Transcripts For KQED Nightly Business Report 20170502

Announcer this is nightly Business Report with Tyler Mathisen and sue herer surprise decline. Shipments of apples flagship product, the iphone, fell, rambling up pressure that its next model be a blockbuster. We will work incredibly hard to reearn not your business necessarily, but your trust. Uniteds ceo apologizes again for that infamous incident last month when a doctor was dragged from his flight. In lawmakers made clear that either he fixes the mess or they will. Deep cuts. Kansas slashed taxes to revive the economy. But what happened next . Those stories and more tonight on nightly Business Report for tuesday, may 2. Good evening, everyone, and welcome. The numbers are enormous. But perhaps not enormous enough. Apple, the worlds most valuable publicly traded company sold more than 50 million iphones in the most recent quarter. That was a decline, though, from a year ago. That could be a sign that consumers are actually just waiting to spend their money on the next 10th Anniversary Edition of that smartphone. Lets get right to the numbers. This is the late news of the day. For the quarter, apple earned 2. 10 a share. That was eight cents better than forecast. Revenue up from a year ago to nearly 53 billion in three months. But that revenue number missed expectations slightly. That sent shares lower in initial afterhours trading, as you see there. But theres more. Apple boosted its dividend by 10. 50 and its Share Repurchase program by 35 billion. It is also sitting on, get this, more than 250 billion in cash. So what will all of this mean for apples stock . The chief Investment Officer at Heartland Financial joins us now, welcome back, nancy, night to have you here. Thank you, sue. You have been very bullish on this name for some time. Does the not miss necessarily, but the disappointment in unit sales worry you at all . Or not . Not entirely. I mean, one of the things that tim cook said, sue, is that he also drew down inventory. So the miss wasnt really 2 , it was more like half of 1 . But i do think consumers are sitting on the sideline until the iphone 8 comes out. What investors should be thinking about is the two reasons they own stocks. Dividend and dividend growth, and Capital Appreciation. Apple has delivered on the Capital Appreciation over the last year. As it takes a breather, we think investors should be counting on the dividend. Nancy, is this really now fundamentally a oneproduct company . Its almost as though the ipad and the mac are afterthoughts. I think youre right about that, tyler. But if you look at services, Services Grew at 18 last quarter. And thats the second largest revenue line item for the company. Fair point. So its iphones and services. What we hope to see is some new products, right . Thats what everyone is waiting for. Now, would you accumulate the stock on weakness . Because it did sell off a little bit after the results were announced. Would you be in buying the stock if youre a long Term Investor . Yes. We have as portfolio managers, we have to follow certain guidelines, right . The stock had gotten to about 6 of our portfolio. We recently sold it back to 4. 5 or 5 , depending on the strategy. If the stock sells off more than 2 , which is where it was when i looked last, well be back in picking away at it to round our holdings back up, and then hold on again for the next move. But its not going to take off in the next few months. Investors have time to accumulate at lower prices, and then hold on for the next three to fiveyear period. Because this company is doing a lot of things right. And theres a lot of skeptics. When at 89, when i was recommending it, i took a huge beating, and im certainly glad, i wished i had bought more. On that note, nancy, thanks for joining us. On wall street, a small gain helped push the nasdaq further into record territory as investors assess todays mixed bag of earnings reports from Corporate America and the feds started a twoday policy meeting, more on that one in just a moment. The Dow Jones Industrial average rose 36 points to 20,949. Nasdaq added three. The s p 500 up two. Those mixed earnings were reflected in results from pfizer and merck. Pfizer said soft sales of some key drugs weighed on revenue which missed estimates. Legacy medicine lost market exclusivity, although the company did report better than expected earnings thanks to reduced costs. Rival merck saw its profit top expectations. The drug maker raised its full year revenue and earnings forecast and said a key cancer drug is gaining market share. As you might expect, shares of pfizer and merck moved in opposite directions. A weak month for auto sales also weighed on the market today as americans didnt buy cars in april at the pace they had been. General motors saw a nearly 6 drop in monthly sales. Fiatchrysler a bit more than that. Ford sales down more than 7 . Declines could signal that demand is slowing after seven straight years of sales growth. Automakers are also offering more deals so that they dont lose sales in the very hot suv market. Increased incentives is a concern for investors. And they sold shares off today of the automakers in trading. From driving to flying. After a stream of incidents where Airline Crews had altercations with passengers, Congress Called Industry Leaders up to capitol hill, including the ceo of united continental. Lawmakers today asked them why flying in america has so many problems. As phil lebeau reports, the questions came with the threat of more regulations to