Transcript: Nightly Business Report — May 13, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Where is the consumer? They didn’t spend in April and didn’t splurge at the mall. What that means for economic growth and the Federal Reserve.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Big win. The long, drawn out and public battle between an American company and an activist investor finally comes to an end.

HERERA: Funding cut. Hours after the deadly crash, a committee votes to trim Amtrak’s budget.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, May 13th.

MATHISEN: Good evening, everyone, and welcome.

Investors had been hoping that the today’s retail sales report would show a rebound from the winter spending chill. It didn’t. The government reported that retail sales barely budged, coming in unchanged in April.

Consumer spending accounts for nearly 70 percent of economic activity. So, many considered this report just as important in its own way as the monthly employment number. But for now, there’s no sign of an economic bounce-back and that could make the Federal Reserve’s decision on when to hike interest rates even more complicated.

Hampton Pearson reports.

(BEGIN VIDEOTAPE)

HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): No signs of a springtime rebound in the economy from the latest retail sales numbers. The April spending downturn had several moving parts. Big ticket spending on things like autos, electronics and furniture was down. Some strength in clothing sales which were up slightly, along with sporting goods and online stores.

The biggest spring time bounce came to sales of garden equipment, building materials, restaurants and bars as the hibernation in many parts of the country finally ended.

It’s still a catch-22 for the Feds. Low rates are supposed to help spending, but consumers didn’t spend in April, they didn’t spend when the weather was bad in February and March, and they haven’t really been spending since last fall.

PETER BOOCKVAR, THE LINDSEY GROUP: Over the last six months, we’ve essentially flat-lined. So, the monetary policy which its intention to drive demand obviously has pulled forward so much economic activity over the last couple of years, that there’s is only so much they can pull forward.

PEARSON: Since spending accounts for 70 percent of all economic activity, slow growth is another potential speed bump for the Fed on the road to raising interest rates. And leading economists are wasting little time in lowering GDP forecast.

JPMorgan (NYSE:JPM) cut expectations for the second quarter GDP from 2.5 percent to 2 percent. Meanwhile, the snow may have melted and back up at West Coast ports eased, but there are few signs the stronger dollar is going away anytime soon.

It’s already impacting the trade deficit and tourist spending, and providing more ammunition to critics of the Fed’s long running low interest policy.

BOOCKVAR: That has limits, just like anything else does, and we’re well past those limits and we’re seeing it firsthand.

PEARSON: What the data-dependent Fed needs to see are a return of stronger job growth and higher wages to encourage consumers to open their wallets and spend more money.

For NIGHTLY BUSINESS REPORPT, I’m Hampton Pearson in Washington.

(END VIDEOTAPE)

HERERA: And consumers weren’t spending at Macy’s, at least not as much as expected. The Department reported lower sales and profits in the most recent quarter. That pressured shares which fell nearly 2 1/2 percent.

Courtney Reagan takes a closer look at Macy’s results and what’s holding consumers back.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The magic wasn’t with Macy’s (NYSE:M) in the first quarter. The department store fell short of Wall Street’s expectations on both earnings and sales, though the retailer did reaffirm its full year earnings and sales forecast.

Macy’s (NYSE:M) also increased its dividend and share buy back program. Macy’s points to multiple factors for the quarter’s shortcomings, including delayed merchandise from the West Coast port congestion, severe winter weather, early in the quarter, and lower spending by international tourists, in New York, Chicago, Las Vegas and San Francisco.

The department store has a number of new initiatives including an off priced pilot, Macy’s (NYSE:M) Backstage, launching with four locations this fall.

The retailer also has plans to expand its newly acquired spa and cosmetics brand Blue Mercury.

(on camera): JPMorgan (NYSE:JPM) analyst Matt Boss joins a chorus of many others who say Macy’s (NYSE:M) is a best in class retailer. But with the department store’s lackluster results and no growth in the government’s April retail sales data, many are wondering, where is the consumer?

MATTHEW BOSS, JPMORGAN ANALYST: This is a clear theme and I think it is a theme you’ll see from other retailers out there, that you need this improvement in wages to kick in, or else, I think the flip side of this is, gas prices, you know, are not as low as they were, combined with the wage impact on the profit and loss statements for these retailers, it’s a negative.

REAGAN (voice-over): Morgan Stanley’s economics team says, quote, “consumers appear to have remained wary, after having saved all the boost to income from lower energy prices last quarter.”

