Transcript: Wednesday, July 23, 2014

NBR ThumANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Three hundred percent gain. Shares of Puma BioTech blast off nearly quadrupling after its experimental drug blocks the return of breast cancer in women.

Blue chip record. The S&P 500 ekes out a small gain, but it’s yet enough to set yet another all-time record high close. Can you say, “Thank you, Apple (NASDAQ:AAPL)”?

And, new money fund rules. The Securities and Exchange Commission approves new regulations to make money market funds safer. What they’ve done and what the changes mean for shareholders like you?

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, July 23rd.

Good evening, everybody. And welcome. I’m Tyler Mathisen. Susan Gharib is off tonight.

Another historic high on Wall Street to tell you about, with the S&P 500 ending at a new all-time closing high. The number: 1,987. That was the year of the crash, ironically. Thanks to some solid earnings from Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) out late yesterday and a big boost today from the biotech sector.

Take a look, maybe an envious look. The shares of the company called Puma BioTechnology. The stock gained roughly 300 percent, that’s quadruple, on positive results of an experimental breast cancer drug in a late stage trial.

Biogen Idec (NASDAQ:BIIB), another big gainer saw shares climb 11 percent on surging sales of its new multiple sclerosis treatment.

Meg Tirrell has more on this big day in biotech, what’s behind the numbers at Puma and Biogen and what investors can look forward to.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Biotech stocks are known for their volatility — big risk, big reward.

Today was no exemption. Puma BioTech soared on results of a late stage study of its drug for breast cancer. In a trial of more than 2,000 patients, the medicine called Neratinib helps people live for 33 percent longer without their disease progressing compared with placebo. The drug was tested in a type of breast cancer known as HER2-positive, referring to a specific genetic mutation.

Puma said it will apply for regulatory approval in the first half of next year. The drug could bring in more than $4 billion in annual revenue, according to estimates from Citi analyst Yaron Werber. The results may also make Puma a likelier acquisition target, analysts said. CEO Alan Auerbach is already known for his deal making. He sold his last company, Cougar Biotech to Johnson & Johnson (NYSE:JNJ) for a billion dollars in 2009.

It was also a blowout day for the drug maker Biogen Idec (NASDAQ:BIIB). The company topped analysts’ estimates for second quarter results, and raised its full year guidance on the performance of its multiple sclerosis drug.

GEORGE SCANGOS, BIOGEN IDEC CEO: We had great quarter. You know, revenues are up 40 percent and EPS up 52 percent versus Q2 of last year. And it was really driven by the base MS business. Tecfidera, our new oral drug, has continued to perform well in the U.S. It’s been launched in Europe now.

TIRRELL: Biogen also received some good news just minutes before its earnings conference call begun. Its newest multiple sclerosis drug Plegridy was just approved in Europe.

(on camera): Dr. Scangos also weighed in on the issue of corporate inversion or the recent frenzy in deal making for tax purposes. He said that while Biogen wouldn’t consider such a deal solely for tax reasons, they need to make a change.

SCANGOS: They can pay more than American companies for a set of assets. That disadvantages American companies. And the way to stop the inversions is to reform the tax code and that means we need a corporate tax rate that’s competitive with the rest of the developed world.

TIRRELL (voice-over): Investors will next look to Biogen’s pipeline, with data expected to be reported later this year. And early next, on several important programs.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell in Boston.

(END VIDEOTAPE)

MATHISEN: Well, another well-known biotech Gilead Sciences (NASDAQ:GILD) reporting blowout earnings after the bell, adjusted profits of $2.36 a share easily beat second quarter Wall Street forecasts. Revenue, also, easily topped estimates led by sales of Sovaldi, the hepatitis C drug introduced just last year. It’s already been used to treat 80,000 people. Sales of Sovaldi alone last quarter hit $3.5 billion. Shares of Gilead rose initially and then pulled back after — in after-hours trading.

And on Wall Street, stocks ended broadly higher today. Again, the S&P at an all-time closing high, with solid earnings outweighing investor concern about conflicts in the Middle East and Ukraine. The Dow was the day’s exception, big downer off 27. Boeing (NYSE:BA) was the drag there, more on that in a minute. Meanwhile, the NASDAQ up 17 and S&P added three points.

Well, after the markets closed today, investors turned their attention to Facebook (NASDAQ:FB) and its earnings did not disappoint. The world’s biggest social networking site blew away Wall Street estimates. The company earned 42 cents a share and after you strip out time — one-time accounting items. That was a full 10 cents above the consensus forecast.

