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WITH-MARIA-02

MARIA-02

Earnings Estimates; Newton Responds to Critics; Energy is a Problem for

Banks in Texas; Eli Lilly posting fourth-quarter earnings of .78 Cents a

Share on Revenue of Just Under $5.4 Billion - Part 2>

Max, Dagen McDowell, Phil Flynn>

Anton Schutz; Bob Nardelli; John Lechlieter>

Animals; Automotive Industry; Banking; Budget; Business; Cancer; Computers;

Commodities; Consumers; Diseases; Economy; Energy; Families; Financial

Services; Health and Medicine; Insurance; Mergers and Acquisitions;

Pharmaceuticals; Politics; Stock Markets; Technology; Trade; OPEC; Jamie

Dimon; Bank of America; Dodd-Frank; Louisiana; Texas; Oklahoma; Southeast;

Eli Lilly>

BUSCH: That's with Bank of America putting another billion in the reserves. I was with you, I thought they had a good quarter; very conservative; building their reserves; and they still got whacked.

SCHUTZ: For no good reason other than they existed, and that's kind of what's happened. I mean, a lot of people scratch their heads and say why is this happening? I mean, if you look at the Texas banks, actually a bunch of them have been purporting numbers slightly better and there was a big short squeeze on a couple of them yesterday. One of them announced a big buy-back yesterday.

BARTIROMO: And the other trend in your world is the consolidation. When you look at the small and midcap names, a lot of deals happening. You think a continues?

SCHULTZ: Well absolutely, and if we don't get interest rate increases it actually accelerates -

BUSCH: Yes.

SCHULTZ: -- because cost cutting is one of these monster things that the industry still has to do.

BUSCH: That's space though is really interesting. Anything from $50 billion under, that non-SIFI space is really exciting. I think $20 billion is really where it's at because -

BARTIROMO: Non-systemically important financial institution.

BUSCH: Right, and so the regulation from Dodd-Frank continue to hurt bigger banks but it's the small space where you can accumulate in assets and that's where I think growth is interesting;

BOB NARDELLI, former CEO, HOME DEPOT/CHRYSER: it's in the fracking industry, right; we had well over 2000 rigs. We're down to around 450. I think, Maria, you're right; you're going to see a lot of consolidation in that. Field services will be consolidated to get costs down.

BARTIROMO: So some of this consolidation is going to be forced because of the oil space?

SCHUTZ: Oh, absolutely, you know, in places like Louisiana and Texas that have real direct exposure, Oklahoma. They're going to be some companies raise their hands and go, get me out of here. There will be some capital raising going on. There will be some investors that get out maybe a little too early, it's going to be tough to tell, but I love the Southeast. Economic growth; phenomenal. Wherever it is, the Carolinas, Atlanta -

NARDELLI: Even the big guys are letting a lot of land go, you know, the E&P, you don't drill you lose it. A lot of them are quietly letting the land go back.

AMOROSO: Clearly the banks have some headwinds to them, and whether it's the Fed not raising rates and it's effecting that interest margins or it's the energy exposure, but probably the biggest tailwind for the banking sector is growth in consumer credit; and it's been phenomenal, right? 5 or 6-percent, it's been wrapping up. Are we seeing the topping of consumer credit growth here or do you think there is more of a runway here?

SCHUTZ: I still think there's some runway here. Let's not forget that all the bad of energy is good for the consumer. Some of the spending we've seen in the consumers, in the credit card numbers have reflected lack of spending because they're not paying as much for their gasoline. They are able to allocate it elsewhere. They've allocated it savings as well. Their balance sheets are much, much healthier than prior to the crisis. So I still think we have some pretty good growth in the consumer.

BARTIROMO: I think you make a good point, in terms of the lending. Yes, lending looks good, but, Anton, here is my question. Are we seeing increasing lending and that money is going towards capex spending, where these companies want to invest in their business, or is it going toward M&A?

SCHUTZ: Well, so you think about the Capex spending that's not happening in Energy. I mean, all the budgets have been cut way back, so that's - you know, when you look at the broader numbers you're seeing that sift through. If you remove of that there's still some pretty good growth in a lot of parts of this economy. If you remove the Capex that was allocated towards the drilling.

You know, loan growth is quite good, it's quite robust. I mean, were talking 6-8-percent loan growth, particularly on the smaller guy. I mean, JPMorgan's showing that kind of growth as well.

BARTIROMO: I know, but, I mean, is it loan growth because of M&A?

SCHUTZ: No, it's -- the bond market has taken a lot of that, no doubt about it. It's loan growth for actually doing nuts and bolts and manufacturing.

BARTIROMO: Yes.

SCHUTZ: We're seeing a lot of relocation of foreign companies to the United States because of cheap energy.

BARTIROMO: That's what Bob just said.

