to get big upside from these new bids that are coming in. we've got to go. mistake sure you join us tomorrow i don't know where andrew will be. >> france tomorrow, i think. >> "squawk on the street" coming up next. ♪ good wednesday morning welcome to "squawk on the street." i'm carl quintanilla with jim cramer david faber is in boston futures solid. the markets steadier regarding trade tensions tons of corporate news europe is green. ten year 2.89. a big story we begin with news in media m & a

disney raising the offer for $38 a share. fox said the new disney deal is superior to the proposal made by comcast. cnbc's parent company earlier this month david has more in boston what a morning, david. >> reporter: yeah, you know, in some ways, carl, i should have known and expected it given the radio silence i was getting from certain camps. disney jumping ahead of what we expected was a process that might engs tend until late next week but would have ended up in the same place, which is where we are now disney raising the bid to maintain, of course, the merger agreement. a new merger agreement now it signed up with fox the bid from comcast that was $35 all cash let's break it down. it's $38 a share that is up from a deal that was all stock previously let's call it around $28 to $29 a share depending on where disney was trading they have come down significantly in the actual stock portion of the overall

deal right. you're at $38 but 19 is stock as opposed $28 or $29. they have increased the regulatory give ups they're willing to make if they face opposition from authorities. they have gone up from saying not we'll divest all the regional sports network, there are 22, we'll divest businesses to $500 million. previously that had been up to $250 million earlier, i heard and reported they may have increased reverse termination fee. i'm told it's not the case i apologize if i confused anybody on that. that remains, i guess, the $2.5 million number it had been. overall disney sent a message here they jumped to the head of the cue here before the fox board meets today. murdoch and iger had a meeting yesterday in london, i believe where mr. iger remains now the call is going on they apparently hashed this out.

at the meeting or, and, obviously, with their advisors, as well. to get ahead of any board meeting. to get ahead of any possibility that fox would say to comcast your bid is superior or the superior proposal. now we go back to comcast. it doesn't mean comcast will come today, guys, with another bid. my expectations is certainly they will look at this, they'll say, wow, it was at the higher end of the range of what we might have expected disney would do it doesn't mean that comcast is not going to come back here. jim, it doesn't mean we're not going to see something that ends with a four in front of it before it's over. >> david, i agree with you as long as the stocks are going higher, i think there's room what happens if disney one day come in and make the next move and the stock is down five doesn't that signify the trade war? where someone says we have a loser here isn't that what we're waiting for? isn't that when the bidding ends

>> i think it's interesting the way that disney chose to construct the bid today, jim by taking stock off the table, they take pressure off to a certain extent or concerns off because typically cash ends up being more creative than using our own stock. you're seeing disney shares up a bit today. that can be helpful for the overall bid. i agree, though. you'll get to a number where people say wait a second you started at $23 a share here when you began the negotiations with the company back in the fall let's call of it last year. here we are at $38 and where are we going how potentially near term is this going to be how much debt do you want to take on your balance sheet the same question to be asked of comcast. how much debt do you want to take on your balance sheet we talked a lot last week how much the debt of this overall at&t and comcast will have if comcast succeeds in acquiring fox >>well, i think, david, there's a sense of wait a second

disney's earnings stream is a open so theic. banks will be less willing to lend a ton of money. does the new structure make it feel like it's not the case? >> yeah, you know, when it comes to financing, jim, i mean, i started in my career as a banking reporter covering the money center banks they never have trouble. unless it's a bad moment in time, like the crisis, they find a way. i don't think financing will be an issue for companies that's not the issue the issue becomes do the shareholders, to your point, get more nervous about their ability to maintain their current credit ratings or downgrade of some kind that could conceivably hurt or impinge on their ability to maintain a dividend or return more cash to shareholders. we should point out in the conference call, i believe, disney did say it's going to halt or slow the buy back, right? >> yes. >> i think it was $20 billion.

>> yeah. be more conservative in the near term david, there's the cash element but also using some regulatory rhetoric in their arsenal. iger saying that the at&t approval does not clear a comcast purchase for fox and iger's view trying to color comcast as having national penetration in broadband that's something we expected, i think, to some degree. >> yeah, you know, listen. i spent a lot of time in this in the weeks leading up to the potential bid before we got the decision from judge leon, and opinions, as you might, are divided. comcast could come back and say the market share in the studio is far larger between fox and disney than it would be between us and fox and you have to wonder whether the addition of the fx network and the nat geo network and hulu will move the needle these over the top platforms are starting to get traction

could you conceivably favor some against the others or one that is your own in the form of hulu. i don't know if the regulatory rhetoric is going to make a lot of progress at this point for either side. >> david, the confusing thing, i mean, look there's many prices trying to get your arms around where disney, obviously, taking down some debt it's not all stock but it's confusing for me is comcast. was comcast mispriced before it came back? we have comcast stock going up theoretically they're going to borrow more money. the fact is, something was being reflected that wasn't true that's the real oddity for me. that stock continues to climb. >> yeah, i mean, maybe it did get a bit overdone maybe investors were expecting they would go higher with their initial bid.

again, at this point, we don't know where it ends up and what comcast is going to be willing to try to pay to rest it away from disney. the lack of potential for buybacks, all though they said they will continue to buy back stock, jim your guess is probably better than mine in terms of why there was the pressure on the stock. of course, there's also that argument being made to a certain extent they're running away from the core business. brian roberts would say the opposite a couple of quick housekeeping notes. fox pushed back the shareholder vote on any potential deal it was scheduled for july 10th that's been postponed, as we expected it might be i wanted to get that out there earlier i hadn't reported that was the case we have to wait and see. i don't know that comcast necessarily says anything today. you can imagine why would you need to? it seems to be the case here,

it's truncated the amount of time we'll see a back and forth here they've jumped the process itself, which kind of stretched out over weeks it's conceivable comcast will come back quickly and disney will make a choice as to what it wants to do as opposed to waiting for the fox board. final point on regulatory, i think $38 versus $35 shows it's about price. if they believe they had a strong regulatory prey, maybe disney comes in at a lower price. they didn't. they came with a high bid here and with a significant differential between them and tightened up on regulatory. >> yep. >> it is an auction. we'll see who wins. >> yeah. it's fascinating there's the sky element, as well iger made the comment about the progress he said they've been making regarding regulators on that front take a listen. >> caller: fox is in the driver's seat regarding the 61%

that they do not control we've been working with regulatory authorities, not just in the united states but in jurisdictions across the world now for six months we've made a lot of progress toward obtaining the regulatory approval that is necessary, and that includes supplying regulatory authorities with a tremendous amount of information. basically heeding their requests for all sorts of documentation regarding the acquisition and the potential impact it has on markets across the world this itself represents itself a meaningful head start. >> meaningful head start, jim. how much does that timeline matter >> jeez, i don't know. i keep coming back to what david said and i'm happy he said it. it could be over sooner than people realize these are not a lot of moving parts. there's an asset you raise your price until you

can't. neither one of these companies is in a suicide back there's a sense, david, i don't know if you feel this way. everybody loses. it's a big game of chicken david, these are two rationale companies. neither company wants to be the legacy we took on too much debt and failed can you clarify the suicide pact stuff i keep hearing versus the reality with the people involved in this? >> jim, say it again sometimes it breaks up a bit you're asking about the tax ramifications. >> i keep hearing commentaries it's a suicide pact. both these companies willing to take on too much debt. this is a dangerous thing. they're willing to go to the moon it's going to go on forever. bob iger, right, and brian roberts, steve furyk not suicide artists.

