Transcript: Nightly Business Report — May 27, 2015

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

(BEGIN VIDEO CLIP)

LORETTA LYNCH, U.S. ATTORNEY GENERAL: They corrupted the business of worldwide soccer to serve their interest and to enrich themselves.

(END VIDEO CLIP)

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Soccer scandal. The world`s most popular game and possibly the world`s most lucrative sport embroiled in a massive decades-long embroiled corruption scheme.

Secret sauce. Why McDonald`s (NYSE:MCD) is becoming more secretive as it tries to turn its business around.

Pay for performance. The new push to tie the cause of cancer drugs to how well they work.

All that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, May 27th.

Good evening, everyone. I`m Tyler Mathisen. Sue Herera is off tonight.

A big bounce back for stocks and the NASDAQ close at a record.

But we begin tonight with what some are calling the world cup of fraud. A scandal rocking the world`s most popular sport, soccer. The U.S.
Justice Department alleges some of the highest ranking officials of soccer`s governing body, FIFA, participated in bribes, money laundering and racketeering. And the investigation is global. Authorities in Switzerland have also launched a separate probe.

And soccer isn`t just a sport, it is a business, a big one, that brings in billions in revenue from TV and sponsorship rights for the World Cup, the most popular single sporting event in the world.

Eamon Javers has our story tonight on the big corruption investigation in soccer.

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EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
The day began with a dramatic early morning raid at the luxury Baur Au Lac Hotel in Zurich, the staffer holding sheets to protect those arrested from the photographers` glare.

It was a massive global coordinated crackdown on the top leadership of a sport that dominates the short like no other. As many as a billion people watched the 2014 World Cup in Brazil.

And “Forbes” reported that companies such as Adidas, Coca-Cola (NYSE:KO), Emirates and Sony (NYSE:SNE) reportedly paid $25 million to $50 million per year to sponsor the sports` governing body known as FIFA.

In Brooklyn, the director of the FBI said the U.S. is acting because some of the alleged corruption happened in the United States.

JAMES COMEY, FBI DIRECTOR: If you touch our shores with your corrupt enterprise, whether that is through meetings or through using our world class financial system, you will be held accountable for that corruption.

JAVERS: And the new attorney general, Loretta Lynch, said this case comes down to greed, including up to $150 million in bribes.

LYNCH: They were expected to uphold the rules that keep soccer honest and to protect the integrity of the game. Instead, they corrupted the business of worldwide soccer to serve their interest and to enrich themselves.

JAVERS: As laid out in the indictments, the U.S. side of the scam was simple — marketing companies paying kickbacks and bribes in terms to bribes for lower level soccer tournaments. But in Switzerland, officials said they are looking into what role bribes may have played in the awarding of the World Cup itself to Russia in 2018 and Qatar in 2022.

(END VIDEOTAPE)

JAVERS: And Tyler, as the day ends, there are two big questions facing world soccer, one of them is the fate of Sepp Blatter. He`s the head of FIFA, the organization that sponsors worldwide soccer. He was not named in the indictment today and big questions surrounding his leadership.
And then the second question is, what will all the corporate sponsors of global soccer do now? Will they continue to pump all those billions of dollars into FIFA and global soccer, Tyler?

MATHISEN: You mentioned, Eamon, several of the names that have been involved in supporting FIFA, but a major sportswear company has been implicated apparently in this scandal, the company was not named. But what do we know?

JAVERS: Well, what we do know is that they were not named in the indictment or by the Attorney General Loretta Lynch who said today that a major U.S. sports apparel company was allegedly involved in improprieties regarding the Brazilian national soccer team. We do know however that Nike
(NYSE:NKE) was a sponsor of the Brazilian national soccer team, and we also saw a big movement today in Nike (NYSE:NKE) stock down as investors apparently deciding that it was Nike (NYSE:NKE) that was being referenced there. The Department of Justice however not saying which company it`s talking about in that indictment.

MATHISEN: And no U.S. company has been indicted or charged in this?
These charges came against individuals who were officials with or formerly officials with FIFA, correct?

JAVERS: No major U.S. companies, Tyler. There were indictments against individuals and also a couple of small companies, sports marketing companies that had a U.S. presence. So there were U.S. corporate indictments involved here as well. But this is globe-spanning series of criminal — alleged criminal activities, ranging from Uruguay to Argentina, Brazil, Miami and also, as we saw this morning, arrests in Zurich at that hotel, Tyler.

MATHISEN: Fascinating story. Eamon Javers, thank you very much.

