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Scott Cohn>
Markets; Uber; Transportation; Alaska; Economy; Energy>
ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Tech tankers. Two of the biggest technology names turn in disappointing results and investors react sharply. We have the details on two stocks that are probably in your portfolio or mutual funds.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Rental return. Why the rental counter is no longer the top choice of business travelers.
MATHISEN: State of pain. How low oil prices are hurting many local economies and how they`re fighting pack. Tonight, we take you to one of the biggest oil states of them all, Alaska.
All that and more tonight on NIGHTLY BUSINESS REPORT for Thursday, April 21st.
HERERA: Good evening, everyone, and welcome.
Two of the most widely held, if not the most widely held, stocks -- Microsoft (NASDAQ:MSFT) and Google`s parent Alphabet -- came out with quarterly results after the bell and investors were not pleased.
Let`s start with Dow component Microsoft (NASDAQ:MSFT). The world`s largest software company in the middle of a transition to become more of a cloud company missed on its latest earnings report. Microsoft (NASDAQ:MSFT) earned 62 cents a share. That was 2 cents shy of estimates. Revenue was essentially in line at a shade over $22 billion. Shares initially fell more than 3 percent after the release.
Deirdre Bosa is in Redmond, Washington, with the thing investors should be focusing on.
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DEIRDRE BOSA, NIGHTLY BUSINESS REPORT CORRESPONDENT: For Microsoft (NASDAQ:MSFT), it`s all about the rising cloud which has helped transition the company into a new era of technology faster than many had anticipated. But while cloud business is booming, it may not be enough to make up for a declining PC market which hit Microsoft`s bottom line in the previous quarter through sales of its Windows operating system.
As for devices, diverging fortunes. Surface sales were up sharply while phone sales continue to free fall.
For NIGHTLY BUSINESS REPORT, I`m Deirdre Bosa at Microsoft (NASDAQ:MSFT) headquarters.
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MATHISEN: And now to Google`s parent, the company known as Alphabet. The company`s profit and revenue both grew but that still wasn`t enough to please Wall Street. Alphabet`s earnings rose 16 percent to an adjusted 7.50 a share, but the street was looking for 47 cents more. Revenue was up 17 percent to more than $20 billion but that too fell short of expectations. Picky, picky, picky.
As a result, shares initially fell 5 percent after hours.
Josh Lipton has the main takeaway.
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JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: Sixteen-point-five billion dollars. That was Google`s net revenue number, meaning gross revenue minus commissions paid to partners. That is down 5 percent sequentially. In fact, the biggest sequential decline we have seen from Q4 to Q1 in several years and the street was modeling $16.6 billion.
So, it also disappointed analysts. Neil Doshi of Mizuho Securities says it`s important because it implies that perhaps Google (NASDAQ:GOOG) is paying more money to its partners, and that could be ultimately margin dilutive. Still, Doshi is an Alphabet bull, as are 92 percent of analysts covering this stock.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.
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HERERA: Kevin Landis owns Google (NASDAQ:GOOG) shares and he joins us now to talk more about the earnings report and what the antitrust issues the company is facing from the European Union might mean. He is founder and chief investment officer at Firsthand Capital Management.
Good to see you, Kevin. Welcome.
KEVIN LANDIS, FIRSTHAND CAPITAL MANAGEMENT CIO: Thank you very much. Good to see you, too.
HERERA: What did you think of the report itself? The street is punishing the stock for it. But there seemed to be some decent numbers in there in some sectors.
LANDIS: Absolutely. I think it`s just the lesson is that once you`re a big successful company, your success gets so big, your numbers get so big, they can`t beat expectations every time. Your growth rate`s going to fall because you`re going to start to saturate the market and your market`s going to mature and the market itself is going to grow more slowly.
Those are all normal things, they`re not necessarily bad things. But sometimes they feel bad while they`re happening.
MATHISEN: You know, most companies, Kevin, would love 17 percent revenue growth year over year, they`d die for it.
