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ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Tyler Mathisen and Sue Herera.
SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Up in the clouds. Microsoft (NASDAQ:MSFT) posts better than expected profits. Tonight, a host of companies out with earnings report, most of them favorable.
TYLER MATHISEN, NIGHTLY BUSINESS REPORT ANCHOR: Major media shakeup. Roger Ailes of FOX News created a media business power house and now multiple reports say the head of perhaps the most profitable brand in news may be on his way out.
HERERA: Get out the vote. Why companies are courting mom and pop investors once again.
Those stories and more tonight on NIGHTLY BUSINESS REPORT for Tuesday, July 19th.
MATHISEN: Good evening, everyone, and welcome.
A new record for the Dow, its eighth straight day of gains, and we begin tonight, though, with earnings from Microsoft (NASDAQ:MSFT), which added to the string of strong results reported by other Dow components. Microsoft`s quarter was powered by its relatively new Cloud business. And not by the product it may be best known for, Windows. CEO Satya Nadella has shifted the company`s focus amid slowing PC sales.
Now, the Dow component earned 69 cents a share. That is a full 11 cents better than estimates. Revenue also topped expectation percent although annual revenue fell 8.8 percent from fiscal 2015. That`s the first time annual sales have fallen since 2009.
Still, investors liked what they saw, sending shares higher in initial after hours trading.
Josh Lipton has more on Microsoft`s results.
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JOSH LIPTON, NIGHTLY BUSINESS REPORT CORRESPONDENT: $6.7 billion, that was the big number in Microsoft`s latest earnings report. That was the revenue Microsoft (NASDAQ:MSFT) report for its so-called intelligent cloud segment. Kirk Materne of Evercore ISI who covers Microsoft (NASDAQ:MSFT) says that`s important because this move to the Cloud is a critical part of Microsoft`s strategy going forward.
It was also weaker than expected in the third quarter so investors wanted to see this bounce back. He also notes that revenue from Azure, which is Microsoft`s cloud computing platform surged some 102 percent. Meanwhile, operating margins came in better than expected at 27 percent. Materne says that means Microsoft (NASDAQ:MSFT) is capably bouncing, investing in the cloud with cost controls.
For NIGHTLY BUSINESS REPORT, I`m Josh Lipton in San Francisco.
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HERERA: We also got results from three other blue chip companies and all three of them beat expectations. Goldman Sachs (NYSE:GS), United Health Care and Johnson & Johnson (NYSE:JNJ) reported strong quarters but for different reasons.
(BEGIN VIDEOTAPE)
HERERA: Johnson and Johnson saw pharmaceutical sales jump 9 percent, thanks to sales of a blood thinner and drugs that treat diabetes and prostate cancer, J&J posted an earnings beat and raised both revenue and earnings guidance for the year. Sales of J&J`s globally known consumer brands, things like Band-Aids, Listerine and Tylenol were dented by currency headwinds, down almost 2 percent. But the company says currency headwinds are easing somewhat, while medical device sales were up almost 1 percent.
J&J`s strength across those three core businesses, pharmaceutical, consumer and devices continue to provide multiple sources for growth.
DOMINIC CARUSO, JOHNSON & JOHNSON CFO: We`re all three of those things, and overall, we`re focused broadly based in human health care. We think that`s the right way to approach the ever evolving dynamic health care environment where we can access growth no matter where it is.
HERERA: The country`s biggest health insurer, United Health Group also beat earnings and revenue expectations, thanks to its thriving pharmacy services business. It too raised profit guidance for the rest of the year, even though losses blamed on its Affordable Care Act plans are mounting.
Another $200 million brings its projected ACA-related losses for the year to $850 million, mostly because of larger than expected enrollment and because those enrolled are proven to be less healthy than expected. Goldman Sachs (NYSE:GS) also beat earnings and revenue estimates. Quarterly earnings rose 74 percent as it moved past the legal costs that weighed down its first quarter numbers.
Despite beating estimates though, Goldman`s revenue was still down 13 percent, falling from more than $9 billion a year ago to less than $8 billion in 2016. Stock trading revenue was down 12 percent, mostly due to weakness in Asia.
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HERERA: So, here`s how those stocks performed today. Johnson & Johnson (NYSE:JNJ) hit an all time high. United Health moved higher as well. But Goldman Sachs (NYSE:GS) finished the session to the down side.
