ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Return to sender. FedEx (NYSE:FDX) says the global economy is getting weaker and its profit and revenue are hurting.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Great rate expectations. Federal Reserve officials begin a two-day meeting on interest rates. And the mixed messages on the economy are creating a lot of confusion.
GRIFFETH: Help wanted. Amazon (NASDAQ:AMZN) is attracting job seekers from across the country as it hosts the nation`s largest career fair.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Tuesday, September 17th.
HERERA: Good evening, everyone. And welcome.
FedEx (NYSE:FDX) is considered a barometer for the global economy. The company moves so much freight that it`s able to give a clear view of economic and business activity.
But tonight, that view cloudy. The delivery company reported a double digit drop in profit, weaker than expected earnings and revenue and it issued a soft outlook. It`s blaming an increase in uncertainty due to trade tensions and the further weakening of economic conditions around the world. And that sent the stock sharply lower in the initial after-hours trading.
Frank Holland has more on FedEx`s quarter.
FRANK HOLLAND, NIGHTLY BUSINESS REPORT CORRESPONDENT: FedEx (NYSE:FDX) reported profits lower than expected and says it expects prophets for the next year to be lower as well.
CEO Fred Smith citing the ongoing trade war as a primary factor. Smith saying FedEx (NYSE:FDX) says quote negatively impacted by a weakening global macro environment driven by trade tensions and processes uncertainty.
The biggest takeaway is the uncertainty of the trade war, to use Smith`s own words, continues to hurt the growth of the U.S. economy, even for a business like FedEx (NYSE:FDX) that is actively pivoting to increase its focus on its domestic business by starting seven-day-a-week delivery in January.
For NIGHTLY BUSINESS REPORT, I`m Frank Holland.
GRIFFETH: Let`s turn to Donald Broughton for more on FedEx (NYSE:FDX), the whole transportation sector and what these numbers tell us about the health of the global economy. He is managing partner at Broughton Capital.
Good to see you again. Welcome back.
DONALD BROUGHTON, BROUGHTON CAPITAL MANAGING PARTNER: Thank you. Good to be here.
GRIFFETH: I`ve already seen one analyst`s note tonight who`s downgraded the FedEx (NYSE:FDX) stock. He says, yes, global tensions in the trade war are a problem but some of these problems that the FedEx (NYSE:FDX) is experiencing are self-inflicted as well.
What do you think?
BROUGHTON: Well, I think it`s time to close the barn doors before the horse gets out. Last week, we put a report on Asia-Pacific Air freight signaling that it was down strong double digits and continuing to de- accelerate increasingly at alarming paces.
Bottom line here is that the FedEx (NYSE:FDX) has gone from — just 90 days, from predicting moderate U.S. economic growth — from growth to moderate growth. They`ve gone from predicting despite cost cuts and increasing the amount of those cost cuts from mid-single digit declines in earnings for the year to 16 to 30 percent decline in earnings.
This is not an alarmist company. It`s a conservative company, well-run.
BROUGHTON: A global impact. And the bottom line is they are increasingly concerned because tariffs are terrible taxes, bottom line.
HERERA: Now, FedEx (NYSE:FDX), obviously, has a much more global footprint than some other companies in the transportation area. But do you anticipate that given what FedEx (NYSE:FDX) laid out today, that we are going to hear more of this type of reporting from some of the other key transportation stocks and companies?
BROUGHTON: I do. And the reason we do is very simple. This is 1 percent of the weight of the key but is over 15 percent of the value of the changeable goods economy. It drives tech. It drives hiring engineers. It drives investments.
They move high value, low density goods. They move the — in the information age, the technology era we live in, they move the driving force of the economy both globally and as well as specifically the U.S.
GRIFFETH: So, do you worry about the sector? Do the decline — did some of the stocks present opportunities yet? Or what are you doing with them now?
