Transcript: Nightly Business Report — April 22, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Signs of optimism.
McDonald`s (NYSE:MCD) and Coke, two iconic brands having a tough time at home. But their big turnaround efforts may finally be making progress.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: House party.
Existing home sales surge at their fastest phase in 18 months. But not everything is in full bloom for the spring selling season.

HERERA: The grapes of wrath. Why a raisin farmer is getting his day in court, the Supreme Court.

All of that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, April 22nd.

Good evening, everyone, and welcome. I`m Sue Herera.

GRIFFETH: And I`m Bill Griffeth, in tonight for Tyler Mathisen.

We start tonight with McDonald`s (NYSE:MCD) and Coke, two of the world`s most recognizable brands and two companies that have been mired in a slump.

But today, investors got a glimpse perhaps ever so slight that things may finally be turning around. McDonald`s (NYSE:MCD) revenue met Wall Street estimates but earnings share missed, but the company`s new CEO said that he is close to revealing a plan to remake the world`s largest fast food chain.

Coke meanwhile beat Wall Street estimates and for the first time in nine quarters reported a revenue bump. Investors liked what they saw and heard. They sent both shares of companies higher at the end of today`s trade.

Sara Eisen has more now on the signs of progress and the challenges that still lay ahead.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Two of America`s iconic brands are having a tough time at home. Coke and McDonald`s (NYSE:MCD) trying to figure out how to attract younger health conscious consumers. But until Coke gets its product mix right, the company is boosting sales by charging higher prices for its drinks.

Still, beverage volumes sold around the world only rose 1 percent.
They were flat in North America. Diet Coke is a particular concern. They recently split behind Pepsi to become the third most popular soda in the U.S., according to “Beverage Digest”.

NIK MODI, RBC CAPITAL ANALYST: As we get through this year, Coke has a lot of cost cutting to put into place. They`re investing back in their brands. So, I think in 2016, we should seeing acceleration of volume growth.

EISEN: McDonald`s (NYSE:MCD) is also finding it hard to appeal to the younger generation. For the quarter, global sales at restaurants opened at least a year fell 2.3 percent. It was even worse in the U.S. as traffic slowed.

But investors were optimistic as the newly minted CEO Steve Easterbrook says he`s working on a turnaround plan.

R.J. HOTTOVY, MORNINGSTAR: The Easterbrook plan, I think, you know, certainly simplification is the starting point to a turnaround for the story, produced a number of skews, even passed what they`ve committed to, you know, go after fresher ingredients because that is something that commands pricing power in today`s environment. I think that`s a good starting point. Again, it`s not going to turn around overnight.

NICOLE MILLER REGAN, PIPER JAFFRAY: We are still living the Don Thompson result at this point in time because any menu or marketing change would take 18 months to get through the pipeline. Whatever is Easterbrook wants to do is not what`s showing up. So, what we think what is a critical aspect of the McDonald`s (NYSE:MCD) turn around story is getting the franchisees to buy in. And hearing what it is that they want, that`s critical, it`s paramount to the McDonald`s (NYSE:MCD) recovery and success.

EISEN (on camera): Another shared concern is the stronger U.S.
dollar, which is hurting nearly every American company that does business abroad.

The bottom line for Coke and for McDonald`s (NYSE:MCD), both iconic companies that need to find a way to appeal to millennials consumers to drive growth again. But for now, they`re both giving investors cause for optimism.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen.

(END VIDEOTAPE)

HERERA: Different story for Dow component Boeing (NYSE:BA).
Investors were concerned about the aerospace company`s cash flow, orders and cost despite the company beating earning estimates. Boeing (NYSE:BA) cited spending on factories and higher costs for its flagship 787 Dreamliner program. Boeing (NYSE:BA) shares slid today by more than 1 percent, making it the worst performing stock on the blue chip Dow index.

GRIFFETH: Over all on Wall Street, averages did move closer to record levels and another rally in technology stock sent the NASDAQ to a new closing high, at least for this year. By the close, a very chopping trading session. The Dow rose 88 points, closed at 18,038. The NASDAQ notched a 21-point gain. It`s now at 5,035 and the S&P 500 gained 10 points.

HERERA: And now to the economy and today`s big numbers in the housing market that show spring has definitely sprung. Sales of existing homes increased 6 percent in March, the highest level in 18 months as more homes came on the market. And while that sounds like a strong start to the buying season, other data today shows that it is not all roses.

Diana Olick explains.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
Home sales are finally surging but at a heavy price. The median sale price of a single family home in March jumped nearly 9 percent, according to the realtors. That`s more than twice the gains of a year ago.

