SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Big surprise. Netflix
(NASDAQ:NFLX) and Dow component Intel (NASDAQ:INTC) top earnings expectations and their stocks soar initially in late day trading.
Riots on the street. Anti-austerity clashes in Athens, on the same day lawmakers vote on the controversial bailout deal.
Economic headache? Why the biggest fear millennials have could be a big problem for the U.S. economy. We`ll tell you why in the final part of our “Millennials and Money” series tonight on NIGHTLY BUSINESS REPORT for Wednesday, July 15th.
Good evening, everyone. I`m Sue Herera. Tyler Mathisen is on assignment tonight, but we will hear from him a little bit later in the program.
We begin tonight with earnings from Intel (NASDAQ:INTC) and it delivered for investors. The Dow component was able to offset the slump in demand for personal computers and top Wall Street estimates for both profits and revenue. The company earned 55 cents a share, beating estimates by a nickel. Revenue of $13.2 billion was better than estimates, but down more than 4 percent from a year ago. Shares of the Dow component spiked initially on that report.
Jon Fortt has the one key takeaway for investors.
JON FORTT, NIGHTLY BUSINESS REPORT CORRESPONDENT: One major takeaway from the Intel (NASDAQ:INTC) call, the PC market not doing as well as Intel
(NASDAQ:INTC) had hoped. The company ended up taking down its full year guidance. It`s now expected to be down 1 percent compared to a year ago.
They had been forecasting roughly flat, but it did take down Intel
(NASDAQ:INTC) stock after-hours, though.
The data center business doing well. Gross margins hanging in, but the PC business not doing as well as they hoped. We`ll see if Windows 10 in the Skylake at the end of the year help.
Guys, back to you.
HERERA: Thank you, Jon.
Netflix (NASDAQ:NFLX) also reported a strong quarter, helped by aggressive expansion in overseas markets and a growing number of subscribers. Netflix (NASDAQ:NFLX) earned 6 cents, topping estimates.
Revenue of $1.6 billion was below forecast, but much higher than last year`s performance. Investors liked what they saw, sending shares spiking initially after that report.
Julia Boorstin takes a look at what investors need to watch.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The key takeaway from Netflix`s earnings today, the streaming video company is adding subscribers far faster than expected, especially overseas. Netflix
(NASDAQ:NFLX) reporting its best second quarter ever with 900,000 new subscribers in the U.S. and 2.4 million subscribers internationally.
The company says it`s managed to add and hold to those subscribers because of the strength of its original content. Shows this past quarter such as Marvel`s “Daredevil” and third season of “Orange is the New Black”.
Bolstering that stock move higher, confidence with better than subscriber additions will continue in Q3 as the company launches in Japan.
Back to you.
HERERA: Well, one of the bigger concerns this earnings season is the ability of companies to generate sales. Many analysts say weak top line growth could turn into a full-blown revenue recession.
Bob Pisani explains why this important part of the earnings picture seems to be stalling out.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Earnings season is in full swing and once again, earnings are likely to be flat. The main reason is continuing weakness in revenues. Earnings for the S&P 500 are expected to be down 3.8 percent. That`s according to FactSet.
However, those numbers typically rise as reports come in. So, earnings are likely to be flat for the quarter at the end of the day.
Well, that`s not great. But revenues are expected to be down 4.2 percent and that`s not likely to change too much.
Why is it that no revenue growth? Well, partly, it`s because companies have not been able to raise prices. There`s also been fairly slack demand. It`s economic growth has been very tepid.
But there`s an additional reason. Oil companies have seen a dramatic
35 percent drop in revenues. In fact, if you remove energy stocks from the S&P 500, revenue growth would be up 1.6 percent, rather than down 4.2 percent.
Revenue decline, if they continue, are going to make it very difficult to have profit growth. So, the question is, will the declines continue?
The two wild cards to watch are oil and the dollar. If oil prices rise, energy companies will have stronger profits than revenues. And this strong dollar has reduced the overseas profits of multinational companies based in the U.S. and it`s made exports less competitive. So, a weaker dollar would be a big help to revenue growth.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
HERERA: Nick Raich joins us now to talk more about what a revenue recession would mean for investors and for the broader market. He is founder and CEO of the Earnings Scout, an independent research firm.
Good to see you, Nick. Welcome.
NICK RAICH, THE EARNINGS SCOUT CEO: Thanks for having me.
HERERA: Do you think we`re going to see this kind of revenue recession?
RAICH: Well, we had revenues declining in the first quarter. So, all we would need is theoretically another quarter of that and as Bob Pisani just presented out, the expected revenue growth is expected to be down 4 percent in the second quarter.