BROUGHTON: Well, on a case by case basis, there are definitely opportunities to look at best in class performers. But the bottom line is you have to have a view longer than a few weeks or a quarter to because in the short term, you`re seeing continued dramatic declines in volumes and even the best in class companies are going to struggle to produce improvements in earnings in that environment. And there is no catalyst to seem to stop those rates of decline as long as we have these tariffs in place.
GRIFFETH: Donald Broughton from Broughton Capital. Again, thanks for joining us tonight. Appreciate it.
BROUGHTON: Always a pleasure.
HERERA: Global economic risks like the ones that FedEx (NYSE:FDX) outlined are among the issues that Federal Reserve policymakers are discussing. The central bank`s two-day meeting began today with the decision on interest rates scheduled for tomorrow.
Steve Liesman takes a look at what`s expected.
STEVE LIESMAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street expects the Federal Reserve to cut interest rates tomorrow amid concerns about economic weakness, recession fears, and the trade war. A hundred percent of respondents to the CNBC Fed survey see the Fed cutting rates by a quarter point after it announced its results of its September meeting. Nearly all expect another quarter point cut by year end.
The problem is that forecast with lower rates come with reduced outlook for U.S. growth and an increased probability of recession. The chance of a recession in the next 12 months soared to an 11-year high of 32 percent, according to the survey. It was below 20 percent for most of last year.
Growth is forecast to decline as well, to 2.2 percent this year from 2.5 in 2018, and it sinks to 1.8 percent in 2020.
Economists Joel Naroff writes in response to the survey, quote: A trade war that continues into next spring or summer almost certainly causes a recession that`s likely to spread worldwide.
Now, not everyone agrees. Richard Sichel, a senior investment strategist at the Philadelphia Trust Company, says: Recession talk has been overdone. Yes, there has been some slowdown in various economic indicators but the outlook for robust holiday spending is good based on high levels of consumer confidence. That should drive growth and stocks higher.
For now, respondents to the survey see very slight gains ahead for stocks but continued low interest rates. The question is whether Fed rate cuts will be enough to offset the negatives from the trade war and global economic weakness. The high levels of the stock market amid those continued forecasts for ever lower rates, it`s just the market is betting the Fed is going to win that fight.
For NIGHTLY BUSINESS REPORT, I`m Steve Liesman.
GRIFFETH: The manufacturing portion of the economy rebounded unexpectedly in August. It was up 0.6 percent, with the biggest gains in oil and gas production. Manufacturing has essentially been in recession this year, one reason the Fed is likely to cut interest rates again tomorrow.
HERERA: But confidence among the nation`s home builders hit its highest level of the year. Sentiment was helped by a drop in mortgage rates. But according to the new survey, builders are growing concerned about uncertainty stemming from the trade dispute with China.
GRIFFETH: Don`t look now, but there are now fewer than one hundred days until Christmas, 99 to be exact. It`s the most important time of the year, obviously, for retailers since consumer spending makes up roughly two thirds of all economic activity and the bulk of that occurs during the holiday shopping season.
And according to a new survey, Americans this year are ready for a healthy dose of retail therapy.
Courtney Reagan has details.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: With less hand 100 days to go until Christmas, two consultant groups are out with upbeat holiday sales forecasts. Deloitte says holiday sales will grow as much as 5 percent above last year, topping $1.1 trillion. AlixPartners` forecast holiday sales will increase a little bit more than that.
Both forecasts are well above last year`s holiday sales growth.
ROD SIDES, DELOITTE: We were up against some really interesting comps. We were in the midst of a government shutdown. In December, we also had a really tough time in the market. And so, we have a lower base to compare to. So, that`s one reason why the forecast is higher.
Second, unemployment and job growth continues to be really good, and that really bodes well for the consumer.
REAGAN: This year, AlixPartners, they warn that while its forecast calls for a strong season, it acknowledges what it calls, quote, unprecedented uncertainty. So, it`s advising retail clients to, quote, be ready for virtually anything, both this holiday season and into 2020.
