SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Future of Coke. With
sales sliding and consumer tastes changing, does Coca-Cola (NYSE:KO) need
to do something really, really big?
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Not so scary. Why
October is turning out to be a pretty good month for stocks — so far.
HERERA: Flu breakthrough? How close are we to creating a universal
vaccine that protects against all strains?
Find out in the final part of our series on the big business of
fighting the flu, tonight on NIGHTLY BUSINESS REPORT for Wednesday, October
MATHISEN: Good evening, everyone, and welcome. So glad you could
Well, the bluest of the blue chips are out with earnings tonight.
Today, we heard from three different Dow components. They operate in three
very different sectors of the economy. They are as global as any companies
can be and as all American as they come. Coke, Boeing (NYSE:BA), and late
today, American Express (NYSE:EXPR) (NYSE:AXP).
And that`s where we begin. The financial services company struggling
since its exclusive relationship with Costco (NASDAQ:COST) was broken off
earlier this year, and today, it posted disappointing results. Earnings
per share came in at $1.24, and that was a full 7 cents below estimates.
Revenue for the quarter also missed, and it was down about 1 percent from a
year ago, and that pressured shares initially in extended-hours trading, as
you see there.
Mary Thompson has more on American Express`s results.
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, American
Express (NYSE:EXPR) (NYSE:AXP) is spending more to get new business, and
that hurt its bottom line in the third quarter. The electronic payment
giant`s profits falling over 15 percent, hurt by higher spending on growth
initiatives, the impact of a stronger dollar and money spent to renew co-
With its exclusive deal to be the lone credit card accepted in Costco
(NASDAQ:COST) stores expiring next year, AmEx expanding more on products
that would widen its client base and expand its loan portfolio.
As a result, the firm is expecting an uneven earnings performance in
the quarters ahead, thanks to higher spending and an uneven economy.
Still, it`s maintaining its outlook for positive earnings growth next year
and earnings growth of 12 percent to 15 percent in 2017.
For this year, though, it is expecting profits to decline between 4
percent and 6 percent from last year.
For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.
HERERA: And now to Boeing (NYSE:BA), which saw profits climb 25
percent on record deliveries of its commercial jets. The world`s largest
aerospace company said the backlog of orders is solid and it lifted its
financial guidance for the year. The big source of concern for Wall Street
had been the cost of its flagship 787 Dreamliner, but Boeing (NYSE:BA) said
those costs are on track to decline, and that sent shares higher in trading
MATHISEN: A different story for Dow component Coca-Cola (NYSE:KO).
The company said revenue fell more than expected in the third quarter. The
strong dollar is partly to blame. Coke gets a ton of sales overseas, and
those non-U.S. sales convert back into fewer dollars when the buck is
And Coke said the strong dollar will likely squeeze its revenue for
the full year. And that sent shares lower today, as you see there.
With sales struggling and consumer tastes changing, some are starting
to think about the future of this all-American brand.
MATHISEN: No matter how you spin it, Coca-Cola`s latest earnings
report is less than fizzy. And maybe that`s fitting for a company best
known for soda that`s now leaning more on its still beverages, like water
and tea, where volumes grew 6 percent.
Yes, earnings were slightly better than expected, but those profits
were down more than $500 million from last year. Revenue worse than
thought, down more than 4.5 percent.
The company makes most of its money outside of the United States and
says a strong dollar will put a 7 percent dent in revenue for this year.
That`s a full percentage point lower than it was expecting back in July.
With the dollar stabilizing some in recent months, continued cost-
cutting and a streamlining of its giant bottling and distribution business,
some analysts hope Coke`s outlook will improve.
NIK MODI, RBC CAPITAL MARKETS: Remember, Coke has characterized 2015
as a transition year, and that`s exactly what we`ve been seeing this year.
So, we`re optimistic that in 2016, they`re going to start getting some
momentum on volume, price and on earnings.
MATHISEN: Still, full-calorie soda consumption is down more than 25
percent over the past two decades, and the company just reported that Diet
Coke sales for the third quarter were down 8 percent, worse than expected.