Revenues were up 61 percent — yes, 61 percent — to $2.91 billion. Mobile ads the big driver there. Facebook (NASDAQ:FB) share of the mobile ad market has doubled in just two years to more than 18 percent. All in all, a knockout quarter for Facebook (NASDAQ:FB). Shares of the company initially jumped in post-market trading as you see on that graphic. They finished the regular session at $71.29.

But one of Facebook’s biggest challenges remains finding new revenue streams before its competition does.

Julia Boorstin takes a look at what the company is working on now.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Facebook (NASDAQ:FB) and Twitter are dipping toes into online retail to tap into the $304 billion annual e-commerce market. Facebook (NASDAQ:FB) is testing buy buttons in its newsfeed and Twitter is exploring them in tweets, which may look similar to this — to enable consumers to buy without leaving social platforms.

But perhaps more important than retail revenue, this is about better serving advertisers.

MARK MAHANEY, RBC CAPITAL MARKETS: You’re increasingly seeing retailers, Amazon (NASDAQ:AMZN) increasingly advertising on Facebook (NASDAQ:FB), we’re seeing more and more direct marketing dollars flow on Facebook (NASDAQ:FB) than everybody thought including the company thought was likely to be the case three or four years ago.

BOORSTIN: Facebook (NASDAQ:FB) is attractive to retailers not just because it has so many users, but because it has detailed information about who they are and what they like.

Just like Facebook (NASDAQ:FB) was a game changer for small businesses without a web presence, Facebook (NASDAQ:FB) e-commerce tools could serve a similar role, giving small retailers an easier way to reach online shoppers.

Analysts say Twitter is not as well-positioned for retail advertisers as Facebook (NASDAQ:FB) is.

MAHANEY: It may be harder for Twitter to pitch itself as an effective advertising vehicle including the “buy it now” functionality. It will be harder for them to make that pitch to advertisers, to retail advertisers, than it would be — than it has been for Facebook (NASDAQ:FB).

BOORSTIN: But Twitter is working to correct that with multiple options, including a way for consumers to save deals to credit cards to buy later in stores. Thanks to Twitter’s just announced acquisition of payments company Cardspring.

Facebook (NASDAQ:FB) recently launched a “save now” button for articles, which it could presumably also expand to retail.

Bringing social deals to brick and mortar has even bigger potential, 85 percent of all purchases are still made in stores.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

MATHISEN: And if you don’t own individual shares of Facebook (NASDAQ:FB), some very big mutual funds you may own and some popular ETFs do, and you maybe in those.

According to Morningstar (NASDAQ:MORN), Fidelity Contrafund is the top holder of Facebook (NASDAQ:FB), followed by Vanguard Total Stock Market Index, the PowerShares QQQ ETF, and the Vanguard 500 Index and Vanguard Institutional Index.

One Dow component posting earnings after the closing bell tonight was the telecom giant AT&T (NYSE:T). The nation’s number two wireless provider made 62 cent a share, excluding certain items. That was a one penny a share miss. Revenues also rose but were also short of Wall Street forecasts, even though it saw a record low number of subscribers leaving the company. Shares initially fell a bit in after-hours trading. As you see there they finished at $35.88.

Morgan Brennan here now with more on AT&T’s second quarter earnings. Nice to have you here. What did you see in the numbers that stood out?

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, you know, we’ve seen so much competition among the U.S. wireless providers and I think that’s showing up here in AT&T’s earnings.

Now, the company had the strongest wireless subscriber growth in five years. They had the most subscribers staying on and not leaving the company, as you mentioned, ever in the history of the company and yet, we saw profits down and the reason is because —

MATHISEN: Why?

BRENNAN: Well, because you have T-Mobile and you have all these other competitors that have been slashing prices and putting pressure on AT&T (NYSE:T) to slash its prices. It’s also been moving away from subsidizing smart phones and in return for two-year contracts from customers to having customers pay for their smart phones but pay less for services, and all of that is weighing on the profits for AT&T (NYSE:T). This company is transforming itself right now. We’re going to have to see what happens in the second half of the year.

MATHISEN: Morgan, thanks very much. Morgan Brennan reporting tonight.

Well, telecom is the smallest sector in the S&P 500, accounting for only about 2 percent of its total weight, but it’s got some of the biggest companies in the country in it like AT&T (NYSE:T). There just aren’t a lot of them.

So, are any of them worth your investment dollars?

Here to answer that question in light by the earnings from AT&T (NYSE:T) today and Verizon (NYSE:VZ) yesterday is Craig Moffett, founder and senior analyst of his own research firm, MoffettNathanson.

Craig, welcome. Good to have you with us.