LANDIS: Right.
MATHISEN: Ditto that kind of profit growth. So, where can -- how can the company continue to grow at those numbers?
LANDIS: Well, I`m with you, most people would love it. If you want to feel better about Alphabet, consider the old media companies out there and sort of their falling cable viewership and falling ad rates and all that.
One way to look at this company is it`s absolutely on the right side of the cord-cutting phenomenon and people are watching less linear TV, less through their cable, more on their tablets and smartphones and that`s mobile and that should accrue to Alphabet or Google`s benefit.
All you can do is conquer the world that`s in front of you and they`re doing a very good job of that. As for managing expectations, that`s Ruth Porat`s job and I`m sure she`s going to take a good cut at it this afternoon, and try to get people to understand that the best they can do is conquer the whole world.
HERERA: Uh-huh. Speaking of the whole world, let`s turn you to Europe and the European Union and some of the antitrust concerns that are there. How big of a headwind is this going to be for the company, if at all, how do you think it will play out?
LANDIS: Right. Again, this is the issue of bumping your head on the ceiling when you`ve outgrown your opportunities. Antitrust happens to successful companies, not to losers. It`s going to be a headache. And it really depends on what area they`re looking at.
You know, if it`s in search, I guess that`s good for people like Yahoo (NASDAQ:YHOO) and Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) who can kind of force them to take their market share down late bit. It depends on exactly the nature of the antitrust allegations, which part of the business they really focus on.
MATHISEN: It`s a funny case. I mean, I remember going back into the `90s with Microsoft (NASDAQ:MSFT). The real charge was that Microsoft (NASDAQ:MSFT) then, as in the case of Google (NASDAQ:GOOG) or Alphabet today, was taking advantage of their dominant operating system position, in this case Android, to favor other products of theirs that are in their suite -- Google (NASDAQ:GOOG) Maps in this case, Google (NASDAQ:GOOG) search.
But why shouldn`t they be able to? Are they going to favor somebody else?
LANDIS: Right, well, this is what the default value, right, the default settings. Turns out what are you nudging people towards? That`s a powerful contest, how you nudge people.
It`s great for Apple (NASDAQ:AAPL), by the way. You know, already, Apple (NASDAQ:AAPL) bigots and I`m a little bit of an Apple (NASDAQ:AAPL) bigot myself, will tell you that the Android side is a little too fragmented and Apple (NASDAQ:AAPL) is just wonderful, beautiful, walled garden, everything works great. This might force the Android side to be even more fragmented. And that`s going to accrue to Apple`s benefit.
It`s a headache that comes with success. And there`s really to getting around it.
HERERA: Right. On that note we`ll leave it there, Kevin, always good to have you on the program. Thank you for joining us. Kevin Landis with Firsthand Capital Management.
MATHISEN: And on Wall Street today, the telecom sector was the biggest weight following earnings disappointments. As a result, stocks mostly lower.
The Dow shed 113 points to 17,982. Verizon (NYSE:VZ) and Travelers accounted for half that drop. More on that later. NASDAQ lost a big 2 points. The S&P 500 dropped about 11.
HERERA: As for the economy, some data out giving us kind of a mixed picture. First, the Philadelphia Fed`s manufacturing index turned negative for April. That suggests retail contraction in that sector.
But on the labor front, the number of Americans filing for first-time unemployment claims last week fell to the lowest level in nearly 43 years. Initial claims dropped to 247,000, that`s a mark not seen since November of 1973. Anything below 300,000 is considered a healthy job market and we`ve been below that mark for 59 straight weeks.
MATHISEN: And let`s bring in our next guest. The Federal Reserve meets next week to discuss the economy and interest rates as you may well know.
And Kevin Logan, chief economist at HSBC, is here to tells us why he thinks two rate hikes are probable this year.
All right. Go ahead, answer the question. Why do you think two and when?
