NIGHTLY BUSINESS REPORT for May 19, 2016, PBS - Part 1

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Retail surprise. What Wal- Mart (NYSE:WMT), the world`s largest retailer, has working in its favor that many of its rivals do not.

New front. Amgen`s medical breakthrough that could drastically reduce the world`s number one killer, heart disease.

One trillion dollars. Why Americans are borrowing more money than ever to pay for that new ride.

All of that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, May 19th.

Good evening, everyone. I`m Sue Herrera. Tyler Mathisen is on assignment tonight.

Stocks rattled, a familiar worry on Wall Street is pressuring the markets. There is growing concern that a Federal Reserve interest rate increase could come as early as next month and weigh on an already struggling global economy. It crept into the market yesterday and remained there today, pushing the S&P 500 into negative territory for the year.

By the close, the Dow Jones Industrial Average fell 91 points to 17,435. It had been down nearly 200. The NASDAQ was up 26, the S&P 500 lost 7.

Dominic Chu has more on today`s slide.

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DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: A fresh round of worries crept back in the markets as traders continue to digest headlines from the Federal Reserve, as well as some key earnings reports.

The weakness comes a day after the Fed left the door open for a possible interest rate increase as early next month and earlier today, New York Federal Reserve President Bill Dudley reiterated the same stance.

WILLIAM DUDLEY, FEDERAL RESERVE BANK OF NEW YORK PRESIDENT: I`m convinced my forecast, my own forecast is sort of on track, then I think a tightening in the summer, the June/July time frame is a reasonable expectation. So, it`s really a question of whether the economy sort of cooperates and performs in line with my personal expectations.

CHU: Interest rate concerns were just part of the picture. You also had more uncertainty injected into the outlook for consumer spending and retail stocks. Wal-Mart (NYSE:WMT) gave a more upbeat earnings report that seemingly bucked the trend of largely negative results elsewhere in the industry.

Add to that, the ongoing investigation into the circumstances surrounding the crash of an Egypt airplane, and you get enough to keep traders on the more cautious side. Not positive enough to push markets higher but not so negative as to cause a broader market sell-off either. Traders will have data to digest on home sales and earnings for the likes of Deere, which is the world`s biggest farm equipment maker.

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu from the New York Stock Exchange.

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HERERA: And as Dom just mentioned, the bright spot today was Wal-Mart (NYSE:WMT). After a string of weak retail reports the world`s largest retailer surprised investors with an upbeat outlook and better than expected earnings and revenue in its most recent quarter. That sent shares of the company up more than nine and a half percent, its biggest one day jump since October of 2008.

Courtney Reagan takes a look at why Wal-Mart (NYSE:WMT) bucked the broader retail trend.

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COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:

The world`s largest retailer giving Wall Street more confidence in the consumer today. Wal-Mart`s first quarter profit and revenue coming in better than expected with that key U.S. comparable sales metric also stronger than analyst forecasts, gaining for the 7th straight quarter. In store traffic improving for the sixth consecutive quarter.

Well, the discounter wouldn`t elaborate on details of its month by month performance. CFO Brett Biggs told me over the phone that it was pretty good throughout the quarter which differs from what most other retailers detailed. However, more than half of Wal-Mart (NYSE:WMT) sales come from grocery and less than 8 percent come from apparel, a category which has been challenging for many others.

Plus, Wal-Mart`s core consumer is one that has likely benefitted from more positive macro economic factors.

DAN BINDER, JEFFERIES RETAIL ANALYST: Wal-Mart (NYSE:WMT) will be a beneficiary, ultimately, of what effectively seems to be the pay raise for lower income households. You`re seeing income grow at above average rates for the bottom quartile. You see pay raises across retail, and I think that`s a proxy for wage increases in general for unskilled workers. That`s really just gotten under way.

REAGAN: While minimum wage has increased for many Americans, I asked Wal- Mart`s U.S. CEO Greg Foran on a media call specifically if the higher wages it`s now paying have led to higher employee purchasing in stores. He said the simple answer is yes.

Wal-Mart (NYSE:WMT) CFO Brett Biggs also told me he agrees that several macro economic factors are helping the retailer`s core consumer but added there is an air of uncertainty that`s likely keeping the consumer from being as bullish as they would like to be.

To be sure, Wal-Mart`s quarter wasn`t perfect. The retailer`s e-commerce sales growth only improved 7 percent, which is low by industry standards and also below what the company would like to see.