So, Macy’s (NYSE:M), along with much of the retail sector, is waiting for wages to improve, so consumer spending can rebound in the second half of the year.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: Stocks finished the session with little change as the latest round of economic data pushed investors to the sidelines. In addition to those retail sales numbers, import prices fell for the 10th straight month in April, and business inventories barely rose.

By the close, the Dow Jones Industrial Average was off by seven points, at 18,060, NASDAQ was up five points and the S&P 500 fell by just about a fraction. Crude prices down 25 cents to $60.50 a barrel, despite stockpiles slipping for the second week in a row.

HERERA: Dow component Cisco (NASDAQ:CSCO) postings its first quarter earnings results since announcing John Chambers will step down as CEO in July. Earnings came in at 54 cents a share, a penny better than estimates. Revenue topped consensus and was higher from a year ago. Shares initially spiked after the close, before falling back a bit.

Josh Lipton is in San Francisco with the one key takeaway investors need to know from that report.

Good evening, Josh.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi, Sue. Well, $2.1 billion, that was a big number on Cisco’s earnings report and it refers to how much the networking giant returned to shareholders in the quarter. Remember, bulls are betting that Cisco (NASDAQ:CSCO) is going to keep on returning a lot more cash to shareholders in buybacks and dividends in the quarters ahead. The hope is that the recent change in the Cisco’s C-suite could mean greater capital return is only on the way.

Remember, Cisco (NASDAQ:CSCO) just did announce that long time CEO John Chambers will step down in that position in late July, and Chuck Robbins, a Cisco (NASDAQ:CSCO) veteran, will assume the role. On his last conference call as CEO today, Chambers said the networking giant was, in his opinion, at a positive inflection point.

Guys, back to you.

HERERA: Josh, thank you so much. Josh Lipton in San Francisco.

MATHISEN: After a very long and sometimes very nasty battle with active investigator Nelson Peltz, DuPont prevails. All 12 of the chemical company’s nominees were elected to its board. Peltz’s four nominees rejected.

Investors, though, unhappy with the news. They sent shares down almost 7 percent today, making DuPont the worst performing stock in the Dow Industrials.

Mary Thompson reports now from DuPont headquarters in Wilmington, Delaware.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESONDENT (voice-over): DuPont’s a victor in a public nine month battle against activist investor Nelson Peltz. Peltz failing to get any of his four nominees elected to DuPont’s board in what he called a closed vote.

DuPont CEO Ellen Kullman pleased with the outcome but aware Peltz and his firm Trian Management are not going away, at least for now.

ELLEN KULLMAN, DUPONT CEO: We’ll continue to engage with them in a very constructive way. We’ll continue to focus on delivering value for our shareholders.

THOMPSON: Peltz’s firm, one of DuPont’s largest shareholders, since September, he’s publicly attacked DuPont’s management, criticized the firm’s persistent underperformance and asked the board to consider breaking up the 212-year-old company.

(on camera): Frustrated by DuPont’s lack of response and its depiction of his strategy as high risk and destructive, Peltz aimed at the board.

(voice-over): Looking for a seat in the boardroom as he’s done at Heinz, Wendy’s and other big-name firms. In the end, though, he was rebuffed by DuPont’s faithful retail shareholders and index funds, which sided with the company, putting their faith in Kullman’s vision for DuPont.

KULLMAN: We are focused in our company, on delivering our science out to our marketplace, creating value for our shareholders and top line growth.

THOMPSON: Still, Peltz took credit for some of the changes DuPont’s made since he took a stake in the firm, saying pressure from Trian pushed it to buy back stock, cut costs, and spin off its performance chemicals unit. Peltz sounding victorious even in defeat.

In Wilmington, Delaware, I’m Mary Thompson for NIGHTLY BUSINESS REPORT.

(END VIDEOTAPE)

HERERA: Still ahead, new details on the deadly train derailment in Philadelphia. And find out what happened in Washington just hours after that tragic crash.

(MUSIC)

HERERA: New details tonight on the deadly Amtrak train crash outside of Philadelphia. The National Transportation Safety Board has confirmed that the train was going over 100 miles per hour before it derailed, at least twice the speed limit on that stretch of track.

Eamon Javers comes to us tonight from Philadelphia.

Good evening, Eamon.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good evening, Sue.

Well, authorities here are saying that as many as seven people were killed in this horrific train accident last night. It shut down traffic on the busy northeast corridor here in North Philadelphia, and what they’re saying here is the investigation is focusing now on excessive speed as the cause of this accident. They say that of the people who were killed last night, two of the bodies were ejected from the train and their bodies found in the area nearby this devastated train wreck.

