Transcript: Thursday, July 24, 2014

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

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: You`re just gaming the
system. You are an American company.

(END VIDEO CLIP)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Fighting words. The president tells Steve Liesman that U.S. companies shouldn`t game the tax code by swallowing foreign firms and moving their headquarters overseas.
What he plans to do about it.

Big loss. Amazon (NASDAQ:AMZN) surprises Wall Street with a second quarter loss of $126 million. The stock sinks after-hours. Is Jeff Bezos` strategy working or not?

Sales slump. Americans bought fewer new houses in the first half of the year than they did in 2013 and June sales dropped 8 percent from May.
What the decline signals for jobs and the economy.

All that and more tonight on NIGHTLY BUSNESS REPORT for Thursday, July 24th.

Good evening, everyone, and welcome. I`m Tyler Mathisen. Susie Gharib has the night off.

Facebook (NASDAQ:FB) soars, Amazon (NASDAQ:AMZN) disappoints, stocks meander, a busy day in business.

But we begin tonight with stern words from the president for companies that move their corporate address overseas to avoid U.S. taxes. So-called tax inversions were topic A in a wide-ranging exclusive interview the president gave today to Steve Liesman of CNBC, which produces this program.

Liesman began by asking the president whether companies that used the
legal inversion maneuver were unpatriotic or un-American.

(BEGIN VIDEOTAPE)

OBAMA: Companies thrive in the United States in part because they benefit from the best university system in the world, the best infrastructure — although I`d like to see us do a little better on infrastructure. You know, there are a whole range of benefits that have helped to build companies, create value, create profits. For you to continue to benefit from that entire architecture that helps you thrive, but move your technical address simply to avoid paying taxes is neither fair nor is it something that`s going to be good for the country over the long term.

And this is basically taking advantage of tax provisions that are technically legal — but I think most people would say if you`re doing business here, if you`re basically still an American company, but you`re simply changing your mailing address in order to avoid paying taxes, then you`re really not doing right by the country and by the American people.

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some people would respond that, you know what, these guys are hired to maximize profit.
And they`re doing basically what they were hired to do. And in fact, it`s plenty American for them to try to make as much profit as they can, hire as many people as they can as a result.

OBAMA: Well, keep in mind that what we`re trying to do is to say that if you simply acquire a small company in Ireland or — some other country, to take advantage of the low tax rate, you start saying we`re now magically an Irish company despite the fact that you may only have a hundred employees there. And you`ve got 10,000 employees in the United States.
You`re just gaming the system.

You are an American company. You continue to benefit in all kinds a ways from being an American company. It is true that — you know, there are a lot of things that may be legal that probably aren`t the right thing to do by the country.

People are paid to maximize profits. But people are also paid to be good corporate citizens. They`re also paid to make sure that they`re thinking about — in addition to shareholder value — how do you grow a company over the long term. And this kind of strategy I think undermines people`s confidence in how companies are thinking about their responsibilities to the country as a whole.

LIESMAN: Mr. President, this is — your sixth year in office here.

OBAMA: Yes.

LIESMAN: Democrats seem to support corporate tax reform.

OBAMA: Yes.

LIESMAN: And Republicans seem to support it.

Why isn`t there corporate tax reform? Your critics suggest that you have not put the presidential muscle behind this issue — certainly, the way you did healthcare, or the way you did stimulus early on in your presidency.

OBAMA: Well, we reached out repeatedly to both Democrats and Republicans.

And our argument is simple: if we lower corporate tax rates, and close loopholes, there`s going to be more certainty in terms of what corporations pay. They will benefit from a lower, but more certain tax rate. It also allows us then to close some of the loopholes that permit companies to artificially shift profits overseas so that they`re avoiding tax compliance.

It would allow us potentially to have companies who have — profits overseas to start bringing some of those profits back and reinvesting in the United States.

So, there`s a whole bunch of good reasons why we should do it. I`ll be honest with you Steve. The reason it`s not getting done right now is that Congress, as you may have noticed, is just not real productive.

LIESMAN: Let`s move from talking about the guys in the C-suites to average Americans here. What can you tell average American viewer about the outlook for the economy? Your former economic advisor Larry Summers says we may be in for a period here in America of lower growth —

OBAMA: Yes.

LIESMAN: — for a protracted period of time.

Do you believe in that — in that forecast? And are you concerned that that means we`re not going to be able to meet the entitlement promises that we made without cutting those entitlements, and/or raising taxes?

OBAMA: You know, I am always bullish about America over the long term. And if you think about where we were, Steve, when I came into office, and where we are now, it`s pretty hard to find an economic measure we`re not significantly better off.

