ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill
Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Bruised Apple
(NASDAQ:AAPL). The company reports its first holiday quarter profit and
revenue decline in a decade, putting its flagship iPhone in focus.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Chapter 11. PG&E officially
files for bankruptcy, triggering one of the largest, if somewhat unusual
corporate reorganizations in years.
GRIFFETH: Phone scams. How robocallers tried to cash in when the
government was partially shut down, and why it may continue.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
January 29th.
HERERA: Good evening, everyone, and welcome.
It`s the quarter that Apple (NASDAQ:AAPL) warned about. The company
reported its first holiday quarter drop in earnings and revenue in more
than a decade. Weak iPhone sales and slowing demand in China reduced
revenue.
And its outlook isn`t great either. Apple (NASDAQ:AAPL) says its revenue
for the current quarter will fall short of Wall Street expectations. Here
are the numbers: Apple (NASDAQ:AAPL) earned $4.18 a share, one cent better
than estimates. Revenue fell from a year ago to $84 billion.
But investors are taking the results in stride, sending the stock initially
higher in after-hours trading.
Josh Lipton has more on Apple`s quarter.
(BEGIN VIDEOTAPE)
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: $10.9 billion, that
was one big number in Apple`s latest earnings report. First, the revenue
that it generated from its services division, the App Store, Apple
(NASDAQ:AAPL) Music, Apple (NASDAQ:AAPL) Pay was up 19 percent.
Apple (NASDAQ:AAPL) indicated it would be in that range when the company
preannounced results earlier this month. But here was a new metric that
Apple (NASDAQ:AAPL) gave, too. Now, they`re giving us services gross
margins.
This is a new performance metric they`re offering investors. They say that
came in at 62.8 percent, so much higher than the overall company. And
though investors focused very hard on that services division because it is
faster growing and now they have greater insight into how profitable it is
as well.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, Cupertino, California.
(END VIDEOTAPE)
GRIFFETH: Let`s turn now to Angelo Zino. He`s — to get more on Apple`s
earnings and what he sees ahead. He`s a senior tech analyst at CFRA
Research.
Good to see you. Thanks for joining us tonight.
ANGELO ZINO, CFRA RESEARCH SENIOR TECH ANALYST: Thanks for having me.
GRIFFETH: Tim Cook wants everybody to believe that services can make up
for a shortfall in the hardware division. Are you convinced that that`s
the case?
ZINO: Well, I think it`s actually going to be collectively from services
and non-iPhone businesses. When you actually look at the power of the non-
iPhone business this quarter, it grew about 19 percent. And, you know, we
see that as an enormous positive. If you look at, let`s say, iPad revenue,
this is the highest number we`ve seen in three years.
So, yes, we think the growth story here for Apple (NASDAQ:AAPL) will
continue to be services. And we do buy into that thesis. But at the end
of the day, we think it`s a lot more than just services. It`s wearables,
as well as other non-iPhone type revenue.
HERERA: Are Wall Street`s expectations still too high for Apple
(NASDAQ:AAPL) at this point? I mean, Tim Cook has been very upfront about
the situation between the U.S. and China and how it has affected his
business. That has not yet been resolved.
So, what are the street`s expectations in your view, and are they
realistic?
ZINO: Well, it`s interesting because looking at the results here, it does
look like the poor results were really contained in China. China looks
like it dropped about 27 percent on a year-over-year basis. But the
positive is we actually saw a growth in areas like the Americas. And that
kind of tells you that consumers are actually willing to pay for these
higher priced devices outside of China. And we think that`s a very
positive thing.
When we look at the actual guidance that was given here for the March
quarter, we do think the numbers probably have to come down slightly, but
that being said, we think it definitely alleviates a worst case type of
scenario.
GRIFFETH: Before you go, the stock is down sharply since last summer on
these lowered expectations. For the long-term investor, do you like Apple
(NASDAQ:AAPL)?
ZINO: We continue to recommend the stock. We do have a buy
recommendation. My target price is $195.
