ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Change of plans. Biogen revised its experimental Alzheimer`s drug, offering new hope for millions, sending the stock to its best one-day gain in 23 years.
Executive changes. Nike (NYSE:NKE) CEO is stepping down, so is the man in charge of Under Armour (NYSE:UA). And a Boeing (NYSE:BA) senior official exits amid that company`s growing crisis.
Higher prices. Consumers are willing to pay them for household goods, and Procter and Gamble comes out on top.
Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Tuesday, October 22nd.
Good evening, everyone, and welcome. Bill has the evening off.
It was a busy earnings day dominated by corporate news. And we begin with something no one saw coming. Biotech firm Biogen surprised investors when it said its experimental Alzheimer`s treatment was ready to start the regulatory approval process. As you may recall, just seven months ago the company discontinued the study of the drug which some on Wall Street had expected to be Biogen`s next blockbuster.
Analysts say the profit potential is huge because there are no current therapies to reverse affects of the disease. A disease that affects millions and is projected to affect millions more in the years to come. That news sent shares of Biogen up 26 percent, its best one-day gain since 1996.
But as Meg Tirrell reports, while there is renewed hope, there`s also a long road ahead.
MEG TIRRELL, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a diagnosis you don`t expect in your early 50s. Jeff Borghoff was only 51 when he was told he has early onset Alzheimer`s disease. With no drugs approved to slow Alzheimer`s progression, Borghoff enrolled in a clinical trial of an experimental drug made by Biogen. It`s called aducanumab, and it`s designed to attack the amyloid plaque build ups in the brain associated with Alzheimer`s.
JEFF BORGHOFF, ALZHEIMER`S PATIENT: When you`re participating in the clinical trial or the experience for me participating in the clinical trial was one of adulation. I was really happy to be part of it.
TIRRELL: Borghoff was in the trial three years, going every month to a center of to have the infusion of the drug. He says he thought it was helping.
BORGHOFF: Everyone in my family noticed a marked improvement in my cognition. For your family to see you doing things that you were having trouble with before, you know, those are things that become very exciting to you.
TIRRELL: Then, in March of this year, shocking news. Biogen stopped development of the drug says an interim analysis suggested it wasn`t helping patients. The trial stopped. Borghoff says he was devastated.
Seven months later, another about-face. This morning, Biogen announced the drug was back. A new analysis of more data it says suggested the drug actually may work, helping slow the declines in ability to think clearly and remember things associated with the disease.
As a result, Biogen plans to file for approval in early Alzheimer`s diseases with the FDA early next year.
Wall Street responded enthusiastically, driving Biogen stock back to the level it had been in March when the trials stop. If the drugs approved, it would be the first cleared to slow the course of disease, and that means big business, with almost 6 million Americans living with Alzheimer`s.
But skepticism remains. Alzheimer`s has an incredibly high failure rate in drug development, 99.6 percent by some counts. And many analysts say they want more data on the drug and trials before being convinced the drug really works. Biogen says it aims to offer patients like Borghoff mo participated in the trials access to aducanumab before approval.
Borghoff says he`s elated.
BORGHOFF: We`re going out to dinner tonight to celebrate.
TIRRELL: His advice to others facing the diagnosis of Alzheimer`s?
BORGHOFF: You`ve been diagnosed with a neurodegenerative disease. It`s not the end of your life at that moment. You should do everything that you can to try to do all of the things that are known to help — to hopefully extend your life.
TIRRELL: And he suggested look to join a clinical trial.
For NIGHTLY BUSINESS REPORT, I`m Meg Tirrell.
HERERA: On Wall Street, a tug of war. Positive earnings from the likes of Procter and Gamble were not enough to offset negative results from companies like Travelers. And this afternoon, the major averages fell after U.K. lawmakers rejected a limited time frame to review a deal on Brexit. That makes an October 31st deadline extension more likely. When all was said and done, the Dow Jones Industrial Average was down 39 points to 26,788, the Nasdaq slid 58 and the S&P 500 fell 10.
And now to those positive earnings from Procter and Gamble that we just mentioned. The consumer products company reported better than expected profit and revenue and raised its outlook for the year. That offered some relief to investors who as you know are also looking for signs that the consumer is holding up. The results sent shares of P&G higher by about 2.5 percent.
Seema Mody breaks down the quarter.
SEEMA MODY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Consumers are paying higher prices for household goods. And Procter and Gamble is reaping the rewards.
Over the past year, the company has responded to higher costs and tariffs by raising prices on select products. And despite wider issues like the trade dispute and Brexit, growth overseas remains up beat.
