Transcript: Nightly Business Report — March 12, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Flying high. Stocks
rally and rally big, turning positive for the year, despite a surprise
warning from Intel (NASDAQ:INTC) that revenue in the first quarter will be
almost $1 billion lighter than forecast.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Beat the market. Why
most active fund managers have not been able to outperform their benchmarks
over the past decade.

HERERA: Pricing pressure. Could a new class of drugs cut the price
of expensive medications nearly in half?

All that and much more tonight on NIGHTLY BUSINESS REPORT for
Thursday, March 12th.

MATHISEN: Good evening, everyone, and welcome.

Wipe away your tears from a past couple of days. Wipe those losses
away. More importantly, stocks are once again positive for the year,
helped by a strong showing in financials. Following the final result of
the stress test we told you about right here last night.

Now, today`s mixed economic data gave pause to the idea so prevalent
over the past couple of days that the Federal Reserve will surely raise
interest rates soon, maybe even in June. Well, by the close, the Dow Jones
Industrial Average gained 260 points today to finish at 17,895. The NASDAQ
rose 43 and the S&P 500 tacked on 25 points.

Stocks rallied despite a warning from the Dow component Intel
(NASDAQ:INTC). The chip maker slashed about a billion dollars from its
first quarter revenue forecast, and that move surprised the street and
investors. Intel (NASDAQ:INTC), the worst performing stock in the blue
chip Dow today, falling more than 4 1/2 percent.

Josh Lipton now with more on why the chips are down at Intel
(NASDAQ:INTC).

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Intel (NASDAQ:INTC) was the darling of the Dow last year, enjoying the
biggest gain in the index. So far this year, it`s a different story.

One big reason? Weaker than expected demand for personal computers in
the workplace. That`s a problem for Intel (NASDAQ:INTC). The company that
controls the market for PC chips, which accounts for some 50 percent of its
sales. So far in 2015, Intel (NASDAQ:INTC) stock is dramatically
underperforming both the S&P 500 and the NASDAQ.

Although the stock might now look more attractively valued, some
analysts still aren`t convinced it`s a buy.

DOUG FREEDMAN, RBC CAPITAL MARKETS ANALYST: There`s no doubt that the
stock is looking more attractive now it`s come off its high. I mean, the
stock topped out at over $37. Now, it`s trading closer to $31, I think
people are starting to might want to start kicking their tires. What I
think will keep people away from jumping too quickly is really we don`t
have enough data on how the company views the full year yet.

LIPTON: One tailwind for the PC market last year was Microsoft`s
decision to end support for its Windows XP operating system. That forced
companies to buy new computers.

But Intel (NASDAQ:INTC) said today that small and medium sized
businesses running PCs with that old operating system aren`t upgrading
their machines. And this afternoon, analysts at research firm IDC said
that they expect PC shipments to fall by nearly 5 percent this year, a drop
from the previous forecast.

Despite these challenges, Intel (NASDAQ:INTC) still has its fans on
the street. Bulls argue that when Microsoft (NASDAQ:MSFT) releases Windows
10, the new version of its operating system, a lot more companies will buy
new computers in the back half of the year. That would give a boost to
Intel (NASDAQ:INTC).

Intel`s other big business line is providing chips for servers which
accounts for about 20 percent of its sales. Analysts say that business
looks strong.

(on camera): But Intel (NASDAQ:INTC) bulls are on the defensive with
the stock firmly in the red this year. Investors could have a much better
sense of whether intel is a buy when the company next reports earnings on
April 14th.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in Silicon Valley.

(END VIDEOTAPE)

HERERA: To the markets now, and you know the chances of owning a fund
that beats the market these days is very low. According to S&P`s latest
report on actively managed mutual funds, 86 percent of active fund managers
failed to beat the benchmark last year, 82 percent failed over the past
decade.

Aye Soe, senior director of index research at S&P Dow Jones Indices,
joins us with more.

Aye, welcome. Nice to have you here.

This is pretty much an index advocate`s dream, these numbers.

AYE SOE, S&P DOW JONES INDICES: Yes. What the data is telling us is
that it is very difficult to outperform the benchmark over a long-term
investment horizon and these are professional managers with investment
insight. If they can`t beat the benchmark, what does it mean for an
average investor?

MATHISEN: What you look at here, Aye, in different categories,
whether international or small company, growth value, et cetera, et cetera,
was the percentage of funds that beat their benchmarks in the one, five,
and 10-year periods? Did anybody do it?

