Transcript: Nightly Business Report — August 5, 2015

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

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Cutting the cord. Investors dumped big media stocks on concerning comments from one of America’s biggest company.

TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: On the water front. Why lingering problems at the West Coast ports is proving to be a big windfall for those on the East.

HERERA: Payday. How much do CEOs make compared to their workers? We’ll soon find out.

All of that and more tonight on NIGHTLY BUSINESS REPORT for Wednesday, August 5th.

MATHISEN: Good evening, everyone. And welcome.

It was all about the media sector today and it wasn’t pretty. Disney (NYSE:DIS) set the tone when its CEO suggested that more people than previously thought are switching to video streaming from traditional cable or satellite-linked television.

That set in motion a chain reaction, one that was focused on the changing ways people watch television.

Time Warner (NYSE:TWX) reported a strong quarter. Its CEO said subscriber losses have been modest, and he wasn’t concerned about investors cutting the cord. Still, the market didn’t buy it.

Discovery also failed to impress when it missed both on earnings and revenue expectations.

Investors were alarmed. Fears about cord cutting hit the sector hard with Disney (NYSE:DIS), a Dow component, falling more than 9 percent. Time Warner (NYSE:TWX) off almost the same amount. Discovery tumbling 12 percent.

Julia Boorstin takes a closer look at a television industry in flux.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Media giants’ future may hinge on cord cutting trends and standalone streaming apps. Disney’s talk of subscriber losses and the company’s outlook dragging shares lower. The CEO Bob Iger saying the pay TV bundle is still relatively strong and isn’t going away. And that even as the landscape changes, Disney (NYSE:DIS) is well-positioned.

BOB IGER, DISNEY CHAIRMAN & CEO: Look at what percentage the bundle represents. Not just in terms of revenue, but in terms of how people watch television. It’s still the dominant form of television viewing in the home.

ESPN is fortunate that it is a brand that we believe ports well to any new platform, whether that’s smaller bundle, whether that’s an over-the-top package of programming, or whether it is a direct or consumer business.

BOORSTIN: The question Wall Street is weighing as media companies trade lower today, whether the shift away from a traditional TV bundle Disney (NYSE:DIS) is grappling with will have broad impact across the whole media industry.

LARRY HAVERTY, GABELLI FUNDS: Disney (NYSE:DIS) is at the top of the food chain. If they get a cold, the others will be into the doctor pretty quickly.

BOORSTIN: Time Warner (NYSE:TWX), which reported earnings this morning, is taking a different tactic with its biggest brand. Bringing HBO direct to consumers with HBO Now which launched the quarter. CEO Jeff Bewkes is bullish, saying more distribution partners and additional investment in programming is coming.

Does the company now expect to generate losses this year and expect it to be highly profitable over time?

As for the question of whether media companies new digital revenue streams are having an unexpected negative impact on their legacy businesses, both Disney (NYSE:DIS) and Time Warner (NYSE:TWX) CEOs say selling content direct to consumers through Netflix (NASDAQ:NFLX) and HBO Now is not cannibalizing their core business.

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin.

(END VIDEOTAPE)

MATHISEN: And after the bell today, CBS (NYSE:CBS) reported a 24 percent drop in second quarter earnings amid weaker results at its entertainment division’s revenues roughly in line. 21st Century Fox saw a 9 percent drop in revenue on softer ad sales in its television business. It also announced a $5 billion stock buyback.

HERERA: Disney (NYSE:DIS) was far and away the biggest loser on the Dow Jones Industrial Average. By the close, the blue chip index fell 10 points to 17,540. The NASDAQ rose 34. The S&P 500 gained 6.

The energy sector was one of the worst performing as crude prices hit a five-month low, settling just above $45 a barrel.

MATHISEN: A new report on the labor market raised questions about whether job market gains can continue to accelerate. The private payroll company ADP estimates that private sector pay rolls grew by 185,000 jobs last month. That’s lower than a month ago and 30,000 below the Wall Street forecast.

Investors tend to use this report to try to figure out what the government’s monthly report will look like when it comes out on Friday. In this case, also to see, or the gauge what the Fed may or may not do in September.

Steve Liesman reports.

(BEGIN VIDEOTAPE)

STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: An early indicator of the Friday jobs report came in weaker than expected. The source of the weakness? The oil patch where jobs have been cut back due to lower crude prices and the export sector hurt by the stronger dollar. But outside of those sectors, job growth looks pretty healthy.

MARK ZANDI, MOODY’S ANALYTICS CHIEF ECONOMIST: Last year, we were getting 250K per month on average and that’s what it would be this year if it were not for energy and for what’s going on in the non-vehicle part of manufacturing. But I think fundamentally, we’re still between 200K, 225K.