LIESMAN: Median family incomes, that`s one that is not doing better.

OBAMA: Well, yes, you`re absolutely right. And I think you`ve heard me on the stump talk about this is the source of anxiety for the American people. Now these are 20, 30-year trends that we`ve been seeing — a larger and larger portion of increased productivity and increased profits accruing to the very top of the economic pyramid. And the vast majority of middle class folks and folks who are trying to work in the middle class, not seeing higher incomes, higher wages. There are policies we can put in place that can help that.

Some of it has to do with globalization, some of it has to do with technology, some of it has to do with what some have called a shift to a more winner-take-all economy, because capital`s mobile and workers are not and they have less leverage. But we know that if we raise the minimum wage, that`s 28 million people who get helped. We know that if we invest in the $2 trillion of deferred maintenance that we have on infrastructure, that you`ve got a whole bunch of guys and gals in hard hats who can start going to work. That gives them additional income. That in turn means more customers for businesses.

Historically, when the middle class is doing well and people are rising in the middle class lo and behold, business does well also.

LIESMAN: Stock market and investors have shown a lot of interest in what`s happening overseas. I want to ask you about Russia.

OBAMA: Yes.

LIESMAN: Are you concerned that a lack of conviction and cooperation from our European allies may undermine our efforts at sanctions against Russia?

OBAMA: There`s no doubt that the economies of Russia and Europe have intertwined, primarily around the energy sector. And it makes some Europeans more concerned about a robust response to the violations of sovereignty and territorial integrity that Russia`s been conducting when it comes to Ukraine.

The good news is, is that despite some of those commercial concerns, we`ve seen Europe move with us. Not always as fast as we`d like, but they get there. And sadly, tragically the shooting down of this Malaysian Airlines airliner and the recognition that it is likely it was shot down and it is also likely that it was conducted by non-state actors that were provided incredibly powerful weapons by the Russian government, all that I think may stiffen the spine of our European partners moving forward.

(END VIDEOTAPE)

MATHISEN: And Steve Liesman joins us now from Los Angeles.

Steve, congratulations on the interview. Among the other topic you covered with the president today is whether he had a top marginal tax rate in mind for individuals. What did he say?

LIESMAN: Well, Tyler, thanks. And I`ve been waiting to ask the president that question for a long time.

He would not give me a number. He did go back and say, you know what, there were times in America — by the way, I preface it by saying he raised the rights by 39 percent. I said, is that the right raise? Should it be higher?

He said there were times in America under other presidents when it was much higher. Actually, boiling it down, what I think the president was saying was, does it sound in favor of a higher top tax rate, Tyler, as much as getting rid of loopholes that some of the wealthy enjoy, which would mean a higher effective tax rate? But I didn`t hear him clamoring for a higher rate as much as ridding the loopholes that the wealthy benefit from.

MATHISEN: You also asked him to be the investment advisor in chief today. You asked about the stock market and its lofty levels today. What did — what did he respond?

LIESMAN: Well, he wouldn`t say it`s a bubble. He said there are savvy investors who know that markets go up and go down, so maybe a warning from the investor in chief there. He did however connect it somewhat to Fed policy and said he knew that, but he believes the fed is doing the
right thing by fighting unemployment right now and inflation being low.

MATHISEN: All right. Steve Liesman, thank you very much. Steve
reporting from Los Angeles.

Well, the president`s plan for dealing with tax inversions is multi- prong, at the heart of it is a proposal under which by various measures, a company would have to be 50 percent foreign before it could skirt the U.S.`s comparatively high corporate tax rates and he would make any changes in law retroactive to May when a flurry of inversion driven deals were announced.

A couple of big named CEOs weighed in and as you might expect, weren`t terribly impressed.

(BEGIN VIDEO CLIPS)

DOUG OBERHELMAN, CATERPILLAR CHAIRMAN & CEO: We`re so distorted and so dysfunctional in our tax system today that it`s no wonder that`s a big break in our economy. That should be the number one policy issue out of our legislators today to get this economy moving and we can`t seem to get any traction on that.

We were the lowest tax rate in the world. Today, we`re the highest tax rate in the world. That influences where we source what we do.

JOHN LECHLEITER, ELI LILLY CHAIRMAN & CEO: The current U.S. tax system puts U.S. companies at a disadvantage relative to OUS competitors.
That`s a simple fact. And I think some of the companies that are acting on these inversions and doing these inversions are simply trying to level the playing field.

