Transcript: Tuesday, February 3, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Blowout quarters. Disney’s earnings were much better than expected. But after a 30 percent run in the shares over the past year, is this stock still a buy?

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Market gusher. Oil prices spike, auto sales soar, and stocks are off to the races for the month of February, with the Dow Jones Industrial Average gaining 305 points in today’s session.

HERERA: Debt showdown. A high stakes meeting takes place tomorrow between the Greek’s finance minister and the head of the European Central Bank. The issue? Greece’s mountain of debt.

All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, February 3rd.

MATHISEN: Good evening, everyone, and welcome.

Investors must have awakened yesterday on Groundhog’s Day and failed to see January shadows. For the second day running, a major spring-like move higher for the Dow Jones Industrial Average. It’s now up more than 500 points in two days. Meanwhile and contributing to stock’s gains, oil prices extended their rally, up about 7 percent. More on that in a moment.

But first, Disney (NYSE:DIS). The House of the Mouse which has seen its shares soared more than 30 percent over the past year out with earnings late today and they were anything but mini. The company earned $1.27 a share, that’s 20 cents better than Wall Street expected. Revenue up 9 percent to more than $13 billion and as a result, shares popped after hours. And that was on top of a more than 2 percent gain in the regular session.

Julia Boorstin spoke with CEO Bob Iger and has her one big takeaway on Disney’s results.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The key takeaway from Disney’s earnings is that Bob Iger’s strategy of building brands to exploit across all of Disney’s platform is working, with all the company’s divisions showing growth.

BOB BIGER, DISNEY CEO: Great, great quarter for the company across the board. Clearly, I think it a great testament to strategy to focus on franchises and our great brands. Parks and resorts, obviously, benefit from that, but also some operational excellence and clear demand around the holiday period. You know, just about any way you look at it, the company had a great quarter and I think, again, it says a lot about the properties, the assets that this company now has.

BOORSTIN: Iger sounds confident that this kind of across the board growth will continue on the strength of the Disney (NYSE:DIS) franchises, as well as a number of other factors. He’s bullish on consumer confidence. He also says that measles has had no impact on attendance at Disneyland and in fact, attendance and reservations are up at the parks so far this quarter. As for ESPN, a huge growth driver for Disney (NYSE:DIS), Iger says he’s not concerned about core cutting.

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

(END VIDEOTAPE)

HERERA: Bill Smead is a long time shareholder of Disney (NYSE:DIS) and he joins us now to give his outlook for the company. He’s CEO and chief investment officer of his own firm Smead Capital Management.

Welcome. It’s a pleasure to have you here, Bill.

BILL SMEAD, SMEAD CAPITAL MANAGEMENT : Thanks for having me.

HERERA: You’ve held Disney (NYSE:DIS) for some time now, some 7 1/2 years. Would you still purchase more or do you think given the run-up that it’s had, that it’s pretty fairly valued here?

SMEAD: Well, it is fairly valued, but between the comments o Mr. Iger who’s done a fantastic job and then being reminded of “Saving Mr. Banks”, the movie a year ago, they’re constantly making investments in either creation of or buying new brands that they can manage and leverage better than other people can.

So, now, “Star Wars” is going to come to the party. Marvel has been a fantastic addition. And so, yes. So, the answer is for a long duration investor like us, we look and we say, 10 years from now, this will be worth a lot more than it is today and it’s worth sitting through the ups and downs of life and bulls and bears and market to get to that.

So, for an investor that’s never owned the shares, we’re very comfortable buying it for them through our capital appreciation strategy. And we wouldn’t up our position right now because it has been getting a lot of popularity the last 12 months.

MATHISEN: One issue that I think many media companies like Disney (NYSE:DIS) are concerned about is the amount of rights fees that hey have to pay for some sports programming. In the case of Disney (NYSE:DIS) and ESPN, it would be the National Football League, the college football championship and other things.

Are you concerned about that impacting their ability to make a nice margin?

SMEAD: Well, it’s a great question. Right now, there’s a lot of single males between 20 and 35, and within five to 10 years, there won’t be, there will probably be 65 percent fewer of those same people. And what they’ll do is they’ll go from being primarily a customer of Disney (NYSE:DIS) through ESPN to being married, having two children, and being primarily a customer of the wholesome family entertainment.

MATHISEN: I was going to ask you what happened to 65 percent of guys. Whew!

SMEAD: That’s what — that’s what happens, is you get married and you basically move through different sectors of the Disney (NYSE:DIS) Corporation.