LIESMAN: A separate report confirmed health in the biggest part of the economy, services. The ISM reports surged past expectations for July and hit its best level since 2005.

Early indications are that growth in the third quarter may be closer to 3 percent than the anemic 2 percent that has been more the rule during the post-crisis recovery.

A leading Fed policymaker says the better economic data makes the Fed more likely to hike interest rates this year.

JAY POWELL, FEDERAL RESERVE GOVERNOR: Most members of the FOMC at the June meeting believed that it was time to raise interest rates sometime this year. That time is clearly coming. When we do that, there will be — if the economy continues to grow, there will be a process of raising rates gradually over time. So, that will happen.

You know, we’ve waited and I think been patient and I think that’s been the right thing to do.

LIESMAN: Powell says he’s still waiting on critical data to make up his mine whether to hike in September, later this year or not at all. But a Friday jobs number shows growth there at 200,000, as expected, could move Fed officials like Powell a step closer to that first rate hike next month.

For NIGHTLY BUSINESS REPORT, I’m Steve Liesman.

(END VIDEOTAPE)

HERERA: The U.S. trade deficit widened more than expected in June as America buys more than it sells. Solid consumer spending pulled in more imports. While the strong dollar tempered exports. The Commerce Department says the trade gap jumped 7 percent to nearly $44 billion, the largest increase in three months.

MATHISEN: Trade has been volatile this year in part because of the labor dispute at the West Coast ports during first quarter of 2015. But all that congestion on the West Coast was seen as an opportunity on the East.

We have two reports tonight. Morgan Brennan is at the port in Newark, New Jersey.

But we begin with Jane Wells at the port of Los Angeles and Long Beach.

(BEGIN VIDEOTAPE)

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, what a difference a contract makes. Business is back here in Long Beach and Los Angeles at this that port complex. Here in Long Beach, volumes were up 8 percent in June. Next door in Los Angeles, up 14 percent to the three-year high.

Forty percent of shipped goods to the U.S. comes through here, 12 percent of GDP. But because of last winter’s horrific slowdown, some business has shifted East.

Is it a blip?

JONATHAN ROSENTHAL, SAYBROOK CAPITAL: The port complex is perhaps one of the most valuable assets in the U.S.

WELLS: L.A. and Long Beach are back — a beehive of activity, unclogging the nation’s largest container port complex after a horrific slowdown.

Is everything back to normal?

UNIDENTIFIED MALE: Oh, absolutely, yes.

UNIDENTIFIED MALE: We’re well ahead of last year.

WELLS: Perhaps. But the port has seen its reputation sink after dozens of ships were parked offshore for weeks during the stand-off between dock workers and shipping companies. Port leaders are working to win back trust. And not a moment too soon, retailers will soon shift for the holidays.

JONATHAN GOLD, NATIONAL RETAIL FEDERATION: We’re still seeing issues with congestion for a variety of reasons. So, I think the ports on the West Coast really need to work on solving some of those issues.

WELLS: There are still too few truck chassis. And while the truck turnarounds are improving —

BRUCE ROBERTSON, BCI WORLDWIDE LOGISTICS: I think 25 percent of the trucks get stuck in a port for more than two hours.

WELLS: They’re rushing to complete the Panama Canal which will allow big ships to bypass the West Coast.

So, when the capital of plastic surgery, southern California ports are getting a $5 billion plus facelift.

The TraPac terminal in L.A. has robotic cranes moving cargo along magnetic tracks. The Long Beach container terminal is being made into a fully electric and automated area which can handle the biggest ships in the world.

Still, the Panama Canal gives shippers options.

SRI LAXMANA, C.H. ROBINSON: Ten percent of the volume we see would be migrating from the U.S. West Coast onto the U.S. East Coast.

JON SLANGERUP, PORT OF LONG BEACH CEO: We don’t believe that. We think it’s a nonevent.

WELLS: Really?

SLANGERUP: Yes. More than half the ships are on order in this industry too big to go through the expanded Panama Canal. We have customers with 21,000 ships on order. These are ultra large, these are mega ships and they can only come to this port complex.

WELLS: But the bottom line is the bottom line. It costs twice as much to ship something from Shanghai to Chicago if you go to the East Coast, rather than the West Coast. And that is something the west coast ports are counting on.

For NIGHTLY BUSINESS REPORT, I’m Jane Wells, above the ports of Los Angeles in Long Beach.

