SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Big surprise. Not many are
expecting it, but will earnings be the trigger for a rally in the worst performing sector this year.
Bitter standoff. Why investors are closely watching the ugly and very
public fight between the founder and CEO of one of this country`s largest
Small spaces. The big trend in ultra tiny homes.
All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, April
Good evening, everyone. Welcome. I`m Sue Herera. Tyler Mathisen is off
Buckle (NYSE:BKE) up. Earning season has arrived and it`s shaping up to be
a doozy. Expectations are for the worst crop of report since the Great
Depression. The week`s most anticipated releases will come from the
nation`s biggest banks and with the economy meandering and interest rates
lows, it`s no surprise that the financials have been the worst performing
sector this year.
But the unofficial start to earning season kicked off late today with
aluminum make Alcoa (NYSE:AA). The former Dow component beat Wall Street`s
profit estimates, earning 7 cent a share. Expectations were for 2 cents.
Revenues, though, were light, coming in at $4.95 billion, down 15 percent
from a year ago.
Now, that pressured shares in initial afterhours trading. But CEO Klaus
Kleinfeld said the company, which was planning to split, is on track to
meet its targets.
(BEGIN VIDEO CLIP)
KLAUS KLEINFELD, ALCOA CHAIRMAN & CEO: If you look at this quarter, you
really see profits are up in all of the iconic segments. Iconic is the
name we have given to the value at company that we would soon launch. At
the same time, you also see on the upstream side, one the commodity side,
the two segments are holding up and are profitable in spite of the very
strong pressure on the market side with low prices.
(END VIDEO CLIP)
HERERA: Susan Li has more on Alcoa`s quarter.
SUSAN LI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The main take away from
Alcoa`s earnings was miss in revenue for the quarter, which means when it
comes to profit owes more to cost cutting than higher sales in the quarter,
and part of Alcoa`s cost cutting has been layoffs, confirming that they
reduced their work force by 600 in first quarter and planning of further
reduction of 400 and considering laying off another 1,000 in the year.
Now, when it comes to global demand, Alcoa (NYSE:AA) is revising down
demand from the aerospace industry and also heavy truck production.
Alcoa`s CEO Klaus Kleinfeld re-affirming that Alcoa (NYSE:AA) will still
split off into two companies in the second half of this year, but still not
confirming a specific day for the split. Alcoa (NYSE:AA) shares have been
down this year in 2016, but rebounding from close to seven-year lows in
For NIGHTLY BUSINESS REPORT, I`m Susan Li.
HERERA: Despite the expected profit pain, is it still possible for the
recent market rally to continue?
Mike Santoli takes a look.
MIKE SANTOLI, NIGHTLY BUSINESS REPORT CORRESPONDENT: As companies prepare
a third straight quarter of profit declines, investors are struggling to
figure out if stocks have already braced for the bad news. Earnings for
the S&P 500 companies fell 9 percent last quarter, according to the
consensus forecast. The S&P 500 index itself, though, is down about 4
percent from the all time high in May 2015. This implies that stocks
haven`t fully priced in the pain. If the sectors with the ugliest profit
picture, financials, energy and basic materials have dropped between 9
percent and 20 percent in the past 12 months.
Meantime, some of the markets stronger performers lately such as consumer
staples and utilities might have trouble shrugging off but are expected to
be mediocre results.
Broadly speaking, the indexes have stalled for more than a year, as
earnings have slipped, leaving stocks no cheaper than when the market
peaked. Market strategists point to a couple of ways they count weather a
tough season and extend their recent rebound. The corporate profit cycles
could be bottoming right now, leading to a revival in the second half of
This is already baked into Wall Street estimates. And the U.S. dollar
could drop still more as the Federal Reserve proceeds cautiously on
interest rates easing pressure on multinationals profits. Before we find
out if these trends take hold, hundreds of big companies will report the
results and offer clues about whether this earnings recession might soon
For NIGHTLY BUSINESS REPORT, I`m Mike Santoli at the New York Stock
HERERA: As we mentioned a bit earlier, the financial sector is the worst
performing group this year. But could things in this earning season
finally bring some much needed relief to the bank and the shareholders and
perhaps jump start those stocks?
