ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue Herera.
KELLY EVANS, NIGHTLY BUSINESS REPORT ANCHOR: Growth spurt. The economy expands by a lot more than expected in the first quarter, sending the S&P 500 and the Nasdaq to new highs.
Oil slick. Prices have been rising. So why are profits of ExxonMobil
(NYSE:XOM) and Chevron (NYSE:CVX) falling?
Cut in half. Amazon (NASDAQ:AMZN) is spending big money to get packages to your door in one day, ramping up the pressure on its rivals.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Friday, April 26th.
Good evening, everyone. I`m Kelly Evans, in tonight for Sue and Bill.
The S&P and Nasdaq finished the week at all-time highs, thanks in part to
the economy, which is powering ahead. Today, we learned that activity in
the first quarter was a lot stronger than expected, shaking off a rocky
finish to 2018. The first read on gross domestic product grew at an annual
rate of 3.2 percent, well above projections of 2.5 percent. In fact, it`s
the best start to a year since 2015.
As you know, gross domestic product is a value of all goods and services
produced in the U.S., rising exports, falling imports and higher inventory
investment drove much of the growth. That helped offset weaker gains and consumer spending and business investment and that report gave the major averages a lift. The Dow Jones Industrial Average was up 81 points. The Nasdaq added 27 and the S&P 500 gained 13.
But it wasn`t just the economy that investors were watching. Bob Pisani
starts us off tonight.
BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: Stock futures spiked early on a much stronger than expected read on first quarter GDP growth in the U.S. but disappointing results from Exxon and Intel (NASDAQ:INTC) weighed heavily on the Dow.
Shares of Exxon, for example, slumped about 3 percent and had their worst
day of the year, after profits took a hit on poor refining, that`s gasoline
refining mostly, and chemical results. And the oil giant said that while
crude oil prices have risen, they`re still relatively low compared to prior
We`re also seeing some signs of the China slowdown story really starting to take a toll on the earnings equation. So, look at today, Intel
(NASDAQ:INTC) slashed its full-year revenue outlook, largely blaming slower growth in China, saying customers were becoming more cautious and that they were saying an acute deceleration, that`s their words and demand for chips in that region.
Now, this follows similar comments made by other chipmakers like Lam
Research (NASDAQ:LRCX) and Texas Instruments (NYSE:TXN). But others have been more positive, for example, Ford`s CFO Bob Shank said the Chinese economy seems to be stabilizing and the luxury goods manufacturer Hermes said sales in China were actually accelerating.
The bottom line is this. The U.S. economy continues to outperform, but
global growth is still a problem. It`s not clear if China has accelerated
or decelerating, despite massive stimulus for its central bank.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
EVANS: Let`s turn now to Jim O`Sullivan to talk more about the GDP data
and what he`s telling us about the U.S. economy. He`s chief U.S. economist
at High Frequency Economics.
Jim, welcome. Good to see you.
JIM O`SULLIVAN, HIGH FREQUENCY ECONOMICS CHIEF U.S. ECONOMIST: Thanks, Kelly. Hello.
EVANS: So, there`s components of the report which show consumer spending was OK, business investment a little bit weaker. Are you with those who say the one-time contribution from exports and inventories will be reversed next quarter?
O`SULLIVAN: Well, I mean, there`s always volatility in the details from
quarter to quarter, so you can always quibble a little bit with it. But I
think it is fair to say that the inventory number will go negative over the
next quarter or two, so that part in particular will probably be reversed
to some extent and that boosted the number.
On the other side, the consumer spending number of 1.2 percent in the first
quarter was probably artificially weak and we saw during the first quarter,
momentum pick up as the first quarter ended with the March retail sales
report was very strong. So, chances are consumer spending will be a lot
stronger in Q2. But I think the net of it is that, yes, growth probably
moderating a bit and the trend probably isn`t 3 percent, but there`s no
sign of any major slowdown, I would say.