SOE: Well, if you look across the nine U.S. boxes, you`ll see none of
the categories outperformed the benchmark — over short-term, near term,
medium term or longer term horizon.

HERERA: You know, it`s often thought that perhaps with the return of
volatility, that some of these actively managed funds will do better. But
your research also shows that`s not the case.

SOE: That is not the case. If you go back to the last two periods
when we saw heightened volatility and financial stress in the market, such
as 2001 or 2008, if you look at those reports, you`ll see that most of the
managers did not beat the benchmarks.

MATHISEN: Domestic equity funds, it says, lagged considerably across
all time frames, 77 percent, 81 percent, 77 percent underperforming. You
know, the argument for active management, Aye, has often been a couple of
things. Number one, in small cap categories, that`s where the active
managers could show their stuff. In emerging or international markets,
that`s where they added value. Or in down markets, that`s where they added
value.

Did you find that at all?

SOE: That is not the case according to our data. If you look at
these so-called inefficient markets such as small cap or emerging markets,
you`ll see over the one, three, five or 10-year horizon, managers investing
in those categories did not outperform the benchmarks.

HERERA: So, for the average investor as you mentioned earlier doesn`t
have all of these, you know, computer models and things at their disposal,
it really sounds like they should just do the index funds. Is that what
this data is actually telling the average investor?

SOE: Well, if you`re an average investor or you`re a retiree or
someone about to retire and you`re going to live on your income or you need
the capital reservation, you don`t have the time horizon to recoup from the
losses if you invest in active managers. So, in that case, your best bet
is market returns via low-cost alternative option.

MATHISEN: Was this underperformance, Aye, attributable largely to the
fact that index funds are much less expensive to own than actively managed
funds, or it just couldn`t? Explain it away.

SOE: Well, if you take back the cost even then, right, make them on
the parity basis, they still form the benchmark. So, it doesn`t really
move the Dow at all.

HERERA: Aye, thank you very much for joining us.

SOE: Thank you.

HERERA: Aye Soe with S&P Dow Jones Indices.

Ty?

MATHISEN: To the economy with the federal government`s budget deficit
for February fell slightly, $192 billion came in. That — the Treasury
Department say that`s a decline of 1 percent from the same period last year
for the entire budget year, which ends in September. The Congressional
Budget Office forecasts a deficit that is slightly above that for 2014.

HERERA: Are you feeling wealthier? Household net worth hit a record
in the fourth quarter of last year, rising by $1.5 trillion to $83
trillion. According to the Federal Reserve, the gains were driven by stock
market gains and rising home buyer values, the biggest asset for most
Americans. The increase in wealth was the largest since the final three
months of 2013.

MATHISEN: A positive sign for the job market. The number of
Americans filing unemployment benefits fell more than forecast last week.
According to the Labor Department, initial claims dropped 36,000 to
289,000. That was the three week low.

HERERA: Retail sales fell for a third straight month in February.
Harsh winter weather kept consumers home and out of the malls and out of
the auto showrooms, too. Despite an improving labor market, the Commerce
Department reports spending fell 0.6 percent last month. This number is
watched very closely because consumer spending is one of the main drivers
of economic growth.

MATHISEN: Retailers also trying to gauge what type of impact the
strengthening dollar will have on their bottom lines, and it`s high end
companies that could be most affected.

Courtney Reagan has more.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Since many retailers operate all over the world, a strong dollar hits in
different ways, some positive and some negative. On the manufacturing
side, American retailers that source goods overseas could see lower costs,
thanks to the dollar`s strength. But a lot of those contracts are in
dollars, so the retailers don`t end up saving any money.

Plus, retailers can still take a hit when selling those goods in
markets with weaker currencies. On the sales side, it`s more expensive for
foreign tourists to buy merchandise in the U.S., impacting higher end
retailers more, leading to some recent cautions.

Coach (NYSE:COH) executive said the stronger dollar and international
tourist trends will impact sales and costs, but not enough to alter annual
guidance.

Ralph Lauren executives say sales to tourists have been lower,
especially those from Russia and the Middle East.

Neiman Marcus (NYSE:MCS) CEO Karen Katz, said while the business isn`t
dependent on international consumers, there is some slowdown in Brazilian
shoppers in Florida, but not enough to make a measurable impact.

Deckers, the maker of Ugg, says the biggest drag on sales in the most
recent quarter was the drop-off in foreign tourism to flagship stores in
New York, Las Vegas, San Francisco, and Hawaii.