NARDELLI: Yes.

BARTIROMO: What's your favorite stock now?

SCHUTZ: I love New York Community and I love Key Quirk. They have both beaten and they have both done deals. They're trading at forward earnings that are cheap and large dividend yields.

BARTIROMO: Anton, good to see you.

SCHUTZ: Pleasure.

BARTIROMO: Thanks so much for joining us. Anton Schutz of Mendon Capital. Up next, my exclusive interview with the CEO pharma giant Eli Lilly. Eli Lilly involved in everything from cancer treatment to diabetes. We're going to talk about it. Then, big news for amazon, recruiting some A-list talent ahead of the Super Bowl; we'll tell you next.

(COMMERCIAL BREAK)

BARTIROMO: Welcome back; earnings alert. Eli Lilly posting fourth-quarter earnings of .78 cents a share on revenue of just under $5.4 billion, that a result of higher sales of its new diabetes drug and a generous shareholders reward program; $3 billion in buy-backs and dividends.

Joining me right now in a Fox Business Network Exclusive, the Eli Lilly Chairman & CEO John Lechlieter. John, good to see you; always wonderful to have you on the program. Welcome.

JOHN LECHLIETER, CHAIRMAN & CEO, ELI LILLY: Good morning; Happy New Year.

BARTIROMO: How would you characterize things; what drove the quarter?

LECHLIETER: Well, we got 5-percent reported growth. A big part of that comes from the impact of owning the Novartis Animal Health. We closed that deal with Novartis early in 2015. We now have the third largest animal health business in the world to complement our pharmaceutical business. Then, on the pharma side, that growth was led by two of our new products, Trulicity, this is our diabetes medicine, and Cyramza, for the treatment of various forms of cancer. So, we're starting to see the impact of these new product launches that began in 2014.

BARTIROMO: Yes, what -- tell me about the cancer treatment and specifically where the cancer is, in terms of that drug and what it targets.

LECHLIETER: Well Cyramza is the first drug came out of our in-clone acquisition back in 2008. In succession, in 2014 we achieved approval for treatment of gastric cancer and second line, both the drug along and in combination with other chemotherapy; then subsequently we received approval for treatment of lung cancer in the second line, as well; and then colorectal cancer following that. So three different kinds of cancers that all seem to respond in some way to this particular drug.

BARTIROMO: Really important stuff, and, of course, diabetes. We all know that the leading killer in the U.S. is heart disease. In terms of the diabetes drug, Americans are wondering when they're going to get a break, in terms of pricing. What can you tell us about price of these drugs and your efforts to keep prices affordable?

LECHLIETER: Well, I think it's something that we think about and pay a lot of attention to, Maria. When you look at our results for the year our reported sales grew two-percent, that was depressed about six-percent by exchange rate but the remainder, seven-percent of our growth in 2015 came from volume and only one-percent of our growth came from price.

I think the price of medicines needs to be kept in perspective. Today, four out of five prescriptions that Americans get from the drugstore are generic drugs.

BARTIROMO: Right.

LECHLIETER: In other words, generic versions of medicines that we pioneered, typically available at a very low price. We're concerned, and we want Americans to have access to our medicines. This is why we have various access programs in place; it's also why the industry, Maria, is consistently supported of the American people getting the access to quality insurance -

BARTIROMO: Right.

LECHLIETER: -- because we know how important medicines are for overall health care.

You know, another thing I would like to say is, the discussion today tends to be about expensive medicines. What's really expensive is disease, okay. Alzheimer's disease is going to cost this country hundreds of billions, if not trillions of dollars, left on its current trajectory through 2050. We have been working for 27 years, investing billions ourselves, in Alzheimer's research. Nothing has come out of that yet.

BARTIROMO: Right.

LECHLIETER: We are hopeful, but I think this is what we all aspire to and I think this has to be a part of this discussion and debate.

BARTIROMO: Look, I think this is a great point that you're making, John, because we all know that Alzheimer's is one of those diseases that we are still learning about.

LECHLIETER: Yes.

BARTIROMO: We're learning so much about the brain. If you live until 85, apparently, one in two people will get Alzheimer's and there is not a cure. I know you are collaborating with Roche Diagnostics on this diagnostic tool. I don't know how much that would go for, in terms of if you were to the see a cure for Alzheimer's.

I've got Anastasia Amoroso here from JPMorgan, but this is the kind of thing, Anastasia, that people say, don't tell me about caps on drugs because we want get the investment from the private sector to actually continue working it and find that cure for Alzheimer's.

AMOROSO: That's right; I mean, drug pricing is a very important issue for the consumer but, again, this is about financial results. So, John, my question to you on the financial results aspect, I know foreign exchange was a big impact on earnings last quarter, the U.S. dollar still up about nine-percent year-over-year. Is it still a big impact? Can you quantify that for us? I guess the broader question is, we know there's an effects translation impact, but is this also deterring your revenue generation as you do sell to quite a few other countries?

