TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Kick off. Alcoa`s
earnings numbers missed big, starting what many think will be one of the
ugliest earnings seasons in years.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Chaos on Capitol Hill.
Without warning, Kevin McCarthy drops out of the speaker`s race, raising
questions about what happens next, just as Congress faces tough budget
MATHISEN: And tech tie-up. Are two well-known companies working on
one of the biggest takeovers in tech industry history?
All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday,
HERERA: Good evening, everybody. And welcome back.
A disappointing start to earnings season. Alcoa (NYSE:AA), which
unofficially kicked off third quarter results, reported a big earnings and
revenue miss. The former Dow component earned 7 cents a share.
Expectations were for 14 cents. Revenue came in around $5.5 billion, down
more than 10 percent from a year ago, hurt by sliding aluminum prices.
Shares of Alcoa (NYSE:AA) dropped initially on that report in after-
hours trading. During the regular session, it finished slightly higher.
Despite the disappointing quarter, CEO Klaus Kleinfeld called his
(BEGIN VIDEO CLIP)
KLAUS KLEINFELD, ALCOA CEO: If you look at what`s going on in the
economy, you see there`s a lot of volatility that`s in there. I mean, from
commodity prices to currencies, to worries over China, emerging economies,
interest rates. And if you look at that and then reflect it to our
quarter, I think you see quite a bit of resilience in there.
(END VIDEO CLIP)
HERERA: Morgan Brennan has more on Alcoa`s quarterly results.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Alcoa (NYSE:AA)
earnings and revenue missing expectations with the biggest drag coming from
its primary metals segment or the aluminum giant`s smelting and refining
operations. The company reporting a $59 million loss in that division as
aluminum prices have plunged 25 percent this year.
As we`ve seen throughout the commodity complex, it is a story of
oversupply exacerbated by the slowdown in China, which is the largest
consumer of aluminum and many other industrial metals. Still, the company
reiterating its forecast for global aluminum demand`s increase 6 1/2
percent this year and also projecting a global aluminum deficit in 2016.
In terms of bright spots, revenue on Alcoa`s manufactured parts
businesses continue to grow. Those are the mid-stream and downstream
businesses that Alcoa (NYSE:AA) plans to split into a separate company late
next year, but again, this quarter, it was all about weak commodity prices
dragging down earnings and what could be a potential harbinger for other
industrial companies that will report in coming weeks.
For NIGHTLY BUSINESS REPORT, Morgan Brennan.
MATHISEN: Well, despite the disappointing start to earnings season
and analyst expectations for a slightly negative quarter overall, our guest
tonight is optimistic that earnings will surprise to the up side and will
be flat. Flat is the new up, I guess.
Andrew Burkly, a portfolio strategist at Oppenheimer and Company.
So why do you think that the numbers will be better than the negative
3.5 percent that is kind of the consensus forecast?
ANDREW BURKLY, OPPENHEIMER & CO. PORTFOLIO STRATEGIST: Hi, Tyler.
Yes, how are you doing?
So, yes, if you look at your overall aggregates, as you mentioned,
down a little bit in terms of the consensus forecast. We think it will
surprise on the up side, really somewhere around flat, really for two
One is that there`s really just a chronic underestimation by analysts.
They`re usually too pessimistic by somewhere between 3 percent to 5
percent. So, if we assume 3.5 percent is right around the median of that,
that will bring us right to about flat earnings.
The second is we just don`t see it`s consistent, what we`re seeing in
the overall economy, where nominal GDP is still growing somewhere close to
about 4 percent. So, that`s really not consistent with down earnings. But
it`s really at the sector level when you get under that flat you`ll see a
very big dispersion between sectors.
HERERA: Yes, and let`s talk a little bit about that, Andrew, if you
work because you kind of divide it up into two camps — those that have
commodity exposure and perhaps more international exposure and those that
BURKLY: Yes, I think those are going to be the two big factors. You
know, Alcoa`s a very good example of a company that has a lot of
international exposure and a lot of commodity exposure, with very
And I think that`s going to be a consistent theme, which is really one
that we`ve seen a lot throughout 2015, which is more companies that have
nor domestic exposure, less commodity exposure, those are the ones that
have been delivering on their earnings, those companies that are really
dependent on commodity prices which have been under pressure all year,
those have really been the losers throughout the earnings season.
