SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: The bulls are back. Stocks kick off this big earnings week with even bigger gain. And attention turns tonight to bluest of blue chips, IBM.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Pulse check. The one sector to watch as roughly 40 percent of the Dow Jones Industrial Average report results.
HERERA: Five years later. From big oil to the seafood industry, why business in the gulf will never be the same.
All that and more tonight on NIGHTLY BUSINESS REPORT for Monday, April 20th.
Good evening, everybody.
GRIFFETH: And I’m Bill Griffeth, in tonight for Tyler Mathisen. Always be glad to be back with you there, Sue.
HERERA: Nice to have you.
GRIFFETH: Bounce back. That’s what stocks did following Friday’s steep decline, and they did it in a big way. The Dow Jones Industrial Average gains more than 200 points today, putting it back within reach of a new record. Investors were encouraged by more stimulus out of China over the weekend and by more upbeat earning results here at home.
At the close, the blue chip index was up 208 points to 18,034. The NASDAQ gained nearly 63 points, best day it had since February. The S&P was up by 19.
And now, attention does turn to bluest of blue chips, IBM. The company reported earnings late tonight and its results could set the tune for trading tomorrow. IBM earned $2.91 a share. The beat estimates by 11 cents, but revenue of almost $20 billion was below expectations and actually way off from the same period last year.
Be that as it may, shares were volatiles in after hour trades.
Josh Lipton, though, has one of the key takeaways from that IBM report.
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: The big number for IBM, revenue of $19.6 billion. And that did disappoint Wall Street’s expectation, IBM facing a range of challenges, including a rising dollar and that hardware business.
Bulls are focusing on what IBM calls its strategic imperatives, and that includes cloud analytics and mobile businesses. They were up 20 percent, even stronger when adjusted for currency. And that’s the hope of IBM optimistic to scale higher value high value products and services quickly.
For NIGHTLY BUSINESS REPORT, I’m Josh Lipton in San Francisco.
HERERA: IBM though is just the start. This week, we’ll get results from more than a quarter of the S&P 500 and a handful of Dow members. And what these big companies report could tell us about the economy, the health of it and the American business.
HERERA (voice-over): Big names from Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN) to Starbucks (NASDAQ:SBUX) and McDonald’s (NYSE:MCD) will make this a tech and consumer-heavy earnings week. What will they tell us? The first quarter’s dual headwinds, bad weather and strengthening U.S. dollar are expected to drag down earnings numbers.
Moving forward, the bad weather has subsided. But a strong and still growing U.S dollar is making American products more expensive in the global marketplace. It’s not easy to gauge the effects of higher prices for industrial hardware international flights, and many of your favorite foods, snacks and grocery items.
But the proofs should be in the earnings report.
JAMES LIU: On the export side, it’s very and notoriously hard to measure what exactly is the U.S. dollar effect on these companies. So, this will give us a chance to see exactly what happened.
HERERA: The dollar has strengthened in part, thanks to changing central bank policies around the world, which combined with the projected earnings slowdown have kept stocks range-bound this year.
DAN GREENHAUS, BTIG CHIEF GLOBAL STRATEGIST: When you have a situation where stocks are fairly highly priced, earnings momentum have slowed, central bank policy has shifted from accommodative to potentially less accommodative, dare I say, which is not at all, but less accommodative, you have an environment from favorable for stock prices to less favorable for stock prices.
HERERA: Earnings will also give us a better picture of how the American consumer is doing. Spending was barely up during first quarter, despite decent hiring and income numbers. One bright spot in the stock market, tech stocks. The NASDAQ is up more than 4 percent for 2015, well ahead of the both the Dow and S&P 500.
Tomorrow, we hear from Verizon (NYSE:VZ) and Yahoo (NASDAQ:YHOO), along with Yum Brands (NYSE:YUM) which owns Kentucky Fried Chicken, among others, and Chipotle.
On Wednesday, it’s Facebook (NASDAQ:FB), along with Coca-Cola (NYSE:KO) and McDonald’s (NYSE:MCD), two consumer multinationals exposed to the stronger dollars. And Thursday, tech all-star’s Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN) report, along with big consumer names like P&G, Pepsi, Hershey’s and Starbucks (NASDAQ:SBUX).
