Transcript: Nightly Business Report – July 28, 2016

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Earnings soar. On the busiest
day for earnings, Google`s parent company Alphabet shows the business is booming.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Tapping the brakes.
Ford`s surprise profit drop has some wondering whether the big sales run
for automakers is coming to an end.

HERERA: American dream? Why the rate of homeownership has fallen to the
lowest levels in more than 50 years.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
July 28th.

MATHISEN: Good evening, everyone, and welcome.

At the halfway mark for earnings reporting season comes on the busiest day
of that season. And two of the biggest names in tech reported after the
closing bell.

We begin with a profit surge and how at Google`s parent Alphabet. The
company known for its search engine attracted advertisers to its products,
especially its mobile products, and those ads attracted valuable clicks.
Alphabet earned $8.42 a share. That is a full 38 cents better than
estimates and a 24 percent gain over last year. Revenues rose more than 20
percent to $21.5 billion in the quarter.

Investors liked the results sending shares higher in initial after-hours
trading as you see right there.

Josh Lipton has the one key takeaway for investors — Josh.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Tyler, $15.4
billion. That was one big number in this report, and first the revenue
generated from Google (NASDAQ:GOOG) website was up about 25 percent. Neil
Doshi of Mizuho Securities covers Alphabet and says that`s important
because that includes some of the main sources of revenue for this company.
So, Google (NASDAQ:GOOG).com, YouTube, mobile apps.

It just shows, though, he says, the strength of that ad business. I`ll
also point out, Tyler, that heading into this print, there was some concern
about the impact of Brexit on this business. Remember, company generates
an estimated 10 percent of revenue from the U.K., but I did have a chat
with the company when those earnings crossed, and they tell me they are
seeing no impact from Brexit — at least not yet.

Back to you, Tyler.

MATHISEN: All right. Josh Lipton in San Francisco, thanks.

HERERA: Amazon (NASDAQ:AMZN) also powered through estimates reporting its
fifth straight quarterly profit. The world`s biggest online retailer saw
strong growth in its cloud business and an increase in subscriptions for
its prime program. The company earned $1.78 a share. Estimates were for
$1.11. Revenue rose more than 30 percent and come in at more than $30
billion last quarter.

As for the stocks, shares rose in an initial after-hours trading. Jon
Fortt has more on the results.

(BEGIN VIDEOTAPE)

JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The one number to watch
in this Amazon (NASDAQ:AMZN) report is just plain old sales. They were
strong, up 31 percent from a year ago. They weren`t expected to be up
quite that much, and it was owing to more than just selling stuff in the
U.S. It was also due to cloud which performed a little bit better than
expected, and international which was overall stronger than North America
was as Amazon (NASDAQ:AMZN) continues to expand and it`s pushing cloud now
in India, also doing prime over there and talking big about its plans for
the future.

For NIGHTLY BUSINESS REPORT, I`m Jon Fortt.

(END VIDEOTAPE)

MATHISEN: And we are, as we mentioned earlier, basically halfway through
earnings reporting season, and some trends are emerging.

Bob Pisani takes a look.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here`s the good news.
So far guidance has not taken a hit from Brexit. Companies have been
reaffirming their full-year forecast, and that`s primarily what`s holding
the S&P 500 up, just shy of historic highs.

Now, overall, earnings are still down, but they are not deteriorating.
Remember, we just had four straight quarters of negative earnings. That`s
an earnings recession, and a narrative has been calling for earnings to
bottom in the first quarter, gradually improve and then turn positive in
the second half of the year.

So far, the story has held up. And companies are not only beating, but
they are also beating by a wider margin. This is key because it`s hard for
the bulls to justify these record high stock prices with the profit levels
staying so low.

But beyond the good news, there`s four key issues that could hurt the
earnings equation in the second half of the year. First off, there`s oil.
This is a problem. It`s now trading at a three-month low.

This is a big part of the earnings story since analysts were counting on
crude to rebound in the second half and they may now have to bring down
their estimates to reflect $40 oil. Second, the dollar has been strong
recently, and that could be a problem for multinationals. Finally, there`s
Brexit in China and both have been quiet recently.

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

(END VIDEOTAPE)

HERERA: And on Wall Street today, earnings reports failed to give stocks a
bump. The major indexes were mainly range bound as falling oil prices once
again pressured energy shares and capped any gains. The Dow Jones
Industrial Average fell 15 points to 18,415, the NASDAQ added 15, the S&P
500 was up 3.