JON MOELLER, PROCTER & GAMBLE CFO: Brexit and impact on consumer confidence definitely has had impact but we`re still growing. We grew 2 percent in the U.K. China was one of the best quarters in a long time, grew 13 percent.
And in our industry, it`s really about, particularly in these categories where performance drives brand choice, superiority of offering, delight of consumer. If we do that job well, we generally fare well and when we don`t, we have issues.
MODY: P&G also saw solid demand in its health and beauty products for things like its high end SK-II and Olay brands.
MOELLER: Beauty were performing really across the board. It`s sixth consecutive quarter of strong growth. All portions of the beauty business grew significantly. The skin and personal care business grew in the teens. Our hair care business grew in the mid-single digits. So, it`s a business that`s really hitting all cylinders.
MODY: Like all consumer giants, the maker of tide detergent and Gillette razors had to contend with competition from its peers, Clorox (NYSE:CLX), Unilever (NYSE:UN) and Kimberly-Clark (NYSE:KMB), as well as smaller disrupters that have used social media as an effective tool to draw in customers.
Meantime, the company continues to double down on innovation and technology to launch new products. Whether it`s unveiling new makeup gear that millennials or digital diapers that track baby sleep, with new players flooding the markets, analysts say Procter & Gamble`s ability to maintain its market share will become even more challenging for the company in coming years. However, unveiling new products at the right price that have wider appeal could keep the growth story going.
For NIGHTLY BUSINESS REPORT, Seema Mody.
HERERA: Also helping the market today was United Technologies (NYSE:UTX). The Dow component topped earnings estimates for the third quarter and its raised its guidance, which was good news for the closely watched industrial sector. The CEO cited strength in its aerospace business and improving profit margins. Shares rose 2 percent in today`s session.
Now to McDonald`s (NYSE:MCD), which reported a rare miss. The world`s largest fast food giant posted disappointing profits for the first time in two years. Same store sales in the U.S. were not as good as expected despite technology upgrades, promotions and menu price increases. And that pushed shares of the Dow component 5 percent lower in today`s session.
Kate Rogers (NYSE:ROG) takes a look at the challenges facing the Golden Arches.
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: McDonald`s (NYSE:MCD) is feeling the competitive pressure. Consumers had an appetite for premium chicken sandwiches from Chick-fil-A and Popeyes. And when it came to the plant-based burger craze, McDonald`s (NYSE:MCD) largely stayed on the sidelines, announcing just last month that tests with Beyond Meat in Canada.
R.J. HOTTOVY, MORNINGSTAR: Obviously, innovations have got to be there if other companies come up with new products, McDonald`s (NYSE:MCD) has to match them. I suspect that we`ll probably see a premium chicken sandwich from this company sometime in the next several months. I don`t know if they want it right after that. Probably want to give it more to him to stand out from its competitors.
But also plant-based alternatives. I think that the company is certainly thinking with that.
ROGERS: Traffic slowed but the company called it a big opportunity for the future. McDonald`s (NYSE:MCD) has made a series of acquisitions and investments in recent months in technology companies, focusing on artificial intelligence, mobile order and pay, and a speedier drive-thru experience which will likely boost future results.
HOTTOVY: The technology standpoint, I think what McDonald`s (NYSE:MCD) is trying to do with reimagining the drive through lane is something that`s pretty unique among the click service restaurants base today. The company has obviously done its experience the future within the restaurants. But now, it`s moving to experience of the future for its drive thru lanes which is something that I think can be pretty interesting when it`s all packaged together and we see consumer adoption of it.
ROGERS: The company is also continuing to modernize its stores with some 9,000 in the U.S. outfitted with kiosk, digital menu boards and check upgrades with more to come before the end of the year.
For NIGHTLY BUSINESS REPORT, I`m Kate Rogers (NYSE:ROG).
HERERA: A rough day for Travelers. The insurance company saw earnings decline after the company set aside hundreds of millions of dollars in reserves for lawsuit. The reserves were driven by an asbestos charge, higher general liability in commercial auto losses. The company also warned of a difficult and aggressive tort environment. The stock dropped more than 8 percent, its worst day since 2008.
A top Boeing (NYSE:BA) executive is out. The company is replacing the head of its commercial airplane division, the shake-up comes as Boeing (NYSE:BA) prepares to report earnings tomorrow and CEO Dennis Muilenburg updates Wall Street on the company`s plan to get the 737 MAX back in the air. After two tough days, the stock finished higher.
Here is Phil LeBeau.
PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Almost one year after the first 737 MAX crashed in the Java Sea and more than seven months since regulators around the world said the MAX is not safe to fly, Boeing (NYSE:BA) is changing the leadership of its commercial airplane division. Kevin McAllister is out after almost thee years of running the largest and most profitable business at Boeing (NYSE:BA).
McAllister joined Boeing (NYSE:BA) as the MAX was getting ready for certification. And for two years, he oversaw a steady increase in 737 production. But after a second MAX crash earlier this year and the subsequent investigations which raised serious questions about how Boeing (NYSE:BA) developed the plane, pressure was mounting on CEO Dennis Muilenburg and the Boeing (NYSE:BA) board of directors to show that they are taking action to fix the MAX and get Boeing`s commercial airplane business back on track.
That job now belongs to Stan Deal, a 33-year veteran of Boeing (NYSE:BA) who has run programs within the company. Boeing (NYSE:BA) CEO says: Stan brings extensive operational experience at commercial airplanes and trusted relationships with our airline customers and industry partners.
Those relationships will be crucial as Boeing`s customers are increasingly agitated at their inability to fly the MAX. The situation they`re hoping changes by early next year.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
HERERA: It is time to take a look at some of today`s “Upgrades and Downgrades”.
Bank of America (NYSE:BAC) was upgraded to overweight from neutral at Atlantic Equities. The analyst cites what he calls an impressive third quarter with on ongoing deposit growth. The price target is $36. The shares rose a fraction to $31.20.
Dropbox was upgraded to buy from neutral at Nomura Instinet. The analyst says the company`s revenue is nearing an inflection point after six quarters of deceleration. The price target is $25. The stock was up 2 percent to $19.32.
Electronic Arts (NASDAQ:ERTS) was downgraded to equal weight from overweight at Barclays. The analyst says the majority of earnings growth next year will come from buybacks rather than business fundamentals. The price target is $99. The shares fell 1.5 percent to $94.30.
Longtime Nike (NYSE:NKE) chief executive Mark Parker is stepping down effective in January. He will be replaced by Nike (NYSE:NKE) board member and CEO of ServiceNow, John Donahoe, who brings a heavy focus on digital. Parker has been CEO since 2006 and been with Nike (NYSE:NKE) for four decades. He will become the company`s executive chairman. Shares were volatile following the afterhours news and closed the regular session down a fraction at $95.60.
And there is a change at the top at Under Armour (NYSE:UA). CEO and founder Kevin Plank is handing over the reins, leaving the new CEO to complete the company`s turnaround. The news sent the stock up more than 6 percent in today`s session.
Courtney Reagan reports tonight from Under Armour`s headquarters in Baltimore.
COURTNEY REAGAN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Under Armour (NYSE:UA) is getting a new CEO in the New Year, only the second in the company`s history. Founder and current CEO Kevin Plank transitioned to executive chairman and brand chief on January 1st. As president and chief operating officer Patrik Frisk takes over the top job.
KEVIN PLANK, UNDER ARMOUR CEO & FOUNDER: First and foremost, this is my decision to get to this moment of the ability to work and, frankly, have enough partnership where Patrik and I complement each other so well and the ability of the business as we said last time we talked with you, the company is moving from defense to offense.
PATRIK FRISK, UNDER ARMOUR PRESIDENT & COO: We believe we have a strong plan in place and we now want to be able to free up Kevin to be more strategic in terms of how he thinks about what he does and then allow me to do what I do with more freedom as well.
REAGAN: Frisk joined Under Armour (NYSE:UA) more than two years from Aldo, where he was the CEO and also worked with the company`s founder. He`s been the heir apparent, often joining Plank for interviews though no official timeline had been laid out until today.
SUSAN ANDERSON, B. RILEY FBR: How much is Patrik really in control even though stressed that, you know, he is kind of in control of the ship now? But he still reports to Kevin we`ll see how much he is actually making the decisions. And I think that`s going to be a big factor in how much we really see change happen at the company that turned hem in the right direction.
REAGAN: Frisk has been overhauling operations for the athletic brand as part of a multi-year transformation, which has so far included changes to the supply chain, inventory, manufacturing and even redefining its target customers. Consumers looking for performance first, rather than embracing the athleisure trend.
Under Armour (NYSE:UA) has been able to improve margins and reduce excess inventory. But North America, the brand`s largest region, is still searching for a return to sales growth.
FRISK: The plan that we laid out on investor day we`re still executing on that plan. That was to over time get us back to strong growth in north America. It will take time.
