SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Low prices, falling stocks. Walmart shares are off 19 percent this year and today’s profit report and forecasts won’t help them rebound. What’s ailing the world’s largest retailer, including one thing merchants never like to talk about?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Buying spree. A smaller bank has a big chance for acquisition and its deal today could spark more within the industry.
HERERA: Powering the future. What one company is doing to make sure the lights stay on in your home. Tonight, the second part of our “Big Fix” series, focusing on our aging energy grid.
We have all of that and more on NIGHTLY BUSINESS REPORT for Tuesday, August 18th.
MATHISEN: Good evening, everyone, and welcome.
Trouble in Aisle Six. Walmart is in a slump, a big one. The Bentonville behemoth reported a drop in second quarter profits and missed Wall Street earnings estimates and said growth for the full year will not be as strong as thought.
On the bright side, more shoppers are shopping at Walmart here in the U.S. and they’re spending slightly more. But costs are rising faster. Today, investors sent shares of the Dow component down more than 3 percent to a 52-week low, thinking Walmart, the worst performer on the Dow Jones Industrial Average for the day.
Courtney Reagan has more on the company many consider to be a barometer of the consumer economy.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: While Walmart’s U.S. comparable sales improved for the fourth straight quarter and store traffic also increased, it wasn’t enough to keep the retailer from significantly lowering its full year earnings guidance. There are multiple headwinds that cut into the quarter, many of which Walmart expects to continue, including the strong dollar hurting international earnings, increased employee hours at now higher wages, lower reimbursements from prescription drugs and higher shrink.
Walmart explains that shrink includes both theft and damaged goods, which could include perishable grocery items or other damaged merchandise. The retailer is working to rectify it but says it may take 18 months.
Jefferies analyst Daniel Bender is concerned about other pressures that the retailer didn’t detail in its list of headwinds today.
DANIEL BENDER, JEFFERIES ANALYST: There’s a lot of costs associated with training, wages, I think there’s a ripple effect up the chain in terms of when you raise the low end and folks that were at the middle that is now the low, you know, they want an increase. I think there’s unintended consequences there. I think there’s pressures around trying to clean up these stores and make them more shoppable.
So, really it runs through the organization.
REAGAN: But the discounter says it’s making strides in its efforts to cleanup stores. Offers faster checkout and improve inventory in stock levels. Plus, it says customers are responding to programs connecting its online and store operations, like order online and pick up in store.
BUDD BUGATCH, RAYMOND JAMES: They are doing things to make sure they win with the consumer and ultimately they will manage their way to better earnings. Still, returns on capital the way they calculate it was still 16 percent, very healthy by any which way you want to measure it. But compared to expectations, which is what we all look at in the very short term, it’s a disappointment. But that’s where the opportunity lays for investors who are willing to be a little patient.
REAGAN: But asking for patience is a big request for Walmart right now. Shares are down 20 percent year to date. The retail index is up 20 percent in that same time period.
For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan.
HERERA: It was the opposite story for Home Depot (NYSE:HD). That Dow component reported better than expected revenue and earnings met expectations, and it said profits for the full year will be stronger than previously thought, making it the second time this year the retailer has raised its profit outlook.
The company is being helped by a recovery in the housing market and Americans’ willingness to spend money on home improvement projects. That made the world’s number one home improvement retailer the top performing stock on the Dow, rising 2.5 percent to a 52-week high.
MATHISEN: Builders ramped up construction of single family homes in July. Housing starts rose 2.4 percent last month to the briskest annualized phase in nearly eight years. That sent home-related companies like Lennar (NYSE:LEN), D.R. Horton (NYSE:DHI) and Masco (NYSE:MAS) to multi-year highs.
But new applications for building permits considered a bellwether for future construction fell more than 16 percent and apartment construction, which has been on a tear, also declined.
HERERA: Home Depot’s results in that positive housing data wasn’t enough to lift stocks today. The Dow Jones Industrial Average snapped its three-day winning streak as Walmart weighed and investors watched a 6 percent drop in the Shanghai Composite overnight.
By the close, the blue chip Dow index lost 23 points to 17,511, the NASDAQ shed 32 and S&P 500 fell 5.
MATHISEN: A multibillion dollar deal in the banking sector. BB&T (NASDAQ:MSDXP) (NYSE:BBT) plans to buy National Penn Bank shares for almost $2 billion in cash and stock, and that sent the shares of National Penn soaring 16 percent. BB&T (NASDAQ:MSDXP) (NYSE:BBT) fell fractionally. The deal is part of BB&T’s aggressive strategy to expand in the Mid-Atlantic region.