So, I think that`s going to play out yet again in Q3. Now, that may
start to change as we get into Q4 and in 2016 as the dollar has started to
stabilize a little bit, oil prices have started to stabilize.
But for the current quarter, that`s still going to be to be a big
MATHISEN: That`s what I was going to ask you, is the worst behind us?
In other words, when we start having different comparisons, first quarter
against last year`s fourth quarter, this year against last year`s fourth
quarter. The commodity price slide, the energy issue, the dollar and so
BURKLY: Yes, I think so. If you look at where oil prices were in the
fourth quarter of last year compared to the fourth quarter currently in
October, they`ve already started to come down a bit. The dollar`s already
been strong. And the other point to make is that companies have had longer
to adapt to those two big themes, right?
This is something we`ve been in here for a number of years now. So,
companies can no longer say they`re surprised really the dollar`s been
strong or that energy prices have been weak.
MATHISEN: So, two cheers for earnings this time around.
Andrew Burkly, thanks very much. Andrew is with Oppenheimer and
HERERA: Stocks picked up steam in today`s session after the Federal
Reserve released the minutes from its latest meeting. We`ll have more on
that in just a moment for you.
On Wall Street, the Dow rose 138 points to close at 17,050, its first
close above 17,000 since August. The NASDAQ was 19 points higher, and the
S&P 500 notched a 17-point gain. Domestic crude rallied closing nearly 3.5
percent higher at $49.43 a barrel.
MATHISEN: And as Sue just mentioned, at the Federal Reserve`s last
meeting, policymakers said the time for raising interest rates was near.
But the group thought it would be best to wait. The central bankers were
concerned about global developments and wanted more evidence of impact of
the global slowdown on the U.S. economy.
At that at the September meeting, the Fed did surprise many by
deciding to keep interest rates unchanged.
HERERA: The number of Americans filing new applications for jobless
benefits fell to a near 42-year low last week. The Labor Department
reports the claims for unemployment benefits dropped 13,000 to a seasonally
adjusted 263,000. That`s the 31st straight week that claims remained below
the key 300,000 mark.
MATHISEN: A stunner on Capitol Hill. House Majority Leader Kevin
McCarthy, who was considered the front-runner to become the next House
speaker, has dropped out of the race.
(BEGIN VIDEO CLIP)
REP. KEVIN MCCARTHY (R), HOUSE MAJORITY LEADER: The one thing I`ve
always said to earn this majority, we`re servants. We should put this
conference first. And I think there`s something to be said for to us to
unite. We probably need a fresh face. I`ll stay on as majority leader.
But the one thing I`ve found in talking to everybody, if we`re going to
unite and be strong, we need a new face to help do that.
(END VIDEO CLIP)
MATHISEN: Separately, Democratic presidential candidate Hillary
Clinton laid out her plan to broaden Wall Street regulations.
John Harwood has been following developments on both of those items.
And let`s start, John, with Kevin McCarthy dropping out of the race.
How does this cloud the picture for some — or does it clarify it for some
of the big issues Congress has to tackle over the next few weeks, like the
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, it might
clarify it in the short term, Tyler, because John Boehner is likely to stay
on given the fact that he said he`s going to stay in the job until there`s
a successor. We don`t have one yet. So, we don`t know how long that`s
going to be. It could even stretch to the end of the year when we`ve got
the debt limit is going to be ripening in November, for example.
So, it is possible that what looks like chaos and turbulence could
actually protect the status quo for a while, while John Boehner stays on.
HERERA: You know, there have been reports Mr. Boehner reached out to
Paul Ryan today and apparently he said, no, but, you know, this is an
ongoing kind of saga that`s developing on the Hill.
So, what happened next?
