Transcript: Wednesday, February 25, 2015

NBR Thum ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Home sweet home. The overall phase of new home sales remains near a six-year high, despite a slight drop in January. But it’s home improvement projects that are really picking up.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Target’s transformation. Are consumers responding to the big changes made by the retailer’s new CEO?

MATHISEN: Playing politics. That’s what some House lawmakers accused Federal Reserve Chair Janet Yellen of doing. And her testimony today turned contentious.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, February 25th.

HERERA: Good evening, everyone. And welcome.

The Dow Jones Industrial Average eked out another record close, but it was housing and how hope may spring eternal for the housing market that got everybody’s attention.

Today, there were some positive signs for the sector, which has lagged the overall economy since hitting a speed bump more than a year ago. Sales of newly built single family home fell only slightly in January despite all that snow in the Northeast. While supply, which has been tight, rose to its highest level since 2010. The pace for sales for December was also revised higher.

Tight inventories and a lack of wage growth had been holding housing back, but now, the labor market seems to be gaining some steam and home builders say that they are seeing more traffic.

MATHISEN: It was not just home builders seeing more traffic, but also home improvement retailers. Today, Lowe’s reported better than expected fourth quarter results driven by homeowners taking on big and not so big renovation projects. Shares, however, did fall a fraction after the company expressed concern about rising interest rates, potentially impacting prospective home buyers.

Still, the company does expect existing homeowners to continue to invest in projects and upgrades for their houses.

Diana Olick has more now on what’s behind the surge in remodeling.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Rising home values are pricing buyers out of today’s housing market. But they are also giving more confidence to invest again in their properties.

SCOTT MCGILLIVRAY, HGTV INCOME PROPERTY HOST: As soon as we see the housing market recover, people get confident. Not only do they tackle the renovations they want to, but they address the maintenance that it needs as well.

OLICK: Project large and small.

MATT OSSOLINSKI, ARCHITECT: We have more projects, more proposals out than ever before.

OLICK: Architect Matt Ossolinski is seeing a steady business on the high end, but more growth in smaller projects and remodels in less expensive homes.

OSSOLINSKI: I think the reason why we’re seeing the increase in the lower end is because people are feeling more confident in the economy, more confident in their spending ability, more confident in making investments in their homes.

OLICK: While full recovery and residential construction is many years away, the home improvement industry could post record level spending in 2015 according to Harvard’s Joint Center for Housing. Remodeling building permits rose 6 percent in January month to month, according to Build Facts.

Why?

People who didn’t move because of the housing bust are now improving their current homes, maybe even preparing them to sell. Some are doing much needed maintenance that they had deferred during the penny-pinching recession. And there are also new federal and state stimulus programs for energy efficient upgrades.

(on camera): While kitchen remodels are the most popular and return the best value, today’s trends are being driven by those who can’t afford to move. Growing families, adding another bedroom upstairs, and baby boomers doing the same thing on the main floor so they can age in place.

OSSOLINSKI: That’s a big change in what I see in our market in the last two to three years.

OLICK (voice-over): And given an ever pricier market, one that is likely to grow even more.

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

(END VIDEOTAPE)

HERERA: Today’s choppy trading session was just enough to help the blue chip average finish at an all-time high. By the close, the Dow Jones Industrial Average closed at a new record of 18,224, a gain of 15 points. The NASDAQ fell less than 1 point thereby breaking its winning streak. The S&P 500 also off by a point. And the yield on the 10-year, it stayed below 2 percent.

MATHISEN: Federal Reserve Chair Janet Yellen was back on Capitol Hill for her semi-annual report to Congress on the economy. But today’s hearing in front of a House panel was much more contentious than yesterday’s Senate appearance and much more political. Lawmakers accused Yellen of meeting with the White House more often than with Congress, and with Democrats, more often than with Republicans.