But as Dominic Chu reports, it may give way to more merger activity in the sector.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Banking customers in Pennsylvania, New Jersey and Maryland will soon have a new financial institution in their backyard. North Carolina-based BT&T Corporation just inked a deal to buy National Penn Bank shares for around $1.8 billion in cash and stock.
The acquisition will help make BB&T (NASDAQ:MSDXP) (NYSE:BBT) one of the biggest deposit collectors in the state.
ERIC WASSERSTROM: It’s growth. The banking industry on the whole is struggling to find growth and acquisitions here to fore have been fairly hard to accomplish because of regulatory headwinds. But it seems like that’s changing somewhat and you are seeing BB&T (NASDAQ:MSDXP) (NYSE:BBT) start to more progressively pursue this inorganic strategy to jump-start growth.
CHU: While America’s biggest lenders haven’t been making a lot of these types of acquisitions, some of the mission size players are seeing opportunities. Smaller banks may become more attractive targets as regional banks look to expand their business footprint in new markets in an effort to grow revenues and profits.
Deals the size of the one for National Penn might also be getting easier from a regulatory standpoint as well.
KELLY KING, BB&T (NASDAQ:MSDXP) (NYSE:BBT): I think the regulators have gotten comfortable with mergers. I know some of my peers disagree with that, but I think they are comfortable with mergers as long as the institution has invested in the systems of processes to be able to run a larger institution.
CHU: If regulators are becoming more open to deals, that mean may more potential takeover targets are in play. That put some of these smaller banks on the radar for traders and investors, and some experts that believe more deals are on the horizon for the banking industry.
WASSERSTROM: It certainly seems that way. I mean, surprisingly coming out of the financial crisis in ’08 and ’09, regulators have taken a very hostile view towards consolidation in part because their view was that consolidation up to that point had led to the problems that resulted. But we’re seeing now that somewhere below the $250 billion level, clearly much more open to deal making.
CHU: Financials as a whole and smaller regional banks specifically have been outperforming the market as a group so far this year. The big question is whether or not they will keep up that positive momentum giving more potential in merger acquisition activity.
For NIGHTLY BUSINESS REPORT, I’m Dominic Chu.
HERERA: And now to Washington where the government is proposing some changes for the oil and natural gas sector. The new rules issued by the Environmental Protection Agency would require companies to cut methane emissions by nearly half over the next decade and the industry is already fighting back.
Eamon Javers is following this story from Washington.
Good to see you, Eamon.
So, what exactly is the EPA purposing?
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Yes. Hi, Sue.
Well, they’re saying that they want oil and gas industry to cut emissions by about 20 percent to 30 percent in terms of methane and they want them to do it by going after, finding and repairing leaks in their equipment and also looking for methane emissions as part of the drilling process. All that they say they could end emissions by about 20 to 30 percent. They think that’s a good number to start with.
Overall, this is part of the Obama administration climate change goal by getting emissions down by as much as 40 percent.
MATHISEN: What does the oil and gas industry say?
JAVERS: Tyler, they don’t like it. As you can imagine, they say it’s redundant, it’s unnecessary and they say that methane emissions are already coming down. So, all this is going to do is simply add new cost to the industry.
HERERA: But the EPA says it’s going to bring costs down to the point where it will actually make money for the industry.
JAVERS: Yes, this is the most interesting aspect of this announcement to me, anyway. They say it’s going to cost about $400 million to the industry to implement all of these changes but they said that because the industry is going to be able to resell the methane that they gather as part of this process, they are going to make more than $500 million. They say they’ll net about $150 million in profit to the industry.
The industry, though, says that’s hogwash. They say there was an opportunity here to make money, they’d already be doing it and don’t want the EPA to tell them how to make money in this business.
MATHISEN: Does the executive branch have the power to impose these regulations on these companies? Remember a couple of weeks ago with the climate change stipulations, the states are going to sue.
JAVERS: Yes, they do. This is coming from the EPA. This is an executive branch rule here. Now, the industry obviously, according to the regulatory process, they’ve had an opportunity to weigh in across the board. But at this point, this is the EPA saying this is what we want the industry to do and the industry is going to have to go and do it.
HERERA: All right. Eamon, thank you, as always.
JAVERS: You bet.
HERERA: Eamon Javers in Washington.
And coming up, as the telecom industry undergoes a massive transition, is the way you buy a cell phone about to change forever?