GRIFFETH: Very good. Angelo Zino with CFRA Research. Thanks again for
joining us tonight.
ZINO: All right. Thanks for having me.
HERERA: On Wall Street, stocks struggled to find direction, even with the
release of a number of big earnings reports and ahead of U.S./China trade
talks and a Fed decision. So there`s a lot in the mix.
The Dow Jones Industrial Average added 51 points to 24,579. The Nasdaq
fell 57, and the S&P 500 was down 3.
GRIFFETH: Pfizer (NYSE:PFE) was the best performing Dow component today
after the company reported better-than-expected earnings and cited strength
in several high profile medicines. Pfizer`s forecast was pretty much in
line with expectations as well, and that stock rose more than 3 percent in
trade today.
But fellow Dow components 3M (NYSE:MMM) and Verizon (NYSE:VZ) gave downbeat
forecasts. 3M (NYSE:MMM) pointed to weaker demand in China and Verizon
(NYSE:VZ) says it sees no increase in its profits in 2019. Shares of 3M
(NYSE:MMM) were higher today, but Verizon (NYSE:VZ) fell.
And now that we`re about a quarter of the way through earnings season,
believe it or not, some new trends are starting to take shape. Bob Pisani
has details for us.
(BEGIN VIDEOTAPE)
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Let`s be honest, the
earnings guidance has been lousy the last 24 hours, yet the stock market
appears to be taking it all in stride. So what`s going on? We had Pfizer
(NYSE:PFE), we had 3M (NYSE:MMM), Lockheed Martin (NYSE:LMT), Harley
Davidson, they all cut their profit forecast for 2019. Some cited tariffs,
some cited rising raw material costs, some cited slower growing growth.
That wasn`t all bad. A number of companies, Verizon (NYSE:VZ), Rockwell
Automation (NYSE:ROK), Dover (NYSE:DOV) and Xerox (NYSE:XRX), they provided
2019 guidance that was in line or a little better, so not all bad. But it
looks like the market sniffed out these lower estimates when we had all
that market turmoil back in December. Meaning, it`s — a lot of this has
been priced in already.
All right, that`s a little bit of good news. We`ve got 130 companies
reporting so far. That`s a quarter of the way through earnings season.
Here`s the major trends so far. First, fewer companies are posting
earnings and revenues beats than usual for the fourth quarter. That`s not
good. Guidance is trending lower for the full year 2019, so full-year
growth estimates for the S&P 500 have come down since early October and are
now in the low single digits, so down to about 5 percent from about 10
percent growth at the start of October. This is for 2019.
But there`s a debate over how much earnings growth will slow down. Some
believe that we`ll be entering an earnings recession this year. That would
be two straight quarters of negative earnings growth. Others say earnings
will help and hold up in the low single digits.
The one thing the market can`t wish away is a slowing global economy. A
number of firms have alluded to this and other big names, including
Whirlpool (NYSE:WHR), AK Steel and 3M (NYSE:MMM), they have also referenced
higher costs eating into margins.
If you want to really change the market sentiment, what we need now is a
pickup in global activity.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
(END VIDEOTAPE)
HERERA: And now to the Federal Reserve, which as we mentioned started its
two-day policy meeting. That makes it a good time to survey economists,
money managers and strategists about the economy and the market.
Steve Liesman rounds up the results.
(BEGIN VIDEOTAPE)
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The chance of
recession in the next 12 months forecast by respondents to the CNBC Fed
Survey spiked to its highest level in three years amid growing worries
about global economic weakness, Fed rate hikes, the market sell-off, trade
tensions and the government shutdown effects.
The recession probability rose to 26 percent, the third straight increase.
It`s above the 22 percent average for the past eight years, and it was last
this high in January 2016. That followed another bout of market
volatility.
The uncertainty then prompted the Fed to hold off on rate hikes and that`s
the expectation now. The 46 respondents to the January survey believe the
Fed will now hike just once in 2019, down from the forecast of two in the
December survey. And just 48 percent of respondents believe the fed will
hike in 2020, 37 percent believe the Fed will actually cut rates, 100
percent actually expect no rate hike from the January meeting.
