Transcript: Nightly Business Report – November 4, 2019

ANNOUNCER:  This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herrera.  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Getting a triple.  The Dow,  Nasdaq and S&P 500 all closed at records, as investors start the week in  rally mode.  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  Abrupt departure.  The CEO  who led McDonalds turn around and nearly double the stock price is fired,  leading investors to ask, what`s next?  

HERERA:  Under investigation.  Under Armour (NYSE:UA) confirms a probe into  the accounting practices, raising a lot of questions and offering few  answers.  
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Monday,  November 4th.  

GRIFFETH:  And we do bid you a good evening, everyone, and welcome.  
Nothing like a hat trick of records to start week.  The three major  averages all closed at all time highs today thanks largely to reports of  progress in the trade talks with China and increasing confidence in  economic growth.  
So let`s get right to the numbers for this day with the Dow Jones  Industrial Average rising 114 points today to close at 27,462.  The Nasdaq  added 46.  The S&P was up 11.
Bob Pisani takes a closer look at what`s driving the market higher.  

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Stocks broke new ground  today on the back of high hopes for U.S.-China trade deal with the Dow  Jones Industrial Average finally joining the S&P 500 and the Nasdaq in the  record high club.  The S&P 500 is in breakout mode, now on pace for the  best year since 2013.  It`s up 22, 23 percent hitting historic highs in  several days in a row.  So, what are the factors fueling the surge?  Well,  first and foremost, we have trade optimism which many believe will help the  earnings situation.  Secondly, the Federal Reserve which the market still  believes stands ready to act if the economy worsens.  

But the fact is we have already had slightly better economic data in the  U.S., Europe, and in China recently.  And that`s causing some experts to  say maybe we need to re-evaluate the growth and earnings landscape in 2020  and raise the numbers a little bit.  There have been some promising signs  of rotation in the market including breakouts among the cyclical stocks,  tech, financials, industrials, all hitting new highs.  The Dow`s rally  comes despite a large drag from McDonald`s (NYSE:MCD) following the fire of  CEO Steve Easterbrook. 

But it`s not just here in the U.S.  We`re seeing breaking out in a more  global scale as well.  Today, France, Germany, Italy, Ireland, all hit new  52-week highs.  Japan also 52-week highs.  

As for the month of November, well, its usually the second best month for  the stork market for the year and it starts the best six-month period when  the stock market historically had outperformed between now and the end of  April.  
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

HERERA:  And when the market is at new highs, some say it`s time to re- evaluate investor appetite for risk.  One way to do that is by looking at  the recent performance of one time stock darlings.  
Mike Santoli did just that and tells us what he found.  

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Some of the hottest  upstart consumer technology companies had been trampled in the broad  market`s run to fresh record highs.  A group of heavily hyped and fast  growing e-commerce players including food delivery portal Grubhub, online  furniture retailer Wayfair, and digital marketplace Etsy have had their  shares crushed, losing between 35 percent and 60 percent from their peak  values.  

Now while the recent bout of weakness came in response to disappointing  quarterly results for each company, the action does reflect a broader  reckoning for businesses to revolutionize consumer behavior but failing to  prove they can do so prosperously.  None of the above companies have shown  the sort of reliable generous profit margins of pure technology businesses.   Just because they operate through an app does not mean they enjoy software  economics.  They`re saddled with the cost of real world delivery and many  well-financed competitors.  Now the challenges only underscore the vast  advantages held by the likes of Amazon

(NASDAQ:AMZN) with the massive scale  and vast prime subscriber base. 
The poor performance of Uber and Lyft IPOs and failure of WeWork even to  come public also reflect investors` unwillingness to endorse Silicon  Valley`s growth at any cost philosophy.  Now, the question now, does all  this amount to an emerging crack in investor risk appetites or is market`s  willingness to punish this aggressively valued one time darlings a sign of  underlying resilience in the broad market.  
The index is at record highs and says this is a strength at least for now.  

