Transcript: Nightly Business Report – May 8, 2019

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Strong profits.  Disney  (NYSE:DIS) reports better-than-expected results, but the company that can`t  seem to do anything wrong also faces some challenges.  

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  The great unknown.  The  trade war between the U.S. and China could enter a new phase and global  central banks are on alert.  

HERERA:  Getting grilled.  Lawmakers call CEOs to Capitol Hill when public  safety is a concern.  So, why haven`t Boeing (NYSE:BA) executives been  asked to testify?  
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Wednesday,  May 8th.  

GRIFFETH:  And we do bid you a good evening, everybody.  And welcome.  
Trade tensions were again in focus today and we will get to that in a  moment, but earnings still matter, and that`s where we begin tonight with  Disney`s latest report.  The Dow component`s profit nearly doubled in the  latest quarter.  Its first earnings report since acquiring Fox`s  entertainment assets.  Revenues from its theme parks were strong and its  direct to consumer segment grew and that helped offset the media  investments and the decline in movie studio revenue.  The stock which sits  below its all-time high rose in initial after-hours trading tonight.  
Julia Boorstin has more on Disney`s results.  

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  The key takeaway  from Disney`s better-than-expected results is parks, experiences and  products division performed far better than expected, with revenue growing  5 percent in the operating income growing 15 percent.  This was driven by  the domestic theme parks and resorts with guests spending more and higher  attendance with increases in average ticket prices as well as higher food,  beverage and merchandise spending.  
Now, all of this growth comes ahead of a big expansion for Disney`s U.S.  parks.  Star Wars Galaxy`s Edge launching at Disneyland later this month  and then at Disneyworld in Orlando in August.  

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

HERERA:  On Wall Street, investors were in wait-and-see mode ahead of trade  talks with the U.S. and China.  The selling of the past two days stopped,  but the buying did not pick up.  The Dow Jones Industrial Average was up 2  points to 25,967, the Nasdaq fell 20 and the S&P 500 was down four.

And Intel (NASDAQ:INTC) was part of the reason why stocks came under  pressure late in the day.  The Dow component issued a three-year outlook  that investors viewed as disappointing.  

GRIFFETH:  Also earlier in the day, there was optimism over trade when the  White House indicated that China ease trade negotiators do want to make a  deal.  The next round of talks are scheduled tomorrow evening.  But with a  sizeable increase in tariffs still set to kick in very early Friday  morning, there is concern that a full-blown trade war could stunt already  fragile, global growth.  

And that could change the thinking of central banks around the world. 
Steve Liesman has more.  

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Economists are  taking seriously potential impacts on more tariffs on growth and earnings  and on Central Bank policies.  J.P. Morgan in a new report says that  tariffs could take 20 bases points off of U.S. growth this year.

UBS estimates that full-blown tariffs as threatened by the president could  shave 45 basis points, near a half a point, off of global growth and hit  U.S. earnings.  The impact from the rise from 10 percent to 25 percent on  the existing set of tariffs and Chinese goods could take 2 percent off U.S.  earnings, 25 percent tariffs on all Chinese goods would take another 7  percentage points off.  

KEITH PARKER, UBS:  You`re in that environment now where uncertainty is  rising and obviously, the tweet on Sunday hitting markets where we now have  to think about the possibility of that 25 percent tariff and the risk of  further escalation and you`re seeing equity markets priced that in.  In  terms of sectors most hit by the tariff step up, our work shows, tech and  industrials getting hit the most and they were leading the market lower  yesterday.  

LIESMAN:  And economists think a full-blown trade war or not could have a  decisive impact on the Fed`s next move.  
Jeffrey says if there`s a breakthrough in the trade negotiation, a Fed rate  hike as soon as late 2019 would be back on the table.  
Medley Global Advisers cautions the trade war between China and the U.S.  can force central banks into easing that it`s contingent upon how domestic  economies fare in heightened global trade uncertainties.  
So, if nothing else the trade fight has introduced tremendous volatility  for growth, for earnings and for interest rates of central banks.  

