NIGHTLY BUSINESS REPORT for February 2, 2016, PBS - Part 1



LeBeau, John Harwood, Josh Lipton, Julia Boorstin>

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Wall Street slammed. Oil sank and so did stocks. But now there`s a new worry on investors` radar.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Fast lane. Not even an historic blizzard could stand in the way of the red hot auto industry, which did something it hasn`t done in 16 years.

HERERA: Go big or go home. Why short-term thinking may not be the best strategy for business.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, February 2nd.

MATHISEN: Good evening, everyone. And welcome to Groundhog Day -- a day in the stock market that made investors think they were living early January`s losses over and over and over. Where`s Bill Murray to make us laugh when we need him?

Investors evidently did wake up, saw their shadows, got spooked and sold, a lot, as in practically everything. Banks dumpled (ph), oil companies, heck no, consumer stocks, out of here? Every sector in the S&P 500 except utilities ended the day lower. Goldman Sachs (NYSE:GS) was the biggest drag on the Dow, contributing 55 points to the index`s loss.

Let`s take a look at the numbers, shall we? The Dow Jones Industrial Average fell 296 points, 1.8 percent, its worst day in more than two weeks. NASDAQ dropped 103 points or 2.25 percent, and the S&P 500 fell 36.

One of the catalysts, oil. West Texas Crude made Jed Clampett turned his grave today, off 5.5 percent, finishing below $30 a barrel.

HERERA: And the results from two oil majors show just how much pain there is in the energy sector. ExxonMobil`s earnings were cut in half. Its fifth straight quarterly profit decline, while BP reported its worst annual loss in decades. ExxonMobil (NYSE:XOM) saw more than 2 percent, BP dropped 8.

Morgan Brennan has the ugly details.


MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: ExxonMobil (NYSE:XOM) and BP the latest to report steep earnings drops, as oil stays lower for longer. Shares of BP sank after the British oil major reported 91 percent quarterly plunge in profit. It made just enough to cover capital expenditures, but not enough to cover the 7 percent dividend, borrowing to do so.

Even so, management asserts it has enough cash to maintain that payout through 2017, adding that it will lay off another 7,000 workers, or nearly 9 percent of its staff over the same time period.

ExxonMobil (NYSE:XOM), which analysts consider the defense trade within energy, held up relatively better. The U.S. oil giant posted a 58 percent drop in earnings. The first time quarterly profits dipped below $3 billion since 2002. Exxon slashing spending by 25 percent this year, a substantial cut to that company.

But again, the dividend remains the top priority. Even as management suspends share buybacks for the first time in 15 years. Analysts say it makes sense to fervently protect those payouts, even if those companies take a hatchet to investments.

STEWART GLICKMAN, S&P CAPITAL IQ: I think for a lot of companies, Exxon, as well as others across the space, the growth investors have largely headed for the exits, and I think protection of the income investors is something that`s first and foremost for a lot of these companies.

BRENNAN: Still, shares of ExxonMobil (NYSE:XOM) tumbled in trading, as U.S. crude once again fell below $30 a barrel. Exxon and BP`s results come on the heels of Chevron (NYSE:CVX), which reported its first quarterly loss in more than 13 years. Later this week, Royal Dutch Shell is also expected to report that earnings fell by roughly 50 percent, and ConocoPhillips (NYSE:COP) is expected to post a loss.



MATHISEN: Oil has been a major overhang for the market, but now there`s a new worry emerging, politics.

Bob Pisani at the New York Stock Exchange explains why some investors are feeling the Bern.


BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street is starting to pay attention to the presidential elections. The fact that Bernie Sanders battled Hillary Clinton essentially to a tie in Iowa has Wall Street concerned.

Now, many are not happy with both Ted Cruz and Hillary Clinton, but Bernie Sanders creates particular concern among the investing community. There`s the general comment, like the desire to impose taxes on Wall Street to pay for his program. He has talked about a transaction tax on trading that will be used to make public colleges and universities tuition-free, for example.

Not surprisingly, he wants to break up big banks and reinstate the Glass- Steagall Act that prevents commercial banks from engaging in the investment business. He also wants to put price control on pharmaceuticals.

It`s simple, for many traders, a Bernie Sanders` presidency could mean more legislation, more regulation, and more taxation -- three big noes for Wall Street.

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


HERERA: Art Hogan joins us now to talk about what`s troubling the market today and what it may mean for your investment. He is chief market strategist at Wunderlich Securities.

It`s always good to see you, art. Welcome.