GRIFFETH: Busy week.
Andrew Burkly joins us now talk more about the first quarter earnings and the one sector he says investors need to watch. Andrew is a portfolio strategist wit Oppenheimer and Company.
Good to se you again. Welcome back.
We’ll get to that one sector in just a moment. But, first, overall, you know, expectations for the first quarter were very low. How are doing so far to meet those expectations, do you think?
ANDREW BURKLY, OPPENHEIMMER & CO. PORTFOLIO STRATEGIST: So far so good. As you said, the bar was relatively low coming into earnings sea consensus was earnings to be down 5 percent in Q1. Right now, we’re tracking a little bit better than that. We’re still early in the season. But about 75 percent of companies have been beating the EPS numbers but much fewer on top line revenue side. So, only about 50 percent of companies are doing on the top line, which is basically showing that companies are doing a pretty good job of managing cost in a pretty difficult revenue environment.
HERERA: So, is it going to be a positive earnings season or slightly in the negative?
BURKLY: Well, I think the numbers will be slightly down no matter what, and largely because energy will be such a big drag in terms of the overall number. I mean, energy earnings are going to be down almost 60 percent quarter over quarter, materials are going to be firmly negative as well. So, even the positive sectors like health care, financials, and techs, which are going to show pretty good earnings growth, they’re not going to be enough to offset those big losses that we’ve seen on the commodity side.
So, relative expectations are a little bit better, but the number is still likely going to be negative for the few ones.
GRIFFETH: You anticipated this question, but let me ask you, anyway — the winners and losers in the season. You mentioned health care. They are certainly among the winners. Who are some of the losers as well?
BURKLY: Yes. Well, health care definitely is going to be number one in terms of earnings, up double digit. Energy is going to be worse in terms of downside negative earnings, and that’s because of the price of crude oil is down so much in the quarter. Now, even within energy expectations is probably too low. They’re going to be better than expected but they’re still going to be pretty firmly negative.
The other losers are going to be utilities and telecom which are likely to post negative year over year growth as well.
HERERA: On the flip side, though, if you look at your expectations in terms of the winners, we’ve mentioned health care, but you have a double digit number on that. But financials and also consumer discretionary.
BURKLY: Yes, financials and consumer discretionary as well. You know, certainly, the two health care and consumer discretionary have been good sectors year to date, kind of relative out performers, so the market is flocking to EPS growth and have been sniffing that out a little bit.
Now, once you got to consumer, it’s going to be a little dispersed. You know, you’re going to have winners and losers in there. Restaurants is going to be one pocket of strength. And some of those names will be reporting this week.
GRIFFETH: So, finally, the one sector to keep an eye on, is that health care? What are you seeing?
BURKLY: Yes, I would say health care. I mean, it’s really been the area with the top line revenue and EPS growth and I think that’s really going to be the leadership area for this market.
HERERA: What about the overall market? I mean, if we have a slightly negative quarter for earnings, but you have some pretty strong financials and health care, can the overall market continue to perform, continue to outpace?
BURKLY: Yes, I think you really have to ask yourself, you know, is this down earnings in Q1 going to repeat itself in Q2 and Q3? In the sense, like, is that a pattern? Are we peaking here in terms of earnings is growing over, or is it more of a temporary blip?
We think it is a temporary setback. You know, we think some of those factors like the strong dollar, big oil price decline and even the weather induce slowdown in GDP, they’re all likely reverse themselves as we get into Q2, Q3.
So, you know, we think it’s temporary and we think the stock market will move higher as we get past this little blip in earnings we’re seeing here.
GRIFFETH: Andrew Burkly with Oppenheimer and Company — thanks for joining us tonight, Andrew.
BURKLY: You’re welcome.
HERERA: It wasn’t just earnings that investors in a buying mode, but also stimulus out of China. That country’s central bank lower the amount of cash that large banks must keep on reserve, a move designed to shore up the economy by freeing up money the banks can then lend.
