Transcript: Nightly Business Report- April 22, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Super sized. All-day
breakfast powers McDonald`s (NYSE:MCD) profits past expectations for the
third straight quarter. The company`s turnaround has taken hold, but can
it be sustained?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Sign post? A deluge of
big-name earnings this week led to some wins but a lot of disappointment
too. What the profit picture says about the future of stock prices.

HERERA: And, office space. The fast-growing big-money craze that hopes to
keep you fit even at your desk.

All this and more tonight on NIGHTLY BUSINESS REPORT for Friday, April
22nd.

MATHISEN: Good evening, everyone, and welcome.

Well, it was a big week for earnings and a big week for some head-
scratching. There were sizeable beats and lots of whiffs. And even when a
company did well as we saw with Google`s parent Alphabet, sometimes the
market punished it because the company didn`t do well enough.

No matter how you cut it, it is all about the earnings this time of year.
And today was no different. So let`s start with the Dow component
McDonald`s (NYSE:MCD).

The fast food chain beat estimates for the third time in a row, posted its
first quarterly same-store sales rise in two years. The driver here, you
guessed it, all-day breakfast. Got to love that. Shares were up strongly
early but then they faded into the close.

Susan Li has more.

(BEGIN VIDEOTAPE)

SUSAN LI, NIGHTLY BUSINESS REPORT CORRESPONDENT: McDonald`s (NYSE:MCD) is
proving that less is more. Its latest quarterly report card beat market
expectations of profit, sales and revenue. So, what`s working for the
company?

Well, a simpler menu with fewer items for customers to choose from,
offerings of all-day breakfast items like Egg McMuffins and hotcakes, 2 for
$5, two of their main menu items for $5, helping boost same-source sales.
Now, all that helped drive profit in the first three months of the year to
come in way ahead of estimates.

DAVID PALMER, RBC CAPITAL MARKETS RESTAURANT ANALYST: We think that all-
day breakfast is a gift that keeps on giving into `17, the company really
trying to take this momentum they got from all-day breakfast and get other
things in play, for instance, quality upgrades, the pick 2 platform,
technology, loyalty, to extend this rally.

LI: Some new things McDonald`s (NYSE:MCD) is trying, all you can eat fries
in some U.S. locations. Also, different sizings in Big Macs where you can
get bigger Big Macs called Grand Macs or smaller ones called Mac Juniors.
This is all part for a turnaround plan for the Golden Arches that started
about a year ago after years of slumping sales and losing customers. Its
recovery efforts under McDonald`s` relatively new CEO Steve Easterbrook who
stepped into the top job only in 2015.

Now, internationally, McDonald`s (NYSE:MCD) is being helped by improvements
in key markets. China was a standout, sales increasing more than 7 percent
after problems with suppliers with their business in the country.
McDonald`s (NYSE:MCD) has said it wants to make China its second-largest
market in the world after the United States.

The Japan business is finally turning in a profit after a rough couple of
years, losing money.

At the end of March, McDonald`s (NYSE:MCD) had more than 36,000 stores
around the world and it aims to open 500 more this year.

They`re also returning a lot of money back to shareholders, $30 billion in
the last three years. But even with the stellar earnings results,
McDonald`s (NYSE:MCD) executives say that this is only the beginning in a
turnaround plan to get back to the peak days of profitability for the
company.

For NIGHTLY BUSINESS REPORT, I`m Susan Li.

(END VIDEOTAPE)

HERERA: Three companies that are often used as a proxy for the economy
also posted their latest results today, General Electric (NYSE:GE),
Caterpillar (NYSE:CAT), and Honeywell.

At GE, which is in the process of shedding assets from its GE capital unit,
adjusted profit etched out expectations, but there was concern its organic
revenue fell. Caterpillar (NYSE:CAT) missed on the bottom line but its
revenue beat forecasts. And Honeywell`s results were better than expected.
Thanks to growth in China.