Respondents forecast modest stock gains of just 4 percent in each of the
next two years. That would bring the S&P 500 up to 2846 by 2020. The
survey showed two schools of thought on the outlook. One sees a weaker
U.S. economy as unavoidable, in part due to global economic weakness and
waning government stimulus. The other believes Washington has caused many
of the problems and with trade and immigration deals and a bit of stability
could clear the way for stronger economic growth and healthy market gains.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
(END VIDEOTAPE)
GRIFFETH: Time to take a look at some of today`s upgrades and downgrades.
We begin with another Dow component, American Express (NYSE:EXPR)
(NYSE:AXP), was upgraded to overweight from neutral at Atlantic Equities.
The analyst cited the stock`s 9 percent dividend yield in its valuation.
The stock price is now $128 and that stock rose a fraction today to
$100.96.
Blackrock was upgraded to buy from hold at Jefferies. The analyst cited
Blackrock`s industry leading organic growth. Price target, $468, and
shares rose slightly to $407.62.
HERERA: Nvidia was downgraded to underperform from buy at Needham. The
analyst cites the potential for further decline in demand in some of
Nvidia`s key businesses, like gaming and data centers. We told you about
the revenue warning the company issued yesterday. The price target of $225
was removed with no new price target added. The stock fell about 4.5
percent to $131.60.
Square was downgraded to underperform from market perform at Raymond James.
The analyst cites a lack of growth opportunities as well as Square`s move
into banking. The price target is $56. The stock dropped 6 percent to
$58.56.
GRIFFETH: As expected, PG&E has filed for bankruptcy. California`s
largest utility is seeking Chapter 11 protection as liabilities continue to
mount from the state`s most recent deadly wildfires. Now, when a company
files for bankruptcy, its shares usually lose all value and the stock price
falls to near zero. But as you can see, that`s not what happened today.
In fact, PG&E shares rose by 16 percent.
And as Aditi Roy reports, that in part is why this corporate reorganization
is not typical.
(BEGIN VIDEOTAPE)
ADITI ROY, NIGHTLY BUSINESS REPORT CORRESPONDENT: PG&E`s bankruptcy filing
comes as the utility faces tens of billions of dollars in potential
liabilities for northern California wildfires in 2017 and 2018. Reaction
to the filing was swift.
California Assemblyman Chris Holden, who chairs the Utilities and Energy
Committee, said: It was always my hope to see PG&E not find itself in a
position where they would file for bankruptcy.
Experts say PG&E will likely have 120 days to come up with a reorganization
plan. Creditors are expected to identify themselves. Other stakeholders
include regulators, wildfire victims and rate payers. All of these groups
will likely contest the utility`s plan and the whole process could take
months, if not years.
While PG&E filed for bankruptcy in 2001, analysts say this filing is
different because of the uncertainty of the wildfire liabilities.
PAUL FREMONT, MIZUHO ELECTRIC UTILITY ANALYST: Here I think what makes the
situation radically different in my mind is that the company will likely
have to raise prices in order to recover damages, primarily legal damages
arising out of wildfire claims.
ROY: And that has already led to outrage. Dozens of activists spoke out
about PG&E at a regulatory meeting leading up to the bankruptcy filing.
BARBARA STEVENS, ACTIVIST: They have already been through this before, and
they just reorganized, come out and continue to inflict pain and debt on
the people of California.
RACHEL SILVERSTEIN, ACTIVIST: PG&E has put profits over safety over and
over again with no consequences.
ROY: As all the parties, which include major institutional shareholders
like Blackrock, Vanguard and T. Rowe Price, mull their claims, some
analysts say it`s too early to tell how they`ll make out.
FREMONT: I think right now I have more questions than answers. I think
it`s just way too early to try and make a guess as to what the equity value
that`s going to be left over in the bankruptcy.