If we got a concern about inversions, we need to tackle our tax code.
This has been something that business has been asking for, for many years now, and I think it`s time to reopen that conversation and the move
forward.

(END VIDEO CLIPS)

MATHISEN: Republicans also want to tackle the question of inversions but as part of a broader rewrite of the tax code. No action on either front is expected any time soon.

Mixed economic data, along with a mixed bag of earnings kept stocks trading in a narrow range all day long today. There was positive news about jobs — first time jobless claims last week plunged to an 8 1/2 year low, but sales of newly built homes in June fell sharply. And with that, stocks barely budged.

At the closing bell, the Dow was down about three points, the NASDAQ off one, but the S&P ended about a point higher, just enough to close at another fresh historic high. It`s 27th record high of the year. It`s 27th record high of the year.

And after the bell, Amazon (NASDAQ:AMZN).com surprised Wall Street with a loss that was far bigger than expected. The $126 million quarterly gap was the company`s biggest since 2012. The world`s largest online retailer lost 27 cent a share in the quarter, ending June 30th, far more than the 15 cents a share that analysts forecast.

Revenue up strongly, 23 percent higher. It was right in line with forecasts, but investors who have already taken the stock down 10 percent this year, punished it even more in initial after hours trading.

Josh Lipton joins us now from Silicon Valley with more.

Josh, what is the one key takeaway you see from Amazon`s result and when will it start making money?

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, I think, Tyler, you know, the number that really struck me reading through the release was $19.4 billion, and that was Amazon`s total operating expenses, which shot up some 20 percent. That really gets to sort of the push and the pull in Amazon (NASDAQ:AMZN) ads and investment.

You know, Amazon (NASDAQ:AMZN) involved in a lot of different businesses, Ty. They want to be in some sense everything to everybody.
That means you got to spend a lot of money, which they do, on everything from warehouses, to Cloud computing, to hardware, that pressures profits.

So, as you said, you can see revenue jump double digits but you see that pressure bigger than expected loss. Amazon`s executives simply say, listen, they are not interested in investing for the near term. They are
making long-term investments but investors clearly frustrated, Ty.

MATHISEN: All right. Josh Lipton, thanks very much for that report.

And Ford and General Motor posted earnings showing two auto makers on two different paths. For G.M., the ignition switch recall crisis is a drag on the bottom line while at Ford, business has never been better in the U.S.

Phil LeBeau has more.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Despite a rough spring filled with recalls, congressional hearings and federal investigations, General Motors (NYSE:GM) turned a small profit in the second quarter. Officially, GM`s earnings were a penny below
estimates.

CHUCK STEVENS, GENERLA MOTORS CFO: If you exclude the impact of recall campaigns that we booked in the second quarter, our earnings on year
over year basis were up 20 percent with margins of about 9.2 percent.

LEBEAU: GM did take big charges in the quarter to handle recalls of millions of vehicles, including many with faulty ignition switches. One of them for $400 million covers a compensation fund run by attorney Ken Feinberg. That fund will settle claims for dozens who were injured or
killed in defective GM models.

STEVENS: The $400 million estimate that we took in the second quarter is our best estimate based on the data that`s available to us and using outside experts and outside actuaries to evaluate a range of potential
outcomes.

LEBEAU: Meanwhile, at Ford, steady business in the showroom drove the company to its most profitable quarter ever in North America, bringing in
$2.4 billion. That helped Ford beat analysts` estimates. But the good news also extended to Europe, where Ford`s ongoing efforts to cut losses
finally paid off, with the first quarterly profit in Europe since 2011.

ROBERT SHANKS, FORD MOTOR COMPANY CEO: The quarter profit, even though it was relatively small, as you said, it was a signal that we`re definitely on the right track and we`re definitely going to deliver the profit in 2015. So, everybody was extremely excited by that inside of
Ford.

LEBEAU (on camera): Ford`s new CEO, Mark Fields, says he won`t alter the One Ford game plan used by Alan Mulally to turn around the automaker over the last eight years, and that`s music to the ears of Ford shareholders, who today briefly pushed the stock above $18 a share for the first time in three years.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

MATHISEN: And let`s look how the auto makers finished today.

GM hit hard, down almost 4 1/2 percent. As Phil mentioned Ford was up slightly.

Earnings from Dow component Caterpillar (NYSE:CAT) blew away Wall Street estimates but fell short on revenue. The world`s biggest maker of construction and earth-moving equipment made $1.69 a share, easily topping the estimate. But sales were lower as a slump in the global mining industries offset a rebound in U.S. construction.

Caterpillar (NYSE:CAT) did raise its full-year`s earnings guidance, but it was the biggest decliner in the Dow today, falling more than 3
percent.