While some higher end retailers are aware of the trends, KeyBanc`s Ed
Yruma thinks retailers haven`t yet felt the full impact.

ED YRUMA, KEYBANC CAPITAL MARKETS: When we talk to consumers,
particularly foreign tourists, they tend to plan a few months in advance.
If you contemplate that currencies really weakened in January, we think it
could begin to impact that tourist trade most significantly during the key
summer months.

UNIDENTIFIED MALE: I just heard the other day many of the Canadians
used to cross the border from Canada into Buffalo, let`s say, from Toronto,
have been way down — the numbers have been way down because people just
can`t afford anymore to do the shopping and the traveling through the
states. So as far as Canadians are concerned, we`re not happy.

REAGAN (on camera): But there is a silver lining. The U.S. consumer
is widely considered to be in a position of strength right now, and
Associated Bank SVP and investment officer Sara Walker says American
consumers who earn and buy in dollars will be a significant offset to a
drop in tourist spending.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

HERERA: Still ahead, the FDA recently cleared the way for a new class
of drugs and it could potentially lead to cheaper, life-saving medicines.

(MUSIC)

HERERA: A new class of drugs could do something that hasn`t been done
in a while. Cut the price of expensive medications nearly in half. That`s
what an executive at CVS (NYSE:CVS) Health told “Reuters”. He was
referring to the entry of copy cat biotech drugs into the market of so-
called biosimilars.

Meg Tirrell has more on these medications and why they may have the
potential to alter drug pricing.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It
was a landmark for the drug industry. Last week, the first medicine known
as a biosimilar was approved in the United States. Biosimilars are generic
copies of biologic drugs made with living cells. Often given by injection
or infusion, they treat diseases from cancer to rheumatoid arthritis.

The industry calls them biosimilars because it argues the
manufacturing process is so complicated, the products aren`t identical.

RONNY GAL, SANFORD BERNSTEIN ANALYST: The difference between generic
and biosimilar is that generics are typically replicas of small molecules,
those can be accurately replicated by any company, and therefore, the drugs
are essential the same. Biological drugs are quite complex. They involved
thousands and thousands of molecules, and they`re made by living organism
as opposed to synthesize in the lab. As a result, every time you make
those large biological drugs, they`re slightly different.

TIRRELL: The medicine that was approved is made by Sandoz, a unit of
Swiss drug maker Novartis. Called Zarxio is a version of Amgen`s Neupogen,
used to support the immune system through chemotherapy. Even though it was
approved, it`s not yet on the market. Amgen (NASDAQ:AMGN) and Novartis are
stuck in a legal battle that will play out over the next few months.

One of the biggest questions about biosimilars is their price.
Typical generic medicines like substitutes for the anxiety pill, Xanax, can
have discounts up to 98 percent. Because biosimilars require more complex
development and manufacturing, analysts and investors have estimated
they`ll come at smaller discounts.

GAL: Our take is similarly end up being priced from 40 percent
discount to 80 percent and 90 percent discount versus the innovative drugs
they are replicating. This is somewhat controversial. Other people think
the discount will be a lot lower like 20 percent to 30 percent.

TIRRELL: Zarxio may save the U.S. health care system $5.5 billion
over the decade, according to estimates from pharmacy benefits manager
Express (NYSE:EXPR) Scripts. That assumed a discount of 30 percent off the
price of the branded drug, about $3,500 per 30 days, Express (NYSE:EXPR)
Script says. Over all, it estimates biosimilars could save the U.S. health
care system $250 billion in the next 10 years.

(on camera): So, what does this mean for the drug industry?
Increased competition to some of their biggest products will weigh on
revenues. Citigroup (NYSE:C) estimates 80 percent reduction in sales of
Amgen`s Neulasta once biosimilars hit the market. But Amgen (NASDAQ:AMGN)
is in the biosimilars game itself, planning to bring as many as five of the
copy cat drugs to market by 2019. Pfizer (NYSE:PFE), Hospira (NYSE:HSP)
and Biogen Idec (NASDAQ:BIIB) are all working in the space as well.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: Lumber Liquidators fights back against claims about the
safety of its products. And that is where we begin tonight`s “Market
Focus”.

The flooring retailer on the offensive in response to a report on
CBS`s “60 Minutes” a couple of weeks ago that alleged some of the company`s
flooring products contain higher than expected levels of a known
carcinogen, formaldehyde.

