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118> <Type: SHOW> <Head: NIGHTLY BUSINESS REPORT for April 8, 2013, PBS> <Sect: News; International> <Byline: Susie Gharib, Tyler Mathisen, Courtney Reagan, Phil LeBeau, Sharon Epperson, Julia Boorstin> <Guest: Klaus Kleinfeld, Jonathan Golub> <Spec: Business; J.C. Penney; Alcoa (NYSE:AA); Economy; Taxes; Policies> <Time: 18:30:00>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Susie Gharib, brought to you by -(COMMERCIAL AD) TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: J.C. Penney CEO out. A big shake-up happening late today at the struggling retailer. SUSIE GHARIB, NIGHTLY BUSINESS REPORT: Alcoa (NYSE:AA) kicks off earnings season with better than expect results. We talked with the company`s CEO about the numbers and the outlook. MATHISEN: Building your nest egg. Some new strategies to protect your retirement savings from those coming tax changes. GHARIB: We have all that and more, coming up on NIGHTLY BUSINESS REPORT. MATHISEN: And good evening and welcome to our public television viewers. A big management shake-up late in the day today at J.C. Penney. GHARIB: Yes. Right after the market closed, Tyler, the CEO, Ron Johnson, is out after just a year and a half in the job. Now, Mike Ullman, a former J.C. Penney CEO, has been named interim CEO.
Johnson, a former Apple (NASDAQ:AAPL) executive, has been under pressure for failing to turn around the fortunes of the struggling retailer. J.C. Penney`s sales dropped 25 percent in Johnson`s first year at the helm. And then during his tenure, the stock tumbled 50 percent. MATHISEN: In after hours trading, the stocks surge as much as 11 1/2 percent on word of Johnson`s ouster. Joining us now with more on what happened and what`s next for the company, our Courtney Reagan, who follows that company very closely -Courtney. COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Hi. Good evening to you both, Tyler and Susie. I`m actually standing here outside the New York courthouse because earlier today, the trial resumed between Macy`s (NYSE:M), Martha Stewart and J.C. Penney over dispute over product. Ron Johnson has been embattled for quite sometime because his turn around plan frankly just hasn`t taken hold. Susie ran through some of the states. They haven`t been good. Sales down precipitously. And now it appears that Johnson is stepping down. That is the wording that was used in the press release. And interim CEO will be Mike Ullman. He was the CEO before Ron Johnson. Now, during the time that he was CEO, the stock price fell 17 percent and earnings were relatively flat. As far as where the company goes from here, a lot of questions still unanswered at this hour as to what this interim CEO will change, if anything, as they make the transition and search for a prominent replacement to J.C. Penney CEO Ron Johnson -- Tyler and Susie. MATHISEN: So there`s no likelihood that Mr. Ullman will be the permanent successor to Ron Johnson whatsoever? REAGAN: At this point, we don`t know. It is possible. However, we know that the board moved him out and moved Johnson in. It`s possible he could stay, but at this point, J.C. Penney is using the words "interim CEO". It has happened in the past in companies that these interims become permanent. But as with Best Buy (NYSE:BBY), the new interim CEO did not actually become the new CEO. And that was just recently.