(BEGIN VIDEO CLIP)

REP. SCOTT GARRETT (R), NEW JERSEY: As far as meeting with outside liberal organizations, I wonder whether you can agree today that you will meet with folks from the other side on the specter and meet with some of them who have a different view on this.

JANET YELLEN, FEDERAL RESERVE CHAIR: I’m sure — we meet with a wide range of groups. I think it is a complete mischaracterization of our meeting schedules and my meetings are entirely public. My schedule is completely in the public domain.

GARRETT: Well, that’s where I’m actually taking this from. This was just — this was handed to me.

YELLEN: Yes, but I —

(CROSSTALK)

GARRETT: It’s good that this much of it is in public domains.

Would you make available the transcripts or summary of the meetings that you have? You didn’t answer that question to the chair. Would you make those summaries available?

YELLEN: These were private one-on-one meetings, and I don’t think it’s appropriate. I — if I had breakfast with you, I would not make a transcript of what we discussed.

(END VIDEO CLIP)

MATHISEN: Lawmakers also questioned the timing of her speech on income inequality, which was given in the midst of last fall’s congressional campaigns.

HERERA: And tensions were also high at another Capitol Hill hearing. This one on the Internet and how it should be regulated.

Tomorrow, the Federal Communication Commission will vote on new and very controversial rules that propose to regulate broadband pretty much like a utility. And today, some of those who oppose it got one more chance to make their opinions heard.

Julia Boorstin has more.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal Communications Commission is expected to approve three to two net neutrality rules to ensure that Internet provides treat all content equally and can’t charge for prioritization. And in a key change, this new rules would regulate the Internet as a public utility.

While Internet companies from Netflix (NASDAQ:NFLX) to Facebook (NASDAQ:FB) and Internet providers including Comcast (NASDAQ:CMCSA) (NYSE:CCS) and Verizon (NYSE:VZ) largely agree on the principles of net neutrality, they disagree on regulating the Internet under what’s called Title 2 regulations, the same way phone companies are regulated. Internet companies say the rules protect consumers. Internet providers say it raises the risk of government overreach.

CRAIG MOFFETT, MOFFETT NATHANSON: You have the companies like Verizon (NYSE:VZ) and AT&T (NYSE:T) and Comcast (NASDAQ:CMCSA) (NYSE:CCS) who were saying that they don’t oppose any of the net neutrality rules, but the legal framework in order to get there imposes all of these burdensome regulations.

BOORSTIN: Thursday’s FCC’s vote comes on the heels of a House subcommittee hearing in which Republicans oppose net neutrality rules.

REP. JOE BARTON (R), TEXAS: What the FCC is probably going to vote on tomorrow is net nonsense.

BOORSTIN: Saying it will lead to years of uncertainty for companies and consumers.

Congressional Republicans who appeal to the FCC to delay the vote say legislation is the best solution. If the vote goes as expected, this battle is far from over.

Entrepreneur Mark Cuban is an outspoken opponent of the proposed regulation.

MARK CUBAN, ENTREPRENEUR & INVESTOR: Oh, I think net neutrality is the dumbest stuff ever. Really, the base of net neutrality is not a technical argument. It’s not a business argument. It’s purely and simply a demonization of a couple of big companies.

BOORSTIN: Cuban and industry watchers say plenty of lawsuits are on the horizon.

CUBAN: I think the key question is really part of this collateral damage conversation, is this really a foot in the door towards price regulation of the broadband market?

BOORSTIN: The FCC says it has no plans to regulate pricing.

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

(END VIDEOTAPE)

MATHISEN: New development to tell you in that Homeland Security standoff. Senate Democrats have agreed now to a proposal by Majority Leader Mitch McConnell to vote on two bills, one that will fund the agency and another on the president’s executive order on immigration. But at this time, it is still unclear how the House will respond.

