nightly business report - april 18 2013

7/28/2019 Nightly Business Report - April 18 2013

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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and

Susie Gharib, brought to you by --

(COMMERCIAL AD)

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Tech trifecta. A big

night for technology as Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and

IBM report earnings. We`ll look at the winners and the losers.


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SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Stocks slide again.

Mixed earnings and a batch of economic numbers that missed projections drag

down the major indexes.

GRIFFETH: China`s cheap labor -- well, at least that was the case.

But as costs rise, are some U.S. manufacturers thinking about pulling out?

All that and more tonight on the NIGHTLY BUSINESS REPORT for this

Thursday, April the 18th.

Good evening, everybody, and welcome. I`m Bill Griffeth, in this week

for Tyler Mathisen.

And, Susie, it`s clear. Once again, that technology is going to set

the tone for tomorrow, don`t you think?

GHARIB: Three big tech names in the news tonight, Google

(NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and IBM. Three huge technology

companies all reporting their latest quarterly earnings after the bell

tonight with mixed results.

The results are important given new concerns about slowing global

economic growth. And a sharp decline in the sales of personal computers

this year. The report set up a flurry of activity in after-hours trading

as the direction of all three companies will impact countless other tech


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suppliers and component makers on Friday.

And since IBM is the most heavily weighted stock in the Dow, investors

will keep close watch on big blue shares tomorrow.

Microsoft (NASDAQ:MSFT) was the first of the big three to report this

evening, and that`s where we begin with Seema Mody at the NASDAQ -- Seema.

SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Susie, a bigday

for tech. Let`s run through the numbers.

Microsoft (NASDAQ:MSFT) first -- a lot of concern around weakness and

personal computer sales ahead of its earning report, but the numbers are

out, and it beat the street by 4 cents on its bottom line. CEO Steve

Ballmer said the bold bets we made on cloud services are paying off. The

tech heavyweight also announced CFO Peter Klein will be leaving the company

at the end of the year. It will name its new CFO in the next several

weeks.

Let`s also look at Google (NASDAQ:GOOG). Shares are up after hours.

The Internet giant reporting an EPS of $11.58 versus a street estimate of

$10.66. However, its quarterly revenue of $13.97 billion came in slightly

shy of the $14.09 billion expected by the street.

And lastly, big blue IBM, the diversified tech player that is many


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times seen as a good barometer of what to expect from the broader

technology space missed street expectations on its top and bottom line due

to a decline in hardware and services sales. Its first quarter EPS came in

at $3 a share versus a $3.05 estimate.

The investment group says looking back over the last 10 years, IBM`s

one-day reaction to earnings has accurately predicted the direction of the

S&P 500 over the following five weeks, more than 75 percent of the time.

And if that`s the case, then tomorrow might be a down day.

We are seeing IBM shares down after hours.

Bill and Susie, back to you.

GRIFFETH: Seema, thank you very much.

And joining us right now to talk about technology and where he thinks

it`s headed is Ashok Kumar, senior technology analyst at Maxim Group.

Welcome back.

ASHOK KUMAR, MAXIM GROUP SR. TECHNOLOGY ANALYST: Thank you.

GRIFFETH: All three that reported tonight missed on the top line.

They were light on revenue. Does that worry you?


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KUMAR: No, I think these are cyclical trends. In near term, I think

the technology companies are faced with the macroeconomic climate which is

weak across the developed markets. And they`re seeing customers slow down

across key end segments, including PCs and smartphones.

And the service side of the business I think we are seeing hesitancy

among the large corporate accounts. So, it`s more cyclical in nature than

secular.

GHARIB: You know, this has been a tough time for technology

companies, technology earnings. And there are so many changes happening in

the technology space. And you see a company like Apple (NASDAQ:AAPL) once,

you know, the darling of the tech sector.

Now it`s, you know, kind of a broken company, so to speak. What is

it, Ashok, that defines what makes a winner in the technology space versus

an also-ran?

KUMAR: Absolutely. I mean, going back to the Apple (NASDAQ:AAPL)

story, I think the company`s meteoric stock rise, you know, from the $100

to its peak to $700 I think reflected disruptive in a product cycle both in

terms of price and unit. So the company came in and dominated the tablet

market, came in and was creator of significant value in the smartphone

segment.