Earlier, I spoke to Eunice Yoon who usually reports for us from Beijing but was here in studio, and I asked her just how aggressive this move was by the Central Bank.
EUNICE YOON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Oh, it’s definitely an aggressive move. It’s a hundred basis points. Usually, we do see cuts as a way to prop up the economy or stimulate it, but the moves are 50 basis points. So, this was a big move — the biggest move we’ve seen since the global financial crisis, and it really was a very scary signal to some investors.
HERERA: Yes, some investors might be worried that perhaps things are worse off in China than we thought they were. We know they’ve been trying to negotiate a slow down in the economy, but there’s also worries about credit. So, is there something we should be concerned about?
YOON: Well, that’s what a lot of people are wondering, because what’s clear is that the policymakers are more nervous than they were months ago. We saw this very big move and it’s coming off a very bad economic data. So, the first quarter, the Q1 GDP came in at 7 percent. But that was the headline number that — the headline number was one thing, but it was the March data this scared people because we saw instead of pick up that everyone was expecting, we saw tapering off of the March data.
So that’s why a lot of people are wondering where is this all going to go.
HERERA: What else, if this does not work, or if they don’t get kind of the stimulus they want out of this particular move, what else can they do?
YOON: Well, they still could cut interest rates. They still cut the reserve requirement ratio, again — there are still infrastructure spending, other targeted measures for the property sector, for example, which is falling.
But at the same time, one of the disconcerting issues people had about this move was that, what we’re seeing is that the government is trying to get money to the right places, we’ve seen for a while that money is going to the wrong places to companies that have a lot of debt, political connections, but really are not productive.
HERERA: And how much time do you think we need to see whether or not this particular move is successful?
YOON: It’s going to take several months at least — usually these types of moves take time to really trickle through. But again, a lot of people are hoping we will see money moving to the right place.
HERERA: All right. Eunice Yoon, so nice to have you in studio. We really appreciate it.
YOON: Thank you.
HERERA: Eunice Yoon.
GRIFFETH: Well, in Greece, that country has ordered local governments to transfer all cash balances to the central bank. The move comes as its cash crunch worsens and debt to the International Monetary Fund comes due.
Standard and Poor’s as you may heard, recently, recently reported that Greece could run out of cash by mid-May.
HERERA: Oil prices were higher today after a drop in U.S. crude stock eased over stock concerns, that outweighed worries about potential record products from Saudi Arabia. West Texas Intermediate rose 1 percent to $56.38.
And it was five years ago five years ago oil began gushing from BP’s oil well into the Gulf of Mexico. And as Jackie DeAngelis from Norco, Louisiana, the impact on businesses is still being felt today.
JACKIE DEANGELIS, NIGHTLY BUSINESS REPORT CORRESPONDENT: This was the scene five years ago today, thousands of gallons of oil gushing into the Gulf of Mexico following the explosion on BP’s Deepwater Horizon’s platform resulting in the biggest environmental disaster in U.S. history.
RANDALL COLLUM JR., GENSCAPE MANAGING DIRECTOR: Here we are five years after the fact. And for deepwater operator, it will never be the same.
DEANGELIS: That’s the takeaway felt by nearly everyone, not for big oil doing business here, not for the seafood industry. Not for the environment. But that doesn’t mean business isn’t getting done, it just means it’s changing.
As a matter of fact, the pace of offshore drilling in the Gulf is rising, though it still not at pre-spill levels.
According to Genscape’s Randall Collum, one of the biggest challenges operating in an environment where it’s 20 percent to 30 percent less efficient to drill post-spill. The reasons, new well design requirements, the need for increased blowout prevention, and contingency equipment to prevent scene like this from following in the future.
COLLUM: Everyone has seen how it has impacted BP, the stain to their reputation, the cost it has impacted to the company, and nobody wants to have to face that.
DEANGELIS: Also hoping to avoid repeat situation, oyster farmers of Louisiana, many of whom fear the impact they current feel will last for years longer.
