Transcript: Nightly Business Report – August 7, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
Griffeth.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Mickey miss. Disney`s
earnings and revenue come in below expectations even though strong growth
in several key areas were shown. What now for the widely held Dow
component?

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: U-turn. Tesla`s Elon Musk
says he`s thinking of taking the automaker private and that sends investors
on a wild ride.

GRIFFETH: And bad breadth? The major indices are closing in on all-time
highs again, but is the rally broad enough to keep the bull running?

All that and much more tonight for NIGHTLY BUSINESS REPORT for this
Tuesday, August the 7th.

HERERA: Already.

Good evening, everyone, and welcome.

Stocks rise and inch closer to all-time highs. We`ll have more on that in
just a bit.

But there was big news from a pair of big names today. We`ll start with
Disney (NYSE:DIS). Earnings that were off the mark. The company did come
in below earnings and revenue estimates, but it also had strong growth in
studio, parks and broadcast units.

Here are the numbers. Disney (NYSE:DIS) earned $1.87 cents a share. That
is an 8-cent miss and revenue was a little light and still $18 billion for
the quarter. Shares initially fell sharply and then rebounded.

Julia Boorstin has the key takeaway for investors.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Disney (NYSE:DIS)
fell short of analyst expectations on the top and bottom line, despite
seeing revenue growth at every division, but consumer products with its
studio division growing revenue by 20 percent on the strength of “Avengers:
Infinity War” and “Incredibles 2”, two examples of the success of Disney`s
acquisition, Marvel and Pixar.

In the earnings release, CEO Bob Iger focusing on his confidence for
Disney`s acquisition, Fox, saying, we`re more enthusiastic about the Fox
acquisition than ever and confident in our ability to fully leverage these
assets.

The cable networks are still a weak spot. The segment operating income
dropping by 5 percent which is a bit worse than expected.

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

(END VIDEOTAPE)

GRIFFETH: Let`s turn to Bill Smead for more on all of this. He is the CEO
of Smead Capital and a longtime shareholder of Disney (NYSE:DIS) and a big
proponent of a company even though there have been questions for the last
few years, Bill, about ESPN and the cable components which again showed
some weakness this time around.

You sort of dismiss that as noise. Why?

BILL SMEAD, SMEAD CAPITAL MANAGEMENT CEO: Well, first of all, they`re a
manager of a variety of brands and so what happens, just like when you run
a good stock portfolio, there are certain stocks you own that are doing
well temporarily and there are some that aren`t doing as well, and you just
want to have a great majority doing well all the time and they`ve done
that, and remember, these — this stock was under tremendous pressure
during this battle for these Fox assets and people were wondering if
Netflix (NASDAQ:NFLX) and other futuristic competitors were going to put
them out of business or something.

So it`s, you know, they made 18 percent more than last year in a year
that`s been one of trial and tribulation.

GRIFFETH: Right.

HERERA: So, is Wall Street`s reaction in the after hours when we said it
dipped and then came back after Bob Iger did the conference call — was
that an overreaction?

SMEAD: Well, we would — possibly, but here`s how we look at it. Disney
(NYSE:DIS), you know, is a company that Warren Buffett said the biggest
regret in his career was he owned it a long time ago and he sold it. So,
there`s maybe 20 companies that literally are part of Americana and
literally own the hearts and minds of a vast majority of people in the
United States and around the world and this stock trades at a significant
discount to the other companies, the Nikes and the Starbuckses and those
kind of companies. The Microsofts, right?

GRIFFETH: Right.

SMEAD: So, it trades at, say, a 25 percent discount to those all because
of the fears of streaming, over the top and the Netflix (NASDAQ:NFLX) world
putting them out of business.

GRIFFETH: Well, I don`t think they`re going to put them out of business,
but clearly, Bob Iger has made it clear that over the top video streaming
is very important to the future of this company. They are setting it up.
They`re pricing it. They`re getting it ready to take on the likes of
Netflix (NASDAQ:NFLX).