HERERA: To earnings now and Target (NYSE:TGT), which reported its best sales growth in about three years today. Sales excluding newly opened and close stores rose nearly 4 percent for the fourth quarter, that’s ahead of projections, and profits beat Target’s own forecast. Shares rose modestly to $77.15, sitting just shy of a 52-week high.

Courtney Reagan takes a look at the big changes made under the new CEO and what’s ahead for Target’s transformation.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): So far, so good. In his second full quarter as Target’s CEO, Ryan Cornell, led the retailer to earnings and sales above even the company’s updated forecast. Comparable sales turning in the strongest result in 11 quarters, thanks in part to the redemption of gift cards purchased over the Black Friday weekend.

BRIAN CORNELL, TARGET CEO: When we think about this connection of stores and digital, the important point is it’s not either/or. It’s an “and”.

REAGAN: Two of Cornell’s bold move included exiting Target (NYSE:TGT) Canada after opening stores less than two years ago and this week, cutting the free shipping threshold in half to $25.

In a CNBC exclusive, Target’s chief financial officer, John Mulligan, said the cost of lowering the free shipping threshold is more of an investment, because Target (NYSE:TGT) shoppers that buy both online and in store are more valuable than consumers using only one shopping channel.

JOHN MULLIGAN, TARGET CFO: Automatically, we get more sales because they’re shopping online but actually increase engagement in the store as well. So, we see a significant increase in both sales and gross margin dollars or profitability from that.

REAGAN: There are also more subtle initiatives Cornell was working on to bring in shoppers and enhance their loyalty to the retailer — particularly, moms.

CORNELL: Every time I talk to Target (NYSE:TGT) moms, they have stories about coming to our stores when they had their first child, memories they have about shopping. We want to make sure we reinforce that. It’s something we’ve got to be famous for.

REAGAN: If Target (NYSE:TGT) can make shopping the brand a habit for the growing millennial mom generation, Wolfe Research suggests Target’s earnings will be a positive beneficiary.

(on camera): In a Wolfe Research survey, Target (NYSE:TGT) is the strongest brand among mothers with young children, a group who shops stores frequently and is less likely to substitute shopping at Target (NYSE:TGT) with online options.

(voice-over): But the initiatives aren’t free. There’s a cost associated with keeping digital strategies, compelling merchandise and in-store presentation moving forward, but investors don’t know what the cost will be. Analysts are hoping to know more when Cornell speaks to the financial community next week at its investor day in New York City.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: The owner of T.J.Maxx is following Walmart’s lead, raising wages for a half million of its employees. In its fourth quarter earnings report, the parent of Marshall’s and Home Goods said full-time and part-time hourly employees will earn at least $9 an hour starting in June. Workers who have been with the company for six months or more will earn $10 an hour. As for its earnings, the company’s overall results topped estimates and it will hike its dividend to 21 cents a share.

HERERA: Still ahead, the big problems plaguing our nation’s pensions, both private as well as.

(MUSIC)

HERERA: The three largest tobacco companies have agreed to resolve pending tobacco lawsuits in Florida. The cases are related to a 1994 class action suit. Reynolds American (NYSE:RAI) and Altria will pay $42.5 million, while Lorillard (NYSE:LO) will pay $15 million. Shares of Reynolds and Lorillard (NYSE:LO) rose a fraction. Altria fell just slightly.

MATHISEN: Big American technology companies may be feeling the fallout from revelations of Western cyber surveillance, this according to a “Reuters” report. Now, the government of China has now dropped some big name tech brands like Cisco (NASDAQ:CSCO), Apple (NASDAQ:AAPL), and Intel (NASDAQ:INTC) from its approved list of state purchasers.

Eamon Javers has been covering this story since we first learned of the surveillance program and the global reaction.

So, Eamon, did Edward Snowden, if anything, give China an excuse stop using American companies?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, sure, absolutely, Tyler. I mean, there are a lot of reasons why China might want to stop using some of these American companies and push some of that business to its own domestic industry. But, of course, the Snowden disclosures give them a good reason to do that from China’s perspective.

