ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: It`s over. Apple NASDAQ:AAPL) and Qualcomm (NASDAQ:QCOM) have agreed to drop all litigation globally, ending a heated legal dispute that`s been dragging on for years.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Competition looms. Netflix (NASDAQ:NFLX) reports better than expected earnings, but its forecast left investors wanting more.
HERERA: Show me the money. That`s what Zoom is doing, making it the rare tech startup that`s profitable and will soon be publicly traded.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, April 16th.
GRIFFETH: And we do bid you a good evening, everybody. And welcome.
This was a big day for earnings reports and we will have more on that coming up in just a moment. But we begin tonight with the dramatic end of a long-running legal dispute between two major tech players. Late today, Apple (NASDAQ:AAPL) and Qualcomm (NASDAQ:QCOM) announced that they have ended all litigation against each other worldwide, litigation that involved everything from patent infringement to theft.
The latest high-stakes trial involving the two companies started yesterday and as we reported, the central issue was the royalties that Qualcomm
(NASDAQ:QCOM) charged Apple (NASDAQ:AAPL) for the smartphone technology the chipmaker produced for the iPhone. Royalties that Apple (NASDAQ:AAPL) believed were excessive. But now, after years of fighting, the battle is over, and that news sent Qualcomm (NASDAQ:QCOM) shares up 23 percent today while Apple (NASDAQ:AAPL) shares rose just about 2 cents.
Josh Lipton starts us off tonight.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was talked about as one of the ugliest corporate battles in history, and now it`s over. The agreement dismisses all litigation between the two companies, includes a one-time payment from Apple (NASDAQ:AAPL) to Qualcomm (NASDAQ:QCOM) and we don`t know long that payment is for. The companies also reached a new six-year license agreement, as well as a two-year option to extend and a multi-year chipset supply agreement. That combination of licenses and chips will add an estimated $2 to Qualcomm`s EPS as product shipments ramped.
This trial was important for both company, but especially so for Qualcomm (NASDAQ:QCOM) because it drove right to the very heart of its business model. Qualcomm (NASDAQ:QCOM) sells chips, but it also licenses patents for a royalty on the price of each device. That`s, its bread and butter, which was under attack in this case.
Now, that threat has been removed and Qualcomm (NASDAQ:QCOM) investors are breathing a big sigh of relief.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton, San Francisco.
HERERA: And now to earnings, and late day results from IBM, which is one of the best performing Dow stocks so far this year. The company reported a
revenue miss as results from its cloud business cooled off. Big Blue earned $2.25 a share, 3 cents above expectations, but revenue fell from a year ago to $18 billion, and the stock was volatile in initial after-hours trading. Deirdre Bosa has more on IBM`s numbers.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: IBM`s latest reports show that it is still struggling to shift its business toward high margin technologies like cloud and artificial intelligence and away from legacy engines that are slowing. Their third straight quarter sales fell and that further disappointing investors after a very brief window where it grew revenue. And there was hope that IBM had finally turned a corner under CEO Ginni Rometty.
Now, hopes rest on the company`s acquisition of Red Hat (NYSE:RHT), its big cloud play, and one of the largest tech acquisitions ever for a $34 billion. It`s expected to close in the second half of the year and investors are eager to hear how IBM plans to integrate it into the larger business.
For now, it`s a segment that includes cloud computing is struggling to grow.
For NIGHTLY BUSINESS REPORT, I`m Deidre Bosa, San Francisco.
GRIFFETH: Netflix (NASDAQ:NFLX) easily topped earnings expectations even after the video streaming service raised prices during the quarter. The company earned 76 cents a share, estimates were only 57 cents. Revenue was up from a year ago to $4.5 billion.
But as always, investors focused on the company`s subscriber numbers and on the coming competition from Apple (NASDAQ:AAPL) and Disney (NYSE:DIS), and that created volatility in the stock in the after-hours session tonight.
