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NIGHTLY BUSINESS REPORT for January 26, 2016, PBS - Part 1



Mathisen, Julia Boorstin, Mary Thompson, Sharon Epperson>

Housing; Real Estate; Government; Policies>

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Hanging up. Apple (NASDAQ:AAPL) reports the slowest growth in iPhone sales since they went on sale in 2007. What does that mean for shares of the world`s most valuable company?

Curb appeal. Plan on shopping for a home this spring? You may be in for sticker shock.

New way to save? The White House has a plan to tackle one of the biggest issues standing in the way of your retirement.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, January 26th.

Good evening, everyone, and welcome. I`m Sue Herera. Tyler Mathisen will join us later in the program for Morningstar (NASDAQ:MORN) where he interviewed one of 2015 top fund managers today on Wall Street stocks as they rocketed higher.

But we begin tonight with earnings from Apple (NASDAQ:AAPL). The world`s most valuable company and most widely held stock and mutual funds reported the slowest pace of growth for iPhones since they were introduced. The Dow component is also forecasting revenue in the current quarter will decline at the steepest rate in 15 years. Apple (NASDAQ:AAPL) earned $3.28 for the quarter, 5 cents better than estimates. Revenue increased from a year ago, but it came in below expectations at nearly $76 billion. And as for the shares, they were initially lower after the report.

Josh Lipton spoke with Apple (NASDAQ:AAPL) CEO Tim Cook a short time ago and has the key takeaway from the report.


JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The big number to watch in Apple`s latest earnings report, $53 billion. That was the high end of the second quarter revenue guide that Apple (NASDAQ:AAPL) gave. The street was at $55.6 billion.

I spoke to Apple (NASDAQ:AAPL) CEO Tim Cook about the quarter. He said the March quarter, that second quarter, will be the toughest compare of the year. But he said that iPhone franchise is solid. The rate of Android switchers, the highest ever, and 60 percent of the installed base on the older models implying a lot of potential upgrade head room.

In brief, Tim Cook telling me, a lot of great things happening in Apple (NASDAQ:AAPL) in a turbulent environment.

For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in Cupertino.


HERERA: So, what does Apple`s disappointing results ultimately mean for its stock.

Kim Forrest, portfolio manager at Fort Pitt Capital Group joins us now. She owns a small amount of Apple (NASDAQ:AAPL) shares through her funds, and she joins us with some perspective.

Kim, it`s good to see you again. Welcome back.


HERERA: Let`s start, first of all, with your reaction to the report and the stock`s reaction to that report.

FORREST: Well, it`s a pretty muted reaction, too. I think a very disappointing earnings announcement. The shipments were very light in iPad and somewhat light in the core franchise, which is the iPhone right now. Even things like the Mac came in a little less than anticipated.

So, for a holiday quarter, it was very, very light for a company that`s been used to knocking the lights out especially in this quarter.

HERERA: You know a lot of people not only think of Apple (NASDAQ:AAPL) as a technology stock, which it certainly is, but also as a growth stock. And given this report, does this -- does the growth moniker still hold for Apple (NASDAQ:AAPL)?

FORREST: I`m going to say no. Even the company is pointing investors` attention towards how much its base has to upgrade from an older model to a newer model of phone which by the way probably costs a whole lot of more.

So, while that`s good news for revenue, it`s not what we consider a growth story where they`re going into new markets or selling to completely new customers.

HERERA: China, of course, is one of the key markets for them. And, you know, they had some interesting comments about the growth and some of the limits to their growth in China.

FORREST: Yes. The company, you know, is challenged. And this is really the heartbreak of the whole story, because for many, many years, they were not in China. And when they finally get to China, the growth hasn`t met expectations. And think this is another quarter of that.

And I wasn`t listening to the call on my way to studio today, but I do have to pay special attention that Tim Cook said something about a big slowdown in Hong Kong as a, you know, particular geography that didn`t really meet their expectations. So, that`s something that investors should pay attention to.

HERERA: In innovation, Apple (NASDAQ:AAPL) has also been thought of one of the most nimble, one of the most innovative technology companies. Does that still hold?