protect passengers. Phil lebeau is in our Nations Capital tonight. Reporter for airline executives, most notably the ceo of United Airlines, oscar munoz, the message was clear. Americans are fed up with the flying experience. I guess my first question, i was going to ask, why do you hate the American People . But im not going to ask that. I was going to ask how much you hate the American People. Im not going to ask that either. We have a problem that shouldnt be as bad and unpleasant as it is. And youre the only people that can fix it. Rep heari comes three weeks after dr. David dao was dragged off a United Airlines plane because he refused to give up his seat on an oversold flight. United has since settled with dr. Dao for an undisclosed amount. But oscar munoz is still apologizing. In that moment, for our customers and our company, we failed. This has to be a turning point for the 87,000 people and professionals here at united. It is my mission to make sure we make the changes we need to provide our customers with the highest level of service. If we break it, its incumbent on us to fix it. Reporter united says its reducing the amount of overbooking it does on its flights. And southwest will completely stop doing it next week. But other airlines are hesitant to give up the practice. They say it keeps flights full and airfares down. Members of Congress Says none of that matters if passengers are left without a seat they thought they had reserved. That should be the takeaway from today, seize this opportunity, because if you dont, were going to come, and youre not going to like it. Reporter some on capitol hill may push for more rules to protect passengers. But dont expect too much. After all, this is a republican controlled congress, and there is a republican in the white house who has promised to ease, not increase, regulations on companies. Phil lebeau, nightly Business Report, washington. Federal reserve policymakers began a twoday meeting today with a statement on Interest Rates expected tomorrow. But many on wall street are looking past this meeting and ahead to possible moves later this year. Steve liesman has more. Reporter wall street not expecting much from the fed tomorrow, but debating what happens with Monetary Policy the rest of the year. 98 of respondents to a cnbc survey expect the fed to stay on hold. 65 say the next rate hike is in june, some say a little later. 53 say there would be three rate hikes this year. 71 say the balance sheet, that 4. 4 trillion of assets the fed has, will begin to decline by january 2018. As for where the fed funds rate goes, look for 1. 4 in 2017, 2. 2 in 2018, 2. 7 in 2019. We get up to that 3 thereafter. Thats where the long rate is supposed to be. As for the outlook for stocks, you can see not much more expected for current levels this year, just about a percentage point is the average forecast for the s p to 2409. A little more next year, a 7 gain seems to occur at levels up to 2564. The reason is because theyve moved the expectations for fiscal policy from the Trump Administration from 2017 to 2018. And now, looking ahead at whats behind the rally, back in december, 18 thought it was economic fundamentals and earnings. 82 said policy expectations. Big change in that right now. 50 say its economic fundamentals and corporate profits. 48 say its policy expectations. Respondents looked for 2. 25 gdp growth this year with a small bump from fiscal policies in the Trump Administration. The biggest risk, protectionist policies from the Trump Administration. For nightly Business Report, im sleeteve liesman. Ahead, the great tax debate. Reporter in topeka, kansas, a real World Economic experiment is taking place. The results are dividing the business community. Thats coming up on night the tax plan released last week by the Trump Administration looks quite similar to the tax reform kansas voted into law a few years ago. We traveled to topeka to see how the steep cuts are playing out. Reporter its been called the kansas experiment. A package of deep tax cuts that the governor promised would be a shot of adrenaline for the state economy. Instead its blown a billion dollar hole in the budget, cut funding for schools, and divided the business community. Five years ago, kansas cut personal income taxes and became the only state in the country where small firms, known as passthroughs, have a tax rate of zero. It was a real world test of the controversial economic theory that tax cuts lead to growth. But almost immediately, the drumbeat to get rid of them began. Now more and more businesses are speaking out against it, even though it benefits them. Matt condon, a local entrepreneur, runs one of them. Like many things in government, there are unintended consequences, laws that were passed with originally positive intent. I want to see 400 plus. Reporter thats because the state is in a budget crisis. A 1. 