WENDY WINEBURGH DESSANTI, WEICHERT REALTORS: I think that people are a little surprised when they first start the process. They are thinking the market is what it was, say, four or five years ago at the bottom. And they are surprised to see what the prices are.

OLICK: Prices are being driven by very short supply of both existing and newly built homes. There are just 2 million homes for sale representing just over a four-month supply, six months is considered a healthy market.

DESSANTI: The number of listings is really not sufficient to the number of buyers that are out there.

OLICK: Prices are also being juiced by more low down payment options. The FHA, the government insurer of home loans lowered its premiums at the beginning of this year and both Fannie Mae and Freddie Mac launched new loan products requiring just 3 percent down. As of last month, Freddie Mac now even allows the down payment to be gifted. In other words, no homeowner skim in the game.

These new options are behind a jump in mortgage applications to buy a home compared to a year ago. Applications for government backed loans are up 17 percent in just the last month. But these new options are only going to the best borrowers with high credit scores and low debt levels. That part of lending has not loosened at all.

DAVID BLITZER, S&P INDEX COMMITTEE DIRECTOR: I think we got too risky. I think that, you know, you knock the barn after the horse has escaped, and we`re doing the same thing now. And I think it`s been done repetitively over time.

OLICK (on camera): To make matters worse. Rents are pushing ever higher, seeing the strongest two-month stretch in four years. That`s because more people are moving into apartments, pushing occupancy to the highest level since before the recession. On the bright side, they are moving in because they are finally getting jobs.

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

(END VIDEOTAPE)

GRIFFETH: Speaking of real estate, D.R. Horton (NYSE:DHI) beat expectations on a surge in home orders, but that wasn`t good enough for shareholders apparently. They focused on the company`s trimmed outlook for annual gross margins down the road as the home builder continues to sell more lower-priced homes around the country. D.R. Horton (NYSE:DHI) shares dropped more than 5 percent in today`s trade.

HERERA: Shares of MasterCard (NYSE:MA) and Dow component Visa (NYSE:V), the world`s biggest payment networks rose sharply today after the Chinese government indicated it plans to end a monopoly in bank card lending. The new rules clear the way for both of those companies to gain a deeper foothold into the world`s second largest economy. Shares of MasterCard (NYSE:MA) were up almost 4 percent and shares of Visa (NYSE:V) also rose 4 percent, making it the best performing stock on the Dow Jones Industrial Average.

GRIFFETH: Well, Europe is taking aim at Russia`s Gazprom. The European Union now charging Russia`s state-controlled gas company with abusing its dominance in natural gas marketing, hindering competition and charging unfair prices. The commission says unfair pricing may have resulted in higher gas prices in Bulgaria, Estonia and in Latvia.

HERERA: And now to South America, where Brazil`s scandal-ridden oil giant Petrobras is widely expected to do something investors have been waiting for a long time — release its financial statements. It is arguably one of the most heavily scrutinized companies in the world because of that massive corruption.

Michelle Caruso-Cabrera in Rio de Janeiro tells us why this report from Petrobras is so important and why the stakes are so high, not just for investors but also for Brazil`s economy.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT:
Petrobras is the world`s most indebted company. And in a world awash in debt, that is saying a lot. And it is enmeshed in Brazil`s greatest financial scandal ever. If you know Brazil, that is saying a lot.

And even though the company stock trades at the New York Stock Exchange, make no mistake: Petrobras is controlled by the Brazilian government. They have more than half of the voting shares and the company is used by the government as an arm of their policy.

All of that may be coming home to roost. In March of last year, one of the company`s directors was arrested for bribery. And then in September, he started to sing like a canary. He told investigators that for nearly ten years, almost all contracts were padded by 3 percent and that extra money was used for bribes and kickbacks, a lot of it funneled to the ruling parties of the country.

Now, nearly 50 people have been arrest or charged, including dozens of CEOs of construction companies, party members and even politicians.

At risk — the country`s president, Dilma Rousseff. The treasurer of her party has been arrest and she was the chairman of the company for much of the time when this graft was going on.

So far, investigators find no link to her and she denies any knowledge of the investigation. Even after getting over the hurdle of reporting earnings, the company still faces huge issues. Basically, what is the future business model is going to be.

The reason they borrowed so much money was to drill in the ultra deep waters very far offshore of Brazil. There is a lot of oil down there, but it`s expensive to get at. Back when oil was above $100 per barrel, paying back that debt looked easy. Now, at around $50, it`s going to be much, much harder.

For NIGHLT BUSINES REPORT, Michelle Caruso-Cabrera in Rio de Janeiro.