We expect that to be very close. We`re forecasting about flat growth in the second quarter. So, it`s going to be real close to see if we have two quarters in a row of back to back year over year declines and revenue for the S&P 500. And if we do, that would be the case of a recession (ph).
HERERA: So, what does that say then about the overall economy, if these companies are not able to generate sales?
RAICH: It`s still, you know, the economy has been recovering. It has been a gradual but fragile recovery and all it takes is a couple events here or there or outside the world to really derail the recovery.
What we`re seeing from the sales — one other thing that Bob presented, the dollar is definitely impacting profits and sales. The one thing hitting sales, we`re seeing a lot of companies buy back shares and it`s boosting the earnings per share. So, a lot of people would say that`s been financially engineering the earnings per share beat.
But when companies buy back shares, they hope their own profits, but that could have been money otherwise spent that would have been additional revenues for other companies. That`s why we`re seeing it on the top lines and why market bearers say, hey, this isn`t a sustainable trend to keep buying back shares, boosting EPS. At some point, we`re going to see these top lines come back.
HERERA: You know, we had testimony from Ms. Yellen on Capitol Hill today. What does this tell about the Fed and what does it tell you about the overarching economy?
RAICH: From the standpoint of what the Fed is going to do, we believe they want to raise and normalize interest rates at some point this year.
The data itself, the first quarter data definitely deteriorated. They mentioned temporary factors, those temporary factors that impacted that, but when you look at it, we already thought there would have been a Fed rate hike. So, they`ve been expended out and so, they`ve been lower for longer.
So, without a doubt, the data and the growth has reset to lower numbers and that`s caused the Fed to pause a little bit. So —
HERERA: Yes —
RAICH: Go ahead.
HERERA: Although she was pretty strident on Capitol Hill saying that she thought the economy could take a rate increase.
RAICH: A quarter basis here or there, absolutely. But we want to see, though, is top line fails to come back, because that`s going to be reflection of real business activity as opposed to financial engineering.
If we see these top lines start to come back where more companies are being on sales and we`re seeing sales growth accelerate again, that`s going to be a reason for the fed to raise rates. It means business activity is actually improving.
HERERA: Very quickly, which stock sectors will be the winners and the losers?
RAICH: So, what we`re looking at here, we have a defensive bent on.
So, we think some of consumer staples are going to benefit here, some of the more defensive plays. The dollar was strengthening in the first quarter. It`s reverse course here in the second quarter. So, that should be less of a head wind for them.
And where we`re seeing the worst revisions right now, Sue, is in technology. We`re seeing some very bad revisions down in technology and we`re concerned in that area.
HERERA: All right. Nick, thank you very much for joining us tonight.
RAICH: Thanks for having me.
HERERA: Nick Raich with the Earnings Scout.
On Wall Street, stocks traded in a pretty tight range, dipping after Federal Reserve Chair Janet Yellen said the Central Bank remains on track to raise interest rates sometime this year. We`ll have more on that in just a second.
Images of rioting in Athens also weighed on stocks. But by the close, the major indices had climbed back. The Dow Jones Industrial Average fell
3 points, closed at 18,050. The NASDAQ was off by nearly 6 points and the S&P 500 fell by 1 point.
And now, for more on those clashes in Greece. Anti-austerity protesters were throwing fire bombs and rocks at police in front of parliament where lawmakers debated tough economic measures that must be approved in order to release needed bailout funds.
Michelle Caruso-Cabrera reports from Athens.
MICHELLE CARUSO-CABRERA, NIGHTLY BUSINESS REPORT CORRESPONDENT: There were clashes in the streets of Athens. Molotov cocktail being thrown by protesters leading to dozens of explosions and fires in front of parliament. The protests coming as inside parliament, members of the government were debating a controversial set of austerity measures that would raise taxes, and forced Greeks to retire at a much later age than they`ve gown accustomed to. It`s also going to force changes in the Greek economy. It`s going to attack a lot of vested interests and different political clashes.
We are still waiting for that vote to occur. The political analysts say there is little doubt the bill is going to pass. What does remain doubtful, do the Greeks have the ability to actually implement what they`ve promised to do?
In Athens, Michelle Caruso-Cabrera, NIGHTLY BUSINESS REPORT.
HERERA: China`s economy, the world`s second largest, grew 7 percent in the second quarter, which was more than expected. That country`s government has stepped up support for the economy and follows four cuts in benchmark interest rates since November.
Other data released overnight showed June industrial production and retail sales also beat expectations.
Despite these better-than-expected reports, Chinese stocks fell about
3 percent extending their recent bout of volatility.