What do you think it will do for Disney (NYSE:DIS)?

SMEAD: Well, history tells us a little bit about this. People thought the
VCR was going to mess them up. People thought cable was going to mess them
up.

Content is always king, and they have the best manufacturing process for
creating brands and content and then they`re also very astute bargain
hunters for underperforming brands in content and that shouldn`t change
much regardless of what the technology delivery system is.

HERERA: Are you — are you, very quickly, Bill, are you happy with the way
they`ve tried to turn ESPN around? I mean, Mr. Iger says there`s more to
be done.

SMEAD: There is, but demographics play a big part in the slowdown in ESPN,
and that is I`m 60. There are more 60-year-olds than there are 45-year-
olds. Forty-five-year-old men are the bread and butter, there are just as
many of them as there was 10 years ago.

GRIFFETH: Right.

SMEAD: That will pick up in another 10 years and no one will be worrying
about ESPN.

GRIFFETH: Sleep well, Bill Smead with Smead Capital Management. Thanks
for joining us again tonight.

SMEAD: Thank you.

HERERA: The other big name making news today is Tesla. CEO Elon Musk
created quite a stir with a series of tweets saying he`s, quote,
considering taking Tesla private at $420. Musk said no decision has been
made yet, but added the current investors could hold on to their positions
through a special fund or sell their shares at the $420 mark.

By the way, this would be the biggest buyout in history. Shares of Tesla
were already on the rise on the report that Saudi Arabia took a $2 billion
stake in the company, but then were halted following Musk`s tweet. They
eventually reopened, finishing up 11 percent.

GRIFFETH: Got that?

And that better than 10 percent move in Tesla helped spur the Nasdaq to its
sixth straight day of gains. Overall, stocks rose as investors stayed
focused on corporate earnings and the major indices just continue to inch
closer to all time highs. The Dow today up 126 points to 25,628, the
Nasdaq added 24, the S&P tacked on eight points today.

HERERA: As of the close today, the Nasdaq and the S&P are within 1 percent
of historic highs. The Dow stands about 3.5 percent away, all capable of
breaking through on any given day.

Bob Pisani takes us on a ride to the top.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The markets are
knocking on the door of historic highs once again. The S&P 500 is less
than 1 percent from the record high. How does he get here?

The market has been moving on a powerful combination of factors. First,
the earnings story is still going strong for the second half of the year
and for the third and fourth quarter, the guidance is not dropped at all.
We`re still looking at gains of more than 20 percent for the third and
fourth quarter. Those are big numbers.

Second, while a small group of companies like General Motors (NYSE:GM) and
Whirlpool (NYSE:WHR) have fallen victim to these tariff issues, the vast
majority of companies continue to see very little impact from the trade
wars.

Third, there`s been a tidal wave of buybacks announced this year. The
companies are flushed with cash and it`s a record $750 billion of buyback
that`s been announced so far. Goldman Sachs (NYSE:GS) is expecting $1
trillion by the end of the year. That`s a jump of about 50 percent from
last year. Apple (NASDAQ:AAPL) alone has already bought back more than $40
billion in stock this year.

There`s also a market rotation under way. Despite the narrow rally, the
market`s not been entirely dominated by technology. When tech falters,
traders buy other sectors. So, recently, we`ve also seen defensive value-
oriented sectors like healthcare and banks and especially consumer staples
that have been strong in the last month.

Finally, the U.S. continues to show signs of strength in its economy. The
GDP growth is looking to be well over 3 percent for the rest of 2018. So,
the big question now is, what will it take to get the S&P 500 over the
finish line? We`re really close.

For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.

(END VIDEOTAPE)

GRIFFETH: And the question surrounding the market any time new highs are
that close: is there enough support to keep the rally going?

Mike Santoli takes a look for us.

(BEGIN VIDEOTAPE)

MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The major stock
indexes are poised to return to record highs lasting more than six months
ago, but one criticism of this rally remains popular, that the market is
too reliant on a small group of big tech stocks for its recent gain? Is
this true? Or is the climb broad enough to support further upside to new
record highs?