AL SUNSERI, P&J OYSTER COMPANY OWNER: Over on this side, we have six people opening oyster and on this side, we’d have seven, and all combined, you’re looking at 18 oyster shuckers.
DEANGELIS: Al Sunseri distributes oysters at his third generation family business based in New Orleans and says to this day, the availability of oysters has dwindled, leaving him to layoff nearly his entire staff.
And on the water, where oyster farmers harvest their product, Mitch Jurisich Jr. says production is way down from pre-spill level, but prices are up nearly 300 percent, helping make up the difference.
MITCH JURISICH JR., JURISICH OYSTERS CO-OWNER: I’m down a third of where I used to be. But that’s still not bad because the price of oysters are three to four times higher than it was. So, it’s kind of offset the balance. Production is down but the prices are up. So, you know, we’re still hanging in there.
DEANGELIS: As the oyster industry forges forward, so does that of big oil. Plan for off-shore drilling projects that had been in the works for years are not going to be abandoned.
Genscape estimates 15 to 20 new water platforms coming on line in the next five to six years. And says despite the higher cost of production in the Gulf, it’s still profitable.
(on camera): Five years ago, nearly 200 million gallons of were spilled into the Gulf of Mexico and eleven were killed. The goal right now is to make sure a spill of that magnitude never happened again. To take responsibility, bit oil players like Exxon, Chevron (NYSE:CVX) and Shell have created a consortium to take responsibility for big oil’s role in the industry. They are working on safety, prevention, and restoration.
In Norco, Louisiana, I’m Jackie DeAngelis, for NIGHTLY BUSINESS REPORT.
HERERA: Still ahead, what happens next with the proposed cable TV megamerger as executives from Comcast (NASDAQ:CMCSA) (NYSE:CCS) and Time Warner (NYSE:TWX) Cable meet with regulators?
HERERA: Blackrock has agreed to pay $12 million to settle claims it failed to disclose conflicts of interest. The SEC said Blackrock breached its fiduciary duty by not disclosing that a top portfolio manager who oversaw some energy funds was also running a family-owned oil and natural gas company.
In a settlement with SEC, the world’s largest asset manager also agreed to hire a compliance consultant.
GRIFFETH: Comcast (NASDAQ:CMCSA) (NYSE:CCS) and Time Warner (NYSE:TWX) Cable are set to meet with antitrust regulators this week and according to numerous reports, government officials are taking a very close at what the proposed mega merger first announced 14 months ago would mean to competition in that industry and to consumers.
Julia Boorstin has more now on what’s at stake as the scrutiny heats up.
JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: When Comcast (NASDAQ:CMCSA) (NYSE:CCS) and Time Warner (NYSE:TWX) Cable sit down for the first time since the proposed deal was announced, on the table are possible concessions.
RICH GREENFIELD, BTIG: This deal has been getting decidedly more difficult over the course of the last 12 months.
BOORSTIN: Comcast (NASDAQ:CMCSA) (NYSE:CCS) and Time Warner (NYSE:TWX) Cable’s stocks both hurt by fears the deal won’t go through. Now, they’re looking to assuage concerns about the combined company controlling nearly 30 percent of the pay TV market, as well as 57 percent of the FCC’s new definition of the broadband market, Internet service of 25 megabytes or higher.
Possible concessions include divesting some of the combined company’s 30 million customers. They already agreed to deals with the Charter Communications (NASDAQ:CHTR) to sell or spinoff nearly 4 million customers and Comcast (NASDAQ:CMCSA) (NYSE:CCS) could agree to extend the conditions from its NBC Universal (NYSE:UVV) Acquisitions about to whom it has to sell TV programming beyond their expiration in 2018.
Another hot topic for the DOJ and FCC, net neutrality. Regulators could require Comcast (NASDAQ:CMCSA) (NYSE:CCS) to abide by the new rules which require Internet service providers to treat all web traffic equally, even if those rules are eventually shot down in court. Once the DOJ and the FCC’s required concessions are laid out, we’ll see if Comcast (NASDAQ:CMCSA) (NYSE:CCS) is willing to comply.