FORREST: Well, that`s the big question. I think that`s the thing that could drive the stock if they come out with some new category killer. You know, the iPod was something they kind of grew into a huge moneymaker for them, and the same thing with the smart phone. There had been other music players and other smartphones. But they were able to make these complicated devices interesting and fun for consumers and that, you know, got them where they are today.

So, it doesn`t look like the watch is that and it doesn`t look like their TV appliance is setting any records either. So, you know, I think that`s what could keep some investors hanging onto this stock waiting for next big thing.

HERERA: All right. Kim, always a pleasure. Thanks for joining us.

FORREST: Thank you.

HERERA: Kim Forrest with Fort Pitt Capital Group.

Well, the bulls were back on Wall Street today. Stocks shrugged off a rout in Chinese stocks overnight and were helped by a rise in oil prices, better economic data and strong earnings results from a number of Dow components. The major averages all gaining more than 1 percent. The Dow Jones Industrial Average adding 218 points to 16,167, the NASDAQ tacked on 49 and S&P 500 was up 46.

As for oil prices, they settled up above $31 a barrel, with a gain of more than 3 1/2 percent.

Now, as for those component profit reports, 3M (NYSE:MMM), Johnson and Johnson, Procter & Gamble (NYSE:PG) and Du Pont all reported earnings that were better than expected and all closed higher on the session with 3M (NYSE:MMM) gaining the most. And all of them had things that worked in their favor during the most recent quarter.


HERERA: Procter & Gamble (NYSE:PG) which saw better sales and raised prices led a group of Dow heavyweights pushing the benchmark industrial index upwards. P&G increased sales of its brand name soaps, detergents and paper products. It even raised prices in this low inflation environment.

Looking forward, China`s transition from a manufacturing to a consumer based economy is giving the world`s largest consumer products company hope for more good news.

JON MOELLER, PROCTER & GAMBLE CFO: Growth rates have slowed a little bit, but still very attractive. That`s our second largest market in both sales and profits. And it`s a market we`re very focused on continuing to grow and profit in.

HERERA: Higher sales helped p and g offset the effects of the stronger U.S. dollar, which lowers profit margins on sales outside the United States. Johnson and Johnson was not as fortunate, blaming currency issues for a drop in sales though it expects the currency headwinds to abate somewhat later this year.

DOMINIC CARUSO, JOHNSON & JOHNSON VP FINANCE AND CFO: Currency impacts. The sales were roughly about 7 percent, 7.5 percent, pretty significant hit.

For next year, we`re modeling that impact to be about 1 1/2 percent. We`ll have to see where currency actually lands, but that`s our expectation for 2017.

HERERA: Last week, J&J announced 3,000 job cuts in medical devices, which was its biggest business. But now, pharmaceutical sales are its biggest and U.S. sales in that division were strong.

Du Pont saw sales fall nearly 9.5 percent and is also blaming currency issues. Agriculture sales were make up the bulk of its business were down 11 percent. Du Pont had been saying it would reduce costs by about $700 million this year, but raised that number today to about 1 billion and said its proposed merger with Dow Chemical (NYSE:DOW) remains on track.

Sales were troubling at 3M (NYSE:MMM), too. 3M`s giant industrial complex makes adhesive, sand paper, medical supplies, scotch tape and, of course, post its. 3M (NYSE:MMM) said it was hurt by falling consumer electronic sales and expects that weakness to continue through the first quarter of 2016 before picking up later this year.


HERERA: Now, tomorrow, Dow components Boeing (NYSE:BA) and United Technology are scheduled to report their earnings.

Well, consumer confidence is growing despite all the market volatility recently. A report from the conference board shows confidence is at a three-month high and that most don`t expect the big swings in the financial markets to have a negative impact on the economy. Those surveyed feel better about the labor market and about their income.

And rising home values also make consumers feel more confident about the economy. And that`s just what the latest S&P Case Shiller report showed. Home prices accelerated in November at their fastest pace in 16 months.

Diana Olick shows us where the values are rising the most.


DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: If you`re planning on shopping for a home this spring, get ready for sticker shock. Home prices are still gaining and the gains are getting bigger. Nationally, prizes rose 5.3 percent annually in November, compared to 5.1 percent in October. That according to the must watch S&P Case Shiller home price index.