4 billion shortfall over the next two years. Unlike the federal government, kansas has to balance its books. Schools are getting hit particularly hard. Kansas city, kansas, is one of the districts suing the state over lack of funding. Schools chief of staff david smith says if they cant come up with a compromise and come up with more money, by june 30th, the system could shut down. More than 80 of our kids live in poverty. They are the kids who most depend on school for their future success. So we feel like its our responsibility as the adults to give them whatever they need. Its been a challenge. Weve really had to struggle, both sacrificing money in some places in order to make sure our kids get what they need. Reporter there are businesses fighting to keep these tax cuts alive. Winger manufacturing is a Family Business that makes Food Processing equipment. Theyve reinvested 18 million from the tax cuts back into new technology and new jobs. The current pro Business Environment in kansas allows Companies Like winger to continue to grow and expand. That translates into continued jobs for people in this and other communities. Reporter Governor Sam Brownback says thats evidence that the policies he ushered in five years ago are succeeding. If you want to get people back to work, if you want to get america working again, cut taxes on small business. Reporter the republicancontrolled state Legislature Passed a bill earlier this year that would have repealed the cuts. But kansas Governor Sam Brownback vetoed it. He blames the states budget woes on downturns in the agriculture and Oil Industries instead. Theyre such big pieces of our economy that the tax policy couldnt overcome the big global commodity drops in prices. Reporter nationally, though, his ideas are gaining traction. The white house is taking a page from the kansas playbook, proposing big reductions in the tax rate for Small Businesses across the country. But here in the sunflower state, momentum is moving in the opposite direction. Schools, businesses, and even many republicans say theyve had enough. State lawmakers are convening here this week to debate once again whether to repeal these tax cuts and put an end to the kansas experiment. For nightly Business Report in topeka. Fewer discounts helped results at coach. Thats where we begin tonights market focus. The luxury handbag maker reported profits that rose and topped estimates thanks to scaling down on promotional activity. As coach removed its brand from hundreds of department stores, revenue took a hit, but sales were still above estimates. The company also reaffirmed its guidance for the year. Coach shares jumped 11 to 43. 15. Aetna said costs related to its failed merger with rival humana caused a loss. Still, profits were better than expected. The company said its still assessing its future participation in the obamacare exchanges. We expect to lose around 200 million, 220 million this year on the exchanges with only a quarter of the member we hship year, which substantiates our view from a year ago, that we had the potential to lose as much as 900 million, so were sort on that track. Were evaluating those markets as we speak. Aetna raised its 2017 earnings forecast and shares rose more than 1 to 138. 91. Jo molina says its replacing the son of its founder, as a result of the companys disappointing financial performance. Both executives are expected to remain on the board. The company will immediately begin searching for a permanent ceo. Wall street liked the move, sending shares up more than 17 to 59. 75. The Hardwood Flooring retailer lumber liquidator says a rise in transactions helped sales improve. The Company Posted a narrower loss, that one missed targets. Shares plunged as a result more than 13 . They finished at 21. 05. Infosys is pledging to create more jobs in the u. S. The indiabased Technology Company says it will bring on 10,000 American Employees over the next two years with plans to begin the hiring in indiana. Infosys also said it will build four Technology Hubs across the country. Shares down fractionally at 14. 52. Meantime shares of Advanced Micro Devices were crushed today following the companys disappointing profit outlook that came out after the bell yesterday. The computer processor developer swung to a loss in the latest quarter and reported revenue in line with estimates. Shares down more than 24 , a bad day there. 10. 32 the close. As weve reported, President Trump yesterday said he was looking into breaking up the large banks by reviving an old law that prohibits commercial banks from engaging in investment banking. Last month the president s top economic adviser, gary cohn, reportedly said something similar. Some democrats including Bernie Sanders have supported the idea. While the concept is not new, the drumbeat is getting louder. Politics aside, would breaking up some or all of wall streets big banks make shareholders richer . The Vice President of Equity Research at rafferty capital says no, a breakup wouldnt make the assets worth more. But investment strategist at Cfra Research disagrees. She says it would. Folks, welcome. Dick, you get to go first. Why is this not a good idea for shareholders . I can see why its a good idea for investment bankers, they make fees. Its not a good idea because its not a good idea for the customers. In other words, if you think about it, if you start to lose the scale advantages of big banks, the prices of the products that they sell tend to go up. Secondly, if you take away the cash flows that they have, the innovation they have to bring things like mobile banking go away. In addition, if you start thinking about the history of banking that you know that roughly every day, every day, going back to 1987, weve lost one bank in the United States. Why . The reason is because theyre onetrick ponies. You have to have more than one set of products in order to be successful in this business. All right. Lindsey, you disagree. You say the banks, it would be a positive move, and it would make them more valuable, which should benefit shareholders. Yes, we think that breaking up the banks, the research is that they would be more valuable as separate entities. The fact of the matter is, the increased amount of regulation and the large amounts of capital that these banks have to hold and are restricted to use has really created underperformance for both sides of the bank. And to dicks point, i think that if you break up the banks, you will create more competition which will help keep prices down. But what about dicks point that there are benefits from the scale, they allow innovation, they allow some products to be sold less expensively. Address that one specifically. Well, i think innovation is something that these banks are both sides of the bank are zoned in on. Fin Tech Companies are coming in here and potentially disrupting this industry left and right. You see big banks cutting expenses across the board. But this is one expense on innovation and technology that they will not cut because they know they need to keep up with innovation and keep their customers happy, because thats what the customer demands. What about that, dick . Basically, if we take a look, i would like to go back on one point lindsey just made, in the years 2014, 2015, and 2016, the Banking Industry in the United States had all time record profits. They had all time record profits operating under these, if you will, regulations and limitations created by the government. So the fact of the matter is that the limitations that were placed on the banks by the government did not restrict them. They also were able to provide lending power that the economy needed. There was no sector of the economy that needed loans that didnt get it. The fact of the matter is, if you crimp these companies, if you take away their cash flows by reducing their size, you make them more risky for the american taxpayer. You do that because there is no fdic insurance for all segments of the entity, number one. And number two, you know, these companies, when you see Interest Rates rise sharply, if history is any gauge, they go out of business. In addition, if you run into a recession, they go out of business. Its a good system. Lindsey, you get the last word. Why dont you address particularly dicks point about the regulatory burden, which seemed to be central to your argument. Might these banks make even more money broken up if the regulatory costs were as a result lower . Yes, i think they would. In fact i think you would see, if you looked at the Stock Performance of these banks over several years, they lagged the broader market. They have popped since the election, since donald trump was elected, given the fact that investors are expecting less regulation. So shareholders will certainly benefit, return on equity for these banks has been in the low double digits for quite a while, which is very low by historical standards. From that perspective, they will be making more money. Lindsey and dick, thank you very much for a kind and polite conversation, we covered a lot of turf there, we appreciate it. Thank you. Coming up, celebrities head to wall street to make trades and raise millions for charity. Hollywood has averted a writers strike. The Writers Guild of america and a group of studios and networks have agreed to a threeyear deal. The union told its 9,000 members they would earn 130 million more over the lifespan of the agreement. Media analysts say a strike would have pushed more viewers to streaming services nilike netflix and hulu. Bob pisani reports from btigs Trading Floor in new york city on celebrities Encouraging Charity donations. Reporter the annual btig charity day raised millions for charity. The foundation started 20 years ago. Im representing the boys and girls club from miami, thats where i learned how to play baseball when i was 10 years old. Its a wonderful organization. Im here with a charity that was founded right after 9 11. Its called friends of firefighters. They provide Therapeutic Services to firefighters that are active and retired and for their families. Im a new goodwill ambassador for the u. N. Refugee agency. Ive been working with them for years, because were having an unprecedented crisis. We have 65 Million People worldwide who are displaced. Over half of them are children. The u. N. Is there to help them. And i just wanted to be part of that. Reporter and mark cuban spoke about how Artificial Intelligence is changing the investment landscape. And then, surprisingly, he cited twitter as an example of a company that was getting its act together with ai, harnessing big data to be smarter in ad deliver. That moved the stock 4 . The key to Artificial Intelligence is data. And twitter hasnt been able to hand eg harness the data in how they deliver ads and tweets. Now theyve started to hire the right people and get starter. Reporter celebrities all lined up to make an honorary trade on the btig trading desk. The firm donates all its commissions to charity for the day. It started out small with a few yankees coming here 14 years ago. Its developed into something really special where everyone gives their time and energy to give back and show the good side of wall street. Reporter that humble beginning with a few yankees has blossomed into a major event involving fashion icons, actors, and sports celebrities thats raised over 40 million for dozens of charities. Its getting bigger every year. For nightly Business Report, im bob pisani in new york city. Good for them. Very nice. Well done. Thats nightly Business Report for tonight. Im sue herera. Thanks for joining us. And thanks from me as well, im Tyler Mathisen. Have a great evening, everybody. Hope to see you back here tomorrow