MATHISEN: Well, the bar had been set low for earnings this season but Wall Street`s fears don`t seem to be playing out, at least not yet.
Bob Pisani explains.
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BOB PISANI, NIGHTLY BUSINESS REPORT CORRESPONDENT: There are signs that earnings might be better than they thought they would be. Earnings anxiety is running high recently because analysts have been expecting an improvement in the U.S. economy and improvement in the earnings in the second half of the year.
But the whole Brexit vote has made many nervous a lot of traders nervous that big multinationals like General Electric (NYSE:GE) might use the Brexit vote as an excuse to toss down earnings for the second half of the year. But so far, that hasn`t happened. All of the U.S. banks have reported and all of them have beaten estimates.
In fact, Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC) and Citigroup (NYSE:C) had significant beats. So, those strong bank earnings have lifted second quarter earnings estimates for the S&P 500 overall. Earnings are still expected to be down about 5 percent, but that`s better than it was last week.
And earlier reports from other sectors have been better than expected as well. So, what the market really cares about is guidance for the second half of the year and there are hopeful signs here as well. This morning, Johnson & Johnson (NYSE:JNJ) and Lockheed Martin (NYSE:LMT), both raised sales and earnings guidance for the full year.
Lockheed cited exceptional, operational and financial results as the reason for raising their guidance.
So, the bottom line is, only 11 percent of the S&P is reported so far. But the early signs have been encouraging and that is one reason the markets are holding up so well.
For NIGHTLY BUSINESS REPORT, I`m Bob Pisani at the New York Stock Exchange.
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HERERA: Those positive earnings helped the Dow hit a record high for the sixth day in a row. But the gains weren`t big and they weren`t across major indices, I should say. The Dow Jones Industrial Average added almost 26 points to 18,559. The NASDAQ weighed down by Netflix (NASDAQ:NFLX) lost 19 points. As we reported last night, Netflix (NASDAQ:NFLX) saw subscriber growth slow. The S&P 500 meanwhile lost three.
MATHISEN: To politics now and Cleveland where the theme of the second day of the Republican National Convention was about getting America working again.
John Harwood is there reporting for us tonight.
John, day one was about security and about Melania Trump speech. Tell us about day one and what about today`s theme?
JOHN HARWOOD, NIGHTLY BUSINESS REPORT CORRESPONDENT: Well, of course, we had a lot of controversy all day long about Melania Trump speech with the lifting of passages from Michelle Obama`s speech, people calling for someone to be fired. It didn`t happen.
But Republicans are going to shift to the economy tonight. We`ll hear from Paul Ryan, the House speaker. We`ll hear from Mitch McConnell, Shelley Moore Capito of West Virginia, arguing that Democratic polices have hurt her coal-producing state.
So, all economy tonight.
HERERA: You know, you mentioned Paul Ryan, the House speaker. He has not had what you would call a warm relationship with Mr. Trump. So, what do we expect from him tonight?
HARWOOD: We expect Paul Ryan to make it a little bit clearer if he`s going to draw closer to Donald Trump or hold his ground on policy. Remember they`ve got big differences, Sue, on trade, on immigration, on entitlement reform, on Glass-Steagall which Donald Trump has put a revival of Glass-Steagall in the Republican platform. That`s Elizabeth Warren`s position. I would be shocked that Paul Ryan`s comes out in favor of that. But we`re going to get some clues in his remarks whether he is going to move toward his presidential nominee or not.
MATHISEN: Very interesting theater on display on the podium tonight. Let`s talk a little bit about the raucousness that we saw yesterday as some of the rules were being debated, even booing on the floor. How about tonight? Any of that expected?
Well, we are going before too long have a roll call of the states to nominate Donald Trump. No mystery about the outcome. Donald Trump is going to be nominated. But the state delegations not for him? Like Colorado, or Virginia, are they going to -- you know, there`s some dissonance within the delegations, are they going to make a lot of noise like they did yesterday? That`s a key question.
And wrapping up tonight after the Donald Trump nomination, we are going to get a second dose of the Trump family. Donald Trump Jr. and Donald Trump`s daughter Tiffany (NYSE:TIF) are both going to speak tonight. We`ll see whether they address that Melania controversy.
HERERA: I was just going to say, do you think that they will mention it? And what do we know about what they might say? Is their role tonight to kind of broaden who Donald Trump is, the family man?