(BEGIN VIDEOTAPE)

JAVERS (voice-over): More than 11 million people travelled this route last year and as many as 2,000 trains per day travel this corridor, including commuter rail and Amtrak, and freight cars.

New York Mayor Bill de Blasio said the economic impact will be devastating.

BILL DE BLASIO, NEW YORK MAYOR: The Northeast shutdown has a huge impact on New York City and Philly and the whole economy. I heard a statistic that say that we’d lose $100 million a day in economic activity when the corridor shut down.

JAVERS: In Washington, where a House committee voted to cut Amtrak funding today, a heated debate broke out between Democrats who wanted to increase spending on the rail system and Republicans who accused Democrats of playing politics with the tragedy.

REP. STEVEN ISRAEL (D), NEW YORK: What we should have been doing is subsidizing the safety of those passengers on that Amtrak train yesterday. So, this is just a matter of simple priorities.

REP. MIKE SIMPSON (R), IDAHO: And suggests priorities that because we have not fund it this properly, that that’s caused the accident, when you have no idea, no idea what caused this accident, and to use that as a means of supporting the last amendment — support it if you want to. But don’t use this tragedy in that way. It was beneath you.

(END VIDEOTAPE)

JAVERS: And, guys, we just got a briefing here in Philadelphia from the National Transportation Safety Board. They are focusing on a system they call “positive train control”. They say that system is in place in much of the Northeast corridor to control the speed of the train as they roll along, no matter what the engineer in the cab is doing. They say, tragically, though, that system was not in place on this stretch of track as the engineer approached a very sharp curve, they say, he threw on the emergency brakes but, Sue, it was too little, too late.

HERERA: Eamon, thank you. Eamon Javers in Philadelphia.

The Senate leaders have reached to deal to advance President Obama’s trade initiative. That agreement gives Democrats a chance to vote on two of their trade priorities as standalone bills. This comes one day after Senate Democrats voted to block the bill which is one of President Obama’s legislative priorities.

MATHISEN: And also in Washington, billions of dollars of earmarks found their way into 2015 appropriations bills. This despite a moratorium that was supposed to end such spending.

The Citizens (NYSE:CIA) Against Government Waste highlights a few of what it calls questionable spending items — items such as a $120 million item to upgrade an army tank that the army doesn’t want any more, $4 million on aquatic plant control, and $15 million for a program to increase specific salmon populations.

The group defines the term “earmark” as something that serves only a local or special interest, and something that is never subject to a full congressional hearing.

HERERA: The bird flu takes a bigger toll on Post Holdings and that is where begin tonight’s “Market Focus”.

The breakfast food company said about 20 percent of its egg supply has been affected by the avian flu, raising concerns that the outbreak might inflate costs. Shares fell 8 percent to $44.91.

Ralph Lauren saw its earnings fall in its most recent quarter as foreign currency impacts are weighing on the company. The apparel maker did announce it will repurchase $500 million of its shares. The shares nonetheless fell 3 percent to $129.18.

And, J.C. Penney, after the closing bell, reported a loss that was much smaller than expected. Revenue was slightly below consensus, but the retailer upped its guidance for margins and same-store sales. The stock was volatile initially in after-hours trading. Before the close, the stock was off almost 2 percent to $8.71.

MATHISEN: Shake Shack impressed investors with a surprise profit. The hamburger chain saw revenue surge more than 50 percent and same-restaurant sales beat expectations. After the close, the stock initially popped. In regular trading shares rose 4 percent to $68.36.

Delta and Southwest Airlines (NYSE:LUV) both unveiling buybacks and new higher dividends. Delta said it plans $6 billion in share repurchases and higher dividends through 2017. Southwest launched a $1.5 billion buyback plan and upped its dividend to 7.5 cents a share. Delta upped 1.5 percent in the market today, to $46.78. Southwest was off more than 2 percent. It finished at $41.27.

We told you last night that Pall (NYSE:PLL) Corp was reportedly looking to sell itself. Today, it did. It was announced that Danaher (NYSE:DHR) will buy the filtration systems maker in a deal worth nearly $14 billion. Shares of Pall (NYSE:PLL) were up about 4 1/2 percent to $123.89. Danaher (NYSE:DHR) up 1 1/2 percent to $87.35.

HERERA: Prescription drug costs are driving faster for Americans and the numbers are really startling. According to a new study, more than a half million U.S. patients had medication costs in excess of $50,000 last year, and some spent more.

Meg Tirrell reports.