Julia Boorstin has more.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The headline out of Netflix (NASDAQ:NFLX) earnings, while the company had a strong first quarter is looking like in the quarter ahead, growth won`t be as robust as analysts had hoped. One factor at play, price increases in the U.S., Brazil, Mexico and parts of Europe. Netflix (NASDAQ:NFLX) saying new additions of subscribers are unaffected, but it is seeing some modest short term churn as members consent to the price change.
For that all important subscriber number, Netflix (NASDAQ:NFLX) did beat expectations in the first quarter with 9.6 million new paying subscribers.
But Netflix (NASDAQ:NFLX) did guide to lower subscriber additions in thesecond quarter than Wall Street had hoped, just 5 million, about half a million less that projections.
Netflix (NASDAQ:NFLX) also warning that earnings per share would be far lower than anticipated in the second quarter.
For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.
HERERA: Let`s turn now to Tuna Amobi for more on Netflix (NASDAQ:NFLX) earnings and what he sees ahead for that company. He is the senior media and entertainment analyst at CFRA Research.
Tuna, welcome. Nice to have you here.
TUNA AMOBI, CFRA RESEARCH SENIOR MEDIA & ENTERTAINMENT ANALYST: Thank you,
HERERA: Julia mentioned the subscriber growth and the pricing. You know, the company said that basically they do not think that new entrants will affect them, the Disneys of the world, but are aren`t they facing a very different landscape coming up in the next year?
AMOBI: They are. I think clearly, I think the streaming landscape has dramatically evolved with the entry of Disney (NYSE:DIS) and Apple (NASDAQ:AAPL) and other announcements coming up. So I think Netflix (NASDAQ:NFLX) has to really face a new reality.
That being said, we think that the impact is not going to be immediate, but in near term, all of these players, I think, should, you know, benefit from the growing pie especially in the international markets. So, to your point, I think the guidance that Julia had mentioned was quite weaker than the street was expecting, some of that has to do with price increase still working through. But all in all, I think the underlying momentum remains intact.
GRIFFETH: What do you think is most important in terms of strategy to meet the competition? Is it the content which can be expensive or is it pricing and Disney`s already come out with a pretty low price for their new service.
AMOBI: Yes. I think content, if I can point to the most — the singular most important factor to make sure your content is up to snuff, and Netflix (NASDAQ:NFLX) has been preparing for this day when, you know, they basically have to rely a lot more on the original programming and that`s why you see they`re looking to spend almost $15 billion in cash content spend this year.
As far as priced in, no question. I think Netflix`s price increase appeared to be fortuitously timed, especially with Disney (NYSE:DIS) coming out aggressively at $6.99 per month and Warner Media and Comcast (NASDAQ:CMCSA) (NYSE:CCS) and all of those trying to jump in, we`re a little wary of potential price competition. There is elasticity in the business model of streaming as consumers have more choice, but we do believe that over time, you know, all of these major players are going to do just fine, to the potential detriment of the smaller, weaker players.
HERERA: All right, Tuna. We`ll leave it there. Thank you so much for joining us. Tuna Amobi with CFRA Research.
GRIFFETH: To Wall Street now, stocks rose as earnings season got into full swing. The Dow gained about 67 points to 26,452. The Nasdaq added 24, closed at 8,000 and change, and the S&P was up a point. Some of the other earnings investors focused on today included Bank of America (NYSE:BAC), which was the latest big financial services company to report as well as Dow components UnitedHealthcare and Johnson & Johnson (NYSE:JNJ).
GRIFFETH: Consumers are well-positioned to take advantage of health careoptions. They have jobs and they have insurance, and that is helping Johnson & Johnson (NYSE:JNJ) sell more prescription drugs and pharmaceutical devices. It fell more than 4 percent helping to offset adecline in sales like its consumer products like Band-Aids and Tylenol. Johnson & Johnson (NYSE:JNJ) posted better than expected first-quarter profits and sales and raised its forecast for the rest of the year.