JOEL BINES, ALIXPARTNERS: What we can`t factor in is uncertainty. And so, our advice to our clients is really related to focusing on the elements of uncertainty that are likely to drive consumer behavior one direction or the other, and then be prepared to have a plan to address those if and when they come up. So, hope for the best. Prepare for the worst.
REAGAN: Deloitte too acknowledges there are risks to its joyful forecast.
SIDES: Anything that really takes money out of the consumer`s pocket in the fourth quarter is an issue. So, if we find spikes in gasoline prices or other things that really take away from consumer confidence, that has a tendency to put risk in the forecast itself. The fundamentals of the economy are still strong. Our hope is that we don`t talk ourselves into a downturn here in the fourth quarter.
REAGAN: Despite the concerns about the impact of tariffs are having on the economy, neither retail consultant group has seen it show up in prices consumers pay in a significant yet, and neither expects a big impact during the holiday season.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan.
HERERA: And joining us to talk more about the state of the economy is Mark Vitner. He is a senior economist at Wells Fargo (NYSE:WFC) Securities.
Welcome, Mark. Nice to have you here.
MARK VITNER, WELLS FARGO SECURITIES SENIOR ECONOMIST: Good to be back with you.
HERERA: So, we heard some downbeat news from FedEx (NYSE:FDX) a bit earlier in our program, but on the other hand, confidence among some key components of the economy, namely builders, is high. So, as we go into this holiday season, what are you expecting?
VITNER: Well, the further you get away from the global economy, the better things look. And the U.S. is largely a domestic economy. And so, we are holding up well among all these trade winds that are blowing out of the trade war.
We are looking for good sales this season. We are up against weak comps from a year ago because the reported retail sales really plunge in December of last year when we had that thousand-point selloff in the stock market.
GRIFFETH: Yes, but the calendars are working against retailers this year. Thanksgiving is late this year. And I guess you think that means we`re seeing more discounting in the month of December. Is that the idea?
VITNER: Yes. I — Thanksgiving comes about as late as it can. It comes on the 28th. And that means that Cyber Monday will occur in December. So, the bulk of online retail sales will show up in December. That should give us a really strong sales this year relative to last year.
But a lot of consumers like to go out to the stores and look at the merchandise and then come back and buy it online. With the compressed timing between Thanksgiving and Christmas this year, I think it`s going to be a good year for brick and mortar retailers too.
HERERA: Mark, what do he is it do for the fed in the decision tomorrow given what FedEx (NYSE:FDX) said, you know, there is a global slowdown and it does affect the U.S. What are you ex — what are your expectations?
VITNER: Well, the volume of international trade has fallen over the last year. And that`s something you don`t see outside of a recession. So, I think the Fed has to cut rates. It has to protect given — given the economy as much downside protection as possible. We think they`re probably going to cut rates again in October and then probably take a step back and look and see how things are holding up.
But we`ve got another rate cut in the first quarter of next year as well.
GRIFFETH: Very quickly, Mark, before you go. It occurs to me that with the trade war and tariffs that many retailers bulked up on inventory early on this year. Did they overdo that? Is there a possibility of that, do you think?
VITNER: You know, there is a possibility of that. But I think sales are going to be up 5 percent year to year. There hasn`t been a lot of goods inflation. So, I don`t think the tariffs are going to be much of an issue this year.
Certainly, if the trade war intensifies, that`s going to be a problem for 2020. But I really don`t think the trade war is going to show up at retailers this year.
HERERA: On that note, Mark Vitner at Wells Fargo (NYSE:WFC) Securities — thanks, Mark.
VITNER: Great to be with you.
GRIFFETH: And to the market now on Wall Street. Stocks were a little changed today ahead of that Fed meeting announcement tomorrow and retail stocks fell, banks stocks did. Energy stocks were down. They were lower on the retreat in price of oil, which we will get to in just a moment here.
But first, the closing numbers for this day with the industrial average rising 33 points. We`re at 27,110. Nasdaq was up 32. The S&P gained seven points today.
HERERA: Time to take a look at some of today`s “Upgrades and Downgrades”.