We like to say they’re the most successful babysitting organization in the world. Obviously, they babysit children but they babysit adult males between the ages of 18 and 100 through ESPN and the sports program.

HERERA: Well, what you have to do is, if you’re that 65 percent is marry a woman who loves Disney (NYSE:DIS) and loves football. So, then, you’re all right. Anyway —

(CROSSTALK)

SMEAD: We went to the Super Bowl, and that — we saw a lot of women that do love football.

HERERA: And I’m one of them.

Bill, how much of your confidence in Disney (NYSE:DIS) stems from Bob Iger being with the company? Do you think that the succession plan that’s been put in place will allow the company to continue to perform on so many different of their platforms?

SMEAD: That’s a great question because we all remember that in 1984, that Michael Eisner became the CEO, and he had a second lieutenant by the name of Frank Wells and they did a great job of moving Disney (NYSE:DIS) forward. And, then, unfortunately, Frank Wells died in a helicopter crash in 1984 and Michael Eisner was kid of lost without his good cop there, right?

And so, what happened in those next 10 years was a lot of talented people like Meg Whitman and Steve Bollenbach and other people were set adrift from Disney (NYSE:DIS). I think Bob Iger is a great cultivator of people behind him and a very humble guy and — in that respect. So, yes, you know, Warren Buffett and Peter Lynch and people like to say, they like to own a business that even a 2-year-old could run. And the beauty of this business is it’s a business that has a lot of his own legs but definitely he’s been an outstanding CEO. He will be hard to replace.

HERERA: I’m sure he will be.

Bill, thank you very much. Bill Smead with Smead Capital Management.

Ty?

SMEAD: Thank you.

MATHISEN: Well, back to today’s market rally which saw stocks rise more than 1 percent. There’s a number of factors added to investor optimism. There were oil prices up. They were up sharply. January car sales better than expected and Greece revealed a plan to end its standoff with its creditors, alleviating a major concern out of the euro zone.

At the close of the day, the Dow was up 305 points to finish at 17,666. That is the sixth straight session of triple digit moves one way or the other. NASDAQ up 51. S&P 500 higher by 29.

Oil prices climb to their highs of the year, West Texas crude spiking 7 percent to settle at $63.05 a barrel. That’s an increase of 19 percent in three days, a move that, by the way, has lifted energy shares very sharply. Brent Crude also rally.

HERERA: Two Federal Reserve officials are out today with two different takes on when to raise interest rates. First, there’s the president of the Minneapolis Federal Reserve, Ronya Kocher Lakota who says that the Central Bank should keep interest rates near zero this year, raising rates too soon, he says, could slow job growth. But on the other side is James Bullard, the president of the St. Louis Fed who said he’d like to see the Federal Reserve drop the word “patient” from its policy statement to give the central bank more flexibility on when to start hiking.

MATHISEN: Well, another reason for today’s rally on Wall Street was news the auto industry’s winning streak continued into 2015. January auto sales up 15 percent compared with just last year. The annualized rate of sale now more than 16 million vehicles, the highest in nine years according to auto data.

General Motors (NYSE:GM) saw sales jump 18 percent, Ford up 15 percent, slightly below some estimates. Chrysler sales up 14 percent. Shares of all three companies higher by more than 2 percent, with Fiat Chrysler up the most as you see there.

Philip LeBeau now with more on what drove sales last month.

(BEGIN VIDEOTAPE)

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: A big January for the auto industry driven largely by demand for big vehicles. Across the board, almost all of the auto makers reported an increase in January sales of between 11 percent and 18 percent and for the most part, those sales were better than many were expecting. Subaru, Mercedes, Nissan, Hyundai and Jeep all reported their best January sales ever.

And speaking of Jeep, it continues to be a roll. January sales for that brand, up 23 percent, again, the best January ever. It was driven by Cherokee (NASDAQ:CHKE) sales, which were up 44 percent. And for the big threes, it’s all about the demand for pickup trucks and SUVs. Take General Motors (NYSE:GM). Its truck sales last month jumped 42 percent and the average transaction price, the estimate, is that it’s just over $36,000 in increased year over year of 7.7 percent.

Bottom line: cheap gas and high consumer confidence. That’s what’s fueling demand for new vehicles right now and especially demand for large SUVs and pickup trucks.

Philip LeBeau, NIGHTLY BUSINESS REPORT, Chicago.

