Transcript: Wednesday, November 12, 2014

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

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TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Deals done. First, tariffs are cut. Now, a surprise U.S./China accord on reducing carbon emissions. Is a new era at hand in U.S./China relations? And what will the costs and benefits be for American businesses and consumers?

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: The magic of Macy’s (NYSE:M). The retailer cut its full year earnings forecast, but investors didn’t seem to care.

MATHISEN: Cold snap. What an early winter can mean for the commodity that helps keep many of us warm, natural gas?

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

GHARIB: Good evening, everyone.

The U.S. and China, the world’s two largest economies and biggest superpowers, are often at odds on a variety of issues. But at this week’s APEC Summit in Beijing, President Obama and China’s president, Xi Jinping, were toasting some break through deals they hailed as historic. They announced deals to extend short term visas to Chinese and American citizens, to eliminate tariffs high-tech goods, and just today, an agreement on a climate concern with a plan to limit future carbon emissions in both countries.

So, does this signal a new era of cooperation with China? Or is China simply asserting itself on the global stage in order to establish a more dominant role in the region?

John Harwood has more.

(BEGIN VIDEOTAPE)

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): President Obama took a political beating at home last week, but his trip to Asia made clear he’s moving ahead with his priorities anyway. He announced a new agreement with Chinese President Xi Jinping that would accelerate progress by the world’s two biggest economies in curbing carbon emissions.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We have a responsibility to lead the global effort against climate change. That’s why today, I am proud that we can announce an historic agreement. I commend President Xi, his team and the Chinese government for the commitment they are making to slow, peak and then reverse the course of China’s carbon emissions.

HARWOOD: That’s clearly not the first move that the incoming Senate Majority Leader Mitch McConnell from the coal state of Kentucky had in mind.

SEN. MITCH MCCONNELL (R), KENTUCKY: I was particularly distressed by the deal apparently he’s reached with the Chinese on his current trip, which as I read the agreement, requires the Chinese to do nothing at all for 16 years, while these carbon emissions regulations are creating havoc in my state and other states around the country.

HARWOOD: At the same time, the president did push ahead on one sheer priority, he used the trip to promote a trade deal with Asian allies even as China promised a competing deal.

MCCONNELL: I would welcome the president moving to the middle. I’ve said before, I hope we can do some business on trade and maybe tax reform. First indications have not been very hopeful.

HARWOOD: So, the search for common ground remains alive, but it won’t be easy.

(END VIDEOTAPE)

HARWOOD: And, Tyler and Susie, the impending immigration executive order the president has promised isn’t going to help that search either. But there isn’t all that much common ground to begin with.

MATHISEN: All right, John, reporting from Boston tonight. Stay with us if you wouldn’t mind.

Steve Orlins is president of the National Committee on U.S./China Relations. And he joins our conversation about this China/U.S. deals.

Steve, welcome. Good to have you here.

“The Wall Street Journal” said this afternoon in its write up of this climate deal is that differences on many core issues endure and the new agreements do not amount to a sea change in bilateral ties. It would be easy to look at the deals that were done this week. They are significant. Are they really very large and transformation in any real way?

STEVE ORLINS, NATIONAL COMMITTEE ON U.S.-CHINA RELATIONS PRESIDENT: Large and transformational, maybe not. But are they a win for the business community? Absolutely.

I think, you know, I was giving a speech Monday night to the business community. I’m — I was able to announce the new visa policy, everyone stood up and applauded. It makes an enormous difference to American business in China and Chinese business in the United States.

The ITA, technology agreement allowing for increased exports of U.S. computer and software to China, is going to increase exports. It’s good. Movement on the bilateral investment treaty is going to increase Chinese investment in the United States and create jobs.

For a weakened president, one who has just lost the Senate, I think it was a pretty big win for him.

GHARIB: Well, John, it sounds good, it makes a lot of sense. Is it really going to happen? Does President Obama have the authority to push this through to Congress? And ditto for the president of China, does he have the authority to get this going in his country? He probably has a better shot at it, right?

HARWOOD: Well, the Chinese president didn’t commit to specific targets. He just had the general goal of peaking emissions by 2030. And this is not a binding agreement on President Obama, although any policy a president takes will tend to influence the debate.

I think the greater import is going to be advancing the attempt to get a world climate deal, a new climate deal around the world. Republicans certainly are going to push back and push back hard. They now control both chambers of the Congress.