HARWOOD: Yes, that`s the goal. And in the actual delivery of her speech, Melania Trump did fine last night. It was just people realized that she had some of Michelle Obama`s rhetoric she got in trouble. But Donald Trump Jr. in an interview this evening said, we`re moving on.
So, I would not expect them to address it, if only indirectly perhaps, but not directly.
MATHISEN: All right, John, thank you very much. John Harwood for us in Cleveland.
HERERA: Well, there`s a lot of political theater at the GOP convention, of course. Meantime, another drama is playing out at one of the network`s covering the event, one that is closely associated with Republican politics.
CNBC`s David Faber and others report a decision is near on FOX News chairman and CEO Roger Ailes and that decision will likely result in his departure. Mr. Ailes was sued earlier this month by former FOX anchor Gretchen Carlson. Carlson claimed that her career was sabotaged by Mr. Ailes after she refused to sexual advances. Ailes has denied the allegations.
Other reports today say one of FOX`s best known anchors Megyn Kelly told investigators hired by 21st Century Fox which owns Fox News Channel that Ailes sexually harassed her in the past as well. Fox says that the investigation is ongoing and that Ailes is at work. At first reported by "New York Magazine" that harassment was described in detail.
Ailes departure would be a big deal for the media power house which he basically built and turned into a revenue generating machine.
Julia Boorstin has more.
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JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fox News chief Roger Ailes received one of the most high profile and profitable part of 21st Century Fox. Ailes is chairman and CEO of Fox News, including Fox Business Network, which she launched in 2007. He`s also chairman of FOX TV stations, which includes 28 broadcast stations.
Nomura analyst Antony De Clemente said that Ailes businesses are a huge piece of the media giant`s revenue and profits. De Clemente estimating that this fiscal year, Fox News alone would generate about 20 percent of total earnings before interest, taxes and amortization, and Ailes businesses continue to grow.
SNL Kagan projects that ad revenue at FOX News Channel and Fox Business Network will grow 5.6 percent this year. With billions of dollars on the line, the pressure is one for how the Murdochs handle the next step for FOX News leadership.
Back over to you.
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MATHISEN: Still ahead, the promise and the limitations facing the very new self-driving car industries.
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MATHISEN: Home building rebounded in June, and that is highest level since February of 2008. Demand for single family homes is due mainly to low interest rates and a steady job market.
The steady economy here in the U.S. didn`t stop the International Monetary Fund for cutting its global economic growth forecast for this year, and next. The IMF now sees an increase of a little more than 3 percent. That`s lower than its previous outlook. The main reason for the cut -- Britain`s vote to leave the European Union.
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MAURICE OBSTFELD, IMF CHIEF ECONOMIST: The Brexit effects are going to play out over a long period of many months as the E.U. 27 and U.K. renegotiate a new agreement. So, you know, I think one is always surprised by what stock markets do, but they`re also responding to other things. For example, the prospect that central banks maintain interest rates lower for longer as a result of the Brexit vote.
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HERERA: The IMF said that before the Brexit vote, it actually had planned to slightly upgrade its outlook.
MATHISEN: Antitrust officials are reportedly close to filing lawsuits to block the planned mergers of Anthem and Cigna, as well as Aetna (NYSE:AET) and Humana (NYSE:HUM). As first reported by Bloomberg, the Justice Department is concerned that the deals would harm consumers and stifle competition. If both deals were to go through, the top five health insurers would be reduced to just three.
The proposed Aetna (NYSE:AET)/Humana (NYSE:HUM) deal is valued at $34 million. Anthem/Cigna at $48 billion. All four of the companies finished lower on the day.
HERERA: As the Justice Department looks at health care mergers, The Department of Transportation is examining the future of driving. The autonomous vehicle summit is bringing together leaders from the automotive industry to figure out what limits should be placed on self-driving cars.
Phil LeBeau is in San Francisco.
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PHIL LEBEAU, NIGHTLY BUSINESS REPORT CORRESPONDENT: With 14 companies, including several automakers developing and testing autonomous drive technology on the roads in California, there`s no doubt that the day of the self-driving car is approaching. In fact, the secretary of transportation says the key is to be ready for the development of these vehicles and to develop the guidelines that will allow them to be integrated into traffic safely.
But that brings up the question -- is the public ready for self- driving cars?
Secretary Anthony Foxx says the technology is there. People need to learn how to use it correctly.