As you can see, all of those shares of all three finished to the downside.
But as Bob Pisani tells us, it might not be the results that matter right
now. It might be the tone.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Three big industrials
reported today and there`s a subtle but important change in the tone from
cautious to mildly more upbeat.

Let`s start with General Electric (NYSE:GE). They reaffirmed their full
year guidance. CEO Jeff Immelt was blunt in calling the oil and gas
business challenging but he also said the aviation business was seeing
sustained strength and health care was rebounding and we were seeing
improvements in our business in China. Overall, Immelt, concluded there`s
plenty of business out there to achieve our goals. That`s more positive
than last quarter.

Even companies that have had a tough time are modestly more optimistic.
Take Caterpillar (NYSE:CAT), it was not a good quarter. There were sales
declines in all key businesses including construction and oil and gas,
mining and rail. But CEO Douglas Oberhelman came on our air and said,
“Overall, I think we`re close to the bottom.”

Now, for a company that has seen declining revenues since 2012, saying we
are close to a bottom, that`s a change in tone.

Then, there`s Honeywell. Earnings were up 9 percent year over year, that`s
good. Officials noted growth in the key aerospace category had accelerated
in the current quarter.

OK. So, why were the stocks down slightly today? Because the stocks have
had a nice rally since the February bottom and they`re expensive right now.
OK. So, what does all this mean for the markets? There`s a change in
tone, however modest, and that`s good sign for earnings in the second half
of the year.

And it increases the chances that we can end this earnings recession, this
four consecutive quarters of earnings decline in the S&P 500.

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

(END VIDEOTAPE)

MATHISEN: So, what are the earnings telling us? Our next guest concedes
corporate profits have been a very mixed bag so far, but she thinks the
worst of the earnings slump is finally passing.

Karyn Cavanaugh is senior market strategist with Voya Investment
Management.

Karen, good to have you with us.

You say that earnings growth is actually going to be down year over year,
but not as bad as the most dire forecast. What`s working?

KARYN CAVANAUGH, VOYA INVESTMENT MANAGEMENT: Well, that`s correct. I
don`t think that we are going to get that negative growth that we were
expecting. We still will have negative growth.

What`s working is that things we were worried about have subsided. The
dollar is getting weaker. Oil is going up. And the Fed is remaining
accommodative. That`s good news for stocks.

HERERA: In terms of sectors, Karen, have there been surprises the
financials have been a worry for a lot of people certainly. The big banks.
Have there been surprises in different sectors that you`ve been impressed
with?

CAVANAUGH: Well, energy financials, not good. However, the consumer
discretionary sector is holding up very well and that`s because we have a
strong consumer.

MATHISEN: What do you see going into the next quarter, next two quarters
here? Why do you say you think we`re turning a corner here, that the worst
is going to be behind us?

CAVANAUGH: Because just as I said, we have already assimilated all of
those bad things we`ve been bothering the market the last couple of
quarters. That`s the strong dollar is hurting revenues overseas, the fact
that we were worried about interest rates rising, the fact that oil was so
low. Those things have kind of subsided.

So, now, with an accommodative Fed, I think that earnings can really turn
the corner. And we actually have seen sales growth is not really as bad as
we were anticipating and it`s been a little bit better than in previous
quarters. So that should lead to better earnings as we go through the
year.

HERERA: You know, we`ve been hearing that the individual investor was kind
of scared off because everybody was talking about how bad this earnings
season was going to be.

So, given what you`ve laid out, and indeed if it comes to pass, I would
argue that the individual investor who has a longer-term time horizon, who
may have been sitting out part of this earnings season, might want to go in
and take a look at some beaten-down stocks.

CAVANAUGH: Absolutely, Sue. We see that time and time again, when
investors are getting out, that`s probably when they should be getting in.
At Voya, we advocate global diversification all the time.