GHARIB: You know, Courtney, I think the $1 million question here is, is J.C. Penney fixable, no matter who`s the CEO? What`s your sense on that? REAGAN: You know, Susie, I think that it is fixable. I think the big question is how and how long it will take. They are in the middle of a very big turnaround plan. For lack of a better description, they`ve torn out the guts of the old J.C. Penney and they`re building a brand-new model. So what do they do now? Do they stop? Do they do something new? And those questions will need to be asked when we look at if it`s fixable. A number of analysts think it is fixable. In fact, the previous CEO to Ullman, Allen Questrom, telling CNBC`s Scott Wapner that he believes it is fixable. So, we`ll see. It`s definitely a split camp. I don`t exactly know what`s going to happen. This is late-breaking news and we`re still asking a lot of questions ourselves. MATHISEN: All right. More questions than answers at this hour. Courtney Reagan, thanks very much. GHARIB: Also in the news tonight, a better than expected earnings from Alcoa (NYSE:AA). But shares slipped a bit in after hours trading. The aluminum giant is the first Dow component to turn in quarterly results and its solid profits could be a positive kickoff for earning seasons. Here are the numbers: Alcoa (NYSE:AA) earned 11 cents a share. That was 3 cents more than estimates. But revenues came in below expectations, down 3 percent to $5.8 billion. Now, Alcoa (NYSE:AA) also said it expects global demand for aluminum to rise by 7 percent this year and sales of aluminum products to the auto, aerospace and construction industries did very, very well. When I talked with Alcoa (NYSE:AA) CEO Klaus Kleinfeld a short while ago, I asked him about the outlook for those sectors for the rest of this year. (BEGIN VIDEOTAPE) KLAUS KLEINFELD, ALCOA CEO: We`re seeing that there`s very strong demand in some of the end markets that we cater to. When we look at aerospace, we believe that in the (INAUDIBLE) commercial aircraft is
probably more between 9 percent to 12 percent, the growth rate. But you have to also keep in mind that there`s an eight-year backlog of planes. So, it`s a very stable market and growing very, very nicely. You can see growth now in business jets and to regional jets. So, this is very good. Automotive -- automotive in the U.S., which is particularly important for us. It`s continuing to grow very, very nicely. We`re seeing -- we`re seeing that it`s coming to levels of pre-crisis times. And at the same time, we also see that the average age of the car (INAUDIBLE) in the U.S. is still higher than it used to be. So there`s continuous to be pent-up demand. And what makes me particularly excited is that there`s a stronger consumer drive for lightweight and for better gasoline efficiency. That`s driving very, very strongly the aluminum demand on top of it. And building and construction large market, very important for the U.S. economy, is coming back. Finally, it`s coming back and now I guess everybody sees this. GHARIB: Klaus, as you know, though, in the last couple of days, there have been new worries about the strength of the U.S. recovery. So from your perspective, is the economy slowing down? How is the U.S. economy really doing? KLEINFELD: U.S. economy I think is not slowing down. It continues to grow. What you see, there is a counterforce coming in through sequestration. So, some of the public spending goes down. But, at the same time, you see that the businesses are growing. I believe that`s a good thing to have and a good structure for the economy in the U.S. So I continue to be optimistic. We`re not seeing a high-growth environment like the one we would be seeing in China, but I don`t think anybody can expect that -GHARIB: All right. KLEIN: -- for a mature economy like the U.S. one. GHARIB: All right. So, given your optimism, will you be hiring this year? KLEINFELD: Actually, the interesting thing is, if you look at our global number, we are around 61,000 employees worldwide. And there are
some moves in there. And interestingly, we see that the U.S. has been gaining on the employment side. And that`s very much a reflection of what happens in our portfolio. The more we add value, the more you see aerospace as well as automotive growing. And you see, there`s a lot of action going on here. And then, on top of that, I mean, with the very attractive lower engineer prices now, that also helps particularly in our upstream side. GHARIB: One thing that`s not working in your favor are aluminum prices, which are down sharply over the last couple of years. What has to happen for those prices to go up? And is part of your strategy to cut back on aluminum production? KLEINFELD: Well, our strategy is very chloral focused to be independent of what we can control. So, let`s focus on the things we can control. The things we can control in or upstream business is to come down in the cost curve. To no matter where the market is going to be, we are going to be profitable, and you see that reflected in this quarter actually. Metal prices are down and you see a remarkable performance from our upstream business. GHARIB: Tell me about China. You mentioned a moment ago, from the customers that you`re dealing with there, are they ordering more or less? KLEINFELD: People are ordering more. We project 11 percent demand growth on aluminum this year in China. (END VIDEOTAPE) MATHISEN: On Wall Street today, stocks closed at the highs for the session as investors looked ahead to those results from Alcoa (NYSE:AA) and to earnings of several other blue chips later this week, including JPMorgan (NYSE:JPM) Chase and Wells Fargo (NYSE:WFC). Now, the aluminum giant was one of the biggest gainers in the Dow today, rising nearly 2 percent as of the 4:00 p.m. close. For a good part today, stocks traded in the red, still reeling from those disappointing job numbers on Friday. In the end, though, the Dow did close higher by 48 points, the NASDAQ was up about 18, and the S&P 500 gained nearly 10 points to 1,563. As earning season begins, the consensus forecast is, too put it mildly tepid for U.S. corporate profit growth. But our next guest is a little more bullish in the crowd.