And as for crude, prices settled at a three-month low, and they are
flirting with bear market territory, meaning they are close to 20 percent
below their 2016 high.

MATHISEN: With stocks meantime near record highs, many investors are
asking one question: is the market getting too expensive? The answer never
simple. It`s not simple now.

Mike Santoli takes a look.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The value of the U.S.
stock market has never been higher. Does that mean stocks are very
expensive, or do record low interest rates make them relatively cheap?

Market valuation can be viewed from several angles, and right now, some
analysts make the case stocks are a bargain while others insist they are a
bubble. By the most traditional conservative method, stocks do appear to
be pricey. Measured against recently depressed corporate profits, the S&P
500 index trades at the high end of its historical range. Wall Street
pros, of course, tend to focus on the projected earnings, which are
expected to begin growing again in the second half of this year.

On this basis, stocks are still more expensive than their long-term
average, though not by much.

But don`t today`s extremely low interest rates promote higher valuations as
many investors have been thought. Well, yes and no. Low rates certainly
enable stocks to reach loftier valuations, as interest costs fall and
investors stretch for returns. Still, buying stocks at high values tends
not to produce great long-term returns, no matter where interest rates are
at the time of purchase.

There is one way though that low bond yields are directly inflating stock
values by driving investors into stocks that pay decent dividends. In
fact, sectors favored by dividend investors, utilities, telecom, consumer
staples and real estate, together have the highest valuations versus those
companies` earnings. All other sectors combined trade at more reasonable
levels, assuming current expectations for a rebound in earnings growth of
nearly 10 percent comes to pass over the next few quarters.

Much has to go right for investors to enjoy substantial gains from today`s
record high stock prices, but a bounce back in corporate profits could
indeed make some prices appear quite fair, even if there are no objection
bargain.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock
Exchange.

(END VIDEOTAPE)

HERERA: The rise in wealth in asset prices are raising some concerns about
the vulnerability of the U.S. economy again. “The Wall Street Journal”
reports that as valuations of stocks and properties swell any sudden shift
in sentiment in the financial markets could destabilize growth.

Greg Ip, an economics reporter at “The Journal”, wrote about this and joins
us now to talk about it.

Great to see you again, Greg. Welcome back.

GREG IP, WALL STREET JOURNAL REPORTER: Great to see you again. Thank you
very much.

HERERA: As I understand reading your article, we don`t know that things
are overvalued. It`s just that they are a little bit perhaps more
susceptible to — to some sort of disruption. Is that a correct read of
the article?

IP: Absolutely. I mean, there`s a bit of deja vu here, especially for
folks like you and me who have been covering the markets for quite a few
years. We had a big run-up in the stock market in the `90s. That kind of
ended badly in a mild recession. That was followed by a big run-up in the
housing market, that ended much worse with the big financial crisis.

I don`t want to say either of those events is necessarily on the cards, but
a prerequisite to have the sort of disruptions is the kind of asset values
that we`re seeing today.

Now, I would hasten to add that stocks are not as overvalued as they were
at the NASDAQ bubble and houses are not as overvalued as they were during
the housing bubble, but they are still very highly valued based on
assumptions, especially of low interest rates persisting. Those
assumptions change, then the values also ought to change than could be very
disruptive.

MATHISEN: Does a crack in asset prices necessarily translate into a crack
in the economy? In other words, to economic growth, and a rise in
unemployment and so forth?

IP: There`s — there`s two ways that it can hurt the economy. The first
is the most straightforward is what economists call the wealth effect.
When a person`s home value goes down or when the stock portfolio goes down,
they feel less wealthy and they to spend less. We think the relationship
is for every dollar yore wealth goes down, you spend four cents less that
year.

And then there`s a second effect. If the increase in assets has been
financed by a lot of debt, as the asset prices fall, the debts go bad,
mortgages go bad, people can`t pay back the money, banks might end up
bailing, and then you can actually have a financial crisis. That`s kind of
what we had in 2007 and 2008.

You know, Tyler, we`ve taken so many steps since that crisis to reinforce
the system against a repeat. I don`t think we have to necessarily worry
that simply because asset prices are as high as they are, like we would
have a repeat like that. But I do think there`s stuff hidden away not may
not — its effect may not be obvious until we see a downturn in these
markets.

HERERA: Greg, great to see you again.

IP: Thanks for having me.

HERERA: Thanks so much for joining us. Greg Ip with “The Wall Street
Journal”.