LECHLIETER: Well, I think, as you know, early last year we saw almost an unprecedented strengthening of the dollar against a lot of the currencies that are important to us. That has slowed down somewhat; however, currency translation, the stronger dollar continues to be something of a drag for companies like Lilly that have roughly 50-percent of our sales outside the U.S.

Having said that, I think like many businesses, we run our business trying to see through the currency fluctuations, which are inevitable and which are difficult to predictable and control. Just as currency, a stronger dollar can hurt us on the revenue line, it helps us on the expense line; and depending on how it moves, can help us on at our gross margin line. So we have a little bit in natural hedging at Lilly, but there's no question, when you look back in 2015, you know, this took a billion dollars or so out of our revenue, the fact that the Euro and Yen, in particular, were weaker.

BARTIROMO: What are the odds that we go into recession this year, john?

LECHLIETER: Um, you know, I'm not an economist.

BARTIROMO: I know, but what does your animal health business tell you? You see a lot.

LECHLIETER: Well, I don't think we're going to -

BARTIROMO: No?

LECHLIETER: I don't have a sense that we're going to go in a recession this year. I think if you would have asked any of us two years ago what's going to be the economic impact of gasoline at $1.45 at the pump, I think we would have said it's going to help the economy.

BARTIROMO: Exactly.

LECLIETER: Now we are seeing there's also a down side, in the energy sector, etcetera; but I think overall the fundamentals are pretty good and I've got confidence in our economy, in the U.S. economy in particular.

BARTIROMO: John, good to see you. Thanks so much for stopping by, we appreciate your time this morning.

LECHLIETER: Thank you very much.

BARTIROMO: Dr. John Lechlieter joining us, CEO of Eli Lilly.

Meanwhile, the Zika virus confirmed in another part of the United States. Cheryl Casone with that story now; Cheryl.

CASONE: (HEADLINES)

BARTIROMO: We'll be right back.

(COMMERCIAL BREAK)

BARTIROMO: Welcome back; we're with Bob Nardelli today, former CEO of Chrysler, Home Depot. Bob, how do you see things right now, in terms of the economy? Give us your list if what's working and what isn't.

NARDELLI: Well it's very mixed. I mean, we just heard from Eli Lilly. We saw Ford. I think the auto industry is the bright spot, pharmaceutical is a bright spot. We've talked about those before; but I think we have some pressure out there. I think what we're seeing a lot of potential disruption in a variety of, I'll call them verticals. Internal disruption through innovation, innovate or evaporate.

We're seeing a lot of activists' force consolidations. You look at Dow and DuPont, even DuPont having a very bad quarter but trying to come together to be big, bigger. You know, share to win and then separate into three business.

BARTIROMO: Amazing how successful Nelson Peltz was on that.

NARDELLI: Very successful. You look at Ed Green, who is also the Chairman of Tyco, along with the CEO of DuPont and Dow. Tyco now joining with Johnson Control, will also be an inversion, right. So we're seeing a lot of that. We're seeing --

BARTIROMO: So one was in innovate, an innovation -

NARDELLI: Yes.

BARTIROMO: -- in terms of disruption. What's your second one?

NARDELLI: Then you have the activist that's coming with it, and then you're seeing a lot of productivity this year, Maria, through software. If you look at system software to drive productivity, it's two times the GDP last year. So companies are vying through digital transformation as a way to drive productivity and earnings. They have to find another way to wring it out. They're still doing the stock buy-back. They're joining forces to get larger base of customers, broader portfolios. Taking costs out of the back offices. So I think that's what we're going to see this year.

BARTIROMO: That's true, because when you don't have growth, Anastasia, you acquire growth.

AMAROSO: Yes, you do; and to Bob's point, very importantly, now that we actually are seeing somewhat higher wages, they seem to have accelerated since the beginning of last year, how do you still deliver those profit margins? Maybe the issue is you pay a little bit more in wages but you replace some of that labor, unfortunately, with technology.

BARTIROMO: Automation, yes.

NARDELLI: General Motors, right, buying Lyft. So you look at the adjacencies that serve the customer. You know, they're trying to make the customer a sector of one now, with that kind of intimacy and customer centricity, I think, is what we're going to see, Maria.

BARTIROMO: Really interesting stuff. Bob, great to see you today.

NARDELLI: Thank you.

BARTIROMO: Thanks so much; Bob Nardelli joining us. We'll be right back.

(COMMERCIAL BREAK)

BARTIROMO: Good morning everybody, I'm Maria Bartiromo; welcome back. The top stories on this Thursday, January 28th at 8:00 a.m. on the East Coast: (HEADLINES)

END

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