ART HOGAN, WUNDERLICH SECURITIES: Thanks, Sue. Thank you very much for having me.

HERERA: Let`s start first of all with oil, because that seems to be, you know, politics aside, yes, the Iowa caucuses in the past in New Hampshire is looming large, but oil seems to be what`s really resonating with investors.

HOGAN: Yes, it sure is. It`s interesting. We`ve been very correlated with oil prices, much more so than we normally would be.

And, you know, there`s probably three reasons for that. We look at oil as a barometer for the global economy. And that`s natural. I think this is much more a supply problem than it is a demand problem, but I think it`s a natural human instinct.

And then the other piece of the puzzle is, we look at oil prices and say to ourselves, well, how much money have banks lent these oil companies that have gone out and grown their business based on $75 oil? Now we`re sitting at $30. And that gets us concerned.

And if, in fact, we stay at this level for a period of time, there will certainly be bankruptcies and will that have a spillover effect? So, oil has certainly been a bother.

It`s interesting, last week, we rallied from $26 and change to $34 and change, and the market rallied right with it. And, you know, we`re doing the exact same thing in reverse. We`re back in the 29s, and you know, anything in the 20s is just a scary touch point for investors.

MATHISEN: Some oil and gas companies today, art, I don`t need to tell you, were downgraded, their debt was. Is there a risk of a 2008-style contagion if some of those companies go bust and don`t pay their loans and could it reverberate back through the banking system?

HOGAN: Yes, there certainly is. I think that`s the biggest concern, Tyler. But I think we need to put that in perspective.

Now, remember, in 2008, this was based on real estate. And then what happened after that crash is banks have made a lot of, you know, money, making loans in the real estate market. And there was no buyer of last resort. People that wanted to get active in the housing market couldn`t. Mortgages were shut down. You know, financing for real estate just froze up.

So, a much larger catastrophe, if you will. Now, we look at energy. There are loans out. It`s a much smaller percentage of banks, overall, balance sheet to energy companies. It`s large enough to be scary, but certainly not large enough to be 2008.

But it`s also hard assets behind that. So, you have the property and the reserves, you know, that lie beneath this. So, you know, believe me, banks do not want to own energy companies and they`ll do anything they can to either pre-package bankruptcies or sell off assets to other stronger balance sheet companies.

HERERA: Where does this put the Fed? I mean, it seems to me that they`re kind of between a rock and a hard place, because if we do see start seeing large-scale layoffs, that affects the employment metric, and in addition, with oil continuing to go down, they don`t have inflation. As a matter of fact, some would argue, they`re faced with deflation.

HOGAN: Right, there`s a dual mandate right there. So, if, in fact, we see more layoffs than we`ve already seen -- and remember, this has been going on for 17 months and the layoffs have been consistent. A lot of that has been pricing the marketplace and the jobs numbers look constructive. But if that continues to pressure and that halo effect, those towns and areas that are dependent on energy and other businesses, we`ll certainly have that effect.

But I think the Fed looks at energy and all commodity prices as basically transitory. With the kind of inflation they`d like to see is wage price pressure. We`ll learn about that at the end of the week. But I`ll certainly say, from the top of the question, the Fed is in a real rock and a hard place situation, in so much as the since -- since they raised rates for the first time in nine years in December, that data have been very mixed.

We`ve seen good data on things like housing and auto sales and mixed data on just about everything else, industrial production, capacity utilization, and the ISM. So, I think they`re going to have to take a step back and say, we got that first liftoff of, but it may be a while, and may be for most of the first half of `16 before we even think about going again.

HERERA: All right. Art, we`ll leave it there. Thank you so much. Art Hogan with Wunderlich Securities.

MATHISEN: And speaking of the Federal Reserve, one Fed official is not concerned about the market volatility. Kansas City Fed President Esther George, one of the hawks on the Fed, said the central bank will maintain its path of interest rate hikes unless the outlook changes.

George, who is a voting member of the policy-setting committee, said that the U.S. economy is in, quote, "a generally good position," end quote, and could support further rate increases.

HERERA: One industry benefitting from low oil and gas prices is autos. Sales last month were stronger than expected. In fact, it was the strongest January sales rate since 2000.

For the big three, however, the results were a bit mixed. Chrysler reported a nearly 7 percent increase in sales, its 70th straight month of year-on-year monthly gains. GM sales were mostly flat. Ford saw a decline of 2.6 percent. But for the industry overall, sales are shifting into high gear.

Phil LeBeau reports.


PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: With the average gallon of gas selling for well under $2 in January, America`s desires for trucks, SUVs, and crossovers is running as strong as ever. Overall, January sales for individual automakers met expectations. Moving slightly higher or lower compared to last year.

Despite a massive snowstorm hurting sales for a week, in some East Coast markets, sales rebounded at the end of the month. Jeep in particular, remaining red-hot, with sales last month surging 15 percent.

With cheap gas driving Americans towards bigger vehicles, it`s clear the traditional car is falling out of favor. At Ford, car sales fell more than 12 percent last month. Overall, prices keep rising, as buyers continue replacing old cars and trucks, with newer models, a trend auto executives expect to continue over the next several months.

LEBEAU: Despite relatively strong sales in January, auto stocks remain stuck in neutral -- a sign investors have little interest in the auto industry, even as it comes off of one of its strongest years ever.



MATHISEN: Still ahead, the tech company whose workforce could be nearly cut in half compared with just four years ago.


MATHISEN: A big win for tech companies. The U.S. is and the European Union struck a deal that will make it easy for companies like Facebook (NASDAQ:FB), Google (NASDAQ:GOOG), and Apple (NASDAQ:AAPL) to send data across the Atlantic. The agreement follows the European court ruling that struck down any previous pact amid privacy concerns that spy agencies might expose Europeans` personal data stored in the U.S.

HERERA: The race for the White House has been re-shaped, following the results of Iowa`s caucus. Investors are paying pretty close attention, as the campaigns head now to New Hampshire. And that`s where we find our John Harwood.

Good to see you, John.

So, what did we learn from Iowa on the Republican side?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, on the Republican side, we learned that Donald Trump is not invincible. You know, Donald Trump, Sue, has been looming over the political landscape, building a national lead that people never expected him to get, building a lead in Iowa even, which isn`t hospitable territory for him, now building a lead in New Hampshire.

We saw that when voting time came, his organization wasn`t able to deliver. And it raises the question of whether he`s going to under-perform his poll standing in primaries like this one here. We also learned that Ted Cruz is a solid candidate, that he put together a good organization, and finally, that Marco Rubio really got a head of steam at the end. That gives the so- called Republican establishment which wants the most electable candidate and the one that can work with them, that gives them hope that he can rise up to challenge those top two they don`t like so much.

MATTHISEN: Let`s talk about the Democrats. Bernie Sanders very close to toppling Hillary Clinton yesterday in Iowa. He is now the favorite, right, in New Hampshire, his neighboring state. But can Bernie travel beyond there?

HARWOOD: Very difficult. Most people still believe, even if he wins here in New Hampshire, building on that strong showing in Iowa, that he`s going to run into trouble when the race goes South, and to the industrial Midwest, where you have much higher proportions of non-white voters, those are people who are pretty loyal to Hillary Clinton, both blacks and Hispanics, Bernie Sanders has to find a way to expand that base.

But for now, he`s a hot candidate, and as you mentioned earlier in the show, the discussion that he has about concentrations of wealth and about how he`s going to re-distribute wealth are things that American businesses are looking at very closely and not too favorably.

HERERA: Absolutely, which means, I don`t think the road is all that clear from here, John.

HARWOOD: It is not clear at all. The one thing that we think we know now is that both of these races are going to go deep into the calendar. Hillary Clinton is going to have to expend more energy defeating Bernie Sanders than she would have liked and we`ll have to wait a while to see how that three-person race between Trump, Cruz, and some establishment Republican, probably Rubio, how that plays out.

MATHISEN: All right.

HERERA: John, thank you so much. John Harwood in Manchester, New Hampshire.

MATHISEN: Well, Yahoo (NASDAQ:YHOO) plans to cut about 15 percent of its workforce, leaving it with 42 percent fewer employees than it had just four years ago. This is part of a number of big changes the company intends to make, including the expiration of, quote, "strategic alternatives" for its Internet business. The announcement came when the company released its fourth quarter results.

For the quarter, Yahoo (NASDAQ:YHOO) earned 13 cents a share. That was basically right in line with estimates. Revenue of more than $1 billion was a little bit better than expected, and an increase of about 8 percent from last year. Shares volatile in after-hours trading, as investors focused less on the numbers and more on the changes to come -- trying to make sense of what they may mean for the company.

And Josh Lipton is covering this story for us from San Francisco.

This was sort of a really big late-day news out of Yahoo (NASDAQ:YHOO). Put it all into perspective for us, Josh.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, Tyler, you know, it`s interesting because the fundamentals of Yahoo (NASDAQ:YHOO) have really, for a lot of investors and analysts, taken a backseat to the strategic options that CEO Marissa Meyer really has in front of her. And she`s laid out two broad paths.

