TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Earnings surprise.
Amazon (NASDAQ:AMZN) turns an unexpected profit, its stocks soar in after hours trading, making it a more valuable company than Walmart, General Electric (NYSE:GE) and JPMorgan (NYSE:JPM).
SHARON EPPERSON, NIGHTLY BUSINESS REPORT ANCHOR: Charge it. That`s what more people did last quarter, and Dow component Visa (NYSE:V) reaps the rewards.
MATHISEN: Sputtering engine. Why China may no longer be the driver of global growth. And why that has some of the world`s biggest American companies on edge.
All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, July 23rd.
EPPERSON: Good evening, everyone. I`m Sharon Epperson.
MATHISEN: And I`m Tyler Mathisen. Welcome one and all.
What an evening for Amazon (NASDAQ:AMZN), the online commerce behemoth reported a blowout quarter, turning an unexpected profit, driving its stock up as much as 18 percent initially after the report, and bolting its market cap, its total value passed he likes of Walmart, General Electric (NYSE:GE) and JPMorgan (NYSE:JPM), this in afterhours trading.
Amazon (NASDAQ:AMZN) pulled down 19 cents a share in earnings forecast, for a loss of 14 cents. Revenue also easily topped expectations and rose nearly 20 percent to $23 billion in just the 3 month quarter.
Shares rocketed higher initially after the report on heavy trading, and that sharp rise added billions to the net worth of CEO and founder Jeff Bezos.
Josh Lipton has more on Amazon`s remarkable quarter.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: A big number that caught a lot of investors by surprise, and that earnings release, $1.8 billion. That is the revenue that Amazon (NASDAQ:AMZN) said it generated in the quarter from Amazon (NASDAQ:AMZN) services, its cloud computing division that competes with rivals like Microsoft (NASDAQ:MSFT). That was better than expected in a step up from just $1 billion in a year ago period. Operating income of $391 million was also better than expected.
Amazon (NASDAQ:AMZN) only started breaking out that unit`s performance a couple quarters ago, so this is still new and exciting news for Amazon
(NASDAQ:AMZN) bulls. A big source of money for the e-commerce giant that has bulls very excited in afterhours.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.
EPPERSON: Amazon (NASDAQ:AMZN) wasn`t the only company to surprise investors, Dow component Visa (NYSE:V), one of the largest payment processors in the world reported a 25 percent jump in profits. The quarter was helped by a double-digit rise in payments, processed on its network, the company earned 74 cents a share, easily topping estimates of 59 cents.
Revenues also came in better than expected at $3.5 billion, up 11 percent from a year ago.
And investors said shares of the Dow component up as much as 7 percent initially following the report.
Mary Thompson digs deeper into Visa`s results.
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Visa`s fiscal third quarter profits, rising 25 percent, thanks to a higher than expected increase in the amount of payments it processes on its network, this along with expectations for lower tax rate and lower expenses. It`s prompting the firm to raise very slightly its full-year earnings outlook.
The total volume of payments process by Visa (NYSE:V) rose 11 percent to $1.2 trillion in the quarter. The company, of course, earning fees from those transactions and that helped to offset the impact of a stronger dollar.
More U.S. focus and its rival MasterCard (NYSE:MA), Visa (NYSE:V) says it continues to talk to Visa (NYSE:V) Europe about acquiring that business.
The company says it hopes to have this resolved by October. The acquisition greatly expands Visa`s global footprint.
For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.
MATHISEN: One of the biggest issues this earnings season has been China, slowing growth in the world`s second largest economy is showing up in U.S. company earnings.
The latest to feel the impact, Caterpillar (NYSE:CAT). The latest to feel the impact, Caterpillar (NYSE:CAT). The largest manufacturer of construction and mining equipment cut its full year sales forecast and warn the global economy, including China and Brazil remain stagnant. As to when things get better in China, Caterpillar (NYSE:CAT) CEO Doug Olberhelman couldn`t say.
(BEGIN VIDEO CLIP)
DOUG OLBERHELMAN, CATERPILLAR CEO: I think they`re closer to the bottom, but it`s hard to say. The news there is mixed. I know the Chinese leadership is really trying to reform that economy which it needs to be done. They manage it pretty well in the past. Will they do so in the future? It has yet to be seen.
But again I think whatever it is, is probably closer to the end and the beginning. But it`s yet to be seen, and the forecast will bear out whatever it is.
(END VIDEO CLIP)
MATHISEN: The company also pledged to buy back $1.5 billion worth of stock. By the close, shares were down more than 3 1/2 percent.