The question is, are they going to have enough votes to enact legislation to tie his hands? My guess is, given his veto pen and the difficulty of overriding a veto, they won’t be able to stop him. And as Steve just said, this is a powerful underscoring of the fact that presidents retain a lot of power, especially in foreign affairs, even after they get whipped in the midterm elections like the president did last week.

MATHISEN: So, Steve, I’m intrigued. It sounds like you believe that perhaps in the end, the most significant breakthrough of this trip pertains to that issue of visas, which would enable people, I gather, to stay open for ten years, would help tourists moving to China and people coming here from China. But let me ask you —

ORLINS: Well, that’s the one that at least — that’s completely within the president’s power and there’s no other country, there’s nobody else to act on that.

MATHISEN: To sign on that.

ORLINS: Right.

MATHISEN: As you said the businesses would be pleased with that.

On the other hand with respect to the climate regulations, I would think that an awful lot of businesses would see the reductions of the United States has pledged to adhere to, cutting by 24 percent to 26 percent over the next 10 years or so, that that would impose costs on them, costs that might well be passed to consumers. That’s certainly one an awful lot of the GOP side was saying today.

ORLINS: I’m looking much more at the China side and they’re willing to make these commitments, that they’re willing to kind of move up the date by which they peak their carbon emissions is very meaningful. That the pollution that — you know, an ancillary effect is reducing pollution which has become an enormous issue in China and President Xi recognized this in reaching this agreement with President Obama. I’m sorry that it’s already gotten tied up in a political fight in the United States.

GHARIB: Steve, can you just break it down a little bit more of what does it mean to me type of thing? What does all — do all of these deals and treaties mean for the American consumer?

ORLINS: Well, if you’re an exporter, you know, of technology products, computer software and others, it’s going to reduce tariffs into China. If — pretty much throughout the United States now, if the bilateral investment treaty which they talked about is concluded, that is going to bring more Chinese investment to the United States and it’s going to increase job creation in the United States.

You can’t predict which communities it’s going to end up in. But it’s going to have an enormous effect on job creation in the United States. I think it’s a win for the U.S. consumer. It’s going to reduce costs, and it’s a win for business in that it’s going to increase exports and it’s going to allow us to penetrate the Chinese market more which increases jobs more in the United States. So, again, I think President Obama has done good for the business community.

HARWOOD: Tyler —

MATHISEN: John, jump in.

HARWOOD: I just want to make one point about the effect on business. Everyone knows especially at large multinational corporations that the world is moving toward action and carbon reduction, pricing carbon. And so, to the extent this deal with China accelerates that, that actually increases certainty on the part of business that they’re going to have to adjust to this sooner rather than later.

And so, yes, it will impose costs. It will certainly impose costs on the coal industry. That’s why Mitch McConnell and others are fighting it. But there’s a large — other segment of the business community that understands that this is where the world’s moving and they’re getting in line.

MATHISEN: I just want to correct something I said earlier. I said 24 percent to 26 percent. I think it’s 26 percent to 28 percent, between ‘05 and 2025.

Steve Orlins, thanks very much.

John Harwood, as always, great to see you.

ORLINS: My pleasure.

GHARIB: Turning now to corporate news and to a company that does business in China.

Cisco (NASDAQ:CSCO) Systems reported solid earnings after the market closed today. The computer networking equipment giant earned 54 cents a share. That was 2 cents more than estimates, even though net income declined. Revenues of more than $12 billion also topped Wall Street’s forecasts on an increase in orders for new routers and switches.

The firm announced that CFO Frank Calderoni is stepping down. Shares were initially higher in late trading, and then turned lower on disappointing guidance.

Bertha Coombs joins us now from the NASDAQ exchange with her one big takeaway from Cisco’s results.

Bertha, over to you.

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Susie, one of the interesting things on the conference call, chairman and CEO John Chambers talking about net neutrality. That is the policy that is being hotly debated in Washington as to whether the companies that provide the pipes for broadband access should be able to charge different rates to large users like Netflix (NASDAQ:NFLX) or Google’s YouTube. John Chambers saying that the company saw weakness from a lot of these service providers in the quarter, and he expects that’s going to continue because of the uncertainty over net neutrality.

And he came out swinging politically, saying that the industry is going to be very aggressive on this and he thinks that providers do not — they are not able to charge different prices, they won’t be able to make money. As AT&T (NYSE:T) said today, they will likely put a lot of their broadband build-out programs on hold.

GHARIB: All right. This is fascinating reaction to net neutrality.

Bertha, thank you so much. Bertha Coombs at the NASDAQ Market Site.