There is some truth to the argument that the largest tech stocks such as
Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Alphabet and Netflix
(NASDAQ:NFLX) have driven much of the market`s gain. Roughly half of the
increase of the S&P 500 index has valued this year has come from those four
stocks alone, and the technology sector as a whole is up more than 16
percent compared to the S&P 500`s 7 percent rise, but it`s not true that
those winners have obscured pervasive weakness below the surface.

The majority of all stocks are up for the year, the equal weighted version
of the S&P 500 in which each of the 500 stock has the same influence is up
nearly 5 percent for 2018. More than twice as many large stocks are up 10
percent than have fallen that much. And a Russell 2000 small companies
stock index has advanced some 10 percent.

So, while investors have become somewhat more selective than in last year`s
inclusive surge, with the strong preference for fast-growing technology
giant this year, it`s not clear that the market is skewed toward a small
handful of winners at the expense of the majority of stocks. The reason
investors do focus closely on the breakdown of market breadth is that major
market peaks are often preceded by an extreme narrowing of the market with
select big stocks holding up the indexes as the average stock suffers.

With the bull market that began in 2009 set to become the longest on record
in the next few weeks, it makes sense to focus on these patterns. So far,
at least, the rally seems just broad enough to fend off the bears.

For NIGHTLY BUSINESS REPORT, I`m Mike Santoli.

(END VIDEOTAPE)

HERERA: So what will it take to get this market to the next level?

Scott Kubie, chief investment officer at the Carson Group joins us now to
talk about that.

And I want to pick up on what mike kind of mentioned right at the end, and
that`s the broadening out of the market because you also think that that`s
important.

SCOTT KUBIE, CARSON GROUP CIO: Yes. We`ve seen really great leadership in
a small number of stocks, but I don`t think that`s going to get us to — it
may get us to new highs, but it`s not going to get us a really strong
return over the rest of the year and we think that we need a broader
participation especially from value stocks, which have really lagged growth
stocks by a wide margin this year.

I think one of the nice things is we saw that in July where value stocks
outperformed growth stocks by about a percent depending on the index you
use, and that`s a very positive sign as we go into the second half of the
year.

GRIFFETH: Yes, assuming that we are in the late portion of the cycle here
for this market. The value is the place where people often look and you`re
telling us to look for this particular value ETF tonight, right?

KUBIE: Yes, one of the ETFs that we really like is the iShares Core S&P
500 Value ETF and the ticker is ISUV. There are a number of great value
ETFs out there, but one of the reasons we like it is that value stocks with
cheap relative to growth on a valuation basis. Bbut also some of the
sector allocations toward financials and energy look to us to be really
attractive in the late cycle stage and we think the sectors are going to
outperform in the second half of the year and into 2019.

HERERA: You also are dabbling in the energy sector National Oilwell, the
ticker symbol is NOV. You would also be looking at that.

KUBIE: Yes. That`s an interesting story. The National Oilwell Varco is a
supplier to a lot of the oil rig manufacturers. And so, as we`ve seen a
strong, sustained rally in oil, it`s caused manufacturers to go out and to
build more wells and hopefully order more equipment. And as the supplier
to them, that late cycle stage is really very positive for them.

They also supply a lot to offshore drillers and that`s become much more
competitive and we`ve seen the overall shale production run into some
troubles in allowing oil prices to stay long for a long time.

GRIFFETH: Right.

KUBIE: That`s a big help for the offshore drillers.

GRIFFETH: Quickly, Scott, I want to get this one in because you talk about
the financials and if we are in a late cycle, usually inflation will start
to pick up. So, you`re looking at a TIPX SPDR here, as well, right?

KUBIE: Yes. I think this has had great risk reduction characteristics for
two risks that faced the market. First, if the economy continues to stay
strong and employment continues to stay strong, we have the risk of
inflation picking up quite a bit, and so having some inflation protection
makes a lot of sense. The other, though, is if we have these tariffs go
through and that ultimately raises consumer prices, we may be in a
situation where great interest rates may stay about the same, inflation may
rise quite a bit, and the overall real rates would fall.