JOANNE WUENSCH, BMO CAPITAL MARKETS: We`re in a good spot and we`ll stay where the unemployment rate is low so people have insurance. You also have universal healthcare insurance so that people have access to that. And so, we`re actually in a spot where we`re seeing people utilize healthcare in a constructive way.
GRIFFETH: Insurance stocks fell on worries about the Medicare-for-All proposal by house Democrats in Washington. But UnitedHealth Group (NYSE:UNH) did raise its profit guidance for the year after posting first quarter sales growth of 9 percent. Profit jumped by 22 percent to almost $3.5 million.
CEO David Wichmann told analysts the current government and private insurance options are better ways to provide universal coverage with lessdisruption to the industry.
And Bank of America`s consumer businesses pushed the nation`s second biggest bank to record earnings of $7.3 billion in the first quarter.
That`s up by 6 percent on revenue that was unchanged from a year ago. How? Well, profits are up because three years of interest increases have been made loans more profitable for the bank, but with rate hikes seemingly on hold for now, the big banks may have to look elsewhere for growth the rest of this year.
GRIFFETH: As for the stock prices, J&J and Bank of America (NYSE:BAC) were higher while UnitedHealthcare closed lower today.
HERERA: Even though earnings season is just starting to get underway, investors are starting to notice a few things. Bob Pisani tells us what they are.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Earnings season is just starting to pick up steam, but already, a couple of key trends are beginning to emerge. There`s good news and bad news. The good news is, so far, companies continue to report earnings well above expectations.
Let`s look at the companies reporting today, Comerica (NYSE:CMA), BlackRock (NYSE:BLK), Bank of America (NYSE:BAC), UnitedHealth, all of them beat by very wide margins. Bank of America (NYSE:BAC) beat earning estimates by more than 6 percent. Comerica (NYSE:CMA) beat by more than 9 percent. BlackRock (NYSE:BLK), 8 percent, that`s way above the usual 3 percent earnings fee for stocks in the S&P 500.
Why such big beats? The analysts fearing global economic slowdowns in 2019 dramatically slashed earnings last December, but the meltdown didn`t happen and now, it`s obvious that many of them cut the earnings estimates to much.
But here`s the bad news — there`s a very large discrepancy between earnings and revenues. That`s a sign that cost prices are starting to show up in the equation. So, right now, earnings are expected to be down 1.8 percent this quarter, but revenues are going to be up 5 percent. What`s that all about?
Companies that have reported, have been citing an unfavorable impact from a foreign exchange and the stronger dollar. But more importantly, many are now reporting issues with higher wage, and higher labor costs, higher raw material costs and higher transportation cost.
Look at the J.B. Hunt. This is a trucking giant, logistics giant. They cited all of the above as cause for its big revenue miss in the first quarter.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
GRIFFETH: Meanwhile, the world`s largest asset manager reported better than expected earnings and BlackRock (NYSE:BLK) revealed it now manages more than $6 trillion. CEO Larry Fink said today he expects investors to pour more money into stocks.
(BEGIN VIDEO CLIP)
LARRY FINK, BLACKROCK CHAIRMAN & CEO: I think we have a risk of a melt up, not a meltdown here. Despite where the markets are in equities, we have not seen money being put to work. We have record amounts of money in cash.
(END VIDEO CLIP)
GRIFFETH: Kristina Hooper joins us now to talk more about that forecast in the markets. She`s chief global market strategist at Invesco.
Thanks for joining us tonight.
KRISTINA HOOPER, INVESCO CHIEF GLOBAL MARKET STRATEGIST: Thank you.
GRIFFETH: What do you think of Larry Fink`s forecast of a possible melt up at this point?
HOOPER: I think it may be a bit aggressive. I wouldn`t be surprised if wesaw a melt up, but I would expect it to be relatively modest when it comes to U.S. stocks. However, I could see more flows going into emerging market stocks, which are much more of a screening buy right now.
