Transcripts For CNBC Squawk On The Street 20140722

Sectors including the consumer from mcdonalds to chipolte. Breaking down verizon, dupont, and, of course, netflix. We sit down with the ceo, the presentation on the company slated for later this morning. First up, food and drink in the earnings parade. Mcdonalds misses with the second kwaurtd numbers, and flat with the period, up sharply on stronger than expected q 2 results and then theres coke with a slight earnings beat and revenue miss for q2, unit case volume up 3 globally, but flat in north america. The ceo was asked about results in the region earlier this morning on squawk. We were pleased with our north american results, first because cocacola grew. Secondly, because our pricing was very strong in this Second Quarter that just passed in north america. Our price makes sparkle beverages up 3 , three points. I think when you take the totality where we are in north america, i think were making steady progress. Thank goodness for china and india, up 9, 10 . They call it a low quality beat because of the tax rate. I think thats true. I think cocacolas a challenge the company because they make a product people are moving away from. I think they move away from first in the United States, go overseas, and its a product that is really our parents product or my generations product, and younger people are not drinking it. Theres a demographic change were seeing in companies, and cocacola is not popular with younger people as it used to be. Brands within that cocacola umbrella with the capacity to figure out ways to meet wherever consumer demand or taste is going, dont they . When are they going to do that . I just think that when i look at cocacola, listen, a great executive, but, you know, im not going to be satisfied with no growth. Companies are growing like mad. I know chipolte is a small company, but 17 growth, that means the customer knows something. They like natural and ogranic. Beef, this quarter, they made adjustments and trade down with the chicken, but i think when you look at chipolte and cocacola and mcdonalds, you cant say, you know, they are doing well. I mean, this is not why you invest. You dont invest in order to have big buybacks and dividends boost. Sure. I just said they almost had to report backtoback, mcdonaldss chipolte because of the story it tells, the innovators dilemma, father and son. Mcdonalds, second earnings miss in a row. Three consecutives misses in a row, jup down 3. 5, and the yield, jim, not so much a shield when you have the prospect of higher rates. They are one of the lucky companies out there because the Interest Rates stayed in the 10year 2. 5 . By the way, first of all, when you go through mcdonalds and cocacolas release, people at home say, wow, terrific. Sales decreased 1. 5 . These are done with mirrors people. This is not what you want. You want to see scores in double digits. We didnt get that other than chipolte, but they have something people want. Mcdonalds does not. I think thats seminal. Thats not going to change. Youre not going to get a tofu big mac. Not any time soon. Right. So freda had 3. 5 i dont know if you had freda, but its a total tofu dish for vegans, and its growing like mad at chipolte. People prefer and it tastes quite good, by the way. Look, i go to mcdonalds. I admit i happen to love you know, the mcmuffin, i love it. I have not had a diet coke since my resolution was not to have a diet coke. I have not had one, no indict dew, my loep vice, i know, haha, but i feel great. Really . Just because of that . Yeah. Good. That an the gopro on my dogs head. Here we go again with the gopro. Do you buy chipolte here, i dont know what the multiple is . I dont know. Buy up 10 . Boy, they bought stock cheaply themselves. Its not my style, an International Event makes it go down, thinly traded. Viewers say, please split it. Tim cook didnt agree with the split, and next time, hes focussed on create product, and chipolte, go over the quarter, the comparables are different. Food with integrity beat the information, you know, the farm bureaus information. Remember the International Foreign international bureau. Farmed and dangerous, which is the they did videos, the scarecrow videos, those worked. They dont spend a lot of money on advertising. They give the customer what they want. Teen males, this is important. I remember being picked up by the police in springfield county. Why . Because i overstayed the curfew at mcdonalds. What a metaphor for when youre 16. Now, those teens, they go to chipolte. I dont know about the curfew thing, but all the generational things you mention. The mall, right . The mall. Chipoltes mcdonalds the greecy food equivalent of kors and coach. Oh, i like that. Not the only names by a long shot. No. Netflix, talk about that, how could we not, earnings more than doubled as global subscriptions beat expectations surpassing the 50 million mark. U. S. Membership grew to 36. 2 million, thanks to orange is the new black, and they expect more vub scribers, and subgrowth was fine, but, really, you know, the international is where they are showing significant traction, spending a great deal of money, but many believe the trajectory is positive for them. There had been concern as they raised prices. You know, people are on and off net fl netflix. If you are off, you have to pay more because youre grandfathered in at the lower rate if you keep it. People thought that would bring the churn down. International is what they wanted to spend time talking about. Yeah, versailles, what . Noir. You know, the joke about international, and people are kind of they have a form of their they release substantive numbers what they are looking for, and they have a q a. This time it was Reid Hastings with doug amith and what i think came out on this quarter was, okay, look, internationals got to be really great, but maybe the growth domestic peaked, and i think a lot of people worried about that little number there, 7. 7 billion dollars in obligations. When you watch netflix, and i think netflix is basically utility, you are amazed how few streaming movies they have. Right. Its not a streaming movie service. In fact, if you want the old movies, you have to keep the mail service. Netflix denzel. They have three denzel movies. Isnt that the problem . Its a metaphor. You do not have they have a great index, hit them on, oh, thats not on, thats not on. How much does it cost to have all the things . The movie studios are wise to the fact you dont give it to netflix, what will that cost . A lot. Right, thats why people are worried about the obligation. The stocks not up. I think its seminal that the stock is not up, people said on the network its going up. Turned out not to be. Youve been talking about the fact that people focus on sub growth which does not look bad. Are they changing focus . I think 50 million was the whisp whisper, and you had to do more than that. I think in the end, the there was a smugness. There was smugness on the call. I dont like that. Chipolte had humility on the call. The linebackers, people throughput they got eight additional people per hour. Thats been a big number. Theres no hubris on the chipolte call, okay . There was hubris on the netflix call. Chipolte didnt get 31 emmy nominations. True. Interesting that im on record. Global is increasingly making its way into other parts of the business original content now, this marco polo project is aim at demographics outside of north america and physical gift cards giving people a chance to hop on as a gift. Thats true. I mean, new certainly absolutely new venues to sell. You know, i also heres a little this is the kind of thing im hubris. At 7 00 million broadband households is the market. When i see that thing. When i see that theres 8 billion people in the world, well, thats the total i dont i get uncomfortable with that. The total adjustme menmentble m not every person in the world takes netflix. They are saying broadband. I like netflix as a service. They need more streaming content, spend more to get streaming content. You want matel in stock, and when an analyst upgrades and does not move up or down, thats tough. This is conceivably a day to look back on or look with importance that begin they delivered and the stock is not higher . Im going to say yes to that. You are . Yes. When i was going through the call, i said, okay, they did that, makinging a joke about france, france likes movie, and marco polo, im thinking, i dont want to see that. Orange is new black, thats hot as you can get. You know what i think of marco . You swim a lot. Marco. Polo. You dont play marco polo . Id like to. I have a vision of you and all the guys at the club playing marco. Thanks for that vision. As bill ackman prepares to blast the company, John Desimone defending the maker. Well talk to him next on a first cnbc interview. A look at futures, and the s p has not had four straight down days this year. Up believable. Now, come on. What a great stat. Thanks to steve at dow jones. More squawk on the street from the nyse in a minute. We started zya with the thought that the kid on the back of the bus might have a song that he has in his head but he just cant get out. With the technology of cloud, we change all that. I can sing something into my device, up to the cloud it goes, back down it comes, sounding better. We break down the walls of creation and we give music creation for the masses. Unlock the creativity in anyone. With the ibm cloud. The ibm cloud is the cloud for business. What happened . Life happened. Stress. Fun. Bad habits. Kids. Kids. Kids. Now what . Not milk. Not sheep. 