Transcript: Nightly Business Report – October 28, 2016

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

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: October surprise. The FBI
says it`s reviewing newly discovered e-mails in the Clinton server case, and the markets shutter.

Oil slick. Profits tumbled at ExxonMobil (NYSE:XOM) and Chevron
(NYSE:CVX). But is the outlook for one brighter than the other?

And going green. Why California may usher in a new era for the still young
but fast growing marijuana industry.

Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday,
October 28th.

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

We begin tonight with new developments on the bumpy torturous Clinton e-
mail trail. In the middle of the trading day, the FBI said it would review
additional e-mails in the case, possibly involving the private server that
Hillary Clinton used as secretary of state. In a letter to lawmakers,
Director James Comey said his agency was taking steps to, quote, “determine
whether they continue classified information, as well as to assess their
importance to our investigation.”

And when the news broke, the markets spoke, loudly. Stocks dropped
sharply, ripples sent through the currencies, commodities and bond markets,
as well.

But by the end of the day, the major stock averages recovered somewhat.
The Dow Industrials lost just eight points at 18,161. The NASDAQ was off
25, and the S&P 500 fell 6.

There are a lot of twists and turns in this e-mail story, and Eamon Javers
has been following every one of them.

Eamon, what`s the latest we know?

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Tyler,
astonishing day in American law enforcement and politics today. The latest
that we know is that the FBI sent this letter to Capitol Hill earlier today
in which they explained that they had somehow obtained new e-mails as part
of this Hillary Clinton investigation. They were going to take a look at
that.

Director Comey wanted lawmakers on Capitol Hill to know about it, because
he had previously told them the investigation was completed. Well, not so
fast. It`s not completed.

Later in the day, we found out that the way the FBI had discovered these e-
mails was as part of the Anthony Weiner sexting investigation. The FBI
obtaining a device or devices related to Anthony Weiner and his wife, Huma
Abedin, a close political aide to Hillary Clinton.

On those devices apparently were e-mails that raised the attention of the
FBI investigators. All of this happening very, very quickly, Tyler, I`m
told over the past 24 hours. The FBI director making a decision to alert
Congress, and the public to the possibility there was a further
investigation to be done here, because he clearly did not want that
information coming out after the election. He didn`t want it looking like
the FBI was in any way hiding the fact that it was continuing to
investigate Hillary Clinton`s e-mails, Tyler.

MATHISEN: Do we know how many e-mails may be involved here? And whether
any of them will be released, any time soon?

JAVERS: We don`t have a number of e-mails. We don`t know whether they
plan to release them at all. We don`t know who the e-mails are to or from
and we don`t even ultimately know who was the owner of the device, exactly
whose device was this, and whether any classified information was on it.

All of that, the FBI says, they`re going to investigate. But in my —
talking to my sources today, I don`t get the sense that we are necessarily
going to know the answer to any of those questions before Election Day.
That means voters are going to have to head to the polls with this big
question mark hanging over their heads, Tyler.

MATHISEN: All right. Eamon Javers, thank you very much. Eamon in
Washington tonight.

JAVERS: You bet.

MATHISEN: So, why did the market react the way it did? The simple answer
is that investors have bet strongly on a Clinton victory. Anything that
disrupts that probability prompts recalculation.

Bob Pisani has more on today`s swift and sharp market moves.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Dow initially
dropped a little more than 100 points on news that the FBI was probing
newly found Clinton e-mails, but rallied off the lows to end the day,
mostly flat. Other markets were affected, as well. Gold spiked, and the
dollar lost steam, the VIX or volatility index, climbed to its highest
level in nearly two weeks.

Some specific stocks and sectors moved, as well. Time Warner (NYSE:TWX),
which received a buyout offer from AT&T (NYSE:T), sold off because Donald
Trump said he would not let the deal go through.

Biotech stocks, which have been under pressure all month on concerns that
Hillary Clinton would impose stricter regulations on the drug industry rose
off of their lows. By the end of the day, the markets had reversed part of
the decline. The markets had priced in a Clinton victory with the house
remaining Republican, so it`s not surprising that any change in that
scenario might move markets.

