Transcripts For KQED Nightly Business Report 20140214

Networking gear faces fresh questions over whether its turn around strategy is working. All that and more tonight on nightly Business Report for thursday, february 13th. Good evening, im tyler mathisen. Around im in for susie. We begin this evening with a megamerger in the media world. That deal that would combine the largest tv providers comcast and cable. If approved the company would have 33 million customers, nearly one out of every three cable households in t u. S. And become a dominant force in delivering tv content. The allstock offer would give time warner shareholders 159 a share. Pretty big premium. Stocks Closing Price today of 144. 81. Julia borstin has more. Reporter comcast acquisition of Time Warner Cable, if its approved, would create a cable and Broadband Internet giant with nationwide reach. Comcast saying the deal will pay off and start generating money in year one. In part because it will have operating efficiencies of 1. 5 billion. Comcast buying Time Warner Cable gives them a huge nationwide footprint to decrease competition, obviously provide a muchct for the average american consumer. Reporter but consumer concerns will be under the microscope when the fcc evaluates the deal. Consumer Advocacy Group free press rejecting the deal watching in a statement comcast will have unpress denlted market power over consumers andnd an unprecedented ability to exert its influence over any channels or businesses that want to reach comcast customers. But comcast says the deal will not affect consumer options. We dont compete. Were not in the same markets. Not in any of the same zip codes with time warner. Theres no overlap, no reduction of competition. So were just able to bring is better products to their markets. Reporter comcast says the merger will actually benefit consumers in small and mediumsized businesses, providing faster Internet Connections and Better Technology for streaming video. Theres over four in many cases five video competitors in every market. Selling all of their content services. Businesses transforming every day with technology, its a competitive business. Reporter another question, how the combined companys greater leverage will impact negotiations with content Companies Like cbs, which battled with Time Warner Cable over fees for months last year. We dont think its going to be the same sort of struggle. We obviously already have an existing deal with comcast, and we look forward to continuing that in the future. Reporter now well see whether the deal can clear regulatory hurdles. For nightly Business Report, im jewulia boorstin in los angeles. Lets turn to the regulatory hurdles. Hampton pearson, what are the possible road blocks to the deal and what hurdles does it have to overcome . Reporter well, first of all, the Justice Department is going to review the proposals for basically harms to competition, some of which julia touched on in her report. While comcast and time warner have no overlap in their respective cable businesses, that merged company would see comcast with about 30 million households just in cable tv alone. Its also being argued that the company would have leverage with the content providers when it comes to distribution. Comcast of course owns nbc universal. But what about major content providers like cbs and disney . Would the merged comcasttime warner have too much leverage if you will as far as fewer negotiations in things like retransmission deals . Also that merged company would put comcast in 19 of the 20 largest markets with about a 30 share of the paid tv business and also a strong position for providing broadband and Internet Services as well. Comcast of course argues its real competition in all those venues is satellite tv and telecom, not just over cable providers. Weve seen by the way the Justice Antitrust Division stepping up its scrutiny of big merger deals lately. And the other thing, too, the piece of the federal Communications Commission will have to review is all those things related to the public interests, from whether cable bills would get jacked up, and it is the first new deal for the new s. E. C. Commissioner tom wheeler. Consumer groups as you heard again in julias report already predicting higher prices. And then theres congress, hampton. What role if any might Congress Play in this . Reporter well, no surprise, there will be hearings in both the house and senate. Within hours of the news today, about this deal, we had bipartisan statements from the leaders of the antitrust subcommittees in both the house and senate announcing plans to evaluate the benefits and the challenges of this proposed merger going forward. Also there is, if theres anything thats a consensus about in all of this the deal will be closely scrutinized by regulators and probably could take about a year before we get some sort of final resolution. All right, hampton, thank you very much. Hampton pearson reporting from washington. A disclosure, comcast is the Parent Company of cnbc which produces this program. On wall street, the major averages ended with some modest gains today. Strong earnings reports from the likes of goodyear, pepsico and burler king helped offset disappointing date that about retail sales in january and spike in first time jobless claims last week. The dow finished up 63 points today and closing back above the 16,000 threshold. The nasdaq was up 39 points, a nearly 1 jump in its sixth session in a row of gains. The s p was up 10. More now on that weaker than forecast retail Sales Forecast from last month with Mother Nature getting a lot of the blame. The Commerce Department reports unusually frigid temps in january sent overall retail sales. 