KEVIN LOGAN, HSBC CHIEF ECONOMIST: Well, it`s probably June and December. I think the FOMC wants to space out at lengthy intervals rate hikes it`s going to implement this year.
The FOMC sent a signal in march they`re unlikely to raise rates this month. They noted that global economic and financial market developments pose the risks. And as soon as those rates abate we`re not going to get a rate hike, so April is pretty much off the table.
But I`m thinking into the future. Things are likely to improve a bit. There are already some signs of that. Some of the turmoil in financial markets that we saw a few months ago has started to abate. Credit spreads, particularly in the high-yield sector, have come in. Stock marks rebounded.
And the news out of China, which was so worrisome early in the year, has improved. I think the Fed wants to give it just a little more time before they make any moves.
HERERA: On the other hand, we still have a strong dollar which the Fed has cited as one reason why they might not be able to raise rates. And we have the British vote on whether to stay in the E.U. looming large, which could benefit the U.S. dollar if they company vote to leave the E.U.
Does that change the dynamic for the Fed at all?
LOGAN: Well, certainly, the Fed is watching the dollar. And the dollar has depreciated a little bit. It`s no longer appreciating. And very particularly the Chinese currency, which was declining, has stabilized.
And so, the foreign exchange market has calmed down and the dollar`s come off a bit. But, Sue, you`re right to point that out, import prices are still falling and that`s a concern for the Fed.
But as for the referendum in the United Kingdom regarding their association with the European Union, I don`t think that`s going to be a big factor.
HERERA: OK.
MATHISEN: All right.
LOGAN: The Fed will really be focusing on U.S. domestic economic and financial condition.
MATHISEN: Boy, those unemployment claim numbers were very, very good today.
Kevin Logan, we have to leave it there. Thank you very much, Kevin is with HSBC.
HERERA: Regulators propose new rules aimed at dealing with risk and how the nation`s biggest banks pay executives, primarily their bonuses. The biggest takeaways would be holding back that bonus for four years and allowing banks to recover or claw back bonuses if an executive`s actions are deemed fraudulent or guilty of misconduct. And that could be as much as seven years.
MATHISEN: The financial group is one of the biggest sectors of the S&P 500 but it is also the worst-performing one so far this year. Despite one of the biggest turnarounds since the market bottomed back in February.
In today`s sector spotlight, Susan Li crunch the numbers and tells us names that could do the best and worst in the months ahead.
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SUSAN LI, NIGHTLY BUSINESS REPORT CORRESPONDENT: The financial sector`s off to a rough start in 2016, the worst-performing sector of the S&P. And that`s despite a rebound since the middle of February.
As we head deeper into the second quarter of the year from March to June, keep in mind this time of year has traditionally been strong for financials since they tend to outperform the overall stock market. Wells Fargo (NYSE:WFC) is a name that usually trades higher during this period, typically gaining 3 percent, and trading up two-thirds of the time.
On the other hand, among the big names, Morgan Stanley (NYSE:MS) that is struggled most in the second quarter, falling over 3 percent. Since financials are the weak spot in the market this year, so far this year, some might be thinking of the adage, sell in May and go away, or you might be missing out on money-making trades, according to CLSA`s banking analyst, Mike Mayo.
MIKE MAYO, CLSA MANAGING DIRECTOR: Typically, by Valentine`s Day in the first quarter, capital market activity is robust. That wasn`t the case in the first quarter but you might see a degree of pent-up demand. So, maybe Valentine`s Day comes late.
In the summer when normally you`d be selling the stocks, you could see better capital markets activity, which would be good for a lot of the Wall Street financial players.
LI: The best names to play May to October going back 15 years? Blackrock has averaged 6 percent returns. One name that has had a tough time during those months, AIG, which has fallen 17 percent in that time period. This summer could be a bit different, some economists predicting an interest rate increase from the Federal Reserve, the first in the summer in more than ten years.