ROY: After the last PG&E bankruptcy, most parties were made whole and the
stock price went up. While analysts say those factors could have
contributed to the stock price going up today, it`s unclear how
shareholders will make out this time around. Experts say it all depends on
the appetite of lawmakers to get involved. And so far, state officials are
staying tight-lipped.
For NIGHTLY BUSINESS REPORT, I`m Aditi Roy, San Francisco.
(END VIDEOTAPE)
HERERA: Still ahead, mortgage market overhaul. Are changes in store for
Fannie Mae and Freddie Mac? They have turned into cash cows for the
government.
(MUSIC)
HERERA: Apple (NASDAQ:AAPL) has disabled a group chat Facetime function
that users said allowed eavesdropping. Users calling another iPhone, iPad
or Mac computer could hear audio even if the receiver did not accept the
call. In a statement today, Apple (NASDAQ:AAPL) says it is aware of the
issue and has identified a fix that will be released later this week.
GRIFFETH: High-level trade talks between the U.S. and China are set to
resume tomorrow. The hope is that the two countries can diffuse the
escalating trade war, but the meetings begin just days after the Justice
Department filed those charges against Chinese telecom company Huawei, a
development we told you about yesterday. The U.S. alleges that Huawei
stole confidential information and violated U.S. sanctions that prohibited
sales to Iran.
And as Eunice Yoon reports, Beijing is not happy.
(BEGIN VIDEOTAPE)
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Chinese officials are
slamming the U.S. indictments, with the I.T. Ministry calling the move
unfair and immoral. The foreign ministry accusing the U.S. of, quote,
unreasonable suppression of Chinese companies. The ministry also urged the
U.S. to drop the arrest warrant for Huawei CFO Meng Wanzhou.
The U.S. Justice Department unveiled two indictments, the first a 13-count
indictment filed in New York alleging that Huawei misled bankers and U.S.
authorities to continue to do business in Iran, despite U.S. sanctions.
The U.S. believes the CFO orchestrated the scheme. The second 10-count
indictment charges two Huawei affiliates with attempting to steal robotic
technology from U.S. carrier T-Mobile and says Huawei offered bonuses to
employees who obtained confidential information from rival companies.
Huawei issued a statement saying it`s disappointed to learn of the charges.
It denies that it or its subsidiary or affiliate have committed any of the
asserted violations of U.S. law and is not aware of any wrongdoing of Ms.
Meng.
Meng`s lawyer says that the CFO shouldn`t be held hostage to U.S.-China
relations. And as it turns out, the indictments came the same day that the
Vice Premier Liu He arrived in Washington for trade talks. U.S. Commerce
Secretary Wilbur Ross says the two events are unrelated, but the Chinese
have been viewing the targeting of Huawei as political, so many people here
believe this should cast a shadow over the negotiations.
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
(END VIDEOTAPE)
HERERA: GameStop isn`t playing games. That`s where we begin tonight`s
“Market Focus”.
The retailer says it is no longer looking to sell the company. The board
determined that there`s not enough available financing on terms that a
buyer would want, so the company is struggling to sell physical games to
customers who can now purchase those and download them at home. The stock
dropped 27 percent to $11.28.
Pulte Group reported its worst quarterly fall since 2013. The homebuilder
said the outlook for the spring selling season is so uncertain that the
company is forced to spend heavily on buyer incentives. Despite the weaker
forecast, Pulte reported better-than-expected earnings and revenue in the
most recent quarter. The stock climbed gradually throughout the day,
closing up a fraction to $27.25.
Brinker International (NYSE:EAT) which owns casual dining chains Chili`s
and Maggiano`s reported an increase in sales. But the company says margins
are coming under pressure because of higher wages, rent and maintenance
expenses. Shares of Brinker fell more than 10 percent to $42.36.
GRIFFETH: Xerox (NYSE:XRX) reported better-than-expected earnings but
revenue did come in a little short. The office technology provider said
its strategic initiatives will help boost earnings above expectations this
year. The company has been simplifying and streamlining its business in a
move to try and improve returns. The stock rose 11 percent today to
$27.07.
