ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Win streak snapped. The Dow falls for the first time in four sessions, taking a spill right before the closing bell rang.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Bolstering the economy. President Trump said he`s considering a number of tax cuts as growth concerns mount.
GRIFFETH: Speedy delivery. Domino`s is creating an innovation lab, and it has nothing to do with its menu.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, August 20th.
HERERA: Good evening, everyone, and welcome.
The strong run of the past few days did not last. Stocks slipped as, you guessed it, bond yields retreated. Global growth concerns hung over Wall Street as did geopolitical uncertainty, and all of that made for a down day that saw losses accelerate into the close.
The Dow Jones Industrial Average fell 173 points to 25,962. The Nasdaq was down 54 and the S&P 500 slipped 23.
GRIFFETH: One of the bright spots today was Home Depot (NYSE:HD). The world`s largest home improvement retailer reported better-than-expected earnings and that sent its shares up more than 4 percent, making it the top performing stock in the Dow today. But the company did lower its sales outlook for the whole year amid concerns about the economy and the trade war.
Courtney Reagan has more.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: While, recession fears loom and there are signs of slowing economic growth, Home Depot (NYSE:HD) executives say the consumer remains healthy and the housing market is stable, though it wasn`t a perfect quarter for the home improvement retailer.
Lumber price deflation continues to weigh on sales. Prices are more than 50 percent lower than a year ago, and a big reason comparable sales disappointed. Unseasonable weather delayed some home improvement projects early in the quarter, though as the weather improved so did sales.
However, sales of big ticket items like flooring and appliances were strong as were sales to professionals like contractors as pros continue to work through a backlog of projects from poor weather earlier in the year.
But Home Depot (NYSE:HD) did lower its annual sales forecast as it expects lumber price deflation to continue and the broader impact tariffs could have on consumer spending. Chief financial officer Carol Tome told me she estimates total tariff exposure to Home Depot (NYSE:HD) is around $2 billion or 2 percent of U.S. sales, which she calls, quote, manageable for our scale and size.
Home Depot (NYSE:HD) is taking a three-prong approach to manage tariffs. Negotiating with vendors, finding other ways to mitigate higher costs, moving products production and, lastly, making careful decisions about which items it can increase prices on.
While Tome is confident Home Depot (NYSE:HD) can manage the tariffs, she added, quote, what happens to consumers more broadly with tariffs? If consumers start to slow down spending more broadly, could it have an impact on GDP? A concern echoed by Wall Street.
CHRIS HORVERS, JP MORGAN RETAIL ANALYST: The risk around tariffs I think is very manageable. We estimate the average retailer will only have to raise prices 5 percent to 7 percent, and that`s assuming that vendors don`t help them out. So, it is really going to be a question of what happens in 2020, because if they don`t go away, that`s a whole another discussion.
REAGAN: But even if it can manage tariffs, not all analysts are convinced Home Depot (NYSE:HD) will continue its strong run.
LIZ SUZUKI, BANK OF AMERICA MERRILL LYNCH: When we look into at the full- year 2019, you know, we are past Home Depot`s peak, same-store sales growth year which was 2017. We are past the peak growth years which was 2018. So, now, we are cycling through all these peaks and we`re at a point of deceleration.
You know, the stock is up 25 percent this year. Have the fundamentals improved 25 percent year-to-date? Like I don`t think that we are at that point.
REAGAN: Leaving a lot of uncertainty in the wake of a relatively stable quarter.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.
HERERA: Sales also missed the mark at Kohl`s (NYSE:KSS) despite reporting better than expected earnings. The retailer forecasted a steeper than expected decline in profit margins due to a potential hit from new tariffs on imports from China.
That sent the stock down by more than 6 percent. Shares of TJX companies were also lower. The parent company of T.J. Maxx and Home Goods warned that third quarter profits will come in below estimates on an increase in competition.
GRIFFETH: And in Washington, the focus is very much on the economy right now, even though the president has said we`re far from a recession. He admitted today that he is examining a number of stimulus measures including more tax cuts.
Eamon Javers is at the White House for us tonight.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Some back and forth over the past 24 hours here at the White House over the idea of a payroll tax cut. Yesterday, the White House denying the news report that suggested that the White House wanted to move forward on a payroll tax cut.