(END VIDEOTAPE)

GRIFFETH: Still ahead, from Google (NASDAQ:GOOG) to Amazon (NASDAQ:AMZN), the tech earnings reports investors should pay their closest attention to as the NASDAQ sits at a new high for the year.

(MUSIC)

GRIFFETH: Google (NASDAQ:GOOG) is rolling out a new wireless service. Its the first entry for Google (NASDAQ:GOOG) into the wireless Internet industry and it allows customers to pay only for the data they actually use. It uses Wi-Fi networks to curb phone data use. The service will only work on the company`s Nexus 6 phones, by the way.

HERERA: Facebook (NASDAQ:FB) reports mixed results after the closing bell. The company earned 42 cents a share, topping estimates. But revenue of $3.5 billion was slightly below estimates. So, it is a big increase from a year ago. Shares were initially lower after the report. Still, there`s more here than meets the eye.

And Julia Boorstin has one takeaway from the company`s quarterlies.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Driving Facebook`s quarterly results, the social networking giant continues to grow both users and engagement, especially on mobile devices. The company reported 1.44 billion monthly active users, and 65 percent of Facebook`s monthly active users visit the service every single day, which CFO David Wehner tells me is a record level of engagement for the company, with growth of engagement across all geographies.

He also noted increasing engagement on mobile devices. Nearly 800 million people use Facebook (NASDAQ:FB) and mobile devices daily, which Wehner called the largest mobile audience in the world. He says the key thing driving key performance for Facebook (NASDAQ:FB).

Back over to you.

(END VIDEOTAPE)

GRIFFETH: Well, the tech earnings parade continues now. We have Microscope, Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN) releasing quarterly results tomorrow. Apple (NASDAQ:AAPL) and Twitter report next week.

Max Wolff joins us tonight. He`s going to talk about which tech giants you should be watching. He`s partner and tech expert at Manhattan Venture Partners, an investment research firm based in New York City.

Max, good to see you. Good evening.

MAX WOLFF, MANHATTAN VENTURE PARTNERS: Always a pleasure. Thanks for having me.

GRIFFETH: So, what you`re watching are Twitter, Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN). Are you hopeful? Are you fearful? What are your expectations over all?

WOLFF: The part of what makes earnings season a little bit exciting and a little bit of wild ride is there is something in the cocktail from hope and something in the cocktail from fear and maybe a rim shot of greed, which I suppose is something to do with the line of work that I find myself in.

That being said, I think that Amazon (NASDAQ:AMZN), Google
(NASDAQ:GOOG) and Twitter are very much part of our lives or at least many of our lives, directly and indirectly. We`re pretty excited. We think most of these guys will do well. All three of them are going to have pretty strong quarters. But we`re going to be looking really closely at slightly different things at each company.

But revenue is big because a lot of companies have really struggled as of late to keep the revenue number up, even though the earnings are good because growth remains a bit of a headwind or a challenge in the economy.

HERERA: You know, what Wall Street is watching closely from the companies outside of the tech sector is the forward guidance. How important is that to you from these three tech companies?

WOLFF: Sue, that`s a fabulous question and more important than the numbers with one caveat. If we have an unbelievably huge beat or an unbelievably huge miss ever, either on top line revenue or bottom line earnings, that kind of steals the show.

We do not expect that in any but we do expect Twitter to maybe beat pretty dramatically so that could be the runaway there. But in all cases, the guidance particularly on the issues related to the strong U.S. dollar and the ability to get and keep audience are going to be the $64,000 question on all three names.

GRIFFETH: We could go on on all three of these. Let me go to Twitter. I mean, Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN) are veterans. They`ve been out awhile. Twitter has not.

Are you convinced that they`re starting to turn things around there?

WOLFF: Yes, I am. I`ve been a bit of a fan of Twitter for a long time. I think Twitter is a kind of hard story to understand, both for user where they have tendency to lose new users, which they have to work on and for Wall Street because the story wasn`t 100 percent clear most of the time.

I think they`ve done well with video. I think they`ve done pretty well in attracting new and more serious advertisers, and I think they`re doing well w messaging.

So, we expect Twitter to come in, closer to $500 million on revenue above the expectation and to handily beat the 4 percent earnings that the street consensus is expecting from them.

Max Wolff with Manhattan Venture Partners — always good to see you, Max. Thanks.

WOLFF: Thank you.

HERERA: We begin tonight`s “Market Focus” with upbeat results from AT&T (NYSE:T).