HERERA:  And as you know, all week, we`ve been talking about trade tensions  and what it could mean for various industries.  Tonight, we`re taking a  look at the trade sector and what could end up being the centerpiece of the  China trade deal but also possible its biggest stumbling block, and that is  intellectual property theft.

We are joined tonight by Dan Ives, managing director of equity research at  Wedbush Securities.  
Welcome, Dan.  


HERERA:  IP theft has been a problem for a long, long time.  But it is kind  of a laser-like focus in these particular trade talks.  That`s at least  what we hear.

Gauge what kind of success you think we`ll have in terms of stemming it?  
IVES:  I mean, look, as someone that has covered tech for 20 years, you`re  talking hundreds of billions is really lost in I.P. in terms of China and  from the Microsoft (NASDAQ:MSFT), the Adobes to other, this continues to be  a hot-button issue in the Valley.  And that`s why the Trump administration,  what they want is teeth in terms of these sorts of tariffs and regulation  specifically on I.P.  

And remember, this is all of the drum roll for 5G over the next 12 to 18  months, and that is from a threat perspective going to be the UFC battle  between China, as well as the U.S. 

GRIFFETH:  A huge sticking point in all of this, Dan, has been enforcement.   How do you enforce any rules that may come out of this deal?  And we assume  that it`s up to governments to do the enforcement, but is there a role for  the companies themselves in this, do you think?  
IVES:  Look, I think that`s why government is so important here because the  companies ultimately only have so much power and they`ve tried again and  again to try the forces and you go up to Redmond and ask Microsoft  (NASDAQ:MSFT) themselves where any other software or chipmaker.  That`s why  you continue to see a focus in terms of this is the time where right now  the U.S. really needs to enforce that and make sure that the goal lines are  there and the goalpost for a deal because this is the time and that`s why  there`s such sensitivity to it from an I.P. perspective as this continues  to really be — you know, what I view as a major overhang across the space?  

HERERA:  What are the odds, do you think, though, that we`ll make progress?   I mean, this has been a problem for a long time, the Chinese haven`t moved  in past negotiations, why do you think they might now?  
IVES:  You know, I think now, I mean, there`s a lot more pressure put on  the Chinese in terms of what you`re seeing from the administration.  That`s  where the tariffs right now.  You know, they`re definitely in a position of  strength to kind of tighten the pressure on China which you`ve never really  been there before in terms of teeth, that really had enforcement.  That`s  why we continue to think there is a 60 or 70-percent chance of that getting  done in these tariffs which in our opinion it would be a strong positive  for the tech sector.  

And I can tell you from talking, not just to investors, but executives  across the board, this is the number one focus from an I.P. perspective,  especially with 5G and what we saw between Broadcom (NASDAQ:BRCM) and  Qualcomm (NASDAQ:QCOM) and how key that technology is going to be going  forward.  That`s why in our opinion the clock has struck 12:00 here. 

HERERA:  All right.  Dan, we`ll wait and see.  Thanks for joining us.  
IVES:  Thanks.

HERERA:  Dan Ives with Wedbush Securities.  

GRIFFETH:  Meantime, trade had been a driver of China`s economy, but now,  suddenly, it appears to be a drag.  A new report says the world`s second  largest economy experienced a surprise drop in exports last month.  

Eunice Yoon has the story in Beijing.  

EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT:  China`s trade data for  April caught everyone off-guard.  Exports fell by 2.7 percent from a year  ago compared to expectations for a rise of 2.3 percent.  Imports jumped by  4 percent when the market was waiting for a fall of 3.6 percent.  The talk  is that weak orders for the U.S. and Europe were behind the drop in  exports, Chinese stimulus measures like a cut in VAT helped boost imports.  