4 lower with americans spending less most notably on autos, clothing and dining out. This weeks storm called pax stretching from georgia to maine is impacting some of the nations biggest retailers, the consumer and the economy. Reporter the winter storm is paralyzing retail in parts of the country. Some color from corporate america. Walmart had to close 137 facilities in alabama, georgia, the carolinas and virginia, including some Super Centers and sams clubs. Walmart told us our biggest challenge right now is staffing. 125 macys stores shut down or delayed opening today including 11 bloomingdales from North Carolina through new jersey. Home depot closed 70 stores yesterday, primarily around its atlanta headquarters. All but three reopened this morning. I think this too will pass. I think its going to clear within a couple of days. I think it affects some business this part of the year isnt the biggest. And i think theyll get through this and the people will have cabin fooeever and out and shopping. Reporter we got a clue today from the retail Sales Numbers for january slipping. 4 . Industries that rely on foot traffic, auto sales, clothing, Furniture Stores and restaurants, led the decline. Some of the larger retailers probably got more affected. I still think some of the retailers that had really good key items probably performed fairly well. We saw that out of Dicks Sporting Goods that just comped at 7 for the quarter ending january. I believe theyre benefitting from having the cold weather product. There were signs of weakness creeping in in january, online sales also came in negative. Were going to have to wait until the weather improves to get a real read on consumer spending. For now it looks like its in a deep freeze. For nightly Business Report im sara eisen. All this crippling cold and snowy weather is sending supplies of natural gas lower and the price sharply higher. Futures on natural gas shot up 8 today to a more than 10month high. And a new survey says that that same wicked Winter Weather is taking a 50 billion toll on the economy this quarter with half of recent economic weakness attributed to those frigid temps and dangerous snow and ice. Goldman sachs even lowered its estimate for First Quarter Economic Growth to 1. 6 , down from a previous forecast of 2. 6 . Our guest tonight, bill smead, says every year has its gdp ups and downs, but he remains optimistic about the economy and the markets for the longterm. Hes ceo and chief Investment Officer at smead capital management. Billers welcome back. Good to have you with us. Lets talk a little bit about the economy and how weather may affect it here in the First Quarter. I was at a conference a couple of days ago where everybody was saying expect some real lumpiness, bumpiness in some of the numbers, and they wont really be trust worthy in the First Quarter. What do you think . That could be accurate. Theres things like this in individual quarters that happen almost every year. A few years ago, the federal government was such a net drag on gdp because of the way they were having to rein in employees and rein in spending that that was a real drag. And so we had a few in 2010, 2011, 2012 we had three different stages of worrying about double dip recession and so forth. Its just a bump in the road. I dont know how many people have extrapolated all the extra babies that we might have nine months from now. S the last time new york city had a brownout i think they had a recordsetting number of babies. These storms are trapping people indoors. And so you just dont you dont know. But the irony is the way the markets traded it has had an impact. Because they feel like the kiwi is not going to get sped up and a lot of people participate in this market under the assumption that only thing going for it is the fed. So when they feel good about the fed they buy stocks. When they get nervous about the economy being Strong Enough to not need the fed they back away. You do maintain, bill, do you not, that basically large cap u. S. Stocks are underowned by some of the wealthiest investors out there and perhaps the average investors a well . Yeah. For example, harvards endowment was in a major publication over the weekend explaining to people that they have 11 of their 30 plus billion dollar portfolio in u. S. Long only equity. And we know from studies in the kubos comment fund of endowments that 52 of long u. S. Equity was average for institutions back say in 2002. So the idea that you could have a wicked, vicious, bear market and massive selloff usually means to sell off you had to be on. We think the largest pools of money in the world, especially u. S. Institutions, arent on, therefore its hard for them to get off. In the meantime, speck laters could do to get their ears pinned back. Theres been a lot of frothy activity. You have identified several s p sectors that you like and several that you really dont, basic ng energy, materials, industrials, utilities and telecom. Those are largely defensive sectors. So i assume youre in technology, youre in medical, youre in consumer discretionary. Am i right . Youre on the right track. Were actually fairly lightly involved in technology through ebay and accenta, technologying a agnostic. Were in consumer discretionary, a very lonely trade. Weve been overweighted there for five years and financials and health care. Its really easy to think about our portfolio. Theres 86 million americans between 18 and 37. We think going to come out of the deep freeze of the fiveyear engagement and start living their lives. That means a lot of Economic Growth engine from buying houses, cars, et cetera. Were very positive longer term about the economy. And second airily, my group, the baby boomers, we want to provide all the medicine that im going to need for the next 30 years to deal with my chronic illnesses. Very very quickly, got 30 seconds. Is the correction over . Or is there going to be another one . Well, no, we think its a corrective phase that could last as long as six months. Okay, great. Bill, thank you very much. We appreciate your time tonight. Bill smead with smead capital management. Thank you. And still ahead, shares of cisco sliding. Is the tech companys turn around plan in trouble . Shares of cisco by far the biggest decliner in the dow today. They fell 2. 