Coke just became the second American icon in less than a week. IBM
was the other, to post less-than-stellar earnings. Coke`s stock roughly
flat for more than two years.
So, what`s next? Could Coca-Cola (NYSE:KO) possibly be someone`s deal
partner? Could an activist investor get involved?
Warren Buffett is Coke`s biggest shareholder, so maybe that`s hard to
Then again, think about Anheuser-Busch and SABMiller, or Kraft
(NYSE:KFT) and Mondelez. Big, transformative deals do happen, and
sometimes they surprise.
HERERA: Joining us now to talk more about Coke and whether it needs
to do something big is Ali Debadj. She`s the senior analyst at Sanford
Ali, welcome. Nice to have you with us.
ALI DEBADJ, SANFORD BERNSTEIN SR. ANALYST: Thanks for having me.
HERERA: So, talk to me about the future of Coke. You know, Ty`s
piece just left off with, you know, big deals maybe need to be done. Is
that the case for Coke or no?
DEBADJ: Look, I think there`s certain things they can do
structurally. I think one of the big things they are doing and they have
to do is get out of the distribution system, right? They have to get rid
of their bottlers. That`s something they`re starting to do slowly. We
would like them to do a little bit more.
But, you know, they are a branding company. They should stick to
branding. That`s one of the major things they should focus on.
MATHISEN: What can get the stock going? Is it the kind of stock that
an activist might target, like DuPont or like a GE?
DEBADJ: Look, there are many things the company can do, and an
activist could push for. I always wish the companies would move faster
than they do move. That`s my nature.
And so, I think there is a possibility that an activist gets involved.
Now, I want us to remember, a big shareholder of Coca-Cola (NYSE:KO) is
Warren Buffett, Berkshire Hathaway (NYSE:BRK.A) owns 10 percent of the
company. So, you have to get some implicit understanding that Warren
Buffett is behind you on this, but there are certainly things the company
can do to accelerate improvement and get the stock to work.
HERERA: Other than getting rid of bottling units, what else would you
like them to see or to attempt?
DEBADJ: Yes, so, the three main things. One is becoming much more
price-rational. Give them credit, they`re starting to do that. It`s
something they resisted when we wrote about it and pushed them to do for
many years. They`re finally becoming price rational.
There is not a lot of elasticity on carbonated soft drinks. Believe
it or not, you could take prices and not a lot of volume goes down, so
that`s something they should push for and they`re continuing to do that.
I think, secondly, when you realize your top line isn`t going to grow
as fast, you`re not quite as much of a growth company, you have to cut
costs. That`s something they`re doing, announcing a $3 billion cost-
cutting plan last November. We think there`s more. Perhaps an activist or
somebody could push them to do more of that.
And the lastly, we do think that refranchising the bottling could
happen much faster.
MATHISEN: Is Mukhtar Kent there for the long haul?
DEBADJ: Say that again, sir?
MATHISEN: Is Mr. Kent there for the long haul, the CEO?
DEBADJ: Look, I think it`s up to him. He`s clearly cleared the team
around him. There`s a new COO, there`s a new chief marketing officer,
there`s new head of strategy for the past couple of years, the new head in
North America. So, he`s kind of built up the team around him to hopefully
deliver on these numbers, and if he does, I think he`s around until 2020,
which is the vision that he`s laid out.
HERERA: So, Ali, if I`m an investor and I hold Coca-Cola`s stock
right now, what do I do?
DEBADJ: We`re recommending — actually, this is a good opportunity.
Clearly, one of the pressures they`re facing is macro emerging market
pressure from a currency perspective. We believe that`s giving investors a
good opportunity to step into this name right now, seeing the changes that
they`re under going from a pricing perspective, from a cost-cutting, from
refranchising, and that valuation relative to history isn`t that bad. So,
we like the stock here.