MATHISEN: So, do you think — the market has gone up quite a bit since
mid-February, in the face of these profit declines. Do you think that the
market has gotten ahead of the better earnings or priced in the better
earnings that you see coming?

CAVANAUGH: No, not really. I think that`s why we`ve been a little bit of
ranged out. It goes forward, it goes back. Right now, we`re not far from
where we ended the year, we`re up a little bit. But I think the mark is
getting a little bit more mojo going, it`s getting more enthusiastic. But
it hasn`t gotten out of control because it`s being reined in by the
earnings. Overall, we don`t have actual growth.

Being better than expected —

MATHISEN: We like the mojo.

CAVANAUGH: Being better than expected isn`t actual growth. We will see
that as we go through the year.

MATHISEN: Let`s pray for the mojo.

Karyn Cavanaugh with Voya Investment Management.

CAVANAUGH: Thanks.

HERERA: Turning to Wall Street, the Dow managed to hang on to the 18,000
mark as many of those earnings weighed on stocks. In particular, Microsoft
(NASDAQ:MSFT) which had its worst day in more than a year.

In the end, though, the Dow scratched out a 21-point gain to close at
18,003. The NASDAQ fell 39. The S&P 500 barely budged. For the week,
only the NASDAQ finished lower.

MATHISEN: President Obama in London alongside Prime Minister David Cameron
urged British voters to stay in the European Union. A referendum on
whether to leave the E.U. takes place on 23 June. The president said it`s
in Britain`s best interests to remain in the group it joined more than 40
years ago.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: If right now, I`ve got
access to a massive market where I sell 44 percent of my exports and now
I`m thinking about leaving the organization that gives me access to that —
that`s not something I`d probably do.

(END VIDEO CLIP)

MATHISEN: President Obama went on to say if Britain left, there would
eventually be a trade agreement between the countries but that Britain
would be at the back of the cue for a deal.

HERERA: Here at home, Uber will pay $100 million to settle a pair of class
action lawsuits in California and Massachusetts which will keep its drivers
classified as independent contractors, not employees. Identifying drivers
as employees would have significantly raised its operating expenses. The
company also agreed to have arbitration for drivers who have disputes and
to communicate drivers` ratings and cause if someone is terminated. Uber
faces similar suits in several other states.

MATHISEN: China is the world`s largest auto market, one of the largest for
Uber, by the way. Next week, the Beijing auto show gets under way and one
thing that will be of major interest, self-driving cars.

Eunice Yoon briefly takes us for a drive in a driverless car in Beijing.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: With so many first-
time drivers in China, being something unusual on the road isn`t uncommon.
But nothing quite like this — Chinese carmaker Changan is testing out its
new driverless car, the Raeton, travel interesting the southwestern city of
Chongqing to the capital Beijing. The 20,000 kilometer or 1,200 mile
journey is the latest effort by a Chinese company to outmaneuver Google
(NASDAQ:GOOG) and other foreign rivals in self-driving car technology.

LI YUSHENG, RAETON CHIEF ENGINEER: The Google (NASDAQ:GOOG) car can do a
lot, lot more. But they`re doing research. Google`s approach need more
time. Ours, there`s a consumer to drive (ph) vehicle fast.

YOON: Changan is one of the growing number of Chinese companies joining
the global race to design an autonomous auto. The partner of Ford in China
has created two models, one for cities and another that becomes self-
driving on the highway.

For now, both cars need a driver as a backup to navigate trickier traffic
conditions.

YUSHENG: If the driver want to change lanes, either give a voice command
or he can just use a signal. The vehicle will check the surrounding area.

YOON: On this trip the vehicle switched labors, made three-point turns on
their own, and clocked speeds of 120 kilometers an hour — exercises to
help engineers work out the kinks two of selling cars as early as 2018.

The push for self-driving cars is part of a broader state initiative for
China to become a leader in IT.

YUSHENG: The Chinese governments kind of encourage Chinese companies to
invest more in product development, research. It`s good for the company,
good for our consumer, good for the country.