Home Depot (NYSE:HD) downgraded to neutral from buy at Guggenheim. The analyst says its business investment will present — will prevent margin expansion. The firm removed its $230 price target. Shares fell a fraction to close right about at that level, $230.21.
Snap was upgraded to neutral from negative at Susquehanna. The analyst sees further advertising growth into the fourth quarter. The price target is $18. The stock rose more than 6.5 percent to $16.83.
Coverage of Match Group was initiated with a buy rating at Citi. The analyst says the parent company of Match.com and Tinder could grow internationally. The price is $95. The shares gained 4 percent to $79.71.
GRIFFETH: Still ahead, the maker of OxyContin has its day in court.
GRIFFETH: The maker of Juul e-cigarettes says its sales have been halted in China just days after they were introduced there. Juul vaporizers have been available for purchase online through Alibaba and jd.com. The company gave no reason for the sales halt.
Juul says it remains committed, though, to providing adult smokers in China with an alternative to cigarettes. China is currently the world`s the biggest tobacco market with over 300 million smokers.
HERERA: Oil prices fell sharply today after yesterday`s historic rally. The price of domestic crude settled more than 5 percent lower after the Saudi energy minister said the kingdom`s oil supply will soon be back online.
Not surprisingly, the unprecedented attacks on the Saudi`s oil industry has been the talk of a major energy conference this week in Houston, and that is where Brian Sullivan is for us tonight.
BRIAN SULLIVAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: The last 48 hours in the oil and gas market have been some of the most volatile and wild the world has ever seen after word of a massive attack on a Saudi facility on Saturday, shocked the world, oil spiking higher on Monday, rising around the world by nearly 20 percent.
But the Saudis working hard to try to calm concerns, saying they plan to be back online in a couple of weeks, and be fully back to production in October. Earlier on Tuesday, the Saudi energy minister newly appointed and one of the sons of the king came out and touted his country`s ability to get back to normal so quickly.
PRINCE ABDULAZIZ BIN SALMAN, SAUDI ENERGY MINISTER: Where would you find a country in the whole world that went through this devastating attack and came out like a phoenix from the ashes? None but Saudi Aramco.
SULLIVAN: But here at the Gastech Conference in Houston, Texas, one of the biggest natural gas conferences in the world, the reaction was fairly mixed. Everybody was talking about it. Some suggesting that perhaps the market overreacted with their big gains on Monday.
But the head of the world`s leading consulting and research firms at oil and gas says that`s not the case.
SIMON FLOWERS, WOOD MACKENZIE CHAIRMAN & CHIEF ANALYST: I think they didn`t overreact at all. So, yes the price went up 10, 20 percent but came back. But this attack has come at a time where supply spare capacity is actually very limited. So, it`s taken out 5.7 million barrels on a day off and that`s on top of another 5 million barrels per day that was already off the market for various reasons.
SULLIVAN: The question now, of course, becomes what does it do to the global energy market? Does it add on the so-called risk premium to prices? Well, the head of a Norwegian liquefied natural gas company told us that while this was a very serious (INAUDIBLE), his belief is that it was more Saudi specific than a true global problem.
SVEINUNG STOHLE, HOEGH LNG PRESIDENT & CEO: I would I would like to think of that as something that is very unusual. It`s obviously — there are reasons behind which I don`t think you will find other places in the world.
SULLIVAN: The problem, of course, in this interconnected world, more than 100 countries are represented here at this conference is that oil and gas prices — they are linked together globally. But the one thing that many U.S. company CEOs hope are the fact that their stocks are beaten down so much over the last couple years is that this gives renewed attention on the U.S. oil and gas industry.
And the CEO of a company making a multimillion dollar business beat on U.S. oil and gas, Tellurian, told us she thinks this will highlight the American energy revolution.
MEG GENTLE, TELLURIAN CEO: It really highlights the importance that the U.S. can bring in terms of offering the strategic petroleum reserve, but even other supplies and production as we become one of the largest exporters in the world for not only oil but for natural gas.