GREENFIELD: Remember, to break up fee. So, Comcast (NASDAQ:CMCSA) (NYSE:CCS) can walk. If they don’t like this, they’re not going to put themselves in a difficult position.
BOORSTIN: The next step, the Department of Justice antitrust attorneys could submit their recommendations as soon as this week.
For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Los Angeles.
GRIFFETH: By the way, Comcast (NASDAQ:CMCSA) (NYSE:CCS) is the parent company of CNBC which produces this program.
HERERA: Bill, an update now to a story we reported on Friday. ESPN is expressing concern about Verizon’s new TV packages. The new bundles allow customers a way to pay for cable without having to buy hundreds of channels. According to reports, the popular sports network says Verizon (NYSE:VZ) doesn’t have the right to offer ESPN outside of a standard cable package. In Verizon’s new pay plan, ESPN would be part of an optional sports bundle.
GRIFFETH: A beat on both the top and bottom lines from Morgan Stanley (NYSE:MS) is where we begin tonight’s “Market Focus”.
That bank posted its strongest results in years today as it was helped by higher revenue, from trading bonds and equities. The firm benefited also from busy markets and a slew of corporate mergers. Shares rose a fraction today closed to $36.96.
Despite the strong dollar, Hasbro (NYSE:HAS) managed to come out on top for the quarter. The toy maker’s earnings and revenue beat Wall Street’s estimates by a wide margin. This as it saw especially strong performance in its Transformer toys and pre-school unit. Shares popped by 12.5 percent. Hasbro (NYSE:HAS) has been on fire lately. It’s up to $74.16, making it today’s best-performer in the S&P 500 index.
And cost cuts helped Halliburton (NYSE:HAL) pull off an earnings beat as well. The oilfield services provider managed to offset a steep drop in drilling in North America, which is its biggest market. The company says it is planning to lay off more employees as it expects the oil sector to remain “challenged.” The stock was 2 percent higher to $47.85.
HERERA: SunTrust saw its profit edge up in its most recent quarter, while revenue was in line with estimates. The bank was helped by lower expenses and growth in non-interest income. Shares rose just a fraction to $41.77.
Royal Caribbean cut its 2015 outlook and issued second quarter guidance that is well below estimates. The cruise ship company says it was hit by the strong U.S. dollar and higher fuel prices. Shares tumbled 8 percent to $72.71. It was today’s worst performing S&P 500 stock.
The defense contractor Raytheon (NYSE:RTN) announced a deal to buy control of a cyber security firm called Websense (NASDAQ:WBSN), for nearly $2 billion. Websense (NASDAQ:WBSN) is privately held by Vista Equity Partners. Shares of Raytheon (NYSE:RTN) were off a fraction to $107.49.
And General Electric (NYSE:GE) is in talks with Wells Fargo (NYSE:WFC) about selling its entire $74 billion commercial lending and leasing business portfolio to the bank. That’s according to reports. Other companies may also be talking to the GE about a possible purchase. This as GE announced plans earlier this month to exit the bulk of its capital business and focus more on industrial manufacturing. General Electric (NYSE:GE) fell a fraction to $27.02. Wells Fargo (NYSE:WFC) up a fraction to $54.36.
GRIFFETH: Long lines, web site problems, sounds like a big headache for retailers. But in Target’s case, with the launch of its Lilly Pulitzer collection this weekend, it was just the opposite.
Courtney Reagan has more tonight.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lining (ph) for Lilly.
UNIDENTIFIED FEMALE: Going in.
REAGAN: Around the country, thousands of shoppers lined up at Target (NYSE:TGT) stores and logged online early Sunday to shop the Lilly Pulitzer for Target (NYSE:TGT) designer collaboration. The merchandise sold out in minutes, with heavy traffic causing issues on the retailer’s web site.
Black Friday comparable traffic limited the numb of shoppers on the site and later to take it down for 20 minutes to get the full collaboration loaded.
(on camera): As is the case with all of Target’s designer collaborations, the inventory is limited. And once it’s gone, it’s gone.
Ahead of the launch, Target (NYSE:TGT) chief merchandise officer Kathee Tesija did tell me that she ordered more inventory for this collection that she has with past collaborations, and intended it to last into May.