The company reported profits that top consensus after the closing bell. Even though revenue was below expectations, investors were pleased that the company added nearly a half a million core subscribers. Also the rate at which customers left the network decreased. Shares popped initially after the bell. Before the close, the stock was up a fraction to $32.86.

eBay (NASDAQ:EBAY) followed suit with a big earnings beat. The e- commerce company`s strong quarter was driven by transaction growth and corporate cost control. eBay (NASDAQ:EBAY) shot up as much as 5 percent right after that report. Shares ended the regular trading day a fraction higher to $56.75.

Easier credit and lower fuel prices helped AutoNation (NYSE:AN) post earnings and revenue that topped estimates.

And the company`s CEO said there is one important factor that he thinks will continue to work to his company`s advantage.

(BEGIN VIDEO CLIP)

MIKE JACKSON, AUTONATION CEO: We have cheap gasoline all of a sudden here in America again, which is pushing truck sales, which is a better margin business than just low end cars.

So, it`s really an extraordinary goldilocks period that at the moment is pretty clear will continue for the next several years.

(END VIDEO CLIP)

HERERA: Shares were about 1.5 percent higher to close at $65.83.

GRIFFETH: Meanwhile, Bank of New York Mellon (NYSE:BK) posted a stronger-than-expected profit in its first quarter, which helped by higher revenue and lower expenses. Also, revenue from trading foreign currencies surged from year-ago levels. Shares popped more than 3 percent to $42.43.

Abbott Labs also posted an earnings beat, helped by its strong sales of generic drugs. The company did say the strong dollar, though, did shave some off its top line. Still, shares were up 2 1/2 percent to close at $48.35.

And Omnicare (NYSE:OCR) saw its shares pop on a Bloomberg report that it`s exploring a sale. The company supplies drugs and services to nursing homes. This comes amid lots of deals in the health care space right now.
Shares closed 4 percent higher on that report at $84.52.

HERERA: It has been called the great government raisin heist. At the Supreme Court today, California farmers are challenging a Depression era government program, one that forces raisin growers to surrender part of their annual crop with no compensation from the government.

Hampton Pearson has more on one of the most important property rights cases in recent years.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
California raisin farmers Marvin and Laura Horne say the government has been stealing tons of their raisins for more than a decade. A 1937 law run by the Agricultural Department requires them to hold back a portion of their crop every year or pay a penalty.

The Hornes have been fighting the raisin toll regulators since 2003, facing more than $700,000 in fines in addition to the lost revenue from holding back nearly half of their crop in some years.

Back at the Supreme Court today, for the second time in two years, the Hornes feel that the justices may be getting their message.

MARVIN HORNE, RAISIN FARMER: Yes, we`re both encouraged by that because this is America, and if the government wants some of your property, they should pay you for it and they have the procedures for it and they set the value of it, and they pay you for it.

In this case, they just made a little regulation, they took what they wanted and they didn`t give you anything.

PEARSON: The Agriculture Department says farmers benefited from higher prices with fewer raisins on the market. But the court`s conservative justices, including Chief Justice Roberts, did not buy the government`s argument that the program is not a taking of private property that must be compensated. Even the court`s liberal justices said the program may be outdated.

Business groups say this case is much bigger than just raisins.

ELIZABETH MILITO, NFIB SENIOR EXECUTIVE COUNCIL: This is about what is property and what is the government required to do when it takes your property. And, of course, raisins in our mind are, you know, property.
The founders said property — they meant real property, tangible personal property. Property is property.

PEARSON (on camera): Raisin regulations aside, on the bigger constitutional issue of what types of personal property must be compensated if taken by the government, it appears this Supreme Court is willing to consider rewriting those standards.

For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson at the Supreme Court.

(END VIDEOTAPE)

GRIFFETH: And from raisins to poultry, and the growing bird flu crisis that has been hitting the nation`s chicken and egg producers.
Today, the government said it is working on a potential vaccine to — in response to this outbreak.

Morgan Brennan reports now from Harris (NYSE:HRS), Iowa. This is a small town that finds itself at the center of the latest bird flu crisis.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
This is Sunrise Farms, one of the largest egg producing facilities in Iowa.
And it is currently under quarantine, guarded by local authorities to keep visitors from entering the premises.

Sunrise Farms is the site of the latest and largest case of avian influenza in the U.S., with nearly 4 million egg-laying hens compromised.
Government officials are making plans to euthanize the entire flock since the strain of bird flu is highly contagious and highly lethal to poultry.

DR. JOHN CLIFFORD, USDA CHIEF OF VETERINARY OFFICER: This virus is getting into the facilities and it is very concerning to us because we can`t really predict where it may pop up again next.

BRENNAN: The USDA says this strain poses little threat to human health and that it`s developing a new vaccine. But cases are mounting, with some 6.5 million birds affected at more than 50 cites across multiple states.

