Nightly Business Report – February 5, 2019

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



(NYSE:DIS) blows past expectations as more people flock to its theme parks.  

But what about the next leg of growth?  


houses are suddenly busy.  Will it be an early spring for housing?  

HERERA:  Raising the stakes.  The big battle for pickups that`s generating 

big profits for Detroit`s Big Three.  

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Tuesday, 

February 5th. 

GRIFFETH:  And we do bid you a good evening, everybody, and welcome.  

Well, the entertainment powerhouse has done it again.  Late this afternoon, 

Disney (NYSE:DIS) reported much better than expected quarterly earnings, 

thanks in part to the increased popularity of its theme parks, which are 

already the most visited in the world.  It also reported higher broadcast 

revenue, which helped to offset a decline at its movie studio.  

Here are the numbers from Disney (NYSE:DIS).  They earned $1.84.  That was 

29 cents above estimates.  Revenue came in at more than $15 billion.  

And that sent shares of the Dow component initially higher in after-hours 

trading, although there was a bit of a comeback.  

Julia Boorstin has more on Disney`s quarter.  



beating expectations on both the top and bottom line with growth driven by 

Disney`s domestic parks and resorts division, growth which benefited from 

increased guest spending, higher average ticket prices, an increase in food 

and merchandise spending, and higher average hotel room rates.  

As for what will drive Disney`s next leg of growth, the company is betting 

on its new direct-to-consumer business.  CEO Bob Iger is saying this 

business is the company`s top priority and they, quote, continue to invest 

in exceptional content and innovative technology to drive our success in 

this space.  

Investment in that direct-to-consumer business weighing on Disney`s costs 

in the quarter.  

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


HERERA:  Robert Luna joins us now to talk more about those Disney 

(NYSE:DIS) numbers.  He is the CEO and chief investment officer at 


Welcome.  Nice to have you here.  


HERERA:  And I know you like the company.  You like the stock.  But what 

about this latest initiative, the direct-to-consumer?  They`re up against 

some other very successful names, like Netflix (NASDAQ:NFLX) which has 

created an awful lot of its own original content.  

LUNA:  Yes, it`s an absolute juggernaut.  And, you know, one of the things 

— obviously , Disney (NYSE:DIS) Plus is what everybody is talking about.  

That`s scheduled to launch in Q4.  

But with this latest merger with Fox, they`re also going to have a 

controlling stake in Hulu.  So I`m really interested to see what the 

balance is going to be between future investments in Disney (NYSE:DIS) Plus 

and also what`s going to happen with Hulu.  

But I think the content that Disney (NYSE:DIS) has, the proprietary 

characters that they have, this is a household brand that I think they`re 

going to be able to monetize that very well.  Like we`re seeing in the 

parks, years and years of investments they have been making are now 

starting to hit the tape in earnings.  I think you`ll start to see that 

same thing 18 to 24 months now in the streaming service.  

GRIFFETH:  What about the movie studio?  I mean, you know, the “Star Wars” 

franchise they have, some of the marvel movies that they`re able, you know, 

comic book characters and things, that`s supposed to be a powerhouse as 

well, but we were just saying how that had to be offset by some of the 

revenue increase they saw in broadcast.  

LUNA:  Yes, it was.  I mean, they had tough comps.  There wasn`t a “Star 

Wars” film that was in this quarter that they had to compare to last year.  

But if you look out into the next quarter, in June, they have “Toy Story 4” 

that`s going to be coming out, which is expected to be a blockbuster.  And 

then in July, they have “Lion King.”  

So I think they`re going to start hitting on all cylinders with that again.  

And when you put these things together, Bill, when you`ve got parks and 

resorts, you have the studios and you have the media networks, this is 

really a different company from the traditional media because they`re able 

to take those movies, they`re able to take these shows and monetize those 

across the board.  

There`s not another company out there that`s able to do that.  

HERERA:  And that`s why you have a 15 percent possible upside in the stock?  