GRIFFETH:  As Bob Pisani mentioned, a few minutes ago, the CEO of  McDonald`s (NYSE:MCD) is out.  Steve Easterbrook who was credited with  leading the fast food giant`s turnaround was suddenly let go because he  violated company policy.  The stock fell on that news today and now the  company enters a new chapter with a new leader who faces some old  challenges.
Kate Rogers (NYSE:ROG) reports.  

The company announcing late Sunday Steve Easterbrook is out as CEO after  demonstrating, quote, poor judgment in having a consensual relationship  with an employee.  He succeeded by McDonald`s (NYSE:MCD) USA president  Chris Kempczinski.  Easterbrook is also off the company`s board of  directors.  

In a memo to employees, Easterbrook said, in part, this was a mistake.   Given the values of the company, I agree with the board that it is time for  me to move on.  Beyond this, I hope you can respect my desire to maintain  my privacy.  

Easterbrook took over in March of 2015, helping to reinvigorate the brand,  introducing new value items and all day breakfast.  Most importantly,  Easterbrook has incorporated technology into McDonald`s (NYSE:MCD), with  self order kiosks, new high tech drive-thrus and modernized stores.  The  company has also made a string of tech acquisitions and investments this  past year to build on this momentum.  His replacement, Kempczinski has been  with McDonald`s (NYSE:MCD) since 2015, brought in by Easterbrook and most  recently running the U.S. business, working closely with franchisees.  
He`s called Easterbrook a mentor.

R.J. HOTTOVY, MORNINGSTAR:  In a lot of ways, Chris reminds me of Steve  Easterbrook.  And I think he was one of Steve`s co-authors when it came to  the velocity initiatives, been a big supporter of the technology and  delivery initiatives the company has embarked on.  And also key with the  fresh beef rollout the company has been undergoing.

So, in a lot of ways, I think he was the obvious heir apparent to Steve.  
ROGERS:  But he faces a challenging environment in the fast food space.   McDonald`s (NYSE:MCD) recently reported disappointing earnings and the  chain is up against intense competition from players like Chipotle, Burger  King and others.  A new development today, McDonald`s (NYSE:MCD) saying  that the chief operating officer, David Fairhurst, has departed the company  as well, effective immediately.  McDonald`s (NYSE:MCD) declined to comment  further.  

GRIFFETH:  And one more P.S., McDonald`s (NYSE:MCD) said today that  Easterbrook is eligible for six months of severance pay.  

HERERA:  So what does it mean to you as a shareholder when a CEO makes a  sudden departure?  

Eric Gordon joins us, a professor at the University of Michigan`s Ross  School of Business, to talk more about this.  
Good to see you again, Eric.  

HERERA:  Let`s start first of all with an investor should — what questions  should an investor be asking about this situation when a CEO departs?  What  should they be thinking about?

GORDON:  Sue, the first thing they should ask is who is going to be the new  CEO?  Now, with McDonald`s (NYSE:MCD) we know.  They announced it right  away.  But you want to — you want to find out who that is.  If there is an  interim, you`re going to be even more worried as an investor.  
Once you know who the CEO is, you want to find out is this CEO going to  make big changes, is going to stay the course?  How do you think about  them?  Because sort of fate goes with the new CEO.  So that`s the first  thing I would ask:  

GRIFFETH:  You know, it just seems lately there have been a whole slew of  CEOs who have left their companies rather abruptly.  What do you think is  going on here?  

GORDON:  You know, I think it`s a tough time.  The demands for performance  on the job are high.  And on top of that, the demands for your personal  conduct are higher.  
GRIFFETH:  Right.  

GORDON:  You know, we shifted from I think a long era of wink-wink, nod,  nod, well it`s personal.  It`s — it doesn`t affect the company, to, you  know, pulling out the microscope and saying it does affect the company.   The reputation is very important to investors.  It`s very important to  customers.  

And I think there are a lot of CEOs who have been in whatever business  they`re in for a long time who haven`t caught on.  

HERERA:  Uh-huh.  Does it matter if it`s a, quote/unquote, superstar CEO or  one that has just been exacting change perhaps in a more quiet way?  Do the  same parameters that you suggested apply?  