SULLIVAN: But whatever happens long term, everybody here agrees on one thing, the pace of the last 48 hours simply cannot be sustained and the world will wait and watch for what may be next.
For NIGHTLY BUSINESS REPORT, from Houston, Texas, Brian Sullivan.
GRIFFETH: A big investor in Kraft (NYSE:KFT) Heinz trims its stake. That`s where we begin tonight`s “Market Focus”.
With the food company`s second largest shareholder, 3G Capital selling 25 million shares but it still does own roughly 20 percent of all outstanding shares. It`s been a tough year for Kraft (NYSE:KFT) Heinz. It took a big charge and supply — and sharply cut its dividend back in February after receiving a subpoena from the SEC over accounting issues. Shares today dropped more than 4 percent to $28.36, only just a few dollars off its all- time low.
Investors got their first chance to respond to Corning`s earnings warning issued late last night. The specialty glass maker lowered its sales and volume expectations for materials found in TV sets and some communication cables because of weak demand. And stock fell about 6 percent today to $28.23.
And Sony (NYSE:SNE) is rejecting a call by activist hedge fund Third Point to spin off its chip business. So, when he calls that unit a critical growth driver for the company. Third Point has also urged Sony (NYSE:SNE) to sell off stakes in Sony (NYSE:SNE) Financial, Spotify, and other non- core assets. Sony (NYSE:SNE) shares fell a fraction today to $59.94.
HERERA: SeaWorld CEO will be leaving his post just seven months after taking the job, saying it was because of a, quote, disagreement over the board`s involvement in the decision making at the company, end quote. SeaWorld`s chief financial officer will now serve as the interim CEO. Shares were down more than 5 percent to $28.52.
Viacom (NYSE:VIA) CEO, who will be the head of the newly combined Viacom (NYSE:VIA) and CBS (NYSE:CBS), says the merger will officially close in December. But he also says he expected a better reaction from investors especially when what his new company can bring to consumers in content.
(BEGIN VIDEO CLIP)
BOB BAKISH, VIACOM CEO: A library at 145,000 television series, 3,600 films, participation in news and sports, and obviously entertainment scripted, unscripted, on a global basis. It`s a tremendous opportunity. And it really positions us to be a preeminent content provider to the world.
(END VIDEO CLIP) HERERA: Viacom (NYSE:VIA) shares dropped more than 1.5 percent to $25.75.
And after the bell, Adobe reported better than expected results. But the software maker gave a weak forecast because it sees growth slowing in its digital media business. Shares were volatile in after-hours trading, but they close the regular session up a fraction to $284.69.
GRIFFETH: Bankruptcy proceedings for Purdue Pharma are underway. As we told you yesterday, the maker of OxyContin reached an agreement in principle to resolve the majorities of the thousands of lawsuits against it that claimed that it helped fuel the opioid epidemic.
Meg Tirrell is at the courthouse in White Plains, New York, for us tonight.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: Roughly three-hour long bankruptcy proceeding here today, attorneys for Purdue Pharma asked the judge essentially to allow the company to keep its lights on and to continue paying employees and suppliers as the beleaguered maker of OxyContin moves through bankruptcy proceedings. It was a somewhat muted prelude to what could be a bitter fight.
Purdue has been sued by more than 2,600 entities claiming it fueled the opioid crisis that`s taken 400,000 lives in the U.S. in the last two decades. Its bankruptcy aims to settle those cases, giving the company and its assets over to plaintiffs. A sticking point though involves Purdue`s billionaire owners, the Sackler family, better known for its donations to museums and universities.
The families agreed to pay $3 billion over seven years as part of the resolution and possibly more payments pending the sale of the overseas company. But at least 10 states attorney general say that`s not enough and some have named the Sacklers themselves in their suits.
In a brief filed before today`s hearing, Purdue`s attorney said they plan to ask the court to stay litigation against not just the company but also current and former owners, officers, directors and employees that could act to shield the Sackler family.
Meanwhile, Purdue`s attorney say A.G.s and authorities from 24 states and five terrorities as well as representatives of thousand of cities and counties have signed onto the deal.