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

(END VIDEOTAPE)

MATHISEN: There`s some profit pain in big oil. ExxonMobil (NYSE:XOM) saw
its earnings drop sharply. The fellow Dow component Chevron (NYSE:CVX)
also saw profits fall from a year ago, but they were better than expect and
an improvement over the past few quarters.

Investors basically liked what they saw in Chevron`s results, but had a
different reaction to Exxon.

Morgan Brennan takes a closer look at the two companies` quarters and what
may lie ahead.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: A tale of two
energy stocks today. Both ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX)
reporting mixed results with earnings better than expected but revenues
missing estimates. Low oil prices once again hurt the bottom line,
especially operations in North America.

But results also slipped in refining. A business that had previously
helped buoy returns amid those low prices.

For Chevron (NYSE:CVX), today`s results marked a return to profitability
after three straight quarters of losses.

On a conference call with analysts, CFO Patricia Yarrington asserting the
company is poised to compete in a low-price world.

PATRICIA YARRINGTON, CHEVRON CFO & VP: With costs coming down, with C&E
and capital intensity coming down, with our major LNG projects and the
Permian production coming online to boost cash margins and production, our
overall financial picture is set to improve in a meaningful way as we move
into 2017. Our objective is to get cash balanced in $2017, assuming $50
Brent prices.

BRENNAN: Analysts say the bar was low and Chevron (NYSE:CVX) managed to
hurdle it. The company trimmed costs by $10 billion in 2016`s first nine
months, and weak cash flow which has stoked fears about the dividends`
future sustainability improved, sending shares soaring.

Well, it`s a different story for ExxonMobil (NYSE:XOM). The top U.S.
energy company tumbled after warning it may be forced to recognize that
amid an SEC probe nearly a fifth of its reserves are no longer profitable
to produce. So far, this year, Exxon slashed spending by another $12
billion and maintains it will hit its production guidance of roughly 4
million barrels of crude per day.

The two reports came on the heels of improving results on other majors as
well, including Conoco Phillips, which upped its production forecast amid a
smaller than expected loss, and France`s Total which said profit nearly
doubled amid steep cost cuts and rising output.

Analysts say the worst may be over for the biggest energy players, but they
also caution that with oil prices hovering around $50 a barrel, it`s still
a long road to recovery.

For NIGHTLY BUSINESS REPORT, I`m Morgan Brennan.

(END VIDEOTAPE)

MATHISEN: General Electric (NYSE:GE) looks to be exploring an energy deal
of its own. The company says it is in talks with the oil field equipment
provider, Baker Hughes (NYSE:BHI), regarding a potential partnership.
Initial reports said the talks were about a potential takeover. But in a
statement, GE said while nothing is concluded, none of these options
include an outright purchase of Baker Hughes (NYSE:BHI).

Shares of Baker Hughes (NYSE:BHI), nonetheless, up about 8 percent. GE
higher by 2 percent.

Investors do seem to like the idea of General Electric (NYSE:GE) and Baker
Hughes (NYSE:BHI) moving into some sort of partnership, but why would GE
want to double down on the energy business? It`s been a constant drag on
its bottom line.

Steven Winoker analyzes GE for Bernstein.

Steven, welcome.

STEVEN WINOKER, BERNSTEIN SR. ANALYST: Thanks, Tyler.

MATHISEN: Do you see it this way? In other words, would this be a
doubling down by GE if they do some sort of partnership with Baker Hughes
(NYSE:BHI), or could they be sort of doubling off a little bit, combining
assets and moving them off of GE`s sort of purview?

WINOKER: Well, it`s a good question, a key question investors are
grappling with. My perspective on this is that there is a tremendous value
creation potential, if you combine businesses here. GE and Baker Hughes
(NYSE:BHI) need to respond to some of their competitors who have joined
forces and providing a complete, full integrated oil field extraction
business. And this would allow them to combine both of their businesses
and get there in a defensive move.