MATHISEN: American airlines will begin offering charter flights into Cuba. The airline is partnering with tour operator Cuba Travel Services to fly out of Los Angeles and straight into Havana. The carrier says it is going to be the first to offer nonstop service from the West Coast to the island nations since travel restrictions were eased last month. Carnival (NYSE:CCL) Cruise Lines said it received approval to begin travel to Cuba next year.
HERERA: Public safety is a multimillion dollar business and growing. And there are some well-known companies that are using new technologies to help law enforcement. Today those companies gathered in Washington, D.C., to show off their latest products at the industry’s biggest trade show in seven years.
And Hampton Pearson was there.
HAMPTON PEARSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: First responder technology is now a $6 billion a year business. This week, nearly 6,000 public safety communications experts from across the country are in Washington, D.C., shopping for solutions. Everything from the next generation radios, from Harris (NYSE:HRS) Communications, the smallest device with both digital and broadband capability.
TODD PERDIEU, HARRIS CORPORATION SR. MANAGER FOR RADIO PRODUCTS: This is unlike any other product on the market from a portable radio product perspective, this product offers more connectivity, more audio capabilities, more RF performance and a small form factor that first responders have not had before.
PEARSON: But civil unrest and controversial police tactics in Baltimore, Ferguson, Missouri, and elsewhere have put the focus this year on law enforcement technology with transparency, including a state-of-the-art command center, equipped with computers and software that could take a 9/11 robbery in progress call, match the location with surveillance cameras and send snapshots to officers en route to the crime scene all in a matter of minutes.
TOM QUIRKE, MOTOROLA SOLUTIONS VP GLOBAL MARKETING: I think this technology provides a lot more information than ever before and also provides the capability to retain that information to actionable intelligence and what it enables the ability to have transparency.
PEARSON: The future cop on the beat will not only have a body camera but special glasses flashing instant photos back to a command post as well as body sensors tracking in what happens in real time as the officer draws his weapon. The primary dilemma for local law enforcements, how do the humans manage all of the data for both policing and protecting and managing citizens’ rights?
DAVE MCCLURE, URBAN INSTITUTE: For a body camera, it seems like a nice solution to the transparency problem, but when you start to break it apart, it does solve some of those issues but it creates other problems.
PEARSON: First responders around the country are actually testing a lot of this technology but the real mission impossible may turn out to be the deployment.
For NIGHTLY BUSINESS REPORT, I’m Hampton Pearson in Washington.
MATHISEN: Bargain hunters out in force at TJX companies, and that is where we begin tonight’s “Market Focus”.
The discount retailer which owns Marshalls, HomeGoods, T.J.Maxx, the discount chains, reported better than expected sales growth, raised the full year profit forecast. The company says it’s benefitting from a cost conscious consumer. Shares rose more than 7 percent today to $76.78.
Dick’s Sporting Goods (NYSE:DKS) better than expected profits this past quarter after it saw improved sales at its namesake stores and smaller decline in sales at Golf Galaxy locations. The company also raised its full year guidance slightly and plans to expand offerings of athletic wear. Shares of Dick’s Sporting Goods up almost 4 percent to finish at $52.61.
And Target (NYSE:TGT) and Visa (NYSE:V) reportedly reached a settlement related to the massive data breach during the busy holiday shopping season in 2013. According to “The Wall Street Journal”, Target (NYSE:TGT) will pay Visa (NYSE:V) card issuers up to $67 million and it follows a rejection of a proposed $19 million deal with MasterCard (NYSE:MA). Target (NYSE:TGT) shares ended day up a little bit at $80.30. Visa (NYSE:V) shares were up to $74.47.
HERERA: Pharmaceutical company Omeros (NASDAQ:OMER) shares are surging today after reporting positive test results of a phase two trial for a treatment of deadly form of blood clots. That trial involved three patients, all showed positive reaction to that treatment. The news sent the stock up 72 percent to $25.03.
BuzzFeed getting some extra cash today after NBC Universal (NYSE:UVV) announced a $250 million investment in the company. News comes a week after announcing a similar investment in Vox Media. NBC Universal (NYSE:UVV), like CNBC, which produces this program, is owned by Comcast (NASDAQ:CMCSA) (NYSE:CCS). Comcast (NASDAQ:CMCSA) (NYSE:CCS) shares ending the day down just over 1 percent to $59.69.
Chinese Solar Panel manufacturing Trina Solar quadrupled in its latest quarter, thanks to stronger global demand for solar. The company also raising its full year shipment guidance by as much as 16 percent. Shares initially surging higher in premarket trading and closed the day up more than 1 percent to $10.33.