On an investor call today, the flooring retailer disputed that charge
saying it`s confident its products are safe.

(BEGIN AUDIO CLIP)

ROBERT LYNCH, LUMBER LIQUIDATORS PRESIDENT & CEO: Our goal today is
to reassure our customers and investors that we are indeed the company you
can put your faith in. And that you can continue to trust Lumber
Liquidators to deliver a safe product to our customers.

(END AUDIO CLIP)

MATHISEN: Shares popped more than 10 percent to $36.08.

United Technologies (NYSE:UTX) exploring strategic options for its
Sikorsky helicopter unit. That`s the one that makes the iconic Black Hawk
for the U.S. military.

The CEO saying the spin-off will help the company grow.

(BEGIN VIDEO CLIP)

GREG HAYES, UNITED TECHNOLOGIES CEO: Sikorsky is a great helicopter
business. As we think about the portfolio, though, it`s really a question
of, how do you position yourself for above GDP growth or higher margin into
the future? And we`re looking at the next ten years. And it`s a difficult
decision to spin off Sikorsky, but the fact is, we think it`s the right
thing to do because it creates value.

(END VIDEO CLIP)

MATHISEN: Shares there were up about 2.5 percent to $121.24.

Vail Resorts (NYSE:MTN) saw earnings rise 95 percent on stronger
revenue, thanks to growth in season-pass sales and spending by skiers. The
company did lower the upper end of its full-year forecast for earnings, but
investors played passed that. The stock surged almost 10 percent to
$93.27.

HERERA: Hovnanian`s sales rose in its most recent quarter, but the
home builder`s loss widened and it said margins continued to decline. The
company is optimistic about the spring selling season, saying its margins
will improve if the housing market continues to strengthen. The stock was
more than 2 percent higher to $3.48.

Dollar General (NYSE:DG) matching earnings estimates today, though its
sales did miss. It initiated a dividend of 22 cents a share. The discount
retailer says it also plans to spend more on labor this year, as chains
like Wal-Mart (NYSE:WMT) have hiked wages. Shares were about 4 percent to
the upside, to $74.28.

And investors got their chance to react to Box`s first earnings report
since going public and it was not pretty. The Cloud storage provider
reported a wider than expected loss on higher operating expenses. The CEO
is disputing the estimate calculation, saying analysts made an error.

(BEGIN VIDEO CLIP)

AARON LEVIE, BOX CEO: We obviously want to make sure that we set
appropriate expectations and that we — our communication is well-aligned
with the market. And for the most part, we`re just focused on execution.
We had a great quarter behind us. We had a lot of growth going on this
year. And so, our number one focus right now is absolutely on execution on
the business.

(END VIDEO CLIP)

HERERA: Well, nonetheless, the shares tumbled 11 percent to $18.20.

MATHISEN: BMW reported higher earnings and sales. The German car
maker posted a 9 percent rise in net profit. It plans to propose
increasing its dividend to shareholders. BMW forecasts an increase in
sales volume this year with the help of 15 new models. BMW shares trade in
Frankfurt.

HERERA: German automaker Volkswagen is already the world`s second
largest automaker and is expected to pass Toyota (NYSE:TM) this year to
become number one in the world. Today at its annual meeting, Volkswagen
said growth is good, but it needs to improve in one major market where it
struggles, the U.S.

Phil LeBeau has more from Berlin.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Dr.
Martin Winterkorn has good reason to smile. As CEO of Volkswagen, he`s
grown annual sales to more than 10 million vehicles and has positioned VW
to pass Toyota (NYSE:TM) for number one worldwide.

MARTIN WINTERKORN, VOLKSWAGEN CHAIRMAN & CEO: I don`t know whether
we`ll surpass Toyota (NYSE:TM) this year, but we try to also achieve our
other targets.

LEBEAU: Those targets include boosting profit margins after spending
billions to expand assembly lines worldwide, including in the U.S. where
sales have lagged, in part because the company has been slow to build SUVs.

WINTERKORN: Yes. We did procrastinate and wait too long. Of course,
near small end, we have to close a factory so we were reticent and now we
are going into the offensive in the States.

LEBEAU: VW plant in Tennessee will start building a new SUV with more
to follow. Meanwhile, its biggest luxury brand, Audi, is cashing in on
America`s growing demand for high end cars.