Michael Farr joins us. He`s president of a money management firm Farr,
Miller, and Washington, and he joins us.
Good to see you as always.
MICHAEL FARR, PRESIDENT, FARR, MILLER WASHINGTON: Thank you, Sue. Great
to be with you.
HERERA: So, where do you think we are in the cycle for the big banks? Are
we near the bottom, do you think as we go into these earnings season,
FARR: I think the valuations are now getting compelling. You listen to
Mike Santoli said that a lot of stock prices had stayed pretty much the
same and were near highs, not true for the bank stocks. And since July,
where the bank stocks kind of peaked, we`re down 22 percent, 23 percent, 24
percent for a lot of those companies.
People don`t like the bank stocks right now. The bank stocks have lots of
— really, they have a lot of headwinds, but the valuations are showing it.
So, it`s a little bit like when I was on the program and you asked me about
oil at $28 a barrel and I said, I think you buy it when it`s low. These
things are low. And while they may go a little bit lower, at 1.3 times
tangible booked for a lot of larger banks, with a 2.5 percent, 2.6 percent
dividend, I think there`s money to be made here, Sue.
HERERA: You point out the dividend yield, but also, you use it as
portfolio insurance, which I found interesting. We don`t usually hear the
big banks used in that particular way.
FARR: Well, if you think about portfolio insurance particularly against
inflation or higher rates, I think that`s where they work. If interest
rates go up, and we thought — one, look, one of the reasons bank stocks
are down is because the Fed moved back from that four interest rate hike
that they promised earlier and now, it looks like we`ll just have two
Higher interest rates and a steeper yield curve are really good for the
banks earnings with these low interest rates. It`s hard for them to earn
money. So, if rates go up, therefore, banks ought to do better. A little
more inflation might not be good for some other asset classes, but it could
be good for the banks. If you`re getting paid the dividends, your
portfolio could see some share prices increases and get paid while waiting.
HERERA: All right. You gave us a few names here, Michael, PNC, JPMorgan
(NYSE:JPM) and Goldman.
Let`s start with PNC. Why do you like it?
FARR: Well, I like PNC. I think the valuation is very good. I don`t
think they are particularly exposed to the mortgage market that a lot of
other big banks are. You can see that the stock price has suffered. At
2.5 percent dividend relative to the treasure market I think is attractive.
HERERA: And JPMorgan (NYSE:JPM), you like the diversification of its
business but you also point out management. You like management.
FARR: I think Jamie Dimond is probably the best bank manager in the world.
I think he`s been much vilified. I think he was manhandled by the
government through 2008 and 2009. I`ve talked with him about it. He
thinks he was manhandled too. I think the bank`s balance sheet is
exceptionally solid. And to buy a bank like JPMorgan (NYSE:JPM) at this
price with a 3 percent dividend.
Now, the ten-year treasury is paying 1.7-something percent and I can own
JPMorgan (NYSE:JPM) at a real, I think what I considered to be a discount
and a 3 percent dividend. That`s compelling.
HERERA: All right, Michael. We`ll leave it there. The third pick was
Appreciate it very much, Michael. Good to see you.
FARR: Thank you.
HERERA: Michael Farr with Farr, Miller, and Washington.
On Wall Street today, stocks gave up their gains on this unofficial start
to earning season. Dow Jones Industrial Average which has been up as much
as 154 points finished down 20 to 17,556. The NASDAQ dropped 17. The S&P
500 was off five and it`s now lower for the year.
Oil prices climbed back above $40 a barrel for the first time in nearly
three weeks as hopes rose between for an agreement among producers that
would produce global supply.
And as oil price rise, so did the gas prices, of course. The average cost
to fill up your tank nationwide climbed 8 cents in the past three weeks.
According to Lundberg Survey, a gallon of regular grade now costs $2.10 a
gallon. That`s an increase of 33 cents from mid-February.