MATHISEN: Do you prefer Coke or Pepsi? I don`t know whether you
DEBADJ: We do follow Pepsi very closely. Coke took over Pepsi as our
number one pick, really because Pepsi`s kind of laid the groundwork of what
you should see from one of these companies — cutting costs, taking
pricing, doing things in a world where it`s a little bit more difficult
taking tough decisions.
Coke is just starting on that path, so it overtook Coke as our number
one pick right now.
HERERA: All right. Ali, thanks for spending time with us.
DEBADJ: Thank you, guys.
HERERA: Ali Debadj with Sanford Bernstein.
A record quarter performer Dow component General Motors (NYSE:GM),
strong demand for trucks and improved profit margins in China helped them
top forecast. The automaker said cost cuts and improved sales in North
America offset costs related to recalls.
(BEGIN VIDEO CLIP)
CHUCK STEVENS, GENERAL MOTORS CFO: A strong truck market, a strong
SUV market is helping, but I think also it`s our view and our continued
focus on driving cost efficiencies. And if you look at the material
performance and the cost efficiencies that we had in the third quarter,
overall about $700 million, a lot of that accrued to North America. So, I
think it`s seizing the opportunities from a market standpoint, but also
continuing to drive efficiency in the business.
(END VIDEO CLIP)
MATHISEN: Europe and South America remain trouble spots for the
company, but investors shook that off and sent the stock up nearly 6
HERERA: Consolidation in the semiconductor sector is heating up.
Today, two deals worth about $30 billion total were announced.
First, Western Digital (NYSE:WDC) plans to buy SanDisk (NASDAQ:SNDK)
for nearly $20 billion, increasing its presence in the market for chips
used in smartphones and tablets. Shares of Western Digital (NYSE:WDC)
fell. SanDisk (NASDAQ:SNDK) rose.
And semiconductor equipment-maker Lam Research (NASDAQ:LRCX) has
agreed to buy rival KLA-Tencor (NASDAQ:KLAC) for about $10 billion. Lam
Research (NASDAQ:LRCX) and KLA-Tencor (NASDAQ:KLAC) both saw their shares
rise, with KLA soaring some 18 percent.
Josh Lipton tells us why this sector is a hotbed of deal-making
activity and which companies may be next.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The rate of
consolidation in the chip space is fast and furious. Lam Research`s
acquisition of KLA-Tencor (NASDAQ:KLAC) and Western Digital`s takeover off
SanDisk (NASDAQ:SNDK) are just the latest deals in the semiconductor
industry this year.
In May, Avago said it would buy Broadcom (NASDAQ:BRCM) for $37
billion. In June, Intel (NASDAQ:INTC) agreed to buy Altera (NASDAQ:ALTR)
for $17 billion.
In all, chip companies have already announced $104 billion in M&A this
year, according to Dealogic. Last year, in total, it was $38 billion.
The chip market is an increasingly mature industry, where there is a
lot of competition and growth is harder to come by. That`s why financial
analysts say consolidation is the right strategy.
BETSY VAN HEES, WEDBUSH SENIOR VICE PRESIDENT: It`s the right move
because the organic growth is almost impossible to achieve today, given
that things are growing at a slow growth rate, but you still need to
massively invest in your business, you still need to create new chips, you
still need to build new facilities to manufacture those chips.
LIPTON: For investors, one question is this — which are the next
acquisition targets? The team at B. Riley highlights three names to watch
— Integrated Device Technology (NASDAQ:IDTI), Intersil (NASDAQ:ISIL) and
Cavium — companies that they argue all boast valuable technologies and
Van Hees sys this trend of consolidation will continue in the chip
sector. Big players like Intel (NASDAQ:INTC) and Texas Instruments
(NYSE:TXN), she says, need to get bigger, while smaller companies will find
it increasingly tough to compete on their own.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.
MATHISEN: On Wall Street, the major indexes closed near their lows of
the session, dragged down by concerns over earnings. The Dow Jones
Industrial Average dropped 48 points to 17,168, NASDAQ down 40, S&P 500
And despite the pullback today, stocks have moved higher in October so
far. Look at those numbers, gains of roughly 5 percent.