One is, Tyler, a Yahoo (NASDAQ:YHOO) that gets a lot leaner and meaner. So, closing offices around the world. You mentioned 15 percent of the workforce.

So, eliminating a significant portion of the workforce there, all attempts to really get leaner, get smaller, concentrate more on those faster-growing areas she noted in 2015. About $1.6 billion in revenue came from what she called MAVENS. That stands for mobile, video, native, and social fast- growing areas.

She also gave a nod to another path, which is, they`re going to explore strategic alternatives and remember, Tyler, that is what some activist investors have been demanding. They don`t trust that Marissa Mayer at the end of the day can grow this company, can turn around this company. They want an outright sale.

And we do hear some names as potential suitors, Verizon (NYSE:VZ) has been mentioned, AT&T (NYSE:T) has been mentioned. I should point out, we reached out to those companies and they declined to comment. So, two broad paths here.

But when you talk about it exploring strategic options and already you hear analysts asking this question, that`s pretty broad. What does it really mean? Does it mean you have an active sales process in place? Does it mean you`re willing to really open your books to suitors? So, some real questions for investors.

And also, a lot of skepticism from investors. Remember, Tyler, that stock down more than 30 percent in the past 12 months.

MATHISEN: A story I think you`re going to spending some time with this year. Josh Lipton, thank you, in San Francisco.

HERERA: Chipotle reports its first quarterly results since its E. coli outbreak, and that`s where we begin tonight`s "Market Focus".

In the highly anticipated report, the restaurant chain beat Wall Street`s earnings estimates, but saw sales at its established restaurants fall more than 14 percent in the fourth quarter. Chipotle called it the most challenging period in the company`s history and it expects 2016 to be difficult as well. The company also revealed a wider criminal probe into the recent food safety issues. Shares fell in extended hours after ending the decade up fractionally at $475.67.

UPS saw its profit nearly triple in its fourth quarter, as the package delivery company had a good peak holiday season. Revenue was essentially flat, hit by a strong dollar. UPS issued an upbeat outlook for 2016, but the CEO sees challenges globally.


DAVID ABNEY, UPS CEO: If you look past the United States, Europe, we see the economy, the GDP getting just a little bit better. The emerging market is still facing a lot of challenges. You know, China, the growth has slowed down. So, that`s pretty much a quick view of the economy.


HERERA: Shares of UPS rose fractionally to $94.69.

Fourth quarter profit at pharmaceutical giant Pfizer (NYSE:PFE) fell by half. But the drugmaker still topped Wall Street estimates.

Revenues rose, thanks to strong sales of new drugs, and its acquisition of fellow pharmaceutical company Hospira (NYSE:HSP). However, Pfizer (NYSE:PFE) issued a lower than expected forecast for 2016, largely due to the strong dollar. Shares were down 3 cents to $30.14.

And shares of luxury retailer Michael Kors soared today after the company reported a better-than-expected third quarter. Revenue jumped more than 6 percent thanks to strong international demand and sales of its accessory and footwear lines. Shares were up about 24 percent to $50.19.

MATHISEN: Fourth quarter net at Dow Chemical (NYSE:DOW) rose more than four fold, thanks to the sale of its chlorine operations and low oil prices. CEO Andrew Liveris also said he would retire by mid-2017, following the company`s $120 billion merger with the rival Du Pont. Dow Chemicals gained more than 5 percent on this soggy day, up 2.45 to $45.03.

Shares of Royal Caribbean Cruises (NYSE:RCL) took a beating today after the company issued disappointing guidance for 2016. Royal Caribbean did see a jump in fourth quarter profits, thanks in part to those lower fuel costs. Still, that was overshadowed by the outlook and shares fell more than 15 percent to $71.70.

The agricultural giant Archer Daniels Midland missed profit forecasts. The company cited adverse market conditions and indicated the troubles are likely to persist. But the company did bump its quarterly dividend up to 30 cents a share from 28 cents, but even that gesture didn`t soothe investors. Shares fell nearly 9 percent to $32.36.

HERERA: Think long-term. That is the message Larry Fink, CEO of Blackrock, the world`s largest asset manager, is telling the chief executives of hundreds of U.S. companies. In a letter, Mr. Fink wrote, quote, "Today`s culture of quarterly hysteria is totally contrary to the long-term approach we need," end quote. He said CEOs should use quarterly reports to demonstrate progress against strategic plans and not just focus on small deviations from earnings estimates.