MATHISEN: One of the stocks weighing on the market today was Ford. Shares
dropped 8 percent after the automaker surprised investors with a drop in
profits in the second quarter. It was well below estimates. The company
also warning there`s a risk that it won`t hit its full-year earnings
guidance.

And as Phil LeBeau reports, that has investors wondering whether the great
run for automakers is nearing an end.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Ford is tapping the
brakes. After record-setting earnings in the first quarter, the automaker
saw profits slow down between April and June, partially due to weaker sales
in China where local automakers have become more aggressive. But Ford`s
bottom line was also hit by higher incentives in the U.S. where the company
spent more money to sell cars and trucks.

MARK FIELDS, FORD CEO: The bottom line is that we`ve seen a tougher
pricing environment this quarter and we will face one going forward and
with the car segment the most impact as various competitors look to protect
their share.

LEBEAU: This month, Ford`s incentives are up more than 20 percent,
according to truecar.com. That`s slightly ahead of big three rival Fiat
Chrysler, but far higher than General Motors (NYSE:GM).

Just last week, GM posted record profits and raised its outlook for the
rest of this year. Proof GM`s strategy of limiting production and fleet
sales in order to push higher retail sales and a greater profit per vehicle
is paying off, but if Ford is feeling pressure to raise incentives, will
that eventually force GM, Chrysler and other automakers to do the same?
And could that kill one of the most profitable periods the auto industry
has ever seen?

MICHELLE KREBS, AUTOTRADER.COM: Historically, this industry has not been
terribly disciplined when it gets really competitive and — and inventories
start to climb and incentives start to climb. I think this will be a big
test in terms of how much discipline do the various companies have?

LEBEAU: Automakers say they will stay disciplined when it comes to
pricing, but historically, this is an industry that has struggled to keep
rebates and incentives in check, especially when demand slows down, and
dealers are forced to spend more to lock in buyers.

For NIGHTLY BUSINESS REPORT, I`m Phil LeBeau, Chicago.

(END VIDEOTAPE)

HERERA: And Volkswagen has regained the title of world`s largest automaker
in the first half of the year. VW sold more than 5 million vehicles.
Toyota (NYSE:TM) sold slightly less. Volkswagen`s sales this year came
despite the fallout from the diesel emissions scandal.

MATHISEN: Still ahead, Americans used to dream of owning a home, but a new
report shows that things are changing.

(MUSIC)

MATHISEN: Tonight, Hillary Clinton will make history, becoming the first
woman to accept the nomination for president from a major political party.
Before she takes the stage, she will be introduced by her daughter,
Chelsea.

John Harwood is in Philadelphia.

John, how is the convention setting the table for her big speech tonight?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Tyler,
everything builds towards the last night of the convention, and what
Democrats have done is, first of all, tried to disqualify Donald Trump,
paint him as unfit to be president and, second, allow voters to see Hillary
Clinton who has been in the public stage for 25 years, who many voters say
they don`t like, they don`t trust, give them a different view of her as a
person. Bill Clinton told stories about her, so did Michelle Obama, her
values, her drive, her resilience, but now, she`s got to make that case.

HERERA: And how does she do that? What do we expect her to say tonight,
especially following the very compelling speeches of last night?

HARWOOD: Well, aides say she`s going to knit together all of those themes.
She`s going to explain who she has fought for, who she will fight for as
president and what her objectives are. She needs to lay out a vision for
her policy agenda. That`s been a little undefined so far.

MATHISEN: You know, as you point out, John, she`s been on the public stage
for a quarter century and most people do know her and most people who know
her what they think of her. Can she change minds?

HARWOOD: It`s not easy, and somebody on whom voters have such a wealth of
information, hard to move the needle.

However, I was talking to pollsters this afternoon who were saying two
things. First of all, she has had high numbers before, when she was first
lady, when she was secretary of state. Of course, those are less partisan
roles, but it shows that there is some openness to her potentially.

And the second thing is that the stage of a political nomination acceptance
stage like debates in the fall are of a different order of magnitude and as
Mike Murphy, a Republican strategist, said, when you perform on the
business stages you can change numbers and change how people think about
you.

MATHISEN: All right, John. Thank you very much. John Harwood, his last
night in Philadelphia.

HERERA: Oracle (NASDAQ:ORCL) inks a deal to buy cloud computing company
NetSuite. And that is where we begin tonight`s “Market Focus”.

Oracle (NASDAQ:ORCL) is paying $9.3 billion for the company, co-founded by
Oracle`s executive chairman Larry Ellison. Ellison who is also NetSuite`s
largest shareholder. Oracle (NASDAQ:ORCL) will pay $109 a share, a 19
percent premium over yesterday`s closing price.