(END VIDEOTAPE)

(BEGIN VIDEOTAPE)

MORGAN BRENNAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The bad news for West Coast ports has been good news for East Coast ports. Many retailers are importing more goods through the East Coast and shipping lines like Merck (NYSE:MRK) are expanding operations along the eastern corridor. In a long term bet, the business is here to stay.

Container volume at the major East Coast hubs is at record levels. Maritime data firm fears that seven of the ten fasting growing ports in the U.S. are on this coast, including the port of New York/New Jersey.

The multi-billion dollar question: will it stay this way?

RICK LARRABEE, PORT AUTHORITY OF NY & NJ PORT COMMERCE DIR: We think that a certain percentage will stay in New York and New Jersey and the East Coast. We are in constant touch with shippers throughout the U.S. and parts of the world. And there is no question that the issue of reliability has come into their equation.

BRENNAN: Reliability is key. It takes about a week longer to ship to New York from Asia instead of the West Coast and can be double the cost. But more containers means more congestion. And that’s been particularly tough for truckers who sometimes wait hours to make a single pick-up.

TOM ADAMSKI, FIRST COAST LOGISTIC AGENT: Most of the truckers have implemented pier congestion were surcharges to their clients. Unless we really do something dramatic, the congestion will prevail. It’s discouraging to try to get more trucks on work. But you can’t lure more trucks to go into a congested area.

BRENNAN: A big issue is making sure there are enough available chassis, the equipment that enables trucks to move containers.

So, chassis operators are working on a proposal to share.

KEITH LOVETRO, TRAC INTERMODAL CEO: We have to collaborate more and have a more united system. So what the steam shipment lines are doing, we have to coordinate with the marine thermal operators, with the chassis providers, with the unions in terms gate operations. So, it’s becoming more integrated and that takes a little time and that takes more communication.

BRENNAN: Officials are hoping to have a sharing plan in place ahead of the Panama Canal expansion next year.

And that’s where the focus is now. The Panama Canal is expected to drive down costs for goods headed to the East Coast. But the ports have to be able to accommodate the super size vessel. Billion of dollars are being spent to dredge harbors, expand terminals and here in New Jersey, even lift the Bayonne Bridge, a $1.5 billion undertaking.

There’s a lot at stake. The port authority of New York and New Jersey expect growth in this complex to double over the next decade and quadruple by 2040. But the competition on both coasts and between individual ports is fierce. And it will all come down to which hub can handle the most the fastest.

For NIGHTLY BUSINESS REPORT, I’m Morgan Brennan in Newark, New Jersey.

(END VIDEOTAPE)

HERERA: Boeing (NYSE:BA), a top U.S. exporter, may be the first casualties from the shuttering of the Export-Import Bank, which provides financing for U.S. exporters and the customers. According to “Reuters”, Boeing (NYSE:BA) lost a satellite contract worth several hundred million because of under certainty about the future of the agency. Boeing (NYSE:BA) recently said it is looking to move pieces of the company to other countries.

MATHISEN: And still ahead, how much more does the company CEO make than you do? A new rule may shed some light on the disparity.

(MUSIC)

HERERA: The Securities and Exchange Commission wants to know more about how much CEOs are paid compared to the average employee. And today, the agency approved a contentious rule that would require most company to disclose that information.

Here’s what we know. According to “USA Today”, the CEO of an S&P 500 company is paid 216 times more on average than the average employee at their company. In 1950, it was 20 times.

Mary Thompson has been following the story for us.

What exactly is the SEC pay ratio, per se?

MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, this is called the CEO pay ratio. And what it was, it was mandated by Dodd-Frank. And what it does, it compares the amount that a CEO makes each year to the median pay of a worker at the company. The companies are going to have to start disclosing this in the fiscal year that begins on January 1st, 2017.

MATHISEN: What’s the point of this?

THOMPSON: Well, critics say there’s no point. But proponents say it’s a valuable tool for investors who do that say on pay vote every year, on whether to approve or reject a CEO’s pay package. They also anticipate it can be used to help narrow the gap between CEO wages and average workers’ wages. How?

We’ll expect to see some boycotts or campaigns against consumer products of companies, where the parent company has a high CEO pay ratio and also in certain states like Rhode Island. Advocates are already lobbying that the state not do business with companies that have a high CEO pay ratio.

HERERA: Wow.

All right. So, what’s the argument against this particular rule?

THOMPSON: Well, the critics say it’s expensive for companies to do every year. It’s useless. It won’t impact CEO pay at all. It may have the companies cheat, you know, in order to alter the CEO pay ratio. And lastly, it’s not intellectually honest.

When you’re calculating the median pay of a worker, you include seasonal and part time workers’ pay, but you don’t annualize it. So, it’s really not apple to apples to where the CEO pay.