And on the offensive side, of course, there are synergies, cost energies if
you combine businesses. GE doesn`t have to make an outright purchase.
There are multiple forms of partnership that could take place, ranging from
just a simple sales combination in certain assets to actually a full-blown
joint venture that they spinoff in some kind of reverse trust.

There are all sorts of thing they could do to really create value here. I
think the important thing is that you take advantage of the capabilities of
both of these strong businesses. And together, they would be about $23
billion or $25 billion, and this year sales, and down significantly from
their highs. So, you could say this is actually happening at the bottom of
the cycle, which is a good thing for GE, anyway.

MATHISEN: You like GE stock?

WINOKER: I have a market perform on GE. I had honestly downgraded it at
$32 a stock close to $28, $29 on some other concerns around growth. Their
order equipment growth is off about 6 percent this last quarter. But I
think if you take a longer-term view, there`s a lot of things to think
about beyond the next year or so in terms of their digital efforts and as
equipment and capital expenditures start to come back in the world.

MATHISEN: It does appear that Baker Hughes (NYSE:BHI) wants to be a
seller. I mean, they almost got married with Halliburton (NYSE:HAL) until
that ran afoul of regulatory issues. Do you see it that way, and would
there be regulatory issues here? I assume not, if it`s not an outright
acquisition or maybe even if it is.

WINOKER: I think it`s a question of how the businesses get combined.
There are a couple of sub-segments that regulators might take a look at,
where both of them have fairly strong positions. But on average, it`s
nothing like the Halliburton (NYSE:HAL)/Baker Hughes (NYSE:BHI) combination
in terms of the market shares that were at risk in that case.

MATHISEN: Steven, thank you very much for your help tonight. We
appreciate it.

WINOKER: Thank you.

MATHISEN: Steven Winoker with Bernstein.

Well, the economy bounced back in the third quarter. Growth accelerated to
2.9 percent. That`s the fastest pace recorded in two years and better than
expectations. Gross domestic product, which is the broadest measure of
goods and services produced across the country reflected increased exports
and a buildup of inventories and it was stronger than the second quarters,
a lot stronger than that quarter`s 1.4 percent growth rate.

One company that is closely intertwined with the American economy and
consumer spending is Procter & Gamble (NYSE:PG), and Sara Eisen recently
spoke with the CEO of the Dow component to get an update on the company`s
big transformation.

(BEGIN VIDEOTAPE)

SARA EISEN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s been one year
since David Taylor took on the job of seeing the world`s biggest household
products company through a major turn-around. And so far, the 35-year
veteran of P&G is seeing results. The maker of Tide, Bounty and Pampers
saw its fastest sales growth in years last quarter.

But it is staying conservative on the outlook, thanks in part to a soft
global economy and flat consumer spending in the U.S.

DAVID TAYLOR, P&G CHAIRMAN & CEO: The economy is growing, but not growing
faster or slower. I think we`re in a relatively flat period of time right
now. And some stimulus, hopefully, will drive a little bit better growth.
But right now, what I`m seeing and experienced in the ten categories we do
business is a relatively consistent, modest growth in the U.S.

EISEN: P&G`s health care business is shining with brands like Oral B and
its power tooth brushes growing fast.

But some of the beauty brands like Olay, are still struggling. Taylor is
looking to innovation, which he called the lifeblood of the company to
drive new growth. He points to Downy scent beads as one example. He`s
also cutting costs, as much as $20 billion worth over the next few years to
drive profit, something Wall Street has applauded.

TAYLOR: I think we`re making good progress, and progress will be measured
in years, not quarters. And so, I really want to make sure that all of us
stay focused on making sure this year is better than last year. Next year
is better than this year.

And to do that, we`ve got everybody understanding that ultimately, it`s
about winning the consumer value equation, it`s working with our customers,
and working very hard to create and build categories as the key driver of
growth, because if we do that, it`s a very sustainable strategy.