Typically, when interest rates go up, that`s when banks can make more money, by charging more interest on their loans. And, yes, financials do traditionally outperform the broader markets when we`re three months away from an increase in borrowing rates. Goldman, JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), Bank of America (NYSE:BAC), they all tend to beat the S&P three months from a Fed move. Citigroup (NYSE:C) and AIG tend to disappoint.
As you see not all financials are made equal. It`s always buyer beware in these markets.
For NIGHTLY BUSINESS REPORT, I`m Susan Li.
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HERERA: Coming up, we`ve all heard about the taxi industry getting eroded by the rise of ride-sharing services like Uber or Lyft. Well, now, another traditional business has customers shifting their habits. We`ll tell you which one.
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MATHISEN: Following up on a story we brought you last night, after months of negotiations Volkswagen and U.S. regulators have reached an agreement on how to deal with more than a half million diesel cars that put out too much pollution. Thousands of VW owners are likely to get several thousand dollars as compensation but exactly how much and how still needs to be finalized.
Phil LeBeau has more.
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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Seven months after Volkswagen admitted to rigging the engines of diesel models so they appeared to meet emission standards, when in fact they were breaking pollution laws, the automaker has agreed to a plan for compensating the owners of those models. Among the options for VW owners, having their cars bought back, getting them fixed and receiving payment from VW, or being let out of their lease.
But exactly how much money VW owners will be offered or how long it will take to fix their cars remains unclear. A federal judge wants those details finalized by mid-June and they still need to be approved by EPA.
For VW dealers, this settlement is a step towards moving past the scandal that has rocked their business. Since September of last year, VW sales in the U.S. are down. While nearly every other auto brand is up. And overall sales in the U.S. are close to a record high.
It`s estimated this agreement will wind up costing Volkswagen at least $3 billion. But this scandal is still far from over. There`s still a Department of Justice investigation and the possibility of a multi-billion dollar fine.
Phil LeBeau, NIGHTLY BUSINESS REPORT, Chicago.
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HERERA: Profit at General Motors (NYSE:GM) doubled last quarter. And that`s where we begin tonight`s "Market Focus."
The automaker cited strong truck and SUV sales in North America, as well as stronger European sales as the main drivers of growth. GM also noted it took a charge over its recent labor agreement with the United Auto Workers union. Shares of the automaker up over 1 percent to $32.66.
Dow component Visa (NYSE:V) reporting after the bell today, where it gave slightly lower guidance for the year. The company did beat analyst expectations for both profit and revenue this past quarter. But it said it continues to face issues with the strong U.S. dollar and uneven spending in the global economy. Shares of the company closed slightly lower during the trading day to $80.79 and then initially traded even lower during after- hours trading.
Insurance company Travelers` quarterly profit fell 17 percent. The company cited the violent storms this past month in Texas which caused millions of dollars in damages to cars, homes and businesses as the main driver for that drop. Shares of the insurer fell over 6 percent today to $108.79.
And telecom giant Verizon (NYSE:VZ) is warning that growth for the rest of 2016 may be stagnant. The company cited ongoing labor disputes as well as increased pricing competition in the wireless business as continuing concerns. Verizon (NYSE:VZ) shares dropping over 3 percent today to $50.02.
MATHISEN: Southwest Airlines (NYSE:LUV), the fort-largest U.S. carrier, saw its profits soar 13 percent last quarter as the company benefited from the lower cost of fuel. The company also in the middle of modernizing its fleet with newer, more fuel-efficient planes. Shares of the airline up more than 1 percent on the day to $47.73.
Steph Curry not only helping the Golden State Warriors have an historic season, he`s also partly responsible for Under Armour`s strong quarter. The athletic apparel company cited a 64 percent jump in its footwear business this past quarter due in part to strong sales of Steph Curry branded sneakers. The ones my son Macky is dying for. Shares of the company hit the equivalent of two three-pointers today, up about 6 percent to $46.93.