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And I think the company has been able to right that cycle, but now, of

course, it`s on the other side of that mountain, so to speak. So, over

$200 billion of market cap has been removed. And so the company is looking

forward, our best position, as you pointed out, in this undergoing

transformation of the technology value chain, our position at the nexus or

the intersection of -- in a consumer or cloud, the information, the

mobility and social media, so we think the three companies that should

benefit longer term are one, Google (NASDAQ:GOOG), two, Amazon

(NASDAQ:AMZN) and, three, IBM.

GRIFFETH: We keep hearing the migration to mobile. We all have

tablets. We all have smartphones.

What about the PC? Is -- are we looking at the sunset years for the

personal computer right now?

KUMAR: I think it`s become -- Bill, it`s become primarily a

replacement in a market. In other words, the life cycle of the PC

continues to get extended because of the lack of compelling applications

that are being written for the PC platform. So the go-to platform or the

post-PC devices as Steve Jobs put it, the smartphones and the tablets, and

that`s where the application developer community is focused on.

GHARIB: You see a wide range of technology companies. Let me just


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get back to, you know, which are the ones, the companies that you think

have the platforms that are on the cutting edge. And maybe not any of the

companies that we`ve been talking about tonight that reported earnings.

KUMAR: Absolutely. That`s a very good point because it seems that

investors at the margin are focusing and voting with the dollars and

disrupters, and these could be companies like Salesforce, it could be a

company like Workday, it could be companies like (INAUDIBLE) networks and

moving away from legacy companies like Dell (NASDAQ:DELL), Hewlett-Packard

(NYSE:HPQ), EMC (NYSE:EMC) and to a lesser degree, Oracle (NASDAQ:ORCL).

GRIFFETH: And what about an IBM? I mean, so influential for years.

They`ve made this transition through the services industry. They were

cutting edge on that. What did you think of their earnings, and where do

you think they`re going from here?

KUMAR: Bill, you raise a lot of key points on IBM. I think they were

early to recognize industry transition away from hardware to software and

services in the `90s. So the company`s portfolio, if you look at it in a

longer-term perspective, it`s very counter-cyclical. So they`re able to

write the software and services, they`re in a position to grow, you know,

the top and bottom line, high single digits over longer term.

So I think yes, there are some cyclical issues that are buffeting the

near-term performance. But from a longer-term perspective, they`re very


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well-positioned to address their customer needs.

GHARIB: So, this has been a big week for technology earnings. A lot

of people are wondering, you know, what impact this is going to have on

trading tomorrow. Do you think that this latest batch is going to

influence stocks to the positive or the negative either way?

KUMAR: No, I think from a training perspective, which is very near-

term oriented, yes. But longer term, I think technology sector creates a

tremendous amount of value across key markets and segments. It`s global in

theme, it`s secular in themes. So, I think these are cyclical factors that

are impacting performance.

But longer term, value proposition in terms of risk return is very

compelling on these key technology leaders in the sector.

GRIFFETH: Ashok Kumar of the Maxim Group, good to see you. Thank you

for joining us.

KUMAR: Thank you.

GHARIB: On Wall Street today, another day of selling and volatile

trading, a round of disappointing economic reports and earnings sent the

major averages lower.


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The biggest decliner in the Dow, United Health Care, falling nearly 4

percent more. We`ll have more on that in our "Market Focus". And the

NASDAQ was hit by Apple (NASDAQ:AAPL) that we were just talking about,

closing before $400 a share for the first time since December of 2011.

Looking at the closing numbers: the Dow down 81 points, the NASDAQ

lost 38 and the S&P 500 off 10 points.

Also weighing on the markets, first-time jobless claims rose by 4,000

last week. The Philadelphia Federal Reserve Bank said business activity in

the mid-Atlantic region slowed down this month. And the read on leading

economic indicators unexpectedly declined in March, falling for the first

time in four months.

GRIFFETH: But there has been no slowdown in auto sales so far this

year. And with sales of cars and pickups revving higher, AutoNation

(NYSE:AN) reported a record-breaking quarter before the bell.

The country`s largest auto dealership owner reported that first

quarter profits rose by 14 percent on a best-ever 68 cents a share with

revenues that topped $4 billion. Sales of new and used cars were higher

last quarter, getting help from the recovery in housing and the chain even

announced plans to expand.

GHARIB: AutoNation (NYSE:AN) CEO Michael Jackson joins us now.


10/24

Mike, nice to see you again.

I want to ask you, why is this business so good, and is it safe to say

now that the car business is getting back to normal?

MICHAEL JACKSON, AUTONATION: Well, Susie, you have to look at it

within the context in the auto industry. We had a depression, a complete

crash, a complete breakdown in `08, `09, `10. We could not get financing

for our customers. So business practically came to a standstill.