Well, today the president said he`s considering it. Here is what the president said today talking to reporters in the Oval Office, and also mentioning the idea of indexing capital gains, another tax cut proposal the White House is considering.
DONALD TRUMP, PRESIDENT OF THE UNITED STATES: A lot of people have been talking about indexing for many years, and it is something that I am certainly thinking about. I can say that a majority of the people in the White House at the level that does this kind of thing, they like indexing. So, it is something I`m thinking about.
Payroll taxes, I`ve been thinking about payroll taxes for a long time, whether or not we do it now or not is — it`s not being done because of recession.
JAVERS: the president there obviously sensitive about the idea that there`s a recession looming. He insists there`s not and that`s not why they`re considering these ideas. Nonetheless, he is also pushing the Federal Reserve today for 100-basis point cut in interest rate, although the president says he doesn`t want that cut all at one time. We`ll see what the Fed has to say about that too.
For NIGHTLY BUSINESS REPORT, I`m Eamon Javers at the White House.
HERERA: Overseas, the British economy shrank for the first time in almost seven years. Economists cite a combination of Brexit uncertainty and slowing global growth. The slowdown occurred across Britain`s manufacturing, construction and agriculture sectors. According to official statistics, only the services sector showed growth.
GRIFFETH: Italy has its own economic challenges right now, and tonight, it also is without a prime minister. Giuseppe Conte abruptly tendered his resignation today after days of political infighting, adding a new level of uncertainty to a country with an enormous pile of debt.
Willem Marx reports for us tonight from Rome.
WILLEM MARX, NIGHTLY BUSINESS REPORT CORRESPONDENT: Italy`s professor turned premier, Giuseppe Conte, faced down rows of unruly opposition senators Tuesday afternoon.
The country`s political class was forced back early from summer recess and the school`s new rebels came out in force.
When Conte lectured, they hectored, including many members of a party that until today had served with him in government. Conte`s antagonist in chief remained as in recent weeks his deputy and interior minister, Matteo Salvini.
GIUSEPPE CONTE, ITALIAN PRIME MINISTER (through translator): Dear Matteo, by starting this government crisis, you take a great responsibility towards the country. You announce this crisis asking full powers to rule the country, and again recently, I have heard you calling the people in the squares to support you. This idea, allow me to say, is preoccupying me.
MARX: Seated at his right-hand side, Conte`s very own Judas smirked and sarcastically shook responsibility for the failures of the government he helped form just last May.
MATTEO SALVINI, DEPUTY PRIME MINISTER (through translator): I`m sorry you had to put up badly with me for a year. I didn`t understand that. I`m sorry for that.
MARX: Salvini with his populist power formed (ph) has stayed in campaign mode much of the summer, but even his natural political allies say he`s a mistimed the push to seize power with his demand for fresh elections.
LUCIO MALAN, ITALIAN PEOPLE OF FREEDOM PARTY: He thought that only he was the wise guy to make the moves and the others would stay there waiting for him to — to have his final blow. But they did what he did.
MARX: Salvini`s former partners, the Five Star Movement, could now join unexpectedly with the opposition Democratic Party to form an alternative coalition, but that`s a tie-up that could prove just as tortuous.
Conte`s decision to resign leaves a large vacancy tonight in the building behind me, the Palazzo Chigi, the powerful center of Italy`s executive branch. And as investors and businesses follow the consultations and negotiations that will now be spearheaded by Italy`s president as he tries to craft a new parliamentary majority, the political uncertainty and the potential risk that may accompany that could will remain rather high.
Italy`s financial ministry must submit a draft proposal for its annual budget to European commission by mid-October. Last fall, Italy`s budgetary battles in parliament spooked global markets.
And despite record low yields elsewhere in Europe, Italy remains an economic outlier with its massive debt pile and little political will to trim spending. The jeers and jokes in parliament suggest far too few politicians here are prepared to take those challenges as seriously as markets might like.
For NIGHTLY BUSINESS REPORT, I`m Willem Marx in Rome.
HERERA: It is time to take a look at some of today`s “Upgrades and Downgrades”.