Chinese exporters are now concerned that President Trump`s latest tariff  threat could spike any hopes for an export recovery in the second half of  the year.  One Chinese exporter who sells to the United States told me that  he`s worried that the tariffs could kill off his business, and then one  American executive who has manufacturing facilities here in China said that  he`s worried that manufacturers like him will become dead in the water.  

Many in the supply chain are now talking about accelerating a concept  called “China Plus One”.  It`s a strategy that`s been around for years,  mainly for bigger companies to diversify their production base outside of  China.  But these days, companies of all sizes are now reviewing this  approach, with a priority to find an alternative supplier for every single  critical component outside of the country.  

Suppliers are not only worried about the U.S. tariffs.  They also feel that  China won`t significantly alter its economic agenda despite U.S. pressure.   So, they`re now preparing for points of crisis in the U.S.-China  relationship for the next five to 10 years, which to then means more  aggressively pursuing partners in places like Southeast Asia, Indian and  Ethiopia. 
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.  

HERERA:  It is time to take a look at some of today`s “Upgrades and  Downgrades”.  

Mylan (NASDAQ:MYL) was upgraded to market perform from outperform at Wells  Fargo (NYSE:WFC).  The analyst cites the company`s disappointing quarterly  results which we told you about last night.  The price target is $22.   Despite the downgrade, the stock rose 1.5 percent to $21.89.  
U.S. Steel is downgraded to sell from neutral at UBS.  The analyst there  cites the company`s loss of market share.  The price target is $10.  It`s  the lowest on Wall Street.  The stock fell 6 percent to $15.40.  
Lending Club was upgraded to overweight from neutral at Wedbush.  The  analyst cites the potential for 12 to 15 percent annual revenue growth.   The price target is $5.  Shares rose 12 percent to $3.62.  

GRIFFETH:  Still ahead, lawmakers have been calling for a number of  hearings on Boeing (NYSE:BA) 737 MAX, but one person in particular has not  been called to testify.  


GRIFFETH:  There were some tense moments at a G.E. shareholder meeting in  suburban New York.  One retiree expressed his frustration with former CEO  Jeff Immelt under whose tenure the stock lost roughly half of its value.  

Current CEO Larry Culp (NYSE:CFI) addressed the shareholders` call to halt  some of Immelt`s supplementary pension payments.  

LARRY CULP, GENERAL ELECTRIC CEO:  If there are finding such that serious  misconduct has been uncovered, then clawbacks would be in order.  As you  well know, the barter for clawbacks is high.  It is really that of serious  misconduct as opposed to business decisions that did not go as anticipated  or as hoped for.  

GRIFFETH:  During that meeting, executives announced that shareholders had  approved the company`s executive compensation plans, and they rejected a  proposal to appoint an independent chairman.  The stock today rose a  fraction to just around $10 a share.  

HERERA:  It`s been almost two months since the FAA and regulators around  the world grounded Boeing (NYSE:BA) 737 MAX.  Since then, the company and  investigators have been probing what`s wrong with the plane and what led to  the deadly crashes.  There have been hearings on Capitol Hill where  regulators have testified, but not Boeing (NYSE:BA) CEO.
Phil LeBeau reports.

PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Boeing (NYSE:BA) CEO  Dennis Muilenburg is on the hot seat.  From investors to investigators,  many are scrutinizing how Muilenburg`s company developed the 737 MAX, and  how did that lead to three crashes that killed 346 people?  

While those running the FAA and NTSB have been questioned on Capitol Hill  about the MAX, Muilenburg has not been asked to testify, which surprises  some.  

RAY LAHOOD, FORMER TRANSPORTATION SECRETARY:  Are they truly interested in  total transparency?  Do they want to hear from the top people?  And I think  there`s a little bit of doubt for the moment here why the CEO has not  testified and why hearings haven`t been held.  

LEBEAU:  Historically, Congress moves quickly to question CEOs in the midst  of a public safety controversy.  In 2010, Toyota (NYSE:TM) CEO flew in from  Japan to testify about the safety of Toyota (NYSE:TM) models suspected of  unintended acceleration.  