ANTHONY FOXX, U.S. TRANSPORTATION SECRETARY: I think it`s a new form of distraction, as people being distracted by the coolness of the technology but in many cases are going well-beyond what the technology is capable of doing. So, we have to as industry, also as government, and as consumers, have to listen and read the directions, not go far away from where the directions are and doing crazy things that are going to put your life at stake and other people`s lives at stake.
LEBEAU: Secretary FOX would not comment on the U.S. investigation into Tesla`s auto pilot system. Meanwhile, Tesla CEO Elon Musk says his company is working with its suppliers to improve the autopilot system and Musk says Tesla has no plans at this point to disable the autopilot feature on thousands of vehicles here in the U.S. and around the world.
Phil LeBeau, NIGHTLY BUSINESS REPORT, San Francisco.
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MATHISEN: The fallout from the Volkswagen`s emission scandal is far from over. Three attorneys general say the cheating lasted more than a decade and involved dozens of engineers, managers and executives. The lawsuits alleged the decision to cheat went all the way to the company`s boardroom and involved VW`s CEO Matthias Muller. The accusations are being leveled in lawsuits from New York, Maryland and Massachusetts. Late last year, the automaker admitted to equipping roughly 11 million vehicles with emissions cheating software.
HERERA: United Continental tops estimates and that`s where we begin tonight`s "Market Focus".
The airline saw quarterly revenue and profit fall, but the results were still good enough to top Wall Street targets. United said it added a new member to its board of directors. Shares were relatively flat in afterhours trading, but finished the regular session up 14 cents to $47.85.
Military contractor Lockheed Martin (NYSE:LMT) topped expectations for both profit and revenue, thanks in part to the increase in fighter jet deliveries and sales tied to a recent acquisition. The upbeat results prompted the company to raise its guidance for the year. The shares were up a percent to $258.96.
An uptick in transaction fees drove profit and revenue higher at TD Ameritrade (NASDAQ:AMTD). The brokerage`s better than expected results were also helped by volatile trading during the Brexit. TD Ameritrade (NASDAQ:AMTD) shares rose 2 percent to $29.93.
MATHISEN: Monsanto (NYSE:MON) rejects buyer`s offer once again. The seed company turned down the pharmaceutical giant`s $64 billion takeover bid, calling it, quote, "financially inadequate."
Despite that, Monsanto (NYSE:MON) said it`s still open to further talks with buyers, as well as other parties regarding a potential transaction. Shares of Monsanto (NYSE:MON) up nearly a half percent to $106.87.
The cigarette maker Phillip Morris said lower shipment volumes caused both profit and revenue to fall, missing analyst estimates. But the company did raise yearly earnings forecasts, citing improving currency valuations. Shares down 3 percent to $99.89.
Cost cutting efforts helped Kansas City Southern (NYSE:SO) (NYSE:KSU) post better than expected profit for the quarter. The railroad operator did however see decline in revenue as currency headwinds impacted results. Shares up nearly 2 percent to $97.42.
HERERA: Investors pulled more than $20 billion from actively managed funds that buy U.S. stocks in June. According to Morningstar (NASDAQ:MORN), that`s the biggest monthly withdrawal since 2008. Asset management executives have recently said that the move into passive funds will continue and that the shift could threaten the profit margins of investment company.
MATHISEN: Companies threatened by activists and other big shareholders at turning, believe it or not, to mom and pop investors to help fight their battles. This according to new online Wall Street Journal report.
Companies are doing everything to target individual investors from planting trees to new marketing campaigns for their votes.
David Benoit is a reporter with the "Wall Street Journal" and he joins us now to talk more about his findings.
David, this runs counter to what everybody thinks and that is that companies care only about the big institutions, the professional investors, even as they worry about the activists who can sometimes cause trouble for them.
But this, you found something very surprising here.
DAVID BENOIT, WALL STREET JOURNAL REPORTER: Yes, that`s exactly right. What we`ve seen is, in the last few years, is some of the bigger investors are getting ever bigger and sort of controlling the top of these companies, the retail shareholders, people that are out kind of buying and trading stocks don`t really matter that much in terms of the overall stockholdings.
But what we have seen is that because of those big holders have such a strong voice, when a company needs a little bit of extra support or needs a different voice, retailers tend to support the companies, so the companies are spending a lot of money to go out and trying to get the people to vote.
HERERA: If we didn`t have the activist investor movement, do you think that these companies would be courting the individual investor?