EPPERSON: Tyler, Dow Chemical (NYSE:DOW) also warned of softness in China. On its conference call, the company`s CEO said says China has been and will continue to be a weak spot. Those comments raised concerns the Dow Chemical (NYSE:DOW) may not be able to maintain its growth rate in that key market. The company reported lower sales which were hurt by a strong dollar as well and weak oil prices. Shares dropped more than 4 percent.
MATHISEN: And while China is taking a toll on some big companies this earning season, it`s not only the culprit. Another part of the world is causing demand to slow and that is Latin America.
Bob Pisani at the New York Stock Exchange reports now on the pain many big international companies are feeling these days.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The problem has been a string of disappointing earnings reports, particularly from large multinational companies like Caterpillar (NYSE:CAT) or 3M (NYSE:MMM) or United Technologies (NYSE:UTX) or Emerson Electric (NYSE:EMR) even.
Now, there`s two big problems. First, there`s slowing economies in China and Latin America. And second, strength in the dollar.
Now, the slowing economies are leading to decline commodity prices and the slowdown in capital spending, the dollar strength is reducing profits that were made overseas.
Now, the weakness is not just in China. Whirlpool (NYSE:WHR), for example, and Caterpillar (NYSE:CAT) both mention lower sales in Latin America. The largest of the Latin America ETFs, that`s the iShares Brazil ETF, has seen very heavy volume and is poised to breakthrough a six-year low.
But traders have been aware of these problems for some time. So, they`ve already lightened up on commodity`s stocks and the global industrials. However, they have piled a lot of money into three other groups. First, into banks on expectations of higher rates. Second into health care, mostly biotech, and third tech and Internet stocks, particularly the big four — Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), Google (NASDAQ:GOOG) and Amazon (NASDAQ:AMZN).
Any sign that these three groups are falling apart will elicit panic among traders. So far, that has not happened. That`s why Amazon`s surprising swing to a profit after the close is a big relief to investors.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
MATHISEN: A whopping 54 companies in the S&P 500 and four Dow components reported earnings today, making today the busiest day of this earnings season, for McDonalds to General Motors (NYSE:GM) to Under Armour (NYSE:UA).
Dominic Chu rounds up the reports.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: McDonald`s (NYSE:MCD), the world`s biggest fast food restaurant chain reported earnings that topped analysts` estimates on sales that were relatively in line with expectations. However, investors were concerned that those sales at stores open at least a year continued to show signs of weakness.
Fellow Dow member 3M (NYSE:MMM) was one of the biggest drags on the index in today`s trade. The diversified manufacturing company that makes everything from scorch tape to computer networking tables reported earnings that narrowly topped estimates as sales fell shy. 3M (NYSE:MMM) also cut its full-year guidance due to a weaker global growth environment.
A bright spot came from General Motors (NYSE:GM), despite reporting sales that missed expectations because of the effects of currency fluctuations, profits came in stronger, thanks in part to demand for trucks in North America, and continued strength in profit margins for its China operations.
Kimberly-Clark (NYSE:KMB) reported profits that were better than expectations and sales that were in line. The company did raise the lower end of its earnings guidance for the year, despite also dealing with the effects of currency fluctuations. Kimberly-Clark (NYSE:KMB) is the company behind consumer goods like Kleenex tissues and Huggies diapers.
Freeport-McMoRan was one of the worst performers in the S&P 500. The mills and mining giant reported earnings that beat estimates on sales that narrowly missed. The company like others in the industry is dealing with falling commodity prices.
And a big winner today, Under Armour (NYSE:UA). America`s second biggest athletic apparel maker started the day strong and stayed that way all session long and hit a record high at one point. Earnings and sales topped estimates and it raised its full-year forecast. The company has been riding a winning streak, thanks in part to the success of sponsored athletes like golfer Jordan Spieth and ballerina Misty Copeland.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
EPPERSON: On this earnings bonanza day, stocks actually closed in the red for the third day in a row, as those profit reports pressured the major averages. By the close, the Dow Jones Industrial Average fell 119 points, to 17,731. The NASDAQ was off 25 points, and the S&P 500 was down 12.
That cautious mood also was reflected in commodities with oil prices slipping below $50 a barrel, increasing inventories and concerns about Iranian shipments, fueled concerns about swelling supplies.
MATHISEN: The FBI has a warning for American companies — beware of Chinese corporate espionage. The agency says the attacks are becoming more brazen and the targets more broad. And FBI is making a big push to alert companies of the dangers.
Eamon Javers is following the story from Washington.
Eamon, what is the FBI doing?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Tyler, the FBI is making a big push here in terms of publicity to warn American companies about this spike they`re seeing in corporate espionage coming from China.