KATHEE TESIJA, TARGET CHIEF MERCHANDISING OFFICER: Success to us is the exciting for our guests, and whether they love what we have to offer, much less about the sales. Now, we think it’s going to sell really well and we want everything in our store to sell. But financially, it’s not that any one collection will move the needle.
REAGAN (voice-over): Target (NYSE:TGT) acknowledges the social media buzz from this collection was strongest yet. And while not every shopper was happy with their experience, analysts say it’s the demand and social conversation that could begin to bring back the Target (NYSE:TGT) cache.
For NIGHTLY BUSINESS REPORT, I’m Courtney Reagan in Edgewater, New Jersey.
HERERA: Whoa, look at that cart, wow.
Well, those Lilly Pulitzer for Target (NYSE:TGT) items are already up on eBay (NASDAQ:EBAY), and in some cases, the sellers are asking for a lot more than their Target (NYSE:TGT) value. For instance $1,000 for a $60 beach chair.
Coming up, a real life David and Goliath story, but this one is in the real estate industry.
GRIFFETH: Here’s what to watch for tomorrow. Now, we’ll have earnings for Dow components Dupont (NYSE:DD), United Technologies (NYSE:UTX), Verizon (NYSE:VZ) and Travelers. We will also get the truck tonnage index, an indicator of economic activity. And IHS (NYSE:IHS) Energy CERA Week will be in full swing, that’s the annual must-attend conference for energy industry leaders.
And that’s what’s on the agenda for a very busy Tuesday coming up.
HERERA: Prologis, the big owner of warehouses and retail distribution centers, is buying KTR Capital, which owns more than 300 industry properties in the U.S. The price tag is almost $6 million, making it one of the largest real estate deals so far this year.
GRIFFETH: And, finally, from commercial real estate to residential and a classic tale of an underdog taking on a giant. In this case, it’s a woman who took a stand against big developers, and now, years after her death, the story final find its ending.
Diana Olick reports from Seattle.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT (voice-over): “A real life image is that could be a carton. The tale is even strikingly similar to the Disney (NYSE:DIS) movie “Up”. An elderly home owner standing up for what was for what used to. And a community rally around the house, with inspiring messages, as it is finally auctioned off today.
You see, once upon a time in 2006, Edith Macefield live in a cottage that she refused to sell to mall developers, not even as the story goes for a million dollars. And so, the structure went up around her, walling in her home.
PAUL THOMAS, LISTING AGENT: It’s a very unusual symbol of, again, somebody who says, I’m not going to topple over in the face of a big corporation.
OLICK: But in 2008, Macefield passed away and left the home to Barry Martin.
BARRY MARTIN: I first met Edith, she was standing right there. Actually, she was kneeled over in her garden tending her flowers.
OLICK: Ironically, a construction worker on the mall. As the project develops, so did their friendship, as he tells it, she wasn’t taking a stand against corporate America at all.
MARTIN: She wouldn’t sell her house because she had nowhere to go, she was comfortable her.
OLICK (on camera): Martin sold the home to pay for his kid’s college tuition, just as Edith had wanted. But latest owner has defaulted on the home and the house went into foreclosure. Now, the tiny 600-square-foot home on its 1,900 square foot lot is waiting to hear its fate.
THOMAS: I wouldn’t be surprised if it’s sold for a quarter million dollars or less, and I wouldn’t be surprised if it’s sold over a million, because there are no comparables.
OLICK (voice-over): The only condition of the sale is that there be some memorial to Edith Macefield, even if just a plaque, just so the story would live on.
MARTIN: It’s it turned into something bigger than what anybody would ever thought.
OLICK (on camera): What Edith would have thought.
MARTIN: Oh, yes, exactly.
OLICK (voice-over): And so, here it sits and waits. In the end, this cottage will unlikely get to stay but oh, if only it could fly, up and away.
For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Seattle.
HERERA: And that’s NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera.
GRIFFETH: I’m Bill Griffeth. We’ll see you tomorrow.
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