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This morning in new york, persing squares bill ackman says will expose incredible fraud and why the company will collapse. Herballife is fighting back. We are at hq with the cfo on a first cnbc interview. John desimone is with me. Good to see you. Thank you. More than 500 people are in a theater in downtown manhattan, bill is preparing to give his latest presentation, and they are watching the interview live. He says, in his words, hell expose incredible fraud at herballife today. What do you expect many. This is always the the bark is worse than the bite. He likes to, you know, i really dont want to talk too much about bill ackman, but the sub staps of this. We have to frame the event, and similar to events hes had. Everything is a gotyou until its not anymore. He made 435 accusations over the last 18 months, each one is the lathest and greatest until its prooup not to be. Hes we want after belgium when it was in his favre, but in our favr favor, he discredited it. He did everything in his power to clear the audit, went public and said how can people invest when theres no audit, and when it was, it was not important anymore. He claims today he has hundreds of hours of video, audio, documents to support his claims. On some level you must be worried about what happens today, arent you . Im not worried about the substance of what he has. You know, theres no doubt that hes missing the real animal jis and research. Its propaganda base. I dont know that he understands clubs, but well listen. What he is missing that fundamentally we have millions of customers that enjoy the product, use the pruk, and thats indisputable. We had a release today from a former ftc economist that concluded, in fact, we are a beneficial multilevel markets company, and that former economist had access to all our data base, access to all of the studies, created their own studies to have that conclusion. A study you commissioned . A study we commissioned, but an independent with no ties to herbal life until we commissioned it, but we did so the economist looks at the business in the light similar to how the ftc would look at it. So you say ackman made unstanuated claims and put misinformation out there among other things, the company is invis gaited by the ftc. At least one state that we know of, a u. S. Senator wrote a letter to regulators asking them to look at your business model. Are we to believe, given all that swirling around herballife, that the company is operating as it is supposed to be operating urn the law . Absolutely. We have complete confidence in. I think the inquiry puts this behind us, a lot of misinformation there in the marketplace, and bill ackman, actually, when he presents o unopposed, he sounds compelling, very confident, you know, comes across as though he knows the facts, and it can be scary. Having a regulatory body thats objective looking at the Company Benefits us. Well, unopposed, i mean, look, be honest, youre sitting here today, but michael johnson, the, has been virtually silent on the issue for 18 months. Youve let bill ackman control the knavetive, havent you . Our key role is to deliver results. Thats what we focus on. When bill came out 18 months ago, we divided the company into teams and decided michael, that walter, the president , the coo just focus on performance. Thats michaels job. I think that we gave mr. Ackman too much of the podium. That will change. Theres an ogranic drive in the company. We have 550,000 districters and members in the u. S. , and theres an ogranic drive within that group for us to tell the truth about herbal life. Theres been instances, and im sure youll readily admit where distributors of herbal life made claims about the product that may not have been true, have said things that you, as a company, had wished they hadnt. You started retraining people as a result. Correct . So lets put it in context because we have a fourprong approach to compliance. Its integrated. The first so we have 550 members in the u. S. We have more than 3. 5 globally. Within the group, the overwhelming vast majority want to behave with the rules. First prong, educate and train so they know how to behave. Secondly, those who cut corners, we have to detect and detour that behavior. We do that very well. We have some Cutting Edge Technology that we use on word recogniti recognition, Voice Recognition of videos that help us get better, but the reality is, 3. 5 Million People is a big city. With that many people, the police does not always know whats going on. You had to reprimend people. We have. Detour and detect, but when somebody signs up, we have a voice with them. We cant be on every phone call to someone they recruit. We make sure we communicate with each new member. Used to be pushing the materials, but we pull them to the materials where they have to acknowledge they are aware of it. Most important fail safe is no matter what somebodys expectations are coming in, we have the protections to give them the moneyback guarantee, we have a 90day 100 pay nor return shipping on the starter kit, and if any time a member wishes to leave because it did not work, we buy back 100 and pay for the shipping of the products they did not sell. Its low risk. We expect he talks about the nutrition clubs, and the critics of the clubs ask questions such as why are there so many . Why are they located in a tremendous amount in very concentrated areas . Why are they unmarked on the outside . Why are they secretive . Thats what the critics say. How do you respond to that . You heard that before. Its not secretive, but theres foundation to be discussed first so people up understand what is club is and how it operates. Its from a consumer and operator point. It started in peoples homes. No different than avon, tuperware, pampered chef. Its a product that helps them lose weight because social support and encouragement helps people lose weight. Picture a dining room where people are gathering. Because weight loss requires consistent use of the product, they took that model, and they moved it think of picking up that living room and moving it to a commercial location. Its nothing more than a living room or dining room of one or two members working together to create a social network to help people lose weight. When you think of multiple locations, its peoples living rooms now in a commercial establishment. Why theres no signage . Thats an important point thats misunderstood. Indirect selling. Its protecting the opportunity for the second sale. This is channel protection. For, scott, if you were to sell herbal life, when you sell it the first time, you want the opportunity for the second sale. If you knew your customer could go to walmart and buy the product, you are demotivated, right . People who offer direct selling do not offer through mass. Avon failed, they tried through target, fails. We have 5,000 clubs. Majority of the members do not do clubs. To protect their business, there has to be a level playing field, cant appear as though theres 35 clubs in a state. We make it its a persons living room, a persontoperson selling. Its channel protection only. Right. I mentioned its a busy morning on the earnings front, and we have to leave it there. John desimone, i appreciate the time, and if you want to come back later today on the halftime show to respond or refute he says in the room today, wed like to have you back. Great, well thank you. Carl . Scot, thank you so much for that great stuff. Ackman a half hour away says by his own words, jim, most important presentation of his career. I thought this gentleman made good points. I mean, there were we said there was many objections to herbal life as there were Congress People . 435, i think thats where we are in the house of representatives. At a certain point, if ackman comes on the network and basically calls something a fraud i called a company a fraud on tv, and fcc came after me immediately, and the company was out of business by the time this is 1999, and i remember. Remember that . Yeah, i do. I wont mention names for fear no, no. The fcc said, look, you cant call a company a fraud. Interesting how times have changed. I was not short the company. I had no interest in the company at all. Just went out of business. Now a guy on tv says its a fraud, fcc says thats okay. Do what you want now. Up 7 the past couple years when ackman started getting short. Say its a fraud. People want to sell the stock. I dont want to own a stock people say is a fraud. Opening bell in a moment, and look at the premarket. More squawk on the street in just a second. 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All on thinkorswim, from td ameritrade. All right. We just got a couple minutes before the opening bell, the mad dash and to the bell. No commercial break. Another billion dollar activist position. Its not emc today. Its apache. You have. Talking about this, and you did a great segment a couple weeks ago. Thank you. I recommended it really hard saying this is the company most undervalued. Why . Because theyve done 800 billion. Theyve executed 8 billion in asset sales, got much more u. S. , remarkable things reducing egyptian exposure. Its amazing. Steve ferris absolutely incredible. What i feel badly is janis should not try to rattle here. No one is trying to get up the valuation faster. Im not saying this is fox taking advantage of it, but they drive at 1. 5 times book value, and anadarko, and they have done everything right. The stock is going dramatically higher. Undervalued, but give ferris a chance. All im saying is give it a chance. And with that, theres the opening bell, and a look at the s p at the top of the screen. Down here at the big board, celebrating a recent listing, and at the nasdaq, investar, a bank in louisiana. So many names weve not gotten to. Big giants on the s p and dow. Start with verizon, or where do you think . Yeah. That stock is up. A decent quarter on verizon. You may recall in an interview with ckayla from sun valley a week or two ago, we got a preview, and they were weighted towards tablets, and that, in fact, was the case in terms of tablets being a big part of what their retail ads were in wireless tablets driving that, again, as i said. Might want to make sure 1. 