Seema Mody tells us why this month is bucking the historic downtrend
SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was supposed to
be a scary October, but so far, this month hasn`t been terrifying at all.
The S&P 500 is up nearly 6 percent, and earnings, a mixed bag of tricks so
far, haven`t weighed down stocks.
So, what`s behind the rebound? Thank the Fed and China.
ART HOGAN, WUNDERLICH SECURITIES: That uncertainty about the Fed has
been pushed off until next year, like it or not. I don`t, but that`s the
case. And the other is China and the economic data of China has
MODY: Another crucial part of the market`s rally is oil, holding
above $40 a barrel. It`s helping energy stocks out-perform, and so far,
energy is the best-performing sector this month. But the big question mark
hanging over markets is just how they`ll react through the rest of the
GINA MARTIN ADAMS, WELLS FARGO SECURITIES: Any stability in oil
prices is going to be very supportive for an index that has been plagued by
persistent declines in the commodity price over more than a year now.
MOODY: Showing growth of little more than 4 percent so far, earnings
have been underwhelming. Even those beating estimates have been showing a
drop in sales growth, that according to Thomson Reuters (NYSE:TRI).
And tech earnings kick into high gear tomorrow. Google (NASDAQ:GOOG)
will report for the first time since announcing the creation of Alphabet in
August. Also due to report, Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT),
as well as fast-food giant McDonald`s (NYSE:MCD).
Experts say disappointing earnings from these multinationals could
still change the direction of the market.
For NIGHTLY BUSINESS REPORT, I`m Seema Mody.
MATHISEN: Coming up, why it`s getting very expensive for companies to
protect themselves against a growing threat.
HERERA: Shares of Ferrari got off to a racing start. The luxury
sports carmaker began trading on the New York Stock Exchange after pricing
its IPO near the top end of the range.
Ferrari chairman and Fiat Chrysler chairman Sergio Marchionne was
pleased with the strong demand for the offering and discussed how he can
grow demand for his cars.
(BEGIN VIDEO CLIP)
SERGIO MARCHIONNE, FIAT CHRYSLER CEO: We need to grow the demand side
before we climb supply, and they really destroy the exclusivity of the
brand. It`s a very careful walk and a very, very tight relationship
between us and the dealer body.
(END VIDEO CLIP)
HERERA: Shares of Ferrari rose more than 5 percent.
Bob Pisani tells us why this IPO is different from some of the others
we`ve seen recently.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: By all accounts,
it was a very respectable IPO for Ferrari, and here it is right here.
But it has nothing to do with the recent IPO market. Ferrari`s an
anomaly, a very unusual IPO. In the last four weeks, there`s been 14 IPOs,
according to Renaissance Capital. Of those 14, only two priced within the
expected range. Not a single one priced above the price talk.
On average, those 14 priced 22 percent below the midpoint of the price
talk. That`s a big decline.
But this has been good news for investors because those that have been
priced have been doing better. It`s buy low, sell high, after all. The
average IPO that has gone public in the past month is up about 11 percent.
So, why is Ferrari a special case? It goes to what matters with IPO
pricing. First is the sector, the luxury lifestyle sector. Big names like
Ferragamo and Burberry have stock multiples and margins higher than the
But the most important factor is the uniqueness of the Ferrari
product. Ferrari oozes sex appeal, and the company has a very close
relationship with its customers, including owners clubs. That breeds a lot
of loyalty and goodwill. The question now is whether they can expand
production and maintain that goodwill and the healthy profit margins.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock
MATHISEN: EBay tops earnings expectations. The stock takes off
initially in after-hours trading, and that is where we begin tonight`s
The quarterly results were the first for the company since it spun off
its PayPal unit. EBay`s marketplace businesses performed well, merchandise
volume climbed, and its active buyer base grew. Shares climbed initially
after the report in the regular session, they were lower slightly at
Texas Instruments (NYSE:TXN) saw another quarter of growth in its core
business unit. This comes as overall revenue for the company declined
because of weak demand. Shares initially rose on the report but closed
lower at $51.90.