They say they`ve seen about 53 percent more cases this year than they did in the previous 12 months. And they say there are hundreds of cases out there now of Chinese corporate espionage.
They gave us this video. Take a look, this is surveillance video provided by the FBI that shows two Chinese executives there on the left- hand side of your screen, meaning with an American executive. The Chinese thought they were going to bribe this American executive for access to glass manufacturing secrets, they hand him the cash.
In reality what happens at the end of this video, is FBI agents crash into this room and arrest the two Chinese executives for corporate espionage. The FBI also put together a training video for American executives. They`ve been showing it in private. Take a look at this video, it`s a little bit like a Hollywood movie the way the FBI produces it.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: If you manufacture in China, you save on transportation and labor costs.
UNIDENTIFIED MALE: Robert Moore.
(END VIDEO CLIP)
JAVERS: And U.S. intelligence officials that I spoke to today at FBI headquarters said they fear that the United States is actually losing the battle on corporate espionage to the Chinese. They say U.S. economic dominance in the world is at stake here, and spies are chipping away at that economic dominance, guys.
EPPERSON: Well, that`s kind of scary, Eamon. What does the FBI say American executives should watch for as they monitor their own employees?
JAVERS: Well, one of the things they say is the biggest problem is the insider threat, people inside your company who have access to your company who are doing suspicious things. By that they mean, taking a lot of trips back to their home country or working nights and weekends, when they`re not necessarily required to. And anybody inside your company who`s accessing information in your company that`s not — doesn`t really pertain to their daily job, they say all those things are red flags you may have a problem.
MATHISEN: Why does the FBI say they`re seeing so much more of it?
JAVERS: They say something has changed inside China, and also Russia, but they said particularly in China. There`s a big push from Chinese government intelligence to gather more secrets inside. They say that`s what they think is driving this huge increase in caseload that they`re seeing. They also say that they think that American companies are simply getting better at reporting a lot of this to the FBI.
So, they`re working on that relationship between law enforcement and American companies to stamp out this kind of spying, guys.
EPPERSON: Eamon, have they quantified how much this is costing American businesses right now? How big is the impact?
JAVERS: Yes, they say it`s hard to come up with a dollar figure because what`s — they`re going after most often is intellectual property.
So, it`s in the billions of dollars, what they`re going after is not what you would think. You kind of think of aerospace parts, micro chips, really sensitive stuff. Instead, they said the Chinese are after seeds, they`re after in technology in manufacturing processes, dye that can make a particular kind of white coloring in manufacturing. All these things that are used to make goods in this country are valuable to Chinese businesses and they`re trying to steal that intellectual property from American companies.
MATHISEN: Eamon, thank you very much. Fascinating stuff. Eamon Javers in Washington.
JAVERS: You bet.
MATHISEN: And to read more about the fight against Chinese corporate espionage, head to our Web site, NBR.com.
EPPERSON: The escalating outcry over the skyrocketing price of medications, adds a new voice. That`s coming up.
EPPERSON: A milestone for the job market. The number of Americans filing initial applications for unemployment benefits fell to a 42 year low last week. Yes, I said 42 years, that`s the lowest since 1973. First time claims for unemployment benefits dropped by 26,000 to 255,000. The report is another sign of increasing momentum in the labor market.
MATHISEN: In 2010, the massive overhaul of the U.S. financial system known as Dodd Frank was signed into law. The legislation was designed to fix issues that helped contribute to the crisis, and protect taxpayers for having to bail out big banks and financial services firms, like AIG.
But five years later, are we really any safer?
Steve Liesman takes a look.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Five years after the passage of the landmark Dodd-Frank financial reform bill, the debate rage about whether the system is safer from another catastrophic meltdown.
Some top regulators say it is.
JANET YELLEN, FED CHAIR: By having more capital and liquidity and a safer and sounder financial system, we hope that we`re preventing future episodes like the devastating one that we just lived in, and if there is some burden that`s associated with that and some cost, the benefit is a far reduced chance of a financial crisis.
LIESMAN: But ask a Republican, and you`ll get a very different answer.
REP. JEB HENSARLING (R), TEXAS: This is bad policy and worse economics. It erodes market discipline and risks further bailouts, to be paid mostly by lower and middle income tax paying families. It becomes a self-fulfilling prophecy, helping make firms bigger and riskier than they otherwise would be.
LIESMAN: It`s hard to figure out the truth amidst such divergent opinions. But a couple of things are clear. As a result of Dodd-Frank, banks hold more capital on their books, almost three times more capital than when the financial crisis struck. That means taxpayers are safer from being asked to bail out a big bank if it goes down. And the banks themselves are less likely to crash and burn.