MICHAEL LASSER, UBS RETAIL ANALYST: E-commerce is leading the way. Wal- Mart (NYSE:WMT) has got to show that it can fully participate in a growth of that channel. At this point, they`re not doing that. So, we need to see better trends on the e-commerce side from Wal-Mart (NYSE:WMT) to really justify where the stock is trading. Right now, imports (ph) appreciate from here.

REAGAN: Wal-Mart (NYSE:WMT) is spending billions to improve the online shopping experience and the operations that support it. But it`s going to take some time for the investments to generate results.

For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.

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HERERA: The Gap (NYSE:GPS) reported earnings late today. The clothing retailer plans to close 75 of its Old Navy and Banana Republic stores overseas by the end of the year. Gap (NYSE:GPS) says that move will save nearly $300 million a year and improve its operating margins.

The company also issued earnings that match analyst expectations but revenue for the quarter was shy of estimates.

So, what is wrong with fashion apparel and why aren`t consumers buying clothes?

Liz Dunn, CEO of her own retail consulting firm Talmage Advisors joins us now with some of those answers.

Good to see you, Liz. Welcome.

LIZ DUNN, TALMAGE ADVISORS CEO & FOUNDER: Good to see you as well.

HERERA: Is it on the shoulders of apparel, some of these bad results that we`re seeing, or is there something else there?

DUNN: I think apparel is certainly, you know, a little bit of a whipping boy right now. It`s certainly not a strong category. Consumers are spending on other things. I don`t think that it`s necessarily a weak consumer that we`re seeing. It`s a consumer that`s voting for other categories of spend.

HERERA: And they like experiences. We keep hearing that, especially with millennials. They would rather, you know, I guess go to a concert or something like that.

DUNN: Absolutely.

HERERA: They don`t have to be in the latest designer clothes.

DUNN: Right. We are seeing kids spend or young adults spend thousands of dollars going to festivals and really going out to eat. They are voting for experiences.

They also don`t want to look like all the other consumers out there. So, this younger consumer is really more focused on what kind of life they are living and the experience they are having, and less so on wearing the fashion labels that everyone else is wearing.

HERERA: How does retail combat that though? How do they adjust to what looks like a pretty sizable shift in their industry?

DUNN: Right. Well, there are a couple of things they can do. I think fast fashion is one of the answers. It is one of the pressures and one of the answers. So, traditional brick and mortar retailers need to get quicker at delivering fashion. They need to do so in smaller increments. Not, you know, buy deep and sell cheap, but really buy smaller batches and deliver really fast fashion to consumers.

I think they also need to bring experiential elements into the store. Have events. Bring some excitement. Really connect with the consumer. I think those are some of the answers, but I think the other answer is we are going to see a lot more store closures from some of the biggest retailers.

HERERA: Yes, used to be the mall was a place to be. That`s where the kids wanted to hang out. That`s not the case anymore.

DUNN: Yes. They are really forfeiting the mall. It`s interesting. We saw out of Wal-Mart (NYSE:WMT) traffic is up 1.5 percent. The mall traffic for the first quarter was down mid to high single digits.

So, that`s a pretty big disconnect. It really says that consumers are going other places other than the mall. Not to mention the online sales that continue to increase.

HERERA: Yes. Digital.

All right. Liz, thank you so much.

DUNN: Thanks for having me.

HERERA: Liz Dunn with Talmage Advisors.

German drugs and chemicals company Bayer made an unsolicited take over offer for the seeds company Monsanto (NYSE:MON). That combination would create the world`s biggest agricultural supplier and would be the biggest foreign corporate take over ever by a German company. With few details, that deal could be valued at more than $42 billion. Monsanto (NYSE:MON) says its board is reviewing the proposal and its shares rose 3.5 percent.

A medical breakthrough that could drastically reduce heart attacks, the top cause of death worldwide. The company behind the research is Amgen (NASDAQ:AMGN) which uncovered a previously unknown genetic mutation that could pave the way for new drugs to prevent heart disease. According to the CDC Foundation, about one in every six U.S. health care dollars is spent on cardiovascular disease annually.

Meg Tirrell has more on the findings.

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MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some call it the future of drug development, using genome sequencing and big data to identify genetic differences that affect our health. That`s how Amgen (NASDAQ:AMGN) has identified a gene mutation that it says is linked to a significant decrease in the risk of heart disease and heart attack. It`s now working to develop a drug focused on that target to try to mimic the effects of mutation.