Tupperware (NYSE:TUP) brands reported better-than-expected
quarterlies, profit and sales. The food container-maker was helped by
strong results in emerging markets like Brazil, China and Indonesia.
Shares rose more than 8 percent to $59.81.
And the biotech company Biogen says it will cut about 11 percent of
its workforce. The cuts are part of a companywide restructuring to save
about $250 million a year. Biogen also reported third-quarter results that
topped expectations, and that news sent shares up nearly 4 percent to
HERERA: St. Jude Medical (NYSE:STJ) lowering its full-year earnings
guidance. The company says the strong dollar will continue to have an
impact on sales. It also blamed the weak outlook in part to a delay in
approval for a new pacemaker device. Shares of the device maker fell
nearly 9 percent to $62.30.
And consumer review site Angie`s List reported a rare quarterly
profit, its first profitable third quarter ever, but the company also
lowered its full-year guidance and cited a one-time expense associated with
finding a new CEO. Shares of this small-cap stock rose more than 11
percent to $6.94.
IT management company Solar Winds is selling itself to two private
equity firms. That transaction has already been approved by the company`s
board, and it is expected to be completed in early 2016. Shares of the
company surging 16 percent to $58.31.
And late today, Visa`s board approved a 17 percent hike in the
company`s dividend to 14 cents a share. The dividend will be paid December
1st to shareholders of record on November 13th. Visa (NYSE:V) shares rose
slightly initially and after-hours trading. It closed down 1 percent in
the regular session to $75.46.
MATHISEN: Well, companies want to protect themselves from a growing
threat, cyberattacks. And to do that, according to a new report, they
snapped up cyber insurance in the first half of the year, and it didn`t
Mary Thompson has our story.
THOMPSON: With cyber theft on the rise, so, too, is demand for cyber
insurance. Insurance broker Marsh saying in the first half of this year,
the number of its U.S.-based clients buying this protection increased by 32
percent, a trend Marsh`s Bob Parisi sees no signs of slowing.
BOB PARISI, MARSH, CYBER PRODUCT LEADER: I would expect it to
increase even more next year.
THOMPSON: In its “Benchmarking Trends” report, Marsh cites a now
familiar reason for the increase, an increase in cyberattacks. Along with
new clients, the report says many of Marsh`s existing customers increase
their limits on existing coverage, even as pricing increased, especially in
industries like retail that have been recent targets of cyber thieves.
The sector adding insurance at the highest rate? Higher education. A
smart move, according to Parisi.
PARISI: They have all the information that a large bank, a large
retailer, a large health care provider has, so they really have a perfect
storm from the point of view of holding confidential information. And I
think they`re finally realizing that they`re not finding coverage for that
risk anywhere else.
THOMPSON: Power firms and utilities doubled their purchases of cyber
insurance in the first half of the year, a level almost matched by
manufacturing companies. The industry with the highest percentage of
coverage, though, is health care. Forty-one percent of Marsh`s clients in
this sector have cyber policies to cover costs linked to attacks on their
clients` sensitive data.
This higher demand leading to higher prices. On average, clients paid
19 percent more for their cyber insurance this year than last with sectors
that have been hard hit by this crime wave, like retail and health care,
seeing increases almost double that amount.
A developing industry, Marsh says the industry`s capacity is being
tested, and this means some firms have difficulty finding coverage, or it`s
forcing them to reduce or change the coverage they get for business
interruption, scrubbing their systems, and client care after a breach.
Firms also looking at ways they can better protect their data, insuring in
other ways that their clients` information is safe.
For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.
HERERA: Coming up, the quest for the holy grail of the flu. A
universal vaccine. The final part of our series on the big business of the
flu is next.