calculated business people that will move their stock up over the next two years if you're going to take on too much debt because you want the asset, that's not the way of either of these two people. >> you're right. we've pointed out many times and brian roberts s been focussed on this. why didn't we initially actually come out on top before they signed the deal with disney and focus on what the time warner decision would be and their response and the reason is because he feels and worries about the long-term set of assets and their ability to compete they control 33% of the vote at comcast. that gives them a luxury of making these potentially long-term decisions that short term shareholders or shareholders who are more concerned about the things you're talking about, jim, would say please don't do that to. and i remember hearing many times he regretted listening to a shareholders when they came

with that initial bid for disney way too low a number many years ago. it was like '04 or something not having pursued it when the stock got beat up. here, they are both rationale. but they're rationale to the point thinking about the long-term benefits to their businesses i mean, the revenue numbers for comcast goes to 27 percent, if i recall, if they get this deal done that's a huge move that's important to the future of the company. >> not at six times. not at seven times there's a level. there's a level where no one wants to take on enough debt we make it so it is suicide. >> all right what's the number, jim you tell me. what's the number? gets them the deal that doesn't make every shareholder run in

panic? >> if i knew that, i would be in philadelphia now making a lot of -- >> your point about the stock today, we're not at the number yet. >> or else comcast would be down i'm saying comcast would be $30.43 if we were at that number there. >> guys, we didn't get to starbucks. we will. kevin johnson the ceo is going to join david and outline the new strategic priorities for the company after that guidance on 3q last night. david has that take a look at futures dow is coming off of six days co down the ssl ruelhit an all-time high back in a minute

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welcome back to "squawk on the street." i'm david faber. at a starbucks in boston a city chosen because ceo kevin jacobson presented yesterday and had news that, well, not being necessarily well received by the market this morning, but we'll he -- we're here with mr. johnson. the stock about to open 4% lower this morning

you decreased expectations for same-store sales in the u.s. from 1% in the third quarter you are going to close more stores open, obviously, continue to open others. but look for unpenetrated markets. i guess my first question in listening to you yesterday, seeing your decision increase the dividend and the buy back and reading analyst reports this morning is starbucks a mature company? >> well, first of all, welcome to starbucks it's great to have you here this morning. what we talked about yesterday was something that we have been working on over the last year. which is fundamentally stream lining the company over this last year so we can focus on the most important priorities. and those priorities are going to allow us to really transition into a phase that i call growth at scale and we look at starbucks was founded in 1971, and so over the last 47 years, you know, we have built an iconic global brand 77 countries, 28,000 stores

around the world serving nearly 100 million customers a week so now, at our scale, i think we've got to be much more disciplined in setting our priorities, we've got to be more data driven in terms of how we're allocating resources and tuning the model, we have to be more agile as innovators we set the stage for that transition to a company that is focussed on growth and scale. >> growth and scale mean not the growth that starbucks and starbucks investors have come to expect previously. >> our growth has slowed. >> there are more starbucks than mcdonalds in this country. how can it not slow >>well, 28,000 stores around the world. certainly in the u.s. we'll continue to build 400 new company-operated stores a year but we talked about yesterday was the fact that typically we close about 50 stores a year in the u.s. it's just part of our normal

pruning of stores. this year we'll prune 150. we're going to build 400 new stores in the u.s. but if you look at a global basis, the three priorities that we set, number one, growing our retail business in the u.s. and china. now the u.s. and china are in two very different stages. china is in a build stage. we just increased the number of new stores we're building in china to 600 a year. >> 3300 stores you build one every 15 hours a new starbucks open the point on china and what is giving people pause. same-store sales comp went from 8% to 0. it's 10% of your income, at this point. to your point it's a growth area for you. should that be a concern >> you know, we focus on growing the number of transactions in china. with all the new stores we're building plus existing stores, it will growth, customer transaction something like 15% we continued to grow same-store

sales in china this particular quarter with the acceleration of new store builds in the cities we're building in there's some cannibalzation of existing stores. >> and party deliveries. there was some dislocation there. >> yeah. what happened there's been some new entrants in the market competitors that are focussed on delivery and they're subsidizing the delivery we have a very, very strong mobile eco system in china we haven't lit up mobile order and pay and delivery we have mobile pay in china. the team in china is working with one of the largest tech companies in the world to put together the process where we can light up mobile order and delivery in china. you know, the key thing in china is we're playing the long game we've been there for 20 years. we continue to post great growth in china we acquired east joint venture china. we'll light up mobile order and delivery in china. and the fact is, in the next three years, we're going to

build stores and enter 100 new cities in china. each of those cities the size of los angeles or greater. >> i read your presentation you made for investor day, which you had in china and what you've done there in terms of being able to grow everything there to the extent you wanted but i want to come back to yesterday for a moment and i wonder whether would you have been able to make the announcement you did yesterday without howard schultz planning to leave the company in 10 days? is it drawing a line is it saying even though you've been ceo for over a year i know that. this is the kevin johnson. >> this is where i'm taking the company. and, you know, whether howard is here or not, i'm the ceo and i'm accountable for that. >> howard is not here anymore. >> yeah. he's gone. i don't know what he's going to do does it change the way you

operate? >> well, not necessarily i'm accountable for making the decisions in the best interest of starbucks i've been doing it since day one. but this is an inflection point. you think about many have written about founder transitions. what i call founder-led to founder-inspired companies i have experienced and lived it. the last 25 years of my career i worked with founders microsoft and juniper and the last decade working with howard. we're at an inflection point what we did yesterday was put a stake in the ground that said, look, we are streamlining the company over the last year we freed up $8 billion in capital. we redeployed $1.3 million in china. we called out strategic priorities we'll get focussed and execute and discipline and create shareholder value. we have one of the strongest consumer brands in the world we have many great assets at our

disposal the opportunity is be smart how we're deploying capital and grow the business. >> i want to have jim ask a couple of questions, as well jim? >> good to see you, kevin. >> jim, good morning. >> good morning. stock is down $2 take a little bit of different narrative here you came in in april of 2017 there have been four quarters that you have been presiding over on three of those four quarters, you have cut your forecast you're from juniper you understand technology. you know this isn't right. kevin, you would be furious at yourself i don't hear you being upset >> jim, i said yesterday, you know, clearly the performance we've delivered has not met my expectations it hasn't met our shareholder expectations i'm accountable to fix it. now i said that yesterday and i

believe in that. i believe the plan we put out yesterday and shared with our investors is the right plan for the company. now starbucks has been through these ebbs and flows before and we always get through them we're going to get through this one, as well the last in the current quarter, certainly we had an unplanned initiative driven out of the philadelphia incident. closed all of our stores for training we had to delay some marketing but none of that is an excuse. the fact is, the way i think about a growth company at scale is we've got to deliver consistent growth month after month, quarter after quarter, and year after year. and we have not done that but that is what we're laying the foundation and that's what we're the leadership team. >> i know jim will want to get back let me follow up okay we're looking at 1% same-store sales there are those who argue you're starting to lose out to a certain extent to the smaller, high-end coffee shops.