MATHISEN: And on Wall Street today, blue chip stocks ended mostly lower, but not by much. They snapped a string of five record high closes for the Dow and the S&P 500 today. No major economic data came out.

The Dow off just two points. And the NASDAQ, though, went the other way. It saw a gain of 14. S&P lower by a single point.

GHARIB: One of the biggest gainers in the S&P today, Macy’s (NYSE:M). Shares of the world’s largest department store chain shot up 5 percent despite posting mixed quarterly earnings. So what do investors see behind the numbers?

Courtney Reagan reports.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Macy’s (NYSE:M) earnings report was far from stellar, but it wasn’t so bad either. Wall Street analysts say Macy’s (NYSE:M) earnings results likely indicate the third quarter was disappointing for the sector. Even for a retailer like Macy’s (NYSE:M) widely considered best in class.

While Macy’s (NYSE:M) sales disappointed, earnings beat expectation by a wide margin in part because of the gain from the sale of an asset and in part because of strong expense management.

(on camera): Macy’s (NYSE:M) did lower its full year earnings forecast because of weak sales in the third quarter, but executives say they remain optimistic about the all-important holiday season. Investors are believing in the magic of Macy’s (NYSE:M) too, with shares gaining in today’s session.

MATTHEW BOSS, JP MORGAN SENIOR RETAIL ANALYST: I think investors are looking and saying conservative bar for the fourth quarter, better set-up for the best in class name. I’d rather see Macy’s (NYSE:M). I’d rather see all of these companies and apparel taking a more conservative approach and potentially the under-promise/over-deliver becomes the case, as opposed to missing estimates here and the important holiday season.

REAGAN (voice-over): Macy’s (NYSE:M) executives detail a number of initiatives that are in place to drive sales this holiday season including exclusive merchandise, a buy online pickup in store option and upgraded mobile and web platforms.

And while gas prices are expected to keep falling, Macy’s (NYSE:M) chief financial officer Karen Hoguet isn’t counting on it to help sales, telling analysts on the conference call that consumers are spending those extra disposal dollars in different ways, not necessarily at department stores. She also said Macy’ isn’t counting on a lot of help from the economy this holiday season, but every little bit will help.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

GHARIB: Still ahead, Xerox (NYSE:XRX). Its business goes way beyond printers and copiers. And tonight, CEO Ursula Burns explains why the company’s path to profits depends on the health of the global economy. An interview “From the C-Suite” coming up.

(MUSIC)

MATHISEN: An update on a story we told you about last night. Regulators in the U.S. and Europe have now fined six of the world’s biggest banks a total of $4.4 billion for rigging foreign exchange trades, and then plotting out the moves in electronic chat rooms.

Timothy Massad, chairman of the Commodity Futures Trading Commission in Washington, applauded his agency’s action in helping secure those settlements and insuring that the rate-fixing won’t happen again.

(BEGIN VIDEO CLIP)

TIMOTHY MASSAD, COMMODITY FUTURES TRADING COMMISSION CHAIRMAN: What I’m trying to do is fix the markets, ensure integrity of the markets. If I can get a settlement like this today and get the kind of changes we want, I think that’s a lot more valuable than taking two or three or four more years that it might take potentially to get something stronger.

(END VIDEO CLIP)

MATHISEN: And now, the bank settling with the regulators were Citigroup (NYSE:C), J.P. Morgan Chase, Bank of America (NYSE:BAC), Royal Bank of Scotland, HSBC and UBS.

GHARIB: Sales at J.C. Penney fell in its third quarter and shares of the retailer followed suit. And that’s where we begin tonight’s “Market Focus”.

The company’s loss was smaller than expected as a drop in operating expenses helped improve margins, but shopping momentum dwindled after back-to-school sales, so revenue came in light. After the bell, shares initially fell. During the regular session, the stock rose almost 8 percent to $7.76.

American Eagle guided higher for its third quarter profits, lifting shares in today’s session. The teen retailer pointed to reduced markdowns and lower expenses. The company will officially report results in a few weeks. Shares popped 10 percent ahead of that to $13.80.

Beazer Homes posted its full-year of profitability in eight years and beating estimates by a wide margin. The home builder’s results were helped by higher selling prices and better margins and a big tax benefit. Despite that, shares fell 3 percent to $18.62.

Shares of SeaWorld tanked today after it announced a disappointing third-quarter performance. The theme park operator saw its revenue, profit and attendance fall as it’s been dealing with controversy over its treatment of killer whales. Shares tumbled 9 1/2 percent to $16.85.