From Beijing’s perspective, why import all the gear that might be contaminated with NSA software or hardware or cooperation agreements between those corporations and NSA? If you can build it at home and buy it at home, it makes a lot more sense for the Chinese. And, of course, American companies have a lot to lose in all of this.

HERERA: Absolutely. I mean, it’s going to have a big impact on the bottom line. But it seems that a lot of it does go to what you were just mentioning, Eamon, and that is over the past few years, China has really ramped up its focus on creating its own technology companies.

JAVERS: Yes, that’s right. And don’t forget, Sue, that this concern goes both ways. American government agencies have had concerns about Huawei and Lenovo software and hardware. They’ve been reluctant to use some of those machines in the U.S. government and high-tech and high security industries for the same reasons the Chinese may be resisting American equipment. So you have this sort of standoff, but more American companies are selling equipment in China than Chinese companies are selling equipment here at the high end.

So, that means that those American companies have a lot to lose here and a lot of that plays into this tension that you’re now seeing between the Silicon Valley companies and the U.S. government in the wake of those Snowden disclosures. A bit of a frosty relationship here now as business is definitely being lost.

HERERA: Eamon, thank you, as always.

JAVERS: You bet.

HERERA: Eamon Javers in Washington.

MATHISEN: Well, Chesapeake is the latest energy company to cut back because of slumping crude prices. And that is where we begin tonight’s “Market Focus”.

The company reported lower than forecast earnings and said it would cut its rig count and spending this year. The stock today, one of the worst performers in the S&P 500, down 9.5 percent to $17.98.

SodaStream — let’s go there — quarterly profit topped estimates, as lower expenses offset a drop in revenue. But investors couldn’t overlook that sales drop, which was mainly due to lower demand for its at-home soda machines in the U.S. Also, a weakening euro to dollar exchange rate also hurt revenue. Shares fizzled out, down almost 9 percent to $17.25.

Shares of Lumber Liquidators got hammered after the company revealed it may face criminal charges from the Department of Justice for allegedly importing illegally harvested wood. The chain also said that it will be the subject of a negative profile on an upcoming episode of CBS’s “60 Minutes”. Adding to the bad news, the hardwood flooring maker’s results missed on both the top and bottom lines.

Not a good day for Lumber Liquidators. Look there down $18 a share, Sue, 26 percent to $50.63.

HERERA: Yikes!

American Express (NYSE:EXPR) (NYSE:AXP) said it will hike interest rates on some of its cards by an average of 2.5 percentage points. It’s not yet clear how many customers might be affected by that move, but some reports say more than a million cardholders will see rates rise. Shares rose more than 1.5 percent to $82.17.

Southwest Airlines (NYSE:LUV) reached an agreement with federal officials early this morning, that allows the airliner to keep flying its jets even after missing a mandatory inspection deadline. “The Wall Street Journal” reports that the FAA is allowing the planes to fly for five days while those checks are completed. There are 128 jets in question, roughly one fifth of that airline’s fleet. Shares of Southwest were off almost 3 percent to $44.12.

MATHISEN: Well, as the NASDAQ inches closer to 5,000, it has been 15 years since the index hit the lofty round number. And while many firms that fueled its rise in 2000 are long gone, others survived, a few with the same chief executives in place.

Mary Thompson looks now at those CEO survivors.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): NASDAQ 5,000, a target a few long-serving CEOs have seen the index hit before. Amazon’s Jeff Bezos, Starbucks’ Howard Schultz, Cisco’s John Chambers, and Oracle’s Larry Ellison, all at the controls in 2000, still at the controls today.

WILLIAM KLEPPER, COLUMBIA BUSINESS SCHOOL: The reason they’ve lasted is because they’ve learned to adapt.