Before I get to the specific pick that you like best in this sector, how do you rate the sector overall? Do you like it, not like it?

CRAIG MOFFETT, MOFFETTNATHANSON: You know, I think right now, you’d have to say it’s at best fairly valued. I’ve actually been relatively negative on the sector for the last 18 months where I think it was very, very expensive 18 months ago. It has badly underperformed for the last 18 months. But even after that under performance, it’s still only in line with historical averages. And I don’t think you can begin to say that the sector is actually cheap enough to get excited about.

MATHISEN: What is your choice in this sector? Is it one of the big two, AT&T (NYSE:T) or Verizon (NYSE:VZ), or is it a third party?

MOFFETT: No, I think right now, AT&T (NYSE:T) and Verizon (NYSE:VZ) still haven’t gotten to levels where they make sense to own and as Morgan was saying, there are actually a lot of weaknesses on display in AT&T’s earnings, in particular. Those results were actually pretty bad today.

I think if there’s a name to buy in the sector, it’s still T-Mobile. Now, there’s a lot of questions about whether T-Mobile will or won’t be acquired by Sprint, but on — at least in extrinsic value and if you look at the one carrier that’s actually growing its business and doing it profitably it’s actually T-Mobile.

MATHISEN: And you say, though, that you give the likelihood of a T-Mobile sprint combination a very low probability of clearing regulatory. Apart from that, do you think it’s a good business idea?

MOFFETT: Well, sure, look, I mean, if you can consolidate a business with four players down to three players, it doesn’t take a rocket scientists to realize it’s probably an effective thing to do.

The challenge is the Department of Justice and the FCC had been pretty clear in saying — if you’ll forgive the reminder — the read my lips, we’re not going to go from four to three. And it’s very hard to see how — given how entrenched the Department of Justice and the FCC are today, how we’re going to get to a merger.

MATHISEN: Thank you very much, Craig. We Appreciate your pick, T-Mobile. Craig Moffett, with MoffettNathanson.

All right. Moving now to two stocks that headed in of opposite directions today. Boeing (NYSE:BA) shares biggest decliner in the Dow, while Delta soared almost 4 percent. So, why is one flying high and the other having trouble getting off the ground despite strong earnings?

Phil LeBeau explains.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): While the airline industry has been soaring with investors, the company that makes roughly half the world’s airplanes is not. Boeing (NYSE:BA) beat the street by a wide margin in the second quarter and raised earnings guidance for this year and still, its stock fell.

Why? Investors aren’t happy about Boeing (NYSE:BA), not raising its guidance for cash flow and there are questions about the strength of the backlog. But CEO Jim McNerney isn’t worried. He sees the current boom in orders for new claims lasting several more years.

JAMES MCNERNEY, BOEING CEO: Every sign I see is that this technology change-out is going to — just look at the airplanes, 777X — is going to keep going over the next decade or so, that I can see right now.

LEBEAU: Meanwhile, with packed planes, fuel costs in check and strong demand in the U.S. and Europe, Delta’s profits are soaring, up 17 percent last quarter.

Good enough to beat estimates from analysts already bullish on the airline because of its strong execution.

RICHARD ANDERSON: We are intensely focused on every single detail of our operation and our customer service and we are not shy about making big investments for our customers.

LEBEAU: One investment that’s paid off, Delta being the first airline to buy a refinery to lower jet fuel costs.

ANDERSON: This quarter we’re at $2.93 a gallon. Every penny is 10 million bucks in a quarter, the industry average excluding Delta’s $3.08, and we’ve been doing that quarter in and out.

LEBEAU (on camera): There’s no doubt, investors are still bullish on the airlines. Today, the transport index climbed to the highest mark ever. We’ll see if that continues tomorrow when five airlines, including United, American and Southwest all report their second quarter earnings.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: The FAA today extending its ban on U.S. airlines flying to Tel Aviv for another 24 hours in the wake of a reported rocket attack on Monday. The missile landed near Ben Gurion airport. The U.S. Transportation Secretary Anthony Foxx explained the reason behind the ban and another ban on U.S. commercial jets flying over Eastern Ukraine imposed last Friday.

(BEGIN VIDEO CLIP)

ANTHONY FOXX, TRANSPORTATION SECRETARY: We’re continuing to monitor the situation in Israel and other parts of the world. Safety is the very first priority for the U.S. DOT, for FAA. And our work within our government in the conversations that occur between governments continue.

(END VIDEO CLIP)

MATHISEN: Individual airlines in France, the Netherlands and Germany have all banned flights to Israel, but Israeli owned El-Al continues to fly between the U.S. and Tel Aviv.