MATHISEN: Two-year smartphone contracts seemed to be going the way of the dinosaur sprint, now the latest telecom company to ditch the contracts and the subsidies that make buying the smartphone cheaper. The move follows Verizon (NYSE:VZ) and T-Mobile, leaving AT&T (NYSE:T) as the only nationwide carrier to still offer those longer contracts.
Sprint’s CEO Marcelo Claure says it’s a way to keep up with the changing nature of business.
(BEGIN VIDEO CLIP)
MARCELO CLAURE, SPRINT CEO: The $199, that is the thing of the past. The industry has changed. Consumers used to pay $199 for a phone but they used to pay a much higher monthly fee. So, I think one of the great things about the industry, we have them bundle it.
(END VIDEO CLIP)
MATHISEN: Ackerman, senior editor at CNET, joins us now to discuss what this really means for you.
And what everybody must be asking, Dan, is, net-net, in the end, when I’m through with it, is it going to cost me more to buy a phone and operate that phone under a no contract system than it did under a contract system with a subsidized phone?
DAN ACKERMAN, CNET: Yes, I think at least your perception of what the phone costs is going to change because for years we’ve trained people to think that these new phones, new fancy iPhones, they cost basically $200 and for that you get into this two-year contract. They are getting out of that business and you have to buy the phone at full price but, guess what, you can just buy the phone over 24 monthly installments, which kind of adds up to the same as having the two-year contract. So, they are changing how they are packaging everything but I think the end user, the differences are kindly of transparent.
HERERA: So, it’s basically not going to save consumers a sizeable amount of money but it’s being marketed as a better plan for the consumer?
ACKERMAN: You at least get more flexibility and you get more transparency into what you’re paying for and what each part of your plan costs, including the cost of your phone.
Now, year over year, you’re probably not going to sending these phone companies less money in aggregate because that’s not their business plan to get less money out of you.
MATHISEN: They are going to try to get more money, I would suspect, generally. And the way they are going to try to get it is by raising data charges. But let me ask you this question, Dan, if I might. If I decide that I want to buy one of these new phones and I’m going to pay it off over 24 months and I decide I don’t like my carrier anymore, I want to get rid of you, what happens then if I haven’t made all of the lease payment or the purchase payments on that phone?
ACKERMAN: Just like when you used to leave your two-year contract early, you had to pay an early termination fee. Well, now, if you leave your two-year payment early, you have to balance of the money you owe on the phone just up front. Now, you get to walk away with the phone but depending on which carrier you’re going to, the phone may not be compatible with them. So, you’re stuck with the phone you may not be able to use.
HERERA: So, where are they making the majority of their money, Dan? Is it in the data and the fees —
ACKERMAN: Yes, that’s the big shift that’s happened over the last couple of years. They’ve gotten out of the business, in large part, of selling you kind of voice minutes and text messages. Everyone kind of gives you unlimited amounts of that by default now.
They realize they are in the data business because we’ve driven people to these larger phones to view videos and Web sites and do video calling. They realize that they are in the 3G, 4G, LTE data business. So, that’s what they sell you in 5 gigs, 6 gigs, you know, 10 gigs a month.
MATHISEN: So, the voice and text stuff is really a lost leader. Dan Ackerman, thank you very much. Dan Ackerman with CNET.
ACKERMAN: Thank you guys.
HERERA: Well, while people use their smartphones for a fast Internet connection, half of the world remains unconnected. But two billionaires, namely Elon Musk and Richard Branson, want to change all of that.
And as Jane Wells reports, they are getting into a big fight in the process.
JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Elon Musk wants to go to Mars and Richard Branson wants to send tourists to space. But right now, both billionaires are engaged in a new space race to provide Internet access at fast speeds to the world. Others have tried and failed.
GREG WYLER, ONEWEB: This stuff is very hard, very complex and it’s very easy to fantasize about all of the things that it could do and very hard to kick out all of the fantasy and come down to reality.
WELLS: Greg Wyler is founder and CEO of OneWeb, a company which Branson has invested in. OneWeb has have raised a half billion dollars and partnered with Intelsat and Qualcomm (NASDAQ:QCOM) to begin producing a system of 648 satellites built by Airbus to launch in two years.
The satellites will be much closer to earth to cut down delays and one hopes to sell it to airlines or customers in remote areas. But if there’s space, literally, for more than one player?
UNIDENTIFIED MALE: There’s really not — not a lot out there.
WELLS: Last January in Seattle, in this video shot by (INAUDIBLE), Elon Musk announced that SpaceX wanted to launch its own Internet satellite constellation and the company is now hiring. Google (NASDAQ:GOOG) and Fidelity have invested $1 billion into the venture.
