Transcript: Nightly Business Report — May 4, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Recipe for a turnaround. How McDonald’s (NYSE:MCD) new CEO plans to shake off years of sliding sales and traffic.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: New role. Dow component Cisco (NASDAQ:CSCO) does something it hasn’t done in nearly two decades.

HERERA: And weekend with Warren. What the Oracle (NASDAQ:ORCL) of Omaha said about stocks, bonds and the topic that put Buffett on the defensive.

All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, May 4th.

MATHISEN: Good evening, everyone. And welcome.

Big changes are coming to two very, very large companies. McDonald’s new CEO unveiled a massive global turnaround plan, one that he says will revive the business and one that shareholders hope will revive the stock price. Now, fellow Cisco (NASDAQ:CSCO), longtime CEO John Chambers is stepping down after 20 years in the top job. Cisco (NASDAQ:CSCO) veteran Chuck Robbins is in, bringing to an end, one of Silicon Valley’s longest CEO runs.

Now, McDonald’s (NYSE:MCD) investors weren’t impressed. They sent shares lower today. Cisco (NASDAQ:CSCO) managed to rise fractionally, as you see there.

We’ve got two reports for you tonight. Josh Lipton with more on Cisco’s new leadership. But first, Courtney Reagan looks at the new strategy for the world’s biggest burger chain.

(BEGIN VIDEOTAPE)

COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The Golden Arches have been a little tarnished in recent quarters. It’s going to take a lot to turn around the world’s largest restaurant chain, but today, McDonald CEO Steve Easterbrook is detailing at least the initial strategy, two months after taking over the top job.

STEVE EASTERBROOK, MCDONALD’S CEO: The reality is our recent performance has been poor. The numbers don’t lie, which is why, as we celebrate 60 years at McDonald’s (NYSE:MCD), I will not shy away from the urgent need to reset this business.

REAGAN: McDonald’s (NYSE:MCD) will sell 3,500 restaurants to franchisees, taking global franchisee ownership to 90 percent from 81 percent, which Easterbrook says will generate more stable and predictable revenue and cash flow stream.

The fast food chain will cut layers and bureaucracy, finding $300 million in annual cost savings by the end of 2017. McDonald’s (NYSE:MCD) will reorganize its business units into four segments, based more on growth opportunities than geography. Further, McDonald’s will return $8 billion to $9 billion to shareholders this year.

Less define but still stated admissions include improving food quality and brand perception, bringing the customer voice back into the business and being bolder and faster with innovation.

(on camera): Easterbrook said the company is amping up consumer choices, from how you order to what you order. McDonald’s (NYSE:MCD) is testing new menu items like taste-crafted sandwiches where customers can choose beef or chicken. Choosing between three roll types and four different flavors.

DAVID PALMER, RBC CAPITAL MARKETS MANAGING DIRECTOR: From here, we would expect to see sales improve gently through the year. Second half recovery in sales. Perhaps not a powerful one, but we see this story being an improvement story in the second half and that continuing into ’17, as they get some of this restructuring done over the next couple of years.

REAGAN (voice-over): Competition in the fast food and fast casual ding space is as intense as it’s ever been. Ultimately, analysts say, winning the consumer will come down to the perfect combination of taste, value and experience.

For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.

(END VIDEOTAPE)

(BEGIN VIDEOTAPE)

JOHN CHAMBERS, CISCO CEO: We talk about changing the world back in 1993, changing the way the world works, lives, earns and plays. It’s now happening on steroids.

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It is the end of an era in Silicon Valley. Cisco (NASDAQ:CSCO) announced that John Chambers will be stepping down from his role as CEO. Chambers has held that position since 1995. Analysts who cover the company praise him for the passion that he brought to the tech bellwether which makes equipment that directs data traffic across the Internet.

Chambers will assume the role of executive chairman in late July.

CHUCK ROBBINS, NEXT CISCO CEO: Am I doing what I would imagine I’m doing at this stage of my life? Absolutely not.

LIPTON: His replacement is Chuck Robbins, who has worked in several management roles at the company. Most recently, he was the senior vice president of worldwide operations. In a conference call, Robbins said he was humbled and honored by the appointment.