(BEGIN VIDEOTAPE)

MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): They are called super spenders and their numbers rival the population of the city of Boston, each accruing in prescription drug costs last year, more than the U.S.’s median household income. This according to a new study from pharmacy benefits manager Express (NYSE:EXPR) Scripts, which has been waging a battle with drug companies to lower the cost of their products. It found the number of Americans with annual medication costs of more than $100,000 tripled last year to 139,000 people, driven by high price drugs for specialty indications like hepatitis C and cancer.

STEVE MILLER, EXPRESS SCRIPTS CHIEF MEDICAL OFFICER: So, this clearly isn’t sustainable. We can’t have 600,000 people in the United States spending more than $50,000 a year on drugs. And so, you know, the payor community just is really having a difficulty with this.

TIRRELL: The average spend on prescription drugs last year, about $1,400. So, the 5 percent of Americans with the most expenses accounted for more than 6 percent of the country’s total spend.

(on camera): Express (NYSE:EXPR) Scripts did the study on 31 million insured Americans and extrapolated from those data. It found that for the people with the highest cost, 98 percent of their expenses on average were covered by insurance, either by commercial insurers or the government, through Medicare or Medicaid.

(voice-over): So, who is the super spender? The study tells us they’re primarily older men. Three out of five people in the 100,000 plus category were baby boomers and slightly more than half were male. They tend to have multiple maladies, 60 percent were taken at least 10 different medications last year, while a third were being treated for at least 10 different conditions.

LES FUNTLEYDER, ESQUARED: Up until very recently, it was given as an article of faith that if you had a really good drug, you could price at whatever cost you could and insurers would reimburse. Now, that’s changed a bit because certainly payors push back upon a price so clearly it is something that pharmaceutical companies and pharmaceutical investors spend a lot of time thinking about.

TIRRELL: Express (NYSE:EXPR) Scripts has made moves to curb spending on these kinds of drugs, making waves especially in hepatitis C, where it struck a deal to exclude pricey medicines made by Gilead from its coverage plans, to secure a discount from competitor Abbvie. It’s been threatening to do the same for new drugs for cholesterol and cancer, where list prices can regularly top $10,000 a month.

For NIGHTLY BUSINESS REPORT, I’m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: Coming up, can an investment banker by trade find the next big thing on a pig farm? His story, next.

(MUSIC)

MATHISEN: Here is what to watch tomorrow. We’ll have results from more retailers including Nordstrom (NYSE:JWN) and Kohl’s (NYSE:KSS). On the data front, the producer price index will be out. It’s an important inflation indicator and we’ll get a read on the labor market with initial jobless claims and that, folks, is what’s on the agenda for Thursday.

HERERA: Facebook (NASDAQ:FB) wants to give its low wage workers a pay raise. The company will require its contractors and vendors to pay their employees at least $15 an hour. Facebook (NASDAQ:FB) also wants these employees to get at least 15 paid days off annually for holidays, sick leave and vacations. And if the workers don’t get paid parental leave, Facebook (NASDAQ:FB) will require new parents receive a $4,000 bonus. The move comes amid increased attention to the wage gap in Silicon Valley.

MATHISEN: The Takata airbag recall has been expanded. Japan’s three biggest carmakers say they will investigate millions more vehicles worldwide, Toyota (NYSE:TM) and Nissan are recalling 6.5 million cars, Honda didn’t provide details. That raises the number of recalled vehicles in this one case to about 31 million worldwide since 2008. That’s over the concerns that Takata’s airbags may explode and send shrapnel into drivers and passengers.

RadioShack has a new owner. According to “The Wall Street Journal”, hedge fund Standard General was the declared the winning bidder at more than $26 million. In addition to the trademark, Standard General also picked up the rights to RadioShack’s customer data.

MATHISEN: Walmart is getting ready to take on Amazon (NASDAQ:AMZN) Prime. The world’s largest retailer told “Reuters” that it will offer a service that charges $50 a year for unlimited online shipping. That takes on Amazon’s prime service which charges $99 a year. The Walmart service will be tested sometime this summer.

HERERA: The U.S. minted a record number of new millionaires last year, thanks to a climbing stock market and rising real estate values. But there’s a new crop of millionaires in the making, and these well-to-do investors look starkly different than today’s wealthy.

Sharon Epperson has the story.

(BEGIN VIDEOTAPE)

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Psychotherapist Nell Gibbons has pretty much heard it all.

NELL GIBBONS, PSYCHOTHERAPIST: I think people talk about four things, despite the fact that they think that they’re coming in to talk about. They talk about fear, sex, love and money.

EPPERSON: In her profession, money is often a taboo subject.