MATHISEN: Investors bought up shares of Twitter after its CEO outlined a plan to attract new users at its analyst say. The social media company is considering crafting new apps and improving messaging. It will also roll out an instant timeline to make it simpler for users to find content without having to search extensively. Shares up 7 1/2 percent, a welcome move for that stock. They close to $42.54.

Caesars has reportedly reached an agreement with key creditors on a restructuring. The plan includes a prearranged bankruptcy for the casino operator’s largest unit, and that could happen as soon as January. Shares surged 23 percent on that news to $13.67.

And a regional bank deal to tell you about. BB&T (NASDAQ:MSDXP) (NYSE:BBT) is buying Susquehanna Bancshares (NASDAQ:SUSQ) (NYSE:SUS-A) for $2.5 billion in cash and stock. That is more than a 30 percent premium to its closing price yesterday. Susquehanna has more than $18 billion in assets. BB&T (NASDAQ:MSDXP) (NYSE:BBT) is one of the biggest lenders in the Southeast.

Let’s take a look at the shares. Susquehanna up just 32 1/2 percent today to $13.12. BB&T (NASDAQ:MSDXP) (NYSE:BBT) fell, though, almost 2 percent to $37.67.

GHARIB: CEO Ursula Burns has a new mantra for Xerox (NYSE:XRX) — simplifying the way work gets done.

An engineer by background, Burns lives by that philosophy, whether it’s about strategy to move the 100-year-old tech giant away from making printers to her push into back office business services, or to her world view on the economy.

Tonight, we get the views of Ursula Burns in our segment, “From the C-Suite”.

(BEGIN VIDEOTAPE)

GHARIB (voice-over): Most people think Xerox (NYSE:XRX) is this, copiers. But if you use E-ZPass, file a medical insurance claim or call customer service, that’s all Xerox (NYSE:XRX), too. It’s now a big player in services, responsible for all the accounting and back office processes for hundreds of businesses.

Ursula Burns is the person behind this massive transformation, ever since she took over as CEO of the iconic company five years ago. She says the success of her strategy will depend on a growing economy.

URSULA BURNS, XEROX CHAIRMAN & CEO: We have a solid business that will be successful if the economy has tepid growth but it could be significantly more successful if it grows on a global basis, better and a little bit more evenly.

GHARIB (on camera): As CEO of Xerox (NYSE:XRX), you have an inside look at the business functions of big companies, small companies and in so many different sectors. What are those customers telling you about the business environment? How did they describe the economy right now?

BURNS: Stuck. A little bit stuck. Not bad. But not making a lot of progress. You know, “one step forward, a half a step back” kind of environment. Some places are growing fairly well. Some industries.

GHARIB: Like what?

BURNS: Tourism. Tourism is picking up, which is very good. But most of the growth that we see in the United States comes without a lot of wage growth, and interestingly enough, without a lot of total job growth.

GHARIB: So, if they’re stuck, what is their willingness to spend money and to add more people in terms of jobs?

BURNS: They’re willing to do better if they need to do it, right? But if they don’t need to it, what drives the need to do it? Growth. Strong, continuous growth with some clarity in rules and regulations and how you do business and whether you can get the talent. That’s what drives investment.

GHARIB: From what Xerox (NYSE:XRX) is seeing going on in the economy, will Xerox (NYSE:XRX) be adding jobs over the next 12 months?

BURNS: Absolutely, we will.

GHARIB: How much? How many?

BURNS: I won’t say exactly how many. As we win contracts, as we increase particularly in certain segments the services business which is still growing, sub-segments of that, we actually have to hire people for skills but also just to perform the work.

GHARIB: You know, a lot of people are very puzzled about why American businesses aren’t hiring more or raising wages. And these are two very important issues for the job market and the economy.

BURNS: Yes.

GHARIB: What goes into your thinking on those issues?

BURNS: Number one, demand. So, literally, if our clients need us to do more for them, we will hire more people to do it. And we actually pay on a competitive base. So, we actually follow the market and pay.

But the biggest thing, that entire discussion is around on whether or not demand is increasing. And demand has to do with growth, not only in the United States but around the world. Global demand is really important. If we have high global demand, I’ll hire more people.

GHARIB: Given what you’re saying about the global economy, what is your read on the global economy? And let’s start with Europe first.

BURNS: So, Europe is increasing a small amount, improving a small amount, but still underperforming from its potential by a lot.

Developing economies, China, Brazil, really slower than we thought. Growth in these economies are slower than we thought. But — I mean, you know, you can get 3 percent or 4 percent growth out of an economy. I mean, nowadays, we think that’s actually pretty good.