Part of the reason, though, is because U.S. refiners are converting to
summer grade gasoline and that costs more to make. If you`re in Tulsa,
Oklahoma, you`re in luck. That`s where you can find the cheapest gas at
$1.67. The highest, as usual, in Los Angeles, at $2.80.
That broader decline in commodity prices is what prompted the proposed
merger between Canadian Pacific and Norfolk Southern (NYSE:SO), since they
depend heavily on moving energy-related materials. But today, that deal
ended abruptly. Canadian Pacific said it would no longer pursue that
takeover. Throughout the months-long back and forth, Norfolk Southern
(NYSE:SO) repeatedly said such a merger would draw intense regulatory
Late last week, we reported that the U.S. military had raised concerns that
that deal could adversely affect the country`s national defense.
In Washington, Federal Reserve chief Janet Yellen had a rear meeting
scheduled with President Obama. According to the White House, the two met
in the Oval Office. They discussed the risks to the economy, the job
market, inequality and progress being made on reforming in Wall Street.
Goldman Sachs (NYSE:GS) has agreed to pay more than 5 billion dollar to
settle federal charges of deceptive mortgage practices leading up to the
federal crisis — federal financial crisis, I should say. Similar to other
deals, no individual bank employee is being held responsible. This is the
fifth agreement reached by a panel put together by President Obama.
JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), Citibank and Morgan
Stanley (NYSE:MS) have already reached settlements.
To London now, where British Prime Minister David Cameron has faced a
barrage of criticism from the House of Commons over Panamanian offshore
trusts set up by his father. Today, he once again faced a grilling.
(BEGIN VIDEO CLIP)
DAVID CAMERON, BRITISH PRIME MINISTER: Some people have asked, if this
trust was legitimate, why did you sell your shares in January 2010? Mr.
Speaker, I sold all the shares in my portfolio that year because I didn`t
want any issues about conflicts of interest. I did not want anyone to be
able to suggest that as prime minister, I had any other agendas or vested
interest. Selling all my shares was the simplest and clearest way that I
could do that. Now, there are strict rules in this House for the
registration of shareholdings. I followed them in full.
(END VIDEO CLIP)
HERERA: Cameron has come under intense pressure since his father was
identified as a client of the Panamanian law firm that is at the center of
the so-called Panama Papers.
And the Panama Papers is also exposing some secrets of a thinly regulated
industry where a lot of money changes hands and unanimity is common, and
that is the art world.
Robert Frank joins us to discuss what he has learned.
It`s good to see you, Robert. Thanks for joining us.
ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Good to see you.
HERERA: There`s one painting in particular that has come in focus. Which
one is it and what`s the history behind it?
FRANK: This is a 1918 painting by Amedeo Modigliani. It`s called “Seated
Man with a Cane”. And it was owned by a Parisian art dealer.
In World War II, it was stolen by the Nazis, according to the family, and
hadn`t turned up since. Well, the family is suing one of the royal
families of the art world, Nahmad family, they have galleries in London and
in New York, alleging that the Nahmad family is actually the owner.
HERERA: So, what is the history behind the Nahmads? Obviously, they are
very influential in the art world. You mentioned where they have various
galleries. I`ve heard the name before. But continue a little bit more.
FRANK: Right. Well, the Nahmads are a multibillion dollar family. They
own hundreds of the most important works of Picasso and other artists.
Helly Nahmad was charged with a gambling ring a couple of years ago.
But we have learned from the Panama Papers, that they also owned an
offshore company called International Art Center which it turns out is the
owner of this Modigliani. So, there were questions throughout this court
case of who was the owner. The Nahmad said, “We don`t own it.” Well, it
turns out they own the company that does own it.
HERERA: Right. OK. I think I`ve got that.
HERERA: And it`s complicated though, right?
FRANK: It is a little complicated. And so, what you have is the family of
the previous owner saying we now have proof the Nahmads own this picture.
The Nahmads` attorney telling me, look, it`s irrelevant who owns it. What
you have to prove is that your family owned it back in the 1930s —
HERERA: Right, right.