In the nation`s top 20 market, the gains are even bigger: 5.8 percent from a year ago. Portland, San Francisco and Denver continue to show the highest gain, with prices up by double digits from a year ago.

So, what`s pushing prices? Very low supply. The lowest in a decade according to the National Association of Realtors. Inventory fell in December compared to a year ago. The realtor`s chief economist is calling the price gains both unhealthy and unsustainable. He also said there`s a housing shortage in the cards for the spring buying season.

Now, historically prices lag sales. So, given recent softness in sales, we should be seeing prices ease, but these are unique times. Builders are not stepping up and sellers are sidelined, afraid they won`t be able to find or afford the next move up.

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


HERERA: Well, the housing market is a key pillar of the economy, of course, and something the Federal Reserve watches. But as Central Bank policy makers meet, bond investor Jeff Gundlach has some harsh words about the Fed strategy at a conference yesterday.


JEFFREY GUNDLACH, DOUBLELINE CAPITAL: I don`t think it`s any surprise that markets are around the world have been collapsing in the aftermath of the Feds raising interesting rates, particularly because they continue to idiotically say we`re going to raise rates eight times by the end of 2017. The Fed has got to dial this rhetoric back or the markets are going to humiliate them by further declining.


HERERA: It`s those declines that have investors wondering what the Federal Reserve will do next. We`ll know more when the Central Bank issues a statement tomorrow.

But as Steve Liesman reports, some economists and money managers have already changed their expectations.


STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: There`s been a lot of criticism about the Federal Reserve and the rate hike and the global weakness and the market volatility especially the selloff in the market.

But the 40 respondents to the CNBC overwhelmingly that the quarter point rate hike in December was the right move. Eighty percent of the 40 respondents say it was the right move. Only 15 percent say it was a mistake. In fact, they think the Federal Reserve will do more; 100 percent say no rate hike at this meeting but 88 percent say the next move by Fed will be to raise rates. Only 10 percent say it will be the lower and only 3 percent say it will be new QE.

Rather than cancelling rate hikes, the panel believes that the Fed will simply delay them. Here`s the Fed timeline. The next hike in the prior survey had been in April 2016. Now, that`s moved to May, as you can see there, May 2016.

When will the balance sheet be allowed to run off? It had been December 2016. Now, that`s moved to February 2017.

What we call the terminal rates, when will the Fed finally stop and when. It has been first quarter 2018 at about 2.6 percent. Now, it`s pushed ahead a quarter to -- second quarter of 2018, 2.56 percent is the number now.

What about the path of the funds rate? Well, you can see back in September, 2014, we thought that the funds rate would be at 2 percent. That`s come way down. It`s like baking easing out of cake.

Now, the belief is the end of this year the funds rate will be 0.88 percent. The end of next year, just 1.6 percent.

Back to you.


HERERA: Thank you, Steve.

Well, the Federal Reserve was a big topic of discussion at Morningstar (NASDAQ:MORN) where the mutual fund tracking firm announced its top fund managers for 2015. Tyler Mathisen was there and spoke to one of the winners about his view on the central bank -- Ty.


TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Sue, thanks very much. I spent the day in warm and not snowy Chicago for the 2015 Morningstar (NASDAQ:MORN) Mutual Fund Managers of the Year Awards, a very prestigious event in the industry, call it basically the Golden Globes of the fund industry.

What these winners have in common was not only superb performance in 2015 where they made money in a year where it was not easy to do so. Brown Small Company, the winner in the domestic stock category. New perspectives, the American Funds Group in the international category.

Vanguard`s Market Neutral fund in the category for alternative space and most interestingly, perhaps, a very low duration and defensive fund, PIMCO, a short term in the fixed income area.

Jerome Schneider runs that fund and I asked him the question of the day and that is, what does he think the Fed is going to do tomorrow?

JEROME SCHNEIDER, PIMCO FIXED-INCOME FUND MANAGER: The Fed is going to be tightening. And they did that exactly in December. But we`re going to be slow and methodical in that process. When we look sort of the landscape, what we`re looking for is assets that produce income and also assets that produce the least volatile returns. And when you weigh the risks additives of really how we want to invest, you don`t want to buy those volatile attributes.