American Airlines earned a record $1.5 billion in the second quarter and that should make shareholders very happy since the company will pay its first dividend in nearly 35 years. American says shareholders will get 10 cent as share, first payout since 1980. The airline will also buy back a billion dollars worth of stocks, CEO Doug Parker says it`s because the
merger with U.S. Airways has been a success.

(BEGIN VIDEO CLIP)

DOUG PARKER, AMERICAN AIRLINES CEO: It shows — and it indeed gives us the confidence based on our prospects to do things, to understand that we have enough capital to invest in the product, but still return some of the capital to our shareholders and to our debt holders, and also to fund our pensions at a higher level than the minimum.

MATHISEN: Meanwhile, United Continental says it will buyback $1 billion worth of stock over the next three years. United also says its
revenue rose 3 percent, while it pulled down $10 billion last quarter.

Not to be out done, Southwest Airlines (NYSE:LUV) posted a record profit last quarter, doubling what it made just a year ago by setting records for seats sold and fares per mile flown. In the meantime, JetBlue saw earnings soar last quarter, its 17th in a row, in which it turned a profit — thanks to higher ticket sales.

But all the strong earnings reports couldn`t help. The airlines
stocks today: American, United, Southwest, JetBlue, all a little bit lower.

Up next, another shakeup in the executive ranks at the world`s largest retailer. What it all means for Wal-Mart (NYSE:WMT)?

But, first, some more big names reporting their profits today.

(MUSIC)

MATHISEN: There is something new coming to Wal-Mart (NYSE:WMT), a new CEO of U.S. operations, after the current chief suddenly stepped down today. So, what`s behind the resignation and what`s next for the country`s biggest retailer?

Courtney Reagan has our story.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It`s well-known Bill Simon wanted more than just running Wal-Mart`s U.S.
business, he wanted the top job at the world`s largest retailer. But in November, Wal-Mart (NYSE:WMT) named Doug McMillan as Mike Duke`s successor, making him the retailer`s youngest ever chief executive officer.

So, today`s announcement that Simon is leaving Wal-Mart (NYSE:WMT) comes as no surprise to Wall Street. Greg Foran, the current CEO and president of Wal-Mart (NYSE:WMT) Asia will replace Simon. Foran came to Wal-Mart (NYSE:WMT) three years ago to run the discounter`s China division from Woolworths Australia. Foran moved to CEO of Wal-Mart (NYSE:WMT) U.S., it`s his second promotion since June, holding the CEO of Wal-Mart
(NYSE:WMT) Asia positions for less than two months.

(on camera): There have been a number of other executive changes since McMillan took over as Wal-Mart`s CEO in February, including the CEOs of WalMart.com and Wal-Mart (NYSE:WMT) Canada. Some executives have left the retailer all together — though, the replacements have been insiders moving up.

(voice-over): Foran is stepping into a big job at a tough time, sales at Wal-Mart (NYSE:WMT) U.S. locations open for at least a year have fallen for five straight quarters and traffic has been lower for six consecutive
quarters.

BUDD BUGATCH, RAYMOND JAMES, MANAGING EDITOR: They are really subjected to the overall economy and there isn`t a whole lot they can do to move from the drop. Bill has done some I thought really terrific things
running Wal-Mart (NYSE:WMT) U.S.

GISEL RUIZ, WAL-MART U.S. COO: If you follow economics, higher end customers are doing OK. Lower end customers or lower income customers are
feeling a little bit more stressed.

REAGAN: Wal-Mart (NYSE:WMT) says Simon isn`t sure what his next role will be, but his retirement agreement prohibits him from working for another retailer for two years, which means all those other retailers looking for a CEO, Target (NYSE:TGT), Dollar General (NYSE:DG), JCPenney, American Eagle and others can`t ask for Simon`s resume.

He may have to abide by an extensive non-compete, but don`t feel too bad for him, his retirement gift includes more than $9 million in cash, benefits and consultation fees.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: Investors continue to hit the like the button on shares of Facebook (NASDAQ:FB), and that is where we begin tonight`s “Market Focus”.

Last night, we told you about Facebook`s blow out earnings. Investors got a chance to react to those earnings today and they bought up shares of the social media giant and then some. With today`s gain, Facebook (NASDAQ:FB), now at a record high, cracks the top 15 most valuable companies in the S&P 500 index. Its $190 billion market value makes it bigger than Coca-Cola (NYSE:KO) and AT&T (NYSE:T). The stock 5 percent higher today at $74.98.