LUNA:  Yes, absolutely.  I mean, when you look at where the stock is 

trading right now, it`s trading at a discount on its five-year average 

about 15.5 times earnings, which is even a discount to the S&P.  So, we`re 

using a discounted cash flow model which should get us by the end of the 

year to $130 a share on the stock.  I think it`s trading about $113.5 after 


GRIFFETH:  They have to extend Bob Iger`s contract.  They were doing this 

deal with 21st Century Fox.  Do you think his heart is still in it at this 


LUNA:  Yes, I think so.  When you listen to him on these earnings reports, 

this is something he`s extremely passionate about.  With all that`s going 

on with the Fox integration, I`m glad as a shareholder for our clients that 

he`s sticking around.  

It`s going to be interesting, though, when we start talking about the 

transition of who that person is going to be once Iger steps away.  

HERERA:  On that note, Robert Luna, thank you so much for joining us.  

LUNA:  Thanks, guys.

HERERA:  Robert is with Surevest.

GRIFFETH:  Elsewhere, Electronic Arts (NASDAQ:ERTS) also released its 

results late today.  The video game maker lowered its revenue outlook, 

citing lackluster sales of its “Battlefield 5” title and also increased 

competition from online games like “Fortnite”.  

Overall, earnings and revenue fell short of expectations in its most recent 

quarter and that sent the stock sharply lower in initial after-hours 

trading this evening.  

HERERA:  We are more than halfway through earnings season, and as, you 

know, the focus this time around is on 2019 guidance.  That`s because 

there`s a real concern that the earnings growth that we`ve been seeing may 

not last.

Bob Pisani explains.



chorus of concern over slowing global growth.  More than 40 percent of 

earnings in the S&P 500 occur outside of the United States, so when you get 

a big multi-national company like Caterpillar (NYSE:CAT) or Nvidia 

mentioning a slowdown in the global economy — well, that`s a major issue, 

particularly for industrial and technology firms.  

So the battleground is between those who believe earnings in 2019 will stay 

lower but still positive and those who believe that an earnings recession 

is around the corner.  Now, an earnings recession would be two or more 

consecutive quarters of negative earnings growth.  That`s a big issue.  

It`s not a trivial question.  

The last time we saw two straight quarters of declining earnings was in 

2015 and 2016.  The S&P was close to down 0.7 percent.  That was the only 

down year from 2009 to 2017.  

So, right now, estimates for first-quarter earnings are down to a measly 

0.4 percent.  That`s a big decline.  We were expecting 8 percent growth for 

the first quarter of the start of October and revenue estimates are holding 

up but they`re down a little bit too.  

So, this begs the question, revenues are still holding up relatively well, 

but earnings growth is heading towards zero.  That`s kind of odd.  This 

implies that profit margins are under pressure, mostly because of higher 

wages and higher raw material costs.  

We saw that today from a simple company like Church & Dwight (NYSE:CHD).  

They make well-known consumer products like Arm & Hammer Baking Soda, Oxi 

Clean and Waterpik devices.  They cited transportation and raw material 

costs, partly due to U.S. tariffs.  And they started raising prices on 

their goods but it hasn`t been enough to offset some of the margin 


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


HERERA:  And on Wall Street today, stocks climbed to a two-month high with 

the S&P posting its fifth straight gain on these upbeat corporate results.  

The Dow added another 172 points today to 25,411.  The Nasdaq climbed by 

54, the S&P added about 13 points.  

But despite this recent market climb, it`s still not clear where markets go 


Mike Santoli takes it from there.  



and ten years since the last major bear market ended, the state of the 

market is confused, or at least more confused than one might expect given 

the strong rally of more than 15 percent in the major stock indexes over 

the past six weeks.  

This upturn in stocks came, of course, after one of the quickest 20 percent 

drop in years over the prior three months.  The decline was all about a 

fear that a recession might be near and Federal Reserve on the verge of 

going too far with interest rate increases.  The recovery looks like the 

rapid shift back toward the idea that the U.S. economic expansion is intact 

and the Fed now emphasizing patience in considering further hikes.  