YOON: Good for Changan`s the efforts to develop technology it sees as
essential to pulling ahead in the global auto industry.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA: Coming up, this week`s market monitor thinks security is where you
need to look if you want some winners for your portfolio. He has three
names he`ll tell you about.

(MUSIC)

HERERA: In what`s sure to raise the ire of some in this highly charged
election year, records show Federal Reserve Governor Leo Brainard has
reached her personal political contribution limit, $2,700. That has gone
to Democratic front-runner Hillary Clinton. The donations are within
Brainard`s rights but it`s bound to again raise questions about the Fed`s
independence.

Eamon Javers has been looking into this.

Eamon, what did you find?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes. Hi, Sue.

We had to go back to 1990 to check the records here. In that span of time,
we couldn`t find a single other Fed governor who made a contribution to a
presidential candidate while sitting as a Fed governor. A lot of them gave
money before they joined the Fed and after they left, but the tradition has
been that while they`re a Fed governor they don`t give to presidential
candidates.

We did find a couple who gave to lower-level political candidates or to
state political parties, that sort of thing. This one is raising eyebrows
in Washington. A lot of people interpreting it as an effort by Lael
Brainard to curry favor with the Hillary Clinton camp and maybe angling for
a job in the Clinton administration if that happens come next year.

MATHISEN: Do we know whether she has been a long-time Clinton supporter,
number one? Number two, can you see circumstances under which this becomes
a major political controversy that could potentially lead to her
resignation?

JAVERS: I don`t think it becomes a major controversy at this point. It`s
well within her rights, you know, as a citizen of the United States.
You`re entitled to give this campaign contribution. No rules at the Fed
prohibit it. So she didn`t violate anything in doing this.

But, yes, she has a history with the Clinton — the bill Clinton
administration. She worked in the Obama Treasury Department. And her
husband is a State Department official.

So, there`s a clear connection here between Lael Brainard and the
Democratic Party and the Clintons in particular. But the tradition has
been that the Fed maintains it`s above politics, it`s not in that partisan
system at all, the Fed simply does technocratic fed-type things for
nonpartisan reasons. And this, critics will say, erodes that just a little
bit.

HERERA: It does come though at a time when the Bernanke Fed and also this
Fed, under Ms. Yellen, has been much more open than Fed governing bodies of
the past.

JAVERS: Yes, absolutely. In a way, this is a victory for transparency,
right? These contributions are in the federal election commission records,
they`re there for anybody to see. Nobody`s hiding anything here with this
one.

So, there are those who support Lael Brainard`s position and say, if she`s
a Democrat, why shouldn`t she be a Democrat and act like Democrats do in
Washington? So, that`s the counterargument that, hey, at least nobody`s
hiding anything in all this.

HERERA: All right. Eamon, thank you, have a great weekend. Appreciate
it.

JAVERS: You bet. You too.

HERERA: Eamon Javers.

MATHISEN: American Airlines buying back $2 billion worth of shares, and
that is where we begin tonight`s “Market Focus.”

The largest U.S. Airline by some measures said low fuel prices have helped
profits grow but the company pointed out revenue was pressured by
competition and softness in travel to and from Latin America. Shares of
the airline down 4.5 percent on the day at $38.21.

Another IPO opened for trading today and it`s one of the first tech
companies to do so in months. SecureWorks, the cyber security arm of Dell
(NASDAQ:DELL), initially hoped to price its shares in the range of $15.50
to $17.50. But it ended up opening at just $14 a share. And after a
somewhat volatile day, that`s exactly where its shares finished, $14 even.

The consumer goods maker Kimberly-Clark (NYSE:KMB) had a mixed first
quarter as the company saw profit rise and revenue fall. The firm also saw
sales increasing in China one of its most competitive marks. But price
cuts and promotions crimped profits there. U.S. sales were up. But shares
of the company were down today over 3 percent to $126.88.