GIBBONS: We talk a lot about poverty. We talk about the economy and how it affects people, but we don’t actually talk about how people relate to their money psychologically.

EPPERSON: Gibbons advises her clients not to hide their financial fears, as she also confronts her own.

GIBBONS: We’re talking about these issues in such an intimate way in my practice, and when they leave, I have to deal with what was just said. I can’t hide from it myself.

EPPERSON: The 39-year-old single mom of three is taking control of her finances. She’s investing regularly and working with a financial adviser on a plan to achieve her goal. Attitudes and behaviors she shares with a growing group of well-to-do investors.

(on camera): There’s a new class of millionaires in the making. And they look a lot different than today’s millions. They’re part of an emerging affluent group that’s more racially diverse and a majority of them are women.

MICHAEL PARRISH DUDELL, BESTSELLING AUTHOR & GENERATIONAL EXPERT: Now what we can see is that the playing field is a little bit more even for everybody and because of that, there is a whole new face of millionaires.

EPPERSON: New research from Fidelity Investments find these emerging affluent investors who are about 40 years old on average have median annual income of $125,000, and assets of $250,000. They also have time on their side.

JOHN SWEENEY, FIDELITY EXECUTIVES VP: Money compounds very substantially over a 20, 30, 40-year period of your working career, and that translates into a big nest egg in which you can withdraw from your retirement income.

EPPERSON: Willing to aggressively invest some money —

GIBBONS: I’ve taken some risk as an investor in other ways in terms of managing my money or what happens with my brokerage accounts, I’m very conservative.

Most important, like other millionaires in the making, Gibbons is focused on long-term growth.

For NIGHTLY BUSINESS REPORT, I’m Sharon Epperson.

(END VIDEOTAPE)

MATHISEN: And finally tonight, from Wall Street to the farm. That’s the path a former investment banker took and it was his ability to craft deals and find the next big thing that led him to pigs, not just any old pigs, but high end, expensive ones.

Jane Wells has the story.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Are they smart?

CHRIS ANDERSEN: They’re incredibly smart.

WELLS (voice-over): Chris Andersen wonders if his pigs are smarter than he is. Andersen ran the New York office for Drexel, fought the government during its investigation of the firm and won, and went on to make a nice living on Wall Street — a living he is now spending, trying to convince America that all pigs are not created equal. These pigs are better.

(on camera): How much does it cost to raise these animals versus conventional pig? And how much —

(voice-over): Andersen is racing 100 percent certified pure Mangalitsa pigs, native to Austria, the Kobe beef of pork. He is the largest breeder and supplier in the U.S., with 4,500 pigs on seven farms. He sells the meats to high end restaurants like Eleven Madison Park and Union Square Cafe.

ANDERSEN: If I can get this under your nose and into your mouth, you’re hooked.

WELLS: Mangalitsa pigs cost more to raise, take longer to raise, and have to be hand processed. The prices reflect that. Though Anderson learned a thing or two about marketing, when he fails to sell the best part, the neck steak for 8 bucks a pound, he renamed it the collar steak and double the price.

ANDERSEN: I can now sell it for $17 a pound to white tablecloth restaurants, and I can’t keep it in stock.

WELLS (on camera): What should I start with?

(voice-over): As he scales up, what is the goal?

ANDERSEN: The goal is to get people to understand how absolutely, pardon the expression, screwed up our food chain is, OK? I can sell you a Mangalitsa collar steak and get you a piece that’s 5 or 6 ounces, and you’ll eat that and you’ll be full like as if you had an 18 ounce of beef steak.

WELLS: It is all self-funded but Andersen hopes not for long.

ANDERSEN: I have a deep and abiding conviction that there is no shortage of capital in the world except human capital.

WELLS (on camera): When do the lines cross?

ANDERSEN: Fourth quarter of 2015?

WELLS: Really?

ANDERSON: Yes.

WELLS: A bold experiment raising pigs for a guy up to now only raised money.

For NIGHTLY BUSINESS REPORT, Jane Wells, Branchville, New Jersey.

(END VIDEOTAPE)

HERERA: Look at that cute pig.

MATHISEN: Cute little pigs, huh? Cute, very cute. Let’s try that sometime.

HERERA: Become a collar steak.

That does it for NIGHTLY BUSINESS REPORT on that note. I’m Sue Herera. Thanks for joining us.

MATHISEN: I’m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. We’ll see you back here tomorrow night.

HERERA: She had to end on a baby —

MATHISEN: On a baby pig.

HERERA: Baby piggy.

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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