So which is it?  Well, on the one hand, measures of consumer and business 

confidence have weakened.  The housing market has stalled and corporate 

profit growth rates are being reduced toward zero for the first quarter.  

On the other, job growth has remained far stronger than expected.  The 

government shutdown didn`t seem to do lasting damage to consumers.  And 

companies are still expected to expand earnings over the course of 2019.  

These mixed signals with a mature economic cycle that nonetheless has 

weathered a couple of fleeting growth scares since it got rolling.  

Optimists on Wall Street right now are viewing the late 2018 market panic 

as similar to false recession alarms of 2011, 2015 and even all the way 

back to 1998, when stocks tumbled, growth moderated, but the Fed turned 

toward easier policy to reassure investors.  

But how much upside can stocks see from here with unemployment still down 

near 4 percent before the Fed again looks to resume rate hikes?  Is a trade 

deal with China already assumed by investors now?  And could the economy 

and markets handle a more aggressive Fed?  

Just a few of the questions fogging the outlook for Wall Street after its 

strong start to 2019.  



HERERA:  The expansion of the services sector slowed in January, this amid 

uncertainty around the partial government shutdown.  

According to a survey from the Institute for Supply Management, a drop in 

new orders crimped growth but historically, there is a lull right after the 

holiday season.  The bulk of economic activity comes from the services 


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

Bank of America (NYSE:BAC) Merrill Lynch added Merck (NYSE:MRK) to its U.S. 

1 list today.  The analyst cited the potential for big returns from that 

company`s cancer drugs.  Merck (NYSE:MRK) is the firm`s number one pharma 

pick, as a matter of fact.  And shares rose a fraction today to $77.15.  

Box was initiated with a buy rating in new coverage at Goldman Sachs 

(NYSE:GS).  The analyst calls it one of the best positioned vendors in 

cloud content management.  The price target now $31.  Shares closed at 

$23.45.  That was up nearly 9 percent in today`s trade.  

HERERA:  Booking holdings was upgraded to buy from hold over at Deutsche 

Bank.  The analyst cites acceleration in a key hotel booking metric this 

year.  The price target is $2,370.  Today`s shares crept closer to that 

target, adding about 2 percent to close at $1,902 and change.  

Kraft (NYSE:KFT) Heinz was downgraded to hold from buy at Deutsche Bank.  

The analyst cites competition from private label brands.  The price target 

is $52.  Kraft (NYSE:KFT) Heinz finished at $48.14, up about 41 cents.  

GRIFFETH:  Coming up, Democrats and Republicans do have some common ground 

when it comes to health care.  They all want lower drug prices.  The state 

of the pharmaceutical business when we come back.  


GRIFFETH:  Merck`s CEO said today that he plans to testify during a Senate 

hearing that`s been called to talk about rising drug prescription prices.  

Late yesterday, the chairman and the ranking member of the Senate Finance 

Committee invited executives from seven pharmaceutical companies to that 

hearing, including the CEOs of Bristol-Myers Squibb (NYSE:BMY), J&J and 

Pfizer (NYSE:PFE).  That hearing is scheduled for later this month.  

HERERA:  Senator Bernie Sanders is asking why a drug that was once free 

through an FDA program now costs $375,000.  In a letter to Catalyst 

Pharmaceuticals, the senator called the pricing, quote, corporate greed.  

He asked the company to explain the decision for the price increase.  

The drug in question treats a real neuromuscular disease that weakens 

muscles and affects about one in 100,000 people in the U.S.  

Catalyst is a small cap stock that has a market cap of about $200 million.  

The company says it is working on a response to the senator`s letter.  

GRIFFETH:  In the meantime, during tonight`s State of the Union Address, 

President Trump is expected to talk about lowering health care costs and 

sky-high prescription drug prices.  Last year, he called that one of his 

greatest priorities.  

Chris Meekins is health care policy analyst at Raymond James and he joins 

us from D.C. tonight.  