EBay reported better-than-expected earnings and revenue with the company
issuing its first-ever dividend. It also increased its share buyback
program. And the CEO said he is confident in the company`s future growth
prospects. All of that sent the stock higher than lower in the after-hours
trading. Shares fell in the regular session to $33.69.
HERERA: Mortgage giants Fannie Mae and Freddie Mac could be getting an
overhaul. The Trump administration could announce plans as early as next
month to end government control of the two companies, but says that it will
work with Congress on developing a policy for housing finance reform.
Mark Zandi joins us now to discuss what that could mean for the market and
the housing market in particular. He`s the chief economist with Moody`s
(NYSE:MCO) Analytics.
Always good to have you here, Mark. Welcome back.
MARK ZANDI, CHIEF ECONOMIST, MOODY`S ANALYTICS: Thanks, Sue.
HERERA: What do you anticipate the administration`s plan will look like?
And what are Fannie and Freddie are going to look like at the end of this?
ZANDI: Well, I think they`re going to work with Congress. Congress, as
you know, has been trying to solve this problem since the financial crisis
over ten years ago. It`s the last major problem since the crisis that has
not been resolved.
So, it`s a very thorny, particularly difficult issue. Congress needs to be
involved and I think the administration at the end of the day will get them
involved and try to figure out how to privatize Fannie and Freddie in a way
to preserve all the things they do, provide mortgage credit, low interest
rates and to underserved communities but also do it in a way that gets
taxpayers out of shouldering the risks involved in that.
GRIFFETH: OK, that`s what I`m about. They have been in conservatorship
for a decade now. Everybody is trying to come up with a solution. Even
you and a couple — a few other economists a few years ago came up with a
solution —
ZANDI: Yes.
GRIFFETH: — that would combine Fannie and Freddie into a single entity.
But I`ve never understood what the hesitation is to get this thing off the
ground. Is it simply the worry of how much the government and taxpayers
will be on the hook should they need to be bailed out again if there`s
another financial crisis?
ZANDI: Yes, great question. Here`s the thing, Bill, there`s a lot of
stakeholders involved here, right? These are among the largest financial
institutions on the planet. They`re key to the housing marketed and
therefore by extension to the U.S. economy and global economy, so we have
to get this right. You can`t screw it up.
And you`ve got the mortgage industry, you`ve got the housing industry,
you`ve got progressive groups that are rightfully worried about mortgage
credit to underserved groups, low and middle income households. You`ve got
conservative groups who are very concerned about the government`s backstop
here. Should taxpayers be taking the risk here?
So, there`s a lot of people involved, a lot of moving parts. And if you
mess this up, you mess up the U.S. economy, the global economy, so you have
to get it right.
HERERA: I was going to ask you about that, specifically the housing
economy. As we start to see these plans unveiled and debated, could it
have a chilling effect on the housing market?
ZANDI: Well, I mean we have to be careful. I don`t think the
administration or Congress would go down a path that would be disruptive to
the mortgage market, that`s why it`s taking so long, but it is important.
So half, nearly half of all single family residential mortgages made today
are made by Fannie Mae and Freddie Mac. So, you know, it`s a big deal.
But I`m confident that the administration and Congress will work together
and make sure that they get this right, because if they don`t, it would be
a big problem.
HERERA: Mark Zandi, as always, thank you. Mark is with Moody`s (NYSE:MCO)
Analytics.
ZANDI: Thank you.
GRIFFETH: And coming up, the new scheme used by robocallers during the
shutdown, and maybe even beyond.
(MUSIC)
GRIFFETH: As you are no doubt well aware by now, former Starbucks
(NASDAQ:SBUX) CEO Howard Schultz is seriously thinking about mounting an
independent bid for the presidency. Since his announcement, though, the
other night, some groups have already threatened to boycott the coffee
chain.
And our Andrew Ross Sorkin asked Mr. Schultz if he is concerned about the
impact his candidacy would have on the Starbucks (NASDAQ:SBUX) brand.