EVANS: And, Jim, that`s a big deal because the market sold off concerned
about a U.S. slowdown especially at the end of last year. Now with the
strong first quarter number, even with the government shutdown happening at the time, is that why stocks are at highs and is that why people think there might be some sustainability behind something north of 2.5 percent for the U.S. economy?
O`SULLIVAN: Well, it`s two things, really. On the one side the growth
numbers are good enough and strong enough to tell us that worries about
dramatic slowing were overdone. On the other side, the inflation numbers
have been very tame. A big part of this morning as well, of course, was
the core at PCE price index that the Fed zeros in on and their goal over
time two percent with that inflation number and that number on the quarter basis is 1.3 percent this morning and, of course, we`ve heard pretty dovish commentary from Fed officials over the last couple of months, and with inflation as low as it is, it is pretty clear they`re not going to tighten
any time soon.
At the same time, with growth as strong as it is and the labor growth
numbers as strong as they are, and financial market as buoyant as they are,
they`re not going to ease either. But I think from the stock market`s
perspective, the Fed on hold story is a pretty good one.
EVANS: Finally, Jim, Bob Pisani mentioned this concern about China. It`s
still not clear if that country is doing OK. Is the U.S. able to continue
growing even if China`s weaker and Europe, as we know is weaker?
O`SULLIVAN: Well, I mean, even if China goes from what they reported 6.5
percent down to 6 percent or back up a little bit, it`s not going to
dramatically change, I would say U.S. growth. I mean, certainly to the
extent there are changes in China and that filters in to global financial
markets, I think that`s a different story. But certainly at this point,
global financial markets are buoyant. Obviously, we just hit a new record
on the S&P 500.
And so, I don`t think from that perspective, directly, China is that
important and plus at the same time the latest numbers out of China for the most part have actually been a little bit better.
EVANS: Jim, good stuff, thank you for your thoughts.
O`SULLIVAN: Thank you.
EVANS: Jim O`Sullivan is with High Frequency Economics.
Oil prices meantime came under pressure today after President Trump said he told OPEC members to lower prices. Domestic crude settled down about 3 percent and that snapped the commodity`s longest weekly win streak since the first half of 2015. Despite today`s decline, oil is still having a big
run-up this year. It still gained more than 35 percent.
Given that, you might assume that the country`s two largest oil producers
would be doing well, but that wasn`t the case when ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) reported earnings and both saw profits fall in the most recent quarter, and that sent their shares lower during today`s trading session.
Dominic Chu takes a closer look.
DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: One of the biggest drags on the Dow today is ExxonMobil (NYSE:XOM) after the integrated oil and gas giant, America`s most valuable energy company posted profits and sales that both fell below average analyst estimates.
Now, a big part of the story at ExxonMobil (NYSE:XOM) focused on the
downstream or refining and chemical operations. It said profit margins
were also weaker due to among other things, higher refinery maintenance
Now, a bright spot for Exxon Mobil (NYSE:XOM) remains on the production
side. Overall production of oil and as rose by 2 percent over the same
time last year. It now pumps out 4 million barrels per day.
And when it comes to U.S. shale production at the all-important Permian
Basin, that`s 140 percent higher than it was last year. A similar story
with fellow energy company Chevron (NYSE:CVX), the fellow Dow component was a drag on the overall index after it beat analyst estimates, but fell shy on revenues.
It, too, grappled with falling profits at downstream businesses like
refining and chemicals. But it also saw overall production rise like
ExxonMobil (NYSE:XOM) helped along by U.S., shale, oil and gas production.
For chevron, though, investors are perhaps more focused on its pending bid for smaller competitor Anadarko Petroleum (NYSE:APC). That deal was upset after Occidental Petroleum (NYSE:OXY) came up with its own bid that trumps Chevron (NYSE:CVX).
A key story for oil and gas in the coming months will be the trend of oil
prices as well as the possible merger activity as bigger players looked for
more U.S. acreage in shale assets.
For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.