you say you want to get back to that consistent growth, but do you really see the path and where is it when you say it's not acceptable and you're not responding fast enough to the changing preferences of customers. what do you do, then, to do that >> well, the biggest thing that we do, david, is digital you know, we've got a huge digital asset in our rewards program and active rewards members. 50 million customers we opened up a wide range of things we're doing to capture nonrewards customers in a digital relationship we added 5 million nonrewards customers. >> not necessarily rewards customers but you've got their e-mail address. >> right what we're doing is using those relationships and our personalization engine to really drive the kinds of offers and promotions to those customers. that's a big one

we've had competitors. we have competitors that will focus more on a value proposition. a lot of times these are competitors that are going forward that have been trying to offer beverages. and we have competitors the third way of independence that you mentioned. you know, we're taking the brand up we're in the business of premium coffee premium teas premium experience so we're focussed on elevating the brand and elevating the customer experience. >> jim, i know you've got another question as kevin takes a quick sip of coffee. >> yes there's a director to the new program titans in health care. kevin, one of the things i want to see more than anybody in the world, other than you and howard, is is a bottom in the stock. you cannot -- i'm not asking a question i'm giving you a statement you can refute it. how can you reach a bottom in the stock when you maintain the growth of 3 to 5% which seems

unrealistic. why not just say, you know, we're scrapping that long-term you can't get a bottom, kevin, until you do that. you and i go way back. that's what we know about stocks >>well, jim, look. we adjusted our long range guidance last year and we adjusted it for high single digit revenue growth. we'll in that high single digit revenue growth this quarter. even though comps are a bit depressed. and so, you know, we're focussed, the fact is, in this current quarter following may 29th, the u.s. 3% comp we're trending to that for the month of june. but the fact is, we have not been consistent in delivering that and so the focus has got to be on consistent execution against disciplined priorities, and that will take us into that long range guidance that's what we've got to do. >> okay.

>> i run a restaurant. that's antidotal i know when we have bathrooms that are not clean when we people who want to use a bathroom, yes, they're not going to pay i totally get that we have to add a shift member and it hurts our profitability i cannot believe that the licensees didn't see that, too no one wants to add a shift member because they cost too much how will you keep costs down if you have to have a shift member. >> we worked on many ways to increase productivity. part is business simplification. if you look at the set of things we've done over the last six months, we launched new operating process in the store called deployment 2.0. it simplified the jobs allowing them to spend more time focussed on the customer. in addition to that, you know, we're constantly looking for ways to use technology to help simplify and allow us to get

more productivity in our stores. >> [ applause kevin, as you're talking we'll get the opening bell at the new york stock exchange. a busy morning as we watch not just starbucks -- [ opening bell ] there's the bell over at the nasdaq naked brand group. really quickly here. berkshire, amazon, and jpmorgan announced the person going to head their health care effort. the staff writer from the "new yorker" since 1998 author of several well-known books. the company will be based in boston, guys as they've said before, will be free from making -- free from profit making incentives and constraints. so we'll see where it leads.

>> yeah. it's nontraditional. so, i mean, yeah let's go read some books tonight. >> yes david, over to you. >> thank you, carl kevin, we kept you around until after the bell we appreciate it, certainly. again to reset for our viewers here with kevin johnson. ceo of starbucks at a very nice boston location. nice traffic behind you, too. >> yeah. >> but, you know, to your point, and to the point jim has been making, as well. 28,000 stores. when you talk about a company that began in 1971 i've been in this business a long time. i've watched companies grow dramatically for many years. they reach a point where it becomes more difficult to grow you keep coming back to the idea you will be able to put that growth number up there jim is sort of saying why not just say this is what we are and it's fine to be that why not?

>> well, i think you know what we've done is we've looked at our business and we try to be thoughtful and disciplined in setting out our targets, declaring the priorities, and you know what we've outlined in terms of our long-term guidance last year is what we believe now we haven't delivered on this especially in this particular quarter and there's no excuses the fact is that over the last year, we've been going through the process to stream line the company. and that is going to help us get more focus and more management attention on the key things we need to do to drive that. >> in china where, as you talk about long-term. been there 20 years. the growth trajectory is potentially enormous i've seen the stats you like to repeat half a cup of coffee per capita per year versus 300 in the united states. we can imagine what that would mean if they meet our level of coffee consumption are you concerned at what is going on now in terms of the trade dispute between our two countries? you view starbucks chinese

company. do the chinese or possiblily get caught up in a boycott or something like that? >> we've been in china for 20 years, and we've been very thoughtful about how we've built our brand and company in china and, you know, it's built in china for china. and, you know, that said, i've been clear that, you know, we're not immune to geopolitical events that might unfold yet, we'll stay focussed on the long-term and we believe in the growth potential in china. we're deploying capital in china. the acquisition of east china joint venture. building 600 new stores a year that strategy will remain the same we're playing the long game. >> you've talked about digital initiatives and how important it is to get people to come in. 75 million people make a visit once a month, i guess. 60 million are nonmembership rewards. what is the number you would like it to be. what is realistic goal for the company to have in terms of enlisting people in the membership community

>> clearly, the more digital relationships we have, the better i mean, it is the number one most powerful thing we can do in the united states to drive same store growth and, you know, we're at 15 million active rewards members using mobile payments. mobile payments is the number one mobile payment scenario in the united states. in the last 90 days we added another 5 million digital customers. with the set of initiatives we have around customer acquisition, the 5 million we added, that number will continue to grow quarter after quarter. if we get to, you know, if we get to 40 to 50% of the customers that visit us, if we have a digital relationship with 40 to 50% of them, that would be an outstanding result for us that's what we're intend to do. >> kevin, we appreciate your time howard schultz leaves in ten days miss him or happy to see him go? >> howard is a good friend and, you know, i've been fortune that, you know, i've known him

for 15 years or so and, you know, he has, you know, had the willingness to teach me everything he's learned over the last 30 or 40 years at starbucks. i've had the desire to learn from him so he will be my friend. and, you know, he's also going to be one of our largest independent shareholders i've got a lot of accountability to howard. >> we appreciate you spending time with us thank you. kevin johnson, ceo of starbucks. back to you guys. >> thank you very much at the open we have record highs for the nasdaq and the russell we're watching secretary ross on capitol hill talking about section 301. we'll get to oracle and fedex and g nerkse in a moment. jerome powell said the case for continued rate increases is, quote, strong. the u.s. economy performing very well said growth is meaningly above the long-term trend. the unemployment rate is below

the long run level he sees wage growth moderate not all that hawkish on inflation. job market, though, strengthen further. on the markets, he said confidence is become overconfidence and lead to excessive borrowing and risk taking he said the u.s. financial stability vulnerabilities are moderate some asset prices are high by historical standards carl, i hope to learn more from the chair on the issue of monetary policy amid tight labor. he's sticking to his idea. >> our interesting points. thank you, steve liesman this has been a week, jim, where attention is being put on corporate debt, media and leverage exfinancials, comcast bidding wars don't happen. not far away from the peak do you buy that? >> i don't know. >> i care about the cash flow

blind the leverage. >> the point is what happens when the cash flow -- >> again, it comes down to whether we have people who are willing to load up venerated with debt or macy's with debt like the old days. we have people -- i guess david said, banks plying debt. or companies that can delever. they have fabulous cash flows. i care more about cash flow to debt. >> at&t debt is two notches above junk you've been concerned. >> i'm very concerned. i feel like i'm the only person on that. they made an acquisition before this direct tv that is not working. if they had been like verizon, though they can load up they're choosing not to do anything that some are regarding as reckless and i think being in the stake in the ground.