Well, some of its newer drugs helped Bristol-Myers Squibb (NYSE:BMY) post better than expected quarterly results. Cost controls and strong sales of its blood clot and drug melanoma treatment bolstered results.
Profit did fall from a year earlier, because of higher taxes and its exit from the diabetes business. Still shares there up slightly — $49.46 was the close.

Another drug maker posted better than expected earnings. Eli Lilly
(NYSE:LLY) beat on the top and bottom lines, but its profit fell from a year ago as patents from some of its top drugs expired. The company backed its full-year earnings guidance as well today. And shares were higher, a little bit so, $64.37 was the close.

And after the close today, Visa (NYSE:V) reported results that beat the street`s estimates. But the credit and debit card company cut its revenue growth target for the year, citing a strengthening U.S. dollar.
And that sent shares down initially after hours. As you see there. During the regular session, the stock was up a little bit. It finished at $222.74.

Dow Component 3M`s second-quarter profit rose as sales across all of its businesses were higher. The maker of Post-it notes said sales of its face masks and water filters in China, where pollution fears are growing.
That helped results overall. It also re-affirmed its full-year earnings forecast. Shares rose a fraction to $145.13.

Two coffee chains out with profits today. Dunkin` Brands saw its shares dip after the company cut its full-year forecast. Revenue was short of consensus. The company blamed that on bad weather, among other challenges.

It was the opposite story, though, at Starbucks (NASDAQ:SBUX). Those earnings rose on strong sales. It also hiked the lower end of its earnings estimates for this quarter. Shares of Dunkin down about 4 1/2 percent,
$42.01 was the close. Starbucks (NASDAQ:SBUX), which reported after the bell, fell initially after-hours. But during the regular session, the stock was 1.5 percent higher at $80.45.

Online real estate companies Zillow and Trulia both popping on merger buzz. Zillow is reportedly looking to buy its smaller rival Trulia in a deal that could be valued at $2 billion. Shares of Zillow rose 15 percent to $145.76. Trulia up 32 percent to $53.74.

Coming up, home builders got hammered last month and we`ll take a look at what`s ailing the housing market.

But, first, more earnings on a very busy day.

(MUSIC)

MATHISEN: Shares of the home builder Pulte Group closing lower today.
Revenue was higher than it was a year ago, but still a bit lighter than expected last quarter. Orders for new homes were lower, but on the plus side, average selling prices on its homes were higher. Pulte shares down 3 percent. It closed at $19.24 a share.

Well, big number to the downside in the housing market as sales slumped last month. Sales of newly built homes fell 8 percent in June, that`s the biggest decline in nearly a year. Shares of the home builders and housing-related stocks tanked on the report.

Diana Olick now on what`s going on in housing.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The nation`s home builders got hammered in June, sales of newly built homes plunged 8 percent from May. But even worse, May`s impressive sales figure was revised down dramatically.

STAN HUMPHRIES, ZILLOW CHIEF ECONOMIST: New home sales are beginning to fade off and have ever since interest rates went up in early part of last summer, so there is clearly something going on with affordability
that`s leading to fewer home sales.

OLICK: While sales plunged, prices rose, 5 percent from a year ago.
Newly built homes usually come at a premium to existing homes and in
today`s tight credit market, that premium is starting to hurt.

GILL RIOS, HOME BUYER: A brand-new house here will cost you more. As
for a resale, it`s ready to go.

OLICK: The Rios family is house-hunting in Virginia where the supply
of homes for sale, like much of the country, is tight.

RIOS: Probably for a new house, you have to wait until they are constructed to get it ready for you to move in. As for a resell, all you have to do is wait for the bank in order to approve everything and then
eventually, closing and you`re moving into your home already.

OLICK: Sales of existing homes fared slightly better in June, up from May, but still down from a year ago. Home builders like Pulte, which reported a drop in new orders in its latest quarter, are focusing on the higher end of the market, as first time buyer demand still struggles. DR Horton which also reported disappointing earnings today recently launched an entry level product Express (NYSE:EXPR) Homes, amid skepticism from its
competitors.

HUMPHRIES: Clearly, builders have made a decision to trade price for volume, so that they are wanting to keep prices high and they`re going to trade volume for it. They made the trade off throughout the housing bust
and now, the recovery.

OLICK (on camera): Part of this is because the land they have is scarce and expensive, so they are choosing to build more expensive homes on it, which also makes sense because that`s where the demand is.

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

(END VIDEOTAPE)

MATHISEN: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Tyler Mathisen. Thanks so much for watching. We hope to see you back here tomorrow evening.

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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