EVANS: Now, trade negotiators from the U.S. and China are expected to meet next week. Today, the president and China sent a message to the U.S. and he did it in front of world leaders who are gathered at an infrastructure event in Beijing. That as we reported last night has been be a target of
Eunice Yoon is there.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Xi Jinping defended his Belt and Road initiative and addressed concerns about the massive infrastructure program here at the Belt and Road forum earlier today.
President Xi made a keynote speech countering criticism that the program is a death trap, unfairly favors Chinese companies and generally needs to be more open. President Xi said that China would ensure the financial
stability of the project, have zero tolerance for corruption, and choose
projects in a transparent way.
But President Xi pushed back on the worries stoked largely by Washington
with a veiled shot at the U.S. He said: We hope other countries will also
create an environment that enables investment, treats Chinese enterprises,
students and scholars as equals and provides a fair and friendly
Washington and Beijing have been blocking visas for people, the latest
weapon in their rivalry. His remarks show that despite the talk of
inclusiveness here, that China`s leadership is still fully aware of its
contributions to the frustrations of its trading partners like the United
States and that more conflict is likely, whatever happens with the trade
For NIGHTLY BUSINESS REPORT, I`m Eunice Yoon in Beijing.
EVANS: Here in the U.S., consumer sentiment remains near historic highs
despite softening in April. According to the University of Michigan
sentiment index, roughly 44 percent of respondents said they expect their
financial prospects to improve this year. That`s the best reading since
Economists say the report could signal that the consumer spend being is
poised to pick up because high level of sentiment and theory translate into
higher levels of spending. Amazon (NASDAQ:AMZN) is one beneficiary from all of that spending. Today, the e-commerce company said it is speeding up delivery for prime members. It`s making a big investment, to make one-day shipping the standard and it may have caught rivals like Target (NYSE:TGT) and Walmart off guard.
Courtney Reagan has the details.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: As Amazon (NASDAQ:AMZN) works to cut its U.S. prime delivery time in half from two days to one day, competing retailers have decisions to make. How much are they willing to spend to keep up with Amazon (NASDAQ:AMZN)?
Target (NYSE:TGT) and Walmart both offer two-day shipping online for
millions of items as long as you spend $35 and without a membership fee.
Amazon`s annual prime cost is 119 bucks.
AARON KESSLER, RAYMOND JAMES: Roughly 90 percent of the retail market is still offline. Roughly 10 percent online and Amazon (NASDAQ:AMZN) has a third of that market. I think clearly they`re making the bet that over the next foreseeable future with moving to one-day shipping, you can gain significantly more share from that offline market.
REAGAN: In response to Amazon`s new shipping goal, Target (NYSE:TGT) says it offers, quote, numerous ways to shop same day and receive purchases within hours at many stores, Target (NYSE:TGT) shoppers and pick up online orders in store with drive-up or order pickup. Target (NYSE:TGT) ships service the same day, but there is a $99 annual fee for that.
Walmart also has online order pickup options but declined to comment in
reaction to the Amazon (NASDAQ:AMZN) news.
CHARLES O`SHEA, MOODY`S AMAZON ANALYST: The buy online and pick up in store model is still incredibly effective for the brick and mortar guys,
and for Amazon (NASDAQ:AMZN) to keep pace without making a big expansion into brick and mortar, they`re going to need to go faster.
REAGAN: Most retail experts agree, the most ideal scenario is to have
both, a strong store strategy and efficient online operations. Traditional
store retailers like Walmart and Target (NYSE:TGT) have spent billions to
improve digital operations and speed up shipping while Amazon (NASDAQ:AMZN) has been building its physical store fleet.
YOUSSEF SQUALI, SUNTRUST MANAGING DIRECTOR: I think they woke up to that reality around two years ago when they acquired the Whole Foods. Having a dual online and offline strategies, the right one. But I don`t think
Amazon (NASDAQ:AMZN) is necessarily kind of losing that battle. I think
that process is progressing relatively slowly, and I think Amazon
(NASDAQ:AMZN) has the wherewithal. They have the smarts. They have the data to kind of have a big seat at the table.