HERERA: You know, one of the things that Mr. Fink pointed to was the fact that the Fed has taken a step back. But I wonder how much of that is already in the market?
HOOPER: Well, I think as long as the Fed takes a step back, it is certainly part of the story as to why stocks are being supported, but you make a great point, because we don`t know how long the Fed is going to remain on hold. In fact, what we saw from the minutes that were released last week from the March meeting is that the Fed isn`t as dovish as many expected before reading the minutes and they could really go either way this year in terms of either hiking rates or lowering rates.
GRIFFETH: I`m intrigued by your forecast for the emerging markets. I mean, they`ve been suffering for quite a while and there have been plenty of analysts who forecast a return for the emerging markets and it hasn`t happened yet. What would be the catalyst to bring them back here?
HOOPER: Well, certainly one of the catalysts is Fed policy. We`re also seeing other central banks getting more accommodative, as well. So, that`s creating a global environment of accommodation. In addition, we`re seeing signs of positive momentum in China for their economy and that should translate into better economic growth in other parts of emerging markets as well. In addition, valuations are very attractive. So at a certain point, investors will start migrating in the direction of that which looks more attractive.
HERERA: There is still some headline risk, right? We don`t have a tradedeal with China. We still have Brexit. Definitely unresolved which could ripple through some of those emerging markets.
HOOPER: Absolutely. The risks are there, but also the opportunities arethere and when we think about economic growth, we`re certainly seeing stronger growth there than we are in developed markets such as the U.S.
GRIFFETH: Kristina Hooper with Invesco — again, thanks for joining us tonight.
HOOPER: Thank you.
HERERA: It is that time. Time to take a look at some of today`s “Upgrades and Downgrades”.
Marathon Oil (NYSE:MRO) was upgraded to outperform from sector perform at RBC Capital Markets. The analyst cites the company`s strong free cash flow. The price target is $23. The stock was up a fraction to $17.47.
Also at RBC Capital Markets, DowDuPont was downgraded to sector perform from top pick. The analyst points to macro economic concerns for the chemical maker. The price target is $40. The stock closed just below that level at $39.15.
Western Digital (NYSE:WDC) was upgraded to buy from hold at Deutsche Bank. The analyst cites favorable data for both hard disk drives and NAND flash memory. The price target is $60. The stock was up more than 4-1/2 percent to $54.29.
GRIFFETH: Still ahead, imagine being able to get a sense of how people are feeling worldwide all at once. Well, now, you can. And economists are paying attention.
HERERA: Boeing (NYSE:BA) is reportedly facing calls to shake up its boardroom by two leading shareholder advisory firms. According to “The Financial Times”, institutional shareholder services has told its clients that Dennis Muilenburg should be stripped of his dual role as chairman and CEO, and Glass Lewis has recommended the removal of the head of Boeing`s audit committee for failing to foresee safety risks with the 737 MAX aircraft.
Separately, an FAA panel said the software update to the ground at Boeing (NYSE:BA) jet is, quote, operationally suitable, end quote, and that helped lift the stock in trading today.
GRIFFETH: Today`s economic data were mixed. We had industrial production that fell in March compared to the prior month. The economists say that the weakness and output aligns with the gloomy outlook for the manufacturing sector. A separate report showed a rise in home buildersentiment in April. The third increase in four months and the national association of homebuilders said the job growth and low interest rates should help sales in the near-term.
HERERA: We often talk about surveys that measure consumer sentiment and that`s because in theory, the more confident people feel about their income and job prospect, the more likely they are to spend and that helps the economy grow. Now, for the first time there is a new survey that measures sentiment across the globe.
Steve Liesman takes a closer look.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: They`re confident in India, pessimistic in Russia and relative to the rest of the world, especially Europe, pretty darn upbeat in the United States. Those are the findings of the new global consumer confidence index now made public quarterly by the Conference Board.