Today, NetSuite almost got there, adding 18 percent to $108.41. Oracle
(NASDAQ:ORCL) was up 26 cents to $41.19.

Profits falls for the fifth straight quarter at ConocoPhillips (NYSE:COP).
The energy company missed estimates as low commodity prize continued to
hurt its results. Conoco also lowered its capital spending plan for the
year but did say it would lift its production guidance. Shares rose just a
fraction to $40.26.

HERERA: GNC posted another lackluster quarter as sales and profit fell.
The nutritional supplements company also said its CEO is out. It will
suspend its stock buyback and pull its full-year guidance. Shares lost a
quarter of their value today, down 25 percent to $20.28.

And currency headwinds took a toll on sales at Colgate-Palmolive (NYSE:CL).
The maker of personal care products missed expectations and profits did
rise which was better than expected. Colgate also says it expects sales
for this year to fall in the low to mid-single digits. Shares fell a tick
to $73.25.

MATHISEN: A rise in consumer spending lifted profit and revenue at
MasterCard (NYSE:MA). The results topped analysts` expectations, and that
sent shares higher. MasterCard (NYSE:MA) finished the day up more than 2
percent to $96.01.

Poor demand for motorcycle prompted Harley Davidson to cut its shipment
outlook for the year. The company said sales fell in the latest quarter
but sales were good enough to top estimates. Profits also beat
expectations. As a result, Harley Davidson shares rose to $51 even.

Expedia (NASDAQ:EXPE) saw its quarterly profits fall but its results
managed to top Wall Street targets. Revenue did rise but sharply missed
estimates. The online travel company also said it is looking into filing
an initial public offering for its booking side Trivago. Shares initially
fell and ended up the session at more than 1 percent, at $119.27.

And revenue and profit rose at the broadcast television network CBS
(NYSE:CBS). The better than expected results were lifted by licensing
deals tied to the “Star Trek” movie and fees from affiliated stations. The
company also raised its quarterly dividend to 20 — by 20 percent to 18
cents a share, and increased its stock buyback program to $6 billion.
Shares of CBS (NYSE:CBS) essentially flat after hours, though there was a
little dip there. It ended the day up a fraction at $54.21.

HERERA: To real estate where the U.S. homeownership rate matched the
lowest level ever recorded, and that was back in 1965 when the census first
started tracking homeownership.

Diana Olick has our report.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The average cost of a
house in 1965 was about $14,000. Today, it`s about 15 times that, but the
homeownership rate is the same, 62.9 percent in Q2 of this year, just as it
was in 1965. That`s down from 59.2 percent the record high in 2004.

Of course, a lot has changed in the last decade or so, not just anyone can
get a mortgage, and the youngest home buying cohort, the millennials, are
delaying the main drivers of homeownership, that is, marriage and
parenthood. They are also paying high rents, which makes it harder for
them to save for the down payment.

And one more mathematical note: household formation is growing but all on
the rental side, which makes the share of owner households smaller.

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

(END VIDEOTAPE)

MATHISEN: The high end of the housing market has been a bright spot until
recently, but now that source of strength appears to be fading, and there
may be new pressure coming from the Treasury Department.

Robert Frank has more.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The government
dragnet used to catch criminals who use real estate to launder money just
got wider. The Treasury Department is expanding a pilot program launched
in March that targeted wealthy buyers of real estate who used LLCs and
shell companies to hide their identity.

The programs started in Manhattan in Miami, but is now expanding to include
all the boroughs of New York City, Broward and Palm Beach Counties in
Florida, and in California, Los Angeles, San Diego and Silicon Valley.
Bexar, Texas, which includes San Antonio will also be included.

Now, under the rules, those who use an LLC to buy or sell real estate under
a certain value have to disclose the true owner of the LLC and their source
of income. Now this only pertains to those who pay all cash, so if you get
a mortgage, banks are already required to under know your client rules to
find identity of the buyers.

Now, the overseas wealthy have been increasingly turning to real estate to
hide their fortunes.

SENADA ADZEM, DOUGLAS ELLMAN REAL ESTATE: Real estate tends to be a good
vehicle to launder money because it`s very vulnerable and there are no
regulations in place, until now. So, someone from Russia or Mexico or from
Venezuela who wanted to buy residential real estate could have done so
without disclosing who that person is.