HARWOOD: I think a lot of people, Sue, are going to be calling on
Paul Ryan because he does seem to be the one figure that everyone agrees
has the capacity to get the votes to become the speaker. And also is
someone who`s got a track record of get something things done. He did the
budget deal with Patty Murray last year.
But Paul Ryan has said publicly he does not want that job. And that
leaves us in a position where people like Jed Hensarling, Jason Chaffetz,
who`s already in the race, Tom Cole of Oklahoma, Peter Roskam of Illinois,
all these names being thrown around —
MATHISEN: Getting something done with the Democrat Patty Murray is
not exactly the way to endear yourself with the Freedom Caucus.
HARWOOD: Not at all.
MATHISEN: Let`s move on now to Hillary Clinton, about as far away
from the Freedom Caucus, as you can get, and her plans to tighten
regulations on Wall Street. What did she propose today?
HARWOOD: Well, remember, Tyler, there`s the Democratic debate. The
first of the primary season next Tuesday. And Hillary Clinton facing
pressure from her left on Wall Street issues from Bernie Sanders, from
Martin O`Malley, came with a proposal, only released on main paper, she
didn`t want to draw too much attention to it, to enact some regulatory
steps. First of all, she is proposing a tax on high frequency trading,
which has been associated with the flash crash and some other difficulties
on Wall Street. She thinks that would be a deterrent.
She`s proposing to close a loophole in the Volcker rule that allows
banks, government guaranteed banks to do some business now through hedge
funds. She would close that loophole. She would revive the swapped push-
out rule that was struck down in budget legislation last year and, finally,
she says she would reorient prosecution and regulation of Wall Street so
that individual executives would be more likely to be prosecuted than they
have so far.
After all, nobody from Wall Street went to jail as a result of the
MATHISEN: All right. John, thank you very much. John Harwood on the
north lawn of the White House.
HERERA: Strike averted. The United Auto Workers and Fiat Chrysler
reached a tentative new deal late last night. The agreement must now be
ratified by the automaker`s 40,000 union members. Neither the union nor
the company disclosed details but the union is reported to have said that
it won, quote, “significant gains”.
MATHISEN: The CEO of Volkswagen`s America unit apologized today on
Capitol Hill. During a congressional hearing, Michael Horn expressed
remorse over the automaker`s skirting of federal emission standards.
But as Eamon Javers reports, lawmakers were looking for more.
UNIDENTIFIED MALE: The whole truth and nothing but the truth.
EAMON JAVERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a brutal
day on Capitol Hill for Michael Horn, the president and CEO of Volkswagen
Group of America as he testified before a congressional panel determined to
learn just how his company cheated on emissions testing.
MICHAEL HORN, CEO, VOLKSWAGEN OF AMERICA: We are determined to make
things right. This includes accepting the consequences of our acts,
providing a remedy and beginning to restore the trust of our customers,
dealerships, employees, regulators, and the American public.
JAVERS: But Horn could not answer many questions and appeared
flustered at times saying he couldn`t understand questions or was
distracted by photographers taking his picture. Members of Congress did
not seem willing to cut him any slack.
REP. FRED UPTON (R), MICHIGAN: VW has betrayed a nation — a nation
of regulators, loyalists, suppliers, and innocent customers. It`s time to
clean it up or get off the road.
JAVERS: Legislators did not get clear answers to just what Volkswagen
plans to do to support car owners and dealers, or exactly how much the
company expects to pay in fines.
But Horn did give a timeline for how long fixing the hundreds of
thousands of flawed cars on American roads will take.
REP. MARSHA BLACKBURN (R), TENNESSEE: We are certain the remedy will
end up being a multiyear approach?
HORN: Yes. If you look at, if you look alone at 430,000 cars and the
repairs might take five to ten hours, even in order to fix this, you know,
technical fixes, and if you look at your recall history in this market,
also with NHTSA, then these actions take, you know, one to two years
JAVERS: Horn did say that the company is withdrawing its request for
certification of certain model year 2016 vehicles. That move might leave
some American dealers without enough products to sell and stuck with
inventory some customers may not want to buy.