4 million, all postpaid, and that was better than expected, of course, but driven by record tablet sales, 1. 15 million, thats what i was looking for there. The wireline business group, for the first time thats the companys opening. I dont know. Thats business formation. Business formation. Thats right. Not a wired phone at home, those who still have them, including me i thought glad you brought that. Talking businesses, a key point, wire line, business formation, you need a wire line, and that is up for the first time. What was it . In many years. 3. 5 growth, eighth consecutive quarter of growth. They are a big fios number too. That, to me, the stand out. I know people complain about wireless margins down 180 basis points so leave on the stock, but i think verizon is a growth stock. It is a growth stock . Parts of the business do mirror that of what you expect from the growth companies, thats true. 1 10 billion in debt, by the way, which is fine, but its a big number. They are still in the process of deleveraging, all this nonsense about being interested in time warner or might have. And fox is taking advantage. There may be a list, but verizon is not on the list. You can take this with a grain of salt, but they had excellent operating cash flow. Said that in the break, but a fantastic number. Up 20 . Nbc 16 in broadcast, 6 in cable, 5 in theme parks, and, of course, best Second Quarter for video and high speed in six years. It was a great cash flow my operating we lost 14400 video customers, net loss. Thats been been fewer of losses. Second quarter result in six years. As you pointed out, data ads better than expected. Anticipation is you offer more and more services, you slow. They slowed the loss overall on video subs, but they lose them. We have not got a chance to listen to the call, and importantly, remember, talking about a potential close, saying year end. Thats not going to happen. I dont know where we are First Quarter leading into the Second Quarter of next year, but remember the big buyback that people thought you would get juiced. Once theres a vote from time warners shareholders, but we have not seen a proxy yet frustrate shareholders to vote. People are focused on that. Thats why you think of comcast when the fines of the enormous deal still from the process of trying to get approval. Look at the dow stocks in the red, dupont which met. Travelers, coke and mcdons the worse. Travelers a terrible story, the miss there, takes your breath aware. Bernstein with the note saying its catastrophic writing of insurance, but three passing peak in property casualty, and there was a remarkable drop in business there for property casualty, and it took my breath away. This was pricing is slowing plus 3 to 4 . This was a bad quarter. Yeah. Now, they bought back half the company in the last eight years. Really . Yeah. Faster than ibms done it. Any time you think of selling travelers, look what fishers does. For a Great American company with the best company, but understand that the buyback will be in there, but these were not good numbers. I say it kind of i dont like the company not doing numbers because they are such a good company. Right. You mentioned stocks of our parents generation like coke and mcdonalds. Hog beats by 16 cents and revenue beats, but take down guidance on shipments. Dealers flat and the supply chain looks bloated. Yeah, theres a frequent guest on mad money, the chairman and officer of polaris. If you see that company, that stock up huge. What do they make with the offroad vehicle and motorcycles, and they are doing share gains, share gain, share gain. They have the Indian Motorcycle business. I have i dont know if you have been on one of these, but its one of the most fun things in the world, polaris. Is that true . Up 21 with a big guide up. Polaris is the winner and hog the loser. We have this situation where one guy does better than the other, and up 9 up from 137 basis. Yeah. Thats interesting. On the research front, amazon shares down this morning. Not enormously, but down against, of course, as you may be seeing already, a very positive open here for many stocks including the pier group, citi downgrades the stock, talking about operating margins or overall about the lack thereof. Previous thoughts were consolidating operating income margins would increase year over year, but price cuts and web services increased, obviously, as we know in terms of the Distribution Network here in the states, but also the move into china. Pressuring those so now they have a different view on margins in terms of when they come back or if they are going to come back. You spend a lot of time with them, david. Do they care no, no, no there you go. They dont care about the stinking margins. Exactly. Until they need to care. They dont need no stinking margins. Thats an homage to who . Eli wallich was mexican in real life now jewish. Comps up 77, thats the best quarter internationally in two years, jim. You know what . I have doyle last time he was on, there was a down beat thing. I say, cheer up. I say that to dave cody. Come on, man, a great number. Its a franchise model. Lets put it this way, i think dominos is a good quarter, last time down because they had good things in a conference, and this looks like a terrific quarter for dominos. It is a giant user of social media and has the greatest ad. You never speak to them if you dont want to, and i love it. I have the baseball app on my pc. David, when it comes, you dont even need to deal with the tip. You put it right on the computer. Whats a pc . Whats a pc . Politically correct . Whats a pc . Im not familiar with that term. Theres only four of them on our desk right here. Oh, these things. Did you have the app on your cell phone . You can. What about your tablet . What about your clam shell sm. Speaking of which, apple is asking suppliers for as much as 80 million large screen iphones. At the same time, apple insider has the leak, an illustration of what they are saying was a patent for the iwatch called the itime. I want to go over it again. Ibm didnt deal with the cell phone, okay, a 20 2015 business, take out blackberry, you want an imac. I just think that 2015 is the year, and people, if they are focused only on the next quarter and how many cell phones, i think thats a mistake. I think its a bigger story than that. I know that this is a what have you done for me lately business, but take a deep breath, do some pilates, come back, work on your core, get inner strength, meditate, use the four pillars, you know, four agreements, and buy something. All right. Dows hanging in there despite high profile misses this morning, and bobs on the floor. Hey, bob. Despite the misses, the dow up 38 points right now. I wrote many times about the big Global Industrial companies, the rands of the world, United Technologies of the world. I watch them carefully. They make all the stuff behind the walls and the industrial machinery and aerospace stuff around the world. Good companies to watch for Global Industrial trends. Ingersol rand, heating and airconditioning installation, thats the core of the business, good growth, 3. 4 , Heating Cooling around the world strong, thermal king with good growth, core bookings respectable. Climate solutions, the heating ventilation airconditioning business, thats respectable at 6 . Theres another business, technology, power tools, pumps, things like that. Thats more modest. There you see less impressive growth at 2 . Same with United Technologies, earnings topped estimates, the companies raised the full year guidance, not just talking about heating and airconditioning, but otis elevators, helicopters, an aerospace component. Sales up 7 , raised the low end of the guidance as well. Bottom line with all these major Global Industrial company, only a few reported, modest growth, but certain sectors better than others like heating, ventilat n ventilation, and airconditioning. One important point, all the companies, big buyback programs providing a backstop to the companies, so rand has a 1. 4 billiondollar buy back. Thats impressive. United technologies, one and a quarter billion, not as impressive, a market cap company, but you get the point. They are continuely, every day, in the market buying their shares back. Look at the earnings elsewhere. Also in the aerospace area, Lockheed Martin with excellent numbers, verizon disappointing, coke fell 3 , and travelers impacted by higher catastrophe losses this. A lot of discussion overnight. Major email discussions about the under performance of the russell 2,000 so far. This is an unusually wide divergence. Small caps down 1. 