HERERA: Auto dealer AutoNation (NYSE:AN) saw its profit fall 14 percent
this past quarter as the company said consumer purchases of new cars has
remained flat. Storm damage also took a toll on the company`s profits as
did an increase in pricing incentives. Shares of AutoNation (NYSE:AN) up 3
percent for the day to finish at $49.49.

Comerica (NYSE:CMA) feeling the heat from shareholders today as reports
emerge that several major shareholders want that bank to consider a sale.
That`s according to “The Wall Street Journal.” the shareholders say the
bank has not done enough to produce acceptable returns and that Comerica
(NYSE:CMA) must take action to fix its issues. This comes a few days after
Comerica (NYSE:CMA) released its earnings where it said energy-related
loans weighed heavily on the bank`s performance. Shares of Comerica
(NYSE:CMA) nonetheless up 3 percent to $44.02.

And the recent earthquakes in Japan have hit home for General Motors
(NYSE:GM). That company announcing today that it is temporarily suspending
production at four North American plants due to supply chain issues caused
by that disaster. The company did note, however, that the shutdown should
not have any impact on its full year production. Shares of the automaker
down more than 1 percent to $32.18.

And now to our market monitor this week who likes cyber security stocks,
because in the current climate they, he says, are immune to the economics
cycle. This is his first time joining us on the program.

Peter Andersen — welcome — chief investment officer at Congress Wealth
Management.

How much more than the rate of GDP growth do you think these companies can
grow their business?

PETER ANDERSEN, CONGRESS WEALTH MANAGEMENT CIO: Well, this is a very, very
exciting sector. Mainly because we are all kind of fatigued about looking
at energy, oil prices, interest rate hikes, the political situation. And
when you look at cyber security stocks they seem to be immune from all
that. And you can easily or I should say conservatively guess that the
growth rate should be at least multiples of GDP, say, three, four, five
times.

I really do — I`m setting that as a fairly conservative guideline. I
really do feel much more optimistic about the industry in general, given
the continuous cyber threats we are going to get. And it`s only going to
look worse and worse.

HERERA: Yes, it`s not going away, certainly.

Booz Allen Hamilton is your first pick for us. Why?

ANDERSEN: Well, that`s kind of a misunderstood company. Most people that
— first off, most people haven`t heard of Booz Allen Hamilton, and that`s
what piques my interest. If you want to play a real smart game against
cyber security, especially domestic terrorism, some people would think
buying taser or metal detectors.

But Booz Allen does something different. Instead of just being a plain old
consulting company, which is what most people think of when they first
heard Booz Allen, it actually guards against — they use big data to try to
find the next sleeper cells in the United States.

So, let me give you an example.

HERERA: Very quickly.

ANDERSEN: Edward Snowden worked there. When he released that data it was
actually when he was working at Booz Allen. That should give viewers a
sense of what material they`re dealing with.

MATHISEN: Yes.

ANDERSEN: And the other thing that`s kind of interesting is, you know, if
you`re in investor relations with Booz Allen, it`s very hard for you to
disclose in complete clarity what your work is because 80 percent of the
employees have secret clearances. And most of the businesses have done
consulting through National Security Agency. So —

MATHISEN: We want to get your next two picks, Peter. I`m sorry to
interrupt, but we`re running short on time.

Give us the thumbnail on Palo Alto and Cyber Arc, both of which are off
their 52-week highs but you see good prospects, very quickly.

ANDERSEN: Very quickly, they are the total opposite. Instead, what
they`re focusing on is anti-hacking provisions. So, Target (NYSE:TGT), the
business Target (NYSE:TGT), for instance, all those companies are very,
very careful about who is hacking into their systems. This is a great way
to play anti-hacking from the outside of the company and also from the
inside.

MATHISEN: Palo Alto and Cyber Arc. I should point out you think that any
or all of these could be acquisition targets, correct?