President Obama defended the nuclear deal with Iran saying the historic agreement will avert a war with that country and a nuclear arms race in the Middle East.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: With this deal, we cut off every single one of Iran`s pathways to a nuclear program, a nuclear weapons program. And Iran`s nuclear program will be under severe limits for many years. Without a deal, those pathways remain open. There would be no limits to Iran`s nuclear program and Iran could move closer to a nuclear bomb.
(END VIDEO CLIP)
HERERA: That deal is expected to lift Western sanctions against Iran and today, oil prices fell about 3 percent on concerns that potential increase and exports from that country will add to supply.
Inflation pressures may be building in the economy. The producer price index, a measure of the prices companies charged to other firms, consumers and the government rose 4 percent in June after jumping half a percent in May. Much of that increase was due to the climb in fuel costs.
Excluding energy and food, core prices saw their biggest jump since November.
The Federal Reserve released its latest look at economic conditions.
It`s known as the Beige Book. The anecdotal survey conducted by the Fed`s
12 regional banks shows the U.S. economy continued its expansion through the middle of the year. Auto sales and lending picked up across the country but wage pressures remain pretty model.
And as we mentioned earlier, the head of the Federal Reserve testified on Capitol Hill. Janet Yellen said the economy is improving and they expect growth to strengthen. But as Hampton Pearson reports, some lawmakers took that opportunity to turn up the heat.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The Federal Reserve Chair Janet Yellen told the House Financial Services Committee monetary policymakers are on track to raise interest rates this year after more than six years at near zero.
JANET YELLEN, FEDERAL RESERVE CHAIR: If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate.
PEARSON: But the Fed chair says labor markets are not yet at maximum employment and the inflation is below the Fed`s 2 percent target. And the Central Bank is closely monitoring proposed solutions to the Greek debt crisis, as well as volatile financial conditions inside China.
YELLEN: Were we to judge that these developments did create substantial risks or we`re changing the outlook in some notable way, then a change in the outlook is something that would affect monetary policy.
PEARSON: But interest rate timing took a back seat to House Republican concerns for more oversight and accountability over the central bank. There were calls for a more transparent instructor interest rate policy and several lawmakers fight with the Fed chair over the use of the turnover material regarding the investigation of a 2012 leak of market sensitive information to a private newsletter.
Wisconsin Representative Sean Duffy pulled no punches in his clash with the Fed chair.
REP. SEAN DUFFY (R), WISCONSIN: If anyone is trying to sweep this under the rug, it`s the Fed. It is Congress who is trying to bring light to this. Is it fair to say you don`t have any legal authority, because you can`t give me case law or statute that says you have an exemption?
YELLEN: No, we`ve said, we plan to give them to you —
DUFFY: Not now.
YELLEN: — as soon as we`re able to do so and not compromise an open criminal investigation.
DUFFY: Compromising open investigation —
YELLEN: We want to see this investigation succeed.
DUFFY: You do? Let`s talk about that.
PEARSON: The Fed chair could face more of the same tomorrow in front of the Senate Banking Committee. It has already moved legislation calling for a complete overhaul of the Fed.
For NIGHTLY BUSINESS REPORT, I`m Hampton Pearson, in Washington.
HERERA: Still ahead, the one type of companies that some activist investors don`t like to buy stakes in. And what some of the brightest minds in the market are saying about the Federal Reserve and interest rates. That`s next.
HERERA: The House of Representatives easily passed a five-month extension of the Highway Trust Fund. That bill would authorize federal spending on highway and rail projects through mid-December, and add more than $8 billion to the dwindling fund. The Senate bill, which is still under negotiation, could extend the program for two years.
Several stocks rose today after activist investors spoke about them at CNBC`s Delivering Alpha Conference presented in conjunction with institutional investor. Starboard`s Jeffrey Smith said shares of Macy`s
(NYSE:M) are worth nearly double their current value.
Sandell Asset Management spoke about opportunities in Ethan Allen and shares of American Realty Capital Properties rose after Keith Meister of Corvex Asset Management identified it as one of his best ideas for 2015.
Tyler Mathisen reports from that event, which was a who`s who of investing and finance.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT: Thanks very much.
Today at the fifth annual Delivering Alpha Conference in New York City, a joint venture of CNBC and institutional investor, some of the best and brightest minds from the world of hedge funds and pension funds came together to share their top insights and ideas.
Maybe no one was listened to more closely on this day that Janet Yellen testified on Capitol Hill than Jeffrey Gundlach, the man said are calling the new bond king. He made the case among other things that interest rates won`t go up this year in part because he thinks the Fed`s view of the economy has been too rosy.