Four years later, GM CEO Mary Barra found herself in D.C. explaining why  the company sold millions of vehicles with faulty ignition switches.  

JEFFREY SONNENFELD, YALE SCHOOL OF MANAGEMENT:  What Mary Barra did was she  didn`t pinpoint what the problem was.  She said here`s what we know and  here`s what we don`t know and here`s the process to get to those answers.   Dennis Muilenburg could comment on that.

LEBEAU:  Boeing (NYSE:BA) says Muilenburg may testify at some point in the  future and it`s supplying information to lawmakers probing the plane.  But  with many in Congress more focused on questioning the Trump administration  or the investigation of the special counsel, it`s unclear how many more  hearings there will be about the MAX.  

Another one is scheduled for next week and will feature the heads of the  FAA and the NTSB, but much like previous hearings, no Boeing (NYSE:BA)  executives are scheduled to testify.  

GRIFFETH:  Now an opinion about Boeing`s stock on Wall Street is generally  positive.  There are no sell ratings from analysts.  Several, though, have  buy ratings and a few are avoiding the stock right now with hold ratings.  

We have two analysts with us tonight.  Erin Gibbs with S&P Global Market  Intelligence has a hold rating right now.  And Gary Bradshaw with the  Hodges Funds has a buy rating.  
Good to see you both.  Thanks for joining us tonight.  


GARY BRADSHAW, HODGES FUND:  Thanks for having us.

GRIFFETH:  Erin, we should point out, you`re not bearish, but you`re not  buying the stock right now.  You had this hold.  Why not?  
GIBBS:  Yes.  I feel that this stock is either a market just slightly  underperform, I don`t necessarily see it going down that much further, but  definitely underperforming the broad market.
And so, I am in a wait-and-see position because ultimately, Boeing  (NYSE:BA) really does have strong fundamentals.  It`s just that you don`t  want to buy it while you`ve got negative headlines every single day and the  FAA review keeps getting pushed back to later and later in the summer.  So,  it`s a bigger and bigger hit on their sales for that plane.  
So, we`re really going to want to wait until we see the second quarter  report which comes out at the end of July.  


GIBBS:  We`ll have clarity of the FA is moving forward on their review and  actually how much of the 737 MAX is hitting the revenues because it is so  unclear.  We know it`s a small percentage but we`d like to be a little  sure.  So, for us, we want to be on the sidelines and we want to wait-and- see, and we think toward that end of July period, there`s going to be a lot  more clarity around the stock.  

HERERA:  Gary, you`re bullish on the stock and you point to the fact that  they have not lost orders at this point.  

BRADSHAW:  Well, you`re right, Sue, it is a core holding at the Hodges blue  chip fund and we`ve been adding to Boeing (NYSE:BA).  You know, granted,  this is a tragic event, but it reminds us a lot of the 787 battery issues  back in 2013 when we were buying the stock at $74, and we know that  Boeing`s got every engineer there, Dennis Muilenburg and his management  team is working 24/7 to get this right.

And we think that the fix on the 737 MAX will happen in the second half.   We think the FAA will approve the fix and lift the grounding and then  Boeing (NYSE:BA) will ramp back up production.  And yes, profitability will  be down a touch this year over last, but with the seven to eight years of  deliveries in front of Boeing (NYSE:BA), we think they can earn $23 in 2020  when they ramp back production.  

So, we think the stocks, they`re cheap at this level.  We think cash flow  could be at $30 and it wouldn`t surprise us to see the stock go back to its  old high of $445 over the next 12 to 18 months.  

GRIFFETH:  Right.  

BRADSHAW:  And that`s a great 25 percent increase.  

GRIFFETH:  Very quickly, Gary.  You don`t think there will be any more  cancellations?  You don`t think there will be a chilling effect the longer  this goes on?  