FRANK: — and that it was stolen from you by the Nazis. That`s a hard
thing to prove.
HERERA: Is that where this is going? Is this the tip of iceberg as we get
more releases from the Panama Papers? Do you expect to see more of this?
FRANK: Absolutely. I mean, we`re already learning that it`s not just this
$25 million painting, but it`s billions of dollars worth of art that was
bought, sold, currently owned through these secret offshore companies. So,
a lot more to come.
HERERA: Which means you`re going to be really busy.
FRANK: I`m going to be busy. Exactly.
HERERA: Thank you, Robert.
FRANK: Thank you, Sue.
HERERA: Really appreciate it.
All right. Still ahead, pay cut? CEO compensation may have shrunk the
most since the financial crisis, but there`s a catch.
HERERA: Unions representing about 40,000 Verizon (NYSE:VZ) employees say
they are ready to strike if a new contract isn`t reached by Wednesday, they
will walk off the job. The employees, most of whom work on landline phones
and Internet operations along the East Coast have been without a contract
since August. Verizon (NYSE:VZ) has trained non-union employees to cover
their jobs. In 2011, a strike lasted two weeks before a new contract was
A very public battle inside Pulte Homes is heating up. The hiring of the
CEO Richard Dugas was perhaps, quote, “the biggest mistake of my career,”
end quote. Last week he said he would resign but in May of 2017.
But for the founding family, that`s not enough. In a letter to the
company`s board of directors, Pulte wrote to consider letting Richard Dugas
stay another year as lame duck CEO puts the personal interest of Richard
Dugas ahead of the interest of the company.
It continued, “With Richard`s uniquely disastrous track record of
cumulatively losing so much money, the board is telling shareholders just
how out of touch they are.” Pretty tough words.
What should you do when the infighting happens at a company that you might
own or have in your investment portfolio?
John Petrides is the portfolio manager with Point View Wealth Management.
And it is good to see you once again. Welcome.
JOHN PETRIDES, POINT VIEW WEALTH MANAGEMENT: Thank you for having me.
HERERA: Those were very caustic reports.
HERERA: Sometimes it doesn`t get quite this bad, but that`s a good example
of how bad things can get.
HERERA: What do you know if you hold that stock or it`s a widely held
stock, it could very easily be in your mutual fund.
PETRIDES: Well, I think if investors own shares of company, in this case,
say, Pulte, you always have to ask yourself this one question, if I didn`t
own the stock now, would I buy it? And most people are probably not going
to own Pulte Homes for Richard Dugas. You`re going to own a home builder
for exposure to the housing market because you think interest rates are
low, the economy is strong, or the supply demand situation of the housing
market is healthy, not because of the CEO.
HERERA: But the board seems to be siding with Mr. Dugas. So, that`s more
than just the CEO.
HERERA: Does that change the dynamic a little bit?
PETRIDES: It`s true. This is a really unique situation, because we`re in
a world of activist investors where you have people like Bill Ackman and
Elliott Management that are going — and value — going into boards and
shaking it up.
And here you have the owner shaking up his own CEO. You know, it`s really
unique situation. And I — we`re not owners of the Pulte Homes, but in
this case, investors should look at what`s the business model that you`re
buying it, what the future tax flows of the company. And if you think the
stock has upside before you owned it and it`s trading at a discount now,
that would be a time to add to your disposition.
HERERA: Right. And also, it`s a very competitive market space that Pulte
PETRIDES: Of course.
HERERA: So, do you look at the competitors and see how those stocks are
doing compared to Pulte, given the circumstances that Pulte finds itself
PETRIDES: Absolutely. There`s so many ways to play the housing market,
whether it`s on the supply side, through the parts of a company like a USG
(NYSE:USG), US Gypsum, or it`s a home builder like D.R. Horton (NYSE:DHI)
or Toll Brothers (NYSE:TOL). So, you clearly have to compare the valuation
of Pulte versus the peers.
HERERA: What do you make of the fact that activist investing is gaining so
much traction? It`s one of the major stories for the last two years.
PETRIDES: It`s true.