JAVERS: You bet.

MATHISEN: Well, here are responses from some of FIFA sponsors.

From Adidas, “We encourage FIFA to continue to establish and follow transparent standards in everything they do.”

Coke says, “We expect FIFA to continue to address these issues thoroughly.”

McDonald`s (NYSE:MCD) says it takes such matters very seriously and is monitoring the situation very closely.

And Budweiser is closely monitoring the FIFA situation.

Well, the bounce back in stocks drove the NASDAQ to a record close today, and the blue chip Dow index saw a triple-digit move. By the close, the Dow Jones Industrial Average gain 121 points to 18,162. Strength in technology helped the NASDAQ close at a record, 5,106, and the S&P 500 was up 19 points.

Mary Thompson now with more on today`s gains from the floor of the New York Stock Exchange.

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MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The markets respond to Tuesday`s triple-digit decline in the Dow with a triple-digit gain on Wednesday. Stocks were up ever since the opening bell, thanks to the strength they saw in the European market coming into the opening bell, and then helped, of course, by strong earnings reports from a number of retailers, including jewelry retailer Tiffany`s, and Designer Shoe Warehouse. That helped to offset a disappointing forecast from retailer Michael Kors, which weighed on some of that company`s rivals, including shares of Coach (NYSE:COH) in Wednesday`s session.

Now, around midday, the markets received an additional boost from reports that Greece and the E.U. are in talks at least for taking preliminary steps to reach some kind of an agreement that would allow the troubled country to pay its creditors.

And then adding to the market`s gains later in the session, reports that Avago is in talks to buy Broadcom (NASDAQ:BRCM) which could be the biggest tech deals this year. That gave a lift to semiconductor stocks and again the broader market. In fact, the biggest winners among the Dow components were those in the tech space, including Microsoft (NASDAQ:MSFT), Cisco (NASDAQ:CSCO) and Apple (NASDAQ:AAPL).

Also stronger in today`s session, the dollar. As the U.S. dollar strengthen, though, that put pressure on commodities and we saw weakness in energy stocks as a result, the only laggards among the sectors that we follow within the S&P 500. So, again a triple-digit gain for the Dow in Wednesday`s session.

For NIGHTLY BUSINESS REPORT, I`m Mary Thompson from the New York Stock Exchange.

(END VIDEOTAPE)

MATHISEN: As investors watch possible developments out of Greece, a potential debt deal is just one of the topics being discussed at the Group of Seven meeting in Dresden, Germany, where finance ministers and central bankers from across the globe are gathering.

Steve Sedgwick has our story.

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STEVE SEDGWICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: G7 finance ministers are meeting in Dresden, Germany, to discuss a whole host of global issues. There will be representatives from Japan, the United States, Canada, and the key European nations in a summit hosted by Germany.

The host, Wolfgang Schauble, has gone on the offensive ahead of the summit, saying critics of Germany and its austerity policies are misplaced in their accusations and indeed in their diagnosis of how to get out of the European debt crisis.

Once again, Greece is grabbing way too much head lines and it`s not even on the official program, but it will be on the agenda. There are hopes coming into this meeting that Greece may finally be on the path to an agreement with its creditors so that it doesn`t default on loans to the IMF and ECB and others in June and beyond as well.

Elsewhere, there are big concerns about global growth of course and when the timing of the first U.S. interest rate hike will be and what the markets will do in reaction to that, especially concerns about the foreign exchange markets.

Other concerns include when Japan will finally put itself out of a flat inflation or deflation environment, the central bank governor of Japan expects a two-year time line to get to a 2 percent CPI (NYSE:CPY).

So, a whole host of growth issues globally, but once again, here in Dresden, it is Greece that is dominating the agenda.

Steve Sedgwick for NIGHTLY BUSINESS REPORT in Dresden, Germany.

(END VIDEOTAPE)

MATHISEN: Here the U.S., a massive study by the Federal Reserve of American households finds average Americans are feeling somewhat better about the economy and the recovery. But many are still under financial stress when it comes to their jobs, homes and retirement. A second annual survey finds that 40 percent of individuals feel somewhat better or much better about the economy. That compares to 31 percent who said the same last year.

Now to one of the most well-known brands in America and the world, McDonald`s. The company says it plans to stop reporting monthly sales comparisons beginning July 1. That means investors will not have access to a key measure of progress in McDonald`s turnaround efforts. At a conference today, CEO Steve Easterbrook said the world`s largest fast food chain will instead focus on its longer term strategy. Shares of McDonald`s up a little bit fractionally today.

And as Mary Thompson mentioned earlier in the program, Tiffany
(NYSE:TIF) and Michael Kors reported very different quarterly results.
Tiffany (NYSE:TIF) said new times and price increases helped its bottom line, while Michael Kors reported its slowest quarterly growth since it started trading publicly four years ago. Tiffany (NYSE:TIF) shares took off. They were up 10 percent. Michael Kors saw its stock lose almost a quarter of its value.

Courtney Reagan goes upscale for us.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Two higher end retailers given Wall Street very different reports today. Luxury jewelry company Tiffany`s earnings and revenue did fall less than expected but after company lowered guidance for the quarter just two months ago.

Comparable sales in North America and Asia-Pacific increased, but only slightly, due to continued headwinds from declining tourist spending in the U.S. as a result of a stronger dollar.

Europe proved to be the bright spot for the company. Relatively weaker currency there makes it an attractive destination for foreign tourists spending mostly on fashion jewelry, like the new Tiffany
(NYSE:TIF) T Collection and other gold jewelry. The company maintained the full year forecast citing continued macro challenges.

Overall, analysts say the business is on the right track.

IKE BORUCHOW, STERNE AGEE: Luxury-wise, I think Europe is on sale right now. if you look at what the exchange rates have done to the price proposition there. So, I think you`re seeing tourist flows there and the U.S. back in positive territory. This is a good sign to give investors a little bit of confidence.

But for Michael Kors, it was a slightly different story. Suffering from similar challenges, the premium handbag maker warned current quarter and full year results would fall well below forecast. Also turning in its first negative comparable sales result, that sent shares plummeting.

OLIVER CHEN, COWEN & CO. MANAGING DIR. & SR. RETAIL ANALYST: The handbag sector could be experiencing moderating growth trends, specifically low single digits versus mid to high single digits. Previously, tourism was a negative impact, as well as watches slowing growth and some shipping delays. So, they really revealed a lot of different information and we see in consumer retail land, you know, a tale of two stories.

REAGAN: But others look at Michael Kors and see more company specific issues. One of which is the potential oversaturation of the brand in the U.S. While few expected Kors` previous trend of high double-digit comparable sales growth to continue forever, some think the brand is losing the cache among consumers in its biggest market.

The good news for Kors, however, is that most think there is still global share to be gained. Jefferies analyst Randall Koenig tells investors Kors could triple European and grow more than that in Asia.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

MATHISEN: Still ahead: should the price of cancer drugs be tied to their performance? A controversial new push to change the way some treatment drugs are prices.

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MATHISEN: Forecasters predict a below average hurricane season this year. The National Oceanic and Atmospheric Association say between zero and two major hurricanes will affect the United States, and although the season is expected to be mild, small business along the coast are paying very close attention, because according to FEMA, 40 percent of businesses never reopen after a disaster — like when a hurricane strikes.

Profits of the nation`s biggest banks rose nearly 7 percent in the first quarter. The Federal Deposit Insurance Corp or FDIC says strong trading revenue and a decline in delinquent loans contributed to the rise.
The chairman of the FDIC says the report shows a gradual and steady improvement in the industry.

(BEGIN VIDEO CLIP)

MARTIN GRUENBERG, FDIC CHAIRMAN: There was further improvement in asset quality and the number of banks on the problem list declined to the lowest level in more than six years.

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MATHISEN: But according to Gruenberg, the interest rate environment remains a challenge for the banks.

Well, an update on a story we told you about yesterday. According to CNN, the IRS believes the theft of about 100,000 taxpayers personal data from its computer system originated in Russia. The tax agency`s criminal unit is leading an investigation on the cyber attack.

Well, the FBI is reportedly investigating a surgical device
manufactured by Johnson and Johnson. The device was found to spread
cancer in women. According to “The Wall Street Journal”, the agency wants to know what J&J knew about the tool before pulling it off the market.

Well, there is a new push now to tie the price of cancer drugs to their performance. Express (NYSE:EXPR) Scripts, a large manager of prescription drug benefits for U.S. employers and insurers has been aggressively trying to lower the price of drugs. But will this new model work?

Meg Tirrell reports.

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MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
It`s sometimes referred to as pay for performance — the idea that medicines should be reimbursed based on how well they work. Express
(NYSE:EXPR) Scripts is the country`s largest pharmacy benefits manager. It negotiates drug prices on behalf of health insurers and employers and it has been waging somewhat of a war on the cost of medicines. It started with hepatitis C where they negotiated a discount to provide a regiment at the expense of those from Gilead and others. Now, the focus is cancer drugs for which costs in the U.S. topped $100 billion last year.

BRIAN SKORNEY, BAIRD BIOTECH SENIOR RESEARCH ANALYST: Oncology has been a hot button topic in terms of the over all cost of drugs steadily rising to the point where we`re used to seeing drugs well in excess of
$100,000 per patient, and there has been — you know, along with everything in the drug sector, a growing noise around the ever increasing price of drugs.

TIRRELL: Express (NYSE:EXPR) Scripts` plan has two parts. The first focuses on how well drugs are shown to work in different cancers. Chief medical officer, Dr. Steve Miller, cites a drug called Tarceva as an example. It`s approved both for lung cancer and for pancreatic cancer.
But it`s proven in clinical trials to extend patients lives by months for lung cancer and only a couple of weeks for pancreatic. So, he says the new plan would reimburse more for the first.

(on camera): The second part of the plan looks at how well drugs work for individual patients. That would require more diagnostic testing upfront and monitoring patients as they receive treatment. Express
(NYSE:EXPR) Scripts says it`s enlisted outside experts to advise it on the value proposition of cancer drugs and that health plans representing millions of people in the U.S. have already signed on.

(voice-over): Bio technology analyst Brian Skorney points out a similar system that`s already employed in Europe, where government`s provide health coverage and in some cases deny use of drugs based on their price.

SKORNEY: They basically determine whether the benefit of that drug justifies the cost of that drug. And while the U.K. was the first, the rest of Europe is really falling in line with more or less doing the same sort of value-based pricing for drugs in general.

Now, in the U.S., we don`t really have that market approach at all.

TIRRELL: That may be starting to change.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

(END VIDEOTAPE)

MATHISEN: More details now on that possible semiconductor deal, and that is where we begin tonight`s “Market Focus”.

According to Dow Jones, Broadcom (NASDAQ:BRCM) is in advanced talks to be bought by Avago, which would be the latest in a string of semiconductor mergers. Both companies have a market value of around $30 billion. Broadcom (NASDAQ:BRCM) popped almost 22 percent to close to $57.15. Avago finished about 8 percent higher to $141.49.

Movado out with mixed results. The watch retailer`s earnings were below estimates as it was impacted by currency fluctuations. Still, the company says it was able to overcome that and a weaker retailer environment. Shares dropped almost 4 percent today to $26.56.

Chico`s reported that its first quarter profit dropped by almost 20 percent on restructuring charges and lower sales. The woman`s retailer has been closing stores, cutting jobs to turn its business around. Shares close a fraction lower today at $16.64.

The ISS Proxy Advisory Services firm urges Caterpillar`s shareholders to reject the executive pay plans for the company`s CEO. The firm also recommends that shareholders vote against the re-election of one of the construction equipment maker`s directors. The stock rose a few cents today, $87.92 is where it finished.

Unemployment rates fell in 23 states in April, as hiring rebounded nationwide, Nebraska reporting the lowest unemployment rate at 2.5 percent, followed by North Dakota at just above 3.5 percent. The highest rate is in Nevada at 7.1 percent, followed by West Virginia at 7 percent.

Despite the falling unemployment rates in many states, more than 9 million Americans don`t have jobs. But companies across the country say they are still having a hard time finding workers, qualified ones. So, what`s going on?

Labor experts call it the skills gap. State officials trying to lure businesses, call it an opportunity.

Scott Cohn has the story from Fremont, California.

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SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): It`s no accident that Tesla`s main vehicle factory is in Fremont, California, in the San Francisco Bay Area, this place has it all.

RICARDO REYES, TESLA MOTORS VICE PRESIDENT: It`s this unique place where you have a combination of a manufacturing workforce at the ready, but also a high technology workforce at the ready.

COHN: There are auto workers from the GM and Toyota (NYSE:TM) plant that used to be work here and tech talent from Silicon Valley nearby. And when the company was deciding where to build its new $5 million battery plant, it followed the same formula. Nevada won that competition and it wasn`t the $1.25 billion in incentives from the state that sealed the deal.

REYES: A lot of the assurances we got were, if you come and you invest here, we`ll definitely have the workforce for you. We`re used to building things quickly, building things fast and we have the workforce available for you as far as manufacturing jobs.

COHN (on camera): This voracious appetite for people is not lost on the state, at least the most competitive ones. Instead of just using taxes and incentives to lure business, they are touting their work forces like never before.

(voice-over): We analyzed all 50 state economic development websites and found for the first time since we began keeping track in 2007, workforce is the most frequently cited selling point. It used to be business cost like low taxes and utility bills.

Melissa Ehlinger, who makes the pitch to bring business to New Orleans, says the key is matching the workforce with the needs of businesses.

MELISSA EHLINGER, NEW ORLEANS BUSINESS ALLIANCE: Traditionally, workforce has traditionally been supply side driven, thinking about the individual. And what we`re doing in the economic development profession is sort of flipping the switch on that and saying, we need to focus on the demand side. What is it the industry needs and then tailor our education and training programs accordingly.

COHN: Everyone seems to agree on that, including Congress, which last year overwhelmingly approved a complete overhaul of the nation`s workforce development policy, the first update in nearly 20 years.

It`s badly needed. Even with millions of people out of work, one recent study found half of the employers surveyed found open skilled jobs that they couldn`t find anyone to fill.

Scott Cohn, NIGHTLY BUSINESS REPORT, Fremont, California.

(END VIDEOTAPE)

MATHISEN: To read more about how states are fighting for business, head to our Website, NBR.com.

And coming up, flippers are back as the housing market heats up, but this time around, it`s a lot harder to make a fast buck.

(MUSIC)

MATHISEN: A recall to tell you about, two of them in fact. Ford issued two of them today on more than 440,000 cars. One for a power steering problem on many of its recent model sedans an crossovers. And the other to fix a heat shielding issue on the new Ford Mustang. The automaker says the power steering issue has resulted in accidents but no injuries.

More housing data out today. Mortgage application volume fell by 1.5 percent according to the Mortgage Bankers Association. This as the average rate on the conventional 30-year fixed mortgage is now slightly above 4 percent and borrowers are pulling back from refinancing.

Toll Brothers (NYSE:TOL) reported better than expected. The largest U.S. luxury home builder raised the low end of its average selling price forecast as demand increases. But revenue came in a little bit below consensus as the number of homes the company sold declined. Shares fell more than 2 percent today as you see there.

Well, home prices rise at a fast clip nationally, that could mean a fast profit for house flippers. But it isn`t as easy as it sounds or looks on those TV shows. Tight inventory is upping the competition and the risk.

Diana Olick has the story.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):
This D.C. row house is in a transitional neighborhood on Capitol Hill. And it just went through quite a transition itself. Thanks to real estate agent and house flipper Christal Goetz.

CHRISTAL GOETZ, HOUSE FLIPPER: Our goal is to completely come in and redo the house from top to bottom, completely gut it, completely remake the house.

OLICK: That`s what she and her contractor husband did after repurchasing the home last August. But he redo paid off. The sold in five days above asking price with multiple offers. Goetz made a 15 percent net profit, which in this tight and pricey housing market is not easy.

GOETZ: It is like finding the needle in the haystack. You are trying to find the diamond in the rough that is in bad enough condition.

OLICK: House flipping which is defined as buying and selling a home in the same year is now making investors an average gross profit of $72,450, the highest since 2011 according to RealtyTrac. That`s an average
35 percent gross profit. Higher home prices are helping that, even though flippers have to pay more up front. Some of the best market for returns, Tampa, Pittsburgh, Memphis, Chicago, Boston, Seattle and Washington, D.C.

Flipping though, is more competitive now, with so few listings on the market, which is why flippers made up 4 percent of sales at the start of this year, a four-year low.

(on camera): There may be fewer flippers out there now, but investors in the single family rental market are still going strong and in fact are buying homes from the flippers. That`s now because they already have management structures in place, they are looking for turnkey properties just like this one.

DAREN BLOMQUIST, REALYTRAC VP: It`s helping to boost those profits because they are single family rental investors are able to buy at a higher price point and still make their margins and profits on the rental side of things.

OLICK (voice-over): Still, any flipper will tell you it`s not as easy as it looks.

GOETZ: The risk for flippers in generally can and has increased.

OLICK: But so too have the rewards.

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

(END VIDEOTAPE)

MATHISEN: To get five tips for big returns on house flipping, go to our Web site at NBR.com.

And finally tonight, Brand Z is out with its annual list of the world`s most valuable brands and it`s no surprise that the battle for the top spot went to Apple (NASDAQ:AAPL). Google (NASDAQ:GOOG) came in number two.

And that, folks, is NIGHTLY BUSINESS REPORT for tonight. I`m Tyler Mathisen. Thanks for watching. Have a great evening, everybody. And we hope to see you right back here tomorrow night.

END

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

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