AbbVie was upgraded to overweight from neutral at Piper Jaffray. The analyst says the worst may finally be over for the drugmaker`s stock which is down more than 25 percent so far this year. The price target is $80. Despite the upgrade, the stock fell a fraction to $66.41.
Beyond Meat was upgraded to overweight from neutral at J.P. Morgan. The analyst cites the potential for the plant-based burger market to acquire new customers. The price target is $188. The stock rose 6.5 percent to $153.97.
HP was downgraded to neutral from buy at Citi. The analyst cites limited catalysts that would move the stock. The price target is $21. The stock slipped 1.5 percent to $18.91.
GRIFFETH: Still ahead, investors first, CEOs say maybe not. Yesterday, we brought you one side of the debate. Tonight, the other.
HERERA: A top antitrust official at the Department of Justice said today a couple of dozen states have expressed interest in investigating big tech. Makan Delrahim made the comments at the Technology Policy Institute.
(BEGIN VIDEO CLIP)
MAKAN DELRAHIM, ASSISTANT ATTORNEY GENERAL ANTITRUST DIVISION: I think it is safe to say that we`re all in the same place, having had conversations with the state attorneys general. At the federal level and the state A.G.s, I don`t think — you know, they`re at different stages of investigation.
(END VIDEO CLIP)
HERERA: The investigation is expected to be bipartisan, and as we reported last night the state attorneys general want to examine whether some dominant companies are using their power to limit competition.
GRIFFETH: Apple (NASDAQ:AAPL) is reportedly spending a lot of money to compete with Amazon (NASDAQ:AMZN) and Netflix (NASDAQ:NFLX). “The Financial Times” says that the company has committed more than $6 billion for original programs as it prepares to launch its streaming service called TV Plus sometime this fall.
Yesterday, Apple (NASDAQ:AAPL) released a trailer for a new original series called “The Morning Show” starring Reese Witherspoon and Jennifer Aniston, which reportedly cost more per episode than “Game of Thrones” cost in its final season.
HERERA: And it is not just Apple (NASDAQ:AAPL) spending more. Consumers as well when it comes to electronic devices. And like other areas of retail, how and where those purchases are being made is changing.
Josh Lipton has the next installment in our look at the American consumer.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: It used to be that shoppers wanted to touch and feel cool, new electronics before buying them, but not anymore. Many are OK spending money sight unseen, which is why sales of devices in store are falling and purchases online are rising. And they`re willing to pay up for what they want.
STEPHEN BAKER, NPD GROUP: The math here tells you that average selling prices are going to be going up as consumers make those choices to spend a little bit more than they might have in the past.
LIPTON: the industry is entering a new phase. Many consumers already have the gadgets they want and need, so when they buy new electronics, they often trade up for more expensive items.
UNIDENTIFIED FEMALE: I`m looking to buy a new phone actually. I`m using the iPhone 6 right now, but it`s — it`s pretty old.
UNIDENTIFIED MALE: I really like air pod. They`re pretty convenient.
UNIDENTIFIED FEMALE: My roommates and I own a TV.
LIPTON: That`s where demand is strongest, for things like high-end wireless headphones as well as health and fitness devices. That benefits Apple (NASDAQ:AAPL) with its watch and air pods.
Another hot area, smart home products like Amazon (NASDAQ:AMZN) and Google`s smart speakers, thermostats and doorbells. When consumers watch sports and movies, they want large screen televisions like the 65-inch ones sold by Samsung, LG and Sony (NYSE:SNE), which are about 35 percent more expensive than the average TV.
As for PCs, that market sure isn`t growing like it used to, but certain segments within that market like gaming PCs made by Dell (NASDAQ:DELL) and HP remain in demand.
What categories are under pressure? Basic headphones, small screen TVs and thanks in part to smartphones, traditional point-and-shoot cameras. Speaking of smartphones, the U.S. smartphone market this year is expected to decline nearly 9 percent.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.
GRIFFETH: U.S. Steel is making cuts and that is where we begin tonight`s “Market Focus”, with the company saying it plans to layoff nearly 200 workers at a Michigan plant because of low prices and soft demand for steel. The steelmaker says that the lay-offs will affect employees in nearly every area of the facility and it could last beyond six months. Shares were down a fraction today to $12.31.