5, and big caps 7 on the year. People think this means we go defensive all the suddenment i watch this carefully, and so far, i dont see it. Yes, i see solar stocks, biotech stocks, social media stocks under performing, but cyclical stocks so far this year, the utxs i talk about, had a great year, consumerstaples, defensive names not a great yearment final year me. We had a great discussion, ratings analyst, i love the idea, its fantastic. Hope to hear more of it. Watch netflix, disappointing on the earnings, but there was an analyst this morning raising the full year target for web bush to 245 to netflix 245 from 215. Guys, its a 430 stock. This is why you get analysts opinions all over the map. I love this idea. Tipranks. Com is the company. Back to you. Thank you very much, bob. We noticed shares of netflix down 5 , and that brings me to time warner, thereto news. In fact, the news came out after the bell yesterday, but it is important the market is digesting it as well as stock time warner. We talked both it in hands not necessarily ones to use, call a special share meetings of 15 of the voting to hold a special meeting and no stagger board. Forget about special meetings. By the way, that would not have been able to happen until february were it to have been something they wanted to tried to do at fox. By the way, what i hear is that was never something fox would have done in its pursuit of time warner, but something shareholders wanted to pursue, those with an activist bend, theres vikings, hedge funds in the shares. By virtue of what they did yesterday, changing the by laws to eliminate the ability to call a special meeting with 15 , you are left with the annual meeting in june conceivably being your socalled proxy on management and the board. The entire board still up at that point, and so well give them a couple more quarters to deliver on their Strategic Plan which time warner gives every indication of it believes will deliver more value than, well, if you recall, from the initial press release any, any offer that fox could possibly make at all. Actually, let me quote that properly. Yeah. It will be superior to any proposal that 221st century fox is willing to offer. I have to commit that to memory. Well see it in writing when we get it. Four months to judge us, but what this also has the effect of doing, this may take a long time. I mean, start thinking june. Now, fox, obviously, may not want to think june, and theres any number of things they can do to potentially move the timeline up, of course, ngincludes makin another bid higher than the first bid. They are in the mode of price discovery, having conversations with shareholder, how much would it change at all based on this news. Unclear, but hedge funds in the stock prior to the bade say, wii out of here. You remove likelihood of act viss in the shares, but well see. Price discovery continues. Where that ends up, of course, continues to be a key question mark, and youll have a debate whether the board is doing a duty to the shareholders or actually not allowing them or giving them more of a voice here by changing these bylaws. Do they expect it at fox . Oh, not really, but, again, they were not necessarily looking, jim, for that to be a path that they would follow. My expectation is this will not go to june. One way or another, well get a resolution either with a bid higher and accepted or get in and identify a lot more in potential sipper jis that sinner jies that lead to a higher number. Or theyll come back again to fight another die. Theres Great Research this morning do you think thats a real number . 10 allergan were talking about. A lot has to go right. Air gas, the air products business ultimately three Investment Bankers said that air gas can do a bigger number, and they went dramatically above it. It is possible. It is possible. In this case with time warner, a 5 out there, will you see a 20 multiple on that stock . I dont know. I dont know. Right. Well have more on time warner. Speaking of badges, bogart here to moderate, you i dont feel that i do not think that the time warner i am coming down of doing a lot of work, bucus may have numbers that are better. We will see. Rick santelli is at the cme group in chicago. Thank you. It was not cool, and the treasury market paid attention for 20 minutes. It paid attention to broader concepts throughout the globe and rates came down. This looks to be the 11th trading session when we close between a 245 and a 255 yield. Open to june, this is what you see, we are close close to the lowest yield closes at one year except for one day, may 28 th, 244 was the low yield close, intraday have not closed below it. That would give us momentum, so say the charts and technicians. Look at the yield curve, fives ands. Twoday, yesterday traded under 160. Has not closed under 160 in five and a half years, jan 2009. Boons, lowest close ever, rebounded two basis points. Look to europe and kind of the turkeyish economy is what everyone talks about. We have not had the euro to the dollar since turkey day 20 13. David, jim, back to you. Oh, thank you so much. The cost of food continues to rise. We heard that on the chipolte call, and steak peaked in may. Hanes announced the strategic acquisition. Joining us for exclusive interview since the chairman of the group, irwin, this looks like you are buying the rest of a company that reminds me of a hillshire brands was. People want protein, developing nations want protein. This is a division not talk about on mad money, its changing. Jim, in 2005, we started to acquire protein businesses, and, you know, we acquire free bird, and then 2006, we acquired, you know, plainville. We started from scratch. Today its well over 200 million business. We grew it and developed it, waiting for the consumer to catch on to want ogranic protein. You saw chipoltes numbers in plainville. They go in there because they want to buy, you know, food that is good for you, and they want protein where the whole thing with animal welfare, but dont want antibiotics or nitrates in the protein today. You put up a number last time. The stock is heavy, campbells soup had a bad number, General Mills bad number, nobody seems to care. Is there a sense youre tied in with the weakness in whole foods as youre an arms supplier to everybody . So, good questions, and, listen, whole foods is a great customer, you know, were one of the biggest vendors, but Healthy Eating is spreading across the world today. We have a big operation in europe, the u. K. , just opened up an office in india, the middle east, and, you know, listen, you heard them talk about cokes numbers today, consumption, mcdom mcdonalds numbers, its not just whole foods who sells Natural Products today. As i walk here amazing, not been down here in six to nine months, but all the restaurants opening up today are fast food outlets, notchatural ogranic fo. Sometimes they run into inventory management. Is there something about the sector where its harder to source or those risks are elevated . So, you come back, listen, hane ended the year at 1. 7 billionplus dollars. Ogranic growth is at 2. 5 billion company. Were the largest ogranic personal care company in the world from the source stand point and invenn story and supply always happens, but way we have today is scale, distribution, and brands, and more important, we have the consumer who wants to buy more and more products out there, and if you look back and choose, fresh pressed juice, everybody thought it was a fad, a trend. Whats that retail for . So this, david, retails for 10, okay . People buying that . David, if you look at this as ogranic, theres 21 of produce in there. If you went to the store to buy this, okay, this is a meal. This is a meal replacement or if you want a jugice, i tell you, its amazing whats going on. You see the juice stows in the city, so hane jumped into juice, greek yogurt, the snack business, its flying. Again, being the head, being in front, thats something that we continue to do. Stock stays here, i need natural ogranic. I call irwin, 120, i need your company. What do you say . Cancel the meeting, hold it, ill attack General Mills because they are not good, or do you say, you know what . Thank you . Listen, i started the wiz 20 years ago, and back then 1. 20 sounded good, okay . If you come back and look at where the trend grows today, campbells had a meeting, where the move to come out to a hundred new products geared towards kids. We sell food to infants and toddlers, introduced to the first food. I come back, look at the big Food Companies, and where they didnt see the trends moving to they didnt. Not only natural ograniogrant taking sugar and salt out of the product, no stabilizers or its changing times. What is going on there . What in the world do you have going on there . David, i travel a lot, whether its india, africa, just come back from greece, you know, all these places, i buy a bracelet, you know, and not your typical ceo that wears bracelets. No, youre not. Thats what cocacolas ceo should wear that. Hey, whatever, thank you to irwin simon, president of the ceo hanes celestial group, great to talk to you. Well get stock trading with jim in just a minute. The last four hours have seen. One child fail to get to the air sickness bag in time. Another left his shoes on the plane. His shoes and a third simply doesnt want to be here. Until now. Until right booking now. Planet earths number one accomodation site booking. Com booking. Yeah time for cramer in stop trading, jim. Another company i like so, so microphone, kimberlyclark, so fabulous. Its a miss, guide down. Careful selling the stock. Theres a health care spinoff coming up 2in october. Give it little, buy it back, it keeping delivery, goes down when they report, and goes up, do not get rid of kimberlyclark. Its good. Dpz tonight . Dominos is packed. I have to tell you, pat, bring your game, not that dog face, or ill give you the darn gopro, and ipg, a company i really like, this is one that i think is going so many things right, and well find out about social media, advertising versus the upfrontings, so fired up for today and tonight. Thank you, guys. Well see you tonight, jim. Wow. Mad money at 6 00 p. M. Existing homes after the break, dont go away. But her knee pain returns. Thats two more pills. The evenings event brings laughter, joy, and more pain. When jamie says. Whats that like six pills today . Yeah. I can take 2 aleve for all day relief. Really, and. And thats it. This is kathleen. For my arthritis pain, i now choose aleve. Get all day arthritis pain relief with an easyopen cap. Habeing able to pay as we goo rawas crucial for a start up. S. Having to fork out a lot of money up front was risky. You can launch a feature really quick, and if the feature doesnt work, we havent lost anything and we can have something up and running in days. And this would not be possible without the cloud. We are now supporting over 25 million users each month. Ideas can be tried and tried again on the ibm cloud. The ibm cloud is the cloud for business. Yyyup. With xfinity internet soyour family can use all their devices at once. Works anywhere in the house. Even in the garage. Max whats going on . Were doing a tech startup. Were going public [cheering] the fastest inhome wifi for your entire family. Only from xfinit thats why i always choose the fastest intern. R slow. The fastest printer. The fastest lunch. Turkey club. The fastest pencil sharpener. The fastest elevator. The fastest speed dial. The Fastest Office plant. So why wouldnt i choose the fastest wifi . I would. Switch to comcast Business Internet and get the fastest wifi included. Comcast business. Built for business. Welcome back to squawk on street, breaking news from the realtors, existing home sales in june up 2. 