they have good debt and dividend there was a piece last week that said the yield could go to 7 but, you know, these aren't ge these are not ge situations where there was hidden debt that we didn't know about. >> ge is the worst performer on the dow. as you know, by now, getting kicked out of the dow. the last original member of the original 12 from 1896. what is poetic what little impact it's having overall. >> right it's just irony. i feel like what is happening is just the destruction of a great american company and based on the fact there was this that was not right. meaning that you didn't -- when you bought a company in 2015 it turned out to already be overvalued when you bought baker hughes, it

was already over valued. all these were clear to a couple of analysts but not clear to management i'm giving management a gift there by saying it wasn't clear to them. oracle says 4x will be head wind now versus 3% tail wind stocks down 5% that will take you back to june of last year. >> oracle this is a tortured conference call. larry ellison said you don't understand give us a break down of cloud

numbers. mark nothing to hide nothing to hide. it's hard to figure out how cloud is going we loved it when they said cloud is going this and this i understand this is a rebellion over the way the company is choosing to tell the story and mark hurd calling it a nothing burger is not resonating with the people who think it's a something burger. >> right or they would gladly pay you a year for a burger today. >> yes. >> david, you're still in boston for awhile this morning, disney shares were out pacing comcast now it's the other way around. >> i haven't been able to see them pass by, carl, to know. the bostthere's disney and comcast is going to have to figure out what it wants to try to come back and whether it wants to continue the pursuit for these fox assets as i would

expect they will certainly for one more round here, one would expect you see a differential in the price the way you did from 35 which is what comcast came at. almost $7 a share. where we are now it's $7 above most likely not. you'll probably see one more round here as i pointed out earlier, it would be truncated give that disney said we're not going to wait for the fox board to make any determination. we're going to get it done rupert murdoch and bob iger meeting yesterday. there's a 10% collar either way. that's a big collar. in other words will conserve the value should disney stock decline from here at least 10%, it would need to before you see a decline in the overall value for fox share shoulders. it's a big collar, also. and, again, another value add

from this new disney bid $38 a share. half cash. half stock. >> there are so many news stories. this bidding war i want to focus a second on starbucks, because you're up there. there is a kind of other worldly thing going on a company supposed to be growing at 3 to 5% a company where the forecast keeps being cut and cut and cut and the expenses look like they got to go up because of changes involving, yes, bathrooms in the stores there's a licensee, i believe, issue that they have never spoken about before. which is the quality of the license versus the quality of the owner-stores i thought it was open space in china. david, they missed the whole delivery issue in china like it didn't happen and it happened big.

david, what the heck is going on >> listen, jim, you've been following the company for a long time certainly your question is very upon i can't when it came to why are you trying to maintain the idea of this growth rate when every evidence would suggest you shouldn't. i'm reading what you read. i listen to mr. johnson respond in terms of china. one would not have expected cannibalzation in the market, which is an important. it's the growth story for them it's the reason they had their investor meeting there in may as a result of what they believe is the real opportunity they have in china so there certainly are many people wondering how did you go to 8 percent to 0. as he pointed out, the key is growing units, which they're doing at the rate of one every 15 hours, as we know, at this point. but, jim, i don't necessarily have the answers i hear your question certainly doubts about the ability to hit the growth targets, given their inability to do that over the last year.

so i would put it back to you and simply say, well, what do you think? is it a mature company or can they continue to maintain the growth profile >> i think that they've gotten very competitive i think there's a lot of companies in the business. mcdonald's $1 coffee is difficult to come under. you still take the stock, david, and say to yourself, you know, i look at it and that stock is down 3 not up 3. you can't get to a bottom until you say the numbers are going lower. and, you know, david, i have no faith that the next quarter is going to be. >> it sounds like you're saying quarterly guidance should go

away, to >> they got it wrong under kevin johnson. i guess i'm saying the same thing here. >> does it strike you that starbucks, oracle, fedex, all the guidance on all fronts today is below consensus. >> well, i think oracle has different issues they have cloud issues fedex, i have to tell you, it feels like adobe i think fedex will come back i happen to love that conference call they were adamant that, yes, trade is going to be heard they talked about, you know, you have smith a conservative man. fedex goes higher. it's an inexpensive stock. they're doing everything right stock is reacting incorrectly. that will be wrong i think starbucks will become a value stock. and that's okay. all i wanted was a recognition that things have slowed and let's move on.

i am not casting exspurgss on this management team i'm saying let's get realistic. >> stock now down 6% the session lows early on. we watched the news a few moments ago that berkshire, amazon, and jpmorgan named a new ceo for their health care initiative we turn to bertha. >> reporter: good morning. a well known leader when it comes to health care someone who in his own words has dedicated his life to making health care better in the announcement coming from amazon, berkshire, and jpmorgan. he said i devoted my life for better health care now i have the backing of the three remarkable organizations to pursue this mission with even greater impact for more than a billion people in doing so, incubate better models he warns this work will take time but must be done. the system is broken and better is possible. i reached out to former cms

chief andy slavet among the people considered and consulted by the three companies about what they should focus on as they try to build this new company in order to better help benefits he said there's no better person they could have chosen not just for expertise but his world leadership gawande is a surgeon he works in boston also on the faculty of the harvard medical school, as well as, again, he is a well-known leader in the area of health care i can tell you health care twitter is exploding this morning. >> indeed, bertha. thank you very much. when we come back today, an exclusive with tom kennedy we'll get his take on trade and tariffs. dow hanging ton a 52-point gang here don't go away!

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defense stocks are mixed this morning after falling yesterday amid rising global trade tensions morgan brennan sat down with raytheon's chief a short time ago and he says the company remains insulated from trade concerns take a listen. >> we do not sell any products to china so we're not impacted by any of the tariff issues with china. in terms of stale taeel tariffs aluminum tariffs, most are from u.s. companies so we're not impacted by that either. >> raytheon shares not far away from a low since almost the beginning of the year. >> i think they got a good pattern for self driving ever since there was a so-called peace in the pence la, the stocks have been in a real downturn i think that's a mistake

i think raytheon is a very good company. a lot of good things >> what we didn't get to was this report out of the journal that the u.s. ambassador to germany may bring back an offer from german carmakers to essentially eliminate auto tariffs if the president dumps his threat on auto imports here. >> this would have been the lead story on any other day i was all prepared to talk about it for at least four minutes germany blinked. a big win for the united states. and, you know, i bring it up only because i haven't heard anyone say anything good about our country in the last 72 hours so i'm giving us that one. >> we'll see where that leads if the ambassador comes back with that dow up 35 points we'll get stop trading with jim in just a moment at the marine mammal center, the environment is everything.

we want to do our very best for each and every animal, and we want to operate a sustainable facility. and pg&e has been a partner helping us to achieve that. we've helped the marine mammal center go solar, install electric vehicle charging stations, and become more energy efficient. pg&e has allowed us to be the most sustainable organization we can be. any time you help a customer, it's a really good feeling. it's especially so when it's a customer that's doing such good and important work for the environment. together, we're building a better california. let's get to jim and stop trading. >> winnebago fabulous quarter knocks it down camping world goes up. ford goes up it looks like that once again we're back on the rv train this is a big story. camping world, by the way, marcus lemonis came non and tol a good story maybe the glut is being worked

off. >> you mean on finished product? we've talked to these guys about steel. >> it definitely hurt thor winnebago's good number would indicate the big glut may be winding down camping world aling that same thing there were weather issues but marcus lemonis refused to go there. honest man good show. >> yes, very good. we like that a lot >> a tough guy love it. >> you have your choice of stuff tonight. what could you do? >> i've got the amazing laura alber who has been such a great job at williams-sonoma stephen dilly, peanut allergies. everyone cares about that. but i got to tell you, i've got to go and figure out which of the big stories because i think the way oracle disclosed starbucks refusal to be, right now, with him, with kevin being able to control the narrative right now, now that howard is out. fox, comcast

i work for comcast by the way. >> we both do. jim, we'll see you at 6:00 "mad money," 6:00 p.m. eastern time when we come back, a lot more reaction to disney raising its bid for fox assets as we watch closely that triumvirant right there. i have access to the oil markets and gold markets. okay. i'm plugged into equities - trade confirmed - and i have global access 24/7. meaning i can do what i need to do, then i can focus on what i want to do. visit learnfuturestoday.com to see what adding futures can do for you.