JEFFREY GUNDLACH, DOUBLELINE CEO & CIO: Every year, it`s the same thing. It`s the triumph of hope over experience. Just like a second marriage, you know?
So, they basically say, we`re hoping for high growth. They have to revise it down, so that now, the most recent for 2015, it`s the lowest it`s ever been, and even more interesting than that is it`s lower than the forecast ever was and what the actual was for 2013 and 2014. I just think the set-up isn`t going to really play out for a rate hike.
MATHISEN: Gundlach also argued, contrary to what the Fed Chairman Yellen has been saying, that if and when rates do go up, they will indeed start to move up very gradually but then that pace of rate hikes may quicken.
Nelson Peltz, the activist investor, was joined on stage by Bill Ackman, another activist investor. They had plenty to say. But one of the most interesting points they made was why activists like them don`t like to invest in tech companies.
BILL ACKMAN, PERSHING SQUARE FOUNDER & CEO: The problem with technology is most technology companies are too dynamic. I mean, you wake up and there are a couple guys in a garage, a block from Stanford University, a couple of women in the garage, and they`re starting a new business that`s disruptive.
And I think, you know, if you look at the kind of businesses that I think both of us like, we like businesses that can withstand the test of time, technology, commodity, I mean, I`m not — I try on stay away from things where an extrinsic factor I can`t control, whether it`s commodity prices, interest rates —
NELSON PELTZ, TRIAN FUND MGMT. CEO: We like businesses that I think speak to Bill as well, that sort of have moats around them.
UNIDENTIFIED MALE: OK.
PELTZ: OK? And technology is one that isn`t.
MATHISEN: All in all, a fascinating day here at Delivering Alpha.
Back to you.
HERERA: Thanks, Ty.
Tomorrow, we`ll bring you Tyler`s interview with Chris Ailman, chief investment officer of CalSTRS, which is the world`s largest educator only pension fund which oversees more than $190 billion.
Bank of America`s profit surges and that is where we begin tonight`s “Market Focus”.
Legal costs dropped, helping the firm posts quarterly earnings that more than doubled. The bank also saw consumer deposits and mortgage originations jump, bolstered by improving consumer credit. Shares popped 3 percent to $17.68.
PNC Financial also beating estimates on the top and bottom lines, but earnings fell from last year as a key measure of its profitability continued to decline. Like other regional banks, the firm was hurt by low interest rates that have pressured income. Shares rose just a fraction to $98.32.
BlackRock (NYSE:BLK) following suit with strong quarterlies. The money manager`s profit and revenue benefited from higher base fees. And the firm also posted outflows for the first time in almost three years.
Nonetheless, shares were 1 percent higher to $346.49.
And lower fuel prices continued to help Delta in its latest quarter.
The airline`s profit jumped 85 percent, but it forecasted a third-quarter drop in unit revenue as the carrier continued to see weaker demand abroad.
It blamed that on the strong dollar. Still, shares rose a fraction to $43.99.
All right. Black Friday in July? Well, that`s what some retailers want today to be. It started by a big promotion by Amazon (NASDAQ:AMZN), and was quickly followed by others.
But as Courtney Reagan reports, all of this discounting could turn into a big financial headache for retailers.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Leave it to Amazon (NASDAQ:AMZN) to create a shopping holiday and stir up the retail community. The e-commerce giant is celebrating its 20th birthday with Prime Day, a shopping event for Prime members to get more deals than on Black Friday.
Walmart responded, offering thousands of products at Atomic Sale for
90 days or while supplies last, adding, shoppers don`t have to pay $100 to get great deals. That`s a dig at Amazon`s $99 fee for annual Prime membership.
But Amazon (NASDAQ:AMZN) and Walmart weren`t first to drum of Black Friday in July type events. Target (NYSE:TGT) has been doing it for the past six years. Best Buy (NYSE:BBY) also holds online sales in July.
Even though some shoppers expressed frustration with the type and availability of items on sale, the marketing is working.
UNIDENTIFIED MALE: Save big on thousands of amazing items.
REAGAN: By around 2:00 p.m., Amazon (NASDAQ:AMZN) said peak order rates surpassed 2014 Black Friday though it declined to give actual number.
JOSH LOWITZ, CONSUMER INTELLIGENCE RESEARCH PARTNERS CO-FOUNDER: They think this is a winning day for Amazon (NASDAQ:AMZN). I think they`re going to add lots and lots of members. I think they`re going to make a new group of people familiar with their offerings. Maybe they`ll clear out some merchandise that they want to clear out. Certainly, they got vendor participation to help with some of the best price offerings, and I think that it`s going to be a good day for them.