Chris, thanks for joining us tonight.  


GRIFFETH:  You know, already, the Trump administration has proposed taking 

back the rebates that pharmacy benefit managers receive from drug makers to 

try and reduce costs.  Is that a step in the right direction in your view?  

MEEKINS:  Well, if the goal is to lower list prices, which tend to be 

driven up by the pharmacy benefit managers and the proportion of profits 

they get by showing greater rebates, then, yes, that`s moving in the right 

direction.  I think one of the problems with their plans is that, yes, it 

will lower list cost but at the expense of making drugs cheaper for those 

that use drugs the most, they`re going to increase premiums on everyone 

else in Medicare Part D.  So, the question is, are you willing for everyone 

to pay a little more so that those who need the drugs the most are having 

to pay a little bit less.  

HERERA:  But, overall, what is it about our system versus systems in other 

parts of the globe, that make drug prices so high and so difficult to 

reduce in terms of price?  

MEEKINS:  I think one of the problems is politicians believe that America 

really should be the innovation hub for pharmaceuticals in the world.  And 

no one wants to get in the way of developing that next therapeutic that can 

cure that unknown disease, right, or cure that disease that we just don`t 

have a cure for next.  And so, one of the decisions that was made by the 

politicians is we believe in a free market system generally speaking in the 

U.S., and so are they willing to increase government regulations at the 

risk in their mind of potentially limiting future innovation.  

So, while other nations in the world are able to set caps and prices, the 

U.S. really bears the biggest price for all of the innovation that`s done 

throughout the world.  

GRIFFETH:  OK.  You`re saying that politicians believe that.  You`re the 

guy that analyzes all of this.  Do you believe that?  Do you believe we 

would not be as close to solving cancer or Parkinson`s or Alzheimer`s if 

there was a cap on drug prices in this country?  

MEEKINS:  No, I don`t — well, I think a cap is questionable.  I think that 

we can take steps to lower drug prices in the country without putting in 

danger the innovation that our pharmaceutical industry is renowned for in 

the world.  

HERERA:  And how do we do that?  What`s that step?  

MEEKINS:  I mean, I think part of it is we need to have a conversation 

about ensuring that other nations are paying their fair share of this.  For 

example, the administration put forward a regulation as part of Medicare 

Part B drugs to tie them to European prices.  Maybe that`s a step in the 

right direction.  

Some politicians are proposing that you maybe allow for Medicare to 

negotiate drug prices to try to drive down costs.  Some believe that if 

you`re able to lower list prices through really targeting the pharmacy 

benefit managers, that it will drive down costs for consumers at the 

pharmacy.  So, there`s a lot of little steps that people are proposing to 

take, each of which may help move in the right direction.  There`s not a 

silver bullet to solve this for Americans.  

GRIFFETH:  Just as there isn`t for the cure for cancer and other diseases 

as well.  

Chris Meekins with Raymond James, again, thanks for joining us tonight.  

MEEKINS:  Thanks.  

HERERA:  Estee Lauder shares getting a makeover.  That`s where we begin 

tonight`s “Market Focus”.

The cosmetics company says that its quarterly profit more than quadrupled, 

driven by stronger sales of its skin care products.  The management issued 

an upbeat outlook for the next six months, even as demand in China is 

expected to moderate.  Estee Lauder rose more than 11 percent today to 


Viacom (NYSE:VIA) reported better-than-expected earnings in its latest 

quarter.  The company`s film and television studio performed well, but 

revenue fell short of estimates because of a decline in advertising sales.  

Viacom (NYSE:VIA) also plans to enter a production deal with Netflix 

(NASDAQ:NFLX) through its Nickelodeon Kids division.  Shares rose 3 percent 

to $30.33.  

A unit of Johnson & Johnson (NYSE:JNJ) is reportedly close to settling 

lawsuits over defective hip implants.  The long-running litigation includes 

more than 10,000 cases, but it`s not clear how many lawsuits would be 

covered by the agreement.  J&J has said that it acted responsibly and 

appropriately in the development, testing and marketing of the devices.  On 

the day the shares were unchanged at $132.88.  