The big banks also undergo a stress test every year, where regulators scrutinize whether they can withstand a disastrous economic shock. Most pass, but when they don`t, they can be banned from buying back shares or paying dividends.
And what are called living wills. Banks have to provide a blueprint for how to take a bank apart and sell it off in a worse. To be sure, the biggest banks are bigger, and there`s no strict prohibition on the government bailing out a bank. The whole Dodd-Frank system is unproven and the living wills have been criticized for not providing enough detail.
But the real question is not are we safer? The real question is, at what cost? In other words, does Dodd-Frank go too far?
SAM BATKINS, AMERICAN ACTION FORUM: Lending has still not recovered from the financial crisis. And if you look at the average post-war recovery period compared to where we are now, lending is still down, housing starts still haven`t fully recovered. And part of that is the regulatory apparatus.
LIESMAN: Dodd-Frank has spent thousands of pages of regulations, many of which are incompletes, battalions of new compliance officers inside the banks, and the regulatory burdens that small banks say undermines lending and economic growth.
But all that costs for a safer system, which surely runs into the tens of billions of dollars, is weighed against the cost of the financial crisis itself, which ran into the tens of trillions of dollars.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
EPPERSON: Shares of Starbucks (NASDAQ:SBUX) pop on a strong quarter, and that`s where we begin tonight`s “Market Focus”.
The coffee chain reported a beat on both the top and bottom lines, with sales rising nearly 20 percent. Topping it off, the firm announced that it will buy back 50 million shares as part of its buyback program.
Shares surged in initial after hours trading. And before the close, the stock was off just a fraction to $56.56.
Investors are also cheering AT&T`s late report. Results topped analyst estimates as the wireless carrier added customers. Shares popped initially after the close. The stock ended the regular session, though, off about 1 percent to $33.93.
And Comcast (NASDAQ:CMCSA) (NYSE:CCS) delivering stronger-than- expected quarterly revenues and earnings that were in-line with consensus.
The telecom giant`s NBC Universal (NYSE:UVV) division helped bolster results, with record-breaking box office performances like “Jurassic World.” Still, shares fell 3 percent to $62.47. We should mention, Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent company of CNBC, which produces this broadcast.
And Campbell Soup (NYSE:CPB (NYSE:CPF)) raised its full-year outlook as profits have improved due to an aggressive cost-cutting program. The CEO says the cost cuts are just one way the company is transforming itself.
(BEGIN VIDEO CLIP)
DENISE MORRISON, CAMPBELL SOUP COMPANY CEO: We`re forging into fresh.
We`re looking at, you know, our products. We did announce that we are taking artificial flavors and colors out of our products. We don`t have a lot to begin with, but whatever remains, we`re committed to taking it out.
(END VIDEO CLIP)
EPPERSON: Shares were down a fraction, though, today to $48.20.
MATHISEN: United Continental had its best quarterly profit in its history, thanks to cheaper fuel prices, but revenue fell as rival airlines increased capacity. United also announcing a $3 billion share buyback.
The airline also said the strong dollar did weigh on demand from overseas.
Shares there falling slightly to $56.67.
Eli Lilly (NYSE:LLY) raised its full-year guidance following stronger than expected sales and earnings in the second quarter. The company said sales would have been even better if not for the strong dollar. Shares up a fraction there, $86.76, the close.
Another huge deal in the insurance industry is getting much, much closer. After nearly a year of discussions, Anthem is reportedly close, very close to a deal to buy rival Cigna for $48 billion or so. The merger would create the nation`s largest health insurer. Anthem up a fraction to $155.21. Cigna was 2 percent higher. It finished at $154.36.
EPPERSON: And, Tyler, doctors are now joining forces to make it clear that they think cancer drug costs are simply out of control. In an editorial in the Mayo Clinic medical journal, a group of 118 oncologists from cancer centers across the country called for a curb to the rapidly escalating price of cancer drugs.
And as Meg Tirrell reports, they are focusing attention on the financial burden to patients.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: In cancer treatment, doctors are increasingly discussing what they call a new side effect — financial toxicity.
DR. AYALEW TEFFERI, MAYO CLINIC: We`re ill-equipped to do what is best for the patient sometimes just because it`s very expensive.
TIRRELL: Dr. Ayalew Tefferi is one of more than 100 oncologists who support a patient initiative to lower the price of cancer medicines. They say their average price has increased as much as 10 fold over a decade and a half, to more than $100,000 per year.