BRADSHAW:  Well, there could, Bill, but at the same time they haven`t lost  any orders yet.  The 737s have always been a cash cow, and we think they`ll  get this fixed and the airline industry needs this plane.  So, we don`t  think there will be cancellations out there.  

HERERA:  Erin, you know, they raised their dividend some 20 percent.  It`s  a pretty decent, 2.25 percent on the stock.  That doesn`t compel you?  You  still want to wait until we don`t see those headlines anymore?  

GIBBS:  Yes, because, look, I — we have a saying, right, you don`t want to  catch a falling knife.  And Boeing (NYSE:BA) has multiple issues.  Not only  is it being investigated by the FAA and the FBI, a lot of negative news,  but we also have the trade war issues.  Because if we do have tariffs, they  could face increased costs which could really eat into the profit margins.
So, there`s just a lot of uncertainty and I don`t see that getting in right  now, even though it`s cheap, it could get cheaper.


GIBBS:  And so, I just feel it`s a little earlier.  I want to see more  clarity before I feel comfortable getting in.  

GRIFFETH:  Very good.  Erin Gibbs with S&P Global Market Intelligence, Gary  Bradshaw with the Hodges Funds — always good to see you both.  Thanks for  joining us tonight.  

BRADSHAW:  Thank you.

HERERA:  New premium burgers helps Wendy`s earnings sizzle.  That`s where  we begin tonight`s “Market Focus”.

The burger chain reported better than expected earnings and revenue due to  higher franchise royalty fees, and a launch of its new premium burgers.   The company also announced it is introducing a new line of fresh beef  burgers to entice customers for premium fast food.  Shares rose nearly 4  percent to $19.20.  

Online subscription growth helped “The New York Times (NYSE:NYT)” top Wall  Street expectations.  “The Times” now has 4.5 million total subscriptions  with the goal of having 10 million by 2025.  Shares rose more than 4  percent to $34.30.  

Starting this summer, Walmart plans to increase the minimum age to purchase  tobacco products to 21.  Last month, the FDA threatened to find Walmart,  along with more than half a dozen store chains for illegally selling  tobacco products to minors.  Walmart`s stock fell about 1 percent to  $100.30.  Altria and British American Tobacco also had their shares finish  lower.  

GRIFFETH:  Barrick Gold (NYSE:ABX) reported better than expected earnings  thanks in part to progress of the company`s strategic initiatives after its  $18 billion merger with Randgold last year.  The shares fell more than 1  percent to $12.57.  

Parsons, the defense, engineering and I.T. provider debuted on Wall Street  today.  The company priced its shares at $27 each.  And during an  interview, CEO Charles Harrington said his company is always evolving.  

CHARLES HARRINGTON, PARSONS CHAIRMAN & CEO:  We`re a company that  transforms several times in history and been in missile defense since the  `40s.  So, we`re a company that`s cyber, intel and critical infrastructure.  

We were public from 1969 to 1984.  Two of those last two years on the New  York Stock Exchange.  We always thought we`d probably go public again some  day.  So, we`ve done a lot of growth through M&A, and this helps us  continue that path.  

GRIFFETH:  And shares rose more than 11 percent on the first day of the  return to the New York stock exchange at $30.07.  
Then after the bell, Fox beat Wall Street estimates after selling entertain  assets to Disney (NYSE:DIS).  Company said its revenue increase was due  mainly to affiliate and advertising growth.  The stock initially rose in  after-hours trading and closed the regular session up a fraction at $36.82.  

HERERA:  Coming up, some Uber and Lyft drivers send a message to the  companies ahead of Uber`s Wall Street debut.  

HERERA:  Google`s CEO Sundar Pichai called privacy one of the most  important topics of our times.  In a “New York Times (NYSE:NYT)” op-ed, he  admitted that having access to people`s data makes Google`s service run  better, but that all users should expect their privacy to be protected and  he said privacy protection cannot be a luxury good offered only to those  who can afford to buy premium products and services.  
Tech companies more broadly have come under fire from lawmakers about how  they handle their customers` information.  