And so, what happened is, it pushed out the average age of cars in

America to 11 years old. It`s unprecedented. And people really need to do

something at this point. The trades we`re looking at have 150,000 miles on

it. So people stop buying cars, stop repairing cars for several years, and

now there`s genuine replacement need.

So they come in to talk to us, and we have the best product offering

ever, outstanding quality. And by quality, I mean fit, finish, design --

GRIFFETH: Right.

JACKSON: -- innovation, content, and dramatically improved fuel

economy. We don`t ask customers to downsize or go slower, and you don`t

have to buy exotic hybrids or electric. Mainstream technology will give


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you a 25 percent to 30 percent improvement in fuel economy.

And finally, we have the best financing ever because ironically during

the downturn that customers continued to pay for the cars.

GRIFFETH: Right.

JACKSON: We were the first payment-to-household made. So the banks

have really moved back into financing cars.

So you put it all together, you really have a lot of structural

support for this one bright spot in the U.S. economy, the automotive

recovery.

GRIFFETH: It`s clear to see why you`re a superstar salesman, Mike.

One of the trends we`ve seen in the recovery has been the tremendous

strength of the rental -- not the rental -- of the used car market. Is

that still the case? Are people tending to buy more used cars than they

did in the past?

JACKSON: Well, the used car story is the following. We are selling

big improvements in used cars and new cars. And because there`s such a

shortage of used cars because production came -- was so dramatically low

from `08, `09 during the depression, there is a shortage which means the


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value of the trades are at record highs.

So people, had they come in, not only do we have all those other

drivers that are already called out, but then we say listen, we can give

you more money for your trade than you`re ever going to get. And they say,

great, I`m ready to get something newer, whether it`s still used or new.

GHARIB: Let me ask you this, Mike. I know you hear this all the

time. Everybody`s talking about the pros and cons of zero percent interest

rates and talking about at some point they`re going to go up. When

interest rates do go up, will consumers be less likely to be interested in

buying a car and to finance it?

JACKSON: No, I think these record low interest rates, everybody knows

that it will not continue. I should be clear, the market rate that

customers are paying today, let`s say around 3.5 percent, 4 percent, if you

talk zero percent, that is an incentive that has been bought down by a

manufacturer. So, the real world is 3.5 percent, 4 percent.

But customers are used to paying 5 percent, 6 percent, 7 percent on

the financing of an automobile. So I don`t think the normalization of

interest rates to those levels is going to unseat these drivers that I`ve

called out that are driving this recovery. We`re in the early innings of

this automotive recovery. We`re on a journey back to the industry, selling

16 million, 17 million units a year.


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GHARIB: So, that`s nice to end on an upbeat note.

Thank you, Mike. So good to see you. Mike Jackson, CEO of AutoNation

(NYSE:AN).

JACKSON: Good to see you.

GHARIB: And sticking with the theme of retail a little later in the

program, we`ll look at why Walmart is one earnings report to watch when

that sector reports.

GRIFFETH: Meantime, United Healthcare beat earnings estimates and

that is where we begin tonight`s "Market Focus".

But it wasn`t all positive. The company also said first quarter

profits dropped because of lower government payments for its Medicare

services. The company warned that the sequester would pressure profits the

rest of this year, and it did not issue specific guidance for 2014.

United Healthcare was off almost 4 percent to $59 and change, followed

by other insurers like Humana (NYSE:HUM), Aetna (NYSE:AET) and WellPoint,

all down at least 2 percent at the close.

GHARIB: Dow blue chip Verizon (NYSE:VZ) reported increased profits


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thanks to its booming wireless business and lower costs. Verizon (NYSE:VZ)

activated 4 million iPhones during the quarter. Shares hit a new all-time

high today before dropping back to close at $50.91, up almost 3 percent.

PepsiCo also touched a new all-time high today as soft drink price

increases helped boost profit margins. Revenues in its snack business

improved as well, particularly in China. Pepsi gained more than 3 percent,

closing at $81.45 a share.

GRIFFETH: Morgan Stanley (NASDAQ:NBXH) (NYSE:MS) is the last Wall

Street bank to report, came in above estimates, helped by a boost in stock

trading volume. But investors did focus on weakness in the company`s bond

trading unit. Morgan Stanley (NASDAQ:NBXH) (NYSE:MS) shares lost more than

5 percent on the day.