GHARIB: Ursula, you served on President Obama’s export council. How critical is it to have exports and trade deals like the one just signed between China and the U.S. to help multinational companies grow?

BURNS: Vital. It is vital.

We have 300 million people in the United State. There are almost 7 billion people in the world. So, to me, the math is so straightforward it’s amazing. We must have trade deals. We must have trade deals that are logical and safe for U.S. business, fairly predictable.

We cannot have an economy and a lifestyle that we are used and that the world is getting used to without literally becoming almost like one economy.

GHARIB: Let’s talk a little bit about Washington. One of the issues that CEOs bring up a lot are high corporate taxes and now that the Republicans have won in this latest election, there’s a lot of talk about tax reform. What is the key change that you’d like to see with the tax code?

BURNS: Simple, lower tax rate. We are in mid 30s. Our nation — the nations that we compete against are the mid 20s. If you just want — for competitiveness’ sake, just for us to be competitive, having a lower tax rate would be good.

GHARIB: How realistic is to expect any changes in the tax code over the next two years?

BURNS: I think it’s low. I think it’s low. I’d be very, very pleasantly surprised though if it happened. Very — I think all the business leaders would and I think it would be very helpful for the economy. I don’t even think, I know it would be very helpful to the economy.

(END VIDEOTAPE)

GHARIB: And you can watch the extended version of my interview with Ursula Burns. Just go to our Web site, NBR.com.

MATHISEN: And coming up, it is November and most of the country, it is cold and some places getting really cold. That can signal a volatile winter for the commodity to keep so many of us warm, natural gas.

(MUSIC)

MATHISEN: Domestic crude closing at a fresh three-year low. And Brent Crude dipped below $80 a barrel today, first time it’s done that since 2010.

Meantime, the Saudi Arabian oil minister said there’s no price war with the U.S. and with Brent Crude near four-year lows. He says he wants to work with other oil producing countries to ensure that falling crude prices, in his words, stabilize.

GHARIB: A wintry weather blast across much of the U.S. this week has sent the price of natural gas spiking higher, weeks before the official start of winter. But today, natural gas futures lost 1 1/2 percent after rising more than 5 percent over the past month.

As homeowners prepare for the higher home heating bills, natural gas producers and traders are preparing for their busiest time of the year.

Kate Kelly has more from Texas.

(BEGIN VIDEOTAPE)

KATE KELLY, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Welcome to winter. It’s not yet Thanksgiving, and already, cities from the Deep South to New York are bracing for a cold snap from icy arctic winds.

It was that notion that pushed natural gas prices in the financial markets as high as $4.50 in recent days. As players who had been betting on slightly less chilly temperatures reacted to an early November forecast that came in colder than expected.

BILL PERKINS, SKYLAR CAPITAL FOUNDER: Having a very cold set of days is not unusual. What’s unusual right now is how the market is reacting to these cold shots. There seems to be lack of liquidity in the front of the curve. I have my own theories about that. But it leads to extreme pricing, or at least periods of extreme volatility.

KELLY: Meanwhile, while hedge funds and other professional traders grapple with that, consumers could be facing another tough season, where prices are all over the map, literally and figuratively.

In the Northeast and Chicago, where structurally issues can make it tough to transport gas supplies when they’re most sorely needed, consumer costs could climb again this winter. While in neighboring Pennsylvania and other places with plentiful natural gas drilling activity, like Texas, they’ll likely stay low.

For now, however, plans like this Calpine (NYSE:CPN) natural gas facility in Deer Park, Texas, are standing by to draw from the large gas supplies that new advances in technology have made possible.

(on camera): And that larger homes like the 12-foot ceiling and larger footprint units that have been built around Texas and beyond in recent years require.

For NIGHTLY BUSINESS REPORT, I’m Kate Kelly outside of Houston.

(END VIDEOTAPE)

MATHISEN: And finally tonight, watch this — a frightening two hours, 700 feet above the streets of New York City today. A pair of window washers trapped outside the 69th floor of the newly opened World Trade Center, and that’s when a motorized cable on their platform snapped, leaving them dangling. Firefighters eventually cut through a window.

Look at that. Look at them open up that window there and pulled the two workers inside. They were a little shaken up, but safe at last. Wow.

GHARIB: If you have a fear of heights —

MATHISEN: I hate it. I can’t look off the front end of this desk.

GHARIB: That’s NIGHTLY BUSINESS REPORT for tonight. Thanks for watching.

MATHISEN: I’m Tyler Mathisen. 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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