REAGAN: It`s a good day for Amazon (NASDAQ:AMZN) because it`s never cared about making a profit. So, a sale that compresses profit isn`t a big deal.
But for other retailers, the constant one upping each other with deeper and deeper discounts may increase shopper excitement and revenue but, ultimately, it`s a race to the bottom.
In many ways, Amazon (NASDAQ:AMZN) changed the retail landscape, from the price transparency to the expectation of low cost and fast shipping.
As retailers pull out all the stops to compete, many retail experts fear it`s a dangerous pattern, as retailers trained consumers to only buy when merchandise is heavily discounted, when it generates the lowest profit margins.
So, who wins? Well, that depends how winning is defined. With all the competing sales, it`s ultimately a good day for consumers.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.
HERERA: Coming up, the millennial is saddled with debt and that could have ripple effects through the economy. The final part of our series, “Millennials and Money” is next.
HERERA: And here`s a look at what to watch for tomorrow. Janet Yellen, the Fed chief, will continue to deliver her semiannual testimony on Capitol Hill. A check on the labor market with weekly jobless claims. And a Philadelphia Federal Reserve is out with its business outlook survey.
And that is what to watch for for Thursday.
Federal officials announcing today international takedown of the malware online marketplace called Darkode. That site has been dismantled and dozen of its members have been arrested. The forum has been a place to purchase and trade hacking tools since at least the year 2008. If you navigate to the site now, it shows logos of various law enforcement agencies and a notice saying that that domain has been seized by the FBI.
And finally, with the millennial generation saddled with debt, how do they secure their financial future? And what are the broader implications for the U.S. economy?
Sharon Epperson has the final part of our “Millennials and Money”
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Many young Americans like Charisse and Freddie Vickers are working hard to achieve financial security.
CHARISSE VICKERS, MILLENNIAL: We both kind of have that instilled in us to do what we can to make ends meet.
FREDDIE VICKERS, MILLENNIAL: I`m always trying to find ways to make extra money, find ways just to save.
EPPERSON: But saving for one`s financial future can feel more like a dream than a reality, under the weight of day to day expenses and growing debt.
C. VICKERS: Twenty-three hundred total is what I owe.
F. VICKERS: And I owe $26,000 in student loan debt.
EPPERSON: Student loan debt is not only a growing problem among millennials but steadily increasing for borrowers of all ages. The numbers are staggering and can have serious repercussions for the entire U.S.
economy — $1.2 trillion in outstanding loans, taken out by more than 40 million consumers who have an average debt load of $29,000.
Student loan debt is a particularly devastating dilemma for millennials.
DOUGLAS BONEPARTH, LIFE AND WELTH PLANNING VICE PRESIDENT: It`s preventing them from moving into a typical next stages of their lives and making long term investments and homes starting families, settling down.
That can have a major impact on the economy.
EPPERSON: The Vickers, like many millennials, are moving into their prime spending years. Millennials are generally between 18 and 34 years old and they`re now the biggest age group in the U.S. workforce. That means this generation is going to be a key driver for the future growth of the U.S. economy.
JASE JOHNSON, THE PRINCIPAL FINANCIAL GROUP: Millennials have about
$600 billion in annual purchasing power today. That number is expected to increase to $1.4 trillion in purchasing power annually for this generation.
EPPERSON: But for many millennials, debt is cutting into their spending and investing, with far-reaching consequences. For those under 35, homeownership has fallen in the past decade, down from 43 percent in 2005, to nearly 35 percent today.
The birth rate for women between 20 and 29 years old has been declining since 2008, and is now at a record low. But student loan debt taken out to get their degrees is not the biggest burden for many millennials. Loan defaults which average about $14,000 per borrower last year can have an even greater impact.
BONEPARTH: It can be very harmful toward the economy. I mean, we`re looking at investments that are typically made around this time that aren`t being made.
EPPERSON: But the Vickers say they have their debt load under control.
C. VICKERS: We have both been on the same page of wanting to pay off the bills.
F. VICKERS: I think we`re both moving in the right direction and we`re working, you know, toward being financially secure.
EPPERSON: For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson.
HERERA: And to read more about millennials and their long term financial habits, head to our Web site, NBR.com.
And that will do it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Ty is back tomorrow. Thanks for joining us and have a great evening. We`ll see you here tomorrow.
Nightly Business Report transcripts and video are available on-line post broadcast at http://nbr.com. The program is transcribed by CQRC Transcriptions, LLC. Updates may be posted at a later date. The views of our guests and commentators are their own and do not necessarily represent the views of Nightly Business Report, or CNBC, Inc. Information presented on Nightly Business Report is not and should not be considered as investment advice. (c) 2015 CNBC, Inc.