GORDON:  You know, you hope they would, but you often wonder if the  superstars just like superstars in the NFL get a different deal.  Although  we have seen a couple of them, you know, have even the superstars have  fallen.  

Easterbrook was very well-respected.  He did a very good job there.  And I  think the message from McDonald`s (NYSE:MCD) is: even if you are a  superstar, even if investors like you, you`ve got to act right.  

GRIFFETH:  Do we spend too much time on CEOs anyway, Eric?  I mean, I don`t  want to minimize their contribution.  It certainly can be great in many  cases.  But, you know, the CEOs of Intel (NASDAQ:INTC) and some other big  technology giants have been changing hands.  Now we`ve got Easterbrook and  McDonald`s (NYSE:MCD), the largest fast food chain in the land.  

Are we spending too much time on their contribution do you think?  

GORDON:  Yes.  Sometimes I think so.  I mean, there are thousands of people  who have to do the right things.  There is usually a lot of executives near  the top.  The idea of the CEO as the hero — of course, that is partly  justifies their pay.  But this idea that they`re the hero and, boy, if it  they leave, we`re in real trouble is, I think, you know, about two-thirds  myth.  

HERERA:  On that note, Erik Gordon with the University of Michigan`s Ross  School of Business — thanks, Erik.  
GORDON:  My pleasure, Sue.  

GRIFFETH:  Well, McDonald`s (NYSE:MCD) was not the only surprise for  investors today.  Under Armour (NYSE:UA) this morning confirmed reports it  has been the subject of a federal probe into its accounting practices, one  that has been going on for more than two years.  The company also lowered  the revenue guidance as well.  The result was an 18 percent decline in that  stock.  
Courtney Reagan has more.  

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  News of  investigations into Under Armour (NYSE:UA) accounting overshadowed the  company`s mixed quarterly results.  “The Wall Street Journal” reported the  Department of Justice and the SEC have been investigating the athletic  brand`s accounting practices as it pertains to how and when revenue is  recognized and whether revenue was shifted from one quarter to other to  make sales look better.  

On the earnings call, CFO David Bergman was the only executive that  addressed the situation.  He restated the company`s position with similar  language multiple times.  

DAVID BERGMAN, UNDER ARMOUS CFO:  We can certainly appreciate, you know,  that you like us to provide more details regarding that matter.  However,  we are prohibited from doing so.  That said, the most important message I  think to convey is that we firmly believe that our accounting practices and  disclosures were entirely appropriate and we`ve been fully cooperating for  the past 2 1/2 years on this.  So, now, we`re focused on 2020 and beyond.

SAM POSER, SUSQUEHANNA FINANCIAL GROUP:  Who is prohibiting them and why?   We want to know why we`re finding out about it now and not a while ago.   And, you know, transparency is always a good thing.  
REAGAN:  Under Armor only publicly acknowledged the ongoing two-plus-year  investigations after the news broke.  

JAMIE MERRIMAN, BERNSTEIN:  Hard to assess just over, you know, one night  what is happened.  But that is quite a long time for this investigation to  still be continuing.  

REAGAN:  Here`s what we do know.  Documents were first requested by the  government in July of 2017.  There were three different chief financial  officers from 2016 to 2017 and Under Armour`s meteoric sales growth began  to decline in late 2016.  

Last month, Under Armour (NYSE:UA) announced founder and CEO Kevin Plank  would move to executive chairman and brand chief as chief operating officer  and president, Patrick Frisk, succeeds him as CEO January 1st.  Frisk  joined the company in July 2017 around the time the accounting  investigation began.  

North American sales fell again in the quarter reported today.  Though some  analysts are expressing concern about how to evaluate even the less than  stellar numbers that have been provided.  

MERRIMAN:  I think it`s difficult externally with their public reports to  assess whether or not, you know, the numbers have been accounted for  appropriately.  

BILL GEORGE, HARVARD SENIOR FELLOW:  It`s a very small board.  Often, these  are founder-dominated boards like you see in Silicon Valley.  Kevin is not  stepping aside until January 1st.  I think he needs to resign now.  