(BEGIN VIDEO CLIP)
ANDREW ROSS SORKIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Are you worried
by the way about potential boycotts for Starbucks (NASDAQ:SBUX)?
HOWARD SCHULTZ, FORMER STARBUCKS CEO: No. I think Starbucks (NASDAQ:SBUX)
is serving about 100 million people a week around the world. About 70
million in the U.S. you know, I`ve got great faith in the American people.
I don`t think they`re going to boycott Starbucks (NASDAQ:SBUX).
(END VIDEO CLIP)
GRIFFETH: So far investors don`t seem concerned either. The stock has
been relatively flat over the past two trading sessions.
HERERA: Consumer confidence falls to an 18-month low. According to the
conference board, Americans are less optimistic about their future, in part
because of the partial government shutdown and the volatile financial
markets. However, overall reading is still historically high, indicating
consumers think the economy is doing fine.
GRIFFETH: There is evidence now that robocallers tried to capitalize on
the recent government shutdown. Approximately 5 billion robocalls are made
every month. And while that number has been consistent, the context is
changing.
Our Andrea Day takes a look at these highly trained scammers who can adjust
their schemes on a dime.
(BEGIN VIDEOTAPE)
ANDREA DAY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Just days into the
shutdown and calls were already rolling in. According to Alex Quilici, CEO
of the robocall stopping app, YouMail, the scammers looking to cash in on
consumer fears. The most used call, a warning about IRS debt.
ROBOCALL: Hello, I have an important update regarding your IRS tax debt.
The recent government shutdown is affecting your standing with the IRS, and
although some IRS operations are down, billing and collections remain
active. So give me a call back at this number.
ALEX QUILICI, YOUMAIL CEO: It`s already scary the IRS is calling you.
It`s even more scary when the government shutdown is saying maybe your
payment didn`t get through to the IRS.
DAY: And he says it worked. YouMail estimates 1 million plus got that
call. And about 3 percent to 5 percent actually called the number back.
QUILICI: So, some fraction of those people are going to get scammed, and
it`s going to be for real money.
DAY: Here`s another call used during the shutdown.
ROBOCALL: I was actually calling because in lieu of the government
shutdown, back federal taxes are now being dismissed at just an unstoppable
rate. We can take advantage of the situation and help you clear up not
just your federal back taxes, but also some state taxes that you might be
facing. When you get this message, please give me a call back.
DAY: And if consumers turn to the government websites to file a complaint
or join the “do not call” registry, here`s what they got. The agencies who
oversee the issue, the FCC and FTC both unavailable.
QUILICI: The real impact for all of this is the long-term enforcement.
So, had this government shutdown stayed shut down for a long time, the FCC
isn`t chasing the bad guys.
DAY: The FCC directed us to its now functioning website, which says the
agency is working to stop illegal robocalls and has launched several
initiatives.
The FTC tells us because of the government shutdown, the FTC was not funded
and could not receive complaints from consumers. But we are open and very
much want people to report such calls to FTC at donotcall.gov.
But it`s not just the shutdown. Quilici says robocallers are standing by,
ready to jump.
QUILICI: These guys are really responding to current events where they
can.
DAY: So what`s next, assuming the government stays open.
QUILICI: I fully expect to start seeing, hey, the government is back open,
we can reduce your tax debt as a scam.
DAY: For NIGHTLY BUSINESS REPORT, I`m Andrea Day.
(END VIDEOTAPE)
GRIFFETH: And in fact, Quilici predicts that we will probably see even
more robocalls now that the government has opened, simply because it has
worked before. By the way, he says most calls come from India, but in
order to sound more convincing or professional, the scammers book voice-
over talent online from the United States.
HERERA: And before we go, let`s take a final look at the day on Wall
Street. The Dow added 51 points, the Nasdaq fell 57 and the S&P 500 was
down 3.
And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks
for joining us.
GRIFFETH: I`m Bill Griffeth. Have a great evening. We`ll see you
tomorrow.
END