That would be especially positive for TIPX and that`s one of the reasons
why we like them —

HERERA: OK.

KUBIE: — as a low-risk portion in your portfolio.

HERERA: Scott, thank you very much. Scott Kubie is with the Carson Group.

Bill?

GRIFFETH: Elsewhere, job openings in the U.S. hovered near record highs in
June. Job openings are a measure, of course, labor demand and they were
unchanged in June at 6.7 million. The all-time high was the 6.8 million in
April. The downside, the hiring rate slipped slightly.

HERERA: Last week`s employment report showed 157,000 jobs created in July
and you can tack those on to the millions that have been created over the
past decade, under two presidents, one a Democrat, the other a Republican,
and both take credit for the number of jobs created. But exactly who or
what is actually responsible?

Steve Liesman takes a look.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: How much do
presidents have to do with job creation?

A look at the differences between President Obama and Trump shows sometimes
a lot and sometimes not much at all. Under President Trump, 3.8 million
jobs have been created or 190,000 per month, counting the 20 months
starting after Trump`s election November 2016.

So in the prior 20 months of the Obama administration, that is from April
2015 to November 2016, 4.3 million jobs were created or a stronger 215,000
a month. So, strong job growth continued under Trump that began under
Obama, and Trump has done well to keep it going, defying expectation of
economists that it would slow because of a lack of workers.

Four hundred thousand manufacturing jobs have been added under Trump
compared to just 21,000 for the 20 months under Obama. That`s a sign the
president`s focus on manufacturing might be bearing some fruit, but it`s
also mining and logging jobs which have grown by nearly 90,000 under Trump,
but fell by almost 200,000 under Obama. This could be the result of policy
to deregulate the industry, but just as easily economists say the result of
higher oil prices, spurring U.S. production now versus oil prices that
reduced production under Obama.

And there are some places where the trend under Obama simply continued
under Trump. The transportation jobs remain as strong as they were, along
with professional and business services, along with education and health
care.

Some job growth however has nothing to do with presidents. More government
jobs were created under Obama than Trump. But the biggest part of that
difference, local and state hiring over which presidents have little
control.

So, there are definitely positive trends in the job market, all of which
most presidents will entirely take credit for, and they will be as they`ve
always been, just partially right.

For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.

(END VIDEOTAPE)

GRIFFETH: Time to take a look now at some of today`s upgrades and
downgrades.

We begin with Argus, cutting its rating on CBS (NYSE:CBS) from buy to hold.
The analysts noting significant risk to those sexual allegations against
CEO Les Moonves, including his possible termination. In fact, the
possibility that if Moonves were to be fired, the board may drop its fight
with the Redstone family to merge CBS (NYSE:CBS) with Viacom (NYSE:VIA) and
Argus believes if they were to merge, it would be a negative for
shareholders. Shares of CBS (NYSE:CBS) closed at $53.22, up a fraction
today.

SeaWorld was upgraded at Macquarie from underweight to hold following the
company`s strong earnings report. Macquarie says that SeaWorld`s
management is executing well and attendance growth in the first half of the
year was impressive. The price target was raised from $10 to $26 and
today`s SeaWorld shares closed at $25.58, up nearly 4 percent.

HERERA: Wynn Resorts (NASDAQ:WYNN) was cut at Argus from buy to hold on
concerns about gaming revenue growth in Macao. Argus also lowered its
earnings outlook on Wynn for both this year and next, when shares climbed
just a fraction to $153.29.

And Bank of America (NYSE:BAC) Merrill Lynch lowered its rating on Zillow
from buy to neutral, citing concerns over the business model shift
following the company`s purchase of mortgage lenders of America. The
analysts say that could hurt Zillow`s profits in fiscal 2019. The price
target was also lower to $60 to $70. Today, Zillow closed at $49.40, down
16 percent.