(END VIDEOTAPE)

HERERA: And now to Greece where that country unveiled a new plan to deal with its debt. But the showdown with its international lenders shifts into high gear tomorrow. The Greek finance minister will meet with the head of the European Central Bank, Mario Draghi, and he’s expected to ask that Greece be given easier repayment terms on its loans. More time as well and lower interest rates.

Michelle Caruso-Cabrera reports.

(BEGIN VIDEOTAPE)

MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Greece’s finance minister, Yanis Varoufakis, has been on a world wind tour of European capitals meeting many of the finance ministers in countries which have lent Greece nearly 200 billion euros. He’s been to France, the United Kingdom, today, Italy, always dressed in what has been his signature style. No tie, a blue open collared shirt and often a leather jacket when he’s outside.

Tomorrow, he heads to the country that has loaned Greece the most money, Germany. The relationship between the two countries extremely tense as a result of the bailout. Yanis Varoufakis is going to meet with the head of the European Central Bank, though, Mario Draghi. Greece owes additional 23 million euros to the central bank, and Minister Varoufakis is expected to ask Mr. Draghi for easier repayment terms, more time to pay back that money, and a much lower interest rates, in fact, close to zero is what he’s hoping.

The ECB wouldn’t comment on the reports of the expected proposal, saying they can’t comment on what hasn’t been proposed to them yet. However, they did point me to an interview that a member of the ECB gave in Italy last week. That interview, he said there will be no extension or maturities and Greece must continue to abide by rules.

Now, the markets move sharply higher yesterday and today when Greece announced it was backing down on another demand. The other governments forgive their debt. Investors will be watching to see how this meeting with the European Central Bank goes and if Greece backs down yet again, it could lead to another relief rally in the markets.

For NIGHTLY BUSINESS REPORT, Michelle Caruso-Cabrera.

(END VIDEOTAPE)

MATHISEN: Still ahead, there may be big changes coming to the way the Internet is run, but should it be considered a utility and regulated like one?

(MUSIC)

HERERA: It’s official. The Justice Department has reached a record settlement with Standard and Poor’s. The ratings agency has agreed to pay nearly $1.5 billion settle charges it inflated ratings on mortgage securities in the lead-up to the financial crisis. Under the deal, the fine will be distributed among the Justice Department, 19 states, and Washington, D.C.

(BEGIN VIDEO CLIP)

ERIC HOLDER, ATTORNEY GENERAL: The company declined to downgrade underperforming assets because it was worried that doing so would hurt the company’s business. Now, while the strategy may have helped S&P avoid disappointing its clients, it did major harm, major harm to the larger economy, contributing to the worst financial crisis since the Great Depression.

(END VIDEO CLIP)

HERERA: As part of that agreement, S&P did not admit wrongdoing and as we told you yesterday, the Justice Department is now reportedly in talks with Moody’s (NYSE:MCO) over similar conduct.

MATHISEN: Well, the net neutrality debate is back in the spotlight as the FCC is set to unveil a proposal later this week that could change the way it oversees high speed Internet service.

We have two guests tonight with opposing views on this very important topic. Todd O’Boyle is program director with the public interest lobby group Common Cause, and he favors regulating the Internet as a utility. While Scott Cleland, a broadband consultant and president of his own firm Precursor, disagrees, saying that this move could, in fact, break the Internet.

We should point out before we begin that CNBC which produces NIGHTLY BUSINESS REPORT is owned by the broadband provider Comcast (NASDAQ:CMCSA) (NYSE:CCS).

Let me begin with you, Mr. O’Boyle. This is a very nuanced topic. It can be eye-glazingly complex, frankly. But at its heart, it goes to the question of whether broadband providers, as I understand it, ought to be able to charge different prices for different speeds.

Why shouldn’t a broadband provider be able to charge a, quote, “data hog” for using so much more of its bandwidth?

TODD O’BOYLE, COMMON CAUSE: Broadband providers should be in the business of delivering to consumers the content that they’re already paying for. They’re paying subscribers and should be able to get to the web sites and services of their choice. That’s the core of common carrier or so-called n neutrality protections and it’s actually core to the way the Internet functions. This has nothing to do with the so-called utility star regulation and everything to do with consumer protection.

HERERA: Scott, I know you disagree with some of that. Take the other side.

SCOTT CLELAND, PRECURSOR: Well, net neutrality is something that people enjoy today. Businesses do not have an interest in blocking or throttling. What the problem is, is applying utility regulation to something that’s not a utility. This is — you know, a utility is like electricity, gas, or water. And broadband can be delivered electrically over wire, optically over fiber optic, or wirelessly in many different ways. And there are many companies. That’s not a utility monopoly that needs utility regulation.

HERERA: Scott, I’m not sure tat Mr. O’Boyle would say this, but I’ve seen people who are on the other side of the debate from you say that the ability of the large carriers to block small and entrepreneurial carriers or to disadvantage them with speeds is the reason we need this sort of equal treatment for all. Why isn’t that a strong argument here? Or is it?

CLELAND: Well, the reason it isn’t is because we have over a thousand broadband providers over the last ten years. They’ve done quintillions versus — of transactions and transmissions. There had been a less than a handful of identified problems. So, this is like trying to take a beach and we found two grains of sand that are a problem, therefore, we need to really hyper-regulate the whole beach.

This is overkill. The industry is supporting net neutrality and is willing to abide by the FCC’s rules. Utility regulation would apply the most obsolete regulation to the most modern part of the economy. It would slow the Internet down to government speed. It’s unnecessary and unwarranted.

HERERA: Would it do that, Todd? Would it basically slow everything down to government speed, which in some cases is extremely slow? Is it overkill?

O’BOYLE: Absolutely not. In fact, strong net neutrality protections encourage innovation. They encourage investment. They ensure innovators with sorts of regulatory certainty they need to make multimillion dollar or even billion dollar bets. That’s why we know so many small businesses start-ups, dotcoms are saying — very eager for full title 2 reclassification, so-called real net neutrality, strong net neutrality.

And I’d have to take exception to one thing that Mr. Cleland said. The fact is we do know that Internet service providers are interfering with their consumers, their own consumers’ access online. In fact, we saw that Comcast (NASDAQ:CMCSA) (NYSE:CCS) started interfering with Netflix (NASDAQ:NFLX) the month after the old net neutrality rules were thrown out as being improperly written.

MATHISEN: Mr. O’Boyle, I want to get more Cleland’s response to that, but I want to get your reaction to what I thought I heard Scott say, and that was that the broadband providers, quote, “favor net neutrality”, don’t want to throttle, don’t want to do anything like that. Is that how you see it? Do you agree with that? How do you react to that?

O’BOYLE: Devil is in the details, of course. So, they say that they support net neutrality in the same way that we all support motherhood and apple pie. But what really matters is the rules are written in a way that’s enforceable and when the court recently or last year threw out the old rules, they did so because they were written in a way that was effectively unenforceable.

The reason that these providers say they like the idea, they just don’t like the implementations (ph) because if it’s written the wrong way, then it will get turn out.

HERERA: Scott, a very quick final thought.

CLELAND: Look, Title 2 is the most onerous regulation that is available to regulate any industry. This is the most modern industry. It is — everybody’s gone from smartphones. No one had one seven years. Over 200 million people have them today.

This is an industry that’s not broken and the FCC should be careful not to break it with the most obsolete regulation available.

MATHISEN: Gentlemen, a spirited debate. Thank you very much, Todd O’Boyle of Common Cause, Scott Cleland with Precursor.

HERERA: Shares of Office Depot (NYSE:ODP) and Staples (NASDAQ:SPLS) surge on merger reports and that’s where we begin tonight’s “Market Focus”.

The office suppliers in advance merger talks according to those reports. Together, the firms have about 4,000 stores and about $35 million in annual sales. This comes as activist hedge fund Starboard Value has publicly called on both chains to merge. Shares of Office Depot (NYSE:ODP) surge to almost 23 percent to $9.28, and Staples (NASDAQ:SPLS) popped about 11 percent to $19.01.

Macy’s out with strong guidance and acquisition news after the close. The retailer hiked its 2014 earnings outlook, as it laid out plans to purchase the beauty products maker Bluemercury for more than $200 million. Shares popped initially after the close, but then fell back. Before the bell, the stock was up about 3 percent to $66.07.

UPS also out with a downbeat forecast. The package delivery company provided a disappointing earnings forecast for 2015, because of a drop in fourth-quarter profits, caused by extra expenses during the holiday season. The company said it will control costs and raise prices this year. Still, shares finished higher at $100.57.

MATHISEN: Aetna’s profit matched estimates and its revenue beat. The insurance company hiked its full-year profit outlook, but it is still below the street’s forecast. This as it has seen membership and revenue increase. Shares at Aetna (NYSE:AET) today up 2 percent to $94.18.

Investors were pleased with “The New York Times’” quarterlies. The Gray Lady beat on the top and bottom lines as digital growth offset continued weakness in its print business. Overall ad revenue for the year fell by the smallest amount seven-tenths of 1 percent since 2005. Shares jumped more than 7.5 percent today to $13.73.

Gilead’s profits quadrupled as its high-priced hepatitis C treatments helped lift the drug maker’s results. The company also initiated its first quarterly payout, a dividend of 43 cents a share, with a yield of about 1.5 percent and it approved a $15 billion buyback program. Shares initially fell after hours. Before the close, the stock was up about 1 percent to $107.18.

Chipotle’s revenue jumped more than 25 percent, but that was not as much as Wall Street had hoped. The burrito maker’s earnings did meet estimates, as the chain raised menu prices by an average of 6 percent in the third quarter because of higher ingredients costs. Shares, though, tumbled initially after the bell, as you see very vividly there. Shares were up about 2 percent during the regular trading session to finish $726.63.

HERERA: This is a name pretty much everybody knows and it’s a business that has fallen on hard times, RadioShack. The New York Stock Exchange has halted the stock and has taken action to delist the shares of the troubled retailer. As we’ve been reporting, a number of problems got the company to this point but as Morgan Brennan reports, RadioShack’s pain could be a gain for others.

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): More pain for RadioShack. Once considered the go-to shop for engineers and tech wizards, the struggling consumer electronic retailer has failed to successful adapt to changing consumer habits, as competition from other retailers’ e-commerce site has cut into sales.

The 94-year-old company has been hemorrhaging money, reporting losses each of the past 11 quarters. And the last week, it received a second notice of default on its credit agreement. The bankruptcy is widely expected to be filed any day now.

(on camera): RadioShack’s largest investor, hedge fund Standard General, could become the stalking horse bidder in a court supervised auction of the company’s assets. Those assets include 4,300 stores like this one that are operated by 27,000 employees. As many as half of those locations could close.

(voice-over): And potential buyers have already reportedly begun to surface, including one of the very companies that’s taken market share from the retailer, Amazon (NASDAQ:AMZN). Analysts say such a move could give Amazon (NASDAQ:AMZN) a brick and mortar presence to peddle its mobile devices. But the bigger benefit may be faster delivery of packages.

ROBERT PECK: At the end of the day, Amazon (NASDAQ:AMZN) is really a logistics company, and having these physical presence could help with distribution, same-day delivery, pushing further and further to local commerce.

BRENNAN: Sprint may also be interested. The wireless carrier has reportedly been holding talks with RadioShack about co-branding some stores and analysts believe more bidders could still emerge.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan in Ft. Lee, New Jersey.

(END VIDEOTAPE)

HERERA: Coming up, why low gas prices help Main Street businesses in more ways than one.

(MUSIC)

MATHISEN: And finally tonight, low gasoline prices are helping put extra cash in the pockets of consumers. Some choose to save it, others spend it and it’s the extra spending that is helping some main street business in more ways than one.

Kate Rogers (NYSE:ROG) reports.

(BEGIN VIDEOTAPE)

JOSEPH DUTRA, KIMMIE CANDY: I became a candy maker.

KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): For Joseph Dutra, Kimmie Candy Company, low gases mean boosted bottom line. The Reno, Nevada-based candy manufacturer and retailer says in the past few months, online sales have increased by 15 percent as the price at the pump continues to fall.

DUTRA: People have more money in their pocket to make those discretionary purchases like candy.

ROGERS: Quester Research reports that more than 75 percent of small and medium-sized businesses have been positively impacted by falling crude with 20 percent saving the cash, 19 percent investing in employees, and another 19 percent just operating as usual.

James Beito is sitting tight. His drivers burned 10,000 of gallons of fuel per week at his excavation contracting company Insearch Corp in Tempe, Arizona. Low gas prices are helping now, but what matters more for future job is whether this will stay.

JAMES BEITO, INSEARCH CORP: We are benefitting now and it’s just catching up from the past several years.

ROGERS: But Dutra is thinking ahead, projecting lower prices if crude continues to slide.

For NIGHTLY BUSINESS REPORT, I’m Kate Rogers (NYSE:ROG).

(END VIDEOTAPE)

HERERA: And that’s NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for watching.

MATHISEN: And I’m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. We’ll see you back here tomorrow night

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) 2015 CNBC, Inc.

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