REAGAN:  The investigation leading some to suggest it`s time to clean house  rather than it`s “protect this house” slogan.  
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.  

HERERA:  Still ahead, a trip to the Rust Belt to see what manufacturers and  workers make of their changing industry.  

GRIFFETH:  We had one economic report of note today — new orders for U.S.  made goods fell more than expected in September.  According to the Commerce  Department, factory orders were down 0.6 percent.  The report also showed  that business spending was slightly weaker than initially thought.  

HERERA:  The slowdown in manufacturing is due in part to slower global  growth.  And that`s being felt by factory owners and workers in the Rust  Belt.  
Kayla Tausche went to Pennsylvania, Ohio, and Wisconsin to get their  perspective.  

KAYLA TAUSCHE, NIGHTLY BUSINESS REPORT CORRESPONDENT:  This graphite  machine shop in Bethel Park, Pennsylvania, is still humming and sawing but  it`s quieter than it used to be.  
What about the people that used to service these?  

AJAY GOEL, AMERI-SOURCE CEO:  They`re not working here anymore.  
TAUSCHE:  How many were there?  

GOEL:  We have over — about six people have been laid off.  
TAUSCHE:  That`s 15 percent fewer workers at Ameri-Source Metals, which  makes parts for industrial companies, a third of the machines are idled. 

GOEL:  You like to replace machines faster which we`re not doing.  
TAUSCHE:  That`s partly due to $3 million in tariff costs, partly because  customers are buying less.  Founder Ajay Goel says it`s impacting his  company and also the state at large.  

GOEL:  A year back that the manufacturing recession, recession strength in  this area started.  Western Pennsylvania has lost pretty big chunk of  workforce.  

TAUSCHE:  That trend is emerging across the Rust Belt.  A once blue  corridor of heavy industry won over by President Trump`s manufacturing  friendly message.  

DONALD TRUMP, PRESIDENT OF THE UNITED STATES:  We`ve now gained nearly  10,000 new factories under my administration.  

TAUSCHE:  That early renaissance has started reversing in these political  swing states, which have lost 25,000 factory jobs this year.  That`s  largely thanks to major multinational companies exposed to the slowdown  overseas and their weakness is spilling over.  U.S. manufacturing activity  declining for three straight months with a sharper slowdown in the Midwest,  where order backlogs are touching financial crisis era levels.  
In Wisconsin, at Church Metal Spinning, welder Drew Savinski`s to-do list  is getting shorter.  

DREW SAVINSKI, CHURCH METAL SPINNING WELDER:  January and through May, this  was completely full, like I couldn`t even write anymore.  But now, it`s  toned down a little bit.  

TAUSCHE:  Church makes components for engines, plastic molds and even  playgrounds.  

President Mark Verhein says he`s still investing for the long haul.  

MARK VERHEIN, CHURCH METAL SPINNING PRESIDENT:  I think there is still some  optimism among people like me out there that it will be a blip.  
TAUSCHE:  But there is some impact now.  
VERHEIN:  Our quarterly bonuses are lower than they were.  People aren`t  necessarily getting 45, 50, 55 hours of work per week.  So their overtime  is down.  

TAUSCHE:  In Ohio, Timken (NYSE:TKR) is furloughing workers for one week  every month.  

BOB HARPER, U.S. STEELWORKERS LOCAL 1123:  They`re not buying houses.   They`re not buying trucks.  They`re not buying new automobiles.  They`re  looking at what the future is.  

TAUSCHE:  Bob Harper`s lobbying lawmakers for the steelworkers he  represents in Stark County, Ohio, where voters swung for Trump in 2016  after three elections backing Democrats.  Harper says based on the economy,  it may well swing back.  

HARPER:  Everything he`s promised to us is not there.  You know?  I saw he  went after the Midwest and the Rust Belt, Ohio, Wisconsin, Michigan and all  that — it`s not working.  