Medtronic (NYSE:MDT) saw an increase in its demand for its surgical instruments and diabetes devices, which helped the company top Wall Street estimates. The medical device maker also raised its full-year outlook. Stock rose more than 2 percent today to $106.91.
Madison Square Garden (NASDAQ:MSG) posted a wider than expected loss, and it fell short of expectations. The entertainment and sports operator was hurt by increased personnel costs and expenses connected to a proposed spin-off of the company`s sports business. Shares dropped nearly 9 percent today to $267.33.
HERERA: Cigna is reportedly seeking a sale of its group benefits insurance business, which could be worth nearly $6 billion. Reuters says the health insurer is working with an investment bank to sell the unit which includes life insurance and disability coverage for groups of company employees. The stock was down more than 1 percent to $161.15.
Endo pharmaceutical is reportedly close to making a deal over opioid- related charges. The “Wall Street Journal” says the drugmaker is looking to finalize a $10 million settlement with two Ohio counties that named the company. Endo`s shares rose more than 18 percent to just about $3.02.
Boeing (NYSE:BA) plans to hire a few hundred temporary employees to work on its grounded 737 MAX fleet. The workers will be providing aircraft maintenance and customer delivery preparations. Boeing (NYSE:BA) was off a fraction to $331.75.
And after the bell, the homebuilder Toll Brothers (NYSE:TOL) posted better than expected results. The company cited low mortgage rates, a limited supply of new and existing homes and strong employment. Shares were volatile in the after hours trading. They closed the regular session up more than 1 percent to $36.91.
Last night, we told you that the Business Roundtable is redefining its statement of the purpose of a corporation, to better reflect decisions based on stakeholder values and not solely on shareholder values. Last night`s guest thought that move was a bad idea.
Joining us to show an opposing view of that is Martin Whittaker. He`s the CEO of the nonprofit research firm Just Capital.
Welcome. Nice to have you here, Martin.
MARTIN WHITTAKER, JUST CAPITAL CEO: Thank you, Sue. Thanks for having me on.
HERERA: Our guest last night made the point he thought it was a bad decision. He said it had been put in place before and it didn`t work, and because shareholders are basically giving their money to the corporation, they should be put first. What`s wrong with that argument?
WHITTAKER: Well, for one thing, it`s not really the case that looking after your workers or treating your customers well or making great products or investing in the communities, where you operate is antithetical to serving your shareholders well. It`s not an either/or game.
What we found is the businesses that look after stakeholders do better in the market. So, we think it`s a great move. We applaud what Business Roundtable has done. You know, this is an historic moment we think. It also aligns with how the American people want companies to behave.
We have surveyed thousands of people over the last five years all across America, all different backgrounds, and this is exactly what they tell us.
GRIFFETH: This guest from last night that we`re referring to was Charles Elson. He runs the Weinberg Center for Corporate Governance at the University of Delaware. His point was, look, when you are trying to please everybody, you end up pleasing nobody.
Here`s what he said. Listen.
(BEGIN VIDEO CLIP)
CHARLES ELSON, UNIVERSITY OF DELAWARE: The watch stops, it still gets the time right twice a day. You have multiple constituencies you answer to, you`re going to get it right for somebody, but it doesn`t mean a healthy business. And for shareholders, being deep-sixed like this, particularly given the fact that today, everyone is a shareholder through the retirement plan, state pension plans and whatnot, it really will harm I think accountability of management to the shareholder and the public.
(END VIDEO CLIP)
GRIFFETH: Essentially maybe the company loses focus when they get away from the idea that it is all about profitability. What do you think?
WHITTAKER: I think he`s completely wrong. You only have to talk to leading CEOs today to understand that the way to build a healthy company is to look after all of your stakeholders. Shareholders will win in the end. Our own research and our own data and our own funds show that. Unfortunately, I think this is a view that I think, you know, reflects history, not the future.
HERERA: You know, also there are those making the point that income inequality has partly been a product of companies putting the bottom line before other things. I would assume you would agree with that.