KARI STEFANSSON, DECODE FOUNDER AND CEO: The mutation we found is so- called loss-of-function mutation. It`s a mutation that damages the function of the protein made by the gene. So, what Amgen (NASDAQ:AMGN) has started to do is to develop an inhibiter of the protein hoping to be able to basically simulate the effect of the mutation by a drug directed against this protein.

TIRRELL: Kari Stefansson is the CEO of deCODE Genetics, the Icelandic company Amgen (NASDAQ:AMGN) acquired four years ago for this research. The work was done by sequencing the genomes of 2,600 Icelanders. A population he says is especially helpful for this kind of work because of similar genetic backgrounds.

STEFANSSON: A rare mutation exists in Iceland. It is more common than similar rare mutation in more (INAUDIBLE) population.

TIRRELL: In a paper published this week in "The New England Journal" of medicine, researches say people with this mutation have on average a 35 percent lower risk of heart disease or heart attack. They also on average lived for more than a year longer.

The hope is that the discovery will provide a new tool in the fight against heart disease. The number one cause of death worldwide. Many say this approach will lead to an edge in developing medicines for multiple diseases.

ROBYN KARNAUSKAS, CITI RESEARCH BIOTECHNOLOGY DIRECTOR: Finding new targets is one of the hardest things for drug development. So, if you have access to genome technology, you`re going to be able to identify new targets, sometimes new diseases, new indications.

TIRRELL: It`s also the focus of part of President Obama`s precision medicine initiative, comparing the genome sequences of a million Americans for their medical records with the hope of identifying new ways in which differences make us stronger.

Amgen (NASDAQ:AMGN) estimates that maybe two years from testing this new drug in people. From there, it would be several years more before it could apply for approval. So, a new drug isn`t imminent but scientists are encouraged by a new approach.

For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.

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HERERA: And now to a story that the world is watching. An EgyptAir flight from Paris to Cairo disappeared from radar. Sixty-six people were on board. Terrorism is not being ruled out.

Hadley Gamble at Charles de Gaulle Airport in Paris has more on the tragedy in the skies.

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HADLEY GAMBLE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Right now, the White House says it`s just too early to say what exactly happened to EgyptAir Flight 804. It originated here last night at Charles de Gaulle Airport in Paris around 11:00 p.m. and was expected around 3:15 a.m. in Cairo.

Today, the flight never made it. It lost radar contact between 2:30 and 2:40 a.m. over the southern Mediterranean. There are reports from Greek authorities that the plane was swerving, even doing a 360 degree turn before it plummeted out of the radar. Now, what we understand, of course, now is that from Egyptian authorities they are still refusing to say the plane is anything other than missing. They say until they see debris, they`re not going to say anything further.

We`re expecting to hear for more from them in the coming hours. There were multiple, conflicting reports throughout the day that debris had been found, even a life vest about 120 miles off the coast of Crete. Now, we`ve heard, of course that the Greek authorities say that the debris that was found in the Mediterranean did not belong to Flight 804 and the French also reacted strongly today.

A scheduled vote in the French parliament went through that basically extends the state of emergency law in this country that`s been in place since the attacks last year. So, a lot of moving parts to this story. We`ll update you as we know more.

For NIGHTLY BUSINESS REPORT in Paris, I`m Hadley Gamble.

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HERERA: Still ahead, a former corporate chairman, a gambler and a pro- golfer and the insider trading case that ties them to all together.

(MUSIC)

HERERA: House Republicans and Democrats have struck with the White House to help rescue Puerto Rico from its debt crisis. The bill would create a board that would help manage its financial obligations and oversee some debt restructuring. House Speaker Paul Ryan says this plan will help put the U.S. territory on a path to real reform.

In inside trading triangle, federal prosecutors announced criminal charges against former Dean Foods (NYSE:DF) chairman Thomas Davis who they say illegally fed secret information about Dean Foods (NYSE:DF) to the gambler Billy Walters who made profitable trades.

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PREET BHARARA, U.S. ATTORNEY FOR THE SOUTHERN DISTRICT OF NY: As alleged for over five years, Davis repeatedly and systematically fed material nonpublic information about Dean Foods (NYSE:DF) to Walters who, in turn, benefitted handsomely to the tune of about $43 million in profits made and in losses avoided from his trading in Dean Foods (NYSE:DF) stock.

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HERERA: Walters allegedly fed some of the information to the pro golfer Phil Mickelson, according to a separate SEC complaint. Mickelson said he plans to repay those profits.

Eamon Javers has more for us from Washington.

Eamon, it`s always good to see you.