TAUSCHE:  The White House did not respond to a request for comment.  The  Trump reelection campaign pointed to the number of net new manufacturing  jobs created in the U.S. since 2017, but did not address the recent decline  in swing states.  But the recent travel schedules of Mr. Trump and vice  president Mike Pence suggest outreach to voters in the Rust Belt remains  imperative.  
For NIGHTLY BUSINESS REPORT, I`m Kayla Tausche, in Washington.  

GRIFFETH:  Now, manufacturing represents only about 12 percent of our  economy and that share continues to decline.  And yet, it does dominate  political conversations around the country and financial conversations on  Wall Street.  

Why does it get all of this attention?  
Joining us tonight, Christopher Smart.  He`s chief global strategist and  head of Barings Investment Institute.  
Chris, good to see you.  Thanks for joining us tonight.  

GRIFFETH:  What do you make of this?  It gets a lot of the attention but  yet it is a much smaller share of our economic output than it was a  generation ago.  

SMART:  Well, you`re right.  It`s it been declining really since the end of  World War II as a share of the U.S. workforce.  I think it`s a lot of  attention on Wall Street these days because there is so much attention  right now on the U.S. consumer driving the U.S. economy even as many  manufacturing, investment and manufacturing has been showing weakness.  

And so, the real concern is if this continues, can the jobs picture still  look so bright for much longer?  The political story, of course, is because  so much of manufacturing is concentrated in many cases in smaller towns and  so, when there is a decline or factory closing, the political impact is  very concentrated, very painful and very hard to reverse.  

HERERA:  You also make the point that the manufacturing jobs tend to be  better paid and that as a result has a much broader spillover effect into  the various communities that those plants are located in.  

SMART:  Well, it has a spillover effect throughout the economy.  I think  because when you are making car or truck, you have a lot of inputs of steel  and other components.  You need a lot of electricity.  That has great  spillover effects throughout the economy.  These are jobs that are better  paid than their comparable jobs in the services sector.  

SMART:  It`s very important part of our exports globally in the United  States.  And it drives innovation in many ways.  So, a manufacturing job  isn`t just the same as another part — another job in another part of the  economy.  

GRIFFETH:  And let`s face it, many of the manufacturing jobs that Kayla was  just pointing to are in swing states in this country.  There — that might  also answer why they get so much attention, right?  

SMART:  Well, I think that`s right.  But I think it`s true that, you know,  generally, if you`re an economist, you look at averages.  If you`re a  politician, everything is local.  And the local pain that comes from a  factory closing down is very real and very difficult to reverse.  And  that`s something that`s going to get attention.  

GRIFFETH:  Christopher Smart with Barings Institute.  Thank you for joining  us to night, Chris.  
SMART:  My pleasure.  

HERERA:  Bausch Health posts higher revenue for the first time in three  quarters.  That`s where we begin tonight`s “Market Focus”.  

The drugmaker formerly known as Valeant reported better than expected  revenue driven by strong growth in its Bausch & Lomb division, as well as  increased demand in its Salix unit which sells gastrointestinal treatments.   The company also raised its full year forecast.  The shares were up about 1  percent to $26.19.  

Gannett (NYSE:GCI) saw its digital marketing services grow, but its sales  at its publishing unit declined.  As a result, the company missed on  revenue targets and lowered its guidance.  This comes as Gannett (NYSE:GCI)  is awaiting shareholder approval to be acquired by New Media Investment  group for nearly $1.5 billion and that would combine the two largest  newspaper chains in the country.  Gannett (NYSE:GCI) shares were down a  fraction to $10.71.  

GRIFFETH:  After the bell, online consignment company The RealReal reported  better than expected results, thanks to its strength in its gross  merchandise volume.  Shares were initially volatile in the after hours on  that news.  Today, they closed the regular session down more than 5 percent  to $21.73.  

Also after the bell, Marriott posted mixed results missing on Wall Street`s  earnings estimates, but it did top revenue expectations.  The hotel  operator said they were impacted by those miss protests in Hong Kong and by  unfavorable foreign exchange markets.  Shares were initially volatile in  after hours.  They closed the regular session up more than 1.5 percent to  $130.16.  