GRIFFETH:  BP had better-than-expected profits.  It was driven in part by a 

big increase in the energy giant`s oil and gas output.  It is the latest in 

a string of major oil companies to post a strong performance for 2018.  

Shares rose 3.5 percent today to $42.82.  

More pressure on Allergan (NYSE:AGN) from hedge fund Appaloosa to separate 

the chairman and CEO positions.  Appaloosa last year sent multiple letters 

asking the struggling drug maker`s board to separate those two roles.  The 

hedge fund says an independent share could help Allergan (NYSE:AGN) lift 

its share price.  Shares were down a fraction today to $138.01.  

And quarterly profits at agriculture giant Archer Daniels Midland fell 

because of the trade dispute with China.  AMD`s revenues also fell short of 

expectations but the company is optimistic that a U.S./China trade deal 

could raise its exports significantly later this year.  Shares were down 

about 6 percent today to $41.85.  

Tyson Foods (NYSE:TSN) has reportedly held talks to buy Foster Farms for 

roughly $2 billion, but CNBC says the two companies so far have disagreed 

over a price.  And talks, therefore, could fall apart at any rate.  But 

right now, a potential deal still is at least several weeks away.  Tyson 

shares were down 9 cents to $61.69.  

Finally, Snap reported record revenue, up more than 35 percent.  And that 

narrowed its quarterly loss.  The social media company was helped by an 

increase in online advertising sales.  Snap has yet to report a profit, as 

a publicly traded company.  The stock rallied in initial after-hours 

trading tonight.  It finished the regular session with a 1.5 percent gain 

to $7.04.  

HERERA:  A growing number of people are leaving high tax states for places 

like Florida, following the passage of the new tax law, which capped state 

and local deductions.  According to new data cited by “The Wall Street 

Journal”, Miami is experiencing more activity than usual from people moving 

from New York and New Jersey.  And just yesterday, New York Governor Andrew 

Cuomo blamed a state revenue shortfall on the number of people leaving and 

specifically mentioned Florida as an attractive option for New Yorkers.  

GRIFFETH:  And that`s just another layer of the current state of housing, 

where after a huge drop in sales at the end of last year, buyers are 

suddenly swarming back.  Is it an early spring or is something else at 


Diana Olick takes a look.  



in suburban Dallas, there was a traffic jam on the main stairway.  Buyers 

buoyed by an unexpected drop in mortgage rates in December.  

CELENA VITTORIO, PROSPECTIVE BUYER:  Interest rates are low, on the 

decline, which is great.  

OLICK:  Precisely why Celena Vittorio and her family of five are hoping to 

get out of their rental now and into a home of their own.  Not only are 

mortgage rates down from a recent peak in November, but home prices are 

also pulling back.  

More sellers cut their home prices in January, according to  

VITTORIO:  When you see those numbers start coming down, oh, OK, this is 

the time to buy.  You certainly don`t want to buy at the top of the market.  

OLICK:  Dallas area agent Laura Barnett said the renewed interest caught 

her and her colleagues off guard, in a good way.  

LAURA BARNETT, RE/MAX AGENT:  We actually did get a surge of buyers coming 

in.  As a matter of fact, I`ve worked with two this weekend, one of which 

is under contract.  Another one is about to be.  

OLICK:  She agrees its all about interest rates.  

BARNETT:  I think they`re taking advantage of it and we don`t want to miss 

that opportunity, so we`re trying to get busy with our listings and getting 

our listings on the market early.  

OLICK:  The popular spring housing market usually doesn`t start until the 

edge of February, but buyers this year are clearly seeing a window of 

opportunity early.  The trouble is that while there are more houses coming 

onto the market and prices are easing slightly, there still are not enough 

affordable homes for sale.  