A lot of us are questioning why the former chairman of Dean Foods (NYSE:DF) would do something this dangerous.

EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: That`s the big question here, Sue. And what you see in these SEC documents that were released today, they are painting a picture of a former board chairman here who is in financial dire straits. They say he needed money and he needed it fast.

At one point, they said he owed money to the IRS, he had tens of thousands of dollars of debt on his credit card. He also owed money to an investment fund and they also alleged that he had misappropriated money from a battered women`s charity in order to pay back gambling debts he owed in a Las Vegas casino.

So, this is a portrait of a former Dean Foods (NYSE:DF) chairman going through a personal financial very difficult time. The SEC said it was related to his spending and his gambling habits.

HERERA: You know, a lot of us are also wondering, why they did it and why Phil Mickelson would make the trade once he got the information and how the authorities tied it all together and busted the operation?

JAVERS: Yes, that`s one of these questions that you always ask in these insider trading cases. Usually, you`re dealing with powerful, sometimes famous, often wealthy people who are trading tips to one another to make more money, and saying, hey, don`t these guys already have enough money? Why would a guy like Phil Mickelson need to make this particular trade?

The allegation that`s laid out by the government today -- and it is just an allegation for now -- is that the gambler Billy Walters had taken some bets on behalf of Phil Michelson. Phil Michelson owed the gambler money. That`s why the trade happened.

The gambler passed him a tip and said, hey, want to trade in Dean Foods (NYSE:DF). Phil Mickelson made the trade, profited about $931,000 on the single trade. And then allegedly repaid his gambling debt. This is all about gambling, golf and business lifestyle that all three of these men were participating in to one degree or another.

HERERA: All right. I know we`re going to hear more about this case certainly.

Eamon, thank you.

JAVERS: You bet.

HERERA: Eamon Javers in Washington.

Television network executives are presenting their fall schedules to a host of advertisers, hoping to lure in more ad dollars. These up fronts as they are called mark an important time of year for broadcasters who are battling back against the fast-growing digital world.

And according to Julia Boorstin, this time around, what`s old is new again.

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JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Television giants wrapping up the up fronts expect a 5 percent increase in ad dollars. That`s the first increase in five years amid a seismic shift in the way people consume content. Judging from the network plans released this week in the up fronts, content is still king.

JEFF BEWKES, TIME WARNER CHAIRMAN & CEO: Advertisers know that it`s a deal to get the reach of television. So, I think that`s true across the industry for our company Turner. I was blown away from the up front. We have terrific new original shows at TBS and TNT.

BOORSTIN: In addition to the new shows, the network stressed their new high tech capabilities to better target viewers and deliver more measurable results, helping broadcasters pulled dollars back from digital, where there are growing questions about the reach of digital ads.

NBC Universal (NYSE:UVV) hosted its first up front that combined all of the company`s media properties, pointing out their ability to reach at least 20 percent of the viewing audience at any time.

LINDA YACCARINO, NBCU AD SALES CHAIRMAN: When you really take a moment to look at the facts and you look at the average American spend seven times watching television than they do on Facebook (NASDAQ:FB), or they spend 15 times more watching television content than they do on YouTube. Then the narrative really changes.

BOORSTIN: NBC focusing its up front on the power of live events, including the Olympics and upcoming live musical "Hairspray". Plus, it`s investing in its historical strength in comedy.

Across the channels, what`s old is new. CBS (NYSE:CBS) is remaking "MacGyver", FOX bringing back "Prison Break" and "24". HBO with "Tales from the Crypt`, and Showtime with "Twin Peaks", familiar names to break through the clutter. To make this content more appealing to consumers, TV giants are adapting to consumer demand, by offering more content on demand with fewer ads.

JOHN MARTIN, TURNER CHAIRMAN & CEO: By producing the ad load, the sheer amount of ads but by making the ads more relevant and increasingly every day we`re getting more sophisticated and analytics and the ability to target consumers, that we can actually demonstrate to advertisers and marketers more value.

BOORSTIN: Turner among several networks cutting down on advertising time. To make sure those ad dollars pay off for marketers.

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

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HERERA: And Julia just reported on NBC Universal (NYSE:UVV), which is the parent company of CNBC which produces this program.

Applied Materials (NASDAQ:AMAT) sees new orders surge, and that`s where we begin tonight`s "Market Focus". The maker of semiconductor manufacturing tools raised its profit forecast after saying orders hit 15-year high in its latest quarter. Earnings per share beat expectations. That sent shares initially higher in after-hours trading. The stock closed the regular session slightly lower to $19.91.