HERERA: As an investor who manages other people`s moneys, do you find it
works as an advantage because you get movement in the stocks, or is it a
PETRIDES: Well, I think it`s a double edged sword, because an activist
investor will keep the board on its toes. It will make sure that the
board`s first priority is to return cash to shareholders or manage for
shareholders and the growth of the business. Because once a board falls
asleep at the wheel for too long, you know now that a Carl Icahn or someone
like that can come knocking on the door and most boards don`t want to deal
with a headache like that.
HERERA: I can understand.
Thank you so much. Good to see you, John.
PETRIDES: Thank you.
HERERA: Thank you very much.
All right. John Petrides with Point View Wealth Management.
Hertz Global lowers its revenue guidance for the year and that`s where we
begin tonight`s “Market Focus”.
The car rental company also cut its earnings and its revenue forecast for
the current quarter, sliding slow demand and excess capacity. The
company`s CEO says pricing pressures late last year further intensified
this year. Shares of Hertz dropped more than 11 percent to $8.59.
Tesla is recalling its Model X SUV after finding that the vehicle`s third
row backseats could fail in a car crash. A recent test performed by the
company revealed a defective latch that may cause the seats to fall
forward. The voluntary recall only applies to Model X that were built
before March 26th. Shares of Tesla fell a fraction to $249.92.
Another bidder lines up for Yahoo (NASDAQ:YHOO). The parent company of
British newspaper “The Daily Mail” is interested in making an offer for the
tech giant`s core business. As we reported last week, Verizon (NYSE:VZ)
Communications is expected to submit a bid for Yahoo (NASDAQ:YHOO) by the
April 18th deadline. Shares of Yahoo (NASDAQ:YHOO) rose a percent to
In an effort to deal with low commodity prices, National Oilwell Varco cut
its quarterly dividend nearly 90 percent to 5 cents per share, down from 46
cents. The oil field services provider also expects its revenue for the
first quarter to fall about 20 percent. Shares fell 6 percent to $27.32.
And shares of Under Armor took a beating after golfing star Jordan Spieth
which Under Armour (NYSE:UA) sponsors suffered a blistering defeat at the
Masters tournament. Morgan Stanley (NYSE:MS) also cut its price target on
the stock to $32 from $64. Shares of Under Armour (NYSE:UA) down more than
5 percent to $41.15.
A widely cited report shows America`s top CEOs saw their pay shrink by the
most since the financial crisis. But as Mary Thompson reports, there`s a
lot more to it than that.
MARY THOMPSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, pay for top
executives fell 4 percent in 2015 from 2014. This according to a review of
proxies and annual reports of 350 S&P companies by “The Wall Street
Journal” and Mylogic (ph).
But before anyone thinks this reflects the market`s flat performance
through the single digit declines in S&P profits and revenue last year,
keep this mind that much of the pull back and CEO pay is linked to a drop
in the value of their pensions. The pensions saw outsize gains in 2014
because of adjustments for longer life spans. This is why median pay fell
to $10.8 million last year. And while the decline is the largest since the
financial crisis, CEO pay at this level is still the second highest since
CEOs did get a nice boost in the stock component of their pay. This is
their long term incentive bonus, while their short term or cash
compensation rose 2 percent. Small gain here reflecting 2015`s middling
The median pay for a CEO in 2015 over 290 times that of the average hourly
worker. So, who earned the most? Well, CEOs new to the job are excluded
here. So, there were some familiar names at the top of the list. The top
three earning more than $53 million each.
Viacom`s Philippe Dauman saw a 22 percent increase this pay even as the
firm`s total shareholder declined. Much of his pay increase is linked to a
Pay for Oracle`s co-CEOs Mark Hurd and Safra Catz rose over 40 percent.
And Bob Iger of Disney (NYSE:DIS) took the fourth spot. His pay cut by $2
million despite a good performance by the House of Mouse.
Who were paid the least? Google`s Larry Page and Whole Foods` John Mackey,
both of whom taking home a buck.
For NIGHTLY BUSINESS REPORT, I`m Mary Thompson.