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♪ good wednesday morning welcome back to "squawk on the street" with melissa lee here. david faber is in boston today after speaking to starbucks ceo kevin johnson. sara is off today. dow hanging on to a 60-point gain after the sixth day down yesterday. it comes off the longest losing streak in about 15 months. our road map begins with fighting for fox disney raising its bid for fox assets but the bidding war may be far from over >> shares of starbucks under pressure they issued weak guidance and store closures what ceo kevin johnson has to say about the road ahead >> ge gets the boot from the dow. after 111 straight years, talk

about what that means to the company and the index. first, straight to this morning's breaking story the battle for fox assets is heating up disney raising its bid to $71.3 billion in cash and stock. talking about this ljh investment management advisers joins us a longtime industry watcher who personally owns shares of comcast, fox, disney, cbs and viacom larry, good morning to you >> hi, carl. >> talk about your reaction to sort of the way this was announced and where it places the players at this moment >> well, i think what you have are two very eager people and i think you have the market is going to figure out when the bidding stops, carl. and the beauty of this is that the disney stock and the comcast stock both went up so the market is comfortable with the price paid for fox you still have a total green

light in terms of the cost of financing versus the cash flows to be acquired so there still is some accretion. so you have a question of how much debt are the players willing to take on and will the market give them a green light for this and both of the players i think are willing to go to four times debt to cash flow. we're dealing with secularly low interest rates you can do five years at a reasonable after-tax cost. my guess is we're going to see the bidding go high er at the end of the day, i think ru rupert wants stock the situation for disney this weekend got stronger with the phenomenal results from the "incredibles" clearly giving them another franchise they can

put through the synergy mill i think the market is likely to worry about the stability of comcast's cable cash flows, probably more than i think they should but at the end of the day, disney has a superior stock and the ability to use leverage and they'll prevail. my guess is fox goes over $50 by the time they're finished. i agree with jim cramer that i don't think it will be much over $50 but i think we're in a takeover proposition we haven't seen in 25-plus years. >> it does feel a bit powerful >> you talked in your last appearance about disney's history with leverage. eiger's history with leverage. the degree to which they have room to maneuver in a business model that's studio heavy as opposes to cable heavy is that leaving them at an advantage or disadvantage. sounds like you don't think it's a problem.

>> no, i think it's an advantage. bob came from cap cities, carl as did steve burke who used to work at disney and now works at comcast. and steve was the son of dan burke who was the partner of tom murphy and the two of them built cap cities by using leverage appropriately and buying the stock incessant ly the originators of -- along with henry singleton, this form of financial engineering. and disney has historically not done it although they've been a systematic buyer of their stock when the market periodically undervalues it and bob -- christine were very clear on the conference call that this was another tool in the toolbox and they were more than willing to use it and i think this may surprise the market a little

bit. and i think they're going to be very aggressive and they're not going to go away and eventually the market is going to put a governor, if you will, on some of the bidding and that will be when it ends. very similar to the paramount/qvc thing in 1991-92 >> i want to bring in david faber who has been following this story what is your take in term whafts comcast pitch is at this point aside from raising the higher offer, larry mentioned the advantages inherrently in terms of the management teams taking over fox assets. there is an argument that comcast has great, deep experience in terms of integration of major deals, particularly when it comes to distribution assets, which this deal would encompass >> yeah. integration is a key part of the toolbox at comcast, certainly with nbc having been one of them as you point out at&t broadband having been the

key acquisition that created the modern day comcast as we call it melissa, we're in a bidding war. it's an all-out bidding war. it's now value versus value. that's been made clear today this is a well-crafted bid from disney this morning in speaking to people around it and others who are passing judgment on it the significant difrential in price, the decision to add a good deal of cash and take down the stock portion overall. now it's worth roughly $19 as opposed to having been $28, $29 all stock previously the addition of a collar for the down side. also the collar up to 10%. even though disney stock price is behaving well today, that doesn't mean you're adding value until you get above 10%. shoring up some stuff on antitrust as well. in term s of adding another $250 million in ebitda for businesses that contribute that all of it a very well crafted bid and the decision to, of course, get ahead of the fox

board meeting, ahead of any chance fox was going to negotiate with comcast or deem it superior. even though it was not clear to me they couldn't have waited given the five-day matching period disney had. they jumped it all of which doesn't mean comcast is going to respond today or tomorrow or the next day. perhaps they choose to wait a little bit and see when a record date is set or see a new proxy we'll see. they have time here should they choose to use it the real question and larry was getting to this as well is what's going to be the ultimate price? do you go best and final do you wait? go 40 now with a little more in your pocket? unclear but we'll see. in the fight for paramount in '93 you had stock being used on both sides and the acquirer's stock price kept going down. certainly in the case of viacom which affected the overall price. in this case, you'll not have that as an issue >> larry, somebody is going to go away disappointed and lose out on this bidding war. what happens to that party,

whether it be walt disney or comcast and are there other media companies at play in your view when one of them walks away from this. >> let's go to the other media companies. the one that never gets discussed is sony. and sony is sitting there with a film business and some marvelous global cable works and i think they got $400 million in cash flow and sony has largely become a game and imaging company and i think the folks in japan would be very well advised to put sony pictures entertain mement a surprise for the losers. so i think sony is one to watch on that plain. with regard to the deal i think

that the key thing is disney has more power than comcast. and just to go to one of the things nobody is talking about right now which is sports betting legalization thing rupert really understands sports betting. he owned sky which spun on a major betting organization called skybet. the assets that remain in fox now that sports betting are going to be legal are going to be very, very powerful assets. disney's involved with sports with espn. the ratings on espn are going to go up. they get some bang for the buck here so rupert is dealing with a stub company that has probably, i think, a lot more value than the

market does. and he looks like he's going to be able to get a currency that he wants in the disney stock he should be able to turn the rupert trust into disney stock, and i think he believes given the asset mix that that's a superior proposition so i have to go with disney in the horse race and the only thing from the disney standpoint is i think it's going to probably go at a price most investors before the deal was announced would conclude was an irrational one that leaves the comcast stock without disney i think the stock goes up because i just think it's way, way undervalued. perhaps by 1 to 1 1/2 times multiple turn. if i were brian, i'd be having a talk with the folks in tokyo if he turns out to be a loser in this particular contest.