5 after yesterdays disappointing profit report and 2014 forecast. Thats got some industry watchers questioning ciscos turn around plans. Our josh lipton has more. We will look at it not just a Growth Perspective reporter it was a tough quarter for ciscos ceo. John chambers. Only three of its nine Business Segments showed growth. Cisco department give investors much reason to cheer, predicting revenue would decline again in the current quarter. Cisco is seen as a tech bellwether. It collects equipment that directs data traffic across the internet. Analysts covering cisco say a number of factors contributed to ciscos disappointing financial results. There are some challenges out of ciscos control, such as a weak global i. T. Spending environment which is plodding along in the low single digits. On the Conference Call with analysts, he talked about the changes hes seen in emerging markets, brazil, russia, india and china. There are also issues specific for cisco. The company has overhauled key products in its core businesses of switching and routing. Customers have been stepping back and evaluating whether they want to buy these new products. Investors sold cisco today discouraged by the results. Bulls say the stock is cheap and theyre optimistic cisco will get traction with its new products. Cisco has the best arsenal in terms of the products going forward. The best experience in terms of navigating prior market transitions and the most flexibility when it comes to the balance sheet. Reporter there are also question about chambers, source of tension among cisco investors. His fans say hes grown the company from 2 billion in annual revenue to more than 48 billion since chambers became ceo in january 1995. That stock is up 1,000 , more than the major indexes. In the past ten years the stock is down nearly 10 , way underperforming the market. Chambers has indicated he could step down as ceo as soon as this year. Possibly that would make sense for the company. Hes got a long, credible history with the company. I think hes indicated its probably time for him the next couple of years to hand over the reins. Im confident with that time frame. Reporter chambers and his team have a clear plan for cisco. Stay very active when it comes to m and a, invest a lot in research and development, and keep buying back stock from shareholders. Time will tell if thats enough to win over investors. Josh lipton, nightly Business Report, silicon valley. Aig swings to a profit, showing continued signs of a turn around since the government bailout. And that is where we begin tonights market focus. The insurers earnings out after the closing bell beat on both the top and bottom line. The company also upped its Quarterly Dividend and increased its buy back program by 1 billion. Shares initially rose after hours. The stock ended the regular session up 1 to 49. 59. Kraft foods also reported after the market closed. Profits rose on pensionrelated gains and on higher sales of refrigerated meals and beverages. Revenue missed just slightly but investors didnt seem to mind. Shares rose following the report with kraft ending the regular day up a fraction to 53. 60. And ups announced a 5 cent increase to its dividend. The company said its solid cash flow performance drove the decision to give more back to shareholders. Since the year 2000, the companys dividend has tripled. Shares were up slightly to 96. 56. And pepsicos north american Beverage Business posted another drop in sales, but the company says it wont spin off that unit despite pressure from an activist investor. The soda and snackmaker managed to report an earnings beat on strong sales from its Snack Food Division and raised the amount of cash that it will give back to shareholders. The cfo is optimistic about the future growth. Were becoming more and more efficient while were driving the top line, and were freeing up money to invest in innovation and to vest in our brand. So we really do have a dynamic cycle working in the company right now which is what makes the performance so heartening because we think it can continue for quite a period of time. Well, revenue came in shy of estimates which sent the shares down more than 2 to 79. 69. Ty . Surks merck may get more than 10 billion for its consumer business. That according to reports. But the drugmaker has been publicly exploring the sale of the unit which makes wellknown brands like copper tone sunscreen, claritin allergy pill. Its looking to shed the business to focus on drugs for cancer and diabetes. Shares rose a fraction today to 55. 10. J. C. Penney named forc. R kohls executive ed record as its new chief financial officer. The struggling retailer didnt say why its current cfo, kevin hannah is leaving. But the change which will go in effect in march is the latest in a series of turn around efforts by the troubled Department Store operator. Shares ofz2q÷ jcp are higher t by a little bit to 5. 99 whole foods lowered its 2014 sales and profit forecast. The Natural Foods grocer reported an earnings miss after last nights closing bell. It blamed it on growing competition from traditional grocers who are offering more organic foods. The coceo walter raab says quality is what makes his chain successful. Obviously this quarter was disappointing for us as well, too. But i think look were not just about price and competing, were also about quality and the highest quality standards in the supermarket industry. Its balance between value and quality. I think we make our way forward based on both of those, not just on price. Still, shares did fall more than 7 today to 51. 