THOMPSON: They aren’t afraid to hire talents to steer the change as Chambers has done, and there are innovators like Bezos, who’s changed and challenged retail, and Schultz who’s changed the way we think about coffee. Ellison changed how corporations buy software, bundling it rather than selling it piecemeal.

LARRY ELLISON, ORACLE EXECUTIVE CHAIRMAN: Is leadership important? I think it’s really important.

THOMPSON (on camera): These CEOs rare not only because of long-term success but long terms they’ve served their companies. The conference board pegs the average tenure of an S&P 500 CEO at 9.7 years. These four have run their companies for 20 years or more. In part because they understand something very important according to Professor Bill Klepper.

KLEPPER: Smart CEOs are constantly looking to not only maintain the current portfolio of offerings but at the same time, look to reinvent what it is they’re doing because of what the future holds for them, but their customers need.

THOMPSON (voice-over): A serial entrepreneur, Bezos is not afraid of new ventures, even as he maintains a relentless focus on making customers happy.

JEFF BEZOS, AMAZON CEO: We have created a lot of shareholder value. We’ve done it by being consistent, by thinking about the future, trying to put the customer first, trying to invent and being patient.

THOMPSON: That patience paying off for investors, who have seen the stock rise over 450 percent since 2000.

Like Bezos, Schultz focuses on the customer and competition. During Schultz’s 8-year break as CEO, Starbucks (NASDAQ:SBUX) faltered. Returning in ’08, he closed stores, hired from outside and retrained baristas to make the perfect espresso. The small detail contributing to an over 900 percent gain in the stock since the crash.

HOWARD SCHULTZ, STARBUCKS CEO: I have tried to build the kind of company that my father never got the chance to work for.

THOMPSON: Ellison is chairman now, having stepped aside as CEO last year. Through acquisitions, he transferred Oracle (NASDAQ:ORCL) from a database firm into a software giant and remains its key strategic thinker. So, Oracle’s gain since the crash has been muted by the rapidly changing world of tech, which has made for choppy waters for Cisco (NASDAQ:CSCO) in Chambers, too.

Cisco’s stock is down and some call for Chambers to go. Still, the networking firm survived the crash and remains a leader in a space where past rivals are now gone.

For NIGHTLY BUSINESS REPORT, I’m Mary Thompson in New York.

(END VIDEOTAPE)

HERERA: To pensions now. Public and private pensions plans have not gone away, of course, but with many people living longer, both are experiencing funding shortfalls.

Joshua Gotbaum is here now to discuss the issue and how it might impact you. He is the former director of the Pension Benefit Guaranty Corporation and is now a guest scholar of economic studies at the Brookings Institute.

Welcome. Nice to have you here, Joshua.

JOSHUA GOTBAUM, FORMER DIR., PENSION BENEFIT GUARANTY CORP: Nice to be here.

HERERA: It’s kind of a good news/bad news story as we said. We’re all living longer but we might outlive those funds. If we do indeed are lucky enough to have a pension.

GOTBAUM: That’s right. But I think the most important thing to remember is we are living longer. We are having healthier lives. The challenge here is that our retirement programs just haven’t kept up. So that where companies or government sponsored pensions, they didn’t set aside enough to take this into account.

For most of us who don’t have pensions, we’ve got 401(k)s or IRAs or bank accounts, that responsibility is ours. And most of us have not set aside that. That’s the bad news.

The good news is that this is not a problem which you have to solve in a day. It wasn’t caused in a day, and it can’t be solved in a day. This is something which if we are serious and smart, and consistent, and don’t panic, and start setting aside more now for the future, then retirees will have a future.

What is ultimately going to happen, Joshua, if companies or states like New Jersey fail over time to put the required amounts of money in? Governor Christie widely criticized for not living up to a pledge he apparently made some years ago to put the state’s pension plan on firmer footing and now, he’s back in front of the legislature saying, this time, I really, really mean it.