GRIFFETH: Coming up, trying to contain what has become California`s
largest wildfire ever.

(MUSIC)

HERERA: Firefighters in California continue to battle what has turned into
that state`s largest fire in its history. Eight major blazes are ravaging
California`s landscape and have caused seven deaths and thousands of
evacuations.

Aditi Roy joins us tonight from Ukiah, California.

Good evening, Aditi.

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good evening to you,
Sue.

That`s right, we are at the staging area for the Mendocino Complex Fire.
It is, as you mentioned, the largest wildfire in California history, nearly
the size of the city of Los Angeles and it is growing at unprecedented
rate. Of the fire, it`s actually comprised of two fires, the River Fire
and the Ranch Fire.

The Ranch Fire is the bigger of the two. It is more than 240,000 acres and
just more than 20 percent contained. Eleven thousand three hundred
structures are threatened, 75 homes and businesses destroyed and 13,000
people have been ordered to evacuate. An additional 8,000 have been
advised to do so.

Fire officials tell us the weather conditions combined with the remote
location of the flames make it an especially tough fire fight.

(BEGIN VIDEO CLIP)

STEVE KAUFMANN, CAL FIRE SPOKESMAN: It`s been a challenge for us to get
our crews in there because it`s in a mountain range and a ridge top, and
so, we`re still currently trying to get good, active containment line in
those areas.

(END VIDEO CLIP)

ROY: There`s nearly 4,000 firefighters here on scene and they have dumped
more than 100 million gallons of fire retardant, Sue, a massive show of
manpower and resources.

HERERA: Indeed. Thank you so much, Aditi. Aditi Roy tonight.

Bill?

GRIFFETH: Profits disappointed at Discovery Communications (NASDAQ:DISCA),
and that is where we begin tonight`s “Market Focus”.

The entertainment giant said restructuring costs tied to its recent
acquisition of Scripts Network caused it to decline at a faster than
expected clip, revenue was a beat, though, helped by higher sales in the
company`s international networks. Shares closed down 5 percent to $25.55.

Dairy producer Dean Foods (NYSE:DF) reported a loss but did see sales inch
ahead of expectations. The company also slashed its earnings outlook for
the whole year citing inflationary pressures and growing competition from
private labels. Shares plunged by 15 percent today to $8.04.

HERERA: More bad news from Papa John`s. After the closing bell, the pizza
chain said same-store sales declined across its U.S. stores causing
earnings to come up short. Papa John`s sees more pain ahead. It cut its
outlook for the full year.

The company`s founder recently stepped down from his chairman role after he
apologized for using a racial slur during a conference call. Shares fell
in the after-hours and also finished the regular down nearly 3 percent to
$41.07.

And after the bell, Snap reported a decline on the number of active daily
users on its platform. Despite using estimates for user growth, the social
media company beat earnings expectations which it said were helped by
strong performance in its ad business. Also, Saudi Prince Alwaleed bin
Talal said that he has bought a more than 2 percent stake in the company.
Shares initially jumped in the extended session but then fell back. They
ended the regular day up half a percent to $13.12.

GRIFFETH: Well, things were slowly getting become to normal today after
Beijing`s financial district was locked down amid protests. The catalyst
was a meltdown in China`s peer to peer lending market.

Eunice Yoon is in Beijing to shed some light on this growing crisis there.

(BEGIN VIDEOTAPE)

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was business as
usual in Beijing`s financial district today after yesterday`s police
crackdown on protesters. Organizers say thousands of people gathered
outside the banking regulator`s office. Hundreds of police stopped the
demonstration.

The protesters were angry about money they lost in a peer to peer lending
industry. Here in China it`s still very difficult for ordinary people to
get loans from mainstream banks, so this whole industry of peer to peer
lending has emerged where investors who have money to lend are connected to
people who need capital to start businesses or just to buy something. This
industry has grown quickly over the past few years, thanks to the high
returns, about 8 percent to 12 percent compared to less than 3 percent at
most traditional banks.