The findings of the survey of 32,000 online respondents in 64 countries, in the first quarter of 2019, the global index fell one point, and it is one point off its all-time high.
BART VAN ARK, THE CONFERENCE BOARD: What`s very important here is as you already mentioned, historically high, so we have a lot of optimistic consumers around, but you can see it`s been going on for quite a while and it is beginning to peak a little bit. So, it does suggest that the consumer has reached a peak in terms of optimism.
LIESMAN: The most optimistic countries, the Philippines, and India and the United States. The most pessimistic, Russia, Italy, Argentina and France.
The survey looks at views on three issues, job prospects, personal financial situation and spending intentions. India, Vietnam, the Philippines and the U.S. lead the world in the willingness of its consumers to shop. In Argentina, Venezuela, South Korea and Russia, they`re watching their pesos, bolivars, won, and rubles more carefully.
VAN ARK: It should be (INAUDIBLE) that spending intent doesn`t always mean they`re actually going to spend, but it does mean again that we have more people that are optimistic about their intentions to do this down the road and those exactly those are the five countries where we find a lot of optimistic consumers.
LIESMAN: So, in this era of big data, add a new category, big global data where every quarter, we can now know how everyone in the world feels all at once, at least the 32,000 who responded to this online survey.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
GRIFFETH: The $26 billion merger between Sprint and T-Mobile may or may not be in doubt. That`s where we begin tonight`s “Market Focus”.
According to “The Wall Street Journal”, the planned merger is not likely to be approved by the Justice Department in its current form. But the T-Mobile CEO said today that the premise of that story is simply untrue.
Whatever, the news sent Sprint sharply lower in initial after-hours trading tonight while T-Mobile shares fell as well.
Elsewhere, United Airlines reported better than expected earnings thanks to an increase in ticket sales and cost-cuts. The company disclosed that it took delivery of ten 737 MAX jets and ordered 24 more. All of the MAX 8 and MAX 9 jets are currently grounded while Boeing (NYSE:BA) works on a software fix to the plane`s stabilizer.
United also said it was standing by its 2019 profit forecast. And the stock rose initially in extended hours trading tonight. It closed the regular session at $85.17.
Meanwhile, CSX (NYSE:CSX) reported a quarterly profit that topped Wall Street expectations, thanks to growth in shipments that the railroad operated from the increases and the stock rose in initial after-hours trading. It finished the regular session at $75.89.
HERERA: Amgen (NASDAQ:AMGN) said the list price of more than $1,800 per month for its new osteoporosis drug. The FDA approved the medicine last week, but mandated a so-called black box warning, about an increased risk of heart attack and stroke. The stock fell more than 1.5 percent to $188.05.
Electronic Arts (NASDAQ:ERTS) online gaming platform called Origin reportedly exposed gamers to hackers. According to Tech Crunch, security researchers found that they could trick an unsuspending gamer into remotely running malicious code on their computer. Electronic Art says the fix has been put in place. The stock was down, though, 4 percent to $93.83.
The FDA ordered Boston Scientific (NYSE:BSX) to stop the sale and distribution of its surgical mesh implant. The move comes after years of complaints about pelvic pain, bleeding and scarring in women. The agency says the device has not demonstrated a reasonable assurance of safety and effectiveness.
Boston Scientific (NYSE:BSX) has ten days to submit its plan to withdraw these products from the market. The shares fell more than 4 percent to $36.17.
GRIFFETH: Well, the nation`s aging chemical infrastructure is getting new attention following a number of accidents at chemical-related plants. And when accidents like that happen along commercial waterways, the costs an grow very quickly.
Brian Sullivan is in the Port of Houston for us tonight.
BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was one month ago on March 17th that this terminal behind us here in the ship channel of Houston caught fire. That fire erupted causing a major leak that spilled dangerous chemicals all into the waterways around us, closing one of America`s most important waterways for days. Firefighters like the one behind us working in some cases more than 240 hours for two weeks to try to put this fire out and contain the dangerous chemicals. In fact, even a month later you can still smell it in the air.