Jonathan Golub, chief investment strategist at UBS. Jonathan, always great to see you. JONATHAN GOLUB, UBS CHIEF INVESTMENT: Hey, Tyler. MATHISEN: You`re a little more bullish, but it is a qualified bullishness, as I understand it. GOLUB: Yes, to say you have 2 1/2 percent earnings growth expectations, which is our call for this quarter, bullish is really hard to make the case. And if you look at how you even got there, it`s buybacks and losses that were a year ago, that the banks made the prior year look even worse. But short to that, you`re basically talking about zero growth this quarter. MATHISEN: So, if there`s zero growth this quarter, what do you see down for the rest of the year? GOLUB: You know, our full-year expectations, you have 3 1/2 percent to 4 percent earnings growth for the whole year. That`s roughly in line with what other strategists are thinking. Analysts are always a little bit too optimistic on the -- you know, on the out-quarters so I expect their estimates to come in as the year progresses along. MATHISEN: So, if that`s the level of earnings growth you`re looking forward to, what`s the level of stock market price growth that you`re willing to bake in to your forecast? GOLUB: Tyler, you and I had this conversation. Why am I, you know, not optimistic right now about the market -- you have a market that`s up over 15 percent since mid-November and yet you`re looking at earnings growth in the low to mid-single digits. It`s a really big disconnect. So, I think, unless you get better earnings than are being forecasted now, very hard for this rally to continue. MATHISEN: So, why are stocks up as they are? Is it all the monetary stimulus that`s come in? GOLUB: Printing press is running. And also I think that, you know, at the end of the year, we got over the fiscal cliff, we got over the debt ceiling issues and, you know, the world continued to operate, and people are feeling pretty good about that.
But short of that and the money printing, there`s really not a lot of great news on the earnings front. MATHISEN: So, are you looking for a sizable correction? If you say the stock rally can`t really continue or go that much higher, are you looking for a treading water kind of scenario? Or the decline and the return, what? GOLUB: I mean, it`s hard to know whether this is a fizzle or whether it`s a pullback, but the more important thing is, if you have 3 percent, 4 percent earnings growth, I just don`t see how you could possibly get the market to continue the pace of the run you`ve had so far. And if you look at what`s running, it`s the most defensive -MATHISEN: It`s defensive sectors. It`s healthcare. It`s other things. GOLUB: And matter of fact, the earnings expectations, why those sectors are outperforming? Because are ones that are expected to actually deliver earnings. The cyclical things, the industrial sector, the tech sector, the energy sector are expected to have year over year decline in earnings. That`s not really a good thing for the market. MATHISEN: All right. So, make me some money here. From this point forward to the end of the year, what sector do you think can outperform what you seem to be saying is going to be a relatively flattish market? GOLUB: Right. OK. We have to differentiate between this earning seasons and stock price movement. But I like the consumer sectors. I think it`s going to be a little bit of a rough earning season because of this tax increase that we had. But I think the consumer holds up better than people think. I also like healthcare, especially in the back half of the year as we go into Obamacare, I think the stocks are going to rally. MATHISEN: Jonathan Golub, thank you very much. Always great to be with you. GOLUB: Good to see you. MATHISEN: Thanks for coming out. GOLUB: Turning now to market focus, we begin with General Electric (NYSE:GE) and a $3 billion acquisition. G.E. is behind Lufkin Industries (NASDAQ:LUFK). This is the oil field pump maker. The purchase increases
G.E.`s presence in the energy and is a key part of the company`s focus on the shale fields of North Dakota and Texas. G.E. shares rose slightly to $23 a share and Lufkin Industries (NASDAQ:LUFK) surged more than 37 percent, up to $24, to about $88 a share. Other oil field stocks moved higher in sympathy, including Weatherford, Dover (NYSE:DOV) and Dresser-Rand. Avon says it will cut 400 jobs. That`s about 1 percent of its global workforce. The cuts are part of the cosmetic firm`s effort to slim down, which includes closing of some operations in the Middle East, Africa and Europe. Shares of Avon rose more than 1 percent to $20 and change. MATHISEN: Johnson & Johnson (NYSE:JNJ) was the biggest slower in the Dow today. The stocks fell after a JPMorgan (NYSE:JPM) analyst downgraded shares of the health care giant to hold from buy, saying he expects the company to reduce its profit forecast. The stock has, however, run up 30 percent since June and it finished today at $81.11. GHARIB: Airline stocks saw some pretty hefty gains today, with the New York Stock Exchange`s airline index rising more than 2 percent. Shares of Delta rose nearly 4 percent, JetBlue shares ended higher. Even United Airlines, which was dead-last in a recent government survey on quality and airline performance, saw shares rise nearly 3 percent today. MATHISEN: And speaking to that survey, if you fly, you might think the words airline and quality don`t often belong in the same sentence but the Department of Transportation is out with its annual rankings of the 14 largest U.S. carriers, for things like on-time performance, lost baggage and customer complaints. And some of the results just might surprise you. Phil LeBeau has our report. (BEGIN VIDEOTAPE) PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): If you`ve flown lately, you know the drill, long lines, packed planes and customer service that is often lacking. UNIDENTIFIED FEMALE: It`s not nearly as much fun as it used to be. UNIDENTIFIED MALE: I think some of the bigger airlines are really starting to nickel and diming travelers. LEBEAU: The latest report on airline quality confirms passengers are losing patience. Last year, complaints to the federal government jumped 20
percent. And more customers were bumped from oversold flights. Two negatives overshadowing the fact airlines have done a slightly better job handling bags and arriving on time. DEAN HEADLEY, WICHITA STATE UNIVERSITY: We have asked the DOT, "Well, how many complaints do you think are out there that you never hear about?" And they said chances are there`s at least four to five times the number of complaints that they hear about. And last year, they heard of just right at 11,400 complaints. LEBEAU: Complaints by travelers soared in part because of airline mergers. As carriers have combined, it hasn`t always been smooth. Also upsetting for travelers: a noticeable increase in passengers being bumped from oversold flights, as airlines have stripped out flights and shifted to smaller planes so their schedules are more profitable, it`s left them fewer empty seats and less flexibility for rebooking bumped passengers. HENRY HARTEVELOT, HUDSON CROSSING, TRAVEL ANALYST: Airlines really have to figure out how to manage their business now with the smaller capacity that`s in the marketplace. They do have a responsibility to us as the traveling public to get us where we are going reasonably. LEBEAU: So which airline did the best job last year? Low cost carriers, Virgin America, JetBlue, and AirTran led the list. Meanwhile, the five worst included American and United. Legacy carriers who also saw above average complaints. (on camera): Unfortunately, for thousands who are flying, the experience will not be improving anytime soon. Airlines are reluctant to add new flights or bigger planes, so the flights we see in the sky will be packed, meaning, going from point A to point B may not be much fun in the near future. For NIGHTLY BUSINESS REPORT, Phil LeBeau, Mobile, Alabama. (END VIDEOTAPE) GHARIB: It`s not fun to fly these days. But how do you feel about your trip to Ireland later this week? You`re going to be flying with United, dead-last in the survey. MATHISEN: I`m going to be going on United, so they`ve got four days to get it together. You know, I think one of the things Phil said to me offline earlier was that one of the things that crept up with United was
that last year when they integrated their computer systems, between them and Continental, there were major snafus and that got an awful lot of people angry. GHARIB: I hope they`ll work it out. MATHISEN: You got four days, United. Come on, now. All right. Coming up, tax changes are coming in. And they could impact your nest egg. We have some new retirement strategies to consider for this year and beyond. But, first, a look at how international markets fared today. (MUSIC) MATHISEN: If it`s Monday, it must be Belgium. Newly installed Treasury Secretary Jack Lew is on his first trip to Europe, meeting today with the president of the European Union in Brussels, and later, with the head of the European Central Bank in Frankfurt, Germany. Lew says that struggling European countries should try to ease up on austerity measures and adopt instead more growth-friendly economic policies. GHARIB: The White House is preparing to release its fiscal year 2014 budget proposal in just a few days, with thousands of copies coming off the printing press today. President Obama`s proposal comes after the Democratic controlled Senate already passed one budget and the Republican controlled House passed a different version. Last week, the president offered to consider reductions in entitlement programs like social security and Medicare, in exchange for new tax revenues as part of a long-term budget deal. MATHISEN: The Senate got back to work today after a two-week recess and it confirmed former federal prosecutor Mary Jo White as Wall Street`s top cop. She`ll chair the Securities and Exchange Commission. White received a lot of bipartisan support in the Senate thanks to her years as the U.S. attorney in the southern district of New York, where she went after insider traders, monsters and terrorists. GHARIB: Well, one week from today, federal taxes are due, so chances are you`ve already filed this year`s forms. But today, we kick off a weeklong series of tax tips to consider ahead of next year`s filings.
Some big changes in tax laws going into effect in 2013 might force many top earners to consider making significant changes right now to their retirement savings account. Sharon Epperson explains. (BEGIN VIDEOTAPE) SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Attorney Doug Bramley usually gets a tax refund each spring, but he`s not counting on one this year or in the future. DOUGLAS BRAMLEY, MCMORAN, O`CONNOR & BRAMLEY PARTNER: That`s the law (ph), it`s going to happen. As my tax burden increases, I`m paying more and more in taxes, I`m not getting tax refunds, and we are having to plan financially for that. EPPERSON: Top earners, like Bramley, will take a big tax hit this year on earned and investment income. For couples with incomes over $450,000, $400,000 if you`re single, increases in federal income tax and a Medicare surtax will result in a total tax hit of nearly 42 percent on earned income in 2013, a more than 5 percent increase over last year. Plus, taxes in dividends and long-term captain gains have surged almost 9 percent compared to last year, to nearly 24 percent for top earners. And the tax on interest income in 2013 is a whopping 43 percent. Facing a potential tax hit like this is forcing households like Bramley`s to make some changes. BRAMLEY: We have already done as a family a lot of planning in anticipation of the fact that my income is going to be a little bit lower next of these tax hikes. EPPERSON (on camera): Big changes for portfolio planning may lie ahead, too. Financial advisers say new tax hikes increase the need for diversification and new strategies when investing for your financial future. DOUG LOCKWOOD, HARBOR LIGHTS FINANCIAL GROUP CFP: Maybe buying some stocks for growth purposes that aren`t paying dividends that maybe give you the same result in the end, but have a little less tax implication. So, that`s one. Two, make sure that after you look at your nonqualified money, you go
to your tax deductible money, your 401(k)s, 403(b)s, your IRAs and make sure you`re maximizing those opportunities. EPPERSON (voice-over): Contributing the maximum to a 401(k), up to $17,500 this year or $23,000 if you`re 50 or older, will reduce your taxable income. Convert a regular IRA to a Roth IRA, you`ll be taxed on the money you convert, but you can generally take the money out tax-free after age 59 1/2. And keep a taxable account in the mix, although putting more dollars there maybe less attractive now. BRAMLEY: With the tax increase coming up, we`re going to be putting more and more money into my Roth IRA and my traditional IRA. EPPERSON: For many, a varied investment strategy for an uncertain tax landscape is an imperative. LOCKWOOD: We`re going to back to managing investments, and those folks who manage it the best will get to the finish line first. EPPERSON: For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson. (END VIDEOTAPE) MATHISEN: Our series on tax tips will continue tomorrow with new ways to save for your retirement, including Roth 401(k)s. And if you`ve got questions for Sharon on that topic, send them to us at NBRmail@CNBC.com. GHARIB: And still ahead on the program, a Powerball fever hits the Golden State. Is it the answer to California`s financial problems? But, first, let`s take a look at how commodities, treasuries and currencies did today. (MUSIC) GHARIB: Many California residents are hoping to hit the jackpot so that`ll be set for retirement. Starting today, Powerball lottery tickets went on sale in California. It`s the 43rd state to join the nationwide game. Julia Boorstin tells us how much officials think Californians will stand for a shot to strike it rich and what all that revenue might mean for the Golden State.
(BEGIN VIDEOTAPE) JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): California is the 43rd state to jump on the Powerball bandwagon. Tickets are 2 bucks instead of $1 which means bigger jackpots than the state`s current gains, at least $60 million. But the chances of winning the top prize, less than 1 in 175 million. But that doesn`t stop the stream of wannabe winners we`ve seen at the Farmers Market newsstand. UNIDENTIFIED FEMALE: There`s one, right? I could be the one. UNIDENTIFIED MALE: I figured I would take my chances today. UNIDENTIFIED MALE: It`s only a few dollars and I can -- I can make millions. BOORSTIN: The only sure winner will be the state of California. The Multistate Lottery Association projected net increase of $100 million in sales, 40 percent of that revenue will go to California`s schools. So, they`ll see a roughly 40 million dollar bump. That`s a drop in the bucket considering the state spends $68 billion annually on education. (on camera): But there are other winners. The 21,500 California retailers selling these tickets see a huge boost in traffic, from people coming in to try their chance at Powerball and for promotions like this. ROBERT O`NEILL, CALIFORNIA`S LOTTER Y DIRECTOR: All of our shopper studies show that lottery players who win more frequently in the convenient stores and they buy more goods. So, I think there`s tremendous benefits for the retailers. They see more traffic and they get improved sales. BOORSTIN (voice-over): California lottery director O`Neill projecting the state will boost nationwide Powerball sales by as much as 25 percent, which could lead to a $1 billion jackpot in the next few years. For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin. (END VIDEOTAPE) MATHISEN: Former Secretary of State Condoleezza Rice took some swings at Augusta. She was on the course during a practice session with Phil Mickelson, the three-time Masters champ. She also put on the private club`s traditional green jacket as she talked with some fellow members.
Last August, Rice became one of the first two female members at Augusta National. The Masters tournament gets underway later this week. GHARIB: And, finally, the world is mourning tonight the passing of Britain`s "Iron Lady". Former Prime Minister Margaret Thatcher passed away today. She was 87. She governed for 11 years, starting in 1979. She was a strong proponent of free markets. She revitalized the British economy and radically changed the role of government. She developed a close relationship with U.S. President Ronald Reagan during the Cold War and backed President George Bush during the 1991 Gulf War. And, today, President Obama said America has lost a true friend. You know, Tyler, there are still a lot of questions about her legacy. She`s being criticized for a lot of decisions that she made. History will -MATHISEN: Many controversial moves during her time, but when asked why she was named the "Iron Lady", she said the Soviets who gave her that name, she said they were right. And that will do it for tonight`s NIGHTLY BUSINESS REPORT. I`m Tyler Mathisen. Thanks for watching. GHARIB: I`m Susie Gharib. Have a great evening, everyone. We`ll see all of you right back here tomorrow. END Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2013 CNBC, Inc. <Copy: Content and programming copyright 2013 CNBC, Inc. Copyright 2013 CQRoll Call, Inc. All materials herein are protected by United States copyright law and may not be reproduced, distributed, transmitted, displayed, published or broadcast without the prior written permission of CQ-Roll Call. You may not alter or remove any trademark, copyright or other notice from copies of the content.>
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