MATHISEN: And does that CEO total aggregate number include all of their compensation or just their salary?

THOMPSON: No, no, no. It would include all their compensation, bonus, stock options, et cetera. The number that you see in a proxy that’s filed every year.

HERERA: Mary, thank you very much. This is going to be an interesting one to follow. Mary Thompson.

MATHISEN: A disappointing quarter sent shares of Keurig Green Mountain tumbling, and that is where we begin tonight’s “Market Focus”.

The company is cutting its workforce by 5 percent as it grapples with the sliding sales of its brewers and its single-serve coffee pods. Earnings actually topped estimates, but revenue missed. Shares were down as much as 27 percent in initial after-hours trading. During the regular session, the stock was down 2 percent. It closed the day at $74.98.

Tesla’s loss wasn’t as wide as expected and revenue managed to top consensus, but notably, the company lowered its car delivery guidance for the year. And investors couldn’t look past that key figure. Shares slipped hard in initial after-hours trading. During the regular session, the stock was up 1 1/2 percent to $270.13

Priceline Group hit a new high on strong results. The travel firm booked more hotel rooms and rental cars at the start of the summer travel season. That helped it beat analyst estimates for sales and earnings. The strong results came despite the shrinking euro to dollar exchanged rate, which weighed on Priceline’s bottom line. Shares did surge 5 percent to $1,351.21. That is just below the all-time closing high.

And Lumber Liquidators is still reeling from allegations that its hardwood flooring from China contains a carcinogen. The company swung to a surprise loss as sales fell more than expected, despite heavy discounting. It also says it expects California will file a claim against it because of those allegations. Shares tumbled 28 percent to finish at $13.27.

HERERA: Chesapeake logged a big loss and that sent shares tumbling. This as concerns mount over debt and heavy spending, despite low energy prices. The company did raise its production outlook, but that didn’t seem to help. Shares tumbled 12 percent to $7.03.

Genworth Financial (NYSE:GNW) also saw its shares fall after the company’s CEO said it will probably not sell its entire life and annuity business. The insurer may look for buyers of parts of those businesses. But that complicates the company’s goals of selling assets to reduce debt. Shares were down 20 percent to $5.65.

Ralph Lauren’s earnings came in better than expected, but foreign exchange impacts weighed on sales. A retail environment with heavy discounting and weak shopper traffic also played a role in those mixed quarterlies. Shares were off 1 percent to $121.50.

MATHISEN: Cyber crime is a $400 billion problem for the global economy. All businesses are spending a lot to keep their system safe. The mobile payments industry is paying especially close attention, and so are the growing number of consumers who use to it pay for things.

Josh Lipton reports tonight from a major cyber security conference in Las Vegas.

(BEGIN VIDEOTAPE)

JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Ten thousand hackers, security analysts and government agents have to spend it on Las Vegas to talk about the latest cyber security risks.

And one big theme this year: mobile payments. Now, that is a space that’s expected to balloon from $52 billion last year to $100 billion by 2017 according to Forester Research. Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG), PayPal are all fighting hard for a piece of the massive pie.

But even with widespread adoption, security risks still loom as a concern. The latest involves mobile payment company Square, a leader in the industry. A hacker at Black Hat is making headlines by saying she found a way to physically modify a square reader so that merchants can steal credit card information from customers.

ALEXANDREA MELLEN, INDEPENDENT SECURITY RESEARCHER: We found that square reader has multiple possibilities. The hardware one, it’s attack hardware encryption bypass is what we call it, where you can actually turn the square reader into a credit card scanner but it will look exactly like the latest version square reader.

LIPTON: Importantly, Square says this hack does not pose a legitimate security risk, saying, “Our square register software contains a number of security precautions that protect cards that are swiped on unencrypted readers. If our encrypted readers are damaged, they will not work with square.”

In other words, if the reader is physically modified or damaged, then it wouldn’t work with the Square app. Square, of course, just confidentially filed for an IPO. One question is whether this hack will concern investors.

Square isn’t the only mobile payment app that’s come under criticism. Remember, Venmo, another smart phone app, also came under scrutiny earlier this year over security concerns, though Venmo then acted to strengthen security for its users.

But cybersecurity experts tell me they don’t expect any of this to slow down the growth or adoption of these apps. The ease and convenience of these services they say remain just too compelling.

For NIGHTLY BUSINESS REPORT, I’m Josh Lipton in Las Vegas.

(END VIDEOTAPE)

HERERA: And coming up, will the next generation be better than their parents? We asked you to tell us what you think about America’s kids and their future.

