (on camera): Emotions can unravel your investment strategy but only if you act on them. With a barrage of information from books, the Internet, television or alerts on your phone, how do you cut through it all and maintain a sound strategy?

Begin by formulating a financial plan and stick to it.

RICHARD BERNSTEIN, RICHARD BERNSTEIN ADVISORS CEO: If you have a financial plan you should stick to that financial plan. That means probably lowering your equity rate at the peak of the market, when everybody is the most enthusiastic about stocks, but increasing your equity wait at the trough when everybody is most scared. But you should stick to that plan, which is hopefully guided by your risk tolerance and a long term view of the world.

EPPERSON (voice-over): Look for investment nuggets that may go against consensus.

BERNSTEIN: One has to realize that the whole point of investing is finding something that other people don’t know. So, if you’re just reading a research report, or you’re listening to an analyst on TV or your financial adviser comes to you with a story and it is a story, how is that view different from consensus?

That one step of looking for the little nugget, what has the person found that everybody else has not will allow you to eliminate probably 98 percent of the investment ideas that are thrown at you because most of them are just stories.

EPPERSON: Remember that you’re saving and investing for the long haul. Your retirement may be decades away. And even if you’re recently retired, your nest egg may have to last 10 to 20 years. So, don’t take too much risk even when the market is soaring, or panic and pull all of your money out on a big dip.

EDELMAN: 2008 was a great lesson for most of us, and here it is — if you hung on and you didn’t sell, if you didn’t panic and get out of the low, today, you have more money than ever. The people who stayed in and continued to invest are the ones who did the best.

EPPERSON: Bottom line: stay invested, but don’t expect all the news about the financial markets and investments today to necessarily guide future performance.

For NIGHTLY BUSINESS REPORT, I’m Sharon Epperson.

(END VIDEOTAPE)

GHARIB: And that is NIGHTLY BUSINESS REPORT for tonight. I’m Susie Gharib. Thanks for watching.

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