And, finally, Uber missed analyst expectations for monthly active users.   But the ride sharing company did post a beat in quarterly revenue.  But its  losses for the quarter topped $1 billion.  And shares initially fell  following the after hour bell news tonight.  They closed the regular  session down a fraction at $31.08.  

Coming up, turbo charged earnings.  A look inside Ferrari`s secret profit  engine.  

GRIFFETH:  Apple (NASDAQ:AAPL) is spending $2.25 billion to help address  the affordable housing crisis underway in Silicon Valley.  In a blog post,  CEO Tim Cook said his company has a civic responsibility to ensure the  region remains a vibrant community.  California Governor Gavin Newsom has  said that building more affordable homes is one way to address the sky high  cost of housing, something that has contributed to the spike in  homelessness in that area as well.  

HERERA:  Saudi Arabia`s state owned oil producer announced plans over the  weekend to go public.  The IPO of Saudi Aramco would be the largest stock  offering ever.  Trading is expected to begin on the Saudi stock exchange.   And while few details were available, bankers have told the Saudi  government that investors may value the company at about $1.5 trillion.  

GRIFFETH:  Finally tonight, Ferrari said today that its earnings are racing  ahead.  The luxury automaker reported a solid quarter.  It topped profit  and revenue estimates.  It also raised it full year outlook, thanks to an  increase in vehicle shipments.  And that helped lift that stock by more  than 5 percent.  

However, the legendary sports car maker is also making money from an  operation that few people know about.  
Here`s Robert Frank.  

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  For today`s wealthy,  buying a Ferrari isn`t quite special enough.  They want a Ferrari that`s  made just for them.  Which is why Ferrari`s profits are soaring with help  from its customization program.  Ferrari stock raising higher today in the  back of strong earnings and profit margins of 34 percent, numbers more  typical of luxury handbag makers rather than car companies.  

A big driver was its tailor-made program where customers can pay an extra  $100,000 or more to customize their ride.  They spend half a day in the  special Ferrari design center with a personal designer picking out their  own fabrics, wheel treatments, metal finishes, stitching threads, brake  calipers and shifting paddles.  You can even have their names inscribed in  the interior and create one of a kind paint colors which are then displayed  on Ferrari`s famous color wall.  

ENRICO GALLIERA, FERRARI:  Customization is it extremely important, you  know, in order to increase the customer satisfaction.  It`s a way to engage  clients and having them happy and coming back again.  

FRANK:  Now, wealth alone can`t get you a tailor-made Ferrari.  You have to  apply and get accepted.  Ferrari only makes about 200 tailor-made cars a  year out of a total production of 9,000.  The company won`t say what  qualifications are but it typically goes to customers who have already  purchased multiple Ferraris.  The Ferrari had two tailor-made studios, one  in Maranello, Italy, where Ferrari is based, and the other in Shanghai but  they were so overbooked that they just opened a third in Manhattan where we  got an exclusive tour.  

I tried my hand at creating a customized version of their latest model, the  812 GTS, which starts at $398,000.  By the time I added a special blue  paint, racing stripe, red seats and a special badge with my name inscribed,  the price was a half million.  
What you have ever said no to?  

GALLIERA:  Several time.  We will to say no.  Let`s say that if the color  is a pink color with cartoons on the shield of the car, on the car that is  something we don`t want to do.  
FRANK:  Proof that at least when it comes to Ferraris, money can`t always  buy you everything.  

HERERA:  Before we go, here`s a look at the day`s numbers on Wall Street.   Record close.  The Dow was up 114 points.  Nasdaq added 46.  S&P 500 gained  11.  

And that is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  
Welcome back.  

GRIFFETH:  Thank you.  It`s nice to be back.

I`m Bill Griffeth.  Have a great evening.  See you tomorrow.

Nightly Business Report transcripts and video are available on-line post  broadcast at The program is transcribed by ASC Services II  Media, 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) 2019 CNBC, Inc.

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