>> larry, we will save that piece of tape maybe down the road obviously, a lot more to come. thanks for the help again. larry haverty. marketscoming back a bit after yesterday's big sell-off according to research done here at cnbc, some of the biggest market moves this year appear to be linked to trade concerns. our senior economics reporter steve liesman joins us with more hi, steve. >> yeah, if it feels like trade turmoil is wreaking havoc in the stock market, pulling you up, pulling you down, you are right. here is the data to prove it there have been 35 moves of 1% or more in the dow jones industrial average that is either way positive or negative of those, cnbc research finding 12 have been entirely or substantially related to trade that's trade-related news. seven negative trade moves and five have been positive or relief rallies from trade concerns here's the seven negative moves that have shaved $700 billion in market cap off of the dow. while the relief rallies have

put money back a net loss of $137 billion in market cap from the big trade related moves. not a lot but perhaps one reason the market has stood still amid strong gdp and job growth and corporate friendly tax cuts. here are two tip skal instanypis 1.15% loss the biggest relief rally, that 2.9%, 3% decline followed four days later with a "wall street journal" headline, u.s. stocks surge as trade worries ease. now there have been up days and down days. we could not find a 1% move linked to increasing trade tensions or tariffs. the market rallies are only, melissa, linked to easing trade tensions carl >> steve, thank you for that a good set-up forring us as wek about the market impact. let's bring in david, from ubs global wealth management and michael is head of public policy at morgan stanley

good to see you guys michael, one story that's been buried by media m&a and starbucks is that the german automakers are somehow waving a white flag is this how you read the report in the journal and was it a moment ago why the market was trying to reverse some of the recent losses? >> i mean it doesn't hurt, but it also doesn't tell you a lot about what the eu as a whole or how they're going to proceed here in terms of negotiations. one industry within one country and eu has to proceed more or less as a whole here and we still think we're in this cycle of eskaulatory fit f tit-for-tat. we allowed this steel and aluminum waivers to expire the eu is set to respond it's still supposed to be part of your base case that auto tariffs are going to come on some time later this year and markets have to be a couple

steps ahead with the trade disputes with the eu and china they may be small on an individual basis but very quickly offset the fiscal stimulus that you got from tax cuts and spending increases. we think that was baked in the markets at the end of last year. negative trade news should be negative market news >> bouncing off steve liesman's report, today's session we may be in the green for the most part but the stocks that were hit the hardest in yesterday's session based on trade tensions, the caterpillars and boeings, they're not bouncing but big cap technology stocks. what does this tell you about how they're thinking about these trade tensions they're looking for idiosyncratic growth as opposed to the pullback in trade-related stocks >> what we're seeing is that the market thinks these, call it negotiations if you will, are going to continue for some time.

and i think what's a little bit the market is currently trying to get its arms around, there's no path to the current state where there's a kind of back and forth between the united states and its trading partners and ultimate agreement now that said, i still think if you look at the fact the tariffs have been relatively small, they've been very targeted to try to minimize disruption and the fact that the administration is very aware of negative market headlines and negative market downside, that means they are not going to take actions that really disrupt the global economy. so ultimately we think they do -- the united states does reach agreements with its trading partners make some small tweaks to some of the trading rules but it's going to linger out there and we don't yet have a clear path to how we get to those agreements >> so is it safe to say you think we should be buyers of industrials? industrials is a sector that's in correction territory at this part -- at this point and hit the hardest by fears of a trade

war. >> we're neutral on industrials. we prefer other sectors. it's not totally, completely related to the trade issues which i do think you'll see will still be in the headlines. but the ism is at a high level it's likely to start declining from here. that's not necessarily great news for industrials and then if you just look at -- it's really more about also we just like other parts of the stock market, especially financials, materials and energy at this point. >> we did get an upgrade of citi out of deutch. they go to buy arguing shares are down 17% from january. lagging peers by nine. michael, sort of takes us quickly to c-car which has been argued by some as potential positive catalyst for financials in the next few weeks. >> i'm sorry, what's the question >> i wondered whether some of these results may lift some of

the burden that financials have borne over the last month or two. >> it certainly wouldn't hurt. we do think the deregulation theme from a policy perspective is perhaps a little bit overstated so the financials, the exception to the rule. if you look at the deregulation processes in play and various other industries, the average rewriting of a rule takes four years. so i think it's sort of -- we're getting ahead of ourselves if we bake it in across the market >> when you say u.s. public policy is at the risk of moving from a tail wind to a headwind, what sorts of policies are you looking for that could be those types of policies? >> we're trying to account for the total body of work so far from the u.s. since the 2016 election on the one hand you've got fiscal stimulus versus tax cuts

and via spending increases our economists think that adds about 0.5 to growth over what the trend would have otherwise been and that's undoubtedly good news when you're trying to bake in near-term growth into earnings in the lake but when you start adding up the tariff increased oil and gas prices you can offset that quickly. now we have to account for auto tariffs in the fall. this extra $200 billion worth of goods that are going to be tariffed and the responses from our partners and the fact that we don't think there is an easy circuit breaker here on any of these trade disputes, right? so we think we have to start counting this in quarters, not necessarily in weeks or months and because of that, these sort of -- disputes seem small. they add up and endure for a while to the point that policy is more of a headwind for markets. >> david, michael, thank you

guys a lot to consider. appreciate your time as always we'll see you soon >> thank you >> thank you general electric getting the boot from the dow. this after 110 years of trading in a 30-stock index. it's being replaced by walgreens boots alliance an historic moment, dom. >> maybe the end of an era or beginning of one we are already seeing a little bit of at least enthusiasm for some of those ge shareholders. perhaps people that want to get into the stock the shares are off their lows of the day so far off about 0.25% now intraday down about 3% in the premarket trade. as you look at the heat ma overall for the s&p 500, it does fall into that industrials category something that we'll be watching closely. now if you take a look at some of the dow stocks that have been kicked out and how they tend to perform, there has been some notion that perhaps the stocks that get kicked out of the dow all just automatically do better

once they get out. it's not always the case but we'll show you a few examples from recent history to give you an idea of the recent history for some of these stocks if you look at what's happening with the at&t getting kicked out a few years ago, replaced by apple, during that time, we've seen the spdr dow etf kicked up. at&t has underperformed, down about 4% take a look at this other one. some of the other, bank of america. that particular share, those ones have moved differently as well let's bring that up there. bank of america up double since then a lot of weird muddiness around the financial crisis, some of these stocks getting bailed out by the government. one more is to watch is honeywell. it got kicked out of the dow back in 2008 if you look at that timespan, honeywell up honeywell has outperformed ge and the overall dow. and as we look over at the dow jones industrial etf, the

diamond so to speak, it will be something we'll watch those particular shares do somewhat better in terms of the overall scheme remember, something just to keep an eye on with regard to, you can't make a blanket statement on whether the dow kicking a stock out is going to have that market effect. back to you. >> dom, thank you. when we come back, a rare interview with the ceo of raytheon what he has to say about the state of defense spending, and what he discussed in his meeting with the president yesterday shares of starbucks down kevin johnson announcing some store closures and weak guidance what he has to say about the future of the coffee chain e r s rsdasie y nc july of last year. hi!