This and each other accidents calling attention to the infrastructure crisis perhaps that`s not getting enough attention in America, the aging infrastructure in oil, gas and chemical storage, when these things go, it can cause dangerous leaks, it caused the loss of life as it did a week later in Crosby, Texas, with a separate indent, and it cost billions of dollars in damages.
For now, this ship channel is still open, but there are many ships that are still out there, backlogged, supply chains are disrupted, but with some cases 50-year-old facilities and safety regulations, it would not be a sad surprise to see more incidents like this happen in the future.
For NIGHTLY BUSINESS REPORT, I`m Brian Sullivan, Port of Houston, Texas.
HERERA: Coming up, a tech start-up you might not have heard of, but it has something that other popular ones don`t.
GRIFFETH: Here`s a look at what we`re watching for tomorrow.
More earnings — Morgan Stanley (NYSE:MS), Pepsi, Las Vegas Sands (NYSE:LVS) are just some of the companies scheduled to report. The Federal Reserve releases its Beige Book, which is an anecdotal look at the economy across the country and investors will get a chance to react to China`s first quarter GDP report which will be released overnight. Another busy day coming up Wednesday.
HERERA: In the news tonight, donations are pouring in to help rebuild Notre Dame Cathedral, some coming from France`s three wealthiest families.
The billionaire family behind Louis Vuitton will donate more than $220 million, that was matched by the family behind L`Oreal and the Pinault family has pledged more than $100 million. Other French companies are also donating, including energy firm Total, and consulting company Capgemini, as well as U.S. firms like Apple (NASDAQ:AAPL) and IBM.
GRIFFETH: Well, it was another big week for initial public offerings.
Videoconferencing company Zoom is preparing to list its shares on Thursday and even though it may not be as well known as other recently listed companies like Pinterest or Lyft or Uber which comes public next month, it does have one thing that those companies do not, that would be profits. Deirdre Bosa is back with us tonight.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some of the world`s biggest companies use it for meetings. Individuals use it to chat with friends, family and even for personal training sessions. But this isn`t FaceTime or Skype. It`s Zoom, a videoconference start-up that has made a name for itself in a very crowded landscape and it`s about to enter this year`s class of 2019 initial public offerings.
This week, it will join other names like Lyft and soon Uber and tapping public markets the very first time.
JACKIE KELLEY, EY GLOBAL IPO MARKETS LEADER: These companies are very disrupted. Some are profitable. Others are not. We`ve even some of the unicorns, you know, the revenues — the hype around them makes him think these are significant companies, like billion dollar revenue companies, not necessarily at that size.
But unlike Uber and Lyft that are burning through billions of dollars to growth their businesses, Zoom is already profitable. It`s also growing faster, more than doubling revenue, last year. Since its launch in 2012, Zoom`s customer base now includes Pandora, Uber, Gap (NYSE:GPS), and Wells Fargo (NYSE:WFC).
But as with all of this year`s tech IPOs, how it performs in the weeks and month ahead is not guaranteed. Zoom has to stay competitive to keep its edge in a field that includes big enterprise and consumer names alike, Cisco (NASDAQ:CSCO), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB).
Within its IPO paperwork, the company says that an inability to attract new customers and to get people to pay for more expensive subscription services could harm the business. This week, though, it will debut as a rare breed of unicorn, the name given to the so-called billion-dollar plus start-up, it`s profitable.
For NIGHTLY BUSINESS REPORT, Deirdre Bosa, San Francisco.
HERERA: Before we go, one more look at the day on Wall Street. The Dow gained 67 points. The Nasdaq added 24 to close at 8,000, and the S&P 500 was up one.
That is NIGHTLY BUSINESS REPORT tonight, I`m Sue Herera. Thanks for joining us.
I`m Bill Griffeth. Have a good evening, everybody. We will
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