(MUSIC)

MATHISEN: Here’s what to watch tomorrow. Jobless claims are out, an important report to watch ahead of Friday’s big jobs day. Another read on the labor market with the challenger job cut report, that one tomorrow, too. And more data with chain store sales. A look at what consumers are up to. And that is what to watch Thursday.

HERERA: A snack company made its Wall Street debut, but Amplify, which is known for its Skinny popcorn brand failed to pop with investors. Shares fell 10 percent to $16.14.

But Amplify isn’t just a popcorn company. It’s part of growing — fast growing better for you industry that wants to shake up the snack food business.

And as Bob Pisani tells us, its unique strategy also has some big obstacles.

(BEGIN VIDEOTAPE)

BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Amplify is the maker of the wildly popular Skinny Pop, popcorn, which apparently every millennial woman in America is eating. But a $1 billion market value for a popcorn company? What am I missing?

It’s not really about the popcorn. That’s what I’ve learned. Of course, the popcorn matters, but it’s really more about the branding and the relationship of the customers to the product. It’s a lot about the name of the product and how you feel about it.

I know, it sounds touchy-feely and it is but it’s kind of working. Simply put, it’s consumer branding. In the case of Amplify, it’s about selling the natural food trend. Or as it is now known, the better for you or the BFY market.

Skinny Pop is about a cute name that claims they’re taking out stuff that’s not good for you like GMO ingredients or allergens.

And it’s not the only one in the fast growing space, which grew, by the way, 10 percent in 2014.

Blue Buffalo, for example, is already working the BFY pet food space. Hain Celestial has been in the organic and natural space for years. And they’ve been a strong performer.

Now, this kind of growth does get noticed and that’s the big problem. This is a highly competitive space that can be easily penetrated by larger competitors.

Frito Lay, for example, has a similar product called Smartfood. So, nobody is laying down here.

And that’s not stopping Amplify from expanding either. It recently acquired Paqui. It’s a tortilla chip brand. They expect to re-launch it nationally in the beginning of next year. Think Doritos which they claim is what’s bad for you.

Still, it’s not at all clear that their brand expansion strategy will succeed with other products. Still, you got to admire how far they’ve come given these giant companies they have to compete against, anyone who thinks there’s no room for innovation in the slow growing food business should pay attention to the approach of companies like this one.

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

(END VIDEOTAPE)

MATHISEN: Well, the tech industry has announced new perks for expecting parents. Netflix (NASDAQ:NFLX), get this, unveiled a new parental leave policy allowing new mothers and fathers to take an unlimited amount of time off at full pay in the first year after the birth or adoption of a child. Tech giant Microsoft (NASDAQ:MSFT) basically followed suit. It is extending its parental leave rules to a full 12 weeks.

HERERA: Speaking of kids, are you worried about your children’s financial future? If so, you’re not alone. An online survey found that just one in eight Americans believe that the next generation will be more financially secure than they are.

Whether you believe those numbers or not, it certainly got us thinking about the future as well, and the standard of living for the next generation.

So, we took our cameras out to see what you think.

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE: I’m hoping they’ll be better off, that my children will be better off than I am.

UNIDENTIFIED FEMALE: They’re smarter than we were. There are more advantages. The world is more connected. So I’m going to say better.

UNIDENTIFIED MALE: It’s hard out there. So I feel that my children’s generation will be worse off.

UNIDENTIFIED FEMALE: Until we look at economic inequality, you know, I don’t think it is going to be better.

UNIDENTIFIED FEMALE: Everyone is pretty much struggling for cash as far as what they’re going to do next. And I don’t think I mean, people have a sense of security. I don’t know if they have a real sense of actual financial security.

UNIDENTIFIED MALE: I’m not old by any stretch of the imagination. I’m 30. I do OK. You know, I think anyone who works hard will do OK.

(END VIDEOTAPE)

HERERA: And this survey echoes the results of other recent studies.

MATHISEN: And finally tonight, a historic day for Universal (NYSE:UVV) Pictures. It is the first movie studio to gross over $5.5 billion worldwide in one year. Success of film like “Jurassic World” and “Furious 7” helped the company reach that industry record.

We should note that NIGHTLY BUSINESS REPORT is produced by CNBC, which like Universal (NYSE:UVV) Pictures, is owned by Comcast (NASDAQ:CMCSA) (NYSE:CCS).

HERERA: Don’t forget “Minions”.

MATHISEN: “Minions” is big. That was a big part of it there.

HERERA: It was.

MATHISEN: A big part of it.

HERERA: Papaya! That’s “Minion” dance by the end of it.

That’s NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera. Thanks for joining us.

MATHISEN: And thanks for me as well. I’m Tyler Mathisen. Have a great evening, everyone. We will see you back here tomorrow night.

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