EISEN: Taylor says that P&G is more nimble and agile after it shed 100
brands to focus on 65 core P&G brands.

But the macro economic environment is tough and competitors, like Kimberly-
Clark (NYSE:KMB) and Unilever (NYSE:UN) have recently hit speed bumps when
it comes to growth. Analysts say P&G needs to continue to deliver market
share gains while maintaining premium pricing and appealing brands.

For NIGHTLY BUSINESS REPORT, I`m Sara Eisen in Cincinnati.

(END VIDEOTAPE)

MATHISEN: Coming up, not too big, not too small. Our market monitor says
he is buying stocks that are just right and pay dividends.

But first, a look at the mixed week for the major indexes.

(MUSIC)

MATHISEN: The green rush is on. The burgeoning marijuana industry may
soon get a big lift. A number of states, including California, will vote
on whether to legalize pot`s recreational use.

And as Jane Wells reports from Humboldt County, California, the stakes are,
well, high.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: Beautiful resin.

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oh, yeah.

UNIDENTIFIED FEMALE: It smells like fruit loops.

WELLS: California may finally decide to legalize what some call the
state`s number one crop. Twenty years after making medical marijuana
legal, voters may now decide to green light recreational pot with
Proposition 64.

LT. GOV. GAVIN NEWSOM (D), CALIFORNIA: The bottom line is, the country
will radically change because of what California is doing.

WELLS: Lieutenant Governor Gavin Newsom has helped shape Prop 64 which
will allow anyone 21 or older to buy and consume pot and even grow six
plants of their own. It could raise $1 billion in state taxes.

AD NARRATOR: Prop 64 makes marijuana legal in California.

WELLS: The yes campaign has far outspent the noes, thanks in large part to
more than $7 million in funding from venture capitalist Sean Parker of
Napster and Facebook (NASDAQ:FB) fame. And a few weeks ago in San
Francisco`s financial district, there was an expo for so-called industry
disrupters.

JIM MCALPINE, NEW WEST SUMMIT: This is the new face of cannabis right now.
And this here today, this is the new face of the cannabis industry.

WELLS: But up where most of the pot is actually grown, they are not
thrilled with Prop 64.

SEQUOYAH HUDSON, TRUE HUMBOLDT: I think there`s going to be a period of
time where the prices are going to go really low. And it`s — it is going
to be about the ones that survive.

WELLS: Sequoyah Hudson is helping brand the local product as True
Humboldt, as she plans to vote no. Many growers fear outsiders will
eventually come in and take over the industry.

But some second generation farmers, like Sunshine Johnston and Rio
Anderson, want to come out from the shadows.

SUNSHINE JOHNSTON, SUNBOLDT GROWN: We haven`t had a future until now. And
now we have a future. And in five years, we`ll start to see what that
future looks like.

RIO ANDERSON, GROWER: Being from this community, the black market has kind
of taken away our right to speak out and do interviews like this. And
legitimacy has given me a chance to, like, come out and be a part of a
greater society.

WELLS: Legitimacy, perhaps, in California, but still not in the eyes of
the federal government.

For NIGHTLY BUSINESS REPORT, Jane Wells, Humboldt County, California.

(END VIDEOTAPE)

MATHISEN: Increased credit card use helps MasterCard (NYSE:MA) blow past
earnings expectations. And that`s where we begin tonight`s “Market Focus”.

Profit and revenue rose at the payment processing company, thanks to an
uptick in transactions. But MasterCard (NYSE:MA) said it expects sales
momentum to slow in the current quarter as a result of higher user rebates
and incentives. Shares were up 3 percent at $106.90.

Hershey`s saw a profit rise above street targets with results being largely
helped by strong demand in the U.S. Sales were also higher. The maker of
Reese`s peanut butter cups also raised its full year earnings outlook.
Shares popped 7 percent to $102.40.