HERERA: Coming up, think small. Very, very small. Why the U.S. finds
itself in the throes of a big boom in tiny houses.
HERERA: The first vaccine candidate for the Zika virus should be available
in September. In a White House briefing, health officials said the impact
of the Zika virus is wider than initially anticipated and that funding for
more research is sorely needed.
(BEGIN VIDEO CLIP)
ANTHONY FAUCI, NIAID DIRECTOR: We really don`t have what we need. But
we`re still going full blast by drawing money from other areas. And that`s
how we started. The money that`s been transported over from Ebola accounts
will help bring us a little bit further, but it`s still not what we want.
When the president asks for $1.9 billion, we needed $1.9 billion.
(END VIDEO CLIP)
HERERA: Officials also say that the type of mosquito in which the virus is
carried is present in more states than first thought.
United Healthcare will not offer any health plans on Georgia`s state health
exchange next year. UnitedHealth is currently the only insurer that has
notified the state of its plan not to participate. You might recall last
month, we told you about a report that concluded patients on the exchanges
were sicker than others and questioned whether insurers would be part of
the Affordable Care Act long term.
Mortgage investor Annaly Capital is buying Hatteras Financial (NYSE:HTS)
for about $1.5 billion. That deal will expand its adjustable rates
holding. Both of the companies are structured as real estate investment
trusts. Shares of Hatteras soared better than 10 percent, close to 11
actually. Annaly Capital up about a quarter of a percent.
Now, this next story takes the concept of downsizing to a whole new level.
Some homeowners aren`t just going smaller, they`re going tiny. It is all
part of a new movement in housing that`s gaining in popularity even in
parts of the country where home prices aren`t all that steep.
Diana Olick has the story.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Even when you`re
talking tiny, size matters, because while tiny home owners share some
similar values, the very design of their tiny structures are all their own.
Ryan Mitchell owns a tiny house in Charlotte, North Carolina and touted
tiny living at a conference he organized recently in Asheville.
RYAN MITCHELL, TINY HOUSE CONFERENCE: People are very skeptical. But when
you step into somebody`s house like we have here at the conference, things
just kind of click.
ALICIA KATHLEEN MATHIAS, TINY HOME OWNER: I have lived here for four years.
I built it myself.
OLICK: Alicia Kathleen Mathias built her 24 square foot home for just
$200. There`s no room for a fridge so she uses a clay pot to school her
MATHIAS: So, it`s just my plate, and then inside, I have some yogurt and
cheese right now.
OLICK: Mathias saved her earnings to pay off student loans but the
inspiration behind the house was growing up with hoarders. That made her
MATHIAS: Stuff doesn`t necessarily make your life happy. And for me,
happiness is the freedom to be able to go where I want and do what I want
and be able to help people because I`m not attached.
OLICK: If that`s too tiny for you, a 200-square-foot bus might seem
UNIDENTIFIED FEMALE: It`s a 110-gallon horse trough that we got from the
OLICK: Kelly Roth and Chris Childs converted this 1991 school bus into
their home for about $17,000. It is one-eighth the size of their last
CHRIS CHILDS, CONVERTED BUS TO HOME: The effort and time it took to
maintain a large house and the fact that we had it filled with a lot of
things that we didn`t necessarily need.
OLICK: As for the McMansions of tiny, they measure in about 340 square
feet. This will soon house a family of three. Mike and Jasmine De Vivo
designed their space for home and office, a tiny headquarters for their
fitness business. After paying off the not so tiny $70,000 price tag,
they`ll save hundreds of dollars a month in rent.
MIKE DE VIVO, VIVO TRAINING SYSTEMS: You can take that rent money, put it
into something that`s custom for you and if you really put the thought into
it, it can be something that I think will really pay off.
OLICK: Home, office, it even triples as a gym. Living tiny can mean
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
HERERA: To read more about the attraction of tiny homes, head to our
website, NBR.com. That does it for us tonight. I`m Sue Herera. Thanks
for joining us. We`ll see you here tomorrow.
Nightly Business Report transcripts and video are available on-line post
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