For NIGHTLY BUSINESS REPORT, I`m Eamon Javers in Washington.
HERERA: Still ahead, why two well-known tech companies may want to
get together in what may be one of the biggest tech industry takeovers
HERERA: Dell (NASDAQ:DELL) Computer is reportedly in talks to acquire
EMC (NYSE:EMC). Dell (NASDAQ:DELL) is privately held but shares of EMC
(NYSE:EMC) moved higher on the report, which if true would likely — the
deal would be the biggest tech tie-up ever.
Josh Lipton takes a look at why these two companies would want to get
JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Michael Dell
(NASDAQ:DELL) has been relatively quiet since he took his company private
two years ago but now he could be making a big move. CNBC reports that
Dell (NASDAQ:DELL) is in talks to buy EMC (NYSE:EMC) for more than $27 a
The deal makes strategic sense for Dell (NASDAQ:DELL). A combination
with EMC (NYSE:EMC) could strengthen its market share in a number of areas.
One would be in the enterprise storage business. That`s a $36 billion
market according to IDC, where the big players include companies like HP
and Net App.
A merger would also give Dell (NASDAQ:DELL) access to EMC`s security
business where it would go head to head with giants like Intel
(NASDAQ:INTC) and Cisco (NASDAQ:CSCO).
And, finally, reports suggest is that a merger would include a
controlling stake in EMC`s software company VM Ware. Its technology allows
data centers to run more efficiently.
So, what`s the benefit to EMC (NYSE:EMC)? Well, such a deal could put
an end to its ongoing battle with activist investor Elliott Management
which has been demanding the company boost its stock price. Analysts say
EMC (NYSE:EMC) needs to act.
DANIEL IVES, PBR MANAGING DIRECTOR: Elliott in our view could do a
proxy battle if EMC (NYSE:EMC) doesn`t act. They need to make a move in
the next few weeks, and that`s where our time is ticking for them to make a
strategic move one way or another.
LIPTON: There is no shortage of doubt about whether such a deal
actually does get done. The merger would be costly and hard to finance.
Still, Brent Bracelin, an analyst at Pacific Crest, says investors
need to be aware of a broader trend. There is a wave of consolidation
coming to the IT hardware space, he says, meaning customers selling
servers, storage, and network equipment.
Many old guard tech companies still generate a lot of cash but their
stock prices have come under pressure because of the threat from newer
cloud computing technologies. That means the economics of consolidation in
the IT hardware market could now make a lot more sense.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.
MATHISEN: Streaming just got a little more expensive, and that is
where we begin tonight`s “Market Focus”.
Netflix (NASDAQ:NFLX) is upping the cost of its basic monthly service
by $1. The new price of $9.99 will go into effect in November for new
customers. Current subscribers won`t have to pay more for a year. Shares
were more than 6 percent higher. They closed at $114.93.
Domino`s posting results that missed on both the top and bottom lines.
The pizza company pointed to the stronger dollar for the disappointing
numbers. Shares fell about 5 percent to $102.64.
And Costco (NASDAQ:COST) says its same store sales were flat last
month, but that was better than the expected decrease. Shares were 2.5
percent higher to $151.66.
HERERA: Gap (NYSE:GPS) reporting that its same store sales were down
one percent in September, driven by a big decline in its Banana Republic
division. Shares slipped in initial after-hours trading. During the
regular session, the stock was up nearly 2 percent to $28.95.
Shares of Polycom (NASDAQ:PLCM) rose after the hedge fund Elliot
Management disclosed a more than six percent stake in the firm. Elliot is
urging the video conferencing equipment maker to consider a merger.
Polycom (NASDAQ:PLCM) rose nearly 17 percent to $13.35.
MATHISEN: Americans are expected to spend this holiday season. The
National Retail Federation released its forecast today but as Courtney
Reagan reports, it`s not necessarily how much how many consumers spend but
what they`ll be buying is key.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: With the
Christmas countdown in full swing, holiday sales forecasters are placing
their bets. The National Retail Federation expects consumers to spend over
$630 billion in November and December, an increase of more than 23 1/2
percent over last year. Though the increase is slightly weaker than last
year`s rate, the industry group says it reflects the economic tailwinds
consumers are feeling.