So, having interest exposure during a potential hiking cycle is something that you want to under accentuate as opposed to make it your top- tier go-to phase.

MATHISEN: Slow and methodical Fed. I assume that means you don`t think they`re going to do anything tomorrow.

SCHNEIDER: Well, they`ve been given us a prescription that they`re going to be slow and deliberate. And I think that`s the key ingredient. They`re going to be data dependent. So, we`re going to see what comes out of it the next few months and they are going to react to that over the next few months.

MATHISEN: So, Jerome Schneider says over the next few months, Sue -- and I say over the next few months means the Fed won`t be doing anything tomorrow.

Back to you.


HERERA: Thanks, Ty. We will see.

Still ahead, are the big changes at insurance company AIG big enough?


HERERA: AT&T (NYSE:T) reports a 22 percent rise in quarterly revenue, results from the nation`s second largest wireless carrier were primarily helped by the acquisition of satellite TV operator, DirecTV. Earnings per share match expectations. Shares of the former Dow component were volatile in after-hours trading following those results.

Sprint raised its earning outlook and reported a smaller than expected quarterly loss. The fourth largest wireless carrier was helped by cost cuts and an increase in subscribers. Its CEO this quarter marks a big step forward in Sprint`s turn-around effort. Shares rose 18 percent to $2.99.

Competition between wireless carriers is now entering a new frontier: content. Many companies are making big investments in that area in order to win over customers. Julia Boorstin tells us whether their big bets will pay off.


JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Where the market for cellular saturated, content in new data plans to view that content are becoming the key differentiator for Verizon (NYSE:VZ) T-Mobile and others, to stand out and convince users to switch.

Verizon (NYSE:VZ) is spending big on content for its go90 mobile video platform, announcing on its fourth quarter earnings call Thursday that the company is encouraged by customer use of go90 so far and that the product will be profitable sooner than initially expected.

FRANCIS SHAMMO, VERIZON: Now, the go90 application that we launched in 2015 is one element of this broader video strategy that will allow us to capture an aggregate audience, deliver mobile first content and generate incremental revenue via advertising.

BOORSTIN: Verizon (NYSE:VZ), especially now that it owns AOL (NYSE:AOL), is focusing on original video, while its rival T-Mobile is working to make sure that concerns about the costs of watching video on your phone are a thing in the past. T-Mobile`s binge on service allows customers to view certain mobile video, including content from Netflix (NASDAQ:NFLX) and HBO, without eating into their monthly data cast. T- Mobile CEO John Legere doing a webcast to defend Binge On against criticism from YouTube and others that it`s slowing video speed.

JOHN LEGERE, T-MOBILE CEO: Since it launched in November, we have learned customers were watching 12 percent more videos. In fact, we`ve have seen daily average viewership on one of our top services spike 66 percent among customers not on high speed unlimited plans.

BOORSTIN: Verizon (NYSE:VZ) announcing a similar plan last week called FreeBee data. It allows companies to sponsor customer data that won`t count against monthly data cap. AT&T (NYSE:T) has rolled out a new unlimited wireless data plan, but only for customer who already pay for its DirecTV or U-verse TV service.

And even Sprint is using another kind of content ad to give customers a discount. Some Sprint prepaid customers will soon get $5 off their bill in exchange for allowing ads to take over their home screen after they unlock their phones.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.


HERERA: The commodities route forces one miner to assess its balance sheet. That`s where we begin tonight`s "Market Focus".

Freeport McMoRan posted a loss in its latest quarter. And while the loss was less than expected, the company said debt reduction is main focus for 2016. Freeport says it has a series of options, including possible asset sales and joint ventures. Last month, Freeport suspended its dividend and said it would cut capital spending by a billion dollars. Shares rose 6.5 percent today to $4.20.

A similar story at Hess (NYSE:HES) where the oil and natural gas driller plans to cut capital spending by 40 percent this year because of the ongoing drop in crude prices. The company is scheduled to report its earnings tomorrow. Hess (NYSE:HES) shares rose more than 1 percent to $34.81.

Luxury Goods maker Coach (NYSE:COH) beat earnings estimates and matched revenue targets. It was the first sales rise for that company in 10 quarters. And the CEO says it`s been a long road but things are starting to pay off.