General Motors (NYSE:GM) has issued more recalls, six of them in all today, totaling more than 700,000 vehicles. None of the new recalls are related to those faulty ignition switches. The biggest one accounting for more than half of today’s total is to replace a bolt in power seats in some sedans. So far this year, GM has recalled more than 25 million cars and trucks in the United States alone.

And still ahead, the Securities and Exchange Commission adopts new rules for money market funds. How might the changes impact individual investors and businesses?

But, first, on this big earning’s day, let’s take a look at some other results.

(MUSIC)

MATHISEN: The Securities and Exchange Commission voted to end the longtime staple of the investment industry today. The fixed $1 share price for money market mutual funds in order to keep that $2.3 trillion market safe in the event of another financial crisis.

Hampton Pearson joins us now from Washington with more.

Hampton, what exactly did the SEC do today?

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Pretty interesting day at the SEC. By a 2- 3 vote, the commission approved two major reforms aimed of preventing runs money market funds. In plain English, first, the SEC will require the price of institutional prime funds to float, meaning investors could lose principal if values of the shares fall below a dollar per share.

The other big change, giving money market fund boards the ability to suspend redemptions temporarily if assets fall below a certain threshold. The tool designed to deal with what happened during the 2008 financial crisis which, of course, has been the game changer for regulators, the Lehman Brothers collapse in particular triggered the failure of the reserve primary funds which broke the buck with the value shares falling below a dollar. The next week, investors pull some $300 billion from prime money funds, 14 percent of total assets, and it was that experience that’s really been the catalyst behind the six-year battle for the regulatory reform we saw enacted today.

MATHISEN: You used a very important word in describing the money market funds that are affected here, institutional funds.

What does that mean? And does that mean that the, quote, “retail fund” that I might invest in doesn’t fall under these new rules?

PEARSON: Well, again, as you mentioned, it depends on what class of investors we’re talking about, not much impact for individuals. The primary focus as we were just talking about, institutional funds, as for businesses that use money markets to manage their cash, the U.S. Chamber of Commerce saying today the new rules would increase costs for them. Those regulations, by the way, take effect in two years.

MATHISEN: All right. Hampton, thank you very much. Hampton Pearson reporting in Washington.

Well, the beverage and snack food giant PepsiCo beats on both the top and bottom lines, sending shares higher, and that is where we begin tonight’s “Market Focus”.

The strong results came despite a decline in North American sales of carbonated drinks. The company also raised its full-year profit forecast. Shares of PepsiCo rose nearly 2 percent, $90.82 the close there.

Shares of GlaxoSmithKline dropped after it lowered its outlook for the year. The drug maker said sales slid a weaker than expected 13 percent in its second quarter, this as its respiratory drugs struggled in the U.S. and a strong pound hurt its growth. The stock was off about 6 percent today to $50.04.

Dow Chemical (NYSE:DOW) reported earnings and revenue that topped consensus. Its results were helped by sales gains in all of its segments and its margins improved because of higher prices and a tight control on costs.

The CEO says that was key to the strong results.

(BEGIN VIDEO CLIP)

ANDREW LIVERIS, DOW CHEMICAL CEO: Our return on capital is up 150 basis points year on year. If you don’t focus in on cost, capital and cash in this economy, you won’t grow margins no matter what your innovation agenda.

(END VIDEO CLIP)

MATHISEN: Shares rose 3 percent to $53.89.

Xilinx (NASDAQ:XLNX) plunged after the company reported disappointing results. The chip maker hit by weaker than expected sales in its defense and wireless businesses. Xilinx (NASDAQ:XLNX) also gave weak revenue guidance. The stock was 14 percent lower, $41.26 was the close, and that was the company’s worst one-day performance in nine years.

Caterpillar (NYSE:CAT) also traded lower after the company announced a sales decline. The maker of tractors and other agricultural gear said total retail sales from the April to June period were off 10 percent and retail machines sales also fell from March to May. Shares were down 1 1/2 percent. They finished at $108.38.

Well, some big U.S. companies including McDonald’s (NYSE:MCD), Burger King, Starbucks (NASDAQ:SBUX), Yum Brands (NYSE:YUM) have been embroiled in a food scare in China after a meat supplier there sold beef and chicken that was well past the sell-by date. Now, five people are under arrest and the incident is raising questions about how officials can prevent any future scares.

Eunice Yoon has more from Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: McDonald’s (NYSE:MCD) CEO Don Thompson said on an earnings conference call that the company felt deceived after a Chinese TV report allegedly found food safety violations at one of McDonald suppliers here, OSI. Today, Chinese police arrested five people, including the chief of the Shanghai unit and quality inspector.