MATTHEW SHAY, NATIONAL RETAIL FEDERATION PRES. & CEO: We know gas
prices are at historic lows, we know home values are improving. We`ve seen
some momentum in consumer spending throughout the course of the year. We
think as we get to the hot holiday season, we expect they`ll be
promotional. We think there are going to be a lot of great exclusive deals
and that consumers are going to feel the positive momentum and are going to
spend into the holidays.
But where and when consumers will spend their hard earned cash is key.
It`s no secret retailers will have a flurry of online deals during the key
Black Friday week through Cyber Monday.
But PWC`s holiday outlook survey says the majority of shoppers still
prefer the physical store.
Department stores like Macy, JCPenney and Nordstrom (NYSE:JWN) are
expected to be top shopping destinations, followed by mass merchants like
Walmart and Target (NYSE:TGT). When it comes to what drives the purchase,
price, promotion, and quality of merchandise tops the list.
The competition for consumer dollars between retailers only gets more
intense with every passing holiday season. Plus, the millennial shoppers
desire to give and receive experience-based gifts is giving physical gift
giving a run for its money.
STEVEN BARR, PWC U.S. RETAIL & CONSUMER LEADER: They`re very
interested in connecting with friends and family, much more so than trading
traditional gifts. So, we think it`s really about dinner out, perhaps
going to a ball game or some entertainment venue together.
REAGAN: As a result restaurants, hotels and airlines could look
forward to a Christmas bonus, as the 18 to 34-year-old shopper plans to
send slightly more on travel, dining out and self-gifting than on gifts for
But retailers aren`t giving up on those buying physical gifts.
Retailers are hiring over 700,000 seasonal workers and stores and e-
commerce distribution centers to compete on customer service and shoppers`
most compared perk, free shipping. A small price to pay when nearly 20
percent of the industry`s annual sales are at stake.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan in New York.
HERERA: Retailers are hoping that low gas price wills help sales.
But so far, that has been an economic mystery. Gas prices are falling but
Americans don`t seem to be spending the savings. Or are they?
Steve Liesman may have just cracked the case.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Call it the
curious case of the vanished gas savings. Americans spend less with every
fill `er up but sales at the malls show little gain. Leading to the
question: what happened to the extra gas money?
UNIDENTIFIED FEMALE: I`m banking it, to save it for when the gas goes
UNIDENTIFIED MALE: It goes in one pocket and out the other.
LIESMAN: Along comes the JPMorgan (NYSE:JPM) Chase Institute, a new
research out with terabytes of real spending data and a groundbreaking
report. They say they found the money. Like a good Sherlock Holmes
mystery, it`s right under our noses or rather at the diner, the grocery
store and at the movie theater.
DIANA FARRELL, JP MORGAN CHASE INSTITUTE: They spend it on
restaurants, 18 percent. They spend it on groceries. That`s another 10
percent. But you also saw boosts to other retail categories — department
stores, entertainment, electronics and appliances.
LIESMAN: The not-for-profit institute set up by the well-known bank
has accessed anonymously to the sending of 25 million Chase credit and
debit card holders around the nation.
A big finding of the new study, most economists thought that Americans
spent just 45 cents of every dollar saved at the pump. JP Morgan`s
findings? It`s nearly double that.
FARRELL: What we find by looking at these 25 million counts, that
contrary to what conventional wisdom has been saying for this last while,
is in this last period of very steep gas price declines, people are
spending most of what they save at the pump. They`re saving 80 percent of
what they spent on top.
UNIDENTIFIED FEMALE: It helps with my grocery bills.
UNIDENTIFIED MALE: It goes. On meals.
LIESMAN: To be sure, some of the increased spending shows in the data
but not all of it, with its reams of real spending data, JP Morgan makes a
compelling case. Americans are spending the savings at the gas pump.
Mystery solved. Case closed.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman in Washington.