REAGAN: Investors have been impatient. Shares have lost a quarter of their value since Under Armour (NYSE:UA) lowered its expectations for North America sales.
For now, Under Armour`s playbook remains the same, though officially getting a new head coach in the New Year.
For NIGHTLY BUSINESS REPORT, I`m Courtney Reagan at Under Armour (NYSE:UA) headquarters in Baltimore, Maryland.
HERERA: Still ahead, home buyer demand is back. So, why aren`t sales of existing homes higher?
HERERA: Facebook (NASDAQ:FB) CEO Mark Zuckerberg will testify on Capitol Hill tomorrow on his company`s cryptocurrency project called Libra. His testimony was released today. And in it, he plans to tell lawmakers that Libra won`t launch anywhere in the world until U.S. regulators approve it. Zuckerberg will also say that projects like Libra will help extend America`s financial leadership.
Sales of existing homes disappointed in September but there was some irony in the latest report. Buyers were out and demand was strong in part because of low mortgage rates which showed list sales. But all of that demand also resulted in higher prices which buyers don`t like.
Diana Olick has more.
DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Demand for housing is very high. At least according to the high-tech entry lock boxes on homes for sale. Realtors can track traffic threw them and it is strong.
LAWRENCE YUN, NAR CHIEF ECONOMIST: The opening of the lock boxes, entry log is showing improvement. So, there is buyer interest because of lower mortgage rates. But the price increases and lack of inventory, that is providing some pause for the actual signing of the contracts.
OLICK: Home prices jumped nearly 6 percent a annually in September, the biggest increase in nearly two years. Prices are being fueled by both strong demand and lower mortgage rates. The 30-years year fixed rate is down sharply from a year ago while that should make housing more affordable, it`s only bringing out more buyers and increasing competition which in turn pushes prices higher.
YUN: If we have a disparity where prices are rising much faster than people`s wages, first, there is a shock factor for the consumer.
OLICK: That shock resulted in lower home sales, especially in the lower price ranging where demand is strongest and home builders do the least to help. Builders still claim today`s higher construction costs keep them from putting up more entry level homes.
And now, we head into the historically slow season for housing. There had been hope that all the pent-up demand from the disappointing spring would make this an especially strong fall but overheating prices are turning buyers away cold.
For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.
HERERA: Revenue at Texas instruments drops double digits. That`s where we begin tonight`s “Market Focus”.
The chip maker results missed expectations hurt by global slowdown in microchip sales and the ongoing trade tensions with China. Texas Instruments (NYSE:TXN) also gave weak guidance. Shares initially fell more than 10 percent after-hours, and close the regular session down 2 percent to $128.57.
And the trade war also hit Hasbro (NYSE:HAS) as the toymaker missed on both profit and sales estimates due to the threat of tariffs, increasing shipping and warehouse costs. Even though it had strong toy sales, tied to Disney (NYSE:DIS) movie franchises like “Star Wars” and “Frozen 2”. The shares tumbled almost 17 percent to $100.02.
UPS beat on earnings driven by next day delivery service. Rival FedEx (NYSE:FDX) cutting ties with Amazon (NASDAQ:AMZN) and strong demand in online shopping. The company missed on revenue and trade tensions impacted its U.S.-China shipping, but the CEO sees hope in international trade.
(BEGIN VIDEO CLIP)
DAVID ABNEY, UPS CEO: What we like to see, trade developments go in a more positive direction. We think there are some rays of sunshine when you hear about the first level between China and the U.S. Brexit, there seems to be a path. So, we believe there is opportunities there.
(END VIDEO CLIP)
HERERA: Shares fell about 2 percent to $116.10.
And increase in international sales helped Harley-Davidson (NYSE:HOG) post better than expected profits and sales. But the motorcycle maker saw a decline in U.S. sales. Higher costs from European tariffs and it`s still finding ways to entice new and younger riders. The stock rose about 8 percent to $40.04.
Verizon (NYSE:VZ) said it will be offering unlimited wireless and broad band customers. A free one-year subscription to the Disney (NYSE:DIS) Plus streaming service, which is planning to launch next month. Verizon (NYSE:VZ) CEO believes this strategic partnership can bring a variety of content to its consumers.
(BEGIN VIDEO CLIP)
HANS VESTBERG, VERIZON COMMUNICATIONS CEO: We want to give our consumers choices. This is one of the best choices we can give them, on top of the network. We have a great network. We`re building for the empire (ph) and, of course, our Fios Network. On top of that giving the customers these opportunities is a great total consumer experience.