One of those representatives is Motley Rice attorney, Joe Rice.
JOE RICE, CO-LEAD PLAINTIFFS` ATTORNEY: That`s what the litigation is all about, is to try to get some financial help from the industry to help these communities and these states deal with this problem.
TIRRELL: Purdue`s attorneys say they are hopeful more plaintiffs will sign on. For now, the fight continues for Purdue and Sacklers and separately dozens of other drug companies, distributors and pharmacies named in the litigation.
Rice, who`s involved in the tobacco litigation that led to a $250 billion settlement in 1998, says this case is much more complicated because of how many defendants there are.
RICE: With tobacco, we just had the major tobacco companies to deal with. And they owned it from manufacture to delivery.
TIRRELL: And he notes it will take an enormous amount to address the nation`s opioid crisis.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell in White Plains, New York.
HERERA: Coming up, Amazon (NASDAQ:AMZN) hangs out the “help wanted” sign.
HERERA: Another medical school is offering free tuition. Wilde Cornell Medicine in New York said all students who qualify for financial aid will get a full ride, covering everything from tuition, room and board, books and other expenses. While doctors can be among the highest earning individuals, they also carry a heavy debt load, totaling on average $200,000 out of medical school.
GRIFFETH: Finally tonight, Amazon (NASDAQ:AMZN) is looking for workers, a lot of them. So, it put together the largest nationwide job fair to fill thousands of positions.
Deirdre Bosa is in Arlington, Virginia, for us tonight.
DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: Amazon (NASDAQ:AMZN) isn`t really in the business of doing anything small. So, today, as it holds a career day in six cities across the country, it`s not looking to hire just a few people. It`s looking to fill 30,000 roles.
UNIDENTIFIED MALE: I`m in retirement currently. And it would take Amazon (NASDAQ:AMZN) to bring me out of retirement.
UNIDENTIFIED MALE: Brick and mortar stores are going out of business, like Amazon (NASDAQ:AMZN) is the future.
UNIDENTIFIED MALE: I`m looking for warehouse. I have a lot of warehouse experience, driving forklifts, as well as logistics. So, something along that line.
BOSA: Candidates here in Arlington, Virginia, are also looking for positions beyond the warehouse in marketing, information technology, management, and more as Amazon (NASDAQ:AMZN) has moved beyond its core e- commerce business and into new areas like advertising, groceries and video streaming.
At career day pop-up tents across the country, like this one, where job seekers lined up hours before it opened, a and in fact are still streaming in, and Amazon (NASDAQ:AMZN) is giving out information and acting as career coach.
UNIDENTIFIED MALE: Relate those leadership principles to the answer that you`re proving to us.
BOSA: But while 30,000 jobs is a large number, it represents less than 1/20th of Amazon`s total global workforce, and one that has seen its growth decelerate significantly over the last few years. At the start of 2018, Amazon`s workforce grew 60 percent year over year. At the start of this year, just 12 percent.
Certainly, the law of large numbers plays a part. But it also reflects slowing growth in Amazon`s core business, e-commerce.
And then there is the quality of jobs. Scrutiny of Amazon (NASDAQ:AMZN) has risen in the nation`s capital over the last few years. Democratic candidate Bernie Sanders has demanded better working conditions for Amazon (NASDAQ:AMZN) warehouse employees while some of those workers have gone on streak during peak shopping times. But for many job seekers, the prospect of a job at Amazon (NASDAQ:AMZN) is worth waiting in line for.
For NIGHTLY BUSINESS REPORT, Deirdre Bosa, Arlington, Virginia.
HERERA: Here`s a final look at the day on Wall Street. The Dow rose 33 points to 27,110. Nasdaq was up 32. S&P 500 gained 7.
That is NIGHTLY BUSINESS REPORT for tonight. I’m Sue Herera, thanks for joining us.
GRIFFETH: I’m Bill Griffeth. Have a great evening. We`ll see you tomorrow.
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