WHITTAKER: Absolutely. When you look at the income inequality in this country, when you look at how we need businesses working for more Americans, you know, we need to get the American dream back. We need life breathed into it.
Jamie Dimon, chairman of the Business Roundtable, said the American dream is fraying, but it`s alive. Our own work shows that people just want a fair shake, and I think if they think the business is working for them, not against them, and they think that people are going to be, you know, sharing fairly in a company`s profits, that`s going to make them better employees. They`re going to serve their customers better.
And guess what? Management, shareholders, they`re going to win. Now, it is not easy to do, but we see companies doing that all the time.
That`s what we do for a living at Just Capital. We track that. The time has come we think to really, you know, put that center stage, and now the next stage is, OK, let`s track companies and see how they`re actually doing on implementing this new stakeholder model.
HERERA: Mr. Whittaker, thanks so much for spending time with us.
WHITTAKER: My pleasure.
HERERA: Martin Whittaker with Just Capital.
GRIFFETH: And coming up, why a fast food company`s secret sauce has nothing to do with food.
HERERA: Here is a look at what to watch for tomorrow. Retailers report earnings including Target (NYSE:TGT), Nordstrom (NYSE:JWN) and Lowe`s. And we`ll find out if lower mortgage rates helped lift sales of existing homes in July and the Federal Reserve releases its minutes of the last meeting where it lowered bench mark interest rates. And that`s what to watch for on Wednesday.
GRIFFETH: When you think of innovation, you likely think of Silicon Valley, not fast food. But Domino`s is very much into innovation, and it is one example of a company that will not rest until it figures out how to improve not pizza but pizza delivery.
Kate Rogers (NYSE:ROG) is in Ann Arbor, Michigan, for us.
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Domino`s may be an established global pizza powerhouse, but in its innovation garage, it`s looking more like a startup. It`s here where teams from across the country come to collaborate and brainstorm new ideas that are not related to the menu.
RITCH ALLISON, DOMINO`S CEO: We put this in place really to help us continue to accelerate innovation in all things delivery. So, we`re able to stand up or break down a store in a matter of hours. We can look at how we interface with things like this Nuro robot, how team members utilize the technology in the stores to make sure we`re as efficient and cost effective as we can possibly be.
ROGERS: Delivery has become a focal point for the industry, so there`s a dedicated space for testing new offerings including GPS tracking for orders, which is expected to roll out by the end of the year. E-bikes are being looked at as a way to delivery food in certain geographic areas.
And there`s this. The Nuro robot is also being deployed in Houston later this year. It is an unmanned vehicle that could show up at your door. To use it the customer enters a code right here.
VOICE PROMPT: Enter your four digit access code. Great. Opening door.
ROGERS: The doors open on up. You grab your pizza and go. There`s always no tipping necessary.
Domino`s isn`t the only major restaurant letting investors and shareholders behind the scene as it innovates. Starbucks (NASDAQ:SBUX) also has a hub called the Tryer Center where it is testing out new menu items, delivery techniques, and the store formats at its headquarters in Seattle.
For Domino`s it`s important to develop new delivery ideas on its own. Unlike many of its competitors who have teamed up with companies like DoorDash and Grubhub, Allison maintains keeping delivery in house as Domino`s continues to expand and put stores closer to one another will be the right strategy for the brand long term.
ALLISON: The first reason is we`re not going to out source the customer experience to someone else. So, we want our customers interfacing with us through any one of number, you know, 20-odd ways that they can order pizza from us, but when that delivery happens the only human interaction is when that delivery expert. We want that to be a Domino`s trained delivery expert, so we own that process from start to finish.
ROGERS: As the battle heats up in the fast food space with the delivery now available for nearly any type of food customers are craving, companies are working overtime to stay ahead and innovate.
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG) in Ann Arbor, Michigan.
HERERA: Before we go, here is another look at the day`s final numbers on Wall Street. The Dow fell 173 points to 25,962. The Nasdaq was down 54, and the S&P 500 slipped 23.
That`s NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for joining us, and we would like to remind you that this is the time of year your public television station seeks your support.
GRIFFETH: I`m Bill Griffeth. Thank you very much for that support. Have a great evening. See you tomorrow.
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