(END VIDEO CLIP)
HERERA: Verizon (NYSE:VZ) shares up a fraction to $60.77.
And after the bell, Chipotle topped expectations thanks to an increase in same store sales, more delivery options and addition of healthier meals on its menu. Shares were volatile in initial after hours trading, and they closed the regular session down more than 2 percent to $831.07.
Coming up, a jolly holiday shopping season may be just what retailers and the economy ordered.
HERERA: Here are some positive news when it comes to health care costs. Premiums for some of the plans sold under the Affordable Care Act are set to drop next year. Federal officials say average rates for the most popular mid-priced plans will decline 4 percent, though premiums vary widely by location. Twenty more insurance providers will participate, a sign the experts say shows the program is stabilizing.
The CEO of Lyft today said that the ride-hailing company will be profitable on an adjusted basis a year earlier than analyst had expected. He made the comment at the “Wall Street Journal`s” Global Technology Conference. That gives shares of Lyft a the lift in today`s session, up about 6.5 percent.
Well, we`re just 64 days away from Christmas. And it looks like it`s going to be a jolly shopping holiday season. That at least according to Deloitte`s 34th holiday survey of consumer spending. Shoppers are expected to spend nearly $150 per household this year.
Rod Sides, the leader of the retail practice at Deloitte, joins us to talk more about the findings.
Welcome, nice to have you here, Rod.
ROD SIDES, DELOITTE VICE CHAIRMAN OF RETAIL PRACTICE: Thank you. Good to be with you.
HERERA: It`s a pretty bullish survey even though parts of the retail sector have had trouble this year. But spending is going to be up overall, right?
SIDES: That`s correct. That`s what consumers are telling us. We talked about 4,000 of them early in September and they all feel good about the monthly day so far.
HERERA: Who is going to be doing most of the spending?
SIDES: You know, it`s interesting. I would say it`s the upper income. So, what we found the top 20 percent of spenders account for 60 percent of the total spend, or about $600 billion believe it or not.
HERERA: You know, the trend has shifted a little bit. It used be that Black Friday, the day after Thanksgiving, was the shopping day. And it`s still certainly important.
But what are consumers telling you about how they`re going to shop and when they`re shopping?
SIDES: Well, they`re telling us that they`re going to spend more time looking for promotions on Cyber Monday, especially the middle to upper income group. Lower income groups are less than $50,000 in household income, typically prefer stores. But we see Cyber Monday taking on more and more importance over the last couple of years.
HERERA: What about retail traffic, people going to the malls and physical locations versus online? What are the statistics there?
SIDES: So, yes, online it`s going to be about 56 to 57 percent overall. And then from bricks and mortar, we`re looking at that to be about 36 percent overall. So, we`re seeing a really folks focus on buying online in this season.
HERERA: And they want promotions. That was one thing. But they also want to spend on experiences. How much has that groan since you did the survey last year?
SIDES: You know, it`s grown pretty significantly over the last several years. So, it`s up about to $600 this year. That trend has been up the last three or four years and it`s grown probably 7 percent to 8 percent a year for the last five years.
HERERA: And is that one of the leading changes for lack of a better word in the survey that you`ve seen that it`s less about what you buy but more about where you go or what you experience?
SIDES: Yes, absolutely. So, what we found is about 81 percent of the spend for the upper income has something to do with travel. Entertaining outside the home is also really important. We see restaurant visits up about 59 percent of the total respondents.
So, it is a very important part of the holiday season now.
HERERA: On that note, Rod Sides with Deloitte, thanks so much for joining us tonight.
SIDES: Thank you.
HERERA: And finally tonight, Jeff Bezos Blue Origin is partnering with Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC) and Draper Laboratory to get back to the moon. Bezos made the announcement at one of the biggest space conferences of the year.
(BEGIN VIDEO CLIP)
JEFF BEZOS, AMAZON FOUNDER & CEO: This is a national team for a national priority. We could — I could not be more excited to be doing it with these partners. And this is the kind of thing that`s so ambitious. It needs to be done with partners.
This is the only way to get back to the moon fast. This time we are going back to the moon and we`re not going back to the moon to visit. We`re going back to the moon to stay.
(END VIDEO CLIP)
HERERA: The three companies will collaborate on one moon lander design. That they will then submit to NASA.
Before we go, here`s another look at today`s final numbers on Wall Street. The Dow fell 39 points to 26,788. The Nasdaq was down 58 and the S&P 500 slid ten.
And that is NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for joining us. And we`ll see you tomorrow.
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