6 to a annual adjusted rate from an upwardly revised may figure. Thats right along with expectations, but home sales in june still down 2. 3 from june of 2013. Now, the realtors note its the first time we crossed the 5 million mark on that annualized rate since last object, october of last year. That bodes well, three months had gains monthtomonth. Sales northeast, 3. 2 . In the midwest, up 6. up month to month. In the south barely up. 5 , and in the west, up. 27 , and prices are still gaining the most out west. Looking at the median home price, 223,000 to 400,000. Thats up year over year, but the slowest price gain year over year since march of 2012. Invenn sto invenn story low by gaining,. 3 million homes for sale, the highest since august of 2012, up 6. 5 . They say we are getting more balance in the inventory and sales area, but antedotely, people feel like theres a shormg shortage of homes for sale. That could be due to a rise of pocket listings. Well talk about that on cnbc. Com. Watch for that. Distressed sales 11 all cash still amazing at onethird of the market. Simon . Some relief after last weeks starts data. Thank you very much. Equity market, call it a tale of two fast food stocks, shares of mcdonalds trade lower after missing estimates, and shares of chipolte mexican grill, biggest gain on the s p 500 today ser serging after sec quarter earnings blue by analysts expectations. We have a market perform rating on mcdonalds and out perform on chipolte. I think you raised your target. Good morning. Good morning. This is an extraordinary result from economy polil they o come through with same store sales up over 178 at a time they raise prices by 6. 5 . This must cheer shareholders to a great extent. That over 17 includes 2. 5 pricing that flowed through the quarter. We get 6. 5 next quarter, and clearly, their culinary types, diets of the day, protein, and that brand with millennials works for that particular brand. How much further can the stock run as things stand at the moment . You got 77 now on the new price target, 11, 12 from here . Yeah, you know, the stock came a long way from last spring. One of the things, you know, the early stage move from the 300s was the sales acceleration on a one and twoyear basis. Thats not quite over yet, and whats now happening is the eps revisions. If it gets into the 700s, wheres the upside from there . They may be over, but well have to see. We dont know how food costs go from here, how prices going to go, and bottom line, theres digital which help them drive throughput, and they are doing amazing job on moving that line, even during peak season, comping up double digits in peak hours, remarkable operation achievement for chipolte. A huge disappointment to the rest of the industry. Mcdonalds same store growth is negative, and its not just mcdons, but 17 number, compare that with what you have in the industry, and you wonder when the ceos come out and blame the sluggishness of the consumer at the lower end, which i poll they is not seeing that at all. Well, economy pchipolte is t of nature here, outpacing the panera breads of the world. The other fas casual concepts have a hard time versus chipolte and those are more complex having a hard time doing the types of things these guys do on the line in customer satisfaction. That aside, the entire industry up half a percent on samestore sales. Its not getting better. The recovery in restaurant is not happening, and in the case of casual dining, its actually negative, down a few percent on a traffic basis. Dismal trends. Nonetheless, mcdonaldss same store sales in the United States down 3. 5 . Worse than many expected. Of course, it is bigger an chipolte. Mcdonalds has 35,000 worldwide. Do you believe what the ceo is doing, and therefore, a buying opportunity . If you turn them around, you make a lot of money. Yeah, well, no question the valuation is there. Theres going to be support in the 930s levels with the 3. 5 yield for a brand like this. Kus costs, stabilize earnings even as they do, the negative comps they expect to do in the near term. Beyond that, one of the things they do right now is trying to improve their operations and simplify thing and set the table, perhaps, for Digital Initiatives in 15. Thats when i think things get interesting for mcdonalds because clearly digital and mobile payment work, but the big brands are not finding the returns on tv advertising that they used to. David, is that the solution . Look at chipolte, and its about the offering, the ogranic nature, healthy content, is it right for mcdonalds to go back to service delivery, advertising, and sprucing up the restaurants . Is that the answer to the problem . Well, them going to an ingredient route of value energying that way, putting value in the food is a route they could go, and a lot of Food Companies deal with that same question right now, but thats a long process, and doing it the scare of mcdonalds is difficult. Quickly, what we didnt see in the result because it was breaking this week, food safety scares in china. What does that mean because its not seeing it here in the u. S. . You know, thats a bigger deal first of all, what you are talking about there is a recall some dated meat that was, by one supplier to almost all of the players out there in china including kfc, pizza hut, and mcdonalds. Thats a bigger deal for yum because its a bigger bisz for the business for them, but we dont know for mcdonalds. The key to figure out does the public react to that . Having said that, is there one stock that is is the chipolte of tomorrow you pick out . Well, you know, we dont cover panera here so an easy choice, but our names include economy policy, starbucks, and yum brands. Thank you. David palmer joining us. Thank you. Well, those consumer taste changes we talk about were on full display in cocacolas earnings this morning. Earnings came in better on bottom wlien, but sales missed the mark raising questions about the quality of the quarter and, look, no secret people are not drinking soda like they used to, so coke spends on new ads. Perhaps the share a coke campaign, personalized coke cans with your name on it. Also, they spent big sponsoring the world cup. That helped a little bit because sew dal volumes rose 2 and came back from a negative number, the previous quarter, but that was driven by overseas growth. Volumes were flat. Its something the ceo tried to down play this morning earlier on cnbc. We were pleased with our north american results, fi because bank of cocacola grew. Secondly because our pricing was very strong in the Second Quarter that just passed in north america. The price mix in sparkling beverages was up three points. Take the totality where we are in north america, i think were making steady progress. So trying to talk about the positives there, which are pricing, growing profitability and market share. Consumers, we know, our ditching diets, ditching soda, dont want artificial sweetener in europe and around the world. Juices were even hit. Thats why coke is emphasizing sparkling water, which is growing. Higher prices to improve profits, and expectations grow for a new drink. Cocacola launches coke life this fall in the United States, a naturally sweetened cola with steevia. Its out in argentina. Look at cokes stock, underperforming the Broader Market up 2 and s p 500 is up 8 . Carl . Thank you. A quick market flash, dow up 78. Hey, dom. Good morning to you. A Health Insurer moves higher after a 24 jump in quarterly profits beating the street for the sixth straigt quarter. Raise rising to 54 billion, 7 in the trade. Rivals move higher as well. United health recall moving higher add vis the ripple effects of the reporter. Thanks a lot. European union phenomenon ministers threaten with sanctions after the separatists shot down the plane in Eastern Ukraine last week. Met by action . We are in moscow this morning. Good morning, jim. Hi, carl, well, there was tough talk. Brita britain, france, and germany took the lead saying europe should be ready to ratchet up sanctions in russians defense excuse me energy and other sectors and talks of an arms embargo, but it did not h help the french president said they with go ahead with the delivery of a new helicopter carrier to russia. They got a boost from the netherlands who, of course, lost 200 at least almost 2 00 citizens in the mh17 crash. Said today they would have a change of heart and impose further sanctions on russia. Putin, meanwhile, on the defensive speaking at a security meeting today warning the west not to meddle in russians Foreign Affairs and beefing up Russian Military capabilities to