The coffee giant Starbucks (NASDAQ:SBUX) offered up a weak cup of brew in its quarterly earnings today. Profits hit the estimate of 39 cents a share but revenues fell a bean or two short. And the company`s forecast for the current quarter was more a blond brew than a Robusta. Mobile orders are hot spot though. Yes, I said that, Sue. Running at $8 million a month and growing. The stock ended the day at $60.64. But dripped lower in after- hours trading.
HERERA: Oh, stop.
MATHISEN: And, finally, done deal. Viacom (NYSE:VIA) will be doing the dishes. Dish Network, that is. The two companies reached agreement so that Viacom (NYSE:VIA) channels like Nickelodeon will air on Dish and Sling TV. Shares of Viacom (NYSE:VIA) up on the day as you see there. And so were Dish network.
HERERA: I think you`ve had too much Robusta.
Uber and Lyft are at it again. This time, it`s taking business away from the car rental industry. According to the expense management company Certify, the ride-sharing companies account for 43 percent of receipts that workers gave to employers for ground transportation last quarter, while rental cars only had 40 percent.
Joining us now to discuss the shakeup in this industry is Bob Neveu. He`s CEO and founder with Certify.
Bob, welcome. Nice to have you here.
BOB NEVEU, CERTIFY CEO & FOUNDER: Hi. Thanks for having me on the show.
HERERA: You know -- kind of quantify the impact that these types of services are having. Has it been a steady erosion? Or have we seen it really pick up recently?
NEVEU: It has been a steady sort of gradual increase in market share for Uber and Lyft in the ride-handling environment.
We do this report every quarter. Over the last five quarters we`ve seen a consistent increase in market share where Uber and Lyft have overtaken the taxi industry first, and then two quarters ago we saw them starting to outpace the auto rental industry in specific markets in Q1 of 2016, we see them outpacing auto rentals in all markets.
MATHISEN: Is this by revenue, Bob? Or is this by sort of transactions?
NEVEU: Yes, that`s a great question. So it`s by transactions. We processed over 9.5 million transactions in our expense engine from all these various business travelers this past quarter.
And really probably the best way to think about it is in the ground transportation segment, Uber and ride-sharing is the most popular of all providers. They continue to grab more transactions, they continue to be used, I think for a number of reasons, but the business community is certainly adopting, readily adopting a rapidly increase their use of ride- hailing services.
HERERA: Well, you know, part of it probably is convenience. It takes awhile to rent a car. You have to either stand in line or maybe if you`re a gold member, it`s a little easier. But the quality of the experience may be better with Uber and Lyft. And the convenience factor for business travelers is pretty big.
NEVEU: Yes, I think that`s right. You consider renting a car and most -- in major metro markets, most of the car rental locations at airports are not at the airport, they`re off-site. So, you`re in a shuttle, you`re on mono rail, you`re getting there, you`re getting your car.
When you bring the car back you have to fuel it up, return it, hopefully, you had 15, 20 minutes for the drop-off scenario. Whereas taking a ride- handling service gets you to your location, gets you back to your airport, and you can be productive and enjoy the ride, maybe even a bottle of water.
MATHISEN: I did this on a recent trip that I took to Seattle, exactly what you describe. There is one hitch, though. In a lot of cities, Uber is not certified to use your company name to pick up at airports. They`ve got to solve that.
NEVEU: They do and I think from a regulatory perspective, when you come into a market that allows for airport pickup and drop-off by ride-hailing, it`s a much different experience even at the taxi line. She taxi, should I go ride-hailing?
It is challenging in marketplaces that have not adopted the service for municipalities.
HERERA: All right. Thank you so much for joining us, we appreciate it. I`m jealous. It looks beautiful in San Diego today.
NEVEU: It`s been great.
HERERA: Bob Neveu with Certify.
MATHISEN: Usually, it`s beautiful out there as you well know, Sue.
HERERA: Yes.