Royal Caribbean posted higher than expected profit as strong demand for
North American roots and higher onboard spending fueled results. Cruise
operator also saw a rise in revenue and said it is seeing a solid number of
bookings for next year. Shares finished the day up more than 9 percent at
$74.47.

After the bell last night, the drug wholesaler, McKesson (NYSE:MCK) said a
weaker price environment was to blame for the company`s profit and sales
miss. McKesson (NYSE:MCK) cut its profit guidance for the year and also
saw its stock downgraded by several banks following its earnings report.
Shares today got crushed falling 22 percent to $124.11.

And Acushnet went public today. It`s a name you may not be familiar with.
But you probably know its well-known golf brand, Titleist. In its stock
market debut, Acushnet raised $329 million, opening its 17 bucks a share.
That was lower than initially anticipated.

But the company CEO says the company is confident in its core audience.

(BEGIN VIDEO CLIP)

WALLY UIHLEIN, ACUSHNET CEO: Our target audience is the dedicated serious
golfer, go back to the origins of the company. That was our primary target
audience. We think it`s a high-quality consumer in the space. And for us,
as a result, we`re really focused on that golfer, and that`s why we`re
positive about the future.

(END VIDEO CLIP)

MATHISEN: If I keep losing balls, their stock should go up. Shares rose
more than 5 1/2 percent to $17.95.

And now to our market monitor, who likes dividend-paying mid cap stocks he
says will benefit from infrastructure spending here in the United States.
First time joining us on the program, he`s Don Schreiber, CEO and co-
portfolio manager at WBI Funds.

Mr. Schreiber, welcome. Good to have you with us.

Does the election matter to you and how you manage your funds?

DON SCHREIBER, WBI FUNDS CEO & CO-PORTFOLIO MANAGER: Well, I think the
election might be a little bit more contested and have a bigger market move
than normal. Normally, elections don`t have a big impact on markets, but I
think this one, because people are concerned about either party winning the
Oval Office, may leave a bigger mark on markets.

MATHISEN: You are looking for fiscal stimulus, either under a President
Clinton or a President Trump. To help some of the picks you have for us
tonight. Starting with MDU Resources.

What do they do? They have a very nice dividend of nearly 3 percent.

SCHREIBER: Yes. MDU Resources is a typical integrated multi-utility.
They have some other things going for them. They do construction and full
servicing for utilities and in an infrastructure plan, or a fiscal stimulus
plan, we expect the utility grade which really needs a reboot, to get a
fair amount of dollars allocated to it. This should be very good for MDU`s
utility construction business.

MATHISEN: And it`s had a nice run —

SCHREIBER: So, that should give them a little bit better revenue.

MATHISEN: It`s had a nice run, as well, over the past year.

Steel Dynamics (NASDAQ:STLD) is your second pick. You got a price target
of $35 on it.

SCHREIBER: Sure. Steel Dynamics (NASDAQ:STLD) is benefitting from a rise
in steel prices, because of less competition out of China, and then again,
a fiscal stimulus or infrastructure plan. Steel is going to do very well,
it will raise the revenue for the company, and it should really drop to the
bottom line quite nicely.

MATHISEN: Both of those picks that you`ve just mentioned have had very
nice run-ups over the past year. You don`t worry that the price has gotten
away?

SCHREIBER: No, not at all. I think that one of the things that we look
for, reasonable price to earnings ratios, so the companies have decent
value right now. Both of these companies are trading at less than the
average of the S&P 500. And we look for good revenue and good earnings
growth and these companies meet those criteria. So the stock should have
some room to move to the up side.

MATHISEN: The final pick is less an infrastructure play than a sort of
consumer and media one, Scripps Network. My wife and I love watching their
television programs, those home makeover shows.

SCHREIBER: You bet. So HGTV, DIY network, they`ve really got the heart of
the American consumer, I think. And these are really very popular shows.
They also have the Food Network and they`ve got the Travel Network. So I
think they really are speaking to consumers, and these shows and trend
shows broadcasting company should do really great in terms of its growth
rate over the next few years.