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they're a perfect match. the new ipad and xfinity stream app. hey guys, i'm home! surprise! i got a puppy. add an ipad to select packages for just $5 a month for 24 months. upgrade online now. welcome back to "squawk on the street." i'm david faber at a starbucks in boston. why boston yesterday, kevin johnson, the company's ceo presented an investment conference and reset the landscape for starbucks to a certain extent, delivering news that was not particularly positive for shareholders, namely 1% same-store sales growth expected in the u.s. for the third quarter. also reporting that china same-store sales growth has slowed significantly in the current quarter. and outlining a number of different initiatives to try to regain growth and hit those targets still out there for the

company. its stock is down -- has been down as much as 6% this morning on that news earlier at this very same starbucks, we sat down with kevin johnson and i asked him about the transition from this growth trajectory and whether or not starbucks could be considered a more mature company and, therefore, should reset some of the expectations on the part of its shareholders here's what he had to say. >> i think we've got to be much more disciplined in setting our priorities we've got to be more data driven in terms of how we're allocating resources and tuning the model and we've got to be much more agile as innovateors what we did is set the stage for that transition to a company that's focused on growth and scale. >> they are focused, of course, on trying to add new members to their rewards program. $15 million of the roughly $75

million unique visitors to stalks are not a part of that program. he championed the idea they've added 5 million new digital subscribers, so to speak people they've gotten an e-mail address from this is part of the initiatives mr. johnson is talking about but there are concerns there are concerns about 28,000 stores around the world. about what is the proliferation of stores here in the u.s. that's led them to now close 150 stores this year up from 50 despite the fact they'll still add 400. so they'll actually go up by 250 this year. but concerns that the growth for this company cannot be expected to be maintained at what it was previously given the saturation, given the continued competition that it is getting from higher end coffee shops around the country. and perhaps some concern about the focus it's had in china where it really does see a huge growth opportunity because of that drop of same-store sales now that may be a result of

certain particular issues in the quarter. mr. johnson talking very positively about the overall future it is a future, of course, that will not include the company's founder and chairman howard schultz. in ten days, he departs the scene. i asked mr. johnson what difference that will make. >> this is where i'm taking the company. and, you know, whether howard is here or not, i'm the ceo i'm accountable for that >> howard is not here anymore. you're in charge he's not going to be next to you anymore doing these interviews he's gone. i don't know what he's going to do does it change the way you operate? >> well, not necessarily i'm accountable for making the decisions in the best interest of starbucks i've been doing that since day one. but this is an inflection point. >> right now, carl and melessa, it's an inflection point that's not particularly well received by investors that's the low of the day more or less on the stock price at

this point, carl >> yep, worst day since july of last year as we mentioned before the break. also i was interested in the character of the stores they're trying to prune. he specifically mentioned stores in urban areas where wage pressures are more acute occupancy, where regulatory actions that have been taken make it more difficult to operate. it's not a huge number of stores, but the way they framed it was interesting, too. >> yeah, it is and it is not a huge number of stores to your point they'll be opening a lot more stores than they're closing but it's three times what they had planned to close in the given year a lot has been made by a number of analysts who follow the company in terms of penetration of higher end coffee shops of a small nature we talked about blue bottle, for example, but some of the stats i saw from cowan and company, 52 blue bottles but they're within a mile of over 1,000 starbucks is that starting to take something out of their growth

trajectory as they focus on hig end coffee they are looking towards under and unpenetrated markets how many of them are there left in the united states and again, china is certainly part of and asia overall, is part of the key parts of this growth story but some concerns there given the lack of same-store growth. >> this whole notion of growth story has come into question starbucks has given investors all these groups with which to build a case against this growth story. you had 150 stores closing three times as many as typically are closed in any given year the sudden drop-off in china growth just three-quarters ago, same-store sales in china were 8%, right? and then you have what's going on in the united states. they have missed same-store sales estimates for five of the six previous quarters. so i think right now it's sort of an inflection point in terms of what multiple do you assign this company that was a growth story and now is, you don't know

what kind of story i don't know how he sees investor concerns about that, david. >> right no, listen i began the interview by asking whether or not starbucks was a mature company because in many ways that's what you're implying, what many others have been implying as well. they need to change the expectations of their investor base as a result of the changes they've seen they've been around for a long time they've got 28,000 stores. more in the u.s. than mcdonald's has, for example so you're right. and china is a concern, although there seem to be some temporary perhaps reasons for that same-store sales being flat there as oppose tot 8% not that many quarters ago and partly because of third party delivery he was also talking, though, about accountability the key construct they have is more about the fact they open a new one every 15 hours and that per capita consuption per year by the chinese is one half of a cup of coffee.

here in the u.s. we do about 300 a year >> david, good stuff starbucks, by the way, close to the lows of the session again. lowest levels since july of last year when we come back -- a huge -- another huge interview ahead. raytheon's ceo weighs in on the china trade war and getting a check on stocks at this hour we're recovering from yesterday's sell-off p w down 36 points s&adding about 3 at this hour. much more after this ♪ there's nothing more important than your health.

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welcome back to "squawk on the street." let's get to courtney reagan for a news update at this hour >> chinese president xi meet with north korean leader kim jong-un for a second day in beijing. both men greeting each other with their wives at their side kim left pyongyang later in the day after making his third visit to china german intelligence officials warning that islamist militant attacks using biological weapons are possible at any time in the country this following the june 13th arrest of a 29-year-old tunisian man on suspicion of planning an attack using ricin united nations human rights

council meeting for the first time in geneva since the u.s. announced it was leaving the body nikki haley announced the decision and a brush fire near griffith observatory burning several acres in the hollywood hills. some 95 firefighters bringing the blaze under control. the iconic hollywood sign was not damaged and no injuries reported let's get to morgan brennan with a look at what's coming up next on "squawk on the street. >> coming up, i sit down with the ceo of raytheon tom kennedy who met with the president in the oval office yeery.stda my exclusive interview coming up after the break. alerts -- wouldn't you like one from the market

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welcome back to "squawk on the street."

i'm morgan brennan in arlington, virginia joining me exclusively is the ceo and chairman of raytheon, tom kennedy. thanks for joining us today. >> thank you for having me on. >> news of the day, trade. when it comes to defense contracting, you're not necessarily selling weapons to china. but when you talk about something like steel or aluminum tariffs and the impact on our allies, how does that affect raytheon >> you're absolutely correct, we do not sell any products to china so we're not impacted by any of this tariff issues with china. the -- in terms of steel tariffs and aluminum tariffs, most of the steel and aluminum products we buy are from u.s. companies so we're not impacted by that either >> are you at all concerned that what seems to be flaring tensions with some of our allies, canada, europe, et cetera, that could impact demand for some of your products? >> the reason they are protecting our products is to protect their sovereignty.

and we have the solutions to essentially solve that problem for them and so they come to us for the solutions irrespective of the tariff issues and other kind of political situations >> it's interesting to hear you say that because over the last couple of months we've seen defense stocks including raytheon's sell-off in this broader industrial stock sell-off on trade war fears. sounds like you're pretty insulated. >> if you go to europe and find out these european nations are signif capitally increasing the amount of gdp they're putting into defense systems if you go to the middle east, big concerns there relative to deterrence against iran. so they're continuing to buy our solutions. and if you go over to the asia pacific region, despite the fact we're working with north korea and trying to drive that to a peaceful solution, there's a stronger concern out there relative to china and being able to protect their sovereignty and freedom of their citizens

relative to china. there's still a significant demand even in the asia-pacific region outside of north korea. >> back to other in kornorth kot a moment the fact these talks seem to be moving forward, how do you expect this to play out? >> i think it's going to bsuccel i think in the end game, still a significant demand for deterrence we'll make sure north korea stays on the parth they agree to and they'll have to have a significant deterrence in that region to essentially ensure that north korea doesn't back off of there word. >> we're seeing increased defense spending across the globe right now. some folks in the industry have actually pointed to what they've called a trump effect. have you seen that in terms of allies and their spending? >> not only have i seen that but leaders have asked me what does the president think if this percentage of our gdp goes and gets defense what do we need to do to show this administration we're supporting them in terms of being a coalition partner and

our spend on defense products. so it's there. it's real. it's not something to just write in the paper it's real. these countries are taking it. we're seeing it in europe. haven't seen that since the berlin wall came down. countries for example, we are closing on a deal with romania, poland, sweden is close to closing on a deal. this is all happening here in the last couple of years and each one of these countries is on a road path to essentially meet the nato requirements of 2% of their gdp, even though some of these companies are not in nato so we're seeing it in europe and in the gcc and we're also seeing it in the asia-pacific region. just came back from japan. japan is increasing their percent of defense spending relative to their gdp. >> of course, saudi arabia >> we've been in japan for 51 years. in saudi arabia for 51 years so this is, obviously, our potential and outlook is very positive in all those three regions and domestically, the budget is up year over year.