MATHISEN: Up next, how one heavily oil reliant state is open hoping to relieve the pressure from low crude prices.
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MATHISEN: Low oil prices may be great when you`re filling your car but they`re creating intense pain in states that depend on oil. And nowhere is that more the case than in Alaska where crude is the state`s lifeblood.
Scott Cohn is in Juneau with a look at what the state`s doing to cope.
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SCOTT COHN, NIGHTLY BUSINESS REPORT CORRESPONDENT: When Sarah Palin was governor the Alaska, it was practically a no-brainer --
SARAH PALIN (R), FORMER ALASKA GOVERNOR: The chant is drill, baby, drill.
COHN: With Alaskan oil at more than $120 a barrel back then, the state was sitting on a liquid gold mine. But for the current governor, Bill Walker, things are a lot more complicated.
GOV. BILL WALKER (I), ALASKA: With the price of oil coming down, there`s no shock absorber for that. So it`s very dramatic.
COHN: Prices have fallen roughly 70 percent from their peak. Producing oil in Alaska is a money-losing proposition.
KARA MORIARTY, ALASKA GOIL AND GAS ASSOCIATION PRESIDENT & CEO: The average cost to produce a barrel of oil, before we pay any tax, whether it`s to the federal government or to the state government, is about $52 a barrel.
COHN: Oil companies are cutting jobs and production. The Trans Alaska pipeline is running at one-quarter of its capacity. Just keeping the oil flowing at this rate, without the line freezing, is an engineering feat.
BETSY HAINES, ALYESKA PIPELINE ENGINEERING DIRECTOR: I have woken up worried about kind of the future in and the transatlantic pipeline system, because again, it`s not just technical, it`s economic.
COHN: All this in a state that has relied on oil for as much as 90 percent of state revenues and one-third of all jobs.
Alaskans have seen low oil prices before. In fact, they`ve gone lower than this and always bounced back. But there`s a growing fear that this time is different and that this is a new normal.
Not only is demand down, Alaska faces new competition from shale oil. So, with the state facing a $4 billion budget gap and the legislative session going into overtime, the governor has proposed a sweeping plan to make the state less reliant on oil.
WALKER: It won`t decouple but it will go from 90 percent dependent to 21 percent.
COHN: It would use earnings from Alaska`s accumulated oil well, the $50 billion so-called permanent fund. There are also widespread spending cuts, worrying the head of the state`s largest school system.
ED GRAFF, ANCHORAGE SCHOOL SUPERINTENDENT: We`re at a point this year we`re going to have to make reductions that will have direct impact to the classroom.
COHN: There are proposed tax increases for the oil industry and maybe the important commercial fishing industry.
JERRY MCCUNE, UNITED FISHERMAN OF ALASKA PRESIDENT: You see down the harbor here, every boat is a small business, we`ve got to keep every one of those small businesses going.
COHN: Individuals would feel it too. The governor is proposing the first state income tax since 1980. There`s even talk of cutting Alaska`s sacred permanent fund dividend, the yearly check to every resident for their share of the oil well.
Last year, more than $2,000 per person. Some are already bracing for the change.
DIANE ANTAYA, ALASKA RESIDENT: I guess I`d like to not see that go away. I see many of my students and families are very dependent upon it. I know that for my own child, it`s going to help him get to college.
COHN: Long-term, there`s talk of a new pipeline for natural gas and calls to diversify the state`s economy. But for now, Alaskans are learning a tough lesson that won`t get easier any time soon.
Scott Cohn, NIGHTLY BUSINESS REPORT, Juneau, Alaska.
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MATHISEN: Spectacular scenery out there.
HERERA: It`s beautiful. It really is.
That does it for NIGHTLY BUSINESS REPORT for tonight. I`m Sue Herera. Thanks for joining us.
MATHISEN: And I`m Tyler Mathisen. Thanks from me as well. Have a great evening, everybody, we`ll see you back here tomorrow.
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