Robbins does have a challenging task ahead of him, though. RBC says that Cisco (NASDAQ:CSCO) is facing a range of competitive threats on a number of fronts, Juniper in networking, Arista in switching and Palo Alto Networks (NASDAQ:PANW) in security to name just a few. They say Cisco (NASDAQ:CSCO) needed an insider like Robbins who understands the company’s culture and can help steer the networking giant through this challenging period with a steady hand.

Analysts also mentioned another hope with this change in the c-suite, greater capital return.

MICHAEL GENOVESE, MKM PARTNERS ANALYST: The company that does about a billion a quarter in buybacks and another billion a quarter in dividends, I think most investors think that can go to $3 billion to $4 billion a quarter from $1 billion to $2 billion in cash returns.

LIPTON: Cisco (NASDAQ:CSCO) stock is up nearly 20 percent in the past 12 months. Can Robbins keep the momentum going? Only time will tell, but investors could have a better sense when the Silicon Valley Company reports earnings next week.

For NIGHTLY BUSINESS REPORT, I’m Josh Lipton in Silicon Valley.

(END VIDEOTAPE)

MATHISEN: With John Chambers staying on as executive chairman, that could present a unique of challenges to Cisco’s new CEO. We’ll have that story for you a little later in the broadcast.

HERERA: On Wall Street today, the S&P 500 closed just shy of a new record. Helping sentiments, factory orders, they rose more than 2 percent in March, the largest increase in eight months. The Dow Jones Industrial Average was up 46 points to close at 18,070, the NASDAQ rose 11 points, and the S&P 500 was higher by six.

MATHISEN: Warren Buffett’s shareholder meeting this past weekend set a new attendance record.

And while the event was full of the usual fun and games, the billionaire investor also fielded more serious questions about the markets, and about some of his most recognizable investments.

Becky Quick spoke to the world’s most famous investor and has more from Omaha.

(BEGIN VIDEOTAPE)

BECKY QUICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The most frequently asked question of Warren Buffett, where is the stock market? Where is it headed from here? It’s something that he’s called occasionally over the last 60 years in his career, but right now, he says that’s much more difficult to do and that’s because it all depends what happens to interest rates.

WARREN BUFFETT, BERKSHIRE HATHAWAY CHMN & CEO: The market against normal interest rates is on the high side of valuation. Not dangerously high but on the high side of valuation.

On the other hand, if these interest rates were to continue for ten years, stocks would be extremely cheap now. And one thing you can say is that stocks are cheaper than bonds.

QUICK: One of the companies that you told me you’ve been buying more stock in is IBM. You told me that on Saturday, that in the first quarter, you bought more shares. We’ll see that coming out in SEC filings soon. What do you see happening over the long haul?

BUFFETT: Well, I think 10 years from now, they’ll be earning a fair amount more money than they are now and I think they’ll have a fair amount fewer shares, so our percentage ownership will be up, and I think we’ll make considerable money. I can always be wrong on any stock. But that’s my best estimate. I felt that way when we started buying it a few years ago. And gain, a billion and 165 million or something like that, shares out now then. They have 195 shares out now, so our interest has gone up by 15 or so percent without us laying out a dime in that respect.

QUICK: The other issue that seemed to come up a lot was concerns about changing tastes, consumer tastes in the food industries that Berkshire owns major stakes in. Companies like Kraft (NYSE:KFT), companies like Coca-Cola (NYSE:KO). People concerned about whether this food is good for them. And that’s something that millennials in particular have been thing about.

BUFFETT: There’s 1.9 billion 8-ounce servings of Coca-Cola (NYSE:KO) products served around the world today. And there will be more than 1.9 billion a year from now and more than that five years from now and more than that 10 years from now. That’s been true, and some people like other things, and if they like broccoli and Brussels sprouts, God bless them, but don’t invite me for dinner.

(LAUGHTER)

QUICK: In all seriousness, Buffett does admit that consumers’ tastes can change over time, but he says the companies he’s involved with, like Coca-Cola (NYSE:KO) and Kraft (NYSE:KFT) are doing their best to make sure they stay ahead of those changing times and he has their full confidence in their ability to do just that.

For NIGHTLY BUSINESS REPORT, I’m Becky Quick from Omaha, Nebraska.

(END VIDEOTAPE)

HERERA: Buffett also said he would short the 30-year bond if he could and has no regrets over picking IBM over Apple (NASDAQ:AAPL).

Joe Tanious joins us to discuss what Mr. Buffett had to say on stocks, bonds and the market.

Good to see you again, Joe.

JOSEPH TANIOUS, BESSEMER TRUST INVESTMENT STRATEGIST: Good to see you, Sue.

HERERA: Let’s start, first of all, with what he said about the bond market. He said he’d short the 30-year if he could. Do you agree with that play?

TANIOUS: You know, I understand his positioning. What he’s essentially saying is that interest rates right now are incredibly low and, you know, odds are for a long-term investor, that they’re probably going to go up rather than go down. Of course, one of the ways that you want to take advantage of that is just having a short position in the bond market.

So, I agree with taking an underweight position there.

MATHISEN: He also said as you probably heard there that if interest rates were normalized, stocks would be highly overvalued or overvalued at today’s prices. If rates stay low, they look like a bargain to him. How do you see stocks?

TANIOUS: I think Buffett, again, is thinking about it the right way. You have to consider valuations within the context of where interest rates are and, of course, when interest rates stay incredibly low, it just becomes a more profitable environment for companies. Think about borrowing costs, think about inflation, think about rates in general.

And broadly speaking, when interest rates are very low it’s a good thing for companies and interest rates are and, of course, if interest rates are much higher, it becomes more of a problem.

So, his perspective in saying that stocks today are not as expensive because interest rates are low I think is dead on.

MATHISEN: In the past, you’ve said that you don’t think the Fed is going to move on rates until the latter part of the year. Do you still agree with that?

TANIOUS: I do. I do. I think the Fed’s — they have a dual mandate and are focused on two things. One being the labor market and the other being inflation. I think we’ve seen a lot of signs that the labor market is healing. Things are clearly moving in the right direction. It’s not perfect. They’re moving in the right direction.

And inflation, in our view is firming. I suspect that, as the U.S. economy continues to heal, the Fed no longer needs to keep giving it medicine. I suspect that some point later this year, probably in the back half of this year, you’re going to see the Federal Reserve putting the U.S. economy back on a path towards normal, which means raising interest rates.

MATHISEN: As you look at the U.S. market most particularly, what, if any, sector feels like the one that offers the best opportunity today for the next year to two?

TANIOUS: You know, as I look at the U.S. economy, clearly heading out of a rough patch, if you will, in the first quarter of this year, a lot of it due to weather, I think you’re going to see a lot of pent-up demand coming into the second quarter, on the back half of this as the consumer finally goes out and starts to spend all of that money that they were essentially holding on to.

Also, you had this tailwind, if you will, from lower oil prices, which we haven’t really seen materialize into spending. We’ve seen it turn into savings. I suspect in the back half of this year, we’re going to see spending pick up, and I want to be focused on sectors that stand to benefit from increased spending on the consumer side. Think of cyclicals, think of consumer discretionaries —

HERERA: OK.

TANIOUS: Even consumer staples to an extent.

HERERA: Joe, thank you, as always.

TANIOUS: Thank you.

HERERA: Joe Tanious with Bessemer Trust.

Ty?

MATHISEN: Still ahead, Sue, got milk? What the country’s biggest milk producers doing to make the beverage relevant again.

(MUSIC)

MATHISEN: Pimco’s flagship total return fund lost its title as the largest bond mutual fund to the Vanguard Group. According to April data released by both companies and as reported in “The Wall Street Journal”, Vanguard’s total bond market index fund had $117 billion in assets as of the end of last month. Pimco’s total return fund, $110 billion.

HERERA: As we reported a bit earlier in the broadcast, Cisco’s John Chambers is stepping aside as CEO, but he’s not going away. He will remain as chairman of the firm he ran for 20 years. His continued presence may soothe some investors.

But as our Mary Thompson reports, it will also pose challenges for Chambers’ successor, Chuck Robbins.

(BEGIN VIDEOTAPE)

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): For 20 years, John Chambers served as chief evangelist and head architect of a firm whose stock climbed 1,400 percent under his watch. By stepping down as CEO and staying on as chairman, he can now provide important cover and counsel to his successor, Chuck Robbins.

JOSEPH BOWER, HARVARD BUSINESS SCHOOL: There are all sorts of aspects of the job that he’s going to have to learn. And the advantage is having a great teacher around.

THOMPSON: Still, Chambers’ continued presence at the firm could create problems according to Professor Joe Bower.

BOWER: When the previous CEO stays on, it always makes it harder for the new CEO to make changes, particularly if the new CEO has in mind dramatic changes.

CHAMBERS: Cisco (NASDAQ:CSCO)!

THOMPSON: As executive chairman, Chambers will likely be in the office every day. And unless he checks his ego at the door, experts say he may resist changes Robbins needs to make at the company Chambers built. His presence might also be seen as a constant threat to Robbins.

Professor Kathryn Harrigan saying the board could easily turn to Chambers if Robbins stumbles.

KATHRYN HARRIGAN, COLUMBIA BUSINESS SCHOOL: There will be nonexecutive meetings of the board where the chairman will stay and they’ll talk about the CEO, and if he feels like he wants to get back in, he could easily have the rest of the board, who is probably in awe of him anyhow, rubber stamp the idea that the current CEO should be shunted aside.

THOMPSON: Former CEOs cast long shadows. Remember Starbucks (NASDAQ:SBUX) chairman Howard Schultz returned to CEO following the disappointing run for the coffee chain. And while he’s no longer CEO, Oracle (NASDAQ:ORCL) Chairman Larry Ellison remains the face of the software firm he founded.

(on camera): Executive coach Mark Nadler saying best practices dictate a former CEO should probably stay on as chairman for a year or less than leave.

(voice-over): Nadler citing Steve Ballmer’s resignation as Microsoft’s chairman less than a year after stepping down as CEO as being exemplary. This gave successor Satya Nadella the freedom to plot a new and clear course for the software firm. Chambers’ future, however, is less clear. Cisco (NASDAQ:CSCO) says his term as chairman is indefinite, something that could definitely create problems for Robbins.

For NIGHTLY BUSINESS REPORT, I’m Mary Thompson.

(ENDVIDEOTAPE)

MATHISEN: Well, Comcast (NASDAQ:CMCSA) (NYSE:CCS) earnings and revenue top estimates and that’s where we begin tonight’s “Market Focus”.

The company’s broadband division logged its strongest revenue growth in more than four years. Comcast (NASDAQ:CMCSA) (NYSE:CCS) also announced it’s going to spend another $2.5 billion buying back shares this year. Shares were up a fraction to $58.78. Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent of CNBC, which produces NBR.

Cablevision meanwhile said its video subscriber losses in the first quarter doubled from a year ago. Still, the cable operator managed to beat on the top and bottom lines. Shares up a nickel to $20.44.

Sue?

HERERA: Cognizant Technology, Ty, Solutions saw its profits rise as revenue increased in its financial services and its health care segments. After beating analyst expectations, the firm upped its earnings and sales outlook for the full year. Shares popped 6 percent to $62.78.

Strong ad sales helped AMC Networks post results that blew past estimates. Earnings were up almost 70 percent, on the success of the TV network’s original programming. Shares moved higher by almost 5 percent to $80.02.

MATHISEN: McDonald’s (NYSE:MCD) — and we talked about a few moments ago — isn’t the only company in the food business trying to plot a turnaround, so is the Dean Foods (NYSE:DF). That’s the largest milk producer in the country. After a sharp drop in consumption, the company has a plan to get people drinking it again.

Jane Wells has more from City of Industry, California.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): Remember this stuff? It’s called milk. When’s the last time you had a glass?

RALPH SCOZZAFAVA, DEAN FOODS CHIEF COMMERCIAL OFFICER: This is a category that really needs innovation and news.

WELLS: Milk consumption has been falling for decades, at least cow’s milk. Sales of plant-based milk especially almond are rising.

Now, the nation’s largest milk producer is trying to move the trend back.

UNIDENTIFIED FEMALE: OK, class. Who can tell me if —

WELLS: Dean Foods (NYSE:DF) has launched the first national milk brand called Dairy Pure. By combining milk from its more than 30 regional dairies under one brand, Dairy Pure automatically becomes a $2.5 billion brand. One of the largest consumer package goods lines in the country.

UNIDENTIFIED MALE: This is running about 100 jugs a minute.

WELLS: Chief commercial officer Ralph Scozzafava is helping to lead the change. Inside the Altadena Dairy the company owns in California, he says, in a unique twist, the company does not want to lose regional brand equity. So, Dairy Pure labels will be co-branded with the local brands. It’s a similar strategy the company did with true moo chocolate milk which is number one.

SCOZZAFAVA: That brand is a $700 million business for us, on its way to a billion. And that’s really our goal for it.

WELLS (on camera): This is all happening as milk prices fall due to a glut. So, Dean Foods (NYSE:DF) is spending heavily to promote milk as a good source of protein and vitamin C without antibiotics, and from cows that have had no artificial growth hormones.

SCOZZAFAVA: This will be category leading spending. It probably the most that’s been spent against fresh white milk in many years if not ever.

WELLS: I take it it’s a seven-figure ad spend?

SCOZZAFAVA: Yes, yes. Thanks for asking.

WELLS (voice-over): Scozzafava says creating one national brand makes it easier for grocery stores by providing one bar code and the opportunity to partner with other national brands.

SCOZZAFAVA: I think cookies and milk is just so natural, it’s unbelievable. Pick your favorite brand.

WELLS (on camera): How you reached out to that favorite brand?

SCOZZAFAVA: I think the reaching out has gone back and forth. Yes. So, we’re in process. So, more to come. It will be exciting.

WELLS: The hope is to make milk something more than you pour on your cereal or in your coffee to make milk cool. It’s a big gamble.

COMMERCIAL AD: Starts pure. Stays pure. Dairy Pure. Like moo.

WELLS: For NIGHTLY BUSINESS REPORT, Jane Wells, City of Industry, California.

(END VIDEOTAPE)

MATHISEN: Earlier in the program, we heard from Warren Buffett himself at the annual gathering of Berkshire Hathaway (NYSE:BRK.A) shareholders where he was surrounded by 40,000 people who wanted to hear him give advice, which he did. But this year, the questioning got a little bit more serious.

And with us is someone who’s covered Mr. Buffett for years. He’s senior special correspondent at “Fortune” magazine, she’s NBR contributor — there she is — Susie Gharib.

Welcome back.

HERERA: She’s back.

MATHISEN: Nice to have you here.

SUSIE GHARIB, FORTUNE: Great to be here. What a weekend this was.

MATHISEN: Yes.

GHARIB: You said 40,000, so — it gets bigger and bigger every year.

MATHISEN: What was different this year?

GHARIB: First of all, it used to be when I first started doing this ten years ago, mostly American investors, and now, very international, a lot of Asians. There was a big Chinese delegation that came over to Omaha to meet with Warren Buffett. And, you know, the other thing is you used to have to own at least one share of Berkshire Hathaway (NYSE:BRK.A) stock to get into this meeting. It’s an exclusive club.

HERERA: And now?

GHARIB: You can buy tickets.

HERERA: Really?

GHARIB: So, it’s just a sign that it’s gone very mainstream America. They all want to learn how to invest like Warren Buffett and have fun doing it. That’s a good thing.

HERERA: Yes, the succession always comes up. And he’s in his almost middle 80s now. So —

GHARIB: Eighty-five in August.

HERERA: That’s fantastic.

GHARIB: He’s amazing, high energy.

HERERA: He always is. But what about the succession issue? Was it more serious this year or less serious?

GHARIB: I think, Sue, it’s gotten to the point where they’re not so worried about the actual name who it is, but is this person going to preserve the culture, the corporate culture. You know, we have CEOs always talking about our culture, but in the case of Berkshire, it’s about core values, about trust and ethics and lead, by example.

So, they want someone who is going to preserve that culture and presumably, they’ve got a lot to choose from. There are 80 CEOs in Berkshire Hathaway (NYSE:BRK.A). They all know the Buffett way. So, I think they’ll probably come up with somebody —

MATHISEN: These gatherings traditionally have been pretty adulatory toward Mr. Buffett.

GHARIB: Yes, it’s a love fest.

MATHISEN: But I gather this year that there were some questions that were very pointed specifically with respect to his and Berkshire’s relationship 3G, a private equity investment firm, whose tactics once they take over companies can be pretty rough-elbowed.

GHARIB: Right. And there were a lot of questions about 3G Capital. And you’re right now, they’re more serious, they’re tougher questions, more sophisticated.

And the issue with 3G was, they partnered with Buffett. They bought Heinz ketchup, as you know, recently Kraft (NYSE:KFT) foods. When it came to Heinz Ketchup, they laid off a lot of people. One shareholder, a woman, asked this question, are you moving away from aspiring to balance — her words, “capitalism with compassion”, because the Buffett way is you buy a company, you let them do their own thing, very decentralized. But you don’t go in and, you know, start chopping up the staff.

HERERA: And you hold it for a long time.

GHARIB: And you hold it for a long time, and we’re not sure about what the business principles of 3G are. So, a lot of concern about that.

Is it just making money or is it making money and also building a company you’re proud of?

MATHISEN: Yes. Susie, great to see you.

HERERA: Good to see you.

MATHISEN: Thanks for covering the event for us. We appreciate it.

HERERA: When we come back, behind the scenes with the winner of the Kentucky Derby at the moment that American Pharoah won the race for the roses.

(MUSIC)

HERERA: Floyd Mayweather and Manny Pacquiao was called the fight of the century. But the real battle wasn’t in the ring. Instead, it was between traditional media giants and cutting-edge start-ups.

Julia Boorstin has more.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: New live streaming technology is changing the game. Some of those watching the fight in the flesh or via $100 pay-per-view from Showtime or HBO livestreamed it via Twitter startup Periscope and its rival Meerkat.

Twitter CEO Dick Costolo tweeting, “And the winner is Periscope.”

The big fight put the livestreaming app on the map but Periscope and Costolo came under attack for enabling piracy. Though Periscope and Meerkat said copyrighted content will be removed from their site.

On the defense, Periscope CEO Kayvon Beykpour tweeting, “Piracy does not excite us. Trust me, we respect IP rights and had many people working hard to be responsive last night, including myself.”

Industry watchers are saying Periscope drew so many eyeballs because the fight cost $100. If it had just cost $5 or $10, fewer people might have turned to piracy.

And cable companies didn’t win any fans from the fight Saturday. Several providers struggled with issues because they were so inundated by the flood of pay-per-view requests, which delayed the start of the fight.

And those cable operators won’t just be fighting Periscope. Entrepreneur Slava Rubin predicts other Internet giants will also get into livestreaming.

SLAVA RUBIN, ENTREPRENEUER: With Mayweather, they did a great job at hype. I think that that industry right now is doing a great job at hype. And Dick Costolo is fueling it. And yesterday’s news, I think it will be functionality that integrated into e-social media company, and they’ll try to figure out how they want to monetize it as one of their features.

BOORSTIN: And in the meantime, we’ll be watching for more legal action from HBO and Showtime which filed a federal lawsuit last week and blocked two piracy sites from showing the match live for free.

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

(END VIDEOTAPE)

MATHISEN: Meantime, Corinthian Colleges (NASDAQ:COCO) has filed for Chapter 11 protection, as we reported last week. The for-profit college closed its remaining 28 campuses, affecting 16,000 students. At its peak, the company operated 120 colleges with more than 110,000 students across the country.

HERERA: Finally tonight, American Pharoah won the Kentucky derby. On Friday’s program, we introduced you to his owner. And on Saturday, our cameras were there when his horse crossed the finish line.

Robert Frank has more.

(BEGIN VIDEOTAPE)

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): The most exciting two minutes in sports was exactly that on Saturday. Kentucky Derby favorite American Pharoah did not disappoint the record breaking crowds at Churchill Downs (NASDAQ:CHDN) for the 141st run for the roses.

The undefeated 3-year-old thoroughbred raced past his undefeated stablemate Dortmund in the final stretch and outpaced Firing Line by one length. It’s the first time his owners Ahmed and Justin Zayat have ever won the race.

AHMED ZAYAT, HORSE OWNER: I still can’t believe it, OK?

JUSTIN ZAYAT, HORSE OWNER: I feel like I’m dreaming right now. So, don’t wake me up.

(LAUGHTER)

FRANK: A big win for Zayat, who has been racing horses for 10 years. Before racing, Zayat owns the largest beverage company in the Middle East. The winners bring home the roses, the trophy and $2 million in prize money.

AHMED ZAYAT: Hopefully, next year, the Preakness.

JUSTIN ZAYAT: Yes, Baltimore.

FRANK: American Pharoah is now the favorite in the Preakness in two weeks. The second leg of the Triple Crown.

For NIGHTLY BUSINESS REPORT, I’m Robert Frank.

(END VIDEOTAPE)

HERERA: And that’s it for NIGHTLY BUSINESS REPORT. I’m Sue Herera.

MATHISEN: And I’m Tyler Mathisen. Thanks for joining us tonight. See you 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) 2015 CNBC, Inc.

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