Perry Ellis saw its quarterly profits soar more 50 percent, thanks to increased sales on higher margin products. The clothing designer and distributor reported a drop in revenue as currency head winds weighed on the results. The company also raised its earnings forecast for the next year. Perry Ellis shares rose 13 percent to $18.61.

In contrast, Dick Sporting Goods reported a decline in profits, as consumers spent less. However, sales did rise and were in line with targets. The sports equipment retailer gave a downbeat outlook for the year as the clothing of rival sports authority is expected to weigh on those results due to anticipated deep discounts from the company`s liquidation. Shares were up almost 8.5 percent to $41.36.

And it was a worse than expected quarter at Advanced Auto Parts. The same store sales drop with the company attributing those results to service short falls. The news prompted advance auto parts to lower its revenue forecasts for the year. Shares were down just a fraction to $143.54.

To the world of politics now. A new national poll of registered voters puts Donald Trump slightly ahead of Hillary Clinton in a general election match-up.

It`s still early, of course. We want to know what John Harwood makes of that polling.

John, it`s good to see you as always.

The initial expectation was that Ms. Clinton had a big advantage over Mr. Trump. What has changed?

JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: What`s happened, Sue, is once you wrap up a party`s nomination, two things happen: a lot of Americans see you as a winner. Winning begets winning in politics. Also, people in your party who had been supporting other candidates rally around you.

So, in April when the NBC/"Wall Street Journal" poll came out and showed Hillary Clinton with an 11-point lead, the biggest reason was that Donald Trump had only 72 percent of Republicans supporting him. Now he`s in the high 80s. That`s close to what you need to win a national election.

He has got his party unified. Hillary Clinton, not so much right now.

HERERA: Yes. What else is weighing down her performance in the polls at this point?

HARWOOD: Well, Hillary Clinton came into the race with image problems. You have a lot of Americans who find her untrustworthy. That`s a problem she has to deal with all campaign long.

But she has also this persistent fight with Bernie Sanders in which Bernie Sanders is casting doubts about her, about her commitment to real change, and that`s causing Democrats to be less than enthusiastic about Hillary Clinton. It`s hurting her numbers and helping Donald Trump.

HERERA: So, does she have to mend fences then? What does she have to do with Mr. Sanders?

HARWOOD: She does need to mend fences. She made a gesture in that direction today. An interview on CNN in which she said, of course, I`ll talk to Bernie Sanders about the platform, the convention process, all things that people think concessions might be made. But she asserted she had, in effect, already won the nomination.

Bernie Sanders just this afternoon put out a statement saying, not so fast. Millions of Americans have doubts on Hillary Clinton`s campaign. He says he`s going to fight all the way to the end, and that is not good for Hillary Clinton.

HERERA: No, it`s not.

All right, John. Thank you so much. John Harwood at the White House for us.

Coming up, $1 trillion. Why drivers are paying more money than ever to get behind the wheel of a new car.

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HERERA: TD Bank is retiring its coin counting machines. Last month, we told you about errors that penny arcade machines made when counting cash. Soon after, the bank took them out of operation and conducted an investigation. Today, the bank said it will be retiring the fleet and will provide alternative ways to count coins to its customers.

General Motors (NYSE:GM) is reportedly close to creating a plan that would compensate owners of some late model crossovers purchased with window stickers that overstated their fuel economy. According to numerous reports, the plan would cover nearly 170,000 vehicle owners. The automaker says the mislabeling was an error.

Americans are borrowing more money than ever to pay for new cars and trucks. In fact, the total for all auto loans now tops $1 trillion.

As Phil LeBeau reports, that figure is expected to go even higher.

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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: With auto sales running at close to a record high, the demand for new vehicles, especially higher priced pick-ups and SUVs has consumers borrowing more money to pay for their new models. According to Experian, auto loans topped $1 trillion in the first quarter of the year, a 10 percent increase compared to last year. Who is borrowing?

The majority of auto loans are held by those with solid credit ratings of prime or super prime. But there has been a slight increase in subprime loans issued to those with the poorest credit records. That combined with an uptick of loan payments 30 or 60 days overdue had some worried that debate for new cars and trucks has hit its limit. In fact, some of the largest dealerships believe industry sales are being propped up with hefty rebates.

Those concerned along with questions about the overall health of the economy helped explain why auto stocks shifted into reverse. In the last year, all of the major automakers have seen their shares drop more than 10 percent and some are down more than 25 percent.

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