MICHAEL ROBINET, IHS (NYSE:IHS) AUTOMOTIVE: Audi`s got a tremendous
amount and they`re expanding their portfolio, but it really comes down to
capacity, and their capacity really doesn`t really expand until 2017 when
they open up their new Mexican facility.

LEBEAU (on camera): If Volkswagen is able to reach its potential in
the United States, it could be poised for an extended run as the world`s
largest auto maker, a title it could capture for the first time in 2015.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Berlin, Germany.

(END VIDEOTAPE)

MATHISEN: Coming up, the big push by private companies to one day
make big money exploring the final frontier.

(MUSIC)

HERERA: Two landmark lawsuits against ride sharing companies Uber and
Lyft will go to a jury. That was the decision of two judges and it updates
a story that we first told you about just a few weeks ago. Those lawsuits
alleged that workers for the companies should be considered employees
rather than contractors and are therefore owed certain benefits and
protections. Well, as the jury finds the drivers are employees, it could
change the business model of both Uber and Lyft.

MATHISEN: Now to the race to develop space. Big investments being
made by both private companies and individuals to commercialize the so-
called final frontier. And today, in Las Vegas, Jane Wells got a look at
the latest project that will soon make its way to the International Space
Station.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s one small
step for space, one giant leap for private enterprise.

WILLIAM GERSTENMAIER, NASA ASSOCIATE ADMINISTRATOR: This is a
tremendous accomplishment for Bob and his team.

WELLS: Las Vegas-based Bigelow Aerospace is sending this package to
the space station. Inside is the Beam that will expand in under 5 minutes
to a living area which NASA will test for safety and durability.

GERSTENMAIER: What we`re interested in is how does it expand? Does
it expand in the longitudinal direction? Does it expand in the
circumferential direction? As it expands, does it in part any loads back
into space station?

WELLS: Real estate magnate Robert Bigelow has spent $247 million of
his own fortune to test the concept of expandable habitat in space and NASA
has paid $18 billion for Beam to be launched later this year and attached
to the space station as seen in this animation. Such inflatable craft
could eventually replace the space station, but can it withstand the rigors
of space?

ROBERT BIGELOW, BIGELOW AEROSPACE FOUNDER: These systems are
extremely reliable, the safest thing that mankind could be in today by far.

WELLS: Former astronaut George Zamka now works for Bigelow and said
the Beams skin in stronger than any spacecraft ever.

GEORGE ZAMKA, BIGELOW AEROSPACE ASTRONAUT: The layers itself, people
think, how sturdy can it be? It`s actually like a steel-belted tire,
except for the material in there is stronger than steel.

WELLS (on camera): But Bigelow has big plans. He wants to build
housing large enough for several astronauts and eventually replace the
space station with them. And maybe even in a decade have habitats for the
moon.

(voice-over): Other entrepreneurs are working on rockets and lunar
landers. But here`s the problem, there`s no system of property rights for
the moon, so that someone who spends the money to get there can reap the
rewards. FAA has decided it will restrict any future lunar launch licenses
so that two American companies don`t go to the same place on the moon, and
Bigelow says that`s a start.

BIGELOW: Next step is to probably create a definition of what is this
boundary? When are you sufficiently safe? With the assets of people — of
human beings and other facilities, what is the standoff distance?

WELLS: The final frontier has a changing business plan and George
Zamka hopes to get back to space again, this time as a commercial
astronaut.

(on camera): How`s the pay?

ZAMKA: The pay? Yes, it`s different. It`s not my (ph) pay.

WELLS: But he says the potential is astronomical.

For NIGHTLY BUSINESS REPORT, Jane Wells, Las Vegas.

(END VIDEOTAPE)

HERERA: And here`s what to watch tomorrow. On the economic front,
producer prices for February will be released before the opening bell.
Consensus is for a rise at 1.3 percent. And we`ll also get a report on
consumer sentiment for March.

And that does it for NIGHTLY BUSINESS REPORT tonight. I`m Sue Herera.
And we want to remind you, this is the time of year your public television
station seeks your support.

MATHISEN: I`m just going to call it TV station.

Tyler Mathisen, on behalf of your public TV station, thank you for
your support. We`ll see you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by CQRC
Transcriptions, LLC. Updates may be posted at a later date. The views of
our guests and commentators are their own and do not necessarily represent
the views of Nightly Business Report, or CNBC, Inc. Information presented
on Nightly Business Report is not and should not be considered as
investment advice. (c) 2015 CNBC, Inc.

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply