SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: The force awakens Disney’s results. But does the company need more than blockbuster movies to keep its shares climbing?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Risky business. Utility stocks are the best performers so far this year. They’ve got fat yields, and they’re considered safe. So, what can go wrong? Plenty.
HERERA: Going to the polls. Why the number one issue on the minds of New Hampshire voters may be neither jobs nor the economy.
All that and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, February 9th.
MATHISEN: Good evening, everyone, and welcome.
The force was strong. Disney (NYSE:DIS) reported its best quarter ever. Profits hit record levels, thanks to the global success of its latest “Star Wars” movie and all that merchandise tied to it.
Let’s get right the results. The entertainment company earned a buck 63 a share. Expectations were for $1.45. That’s a 28 percent profit gain from last year. Revenue, up to more $15 billion. Also better than expected, a 14 percent increase from a year ago.
But despite the strong results, Disney (NYSE:DIS) also reported a drop in profit at its cable networks and that may have pressured shares in after-hours trading.
Julia Boorstin spoke to Disney (NYSE:DIS) CEO Bob Iger has more on the company’s quarter.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Disney (NYSE:DIS) results beating on the top and bottom line. The company’s best quarter ever driven in large part by its movie studio and the success of “Star Wars: The Force Awakens”, bringing the movie studio its first ever quarter with over a billion dollars in earnings.
Bob Iger saying, though, it wasn’t just “Star Wars” and the movie studio that they’re seeing success across the board.
BOB IGER, DISNEY CHAIRMAN AND CEO: We also had over 20 percent growth from parks and resorts and consumer products. The media network was down but that because of the timing of college playoffs. So, we had four businesses that had a good quarter or good quarters. These are also historic numbers for the company. It’s the highest quarter in the history of the company. So, it was overall just a fantastic quarter for us.
BOORSTIN: Iger saying he’s not concerned about recent global economic volatility, but he’s confident that thanks to the investments, Disney’s been making that the company will be able to continue to deliver strong results.
Back over to you.
HERERA: Thank you, Julia.
Bill Smead is a long time shareholder of Disney (NYSE:DIS) and he joins us to give his outlook of the economy. He is CEO and chief investment officer of his own firm, Smead Capital Management.
Bill, good to see you again. Welcome back
BILL SMEAD, SMEAD CAPITAL MANAGEMENT CEO & CIO: Thanks for having us.
HERERA: Let’s start first of all of what your take is on the results. I mean, Bob Iger obviously thinks they’re pretty darn good.
What did you think?
SMEAD: Well, this is a very long duration and what they do is they create and cultivate and sometimes buy wonderful brands that are really targeted around being the most successful baby silting organization on the planet, we view it. So, they a child is born in the United States and now, many other countries and they’re automatically a customer? A sports fan where they have something like 200 million viewers, I think Bob Iger said today, each year in the United States alone, where they babysit males and many adult females.
So, it’s a great, long duration story, but what you’ve got here is people are just doing their math and they know that you climb to the top of the mountain with “Star Wars”. And in that particular division, the film division, it’s going to be difficult in the next 12 to 24 months to come close to that, and the history of their stock is coming off the top of that mountain correcting for a while, and then the normal progression of doing what they do so well, kicking back into gear.
MATHISEN: So, it feels to me as though you’re basically saying for the long-term investor, this would be a wonderful core holding.
SMEAD: Yes, it’s a great core holding. If you’ve never owned it before, it’s a time to begin working your way into it and if you already own it, it might be a pretty good time to have on weakness and again, in ten years, you’ll be really pleased that you did.
Here’s another thing that’s interesting. You know, a lot of people have been wondering what people are spending their gasoline savings on. Well, how about driving to the park — their parks — and driving to the movie theatre and then saving money on top of that on their driving because the gasoline cost is down so much.
HERERA: Right, we should note that you’ve been a long-term holder of this Disney (NYSE:DIS) stock between nine and ten years. What about the global problems that are out there? I mean, Disney (NYSE:DIS) is also opening its park in China. Europe, a lot of people say it’s going back into recession. And they have a big park outside of Paris as well.
Are you at all worried about their global exposure to either contagion or recession?
SMEAD: Well, first of all, I think their parks in Hong Kong and the one that’s going to open in Shanghai are smaller than their U.S. and probably their Paris park. So, let’s say you need 30 million people to visit the first year. So they’ve got to get about 2 percent of the people in China to come visit.
SMEAD: Right? So, it’s a different world.
And that’s what all of us have to remember — we find us in the United States with companies, too. Now, there’s 325 million people in the United States. You don’t have to get all 325 million to visit the park.
MATHISEN: Though, sometimes, if you’ve been to a Disney (NYSE:DIS) park, you think you’re all there.
SMEAD: The day that you’re there, it seems like they’re all there.
MATHISEN: Very quick question, Bill, on a scale of one to ten, with ten being very worried, one not being so worried, how worried are you, a quick answer, about cord-cutting, i.e., people not signing up for the full bundle and maybe walking away from ESPN on a scale of one to ten.
SMEAD: Every time there’s new major distribution channels in entertainment, be it the VCR, the cable, et cetera, Netflix (NASDAQ:NFLX), et cetera, there’s always a big panic that the new distribution system is going to deflate the industry and content always wins in the long run. And Disney (NYSE:DIS) is the content king.
HERERA: OK, so you’re not worried there. Thanks, Bill. Good to see you. Bill Smead with Smead Capital Management.
MATHISEN: All right. Disney’s fellow Dow component Coke saw its profit rise more than expected. The world’s largest beverage maker said that unit volumes worldwide up 2 percent in the final three months of last year. Growth in sales of Sprite and Coke Zero offset a decline in Diet Coke.
Despite the better than expected results, the chief operating officer says he sees challenges ahead.
(BEGIN VIDEO CLIP)
JAMES QUINCEY, COCA-COLA CHIEF OPERATING OFFICER: Clearly, there are some markets under pressure, whether that’s you know, Brazil, Russia, China, some of the oil exporting countries in the Middle East. We see continued pressure and volatility. But we’ve got a long track record of managing through volatility by focusing on our long-term game plan.
(END VIDEO CLIP)
MATHISEN: And in trading today, shares of Coca-Cola (NYSE:KO) were up 1.5 percent to $43.30.
HERERA: On Wall Street, stocks closed relatively flat, but that does not begin to describe the trading day which saw the Dow travel about 1,000 points. But when the closing bell rang, the Dow Jones Industrial Average fell 12 points, its smallest loss for the blue chip index this year. The NASDAQ dropped 15. The S&P 500 was off one.
Despite the lousy market this year, utilities have been hot, as investors look to stocks with decent yields. But these so-called “safer investments” can carry a lot of risks. Bob Pisani explains what could potentially go wrong.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Utilities are the best performers of the year, one of only two sectors in positive territory. What’s up? Well, there’s a couple of reasons everybody’s so hot suddenly for utilities.
First, they’re a yield play. Now, there are definitely is something here. Most utilities have a 3 percent to 4 percent dividend yield which are looking more attractive as bond yields have been dropping so far this year. But be careful, these stocks have a long history of dropping fast when the markets think interest rates are going up.
Will rates go up? Well, that’s hotly debated, but it’s a real risk.
Second, investors believe utilities are a safe play. The dividends are safe, but the stocks could easily go down. For these stocks to keep going up, you have to assume that rates will keep moving lower and you have to assume that investors will keep fleeing the broader market.
These are very big assumptions and it’s likely one or both of them won’t happen. That leaves me with my last problem with utilities. These stocks are expensive by historic standards. The P/E values for many names are at/or near historic highs — most of them north of 20. For a utility? Wow.
So, enjoy the moment that utilities are having, but be careful.
For NIGHTLY BUSINESS REPORT, I’m Bob Pisani at the New York Stock Exchange.
MATHISEN: It is decision day in New Hampshire. A half million voters trudging through snow and skidding on ice to cast ballots in the nation’s first presidential primary. A record turnout is expected and stakes a re high.
John Harwood has more from Manchester, New Hampshire.
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, tonight, New Hampshire voters give us the results of their first in the nation primary and bombastic billionaire Donald Trump, who did not win the Iowa caucuses, is poised to take first place here, if you can believe the polls.
Let’s take a look at the polling averages heading into Election Day. Trump with a substantial lead over a group of candidates bunched for second place. He’s around 30 percent. Below that level, you’ve got Marco Rubio, John Kasich, the governor of Ohio, Ted Cruz, Jeb Bush, the former governor of Florida, Chris Christie, all pushing for second place, hoping to get a burst of momentum here.
On the Democratic side, Bernie Sanders, the other outsider candidate in this race, is poised to defeat former Secretary of State Hillary Clinton. He’s had a substantial lead in some polls as low 9 percent, in others over 20 percent. Both sides agree he’s going to win. The question is whether or not Hillary Clinton can come close enough to slow his momentum.
On both sides, however, the bottom line is that we are headed towards extended nomination races as we move now to contests in South Carolina, in Nevada and throughout the southern tier of the United States. This is not what the party establishments on either side have wanted, but that’s what the voters are handing us.
For NIGHTLY BUSINESS REPORT, I’m John Harwood in Manchester, New Hampshire.
HERERA: For the first time since 2008, New Hampshire residents see a bigger problem for the state than jobs and the economy. Dina Gusovsky reports on the number one issue on the minds of those voters.
DINA GUSOVSKY, NIGHTLY BUSINESS REPORT CORRESPONDENT: America’s heroin and prescription painkiller epidemic has become a major issue.
SEN. BERNIE SANDERS (I-VT), PRESIDENTIAL CANDIDATE: Opiate addiction, and heroin addiction, we have got to get a handle on.
GOV. JOHN KASICH (R-OH), PRESIDENTIAL CANDIDATE: This disease knows no bounds.
GUSOVSKY: And for the White House.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Helping people who are battling prescription drug abuse, and heroin abuse.
GUSOVSKY: And perhaps nowhere is that concern more prevalent than in New Hampshire.
DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: Such a big problem. In fact, I hear it more here than I hear it any place in the country.
GUSOVSKY: A recent study found that a quarter of New Hampshire voters believe drug abuse is the most important problem facing the state.
SEN. JEANNE SHAHEEN (D), NEW HAMPSHIRE: We are losing a person a day in New Hampshire from overdoses, so it doesn’t surprise me to hear people say this is the biggest issue on their minds because it’s ravaging families. It’s hurting communities. Obviously, there are huge costs. There are costs in terms of lost productivity from people who are not able to do their jobs because they’re addicted.
GUSOVSKY: In fact, as much as 80 percent of employers are dealing with this issue. Opioid abuse costing the economy over $55 billion per year, with nearly half of that because of loss of workplace productivity.
The Obama administration is paying more and more attention to this problem. In fact, in 2015, the president only asked for about $133 million for fighting drug abuse and now, much bigger figure. The president wants $1.1 billion in 2016 to better deal with the epidemic. A big chunk of the money would go towards increasing funding for treatment programs.
ANDREW KOLODNY, PHYSICIANS FOR RESPONSIBLE OPIOID PRESCRIPTIONS: The epidemic has become so severe, that it’s possible now for policymakers or the media or the public or voters in states with primaries to ignore the problem.
GUSOVSKY: For NIGHTLY BUSINESS REPORT, I’m Dina Gusovsky.
MATHISEN: Still ahead, rolling the dice. Will the Chinese New Year bring good fortune to a city that’s banking on it?
HERERA: A bit of a warning from the International Energy Agency. In its monthly report, the organization says the global oil glut will likely grow even bigger throughout the year. It added that a production cut is unlikely and it doesn’t see how oil prices can rise significantly in the short-term.
Today, the price of domestic crude fell to nearly 6 percent to settle below $28 a barrel. And it’s those low oil prices that prompted Anadarko Petroleum (NYSE:APC) to cut its dividend by more than 80 percent to five cents a share. The company said the move is appropriate given the current environment.
MATHISEN: A near record number of jobs were advertised in December and more Americans quit. Two signs the labor market continues to strengthen. The government reported more than 5.5 million job openings at the end of last year. That’s the second highest level ever. More than 3 million quit their jobs, which typically means they found better paying positions.
HERERA: The auto sector of the economy has also been doing well, but with auto sales at record levels. No data though about loans are raising concerns about the health of the American consumer. There’s more borrowing by those with the weakest credit scores.
And as Phil LeBeau reports, there are more loans going past due.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: With auto sales running at a record high, it’s not surprising the amount of auto loans opened in the U.S. has soared.
Experian, which tracks auto financing, says Americans now hold almost a trillion dollars in auto loans, with the biggest growth coming in the lower end of the market. In the fourth quarter of last year, there was a 9 percent increase in loans to those with subprime credit ratings.
The increase was even greater for deep subprime borrowers who have some of the worst credit records in the U.S. While there are more loans to those with poor credit histories, Experian believes lenders are generally doing a good job managing the risk.
But are auto loans being repaid on time? The data is mixed. Late last year, there were fewer loans a month past due, but an increase in two months delinquencies.
Experian admits the numbers are worth keeping an eye on, especially if the U.S. slides into a recession and the unemployment rate rises. Historically, that’s when people start defaulting on their auto loans and more cars and trucks are repossessed.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
HERERA: And to read more about rising auto loan delinquencies specifically, head to our website, NBR.com.
MATHISEN: In Washington, the president set to Congress his final budget, copies arrived on Capitol Hill today. The budget proposes a record level of spending, more than $4 trillion — on everything from combating cancer and global warming to fighting terror groups.
Eamon Javers has been digging through that big tomb there.
Eamon, what are some of the highlights?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes, hi, Tyler. Well, a big top line number is $4.15 trillion. That’s the amount of federal outlays the president would like to see in 2017. In terms of receipt, well, that’s $3.64 trillion. That adds up to a budget deficit of about $500 billion.
Now, take a look at some of the highlights here. All of this is sort of President Obama’s wish list for 2017. But when you look inside, what you’ll see are items, like, he wants to double the funding for the SEC and the CFTC by 2021. He wants to impose a $11 billion financial fee over 10 years on the liabilities of large U.S. financial firms.
He’s also got $19 billion in there in spending on cybersecurity, over $11 billion in funding to hunt down terrorists. Also a billion dollars for that moon shot to cure cancer, that you’ve heard the president talking about. And a billion dollars to expand prescription drug abuse treatment access.
So, a whole lot of Obama priorities in there, Tyler. The question is whether Republicans on Capitol Hill are going to do anything about it.
MATHISEN: Yes, you know, Eamon, along those lines, you know, he might be able to get the cybersecurity through, because everyone is concerned about that, and we’ve had a lot of breaches. But some of those other items I think are going to run up against some resistance. So, how likely is all of this to go into effect?
JAVERS: Well, I think, you know, you start from zero and you go not much further than that with his budget. I mean, the Republicans on Capitol Hill have already done historic firsts here. They have snubbed the president’s budget director. They are not going to hold a hearing in the budget committees on Capitol Hill with the head of OMB, which is something Congress has done every year since 1975.
This year, Republicans on the Hill say they simply don’t need to hear from President Obama and his team on their budget. They’ve got this, they’re going to pass their own budget and thank you very much, Mr. President.
MATHISEN: Let’s talk about the $111 billion fee on the liabilities of the nation’s bank. What would that cover and wouldn’t that basically make banks less willing to put capital into the market in the form of loans?
JAVERS: Yes, that will be one of the big questions about this. What they’re saying is it’s a seven basis point fee on the liabilities of large financial firms. They’re saying that that’s, the 100 firms with assets of more than $50 billion. So, the biggest of the big.
But it’s a big fee. It’s $111 billion. Obviously, all that money’s got to come from the bank’s pocket and they are not going to like it.
MATHISEN: All right. Eamon, thank you very much. Eamon Javers reporting tonight from Washington.
HERERA: Viacom (NYSE:VIA) sees its profit drop 10 percent in its latest quarter. But that’s where we begin tonight’s “Market Focus”.
The media company said weak ad sales and a steep operating loss at its Paramount Pictures unit contributed to the decline. The owner of MTV and Comedy Central underwent a significant leadership change last week when it named current CEO Philippe Dauman as the new executive chairman, replacing Sumner Redstone. Shares fell more than 21 percent today to $32.86.
Deutsche Bank’s co-CEO John Cryan, I should say, aimed to reassure investors today that the lender remained stable amid investor concerns over the health of European banks. In a surprise memo, he said Deutsche Bank’s balance sheet remains, quote, “absolutely rock solid”. Cryan’s comments failed to appease investors and shares fell a percent to $15.38.
Sears (NASDAQ:SHLD) is accelerating its plans to close at least 50 more stores and consider additional staff cuts due to what the company calls a challenging holiday season. The retailer saw its comparable store sales fall by nearly 7 percent in its latest quarter. Shares of Sears (NASDAQ:SHLD) fell nearly 9 percent to $15.25.
MATHISEN: The fast food chain, Wendy’s, reported better than expected earnings held by the new promotions and restaurant renovations. Four quarter sales increased by almost 5 percent at its North American location, but investor, not impressed. Wendy shares were down more than 4 percent to $9.71.
And Masco (NYSE:MAS), which makes products for home improvement, saw its shares rise after the company issued higher than expected earnings. Masco’s cabinet and plumbing segments each had a five percent jump in sales last quarter. The company recently declared a quarterly dividend, which was paid out yesterday. Masco (NYSE:MAS) shares rose more than 8 percent on the day to $25.39.
HERERA: Violence hits the streets of Hong Kong. Clashes erupted in the city when authorities tried to remove illegal street vendors selling local holiday delicacies for the Lunar New Year celebration. Well, the police fired warning shots into the air, protesters threw bottles and trash at the officers. The violence is the worst in Hong Kong since the pro-democracy protests in 2014.
MATHISEN: Chinese New Year is big business in Las Vegas. But with the world’s second largest economy slowing, will the Chinese come to Vegas this year?
Jane Wells explains why the stakes are high for Sin City and a number of gaming companies.
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Vegas is putting it all on red this week, hoping the Chinese new year brings good fortune.
The Lunar New Year is one of the top three or four moneymakers in Las Vegas, but last year, baccarat, the game of choice for Chinese high rollers, saw revenues in Nevada for the holiday drop 24 percent. Have they bought them?
BILL LERNER, UNION GAMING SECURITIES MANAGING DIRECTOR: We’re seeing declines. We’re going to continue to see declines, but I think the match, I characterize it as less bad.
UNIDENTIFIED MALE: We think it will be flat when it’s all said and done. We’re hopeful.
WELLS: It’s hard to measure how many Chinese tourists come to Las Vegas since there are no direct flights.
LERNER: We think something like 65 percent or 70 percent of all Chinese inbound flights to the U.S. had Las Vegas on their itinerary and most of that is not to gamble in a notable way.
WELLS: Are you going to do any gambling?
BILL HORNBUCKLE, MGM RESORTS PRESIDENT: I think the brothers are doing that.
WELLS: Overall, Las Vegas has been a bright spot for gaming companies, which have seen a significant downturn in Macau, thanks in large part is the low gas prices here in the U.S., and a record 42 million visitors last year.
But there are concerns that if the U.S. economy falters, it will hurt a city which is just finally dug itself out of the Great Recession. But so far, so good.
As for catering to the Chinese, later this year, MGM resorts will open a new development in Maryland, which also has an Asian flare.
HORNBUCKLE: There’s a large Chinese and really Chinese, Vietnamese, Asian constituency that lives in and around the D.C. area. So, we’re going to target it highly.
WELLS: Vegas will get a better idea of how this year’s Chinese New Year is going by the weekend when it’s more likely those celebrating the year of the monkey will visit the capital of monkey business.
UNIDENTIFIED FEMALE: We’re using all our red envelope money.
WELLS: Have you been using it yet?
UNIDENTIFIED FEMALE: It’s been spent.
WELLS: Have any good luck?
UNIDENTIFIED FEMALE: Yes, we’ve been getting good luck so far, yes.
WELLS: For NIGHTLY BUSINESS REPORT, Jane Wells, Las Vegas.
HERERA: Coming up, the gift of giving. Find out who gave away the most money in 2015.
MATHISEN: Here’s what to watch tomorrow:
Federal Reserve Chair Janet Yellen delivers her semi-annual testimony on the economy in front of a House panel.
The Dow component Cisco (NASDAQ:CSCO) will report earnings after a closing well.
And we will see if more people applied for mortgage loans on the drop in treasury yields.
That’s what to watch Wednesday.
HERERA: General Motors (NYSE:GM) and United Auto Workers are donating $300 million to help support the children of Flint, Michigan. The five-year commitment will address the immediate and growing needs of those affected by water contaminated with lead. The money will go towards health and education services.
MATHISEN: Handful of Americans gave away a lot of money last year, but total figure given to charity is the lowest in five years.
And as Robert Frank explains, there was a notable decline from one group in particular.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: The 50 most charitable givers in America gave away $7 billion last year, with five donating more than $300 million. And while that may sound like a lot, total giving by this elite group fell 30 percent from 2014 and marked the lowest total since 2010. That’s according to the Philanthropy 50, compiled by the Chronicle of Philanthropy.
The big reason for the decline was a lack of tech giving. In 2014, Silicon Valley tech tycoons gave away more than $5 billion. But last year, they gave only $1.3 billion.
MARIA DIMENTO, THE CHRONICLE OF PHILANTHROPY: We had a very volatile stock market this year, the past 12 months. Sometimes, it’s been up. Sometimes, it’s been down. Very often, it’s been both in a matter of days.
So, I think there was perhaps less confidence than there has been in past years. In the financial markets and, of course, that carries through in how much people are capable or comfortable with giving to charity.
FRANK: The most generous people in 2015 were not household names. The top giver was Richard Mellon Scaife, heir to the Mellon banking and oil fortune who died in 2014. He left roughly $750 million to charity, giving much of it to conservative causes.
Ranking second was John Santikos, who ran a Texas theatre chain and left about $600 million to a foundation after his death.
Michael Bloomberg, the billionaire former mayor of New York and possible presidential candidate, ranked third with $510 million.
Bill and Melinda gates topped the list with their $1.9 billion gift to their foundation, but they gave away another $272 million in 2015. Mark Zuckerberg and his wife Priscilla Chan made the most public pledge of 2015, vowing to give 99 percent of their Facebook (NASDAQ:FB) shares to an LLC, but that was a promise, not a gift, and the LLC is was not technically a charity. So, it didn’t count for the list.
It took $32 million to be a top 50 giver last year. The question for this year is whether weak stock markets and falling tech fortunes will cause an even bigger drop in 2016.
For NIGHTLY BUSINESS REPORT, I’m Robert Frank.
HERERA: Still a lot of money.
MATHISEN: Still a lot of money to give away. Americans are pretty generous overall.
That does it for 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, and we will see you back her tomorrow.