MATHISEN: Don, thanks for being with us. Don Schreiber with WBI Funds.

Coming up, why entrepreneurs are on the front lines of one city`s big push
to kick-start economic growth.

(MUSIC)

MATHISEN: Here`s a look at what to watch next week on Tuesday. We`ll see
how many consumers drove off with new cars in October, when automakers
release their monthly sales. Wednesday, the Federal Reserve will wrap-up
its two-day policy setting meeting. And on Friday, the biggest economic
release of the week is out, the unemployment report. That`s what to watch
on a very busy week.

Well, a St. Louis jury awarded a California woman more than $70 million in
her lawsuit against Johnson & Johnson (NYSE:JNJ). The woman alleged that
the company`s baby powder caused her cancer and accused J&J of negligent
conduct in the making and marketing of the product.

Earlier this year, two other lawsuits in St. Louis ended in jury verdicts
with more than $125 million in awards combined. But the two similar cases
in New Jersey were thrown out.

Well, Baltimore has a long history of economic ups and downs and now, there
is a big effort under way to spark growth. And to do that, the city is
turning to startups.

Kate Rogers (NYSE:ROG) tonight on why small business matters to the Charm
City.

(BEGIN VIDEOTAPE)

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: The city of Baltimore
is out to reinvent itself.

TOM GEDDES, PLANK INDUSTRIES CEO: Just as importantly as changing the
realities of Baltimore, we think it will change the image and brand of
Baltimore.

ROGERS: A working class city that struggled to find its footing, Baltimore
saw its reputation further damaged after violent protests rocked the area
in 2015 following the death of Freddie Gray while in police custody. So,
the city is looking to bolster its reputation and economic standing by
turning to entrepreneurship to usher in the next chapter for Charm City.

GEDDES: If we can build a place that has a culture around
entrepreneurship, small businesses growing into larger businesses and
general opportunity, we think that is an economic boost of Baltimore City
at a time it`s really needed.

ROGERS: Port Covington`s $4 billion plus redevelopment led by Under Armour
(NYSE:UA) CEO Kevin Planks` investment company and funded via public and
private capital will take nearly two decades to complete.

But City Garage is already opened its doors with a maker space and
resources for entrepreneurs who want to create made in America products
from whiskey to skateboards, as well as the manufacturing and testing
facility for Under Armour (NYSE:UA).

The message? Entrepreneurs have the ability to elevate the city from the
bottom up.

Baltimore`s affordability, accessibility and educational feeder system make
it a great place for a young company to lay down roots. In 2015, it was a
top 20 metro for startup activity, with nearly $900 million poured into the
state that same year.

Johns Hopkins fast forward accelerator launched in 2013 with a focus on
innovation and technology. Since 2012, 67 companies have been licensed by
John`s Hopkins university, and those based on the university technology
have raised more than $1 billion in funding in the past four years.

RON DANIELS, JOHN HOPKINS UNIVERSITY PRESIDENT: I think it`s kind of a
virtuous circle. We built these facilities, we provided these amenities,
we raised the consciousness within the university, we provided great
technical support, and that in turn has unleashed more creativity.

ROGERS: Startups like David Narrow`s Sonavex have decided to stay in the
city. Sonavex is currently in the process of seeking FDA approval for its
technology, which can detect post operative blood clots.

Baltimore has provided resources, top talent and most importantly,
affordability for the young company.

DAVID NARROW, SONAVEX CEO: People that aren`t from Baltimore or don`t know
much about Baltimore often have negative perceptions based off of the, you
know — not so infrequent perception that there is, you know, danger here,
or issues associated with the wire or riots. But when you come to
Baltimore, you realize that everybody — it`s a very friendly community and
people are very supportive of one another.

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

(END VIDEOTAPE)

ROGERS: And that is NIGHTLY BUSINESS REPORT for tonight. I`m Tyler
Mathisen. Thanks for watching. Have a great weekend, everyone. And we
will 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) 2016 CNBC, Inc.

 

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