And after the close, Vertex Pharmaceuticals (NASDAQ:VRTX) reported

significant progress in test patients with cystic fibrosis. And that sent

shares soaring after hours. Vertex`s two drug therapy improved patients`

lung function in a phase 2 study. Now, shares had closed down at the end

of the session. But after the report came out, they were up as much as 50

percent in after-hours trade.

GHARIB: And chipotle reported a blowout 22 percent increase in

profits, and that`s thanks to stronger sales. And said it expects to open

as many as 180 new locations this year. The company restated its guidance


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of flat to low single-digit same-store growth for the rest of the year.

Shares of chipotle which were down more than 3 percent at the close

gained as much as 7 percent in after-hours trading.

And coming up, moving operations to China was a no-brainer for many

American companies looking for cheap labor. But that could be all about to

change.

First, let`s take a look at how the international markets finished the

day.

(MUSIC)

GRIFFETH: As you know, consumer spending accounts for nearly 70

percent of U.S. economic activity, and nowhere do Americans spend more

money shopping than at Walmart.

As we continue our "Earnings Spotlight," Courtney Reagan tells us how

important Walmart`s results are to investors and what they might reveal

about consumers and other big retailers.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):


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While the bulk of retailers report earnings towards the end of the season,

the results are closely monitored by investors trying to take the pulse of

the consumer amid continued uncertainty. And for decades running, it`s the

earnings released from the world`s largest retailer that is perhaps the

most anticipated.

JAN KNIFFEN: Walmart is the bellwether. And other than the time

period where Walmart was doing Project Impact a few years ago, it has

always been the bellwether.

REAGAN: A bellwether for good reason. Every week, more than 200

million consumers shop in the nearly 10,800 Walmart retail locations around

the world. For the first quarter, Walmart is expected to report revenue of

more than $116 billion, with earnings of $1.15 per share.

Walmart`s U.S. same-store sales is a key metric investors watch. It

measures the amount sales increased or decreased for stores open at least a

year. While the retailer has posted a gain in each of the last five

quarters, the growth rate shows a downward trend.

(on camera): Walmart competitor Target (NYSE:TGT) is warning

investors that its earnings will miss expectations. Saying the lingering

cold weather in much of the country has hurt sales of seasonal and weather-

sensitive items. Investors are now wondering if Walmart s sales have been

equally impacted.


17/24

(voice-over): But beyond the financials, investors glean insight from

Walmart`s consumer research. Every quarter, the company surveys its

shoppers to take the pulse of what`s concerning them most. Last quarter,

Walmart U.S. CEO Bill Simon says his consumers were most worried bout jobs

followed by inflation, taxes and gas prices.

Consumers may have concerns, but a number of analysts aren`t worried.

KNIFFEN: I think Walmart right now is running as well as Walmart has

ever run since I started watching them in 1968. They are doing a fabulous

job of bringing product at the price to the customer.

REAGAN: And the stockholders are reaping the benefits. Walmart

shares gained 27 percent over the last year, better than the S&P retail

index and the broader S&P 500 over the same time period.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

(END VIDEOTAPE)

GRIFFETH: And tomorrow, we turn our attention to housing and the one

company to watch this earnings season.

GHARIB: So many American companies, including many Walmart suppliers,


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move manufacturing out of the U.S. to plants in China, looking to save

money. But things have changed. Rising costs for labor, material and

shipping has forced a lot of companies to consider bringing some of those

jobs back home.

Phil LeBeau has more from Shanghai.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here inShanghai,

U.S. manufacturers who have set up plants here in China are facing a new

challenge, rising costs. In fact, a new study out today finds that the

total cost of manufacturing in China will rise to the same level as the

U.S. by 2015.

For Prince Industries based in Illinois, costs for its plant here in

Shanghai are rising faster than expected. For example, labor wages are

jumping 12 percent every year due to the competition to attract and retain

skilled workers. They`ve got 110 employees here in China, making

components companies sell to firms like Caterpillar (NYSE:CAT) and

Honeywell. And the CEO says those rising costs may force him to eventually

move out of Shanghai.

MARK MILLER, PRINCE INDUSTRIES CEO: We`re looking at different areas

in China. Shanghai has been high cost to manufacture, but that was where


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we initially went to, and all of our customers were in that area. But in

the next five to seven years, I would say we`ll definitely be somewhere

further inland.

LEBEAU: Take a look at how fast hourly wages have climbed here in

China compared to India, Mexico and the United States. Meanwhile, China`s

currency, the RMB, has appreciated more than 25 percent over the last 10

years.