so we think it's a best time that we've ever seen in a long time for the defense industry and in terms of outlook. and we're very optimistic. >> international sales increasing piece of the sales pie for raytheon >> that's correct. >> given the fact this administration is making moves to streamline the regulatory process to ease export controls, how does that play out for you >> first of all, let me -- we haven't had an administration in a long time that's been such a strong supporter of international sales. that is significantly helped the defense industry and especially the overall aerospace and defense industry one of the largest employers in the united states. and i think that's going a long way to help our industry grow our international sales. raytheon's revenue in terms of international is about 32% and growing. so we feel very optimistic about the outlook for international sales moving forward we have the right solutions.

we have the right price points and we have the right relationships with all these countries worldwide. >> looking out over the longer term over the coming years, what will you expect international to be in terms of sales mix >> we'd like to grow it to 50% of the company and that's our big goal moving forward. we're not stopping at 32%. >> consolidation want to get your thoughts on it. we've seen it in the broader defense sector northrop grumman general dynamics buying csra are you on the prowl >> i would say we're always on the prowl. that's part any of business. you're always looking at your portfolio. either way, exit businesses or bring new businesses on. the main area here is -- this is setting a strategy and trying to figure out how to set that strategy and where you have gaps in that strategy and use mergers and acquisitions as essentially a tool to implement your strategy so when you ask me a question

about are we on the prowl, i would say we actively look to see if there is a company out there that we could work with in some way to essentially increase our top line and drive margin expansion in our business. >> great to get your thoughts on a wide range of topics today thank you for joining us >> thank you great questions and thank you for having me here >> tom kennedy, the ceo and chairman of raytheon joining us here exclusively in the washington, d.c., area back to you. >> morgan, thank you morgan brennan with the raytheon chief. defense spending is top of mind not just because of international sales but the president today meeting with senate and house lawmakers on the zte amendment and trying to keep the senate from pushing back on that commerce deal >> trade, of course, a very big impact on the sector overall look for the year, they've done okay in the past three months when trade tensions have really picked up, it's down by about 7% and boeing basically down by a couple percent this sector is getting hit on

trade wars, whether or not the ceo, whether or not the reality is that they would be hit. >> meanwhile, a bunch of names under pressure today oracle we've talked about starbucks and some others today. fdx. oracle fourth quarter results beat estimates on continued growth in the cloud but the company does forecast first quarter profit below expectations they do cite what's become a 4x headwind stock down 6%. dow session high up 104. we're down 27. we're back after this. see that's funny, i thought you traded options. i'm not really a wall street guy. what's the hesitation? eh, it just feels too complicated, you know? well sure, at first, but jj can help you with that. jj, will you break it down for this gentleman? hey, ian. you know, at td ameritrade, we can walk you through your options trades step by step

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what $11 million asset manager says a day of reckoning could be coming for the markets. find out whahet 's watching on tradingnation.cnbc.com more "squawk on the street" coming up.

let's get to the cme group and check in with rick santelli for the santelli exchange. >> good morning, carl.

this administration does things different. north korea offers many lessons. the president dealing one on one with the north korean leader unprecedented. lots of things are unprecedented. i was a bit shocked this morning reading a great article in "the wall street journal. kudos. it's entitled german's largest automakers back abolition of eu/u.s. car import tariffs boy, that's a blockbuster headline a great article. and it brings up some very fascinating issues especially today considering what's going on, not only with the markets, but what's going on with global economy. we all know that there's been a bit of a mogul in the synchronized growth story. albeit not necessarily as much, if hardly any, for the united states of course, what's currently going on with regard to trade issues could catch up with the marketplace. but as we dig down, something important is going on.

populism probably is the most overused, maybe misunderstood word of the last last several years, but a simple definition is, you know, the people want things that they believe are in their best interests versus what others think are in their best interests and others in many cases are the leaders of countries. well, that populism could be transferred now. you know, what's going on with these automakers is kind of revolutionary. it's kind of populism corporate style. let's call it coreporis m. we are looking at german automakers dealing with the u.s. ambassador to germany and i think that's a wonderful idea. there are a couple of glitches in this. one is, do they even have the authority to go around the european commission and do this type of negotiating. the more i thought about it it's a dumb question and i'll tell you why. it doesn't matter if they have the right, but most likely get the president's ear and a dialog

will begin and we will finally move, in my opinion, what the market has been pricing all along, a divide and compromise strategy you know, when the president picks out an individual, either a person or a company, either through an emissary or directly, that type of negotiating gets things done. it's efficient it cuts through red tape isn't that really what it's all about? as a matter of fact, it also underscores that the timing is right because angela merkel is having to make many compromises right now in a weakened coalition. one, which almost hit at the same time with macron of france, she finally is going to agree on behalf of germany for an all-euro sharing overlaid budget now that's an important thing. imagine if the federal government didn't have the wherewithal to spend on various issues that transcended states i'm not sure where it's going to end, but this is a huge first step and i think as the markets

wake up to it it's going to get priced in. melissa lee, back to you. >> thank you let's check in with jon fortt with a look at what is coming up on "squawk alley." hi, jon. >> hey we have former senator max baucus, also former ambassador to china we're going to talk trade and just geopolitics impact heon t markets, coming up on "squawk alley.

welcome back to "squawk on the street." i'm dominic chu. markets rebounding after the open and then now off those session highs. let's take a look at a couple sectors driving things real estate and tech leading things, materials and telecom are lagging. let's focus on the material stocks as we take a look at some of the big movers, at least for this particular one to the downside so far in the material sector the likes of freeport, international paper, dow, dupont, new corp leading the sectors to the downside. that particular one. mosaic shares adding to yesterday's losses as well guys, back over to you >> all right thank you very much, dom we want to take a check on shares of fedex as well, reporting a higher fourth-quarter profit as a benefit from the u.s. tax cuts and a rebound in the express business on the earnings call ceo fred

smith says he is optimistic about the company's future but warned about the impact of escalating trade sessions with china. >> we do remain concerned, however, about threats to diminish the free flow of goods among countries. trade is a two-way street and fedex supports lowering trade barriers for our customers not raising them. >> shares are down more than 2% here and we are also, of course, continuing to keep a close eye on the battle for fox and later on "power lunch" we will be hearing from asset management founder and ceo mario gabelli on what the next steps are and winning combination could be. >> crazy story, we'll see you then melissa, thank you when we come back, amazon, berkshire, jpmorgan, making a big announcement on who's leading their health care company. "squawk alley" starts in a moment w dn doisow42

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still nervous [about buying a house? a little. thought just call geico. geico helps with homeowners insuranc good t. been doing it for years. that's really good to know. i should clean this up. i'll get the dustpan. behind the golf clubs. get to know geico. and see how easy homeowners and renters insurance can be. good morning it is 11:00 a.m. at 21st century fox headquarters, 11:00 a.m. on wall street and "squawk alley" is live.

♪ ♪ welcome to "squawk alley." with jon fortt at post nine. a big day in meade m&a disney and fox striking a new deal disney increasing its offer to buy parts of 21st century fox for $38 a share. fox saying the new offer by disney is superior than th