46. Another Train Derailment with heavy Canadian Crude Oil spilling into a rural pennsylvania community. Thats escalating calls for stronger Safety Standards on the nations freight rails. 21 tankers from a 120car Norfolk Southern train went off the tracks at a bend in the town of vander grift, pennsylvania. Despite heavy snow, the cleanup is under way, thankfully there were no reports of injury or fire. An auto recall to tell you about. General motors is recalling 778,000 chevy cobalts from the years 2005 through 07. The automaker says putting heavy items on key chains can pull down on the ignition and shut the engine off. So heres the recommendation, folks. Leave the bowling ball in the trunk. Do not put it on the key chain. Coming up, municipal budgets are already stretched thin. Now they may soon be facing yet another unexpected call. That story when we come right back. If you or someone you know is flying anywhere today, be prepared to wait a lot. Flightaware. Com reports that a staggering 6700 flights were canceled today because of the latest snowstorm. Thats a new oneday record. The hardesthit airports, baltimore, Washington Reagan National in d. C. And Charlotte Douglas in North Carolina, with each seeing more than 80 of today scheduled flights grounded. Talk about offering a right product at the right time. Generac maker of portable generators and stand by Power Systems so many homeowners bought after storms. It Beat Estimates of 90 cents and wrapped up its Third Straight year of record revenue. Investors really warmed up to the stock, igniting shares more than 13 today. It was up 6. 75. Well, while many snowbound homeowners may rest easy knowing that they have generators, some towns and cities are finding themselves short on salt. Road salt, that is. And without a key material that will keep its streets safe and open this winter. Morgan brennan has more on the next big expense a lot of municipalities may be facing. Reporter if you drive, you probably already know the feeling. The toll that all this wicked Winter Weather has been taking on the roads. Causing an outbreak of potholes from the midwest to the northeast. As storms keep coming, cities and towns are adding road repair, and with it more asphalt and higher labor costs to a growing list of weatherrelated expenses. Municipathin, thanks to road saltpropane prices, and an unprecedented number of water main breaks which have helped make more potholes. In new jersey, the Transportation Department patched more than 25,000 potholes in january alone. Thats more than double the number filled a year ago. In new york city, the d. O. T. Filled nearly 69,000 pot holes in the first six weeks of 2014. 83 more than the same period last year. In the midwest, chicagos already patched more than 125,000 pothole this is year. And st. Paul, minnesota, city engineers say the winter is shaping up to be one of the worst hes ever seen, thanks to heavy plowing and extreme cold. All of this as Business Leaders and Union Officials urge congress to hike spending on infrastructure, funding projects that have been deferred in recent years. The d. O. T. Says that a third of our roads are now in poor or mediocre condition. We need as a nation to say, were going to be the most competitive when it comes to infrastructure and understand that that investment today is going to reap tremendous benefits down the road. Reporter still, theres one Silver Lining from municipal coffers. The Asphalt Market is depressed, thanks to a lack of constructions since the economic downturn demand has remained twothirds what it was in 2007, and pries are pretty much flat. Experts say pothole patching will do little to drive down the price to push prices higher. With one less shortage for cities to worry about. Even so, local Officials Say they wont know the full extent of the damage until the weather gets warmer. Thats when they decide which streets to patch versus which ones to rebuild, which can get very expensive. For nightly Business Report, im morgan brennan. Im getting ready for the ride home already. Finally tonight as residents of 22 states dig out from upwards of 18 inches of fresh snow, another part of the country the mojave desert, saw the worlds Biggest Solar Energy farm open for business today. The 2. 2 billion solar electric generator system stretching across five square miles of federal land on the californianevada border has been transformed by hundreds of thousands of solar panels, enough to power 140,000 homes. The Power Generator owned by nrg energy, Bright Source Energy and google. So let the sun shine, in sue. Wouldnt that be nice . Wouldnt that be nice. You ready to dig out your car . Got to go dig it out, dig it out when i get home. I was getting ready to leave today and they plowed me back in. Springs almost here, i hope. Thats nightly Business Report for tonight. Im sue herera. Thanks for joining us. Im tyler mathisen. Thanks from me as well. Have a great evening, everybody, no matter where you are. Well see you tomorrow. Happy valentines day meantime nightly Business Report has been brought to youin part by the street. Com. Founded by jim cramer, the street. Com is an independent source for stock market analysis. Cramers action alerts plus service is home to his multimillion dollar portfolio. You can learn more at the street. Com nbr. The following kqed production was produced in high definition. [ music ] yes, check, please people. Its all about licking your plate. The food was just fabulous. I should be in psychoanalysis for the amount of money i spend in restaurants. I had a horrible experience. I dont even think we were in the same restaurant. Leslie and everybody, im sure, saved room for those desserts