AMIT VYAS, PROSPECTIVE BUYER:  If you are looking in a range which is 500 

to 600, 6.50, it is very competitive.  Once you go above 750, I think it 

gets a little more open.  It`s not as competitive, close to a million 


OLICK:  Amit Vyas and his family were hoping to move up to a bigger home, 

taking advantage of the pause in rates.  

VYAS:  I think it`s a good market because I mean just to be honest, I think 

the rates are going up.  

OLICK:  But this house was listed at $950,000.  Apparently, even the higher 

end is now back in high demand.  

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.  


OLICK:  Coming up, Detroit`s profit machine.  



expected to generate big profits.  I`m Phil LeBeau in Flint, Michigan, with 

a look at the fierce battle brewing over heavy duty pickups.  That story 




HERERA:  The National Retail Federation is forecasting a climb in retail 

sales this year.  The nation`s largest retail trade group is calling for 

consumer spending between 3.8 and 4.4 percent this year to about $3.8 

trillion.  But the trade group acknowledges that the ongoing trade war with 

China and a volatile stock market could alter that forecast.  

GRIFFETH:  Fiat Chrysler is recalling more than 880,000 pickup trucks 

worldwide to address steering and pedal issues.  The recall involves 

certain Ram vehicles.  There have been reports of one injury and eight 

accidents that may be related to that issue.  

HERERA:  Pickup trucks are big business, and they`re at the center of the 

latest battle between the big three.  Today, General Motors (NYSE:GM) 

unveiled its new heavy duty pickup in the hopes of strengthening one of its 

most profitable models.  

Phil LeBeau has more from GM`s truck plant in Flint, Michigan.  


LEBEAU:  A heavyweight fight in heavy duty pickups.  The newest Chevy 

Silverado, complete with a 10-speed transmission, GM`s latest haymaker in 

the battle of big trucks.  

MARK REUSS, GM PRESIDENT:  These are tools but they`re also refined tools.  

And as refinement has increased, I think the market has gotten even more 

acceptance for those.  Very important for us.  

LEBEAU:  Not to be outdone, Ford is also rolling out a new heavy duty F-

series with a bigger engine and more power, while Ram executives say their 

new heavy duty pickup will be able to tow loads weighing as much as five 

African elephants, the kind of capabilities contractors are looking for in 

a work truck.  

ADAM JONAS, MORGAN STANLEY:  We can say that part of the business of the 

manufacturers are protecting the most, nurturing, not taking too many 

chances with is what we call the professional market, yes, the pickup truck 

market and specifically the heavy duty pickup truck market.  

LEBEAU:  That`s why these pickups are so important.  They are extremely 

profitable.  It`s estimated each brings in well over $10,000.  Roughly out 

of every four pickups sold is a heavy duty model with the F-series, 

Silverado and Ram dominating the market.  And there`s no sign of demand 

slowing down, especially with the strong economy.  

REUSS:  We see employment, you know, driving a lot of this but also new 

construction starts and anything that`s building, anything that`s 

servicing, all of those things are very healthy and, of course, helps our 

truck business and in particular the heavy duty business.  

LEBEAU:  GM`s new Silverado goes on sale this summer, a critical model 

expected to generate big profits, as the automaker looks to win over a 

bigger slice of the lucrative heavy duty truck market.  

Phil LeBeau, NIGHTLY BUSINESS REPORT, Flint, Michigan.  


GRIFFETH:  And finally tonight, the Robb Reports Car of the Year, it is 

Lamborghini`s new SUV, the Urus, which has a starting price of $200,000.  

It is an Lamborghini, after all, and it does 0 to 60 in 3.5 seconds.  It`s 

been a hit apparently.  The Urus helped increase the automaker`s sales by 

about 50 percent last year.  



HERERA:  Before we go, here`s a look at the day on Wall Street.  The Dow 

rose 172 points, the Nasdaq climbed 54 and the S&P 500 added just about 13.  

And that will do it for us tonight.  I`m Sue Herera, thanks for joining us.  

GRIFFETH:  I`m Bill Griffeth.  Have a great evening.  See you tomorrow.


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