But because of title regulatory conditions and a liquidity crunch, some of
the lenders have started to fail. In China, public protesters aren`t
common, but it is common for investors who lose money to expect the
government to bail them out and that is what the protesters were seeking
yesterday.

The troubles for the P2P are far from over. There are concerns that the
P2P problems can spread to business in other sectors. In the past week,
two companies, one router manufacturer and one convenience store chain
reported financials associated with P2P investments. That would pose a
headache for Beijing which is struggling have a rising debt and the risk
associated with it.

For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.

(END VIDEOTAPE)

HERERA: Coming up, a $54 billion merger faces resistance from within.

(MUSIC)

GRIFFETH: Cigna`s proposed $54 billion deal to buy Express (NYSE:EXPR)
Scripts is running into resistance from its highest profile investor.
Billionaire activist investor Carl Icahn released an open letter urging his
fellow shareholders to vote against Cigna`s deal to buy the pharmacy
benefits manager. Cigna responded by saying that Mr. Icahn`s view does not
represent those of Cigna`s other shareholders.

Bertha Coombs has been following the drama for us.

(BEGIN VIDEOTAPE)

BERTHA COOMBS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Carl Icahn called
Cigna`s megadeal to acquire pharmacy benefits firm Express (NYSE:EXPR)
Scripts a $60 billion folly. The activist investor who has taken a stake
in Cigna is urging others to vote against the deal, arguing that the
insurers paying a 50 percent premium for Express (NYSE:EXPR) Scripts at a
time when the pharmacy management business model is under siege from
regulators to the secretary of health and others who have been critical of
confidential rebate agreements which allow the PBMs to secure discounts
from drugmakers.

Icahn also argues that Amazon`s entrance into the pharmacy business
recently acquiring PillPack will also undermine the deal. In his letter,
Icahn warns purchasing Express (NYSE:EXPR) Scripts would be one of the
worst blunders in corporate history, up there with the Time Warner
(NYSE:TWX)-AOL (NYSE:AOL) fiasco and General Electric (NYSE:GE) valued
destruction.

Icahn believed Cigna would be better off building its own pharmacy unit and
returning cash to shareholders.

But Leerink analyst Ana Gupta who raised Cigna an outperform called Icahn`s
proposals unrealistic. She argues it would be a challenge for Cigna to
build a pharmacy unit with enough scale and that integrating medical and
pharmacy benefits is what will help insurers and PBM defend against the
pushback on rebates and against new entrants like Amazon (NASDAQ:AMZN) who
will only have one piece of the puzzle for now.

In response to Icahn, a spokesman for Express (NYSE:EXPR) Scripts said: We
believe that we are well-positioned for growth and remain confident in the
deal — noting that they raised their guidance for client retention in the
recent earnings report. Cigna declined to comment on the Icahn letter but
CEO David Cordani expressed confidence the deal would get done on last
week`s earnings conference call.

Icahn also suggested that the only Cigna shareholders who have reason to
support the deal are those who also own shares of Express (NYSE:EXPR)
Scripts. (INAUDIBLE) stocks fund is the largest stakeholder in both firms,
he`s declined to comment on the letter. The shareholder vote is scheduled
for August 24th. Shareholder advisory services are likely to weigh in on
the vote later this week.

For NIGHTLY BUSINESS REPORT, I`m Bertha Coombs.

(END VIDEOTAPE)

HERERA: Before we go, here is another look at the final numbers for Wall
Street. The Dow was a big winner, climbing 126 points to 25,628. The
Nasdaq rose 23. The S&P 500 gained 8.

And that does it for us tonight. I`m Sue Herera. Thanks for watching and
happy birthday.

GRIFFETH: Oh, thank you very much. Yes, I`m measuring my age now in
Celsius (NASDAQ:CELH). That would be 16. Happy sweet 16.

I`m Bill Griffeth. Have a great evening. We`ll see you tomorrow.

END

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