REAGAN: Walmart and Target (NYSE:TGT) will have to decide whether to try to keep pace with Amazon`s one-day shipping goal and evaluate what that might cost. Amazon`s spending $800 million towards its goal in just the second quarter, and Walmart has already said its digital operations will
post a bigger loss this year than last.
SQUALI: This is something that over time will only differentiate the
Amazon (NASDAQ:AMZN) value proposition and will only make Amazon
(NASDAQ:AMZN) stronger and frankly, not great news for e-tailers and not
great news for retailers.
REAGAN: The big question remains, can Amazon (NASDAQ:AMZN) do it? As more prime members have joined, there are some customers that say shipping has slowed and isn`t also two days, but longer. But if Amazon (NASDAQ:AMZN) does succeed with one-day prime shipping, the bar and the cost just got even higher for competitors.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.
EVANS: And it`s time to take a look at some of today`s “Upgrades and
Starbucks (NASDAQ:SBUX) was downgraded to market perform from outperform at Wells Fargo (NYSE:WFC). The analyst says the shares are fully valued despite the coffee chain`s plan to expand in China. Their price target is $80. Despite the downgrade, shares rose a fraction today to $77.45.
Illinois Tool Works (NYSE:ITW) was upgraded to neutral from underweight at J.P. Morgan. The analyst there cites improving fundamentals at the global manufacturer. Their price target is $144. And today, shares closed at
$153.59, up about 1-1/2 percent.
Shutterfly (NASDAQ:SFLY) was also upgraded to outperform from market
perform at Raymond James. That analyst citing growth around Shutterfly`s growth business and their price target is 56 bucks. The stock rose 4
percent today to $43.85.
And still ahead, don`t bet against the American consumer. Our market
monitor has names she`s investing in for the long haul.
EVANS: A rare appearance in Wisconsin last night by executives of
Taiwanese electronics manufacturer Foxconn. The company has promised to build a $10 billion manufacturing complex in the state creating 13,000
jobs, but nearly two years after that pledge, the future is far from
Scott Cohn is at the site in Mt. Pleasant, Wisconsin.
SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: By now, a massive state-of-the-art plant was supposed to be rising on this sprawling site 25 miles south of Milwaukee, a symbol of a renaissance in U.S. manufacturing.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: It is a great day for
COHN: There is construction here, but it`s way behind schedule. They
haven`t even started on the main factory which Foxconn had promised to
break ground on by January. And the company has fallen short of its hiring
targets, only about a thousand jobs created thus far.
Perhaps most troubling, Foxconn has dropped its original plan to build
massive electronic display panels here. It will build smaller, less labor
intensive ones instead, with some $4.5 billion in state subsidies on the
line, the governor, Tony Evers, says it`s time to re-evaluate things.
GOV. TONY EVERS (D), WISCONSIN: Clearly, the deal we struck is no longer
COHN: The deal was a hallmarks achievement of his predecessor, Scott
Walker. Republicans who control the state legislature accused Evers, a
Democrat, of trying to sabotage the deal.
But he says Foxconn was the first to propose changes last month.
Foxconn`s state subsidies are tied to job creation, so if it doesn`t hire
the people, it doesn`t get the money. But there`s more to it than that.
As part of the deal, the state and local governments have been buying up
land, building roads, there are even plans for an eight-lane highway, the
total cost some $200 million.
For its part, Foxconn says it is still committed to its goals of hiring
13,000 people. The company says it plans to build the assembly plant in
the next 18 months, and it`s raising its profile in the state with
initiatives like a million dollar science and technology competition, but
the same executive who presided over the awards ceremony tweeted two days before: Who has the crystal ball to predict if 13,000 jobs will be created.
Foxconn in Wisconsin have a contract that says as much, and for this state,
there`s some serious money at stake.
For NIGHTLY BUSINESS REPORT, Scott Cohn, Mt. Pleasant, Wisconsin.
EVANS: Now, American Airlines cut its profit forecast and that`s where we
begin tonight`s “Market Focus”.