deal with the Steady Movement of nato towards russias borders. Oblique reference, i guess, to ukraine. The pressure on putin, carl, is clearly mounting. If he chooses to double down on rebels in ukraine, he could be the leader of a praia state, but if he cuts ties with the rebel, hell look weak and defeated in the eyes of other ethnic russians here around the region and here at home. One analyst in moscow summed it up today. The kremlin reduced to choosing from bad and worse. Okay. Jim, thank you very much there live in moscow. Meanwhile, closer to home, bill ackmans presentation on herbal life exposing incredible fraud. Kate kelly has more from the presentation in a hotel in midtown. Kate . Hey, thank you so much, simon. He started on too many at 10 00 a. M. , and he started almost without much introduction noting it was the largest presentation he had ever made, 480 people in the auditorium, people in the overflow room and skipped the safe harbor commentary wanting to get to the material. Its not exactly clear why hes going yet, but talking about the corporate time line at herbal life, fact that Michael Johnsons arrival as ceo in 2003 was a game changer, not clear for better or worse, but i presume for worse because shes short this stock. Now talking about ways in which in his view it targets the poor, such poor people around the world for those who make an average of 2. I believe that was the mets trick. He showed app pyramid of wealth around the world ironic and made a note of it accusing the company for operating a pyramid scheme that they deny, talking in ways they moved into emerging markets, and some of the poorest in the country, as a matter of fact, emerging markets. Finally, an indication where hes going with this, talking about the classic popanddrop phenomena that herbal life experienced with sales entering new markets. In other words, things did well for a while, and the market, the penetration is maxed out, guys, and they would have to move to other geographies. Interesting table settings, no clear what the bomb sell is yet. Yes, plenty to mull over. When we come back, former Deputy National security adviser, former u. S. Ambassador to iraq and turkey weighs in. Will u. S. And u. N. Officials hold fighting between israel and gaza . Dow up 71 points and back in just a minute. In a world thats changing faster than ever, we believe outshining the competition tomorrow quires challenging your Business Inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. U. S. Secretary of state kerry in the middle east this morning trying to work a cease fire between israel and hamas militants, but officials tell cnbc no lasting serious fire is on the horizon. What can they use to calm tensions . With insight, former deputy security adviser, jim jeffrey, now a visiting fellow with the washington institute. Good to see you. Good to see you, thank you. Can john kerry do . A different situation than 2012 where there was a cease fire not too long after and prevent the Ground Invasion . Thats true, but right now a Ground Invasion is jurnway and clear the israelis have, as president obama eluded to yesterday, Strategic Concepts to carry out, taking away hamas ability to launch rockets and unleash raids through tunnels into israeli territory. Thats extremely important consideration for the israeli government. Hamas, on the other hand, says they will fight on until it demands to have Prisoners Released seized in the last few months, and its check points with egypt opened for commerce and to and fro of trade, and the israelis, under no circumstances, will do this. You. Coop have the prek reck sits. What are the state of the relationship between the Obama Administration and specially kerry and Benjamin Netanyahu administration after the collapsed peace talks in april . Secretary kerry had a point in trying to pursue talks because absent talks, such conflicts slip out of control like now. The israelis have a Close Military and intelligence working relationship with the United States. The United States support them in various ways. The u. S. Has more influence with raise real than hamas at this point. Something important here, the lead article in the New York Times this morning talks about the die help that israel faces with realtime choices about whether to advance targets against casualties and kick back they get. But way youre saying, and this is important. They have objectives, military objectives, the tunnels have to go. They will complete that. The Israeli Defense ministers says within days. Tom what way. No negotiation to be had . In that sense yes, they have a military objective similar to ours to dwooifr sue dam out of crew wait. They have the morse forces, the exper seize to do it. As we see on the news, this is at a high cost and civilians as well as continued rocket attacks into israeli communities, and we shouldnt disregard that. Thats very important as well. Theres a huge cross of civilians on both sides they pay as fieging continues. European Foreign Ministers meeting right now. What action do you x. Out of them if any given this relationship between russia and europe is much more important, third biggest trading partner with europe. It is. Its some hundreds of billions of dollars a year with europe, and were talking about a 15 trillion european economy. Its 2 or 3 . Whats important, however, is the gas trade. Againing on the country, its 25 to 30 of the natural gas imports. That thats important. Nups, europe is getting ready for tough action. If they do so, depends on how flektble tes. Flexible to supporting the u. N. Rez rug resolution, but hes in it to stabilize Eastern Ukraine, if not the whole country. Have not seen the last of his tricks yet. The lead article apparently, the editorial in tod todays post said they have been too tactical and tolerant and time to treat him as the dangerous outlaw regime that needs tamed. They suggest actually arming the rump of the ewe can craukraine s at the moment. Its not that putin arm the rebels with the sophisticated, dangerous weapons systems, but what happened after the news came out that the plane was shot down. Rather than rahe made a mistake they upped the anti, accusing the government of everything, and then supported the stalin tactics of the rebels for days as we are now hearing, were able to remove incriminating evidence. This is flying in the face of european sense thes, becausically of the whole world and thinks he had get away with it. Valuable perspective on difficult issues. Thank you. Thank you. Up next, verizon reporting largest growth in a year and a half thanks to rises in wireless and home net sales. Whats that mean for the stock . Well break it down straight after this break. The cnbc realtime Exchange Market snapshot is sponsored by interactive brokers. Interactive brockers, the professionals gateway to the worlds markets. Just take a closer look. It works how you want to work. With a Fidelity Investment professional. Or managing your investments on your own. Helping you find new ways to plan for retirement. And save on taxes where you can. So you can invest in the life that you want today. Tap into the full power of your fidelity greenline. Call or come in today for a free oneonone review. Yyyup. With xfinity internet soyour family can use all their devices at once. Works anywhere in the house. Even in the garage. Max whats going on . Were doing a tech startup. Were streamlining an algorithm. Were going public [cheering] the fastest inhome wifi for your entire family. The x1 entertainment operating system. Only from xfinity. Welcome back, a highly anticipated ruling on the socalled case involving the Affordable Care act, known as obama care, suing the government saying that subsidies given to people on exchanges built by the federal government violated the law. Under the law itself according to the ruling, the law said that those subsidied could only be applied at exchanges build by states themselves. This effects 36 exchanges, state exchanges that were built and run by the federal government. A u. S. Appeals court has thrown out the irs regulation that implements that key Health Insurance subsidy and throwing did back down to the lower court. It continues, but a big ruling against the Obama Administration and impacts some 5. 5 Million People who received those subsidies. Well see what happens as we go into next years open enrollment that begins on november 15th. Thank you, bertha, trying to track the rulings involving the aca is a beating against itself. Talking of beats, verizon this morning did beat the street with its earnings. The stock has been not doing much of anything. You see up now, had been down a bit, but up onethird of 1 right now. What was key about the quarter . Well, the revenue number was fairly strong. Not just Wireless Subscriber growth, and a lot of the growth, which we already got a preview of on an interview on cnbc a couple weeks back, the growth came as a result of tablets being activated, and they are not as profitable or high an average revenue per user as are the smart phones. Tablets, 1. 