VICTOR LUIS, COACH CEO: We`ve been on a journey to transform the brand. We`re pleased obviously with the results that we have been showing since that transformation began about two years ago. We have seen our comps here in North America improve by about 20 points and in this last quarter, the most important, significant sequential improvement in the business combined with continued growth in Europe, double digit growth as well in our mainland China business, and as well very good growth with the most recent acquisition that we made in Stuart Weitzman.


HERERA: Coach (NYSE:COH) jumped about 10 percent to $33.33.

The unseasonably warm weather in the early part of the winter hit the bottom line of Polaris Industries (NYSE:PII). The snow mobile and off road vehicle maker saw its profits fall sharply last quarter but revenue was slightly better than estimates. The company also issued full year guidance below Wall Street targets. Polaris fell 9 percent to $72.99.

Weight Watchers got a lift today after a new video with Oprah Winfrey was released in which she said she lost 26 pounds on the company`s meal plan. In October, Winfrey brought a 10 percent stake in the weight loss company. Shares soared today by 20 percent to $13.29.

AIG is outlining a new strategy aimed at returning more capital to shareholders and improving its struggling property and casualty business. The restructuring sent shares of AIG higher. And as Mary Thompson reports, the changes are also designed to keep the firm together, at least for now.


MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Three years after paying off a government bail out, AIG unveils the plan to maximize the pay off for shareholders.

PETER HANCOCK, AIG PRES. & CEO: We can run this franchise with less capital while maintain our financial strength at a level that backs up our long term promises.

THOMPSON: Those long term promises include an improved performance from its core property and casualty business. While in the near term, CEO Peter Hancock plans to cut over a billion dollars in expense, return $25 billion to shareholders and sell assets, including the firm`s advisor group.

HANCOCK: Yes, there`s a sense of urgency to deliver results.

THOMPSON: The urgency spurred by activist investor Carl Icahn who wants to break up AIG to free up capital and get it out from what he believes the costly oversight of the Federal Reserve. AIG counters that cost right now is incremental and breaking up the company won`t free up capital as those levels are determined by rating agencies and not the Fed.

The rating agency is valuing AIG`s diversify business model over companies selling only a single type of coverage.

Still, AIG is setting itself up for possible split by reorganizing into nine units all charged with delivering certain returns. The lineup giving AIG a structure easily to shed the businesses if it`s the right thing to do.

HANCOCK: It certainly gives you the strategic flexibility to sell.

THOMPSON: Analysts applauding AIG for its efforts while questioning whether it can hit its new targets.

JOSH STIRLING, SANFORD BERNSTEIN SR. ANALYST: I do think it`s going to be very difficult for them to make the progress they want to make until they adopt some more bolder thinking and reduce the number of businesses they are in.

THOMPSON: Suggesting for some, AIG`s big changes aren`t big enough.



HERERA: Coming up, how the White House wants to help more than 30 million Americans save for their retirement.


HERERA: President Obama announcing a list of proposals today that could impact the retirement of millions of Americans. The changes are part of the president`s upcoming 2017 budget which will be released I should say in early February.

Sharon Epperson joins me now with the details.

Good to see you as always, my dear.


HERERA: So, how is the president proposing to help those who work for smaller businesses?

EPPERSON: Well, there are a couple of ways that he`s thinking that this will happen. And one of them is to pool 401(k) plans. And what that means is, if you`re an employer who has a small business at the dry cleaners, right now, you can only have a 401(k) plan with another dry cleaner probably in the same industry. They`re going to have open, multiple employer plans now so that you could pool your resources with the family shop down the street. So, the pooled 401(k) plans is probably one of the biggest changes.

The other one is, too, if there`s no workplace plan available, automatically enroll employees in an IRA. And, of course, a few months ago they expanded the myRA program offering that to workers. That`s another option.

And to really make it palatable and affordable for many of these businesses, they are offering a tax credit. So, you`ll get a $1,500 tax credit for three years. If you have a new plan, $500 if you enroll workers in an existing IRA.

HERERA: What about those maybe independent contractors, things like that, small businesses, temporary workers? How is that going to help them save?