The career is facing higher fuel cost and taking a $350 million hit due to
the grounding of Boeing`s 737 MAX planes during busy summer travel season. But on that conference call with analysts, the CEO said he expects the jets to be flying again by mid-August.
(BEGIN VIDEO CLIP)
DOUG PARKER, AMERICAN AIRLINES CHAIRMAN & CEO: We came to the conclusion that we needed — we needed, for our customers` certainty and for our team members to put the start-up date as far out in the future as we thought — as we said and we need, like, 95 percent certainty. That the aircraft — that what we`re going to be selling, we`ll actually be flying. That`s what we think about August 19th.
(END VIDEO CLIP)
EVANS: American Air fell 1 percent to $33.06 today.
AutoNation (NYSE:AN) posted mixed first quarter results. The nation`s
largest automotive retailer topped earnings expectations, but revenue
missed. The CEO says the company sold fewer vehicles at a higher profit to
counter the weaker sales. Today, the stock surged 7 percent to $42.31.
And strong North American sales, particularly of toothpaste, helped
Colgate-Palmolive (NYSE:CL) post better than expected earnings. But the
consumer products giant did see a slump in Latin American and European
sales. Colgate also confirmed its full year sales guidance. The stock
rose just about 4 percent today to $71.30.
And the Justice Department has opened a criminal investigation into Ford`s emissions certification process. In February, Ford said it began an
internal investigation into the vehicle`s fuel economy and testing
procedures. This comes a day after Ford reported strong earnings, and the
shares jumped more than 10 percent to close at $10.41.
And it`s time for the weekly market monitor who likes consumer names she says will do well in an up or down market. This is the first time on the
program. She`s Sarah Henry, portfolio manager at Logan Capital Management.
SARAH HENRY, LOGAN CAPITAL MANAGEMENT PORTFOLIO MANAGER: Thank you.
EVANS: You have a number of picks here, some very familiar names for
everybody. Let`s begin with Pepsi.
HENRY: So, Pepsi, when you think about what constitutes a really, stable
stock, Pepsi has all the attributes. They have global reach, big brands.
They threw off a ton of cash flow and they`re important to retailers and
high frequency turn. So, we really think this stock will be a source of
enduring earnings growth over the next few years.
EVANS: OK. And how about Unilever (NYSE:UN)?
HENRY: So, Unilever (NYSE:UN), it`s a little bit of the same song,
different note. It`s a global, multinational HPC, personal care, food
refreshment and names like Ben & Jerry`s and Dove and they`re — the
preponderance of their revenue comes from the emerging markets. And so, those markets are growing much faster than developed markets and it
contributes to organic growth above expectations much of the time.
EVANS: Sarah, we heard from other companies like Colgate Palmolive that
that international exposure is actually a source of weakness. Are you
concerned with Unilever (NYSE:UN) that that strength might turn into a
HENRY: It`s reasonable to, you know, be careful about the emerging markets because they can be volatile at times, but we do not see that from the quarter that Unilever (NYSE:UN) just reported. We saw strength. We saw consumers in those regions searching for higher-priced items, which is
leading to higher margins. So, that company has done a good job at
bringing to market the things that consumers want.
EVANS: All right. And, finally, McDonald`s (NYSE:MCD), what`s the story
HENRY: So, McDonald`s (NYSE:MCD) going to report next week and they have really engineered a whole-scale, financial and entire renovation of their store base. They are rolling out the experience of the future stores which has caused them to raise CapEx spending a little bit, but they have been another reliable, organic grower. The thing that`s interesting with
McDonald`s (NYSE:MCD) is that it is a royalty story, so it has a tendency
to be less volatile than other stocks.
We often call it a mixed staples company because even though it resides in
the consumer discretionary realm, it is a very stable source of earnings
and one that`s likely to grow again for the next foreseeable future.
EVANS: All right. Sarah Henry with some good, solid picks in the consumer sector. She says they`d do well in an up or down market. Thanks for
HENRY: My pleasure.