MATHISEN: Here`s a look at what to watch tomorrow. Another big day
for earnings, the Dow components 3M (NYSE:MMM), Caterpillar (NYSE:CAT),
McDonald`s (NYSE:MCD) and Microsoft (NASDAQ:MSFT) are due out. On the tech
front, we will hear from Amazon (NASDAQ:AMZN).com and the Google
(NASDAQ:GOOG) parent, Alphabet. Economic data include existing home sales
and jobless claims. And that is what to watch tomorrow.
HERERA: ESPN to lay off about 300 employees. The Disney (NYSE:DIS)-
owned network is cutting jobs as part of an organizational change. The
network is facing rising programming costs, slowing growth, and it`s also
under pressure from viewers who are migrating online.
MATHISEN: A very rough day for shares of Valeant, the pharmaceutical
company which has been at the center of the drug pricing debate. Saw its
shares plunge after an influential short seller accused the company of
inflating its revenue by creating phantom sales. Serious charge.
Valeant says it denies categorically the allegation. Shares fell as
much as 40 percent midday, but they did climb back a bit to close about 19
HERERA: Shares of health insurers fell today after Democratic
presidential candidate Hillary Clinton said she had “serious concerns”
about Aetna`s plan to acquire Humana (NYSE:HUM) and Anthem`s bid to buy
Cigna. In a statement, she said she would like to see the multibillion
dollar deals closely reviewed by regulators and she`s skeptical the mergers
would be good for people. Many are attributing those comments to the
decline today in those shares.
MATHISEN: Roll up your sleeves, folks, it`s time for your flu shot.
But if you plan to get it, you will not be protected against all of the
different mutations of the virus.
In the final part of our series, Meg Tirrell looks at the cutting-edge
work being done to create a vaccine that protects against all the strains
of the flu.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Scientists call
it the holy grail of flu. The quest for universal flu vaccine has been
decades in the making.
Why aren`t we there yet? The flu virus is tricky, possessing an
ability to evade the immune system like few others.
ANTHONY FAUCI, NAT`L. INST. FOR ALLERGYL & INFECTIOUS DISEASES
DIRECTOR: Influenza is a very interesting virus that has the ability and
frequently changes a bit from year to year, not dramatically, but just
enough to make the vaccine that you may have had the previous year not the
TIRRELL: Researchers call that drifting of the virus, and it`s what
made last year`s vaccine so much less effective.
Now, public health officials make an educated guess every year about
which strains will be in heaviest circulation during flu season.
A universal vaccine, they say, would make that unnecessary. And
recent research suggests we may be getting closer.
The flu virus has proteins on its surface shaped like a bulb with a
stem. The bulb is the part that the immune system recognizes, but it`s
also the part that can change from season to season. The new approach is
to focus on the stem, which doesn`t change as much, explains Dr. Anthony
Fauci, director of the National Institute of Allergy and Infectious
FAUCI: If we can successfully induce a response against that stem
part of that protein, we`re going to be very close to developing a
universal flu vaccine.
TIRRELL: So, what would that mean for the business of flu shot-
makers? It`s an estimated $4 billion global market annually. Both Sanofi
Pasteur and GlaxoSmithKline are among those working on universal vaccines.
Sanofi says the most likely near-term product will be a broader
spectrum vaccine, and GlaxoSmithKline points out, that market opportunity
is one any vaccine-maker would want.
MONCEF SLAOUI, GSK CHAIRMAN OF VACCINES: The first company to make a
universal flu vaccine would make a fortune because they would grow this
market share in a market that`s highly commoditized and charge
appropriately a premium for the better vaccine and impact public health in
a very positive way. You know, we`re investing a lot to have that.
TIRRELL: Dr. Fauci of the NIH says the universal vaccine may be five
to ten years away.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
MATHISEN: A little chill.
To read more about the big business of the flu, head to our Web site,
NBR.com. Get your shot.
HERERA: I just don`t like the close-ups of the vaccines.
That does it for us tonight. Thanks for joining us. I`m Sue Herera.
MATHISEN: And thanks from me as well. I`m Tyler Mathisen. We`ll see
you back here tomorrow night.
Nightly Business Report transcripts and video are available on-line post
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