MATHISEN: Coming up, what experts say is the best thing that`s ever
happened to small business.
HERERA: Here`s what to watch for tomorrow. A read and report on
import-export prices, an important read on inflation. Another economic
indicator, wholesale trade numbers are out. And we`ll hear New York Fed
President Bill Dudley.
And that is what to watch for Friday.
MATHISEN: Bill Gross is suing PIMCO, the company he left last year,
saying he was driven out of the bond fund giant. Gross, who co-founded
PIMCO, is seeking $200 million in damages, accusing current and former
executives at the firm of leaking disparaging information about him to the
media to engineer his ouster. He alleges breach of contract. PIMCO says
the suit is without legal merit.
HERERA: In the final part of our series on mom-and-pop shops, who are
going digital, tonight, we meet a Jeweler who is taking her traditional
business into the 21st century.
Sharon Epperson has her story.
SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fourth
generation jeweler Myriam Gumuchian still makes jewelry the way it`s been
done for centuries, by hand.
MYRIAM GUMUCHIAN, GUMUCHIAN LTD: Our business is incredibly old-
EPPERSON: But her company and the industry have come a long way from
doing business the old-fashioned way.
GUMUCHIAN: Before, things didn`t happen so fast. Before, you didn`t
have the luxury of speed. So, if a customer in California wanted to see
something, it could take them up to two weeks from them to actually gets
the piece, then show it to the customer, and then by the time the whole
business was done from A to Z could be a month. Today, I can do that in 24
EPPERSON: Gumuchian says speed is key because consumers want instant
gratification, and now, clients from all over the world can see her pieces
immediately through social media.
GUMUCHIAN: A woman can relate when you see a picture of a ring on a
finger or a necklace or an earring. This is something that we`re very —
you know, we like to show how it`s worn, in real-time with pictures. And
so, women do see that and they want to try it on, it`s a lifestyle.
MELINDA EMERSON, SMALL BUSINESS EXPERT: Socialist media is the best
thing to ever happen to small business. It used to be you needed to get
through these gatekeepers to get to them. Now, if somebody`s on social
media you can get to them. But the thing about is it`s all about the
Google (NASDAQ:GOOG)-ability of your business and your brand.
EPPERSON: Gumuchian knows her brand well, high end jewelry design by
women for women. And she targets her audience where they spend much of
their time, on Instagram.
GUMUCHIAN: I was so surprised women literally — I would say my age
and up had checked me out, they knew all about, they knew the name of my
collections, they knew some of the stores, they knew where I appeared. I
was like, wow, I mean, you know, these people really did their homework.
How did you do that? Well, I checked you out.
EPPERSON: Experts say there may be no need for small business owners
to use several types of social media.
EMERSON: Use one social media type well you don`t need to be doing
Facebook (NASDAQ:FB), Pinterest, Google (NASDAQ:GOOG) Plus, Facebook
(NASDAQ:FB) all at the same time. You need to be doing one well and it
should be one the where your best target customer is spending majority of
their time online.
Still, even keeping it simple can become overwhelming as business
GUMUCHIAN: The thing with technology, even though it`s easy in a way
I think you do work much more, because you`re able to reach so many more
people within the day, within the same day.
EPPERSON: But there is one more factor that Gumuchian says managing
it all manageable.
GUMUCHIAN: I love it.
I love what I do. I`m passionate about our industry and all our
babies we create.
EPPERSON: For NIGHTLY BUSINESS REPORT, I`m Sharon Epperson.
HERERA: That`s my dream job, work with jewelry.
MATHISEN: Work with jewelry?
HERERA: Yes, she`s got beautiful stuff.
MATHISEN: She has beautiful items. Absolutely.
HERERA: Heavy sigh.
MATHISEN: I`ll get you some for Christmas.
HERERA: No, you will not.
That will do it for NIGHTLY BUSINESS REPORT. I`m Sue Herera. Thanks
for joining us.
MATHISEN: And I`m Tyler Mathisen. Have a great evening, everybody.
We hope to see you right back here tomorrow night.
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