EVANS: Sarah Henry with Logan Capital Management.
Coming up, the Silicon Valley start-up that`s offering a new hope for K-9s
EVANS: Here`s a look at what to watch next week.
Earnings continue to roll in. On Tuesday, we`ll hear from Dow component,
McDonald`s (NYSE:MCD), Merck (NYSE:MRK) and Pfizer (NYSE:PFE).
On Wednesday, the Federal Reserve will announce its decision on interest
rates and give investors more insight into what it might do next.
And on Friday, the government releases its monthly employment report.
And that`s what to watch next week.
Uber set a price range of $44 to $50 per share for its initial public
offering. That would give the ride hailing company a market cap between
$80 and $90 billion. They are looking to raise about $9 billion in cash.
In the filing, Uber said it lost about a billion dollars in the first
quarter. Reports say it could begin trading on the New York Stock Exchange in early May.
And it`s no secret that people spend a lot of money on their pets. That`s
especially true when they`re sick. Companies like Merck (NYSE:MRK) and
Zoetis play a big role in the fast-growing pet health market.
But now, a Silicon Valley start-up is developing a cutting-edge treatment,
using precision medicine to treat dogs with cancer.
Frank Holland has more.
FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lulu lost a leg to cancer, but not her spirit.
KATHY GUPTILL, LULU`S OWNER: There`s just so much about her that is
resilient. When things are down, she just goes right on.
HOLLAND: The 11-year-old malty pooh was limping when Kathy Guptill came home. Lulu has knee problems so it wasn`t a surprise, but the diagnosis was a shock.
GUPTILL: He called the next day and said she has a tumor there and it`s
probably a sarcoma.
HOLLAND: It is a myxosarcoma, a cancer that is aggressive and has the
potential to spread and is more likely to occur. One in three dogs will
get some form of cancer during their lifetime.
Lulu`s family tried something cutting edge. It`s called FidoCure from
Silicon Valley start-up One Health. FidoCure uses gene mapping to create
targeted treatments using human cancer drugs.
CHRISTINA LOPES, ONE HEALTH CO-FOUNDER & CEO: We do the genomic testing. What that means is it`s a characterization from that tumor, so we
understand what`s driving that dog`s cancer. We come from the principle,
the scientific principle that every cancer is unique.
HOLLAND: Dr. Christina Lopes is co-founder and CEO of One Health. She
says FidoCure is less expensive in chemotherapy which can cause as much as $10,000.
DR. AARTI SABHLOK, VETERINARY ONCOLOGIST: Good morning.
HOLLAND: Overall, the pet cancer therapeutics market is growing by more
than 10 per year, and is expected to reach $300 million by 2024.
SABHLOK: Hi, sweet girl.
HOLLAND: Lulu`s vet says she used a different chemotherapy and drugs that she would have normally because of FidoCure.
SABHLOK: I`m now able to come to the clients and say, your dog`s tumor,
these are the drugs that are going to be effective, and then here`s the way
I would start doing this.
HOLLAND: One Health provided data on a small sample of 38 dogs that did
not respond to other treatments and were considered terminal, before they
were given drugs by a vet using FidoCure. Patients in this group were
given treatments ranging from 13 months ago to as recently as two months
ago. As of now, almost two-thirds of those dogs are still alive.
GUPTILL: Good job! That was perfect.
HOLLAND: Lulu is in remission now, a relief for her family?
GUPTILL: She takes a lick and he keeps on ticking.
HOLLAND: For NIGHTLY BUSINESS REPORT, I`m Frank Holland.
EVANS: And before we go, let`s take a final look at the day on Wall
Street. The Dow was up 81 points, the Nasdaq added 27, and S&P gained 13.
And it was a mixed finish for the week with the Dow slightly lower, the
Nasdaq and S&P higher.
And that`s NIGHTLY BUSINESS REPORT for tonight. I`m Kelly Evans. Thanks for watching and have a great weekend, everyone. We`ll see you Monday.
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