GOTBAUM: One of the most important things to understand is that cases like Governor Christie and New Jersey are the exception. The vast majority of pension plans put the money aside that they were supposed to. Now, it is the case they set aside the amount that assume the stock market would continue to rise. And so, as a result, they are underfunded.

A couple of states or municipalities, like New Jersey, did more than that. They compounded it by not even making those required contributions. So, they’re kind of behind two 8 balls.

But what’s important to remember is two things: one is, they are the exception. And two is, if they are serious, if they are consistent, if they start correcting it now, things will end up just fine.

HERERA: But how much of this depends on the market continuing to perform well? I mean, as you mention so aptly, nobody expected 2008 to be as bad as it was or to last as long it did.

GOTBAUM: I’ve had a couple of colleagues who are trying to estimate that. And there’s no one who can tell you the answer where the stock market is going to be. If they were, they wouldn’t be spending time on the NIGHTLY BUSINESS REPORT. They’d be investing on their account.

But if using relatively conservative estimates of what markets will make over the course of a generation, using relatively conservative estimates, it looks like the shortfall can be made up over time. I have a colleague at the Brookings Institution who looked at retiree health, not retiree pensions, but retiree health, on which there was a shortfall and it’s a very large amount of money in present value.

She then went and said, now, how much change overtime would it take in order to solve the retiree health problem? And what she found is that a less than a 1 percent increase in revenues, that’s taxes, or a less than 1 percent increase in costs would be enough to solve the retiree health problem.

HERERA: Wow, OK. Joshua on that note, we have to leave it there. Thank you so much. Fascinating.

GOTBAUM: Glad to be here.

HERERA: Joshua Gotbaum with the Brookings Institute.

Ty?

MATHISEN: Going with the train. Cashing in on America’s hunger for more protein, which is coming from the most unusual of places.

(MUSIC)

HERERA: Americans are on a protein adding craze. They’re throwing powder into smoothies and using it on toppings for food.

And as Jane Wells tells us, there’s one grain in high demand that’s packing in that protein.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Darin Goka personifies everything in modern fitness. He does cross-fit, eats paleo, but without the meat. Instead, for muscle recovery and protein, he’s turned to alternatives like rice. Rice is the new meat?

DARIN GOKA, CROSSFIT ATHLETE: I feel better. My body feels better. My recovery is exactly the same.

WELLS (on camera): This is rice and peas?

DAVID JANOW, AXIOM FOODS CEO: Rice and pea protein.

WELLS (voice-over): David is CEO of Axiom, the largest producer of plant-based proteins in the U.S., cashing in on America’s hunger for more protein in our diet. The BBC estimates animal-based whey protein will be a $12 billion global market in two years, and Axiom wants to carve out a niche, having figure out how to extract the 8 percent protein from a grain of rice. .

JANOW: If you take a scoop of this and take a scoop away protein, you’re going to get the same results.

WELLS (on camera): Is this more expensive?

JANOW: No, it’s actually less expensive and it’s also hypoallergenic, it’s gluten-free, it’s vegan.

WELLS (voice-over): Axiom’s Oryzatein rice protein product sold everywhere from Whole Foods to small stores like the Vitamin Barn in Malibu. NutriBiotic has been using it for the last few years, and rice protein products are now its fastest growing line.

KENNY RIDGEWAY: The organic sales since 2011 have increased 204 percent and actually last year, the sales increased 72 percent.

WELLS: Rice protein doesn’t cost that much because Axiom uses unsellable bits of rice source material. Annual sales are estimated at $100 million, but with the study in the “Nutrition Journal” showing no difference in muscle recovery between using whey and rice protein, the market is expanding from the health food crowd to the health club crowd.

For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.

(END VIDEOTAPE)

HERERA: That’s it for NIGHTLY BUSINESS REPORT, I’m Sue Herera.

MATHISEN: And I’m Tyler Mathisen. Thanks for joining us. We’ll see you back here 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) 2015 CNBC, Inc.

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply