Transcript: Nightly Business Report — July 31, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Oil slick. Profits from some big energy companies hit a decade low. And with crude prices still declining, are their dividends safe?

Pay day. But not the kind many would like as wage growth hits a record low.

And the big idea. Meet the kids who want to create the next hot start-up at summer camp.

All that and more tonight on NIGHTLY BUSINESS REPORT for Friday, July 31st.

Good evening, everyone. Tyler is off tonight.

Big oil profits slammed. ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) posted their worst quarterly results of the current decade, as two of the biggest oil companies in the world showed investors just how much of a toll crumbling crude prices are having on their bottom line. Chevron`s earnings dropped 90 percent from a year ago. Exxon`s earnings were cut in half.

And these two Dow components saw their stock prices take a hit. Chevron
(NYSE:CVX) was off nearly 5 percent. Exxon sank 4.5 percent.

And today, crude prices continued their tumble, settling down nearly 3 percent to $47.12. The commodity is now down 21 percent this month — its worst month since October of 2008, and that was the heart of the financial crisis.

Jackie DeAngelis has more now on the pain in the oil patch.

(BEGIN VIDEOTAPE)

JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: When big oil speaks, investors listen.

But what was said today was not encouraging. ExxonMobil (NYSE:XOM) reporting its worst quarterly profit in nearly 13 years, and Chevron
(NYSE:CVX) seeing its profits plunge, triggered by impairments and charges, based on lower oil prices.

Exxon noted that higher profit in refining couldn`t offset losses in its upstream businesses. That`s the exploration and production side of things.
Exxon making a move to conserve cash confined to the market but it doesn`t expect to see a quick rebound in crude prices, the company planning to scale back share buybacks by half, quarter on quarter.

And Chevron (NYSE:CVX), which stopped working on projects because it didn`t see a rebound in prices, was forced to take a multibillion dollar charge.
CEO John Watson saying, “Second quarter financial results were weak, reflecting a crude price decline of nearly 50 percent from a year ago. And that is upstream businesses were particularly hard hit.”

JEFF GROSSMAN, BRG BROKERAGE PRESIDENT: Big oil is telling us that they still believe the market will be going lower. There`s no question, they are not happy with what`s happening and their profits are showing it.

DEANGELIS: Cost cuts continue. Chevron (NYSE:CVX) and Exxon both cut spending by about $1 billion from a year ago.

Both stocks hitting multiyear lows today, and year-to-date both suffering double digit declines.

So the next question is, what does this mean for oil prices?

GROSSMAN: The trend right now seems to be dawn. I still believe there`s going to be a point where at this point the consumption is going to increase. Everyone`s going to now suddenly take another look and see that these prices are ridiculously low, and that maybe now we start that downward slide.

DEANGELIS: Others tell me they`re eyeing this year`s low of $43.46 as a key resistance, and if we breach that maybe the three handle that we saw in
2009 is next.

For NIGHTLY BUSINESS REPORT, I`m Jackie DeAngelis.

(END VIDEOTAPE)

HERERA: With the decline in oil prices and the disappointing earnings from big oil this quarter, many investors may be wondering whether the dividends paid by these companies are safe.

Bob Pisani reports from the New York Stock Exchange.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Looking for a big dividend yield? The oil majors are trying to convince you that they`re the place you want to go.

Today, ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) reported earnings which were disappointing to say the least. One thing they did not disappoint on was the dividend. Both confirmed they will continue to pay the current dividends, and that`s part of a trend.

ConocoPhillips (NYSE:COP) and Royal Dutch both said yesterday their dividends were safe and the yields are really juicy. Royal Dutch, for example, has a 5.8 percent yield as does Conoco, Chevron (NYSE:CVX) has a
4.8 percent yield. Pretty good considering the S&P 500 only has a yield of
2 percent. And they`re going out of their way to assure you that the dividend is not going to be cut.

Conoco`s CEO Ryan Lance (NASDAQ:LNCE) opened his conference call with the statement, “The dividend is safe, let me repeat, the dividend is safe.”
Get the point? Think the dividend is safe here?

You can`t blame them, really. It`s part of a desperate effort to remain relevant to investors. If your profits are down then boost the dividends and say it`s safe. There`s legions of yield-hungry investors who will sit up and pay attention to that. That`s right. Big oil, like a utility play.

Now, are the yields safe? That`s the issue. For the moment, yes. Big oil can afford to fund the dividends from the cash balance and they also have access to the capital markets that they can tap, as well.

But in the long run, and I`m talking a couple years, they all need oil to be higher. You cannot forever just sell yourself as a utility play. And that`s the main objection of these traditional energy investors have to the big oil as a utility play. Oh, they might get a juicy yield that`s nice, but if the stock price keeps dropping, I can still lose money.

The argument is that we are near the bottom of this terrible cycle. Or at least that`s what these big oil companies are hoping.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

HERERA: Drivers may be paying less for gas over the coming months.
According to Gas Buddy, which tracks trends at the pump, prices could reach
$2 per gallon by the New Year. Some of the reasons include a possible easing of sanctions against Iran, and a slowing Chinese economy.

The oil majors weighed on stocks on this final day of trading for the month of July, pulling the Dow Jones Industrial Average lower. The blue chip Dow index dropped 56 points to 17,689. The NASDAQ fell half a point and the S&P 500 lost five.

For the month of July, which was marked by the debt crisis in Greece, and the plunge in Chinese stocks — well, stocks actually fared pretty well.
The NASDAQ and the S&P 500 saw gains of at least 2 percent. And the Dow ended the month fractionally higher.

But, as Dominic Chu reports, attention now turns to what may happen in the next six weeks leading up to that critical meeting of the Federal Reserve.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: After all the ups and downs, July has closed out with gains for many stock market investors. But the weeks and months ahead could be rife with even more volatility as traders keep a close eye on a slew of potential upside or downside catalyst.

And the origins of these market-moving events come via both macro or bigger picture economic trends, as well as micro, or more industry-specific and company specific stories.

Both will have a big influence on how stocks trade here in the U.S.

GINA MARTIN ADAMS, WELLS FARGO SECURITIES: But there is a lot of evidence that at least in the short-term, stocks are trading based on earnings. The all-important monthly employment report comes up next Friday. And then, of course, there`s international economic conditions. It would be remiss not to mention China and what does that mean for stocks.

CHU: There are a few things to keep in mind as these stories begin to unfold. On the earnings front, we`re in the waning part of reporting season, and if all remaining companies in the S&P 500 report as expected, we could see modest earnings growth, but revenue decline over the same time last year.

But some experts are keeping a close eye on potential catalysts that could help power the markets even higher.

HUGH JOHNSON, HUGH JOHNSON ADVISORS CHMN. AND CIO: The real big thing that could happen is a decline in the dollar. But, if you look at the earnings reports for the second quarter, first quarter, and second quarter, they`ve been inhibited by a very strong dollar. If the dollar declines, and I think there`s a strong case that could be made for a dollar decline, then prospects for earnings are going to get much brighter and that`s going to touch off a rally in the stock market.

CHU: August has generally been a weaker month for the U.S. stock market over the past 20 years or so. And with many Wall Street professionals still on vacation, lightly traded markets could produce some more stock swing.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

HERERA: Wages grew at their slowest pace since 1982. The employment cost index, which tallies wages, salaries, and benefits, rose just 0.2 percent in the April to June period. That rate is the slowest since records began in the early 1980s, and it follows a 0.7 percent increase in the first quarter.

As we`ve been reporting, the Federal Reserve wants wages to rise in order to bring inflation closer to its 2 percent target.

Bricklin Dwyer says weakness in wage growth will likely raise more doubts about the Fed and the strength of the economy. And increases the chances of a December rate hike. He is senior economist at BNP Paribas and he joins us this evening.

Good to see you, Bricklin. Welcome.

BRICKLIN DWYER, BNP PARIBAS SENIOR ECONOMIST: Hi, thanks for having me.

HERERA: I guess one of the better questions is given the fact that the economy is in recovery mode, and we`ve seen advances in a lot of key indices, why haven`t we seen upside wage pressure yet?

DWYER: Well, you know, this last recession really took a toll on people, and it`s really hampered their ability to feel confident that when they sit down with their boss, they can ask for just that much more in terms of their pay. So, I think that that time right now is upon us, but we`re not there yet. That`s what the data is telling us now.

HERERA: So, are you concerned, or do you think that as the data continues to improve, we actually will see people more empowered to ask for raises, and put some pressure on businesses to increase wages?

DWYER: Well, like most people we looked at the data today and we`re quite shocked at the weakness. That being said with Q1 so strong, it kind of offsets that and puts us back on the trend, and wages are roughly growing at the same pace of where they were at the end of last year.

So, what that means is wages aren`t really accelerating right now. But they`re not decelerating, either. So, in our view, you know, we`re kind of back to where we were. We`re hoping we`re a bit further along. We`re not quite there yet. We`re optimistic that we`re going to get there later this year.

HERERA: What does it say, though, about businesses, and about the economy?

DWYER: I think right now, you know, businesses just aren`t getting that pressure from their workers who, you know, aren`t showing up and banging on the door and asking for more money yet. Right now, they`re getting that bang on the door from the shareholders asking for their money back. So, you know, it`s a competition. You`ve got to compete for that money and right now those workers just aren`t feeling that confident yet.

HERERA: What about productivity?

DWYER: So, productivity has been particularly weak in this recovery. And we just haven`t seen that acceleration yet that you`d normally see. And so, businesses are looking at productivity, as a tradeoff between either paying people more, or hiring more workers. And with low productivity, they`re going to hire more workers rather than pay people more.

HERERA: Are you overall optimistic, though, that we will see the fed carry through with what it seems to be promising? And that is a rate hike before the end of the year?

DWYER: I think they`re telegraphing that fairly confidently right now.
Data will certainly be the devil in the details there. But, we expect employment to really be the — you know, the foretelling indicator right now for the U.S. which we expect to be fairly firm in the coming months.

HERERA: All right.

DWYER: That will really set the tone in

HERERA: Bricklin, thanks so much. Have a good weekend.

DWYER: All right. You too.

HERERA: Bricklin Dwyer with BNP Paribas.

And still ahead, the stocks that our market monitor says are cheap and belong in your portfolio for the long haul. He`ll name some names for us coming up next.

(MUSIC)

HERERA: CVS (NYSE:CVS) Health is being accused of overcharging pharmacy customers. According to a complaint filed in San Francisco, CVS (NYSE:CVS) intentionally overcharged for generic prescription drugs by submitting claims for payment to third parties at inflated prices. The plaintiffs are seeking class action status, but a similar federal complaint was dismissed in Massachusetts.

General Electric (NYSE:GE) is echoing the recent comments from Boeing (NYSE:BA). GE reportedly says it may spend $10 billion worth of work overseas now that the Export-Import Bank will be shuttered until at least September. According to “Reuters”, the company is working with export credit agencies in other countries to help finance some deals. The countries that could get that manufacturing work from GE include Canada, the UK, France, Germany, China, and Hungary.

A new chapter for JCPenney. The department store will get its third CEO in four years this weekend. And during the past four years, the stock has plummeted, losing more than 70 percent of its value.

Courtney Reagan takes a look at what the new boss is inheriting and what he needs to do to get cash registers ringing again.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tomorrow, JCPenney gets its third CEO in four years. Marvin Ellison has been working side by side with outgoing CEO Mike Ullman for the past ten months, as president, CEO designee, and JCPenney board member — JCPenney`s way of ensuring a smooth transition, after Ron Johnson was pushed out and Mike Ullman returned to stabilize the retailer.

Prior to JCPenney, Marvin Ellison spent 10 years at Home Depot (NYSE:HD) and 15 years at Target (NYSE:TGT). Most of his experience is in operations and logistics, causing some concern about his lack of merchandise experience, particularly, in apparel.

But others believe that he brings a fresh perspective to JCPenney and that he understands the customers, and the employees. His mother shopped at JCPenney for him and his siblings growing up and he started out as a part- time employee at Target (NYSE:TGT).

NEELY TAMMINGA, PIPER JAFFRAY MANAGING DIR: This journey for him is not just professional, it`s absolutely personal. We think it`s that authenticity that`s going to drive his authority not only of his customers but also with his associates.

REAGAN: While Ellison and outgoing CEO Ullman crafted the current back-to- school and upcoming holiday strategies together, Ellison is inheriting a fragile retailer. At its peak in 2003, JCPenney generated $32.3 billion in annual sales. Now, revenues are less than half that.

Deutsche Bank analyst Paul Trussle says Ellison`s first task is to maintain current momentum and then step it up, improving profitable and free cash flow which has proven to be difficult. But most who have met Ellison come away optimistic.

TAMMINGA: You have to know what your customer wants. You have to understand what it is that she needs. That`s both from a product perspective as well as a value. That`s what JCPenney is righting the ship on right now. And so, we believe they have a much higher chance of converting as that traffic actually shows up for back-to-school and into holiday.

REAGAN: As for making strategic changes at the retailer right away, Ellison tells me change for the sake of change is overrated. But some shifts may take place next year.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in Daly City, California.

(END VIDEOTAPE)

HERERA: Royal Caribbean cruised higher on an earnings beat, and that`s where we begin tonight`s “Market Focus”.

Profits topped estimates, while revenue was slightly below forecasts. The firm raised its full-year profit forecast on a cruise booking surge in the Caribbean and success in the fast-growing Chinese market. Shares popped
8.5 percent to $89.85.

Weyerhaeuser`s bottom line results topped estimates, but earnings fell more than 50 percent from the previous year. The firm, which produces lumber, was hurt by the delayed arrival of the spring home selling season and the stronger U.S. dollar. Still, the stock was a fraction higher to $30.69.

Newell Rubbermaid (NYSE:NWL) bumped up its guidance for the full year after reporting an increase in quarterly revenue and a beat on the bottom line.
The firm, which makes sharpie pens and Calphalon cookware, saw growth in its baby and school products divisions. Shares were 1 percent higher to $43.28.

And investors getting a chance to react to disappointing results from Hanes Brands. The apparel maker`s sales and earnings didn`t meet Wall Street`s expectations. And on that, the company lowered its full-year revenue guidance. Shares tumbled a full 9 percent to $31.03.

And now to our market monitor, who likes large cap stocks, but he says they`re cheap and misunderstood by investors. This is his first time joining us on the program. He is Charles Dyreyes. He`s senior analyst at Brandywine Global.

Welcome, Charlie. Nice to have you here.

CHARLIE DYREYES, BRANDYWINE GLOBAL SENIOR ANALYST: Hi. Thanks for having me.

HERERA: So, what is it you like about — before we get to your picks — about the large cap stocks in particular?

DYREYES: Well, we see when we`re looking across the large cap universe, you know, we`re finding pockets of some extraordinary cheapness across the valuation space. And so, not all our caps are cheap, but we found enough opportunities where we think we can really add some profit for our clients.

HERERA: What do you expect as we start a new month of trading as we edge closer towards the September arena where a lot of people do think that the Fed will move up on rates?

DYREYES: Sure. Well, you know, August — first off, August trading is usually always pretty volatile. You have a lot of investors going on vacation. So the trading tends to be kind of sloppy reading into that.

You know, we take the viewpoint that the fed is going to wait for definitive data on whether or not to raise rates, and most of that is going to be predicated upon the jobs report.

HERERA: All right. Let`s get to your picks. The first one up is Citigroup (NYSE:C), target price of about $75 over the next 12 to 18 months. Why do you like it?

DYREYES: Well, we like Citigroup (NYSE:C), because we think, number one, it`s an extraordinarily cheap stock. The bank is very well-capitalized.
And we think next year, they could start to return capital back to shareholders and take up the dividend.

But more importantly, we think the actual earnings of the company are depressed right now. And that`s due to the low interest rate environment which is pushing revenues down. So, we think it`s working out Citigroup
(NYSE:C) could earn $7 and a lot of that would be predicated on interest rates and — but most of that is actually on cost cuts. So, we like Citigroup (NYSE:C) a lot right here.

HERERA: Yes, and it`s more of an international flavor, the next financial that you like, which is Bank of America (NYSE:BAC), which is a 67 more domestically focused bank.

DYREYES: Right. Yes. Bank of America (NYSE:BAC) similarly is very cheap.
And we think investors aren`t giving credit for a lot of the cost cuts that the bank has done. And just like Citigroup (NYSE:C), as well. The interest rates are pushing the revenues down, which is masking the true earnings power of this company. So, we think the combination, looking out two years, Bank of America (NYSE:BAC) could be earning $2 a share and we think that`s not being priced into the stock right here.

HERERA: And finally, General Motors (NYSE:GM). You say that people are maybe overreacting a little bit to what`s going on in China.

DYREYES: Sure. So, the General Motors (NYSE:GM) stock is one of the cheapest we find within the entire market, and especially the large cap universe. Investors are really nervous that the Chinese auto market is deteriorating. But when you actually look at GM`s results over the past two quarters, that hasn`t shown up yet, and it`s not evident in their results.

And GM`s not getting a lot of credit for the strength of their North American business, which just put up its best quarterly profit of all time.
And additionally, GM, their European business and Latin American business are losing money today. But within two years both of those businesses could be back to break-even.

And GM also pays a 4.5 percent dividend yield. So, there`s a lot to like with GM and there`s a lot of ways to really win with that stock.

HERERA: All right. On that note, Charlie, thank you very much for joining us tonight.

DYREYES: Thank you for having me.

HERERA: Charlie Dyreyes from Brandywine Global.

And coming up, forget soccer camp. Meet the kids creating their summer creating business plans.

(MUSIC)

HERERA: And here`s what to watch for next week. More earnings including results from Dow component Disney (NYSE:DIS). Lots of data, including personal income and spending, international trade numbers and also auto sales. And Friday is the big one, the jobs day, the monthly employment report is out. And that is what to watch for next week.

Well, move over Greece, Puerto Rico is back in the hot seat. The commonwealth needs to make a $58 million debt payment Sunday. The top officials say they don`t have the money. This could end up becoming the start of one of the biggest municipal restructurings with the potential to spark fights with investors, and create volatility in bond prices.

And there`s a crisis developing across the ocean. Thousands of vehicles and delivery trucks are stuck along one of Britain`s main highways.
Causing food to rot and goods packed for European destinations to sit. And it`s starting to take a toll on the British economy.

Hadley Gamble explains what`s happening from Ashford in the United Kingdom.

(BEGIN VIDEOTAPE)

HADLEY GAMBLE, NIGHTLY BUSINESS REPORT CORRESPONDENT: They call it Operation Stack. Over 5,000 container trucks lining one of Britain`s major motorways, all caught up in a massive security bottleneck that British authorities say shows no sign of letting up.

You see these thousands of trucks lined up behind me unable to get their goods to market in European ports and essentially that is taking a hit not just for the trucking services themselves but also for the UK economy.
There are estimates that UK economy is losing up to 250 million pounds per day and that these trucks, companies themselves are losing something like
750,000 pounds per day.

It`s just the latest fallout from the continent`s migrant crisis, as thousands of asylum seekers from countries like Syria, Libya, Sudan, Iraq and Afghanistan try to find a better life. Offer 4,000 migrants are currently camped out around Calais and more than 100 arrive every day, all of them hoping to hitch a ride to the UK, just 21 miles away.

All of that adding up to a security and logistics nightmare for British and French authorities that`s now putting a major strain on British business.
Police say they already spend around 1 million pounds on the channel crisis, and the government now says they`ll be shelling out an additional 7 million pounds to tackle the problem.

DAVID CAMERON, BRITISH PRIME MINISTER: We`ve invested money in the fencing around Calais. We`re also putting fencing around the entrance to the tunnel at Coquelles. So, we`re doing everything we can.

GAMBLE: But all that cash won`t be enough to solve things short-term.
Authorities expect Operation Stack to continue through the weekend, and government officials admit the long-term solution for asylum seekers will have to begin back at home.

For NIGHTLY BUSINESS REPORT, I`m Hadley Gamble.

(END VIDEOTAPE)

HERERA: A huge advancement in the fight against Ebola. Merck (NYSE:MRK) and NewLink Genetics` Ebola vaccine was 100 percent effective in preventing that disease. That`s according to a late stage study in Guinea. The results still need to be confirmed, but the World Health Organization is calling the news an extremely promising development.

Uber, the ride sharing company, has reached a valuation of nearly $51 billion after its most recent round of funding. That`s according to “The Wall Street Journal.” That valuation would top the market capitalization of more than 80 percent of the companies in the S&P 500. And it would make the 5-year-old firm as large as General Motors (NYSE:GM).

And finally tonight, when most kids are at camp playing baseball or swimming, others are learning how to be entrepreneurs.

Kate Rogers (NYSE:ROG) introduces us to the kids who may one day develop the next hot start-up.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: Our product is a camper hamper.

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It may be the dog days of summer, but these kids are working harder than ever at Explo start-up based at Wellesley College outside of Boston. It`s a two-week intensive program to help kids with big ideas learn to network, pitch investors, market, and more.

UNIDENTIFIED FEMALE: That`s perfect. Nice work.

ROGERS: This year`s class has attendees from Hong Kong and Dubai, as well as the United States. The program`s selective and kids have to apply to get in.

ELLIOT TARGUM, EXPLO HEAD OF PROGRAMS: We`re letting them be kids. But they`re also cooperating and collaborating together. They`re meeting speakers from industry, they`re going to places like Google (NASDAQ:GOOG), and Forester Labs. They`re learning about innovation. They`re learning to write business plans. They`re learning to pitch their ideas.

AMAAL SHAIKH, CAMPER: I just love that I like to get to be in control and that I have my own company.

TEDDY SIKER, CAMPER: It sounds like (INAUDIBLE). You get a lot of freedom and money.

ROGERS: Explo itself has a wide array of program offerings. And past attendees including Kevin Systrom of Instagram and Jay Kaplan of Synack.

Jonah Peretti, co-founder of “BuzzFeed”, was a counselor at Explo and in total, 12 former attendees have made various Forbes 30 under 30 list this year.

One of Explo startup`s more recent success stories is a student named Grant Goodman who came to them last summer at age 14, having just launched his software company, Macster Software Incorporated. Now at age 15, Grant`s won not one but two scholarships from Apple (NASDAQ:AAPL) to attend their worldwide developer`s conference, and he also has five apps available in the iOS Store.

GRANT GOODMAN, MACSTER SOFTWARE FOUNDER: At the time I had already started my own company and I had already done a bunch of application stuff, but I wasn`t really too keen on knowing anything about business. When I got in, that`s what really pulled me in, being able to learn how to do business and learn how to pitch to angel investors, and get me money so I could further advance my own company that I had founded the year previous.

ROGERS: It`s a sign of the times when kids tell you they want to become the next Mark Zuckerberg and not the next LeBron James.

For NIGHTLY BUSINESS REPORT, in Boston, I`m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

HERERA: They`re going to change the world.

That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for watching. Have a great weekend, everybody, and we`ll see you back here on Monday.

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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