Regulators also said that they believe that the violations were organized by the company and not an isolated incident as described by OSI management. Authorities seized 1,000 tons of suspected meat products from the factory and 100 tons at restaurants of various customers.

Fast food companies that use OSI’s products have been trying to distance themselves from the supplier. The Chinese unit of OSI not only supplied McDonald’s (NYSE:MCD) and Yum Brands (NYSE:YUM), which owns KFC, but Burger King, Subway, Papa Johns and IKEA as well.

Now, the initial outrage here has turned into public debate. Many people are angry but more have been defending the fast food giants now, saying the problem isn’t the companies but Chinese workers and that too many are not disciplined enough to adhere to tough food safety standards.

For NIGHTLY BUSINESS REPORT, I’m Eunice Yoon in Beijing.

(END VIDEOTAPE)

MATHISEN: Coming up, money habits of millennials, and why they can teach their parents a thing or two about saving and spending.

But, first, more earnings results for some of the nation’s biggest companies.

(MUSIC)

MATHISEN: The market moves a lot of material by rail usually but not always safely, especially when it comes to crude oil. That’s why the Department of Transportation is proposing new rules, including speed limits, braking controls, enhanced tank standards, and a new testing program for flammable gases and liquids, all aimed at making transporting oil by rail safer.

The new rules come after fiery derailments, including one in Quebec last year that killed more than 40.

Norfolk Southern (NYSE:SO) is one of the railroad companies that transport crude. And the CEO says he’s concerned with safety and he’s reviewing new proposals. Norfolk Southern (NYSE:SO) also reported second quarter profits that rose more than 20 percent on broad revenue growth and increased its shareholder dividend by nearly 6 percent. Shares, though, fell a little bit to $106.84.

Lazy, entitled and narcissistic — those are just some of the labels used to describe the millennial generation, young adults who range in age from 18 to 33 years old, who are often criticized for lacking a strong work ethic. But as the youngest generation of American workers enters the workforce, they adopted an attribute that many others might well learn from.

Sharon Epperson has more.

(BEGIN VIDEOTAPE)

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): For many young adults in their 20s and early 30s, the Great Recession taught them a vital lesson: save now in order to survive potentially catastrophic economic and financial challenges later.

JASE JOHNSON, MILLENNIAL: I would say the 2008 and 2009 Great Recession really did have a key impact both on me and my generation.

EPPERSON: Thirty-four-old Jase Johnson, a senior business strategist at a Midwestern financial services firm, echoes the attitudes of many in the millennials generation. These children of the baby boomers, now the most numerous age of the country, witness firsthand how their parent’s real estate declined, investment portfolios dwindled, and retirement savings were depleted.

(on camera): Economic volatility has impacted job prospects for many Americans and their earning capability. Coming of age during a financially tumultuous time for many millennials has caused them to save more consistently and invest more conservatively.

JOHNSON: You start to see that your parents’ nest eggs are being impacted and so, with all of that combined, as a young and impressionable individual going into the marketplace, you say, I really need to key in on how much I’m spending and how much I’m saving for the future.

EPPERSON (voice-over): Studies show millennials are keenly focused on trying to take control of their own financial destiny, paying off student loans, paying down credit card debt and saving for retirement early.

ALEXA VON TOBEL: What we’re finding is a lot of the millennials’ questions are, I don’t need $200 extra a month, what do I do? How much can I afford in rent? Do I consolidate my student debt? I know I need to contribute toward retirement but how much?

And so, what we’re finding is they want to do things. The great news is they are really focused on making progress.

EPPERSON: The downside is that while they are stashing money away, financial advisor say they’re not always investing their retirement nest eggs wisely.

VON TOBEL: A lot of it sitting in cash and actually (ph) choosing investments is really dangerous. On the flip side, they’re not putting nearly enough, and the reason they’re not putting more is because they’re juggling servicing their credit card debt and their student debt.

EPPERSON: As well as juggling jobs, homes and families. All of this juggling may hold back some millennials in the short run. But longer term, financial advisors say they are likely to be far ahead of previous generations financially. They say millennials could teach many Americans this critical lesson, having a plan is key to achieving financial success.

For NIGHTLY BUSINESS REPORT, I’m Sharon Epperson.

(END VIDEOTAPE)

MATHISEN: And that will do it for NIGHTLY BUSINESS REPORT for tonight. Thanks for watching. I’m Tyler Mathisen. Have a great evening, everybody. We hope to see you back here tomorrow night.

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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