15 million tablet sales, a big number, but strangely enough, the wire line business side of verizon. Its not your home, but business formation, reflective of the stronger economy as well. The wire line business showing an uptick for the first time in quite a long time. We go through some of the key things for you in terms of Wireless Subscribers, net ads, postpaid phone at 300,000, as i said, tablets, look at that number there as we look at churn and average revenue per device or however they talk about it these days. Overall, a good number from verizon. Of course, it is still digesting the acquisiticcusation purchase vodafone and debt added to the balance sheet, coming down marketedly. Moving on to our parent company, no fun to talk about. If youre too positive, youre a ho homer, and if you dont, who knows, right . Comcast looked good. The stock up, so much of this, though, a focus not on the metrics of the business itself, largely positive, but on the Time Warner Cable transaction of when that will be completed. I mean, as for the metrics, video net ads down, lost 144 subscribers, up 137,000, and data ads, particularly, well regarded there in terms of the company overall, and when youre talking about operating cash flow, revenues in particular margins throughout many. Businesses including our own, they were strong. As i said, Time Warner Cable the close, and whens the vote for shareholders . Once that vote takes place, it will institute a 2. 5 billion buy back. Investors on the Conference Call focused on that. I have a quick read from the cfo on it. At this point, we believe a reasonable estimate for the timing of the vote will be in the fall. This does not have any impact on the continued review, of course, by the fcc. They say fcc the department of justice not expected to impact timing of the closing the deal, but well buy 2. 5 billion worth of shares with approval. A lot of questions on that, and theres the answer. We all await that. All right. Round up of media earnings. Apple betting on big screens. Lure customers away from the likes of samsung . Well discuss that ahead of Apple Earnings right after the break. At every ford dealership, youll find the works its a complete checkup of the services your vehicle needs. So prepare your car for any road trip by taking it to an expert ford technician. Because no matter your destination good maintenance helps you save at the pump. Get our multipoint inspection with a Synthetic Blend Oil change, tire rotation, Brake Inspection and more for 29. 95 or less. Get a complete vehicle checkup only at your ford dealer. Thats why i always choose the fastest intern. R slow. The fastest printer. The fastest lunch. Turkey club. The fastest pencil sharpener. The fastest elevator. The fastest speed dial. The Fastest Office plant. So why wouldnt i choose the fastest wifi . I would. Switch to comcast Business Internet and get the fastest wifi included. Comcast business. Built for business. About an hour into trading here. The stories were squawking about. Existing home sales for june better than expected rising 2. 6 to a rate of 0. 54 unites. Shares of cit group up 10 , business lender agreeing to buy privately held 1 west bank. Harley davidson down 6 despite better than expected earnings, company lowered t eed full year guidance for motorcycle shipments. Wo wonder when the electric harleys come out. Soon, soon. Apples weakest year, ahead of the launch of iphone6, and josh lipton is live with what we should watch for this afternoon. Hi, josh. Reporter hey, simon, yeah, today after the close, certainly, all eyes on apple. Expectations are high here for the tech titan. Now, wall street wants to see eps of 1. 23 on revenue of 38 billion. That would represent year over year growth of 8 on the top line. Drilling into the different product categories, now, analysts want to see apple sell 35 million iphones in the quarter, and in the Conference Call, investors want clarity on how many phones apple sold versus shipped, and what is demand like in china . How strong, how consistent. Iphone salesing the for 50 of the total revenue with an impact on appapples closely watched margin or the profit they keep after paying manufacturing cost. Ipadsing t ipads account for 20 of the revenue. The ipad in april a disappointment, missed by 3 348 units. This time, they think apple sold 14 million ipads, education a key market for the ipad. Theyll see how demand in the market holds up, and finally, mac sales, ammists think they moved 4 million macs, 13 of the total revenue. Excitement about the pipeline, a new phone, wearable, or both. If thats true, you could see apple give more conservative guidance to underestimate than overestimate and risk disappointing the street and investors with the forecast. Carl, back to you. Will be a heck of a print no matter what. Thank you. Bringing in rob. Good morning to you. Good morning. We can go through what josh talked about, but the main event, as you put it, is the 6th. What do you think the timing will be . Im looking for the 4. 7 inch larger screen to ship last week of september. Similar to the past couple cycle, and theres a 5. 5 inch, a larger, larger screen, which may come shortly after that. I think, though, what matters is if you look at the high end of the smart phone market, where apple plays, customers want larger screens. Theres pent up demand there. Do you believe the 80 million number in the journal today . I think thats sporty, but i think we could see iphones all in iphones approaching 60 Million Units in the september quarter. 80 would be great, but not holding my breath yet. They think theres upside to margins because of what analysts believe the mix will be like. I look at a potential for 40 margins on the watch. Do you buy all that . I think 40 on a watch or iband, whatever the heck its going to be called, is not out of the question. I mean, Gross Margins stabilized over the last couple quarters which is important because they had fallen last year, than really weighed on the stock so i think as long as Gross Margins stabilize in that high 30s range, thats find. I dont know they necessarily go back up again. Its just they stabilize. Rob, just to take you back to the journal article today where they identify there may be a production problem with the 5. 5inch careen becauscreen be lighter and theres a suggestion here because of the production problems in the failure rate of the screens, they may be asking component manufacturers to make 40 or 50 Million Units more to cope with that failure. That would seem to be a margin problem or am i misreading . Is that normal in a proux process . Well, whats normal is apple asks their manufacturers to get ready to make, you know, more i mean, they buffer what they you know ask for more than they think they need. Always ask suppliers to be ready to supply more. I mean, weve heard in writing about that 5. 5 inch iphone seemed like theres yield issues on the screen, which is why i think it comes a month or so after the 4. 7 inch. I think the 4. 7 inch is the flag ship, it does the bulk of the units anyway, and thats the phone to expect at the end of the september. Not 15 times forward earnings. Doing they get back to a market multiple . Market multiple i think is justified. They have an amazing brand. They are showing that they really can still grow against the law of large numbers. Back out cash, not close to a market multiple. We are bumping up or getting towards the alltime high. I dont see a reason why we couldnt go higher. I see a 115 price target. Doable to me. Theyve been on that wagon the past five days, all the other either upgrades or target increases in the last five days. Make you nervous . No. I mean, if you look at the wagon it was negative not even a year ago, six months ago. Nobody thought apple could do anything right. Now maybe people think they cant do any wrong, but the stock is only pricing in, you know, modest growth at that. Its far from expensive, i think. Let me point out, goldman said its the most significantly underweighted stock amongst the large fund cap managers. Room to run, rob, if they buy back into the growth story rather than value. Right. From a waiting standpoint, apple is so big if you dont own a ton of it, you are underweight. I think if you dont own the stock, and it does well, you really have to explain yourself. Well, pour yourself an extra coffee at 4 00, rob, see what they say. Right. Thanks for having me. An Appeals Court ruling on obamacare and subsidies, a big defeat for the legislation. More on that after the break. Thank ythank you for defendiyour sacrifice. And thank you for your bravery. Thank you colonel. Thank you daddy. Military families are uniquely thankful for many things, the legacy of usaa Auto Insurance can be one of them. If youre a current or former military member or their family, get an Auto Insurance quote and see why 92 of our members plan to stay for life. Became big business overnight . Like, really big. Then expanded . Or their new product tanked . Or not . What if they embrace new technology instead . Imagine a companys future with the future of trading. Company profile. A Research Tool on thinkorswim. From td ameritrade. A Research Tool on thinkorswim. Virtually all your important legal matters in just minutes. Now its quicker and easier for you to start your business, protect your family, and launch your dreams. At legalzoom. Com we put the law on your side. [ male announcer ] if you cant stand the heat, get off the test track. Get the mercedesbenz youve been burning for at the summer event, going on now at your authorized mercedesbenz dealer. But hurry, offers end july 31st. Share your summer moments in your mercedesbenz with us. Offers end july 31st. First day of my life by bright eyes youre not just looking for a house. Youre looking for a place for your life to happen. Welcome back to squawk on the street, a u. S. Appealing court threw out federal regulation that implements key subsidies vital to president obamas healthcare reform, also known as obamacare. A d. C. Court of appeals accepted one of the main challenges to the policy by conservatives who were exposed to expansion of the federal government. You see they are up on the session. The question then becomes whether or not there are any ramifications to the insurers because of this policy. Remember, guys, the main part of the challenge was the federal government now cannot implement tax credits and subsidies for obamacare. Thats what made these policies so affordable for certain families. The question remains whether those families with still afford that coverage, guys. Back to you. Though the subsidy eligible on a state exchange, dom. Yes, but, again, until they can both be joined, if you will, if the policies can be made, if states can still have their exchanges implemented, this policy will stay in effect. You cant just put one versus the other in terms of subsidies, guys. Thats what the ruling is essentially saying. A huge ruling, dom, more on that in minutes ahead on the program. Still ahead, the first crowd funded hoe it wi eed hotel. Thats next on squawk alley. Were back after a break. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. Were changing the way we do business, with startup ny. Weve created tax free zones throughout the state. And startup ny companies will be investing hundreds of millions of dollars in jobs and infrastructure. Thanks to startup ny, businesses can operate tax free for 10 years. No property tax. No business tax. And no sales tax. Which means more growth for your business, and more jobs. Its not just business as usual. See how new york can help your business grow, at startup. Ny. Gov with the top speedou compare of comcast the top speed of business dsl from the internet. Phone company well, theres really no comparison. Why pay more for less . Call today for a low price on speeds up to 150mbps. And find out more about our twoyear price guarantee. Comcast business. Built for business. As weve been mentioning, breaking news, appealing court issuing a ruling on obamacare striking down subsidies for services bought on exchanges. Joining us on the phone, the managing direct of capital street on the Cnbc Newsline covering Health Care Policy and the health care companies. Ipsita, id think a big share of people need the subsidies, how big a blow is this to the president S Health Care legislation, obamacare . Caller absolutely. Of the 8 million covered individual, 5. 4 million came through the federal exchange. Its a big, big chunk. Now, while this is a blow to obamacare, remember that the appeals process has yet to play out, so nothing is effective immediately, okay . And when folks go to the exchanges in november, november 15 th for open enrollment for 2015, have access to subsidies whether youre from the federal exchange or the state exchange, so its sort of status quo while the appeals process plays out. How do you expect it to go . Expect it will be overturned . Caller well, if the white house goes for the en banc decision, which would be a ruling from the entire district because it stacked democratic, it could go their way, absolutely. Regardless, confusion is going to ensue among the insured, and i think hospitals are probably rattled and health plans, too. Not in a big way, but because of the long, drawn out process, it could go to the Supreme Court. Speaking to you now, looking at Health Insurers, which have actually risen so far. Not what you might expect them to do. Agreed. I think because this was such a highly anticipated decision, theres probably a bit of relief that, hey, its finally out there. That would be my guess. So maybe its a bit of a relief rally for now, but, again, confusion and uncertainty is never a good thing, and we do have the appeals process, and potentially Supreme Court consideration, which takes you to june of next year. 2015. Meantime, of course, its hard to forget the hobby lobby decision that was a scotus decision. Is it your sense that the legislation is slowly being hollowed out here . I dont think so. This is the law of the land. I think theres going to be efforts to dismantle it. But i really dont think that this is the beginning of the end. You cant take coverage away from 8 Million People in the exchanges and almost 7 million in the medicaid expansion. Its really, really tough to do. I think it could get changed and modified, but not going away. Simon mentioned, the stocks of insurers up. Would membership not be at risk if really upheld . If it were upheld, meaning, if this sticks, yes. Definitely a bad thing for the aca, and for obamacare, but i think we just dont know how its going to play out, to be honest. Yeah. Unclear for the insurers, perhaps as well. Thanks for joining us last minute on the newsline, ipsita. And pass it over to the cme group and Rick Santelli with the santelli exchange. Thanks, simon. Id like to welcome dan the man saysich. I like to tie things up. No rules followed. Rulebased is out the window. Whether its the case just outlined now, where subsidies, laws written, need to come from the federal, not the state. Right. Everybody knew this. Just like Everybody Knows the Federal Reserve is kind of righting this as they go. Is this one of the reasons yield curve is flattening . One of the reasons, long end cant get traction for higher rates . Because it sees this landscape is not conducive to anything. From health care to business, to banks . Well, theyre certainly putting a lot of doubt in peoples minds whats going to go forward, because you would think in a growing economy wed see longer term rates start going up the ten year, pushing towards 3 . Were nort seeing it. Is it geopolitical . Uncertainty . A combination. Geopolitical and weather, ill stop you. Always where everybody wants to shovel all question about call because its easy to deal with. What do you see in the Energy Market now . On their alltime highs . No. But higher than three, four weeks ago. And ill use the geopolitical, not the weather thing. You still have russia and iraq and israel, thats all kind of pushed to the back burner, but its something that needs to be watched. Theres a bit of a risk premium and flight to safety. Stop you there. Forget all the issues with military. Because nobody nows how that turns out. Do you think any you mentioned is good for business . Certainly not good for business and that gets back to your original point of uncertainty going forward. What will we have . You have 2. 5 in ten year now. Until we see certainty with the economy and rulings. I get into a lot of discussions about inflation, and in every business blog, think theres is no inflation, but everybody who reads that thinks what . Most legitimatechb definitel. Go to the gas pump, you see inflati inflation. Stop you there. Over numbers, including or not fruit and energy or the thresholds we havent seen in a couple years. One thing jumped out at me. Electricity month over month up over 5 . We flow why. Were closing coal, electricity generation. Is the government in the form of all of its agencies just against the middle class . Are they just slopping them and cutting them right off at the ankles or what . The got would the say theyre for the middle class. For which middle class . Just use middle class. The middle class that doesnt use electricity . Im just being, giving a point here. Theyre not not realistic in their assumptions answe s and d things that are harming the middle class. Youre absolutely correct. The goldmans are getting out of certain forms of business. Close to 60 billion worth. Look at the other metrics, i see a tight repo, even though serve getting out of the repo business. Final word on that . I think youre not getting the profitability that you had in these other ones. Thats their excuse. Thank you. Back to you. Thanks for the lively conversation, as always, rick. Over to Kayla Tausche with a look whats coming up next on squawk alley. Kayla . Sara, arguably the most important week for tech earnings. Well get you realtime reaction on netflix. Why that stock is down. Even though profits doubled. After the bell today, of course, we have apple. First report from that Company Since that stock split last month. What does that Product Pipeline look like that is apparently the best in 259 ye years . A preview. And finally, amazon, tough love from wall street. A down great. Questions over margins. How much coverage going into its earnings . Talking all of that and more when squawk alley comes up, next. But what if you could see more of what you wanted to know . With fidelitys new active trader pro investing platform, the information thats important to you is all in one place, so finding more insight is easier. Its your idea powered by active trader pro. Another way fidelity gives you a more powerful investing experience. Call our specialists today to get up and running. Just want to say, i bundled home and auto with state farm, saved 760 bucks. Love this guy. So sorry. Okay, does it bother anybody else that the mime is talking . Frrreeeeaky [ male announcer ] savings worth talking about. State farm. A check on the Broader Markets here as we speak, the dow up about 64 points. Seeing a rally as well for the s p and the nasdaq which is actually in the lead ahead of a bunch of tech earnings. Chipotle, star performer in the s p 500, knocking it ouch the park. Nice surprise. And from apple and microsoft tonight that could change market direction po lepotentially. Big day for tech. Thank you so much, guys. Interesting market day. The worst dow performer this morning, the companies that reported today and missed. The rest of the Components Holding it up 63 points. It is almost 8 00 a. M. In cupertino. 11 00 a. M. On the east coast. Squawk alley is live. Welcome to squawk alley. We begin the hour taking you to the white house set to react in a few moments to this federal Appeals Court ruling that just crossed in the past 20 minutes or so. Regarding the federal subsidies under obamacare. The Appeals Court ruling that at the federal level at least they are illegal, and the subsidies have to go through various state exchanges. Its characterized in the early going as a blow to obamacare, but we will see what the official white house responses is in a few minutes from josh earnest. Meantime, squawk alley. And what a night in