But here’s where it gets a little ugly. The fight over spectrum and if there’s enough bandwidth for more than one player. Wyler says OneWeb has priority because they’ve gotten the green light from international regulators and any other company which tries to do the same thing will have to take a number.
WYLER: That doesn’t mean they can’t use spectrum. That just means they have to be respectful and not interfere with the prior users.
WELLS: SpaceX wouldn’t comment for the story, but there is debate over whether priority to the spectrum goes to whoever registers first or who actually gets their satellite up first.
SpaceX has applied to the FCC to experimentally used the same spectrum OneWeb has put dibs on with international regulators and this could be one race with as many lawyers as rocket sciences.
For NIGHTLY BUSINESS REPORT, Jane Wells, Los Angeles.
MATHISEN: Coming up, keeping the lights on. What one company is doing to make sure your home gets the power it needs when it needs it despite our aging energy grid. The second part of our series, “The Big Fix”, is next.
HERERA: Here’s a look at what to watch for tomorrow. The consumer price index is due out, a key measure of inflation. The minutes from the Federal Reserve’s July meeting will be released at 2:00 p.m. Eastern Time. And Germany’s parliament holds an important vote on whether to approve the Greece bailout plan. And that is what to watch for Wednesday.
MATHISEN: The cost of the California drought is rising. A new study says more than $2.5 billion have been drained from the state’s economy so far this year. Researchers at UC-Davis say most of the cost is being born by California’s agriculture sector which stands to lose about $1.8 billion and more than 10,000 seasonal jobs. The report was primarily funded by the California Department of Food and Agriculture.
HERERA: All week, we’re looking at America’s aging infrastructure with the American Society of Civil Engineers recently graded a D-plus. The energy grid is no different. As new plants are built, updated transmission lines are needed to carry all of that voltage. And as Jackie DeAngelis reports, one company is making a big investment to get the power where it needs to go.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: AEP is the largest transmission company in the country, operating more than 40,000 miles of transmission line. They carry electricity from power plants to substations where it is then delivered to your home.
The lines are big and building them is difficult, dangerous and expensive. The problem is half the nation’s transmission lines are more than 40 years old and some were built more than a hundred years ago.
So, AEP is spending $4 billion over the next five years, replacing transmission lines in substations in the Northeast and Midwest.
LISA BARTON, AEP: You basically want to make sure the system is as efficient as possible. Sometimes, that’s a new line. Sometimes, it’s rebuilding an existing line. So, it’s not a one-size-fits-all approach.
DEANGELIS: Magnifying the need for grade upgrade is the new emission standard set by the EPA. All across the country, coal-fired power plants are being shuttered. AEP alone is retiring six gigawatts of energy production. And that powers millions of homes. That generation needs to be replaced with new plants, which also means new transmission lines.
But the new system doesn’t look like they did a hundred years ago. They are meant to have higher capacity so they can work for another 60 to 80 years.
In Fort Wayne, Indiana, the company is upgrading its station bringing extra high voltage power to the region.
BARTON: Projects like this do a lot to improve reliability. They do a lot to ensure that we can withstand the loss of any components in the transmission system. That’s important to large customers.
DEANGELIS: Because when it comes to turning the lights on, reliability is the name of the game.
For NIGHTLY BUSINESS REPORT, I’m Jackie DeAngelis.
HERERA: And tomorrow, our series, “The Big Fix”, takes a look at air travel, the state of our airports and the need to make them a lot less crowded.
MATHISEN: And speaking of overcrowded airports, more people are expected to fly this Labor Day weekend. The industry group Airlines for America projects more than 14 million passengers catch a flight during the upcoming holiday. That’s 3 percent gain from last year, and could make this summer the busiest ever for the airline.
HERERA: And finally tonight, the tooth fairy isn’t as generous as it once was. Visa’s sixth annual tooth fairy survey showed that American children are waking up to $3.19 under their pillow on average every time they lose a tooth. And while they may seem like a sizeable payout, it’s 24 cents less than last year and it’s down for the second year in a row.
But if the current rate holds, kids can expect to earn a total of $64 for a mouth full of teeth. I got a quarter.
MATHISEN: $3.19. You know, commodities are down this year.
HERERA: This is very true.
MATHISEN: Teeth, a commodity, are down.
You said to your child, you’re getting 3.19, you are average. No better than average. You’re getting $3.19.
HERERA: We have to say good night. That’s NIGHTLY BUSINESS REPORT. I’m Sue Herera. Thanks for joining us.
MATHISEN: Mackie, $3.19.
I’m Tyler Mathisen. Have a great evening, everybody. We’ll see you back here tomorrow.