GRIFFETH:  General Motors (NYSE:GM) said to admit today that it is in  discussions with electric drugmaker Workhorse to sell its recently idle  plant in Lordstown, Ohio.  The automaker said the deal has not yet been  finalized.  G.M. made a statement after a tweet by President Trump first  revealed that a sale was in the works.  
Separately, GM also announced the creation of $450 new manufacturing jobs  at its facilities in Toledo.  

HERERA:  Honda and Toyota (NYSE:TM) today both said that they planned to  cut costs in order to free up cash in electric cars and ride-sharing  services.  Honda will cut the numbers of models to help redirect savings  towards research and development.  Toyota (NYSE:TM) expects its cost  reduction efforts to lift its operating profit.  

GRIFFETH:  Finally tonight, as you may know, Uber is scheduled to price its  initial public offering tomorrow and begin trading on Friday.  And reports  today said that the shares may be priced at or below the midpoint of their  expected right range, the ride-hailing company had set a range of between  $44 and $50 a share just last month.  

But ahead of the Uber`s IPO, drivers from the ride-sharing company and from  its rival Lyft organized in protests in cities around the world today.  
Aditi Roy is in San Francisco for us tonight.

ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Nearly 300 Uber drivers  speaking out at the company`s global headquarters in San Francisco,  blocking a major street and demanding higher wages and benefits.  

JANET KWON, TAXI WORKERS ALLIANCE:  We just want to tell Uber that they  need to stop exploiting drivers before they, you know, go on Wall Street  and start selling shares.  

ROY:  The demonstrations began in London and spread across cities in the  U.S., including New York, D.C., Chicago and San Francisco.  But in some  places like London and Queens, New York, turnout was lower than expected.  

In Brooklyn, demonstrators began the day with a caravan of slow-moving Uber  cars driving across the Brooklyn Bridge, and while ride share protesters  say they would shut down the Uber and Lyft apps, an Uber spokesperson said  the company saw a decrease of about 500 drivers in New York City which is  less than 1 percent of the drivers in the city, making it tough to tell  whether the dip was a result of the protest or just an anomaly.  

Still protesters say they would keep pushing for change.  

GARY BRANSON, UBER DRIVER:  As with most movements it starts small and  builds from there.  The drivers have four demands: higher wages,  transparency, and decision making, employee benefits, and a voice in  company decisions.  

ROY:  In a statement, an Uber spokesperson says: Drivers are at the heart  of our service and we can`t succeed without them.  We`ll continue working  to improve drivers` experience for and with them every day.  
As part of the company`s IPO, about a quarter or roughly 1 million Uber  drivers globally will be eligible for a one-time reward, ranging from $100  to $40,000, depending on the number of trips the driver has completed.   U.S.-based drivers will have the option to buy up to $10,000 worth of stock  with that money.  

MUSTAFA ALHASIEH, UBER DRIVER:  They should protect their passengers too.   They are charging them the amount that they want, and they pay us like  peanuts.  

ROY:  Most Uber and Lyft drivers are part-time workers who are working for  the ride sharing companies for supplemental income.  Studies show that Uber  drivers make $18 to $21 an hour on average and the Lyft spokesperson tells  us that its drivers make about $20 an hour.  
For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.  

GRIFFETH:  And you can read more about Uber and Lyft on our website at  

HERERA:  Let`s take a look at the final day on Wall Street.  The Dow was up  about two points to finish at 25,967, the Nasdaq fell 20, S&P 500 was down  four.  

And that is NIGHTLY BUSINESS REPORT for tonight.  I`m Sue Herera.  Thanks  for joining us.  

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

Nightly Business Report transcripts and video are available on-line post  broadcast at The program is transcribed by ASC Services II  Media, 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) 2019 CNBC, Inc.

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