TEFFERI: They`ll spend all their life earnings. They will sell their farms. They will do anything to stay alive. And these are issues that we hear and encounter on a daily basis.
TIRRELL: The doctors say out of pocket costs for some patients can approach $30,000 a year. More than half the average annual households income in the U.S. They support new measures to control costs, including allowing Medicare the ability to negotiate drug prices, enabling the importation of cancer drugs from countries like Canada, where they`re cheaper and reforming the patent system.
The outcry over drug prices has been escalating for years. This as the pace of drug development accelerates. In 2014, FDA approvals hit an 18-year high, driven in particular by medicines for rare diseases and cancer.
JOHN LECHLEITER, ELI LILLY CEO: I`m pleased to say in cancer in particular, we`re making great strides with some of the new medicines that have been introduced lately. We`re also on the other hand very concerned that patients who need these medicines be able to gain access and afford these medicines.
TIRRELL: The drug industry says the attention on cancer medicines is misplaced, writing today that focusing on only 1 percent of spending won`t solve the nation`s health care challenges.
Eli Lilly`s CEO John Lechleiter agreed.
LECHLEITER: Medicines are a small fraction of what the total cost of cancer care compromises. And yet whoever heard of paying out of pocket for a hospital stay. We need an insurance system that provides adequate coverage for all the elements of care, including medicines that patients need.
TIRRELL: Analysts say the public attention on drug prices hasn`t deterred investment in companies focused on cancer. In fact, says Morningstar`s Damien Conover, it`s on the contrary.
DAMIEN CONOVER, MORNINGSTAR EQUITY ANALYST: I think investors are seeking out pharmaceutical and biotechnology firms that are focused on cancer, because right now, cancer has very strong pricing power despite a growing push back on trying to bring down some of those prices.
TIRRELL: The industry warns that controls on drug prices could stifle innovation, and lead to fewer new medicines. And they say they have patient access programs to help those who have trouble covering their costs.
In this battle over the price of drugs, it`s increasingly doctors versus drug companies.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
MATHISEN: Coming up, digital video is big business, and now, the race is on to own the next frontier in this budding industry.
EPPERSON: The big business of digital video, some clips on YouTube now attract more viewers than prime time television shows. And today, at an annual gathering of the digital video industry that now attracts thousands, the race is on for the next big thing.
Julia Boorstin reports from Anaheim, California.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Here at VidCon, fans and brands are talking about the next big thing in digital video. New live streaming apps, Meerkat, Periscope and YouNow.
UNIDENTIFIED FEMALE: When you watch a live show compared to what they tape and put on YouTube, the live shows are like — they`re more real.
UNIDENTIFIED FEMALE: It`s live. So, you kind of get to see who the person is more. And you get to interact with them.
OLICK: Meerkat announcing it`s integrating with GoPro to allow anyone to live stream to the Meerkat app, directly from a GoPro camera. This comes on the heels of Meerkat connecting to Facebook (NASDAQ:FB), and laying the groundwork for an advertising business. But the Discovery`s Shark Week already partnering with Dunkin Donuts to make money on the platform.
Meerkat is pushing to draw more than creators here, as they work to compete with Periscope, which has the advantage of being owned by and integrated into Twitter.
Though there`s no official measure of Periscope or Meerkat`s traffic, according to Adobe`s digital index, which measures attention on social networks, Periscope is more popular — with the only live streaming app that`s already making money is YouNow. It says it has 5 million members and 100 million user sessions monthly.
And YouTube stars will follow viewers and money, says the CEO of digital talent manager BigFrame.
STEVE RAYMOND, BIGFRAME CEO: Our creators will be on Twitter at some points of the day. YouTube in some parts of the day, and Instagram is huge, Snapchat is huge. So, they`re really just focused on where they`re going to get the most bang for their buck.
OLICK: And content and distribution giants will chase new viewers and the revenue they get with them. That`s why deal maker Terry Kawaja is expecting a slew of acquisitions.
TERRY KAWAJA, LUMA PARTNERS CEO: They`re going to make sure that they`ve got the right kind of content and channels and capabilities to be able to play in this new space.
OLICK: Now, we`ll see if Meerkat or YouNow draw interest from giants here like YouTube.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Anaheim, California.
EPPERSON: My 13-year-old loves YouTube, watches it more than television.
MATHISEN: My 9-year-old the same way. He`s on YouTube all the time.
EPPERSON: It is the future.
That is NIGHTLY BUSINESS REPORT for tonight. I`m Sharon Epperson.
Thanks so much for watching.
MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody. And you`ll be back here tomorrow night. We look forward to that.
EPPERSON: Yes, we`ll see you then.
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