FRANK: The Treasury says 25 percent of the transactions in the pilot
program were suspicious. One person made a $16 million cash withdrawal
from his bank account and another moved $7 million around several South
American shell companies. This adds to growing concerns about dark money
flowing in the luxury economy, including revelations in the Panama Papers
about hidden real estate in the U.S.

The big question is just how much impact these rules will have on the
luxury real estate market and the market as a whole.

ADZEM: This regulation is going to impact U.S. real estate in that it`s
going to be so much more difficult for illicit money to come into the U.S.

FRANK: With financial markets and election uncertainty already weighing on
the real estate market, the new Treasury rules will give buyers and sellers
one more reason to worry.

For NIGHTLY BUSINESS REPORT, I`m Robert Frank.

(END VIDEOTAPE)

HERERA: Coming up, ambitious plan. Can Japan`s prime minister grow his
economy by getting more women to work?

(MUSIC)

MATHISEN: Here`s a look at what to watch tomorrow. We`ll get the first
read on second quarter economic growth. Dow components Chevron (NYSE:CVX)
and ExxonMobil (NYSE:XOM) report their quarterly results, and we`ll also
find out whether consumers are feeling more optimistic when the final July
sentiment figure is released, and that, folks, is what to watch Friday.

HERERA: Japan`s main stock index fell overnight ahead of an expected
decision by the Bank of Japan. Some expect the central bank to team up
with the government and announce more extreme stimulus measures. Prime
Minister Shinzo Abe has been trying to reflate his economy for years and
part of that plan includes increasing the number of women managers in the
workforce.

Akiko Fujita has that part of the story for us from Tokyo.

(BEGIN VIDEOTAPE)

AKIKO FUJITA, NIGHTLY BUSINESS REPORT CORRESPONDENT: From tomato vines and
twins in the ceiling, to a rice paddy in the lobby, employment company
Pasona doesn`t resemble typical corporate Japan and the CEO Yasuyuki Nambu
is no ordinary Japanese boss.

YASUYUKI NAMBU, PASONA CEO (through translator): When I was a student in
college, I saw how difficult it was for women to advance in society
compared to men. Even if they got full-time jobs, there would be a big
disparity in pay.

FUJITA: That convinced Nambu to start this company 40 years ago, to help
women find quality jobs with equal pay. Today, women make up nearly half
the management here, making Pasona a corporate model for Prime Minister
Shinzo Abe`s womenomics policy, an ambitious plan to boost the number of
female managers by 30 percent in four years.

NAMBU: Men alone can no longer help with growth given the labor shortage.
It`s time for women to take on leadership roles and for companies to change
their structure to support them.

FUJITA: Where did you get the idea to start a business for mom?

Saori Osu runs a consulting firm that helps companies achieve the
government targets. The idea inspired by her own from frustrations as a
mother forced to quit her job at Hitachi (NYSE:HIT).

SAORI OSU, GLOBAL STAGE CEO (through translator): The biggest hurdle was
getting my family`s support. They didn`t understand why I would continue
working away from home even while being pregnant with twins. I felt like I
was back at zero the day I quit.

FUJITA: She wasn`t alone. Osu says 60 percent of women here quit working
after having their first child. For clients like Primo Japan where women
make up nearly three-quarters of the staff, the challenge is convincing
those women to return.

NAOKI SAWAND, PRIMO JAPAN CEO (through translator): A lot of women think
once they become mothers they can only work part-time jobs. They can`t put
in the same amount of work as full-time employees. I don`t want them to
give up.

FUJITA: The number of women in the workforce has increased under Abe,
according to Goldman Sachs (NYSE:GS). Women make up a record 66 percent of
the workforce now, surpassing the U.S., but more than half those women
remain in part-time or temporary jobs.

Back at Pasona, the companies retain workers by offering flexible hours for
working mothers, building a pre-school in-house and even a nail salon to
create a female-friendly environment.

Still, Nambu admits superficial changes aren`t enough to shake up this
traditionally male-dominated the society. The key, he says, will be
changing the mindset of men and getting them to accept the contributions
women can truly make in the workforce.

For NIGHTLY BUSINESS REPORT, I`m Akiko Fujita in Tokyo.

(END VIDEOTAPE)

HERERA: We`ll keep you posted on how that goes, right?

MATHISEN: Yes, they got a demographic issue there as the population ages.

HERERA: Absolutely.

MATHISEN: It`s one of the reasons why they need more working-age women in
the workforce.

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

MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great
evening, everybody, and we`ll see you back here on Friday.

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) 2016 CNBC, Inc.

This entry was posted in Transcripts. Bookmark the permalink.

Leave a Reply