According to protocol, an infected facility is quarantined and depopulated, a process that can take weeks and maybe longer. Doing this prevents the spread of the virus and ensures it doesn`t enter the food supplies.

But it comes at a huge cost to the producer, despite some federal aid. And not just the loss of the business, the actual process of disposal itself is expensive.

CLIFFORD: It can be hundreds of thousands of dollars and in an operation like the Iowa facility, the egg layer facility that`s really a big facility. It could very easily run into several to a few million dollars.

BRENNAN (on camera): Here at Sunrise Farms, the de-population process will likely include CO2, though officials are still deciding how to dispose of the flock, whether to bury the birds on-site or take them elsewhere.

(voice-over): Experts say, so far, turkey has been hit the hardest with the nation`s supply reduced by 1 percent. But industry consultant Joe Kerns cautions it`s too early to know how this bout of bird flu will ultimately affect the broader poultry market, and with it, consumer prices.

JOE KERNS, KERNS & ASSOCIATES PRESIDENT: It is going to be what happens from this point forward and can we control the disease from spreading during the flyaways, both during the migration season going north that we`ve just recently experienced and then perhaps, more importantly, what happens in the fall when the same birds fly south.

BRENNAN: Kerns and others say the biggest risk is if this outbreak spreads to broiler chickens, chickens raised for meat, a roughly 9 million bird per year market, more than ten times the size of turkeys. If that were to happen, poultry exports which some countries have already begun restricting, could come under even more pressure.

And a significant drop in the bird population could soften demand in the grain market as well.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan in Harris (NYSE:HRS), Iowa.

(END VIDEOTAPE)

HERERA: And coming up, how a former Microsoft (NASDAQ:MSFT) executive found real estate gold, thanks to the new pot economy. The second part of our “Marijuana and Money” series is next.

(MUSIC)

HERERA: Here is what to watch tomorrow. More Dow components report.
We`ll get earnings from Microsoft (NASDAQ:MSFT), 3M (NYSE:MMM), Procter and Gamble, and Caterpillar (NYSE:CAT). A fresh read on the labor market with initial jobless claims and also on the data front, new home sales will be released and that`s what`s on the agenda for Thursday.

GRIFFETH: So what happens when the new pot economy and real estate collide?

For one former Microsoft (NASDAQ:MSFT) executive in Seattle, the answer is all green.

Dina Gusovsky has the answer in the second part of our series, “Marijuana and Money.”

(BEGIN VIDEOTAPE)

MARTIN TOBIAS, FORMER MICROSOFT EXECUTIVE: I bought this warehouse just as an investment, as kind of a place to have a man cave.

DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT: And now, there are a handful of people who are packaging marijuana?

TOBIAS: Yes, they are.

GUSOVSKY (voice-over): This is Martin Tobias, a former Microsoft
(NASDAQ:MSFT) executive who accidentally found a very interesting way to make money from the legal marijuana market.

TOBIAS: When I bought it, nobody else wanted to buy this building and all of a sudden, I started to get calls from people and I said, what`s going on here?

GUSOVSKY: The emergence of the legal cannabis industry has caused massive increase in property values, in very limited areas where marijuana businesses are allowed to operate.

TOBIAS: Basically, this is the only three blocks in Seattle where you can have a marijuana business from that corner there down to about two blocks that way.

GUSOVSKY (on camera): So, you got really lucky?

TOBIAS: I did get really lucky.

These are looking healthy.

UNIDENTIFIED MALE: This is pineapple express. We have head band.

GUSOVSKY (voice-over): About 1 percent of the city surface area is approved for housing cannabis businesses. And that`s why when pot entrepreneurs finally find the space.

UNIDENTIFIED MALE: We would pay just about anything.

TOBIAS: I sold it for less than double what I paid for it.

GUSOVSKY: And he self-financed it, of course, with interest.

TOBIAS: In this case, it`s about 8 percent. I know other people in the real estate business related to cannabis that are getting 12 percent and 15 percent.

GUSOVSKY: It`s not just happening in Seattle. And limited spaces also the case in cities like San Jose.

TOBIAS: Right now, it is the Wild West and only the early adopters are developing this kind of real estate.

GUSOVSKY: Without even touching the product, investors are seeing high returns from housing marijuana businesses.

For NIGHTLY BUSINESS REPORT, I`m Dina Gusovsky in Seattle.

(END VIDEOTAPE)

GRIFFETH: And our “Marijuana and Money” series continues tomorrow.
We`ll have a rare glimpse into the life of a cannabis farmer.

HERERA: Well, that`s location, location, location, right?

GRIFFETH: That`s for sure.

HERERA: That does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great evening, everybody.
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.

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