ANDERSEN: Absolutely, because as you mentioned earlier, Tyler, about that
IPO, we see other large companies very, very interested in getting a toe
hold on this business. This would be an excellent way to do it.

MATHISEN: Peter, thank you. Peter Andersen with Congress Wealth
Management.

HERERA: Need to work out but can`t get away from work? Well, a look at
the big money coming into the newest workout. That`s coming next.

(MUSIC)

MATHISEN: Here what is to watch next week, folks, on Monday, a snapshot of
the housing market when March new home sales are released. Wednesday`s a
big, and I mean big day, the Federal Reserve`s decision on interest rates
comes out. Most people think the Fed will stand pat, but the commentary`s
going to be picked apart for clues as to when rates might rise.

And on the heels of that meeting, Thursday will give us our initial read on
economic growth in the first quarter. That, folks, is what to watch for a
busy week ahead.

HERERA: We all know it`s hard to find time to exercise, especially when
you`re cooped up at work all day. And one of the fastest-growing sectors
in fitness is aimed at all of us working 9:00 to 5:00 and more. It`s
called deskercize and as Diana Olick tells us, there are billions being
invested to keep you fit while you sit.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you`re sitting at
your desk watching this story, get up. Your body is begging for it. And a
brand-new industry is banking on it.

JASON MCCANN, VARIDESK CEO: The key is not just to stand all day or sit
all day, it`s to be active throughout the day.

OLICK: Because a whole new array of studies are showing prolonged sitting
than increase the risk of heart disease, cancer, diabetes, obesity, even
death. The fix is so simple and desks are the start. VARIDESK started
three years ago with one model. Now it has 25 fitness products it sells in
over 100 countries. Demand comes from employers and employees alike.

UNIDENTIFIED MALE: All of us want to get down health care costs and all
CEOs are looking to retain or recruit great employees. Active office, sit
and stand desks, are part of that solution.

OLICK: A solution which is now the fastest-growing sector of the $10
billion office furniture market.

KATHRYN THOMPSON, THOMPSON RESEARCH GROUP: This healthy office segment can
be as much as one-third of that total office segment over the next three to
five years.

OLICK: Bicycle desks, ball chairs, mushroom chairs, and a couple of
Chicago entrepreneurs took it literally one step further.

SHIVANI JAIN, CUBII CO-FOUNDER: When we started working in full-time jobs,
we realized that our activity levels considerably dropped.

OLICK: So, she and a fellow University of Chicago grad invented Cubii, a
desk elliptical.

JAIN: One of the key benefits they`re seeing is it`s vetting their mood as
well as helping them be more productive.

OLICK: They just got their second round of funding and expect to sell
15,000 Cubiis this the year.

ARNAV DALMIA, CUBII CO-FOUNDER: Right now, our plan is to scale Cubii
because we see immense potential in the market. And right now, we`re still
a young company.

OLICK: The potential has not gone unnoticed by larger companies like
Herman Miller (NASDAQ:MLHR) and Steel Case, which are adding more active
workstations to their offerings.

DALMIA: Steel case introduced its first one in 2004. Sales for that
particular product has grown five-fold since then. This is no longer just
a one-off. It`s a product category.

OLICK: Because the old desk and chair model simply doesn`t sit well
anymore.

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

(END VIDEOTAPE)

MATHISEN: And finally tonight, Crackerjack is ending its 125-year-old
tradition of including a toy surprise in every box. It`s replacing the toy
with stickers that contain digital codes, codes lead to baseball-inspired
games that consumers can play on their smartphones. Pepsi`s Frito Lay is
going to tweak the logo and the packaging for a more contemporary look.

No prize in a crackerjack?

HERERA: Leave the prize! Do we always have to be on our phone?

MATHISEN: All right. That`s it for NIGHTLY BUSINESS REPORT for tonight
and this week. We`ll see you next week.

HERERA: See you Monday.

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