MATHISEN: For companies playing too safe by just focusing on those short- term business strategies.

With us now to discuss the topic is William Lazonick. He`s a professor of economics and the director of the University of Massachusetts` Center for Industrial Competitiveness.

Professor, welcome. Good to have you with us.

Does Mr. Fink -- I know you`ve read his letter. Does he have it mostly right with respect to how companies are allocating capital and their focus on short-term results?

WILLIAM LAZONICK, UMASS CENTER FOR INDUSTRIAL COMPETITIVENESS: Well, he has it right, yes. There`s a lack of investment in productive capabilities of companies. So this is not something new.

This has been going on for some time. He`s written, of course, several letters on this. I think the urgency of this letter has to do with acceleration in the actions and initiatives of hedge fund activists. That comes clearly to the letter.

But, yes, he has it right and what companies have been doing is distributing massive amounts of profits to shareholders. So, over the last decade, 2005 to 2014, there were $6.2 trillion by about 460 S&P 500 companies. About 53 percent of that was stock buybacks, another 36 percent in dividends.

And this is coming at the expense of investment in productive capabilities, producing the next products, maintaining productivity and innovation in the companies.

HERERA: Professor, though, what is the incentive for CEOs to change that strategy, given the fact that many of them are highly compensated with stock and, you know, the buybacks and the share repurchases boost the price of the stock and generally speaking, that makes investors happy, even if it is wrong from a strategy point of view?

LAZONICK: Yes, well, there`s a problem and this is a problem of the way in which executives CEOs, top executives are incentivized and rewarded. The calculation we have done, let`s say on the top 500 highest paid executives in the United States in 2014, they averaged almost $30 million and 83 percent of that remuneration was the gains they reaped from stock options and stock awards.

And as I`ve written extensively in various places, including "Harvard Business Review", stock buybacks or a great way of getting up your earnings per share and reaping the benefits for top executives, even if they`re not doing what they`re supposed to be doing in the companies and that is investing in the next products, the next innovations, maintaining productivity, particularly investing in the labor force, who do the learning, who work hard to generate the success of the company.

MATHISEN: All right. Professor, we have to leave it there. Interesting conversation, William Lazonick with the University of Massachusetts` Center for Industrial Competitiveness.

HERERA: Coming up, what $5 million will buy you on Super Bowl Sunday.


HERERA: The Super Bowl isn`t just the biggest sporting event of the year, it`s also the biggest advertising event. And this year, it`s bigger than ever.

Julia Boorstin looks at the sky-high prices being paid for ads and the companies looking for a big score.


JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Despite talk about cord-cutting and the rise in digital video, marketers are spending more money than ever to reach the biggest TV audience of the year.

CBS (NYSE:CBS) CEO Les Moonves saying that 30-second spots for Sunday`s big game are selling for as much as $5 million. That`s up 11 percent from last year and more than 70 percent higher from the prices in 2010, far outpacing overall ad price increases. And that doesn`t include the cost of producing the ads, usually far more than a traditional TV campaign.

JON SWALLEN, KANTAR MEDIA CHIEF RESEARCH OFFICER: It`s an audience that`s watching live, which makes commercials less susceptible to being skipped or zapped or otherwise blocked. So, that`s an attractive proposition for advertisers and it helps bolsters the price.

BOORSTIN: With overall TV ratings sliding and audiences more fragmented than ever, the Super Bowl remains the one place to reach an audience this big. Last year, 114.4 million people watched in the U.S., with even more expected to tune in this year.

And many companies make big bets. Eight advertisers spent more than 10 percent of their full-year media budget on the super bowl last year.

UNIDENTIFIED MALE: Are you looking for these?

BOORSTIN: Many of the usual suspects will be back in force. Automakers are expected to continue to be the leading category, with eight brands advertising, including newcomer, Buick.

But one sector, financial services, is making a surprise surge, with six financial services companies, the first time there have been more than three since 2010. And half are newcomers, SunTrust, SoFi and PayPal.

They`re among 13 first-time advertisers, including Amazon (NASDAQ:AMZN), pitching its Amazon (NASDAQ:AMZN) Echo voice command device. The digital giant looking beyond more affordable online ads to the traditional TV alternative.

SWALLEN: Given that they`re trying to launch a new product with their Super Bowl ad, it makes perfect sense that they would look for that high- profile, high-visibility, all-in-one-fell-swoop kind of opportunity.