BENOIT: That`s definitely a big part of this. So, right, the big example of when retail really mattered was in the DuPont campaign where Nelson Peltz and his Trian Fund were trying to get on the board there. DuPont had kind of abnormally large position for retail people. A lot of retirees from Dupont (NYSE:DD), a lot of people in Wilmington really owned the company stock.
And they went out and got a big chunk of them to vote and essentially swung the vote for them and helped them win. There are other examples of why you need a retail vote. The say on pay votes that are going on right now that a lot of shareholders to vote on company are really important and they need kind of extra support.
MATHISEN: What is the percentage roughly of retail investors in American corporations, number one? And number two, I guess that most retailer investors when they get the proxy materials in the mail, throw it out, they don`t vote. What is the turnout like?
BENOIT: That`s definitely true. So, one of the reasons why this story is kind of strange is those numbers are going in the direction you just guess. Retail holders now own about 34 percent and they only vote about 28 percent of the time. Those numbers are trending in the wrong direction for kind of even wanting to care about them, but if essentially the story -- if you do enough things, if you make your ballot look intriguing to open, if you promise as you mentioned at the beginning, CSX (NYSE:CSX) the railroad about pledging to plant a tree if you vote, coax the people into caring.
HERERA: But how costly are those kinds of things? I mean, you cited also Humana (NYSE:HUM), picking up an outside company and they had to make some 40,000 calls so there are costs associated with reaching out to the retail investor as well.
BENOIT: Yes. Exactly. Running a proxy fight when you`re up against an activist or campaigning to get a vote passed or paying someone like a proxy solicitor, which are firms that specialized in getting people to vote, that`s not cheap. It`s definitely expensive, which is one of the reasons why we should be careful that this isn`t going to happen every time. There are only some instances. Humana (NYSE:HUM) needed 75 percent support of its total shares to get a vote. So, you kind of have to go out and change the map.
HERERA: All right. David, thank you very much. David Benoit with "The Wall Street Journal".
BENOIT: Thanks so much.
HERERA: Coming up, why fewer people are starting their own businesses and what that may mean for the U.S. economy.
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HERERA: Twitter signs a deal with the NBA. The partnership does not include digital rights to stream the games, but it does allow the streaming of new shows made exclusively for Twitter. The first show will be a weekly pre-game show. The second show is still in the works. Both programs will stream on Twitter`s app and the Website beginning in the 2016-2017 season.
MATHISEN: McDonald`s (NYSE:MCD) will reportedly become the first big business to make a deal with Pokemon Go. According to "The Wall Street Journal," a unit of the burger chain in Japan will sponsor key locations for the players of the wildly popular augmented reality mobile game. The official announcement could come as soon as tomorrow, along with the game launch in that country.
HERERA: Small businesses are considered the engine behind job creation, but new businesses aren`t being created like they once were. According to a new report, the four-year trend of rising entrepreneurship has reversed.
Kate Rogers (NYSE:ROG) is following this story for us.
Kate, good to see you.
What did the report find?
KATE ROGERS, NIGHTLY BUSINESS REPORT CORRESPONDENT: Nice to see you both.
Well, this is called the Global Entrepreneurship Monitor for 2015, in 70 different countries, 200,000 respondents around the world. So, there was U.S. report from last year found a 2 percent drop in the entrepreneurship and startup creation to 12 percent from 14 percent in 2014.
So, it`s important for two reasons. As you mentioned, this had been rising for four years priors. So, it`s obviously reversing a trend that we do like to see. And secondly, this report counts you as a startup creator, even if you`re still working your full-time job and starting something on the side. Many surveys don`t count you until you`ve actually left that stable job and started a new business. So, typically, their numbers are higher. This year, they fell.
MATHISEN: Why are start-ups down?
ROGERS: It`s all about perception of opportunities. So, the report and the researcher said that in 2014, 51 percent of Americans creating new start-ups perceived the opportunity to do so. That number fell to 47 percent in 2015. Something that we mentioned on the show often is Main Street optimism. So, that`s among established small businesses per NFIB. A survey that we follow all the time.
Optimism has been wavering. It certainly hasn`t been climbing. So, when you get that coupled with start-up creation being down that created a red flag for main street.
HERERA: Was there any good news?
MATHISEN: Please?
ROGERS: I`m not a bearer of bad news, so, of course, I came with some good news. So, two stats I did like in here.