Put those together and you see why the overall cost of manufacturing

in China has gone up so rapidly in recent years. Now, analysts believe the

cost of manufacturing here in China will be equal to manufacturing in the

U.S. within a couple of years.

STEVE MAURER, ALIXPARTNERS MANAGING DIRECTOR: If you go back to

2005,

it was pretty common for landed costs from China to be 25 percent to 30

percent less than the cost of manufacturing in the United States. Based on

our analysis, that gap has been -- about two-thirds of that gap has been

closed.

LEBEAU: The rising costs here in China mean more U.S. manufacturers,

will pull out of this country and bring jobs back to the U.S.?

Well, don`t expect a huge rush of re-shoring. There may be a few

companies to bring jobs back. What`s more likely is they will keep their


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China plants focused on selling to companies here in China while U.S.

plants pick up more of the manufacturing for companies in the U.S.

One big advantage U.S. manufacturing plants have over those here in

China, productivity. Now, it`s improving here in China, but it`s still not

to the level where it is in the U.S. and because of that productivity, U.S.

manufacturing plants have been able to keep their costs in check relative

to firms here in China.

Phil LeBeau, NIGHTLY BUSINESS REPORT, Shanghai, China.

(END VIDEOTAPE)

GHARIB: And tomorrow, we`ll look at whether China, the world`s

largest auto market, is about to become the world`s most lucrative market

for luxury carmakers.

GRIFFETH: In the meantime, still ahead, SeaWorld is set to make its

trading debut tomorrow, but should investors dive in?

First, a look, though, at how commodities, treasuries and currencies

fared today.

(MUSIC)


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GHARIB: You can call it a whale of a deal. SeaWorld Entertainment --

this is the amusement park behind Shamu, the killer whale -- will sell

shares to the public for the first time ever tomorrow at the New York Stock

Exchange. It`s offering 26 million shares, and they price tonight at $27

each, raising $702 million.

Jane Wells takes a closer look at the company.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over):

SeaWorld is hoping its stock market debut will make a big splash.

The company made up of 11 theme parks including Busch Gardens and

Aquatica wants to raise hundreds of millions of dollars to pay down debt

and grow its business.

UNIDENTIFIED BOY: I want to see sharks and stingrays.

UNIDENTIFIED MALE: Can`t see that stuff in Kansas.

WELLS: SeaWorld was bought by the Blackstone Group back in 2009, and

the new owners return it had to profitability. The recession put the

business on something of a rollercoaster, but net income swung from a $45

million loss in 2010 to over $77 million in profits last year.


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Customers are spending more money, and the company is hoping to

attract more international travelers, especially to San Diego.

TONY CHERIN, SAN DIEGO STATE UNIV. PROF. OF FINANCE: SeaWorld is one

of the major attractions for those international travelers.

WELLS (on camera): But there are risks. The company says it has

nearly $1.7 billion in debt. And when your entire business model is built

around 67,000 animals, there are unique challenges.

(voice-over): The company is appealing federal safety violations

after an orca killed a trainer in Orlando three years ago. SeaWorld warns

it could always be subject to changing regulations or the loss of licenses

to keep animals.

But the animals are what make SeaWorld entertainment stand apart from

other theme park companies.

UNIDENTIFIED FEMALE: You know, as a kid, I learned and loved Shamu so

much, so I can`t wait for my son to have that in his life as well.

WELLS: Investors will decide when shares start trading if SeaWorld is

a whale of a buy or they best avoid the stock for fear it could end up

under water.


23/24

For NIGHTLY BUSINESS REPORT, Jane Wells, San Diego.

(END VIDEOTAPE)

GHARIB: And tomorrow, we`ll be speaking with CEO of SeaWorld, Jim

Atchison at the New York Stock Exchange.

And, Bill, I understand that he`s bringing a penguin to help him ring

the opening bell tomorrow morning.

GRIFFETH: One of the best-dressed bell ringers they`ve had at the New

York Stock Exchange in quite a while. It`s a great family story, but can

they continue to grow this franchise? It`s pretty long in the tooth.

GHARIB: I`ll ask him. We`ll find out.

GRIFFETH: Exactly.

GHARIB: I`ll report back tomorrow.

And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Susie Gharib.

Thanks so much for watching.

GRIFFETH: I`m Bill Griffeth. Have a great evening. We will see you


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again tomorrow.

END

Nightly Business Report transcripts and video are available on-line post

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nightly business report - april 18 2013

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