Chicago area manufacturing gauge falls to lowest since 2015
A gauge of factory activity in the Midwest weakened to its lowest level in nearly four years, signalling the ongoing trade war continues to weigh on the industrial economy.
The Chicago Purchasing Managers Index tumbled to 43.2 in October, data on Thursday showed, down from 47.1 the previous month and missing economists’ expectations.
That was the lowest reading since December 2015 and marked the fourth time in five months the index has contracted. Readings below 50 signal that output in the industry is contracting.
Some of the details of the report were ugly as well, with the new orders index falling to its lowest in more than a decade and order backlogs falling sharply. However, the employment subcomponent improved but remained in contractionary territory.
“We don’t know why Chicago PMI fell this month, though it might be connected to the deepening crisis at Boeing, which is headquartered in the city,” said Ian Shepherdson, economist at Pantheon Macroeconomics. It was not immediately clear what effect the General Motors US factory strike had on the region.
While this report is more volatile than the official manufacturing gauge, it does add to signs of a slowdown in the industrial economy amid the ongoing US-China trade war and signals the weakness in the manufacturing sector is continuing into the fourth quarter of the year.
The report indicated that 26 per cent of respondents indicated a “major negative effect” on their business from government imposed tariffs, while 56.5 per cent noted “a little negative impact”.
While the US economy cooled less than feared in the penultimate quarter of the year, the GDP report showed that weak business investment offset stronger consumer gains.
The Federal Reserve has delivered three interest rate cuts this year to support growth but signalled it has finished easing monetary policy for the time being, pending clearer economic data.
Gapping down
In reaction to disappointing earnings/guidance:
- MMSI -37.5%, SUNW -33.3%, PVG -22.4%, TEX -11.7%, HVT -10.1%, TTMI -10%, NGHC -9.7%, RBBN -8.8%, HBI -8.2%, NOVA -7.6%, WDC -7.5% (also CEO, Steve Milligan, to retire), FARO -7.4%, SOI -7.3%, ETSY -7.2%, TWLO -7.1%, SWI -7%, CF -6.5%, AKS -6.4%, W -6.3%, PKI -5.4%, LNC -5%, YETI -4.9%, DDD -4.6%, CREE -4.4%, BLDP -4%, RDS.B -3.6%, NR -3.3%, RDS.A -3.2%, APRN -2.8%, FLR -2.7%, CNMD -2.6%, CHEF -2.5%, NLY -2.4%, EL -2.4%, IRM -2.4%, DLPH -2.2%, FLIR -2.1%, EXEL -1.9%, BLL -1.9%, LYG -1.7%, CMPR -1.6%, TYL -1.6%, DCO -1.5%, TS -1.5%, WCC -1.5%, ENSG -1.4%, PENN -1.4%, BBVA -1.3%, EIGI -1.2%, SPR -1.2%, XHR -1.1%
Other news:
- CROX -6.6% (announces that certain selling stockholders affiliated with Blackstone have commenced a secondary offering of 6,864,545 shares of common stock)
- TWTR -1.5% (following comments from CEO Jack Dorsey - CEO Jack Dorsey says company has made decision to "stop all political advertising on Twitter globally")
- MU -1.3% (following WDC results)
- ICL -0.9% (signs contract for sale of potash to a customer in India)
- STX -0.8% (following WDC results),
Analyst comments:
- SLCA -2.1% (downgraded to Underweight from Equal Weight at Barclays)
- LUV -1.2% (downgraded to Mkt Perform from Outperform at Bernstein)
- OI -0.9% (downgraded to Market Perform from Outperform at Wells Fargo)
- R -0.9% (downgraded to Hold from Buy at Stifel)
Gapping up
In reaction to strong earnings/guidance:
- OLED +14.4%, DT +11.3%, EGHT +10.4%, MIC +9%, SPWR +8.9%, ICD +8.1%, MUSA +7.8%, UCTT +7.7%, SFM +7.5%, MC +7.4%, CRUS +7.3%, INOV +7.2%, HABT +7.2%, ZIXI +7%, NE +6.2%, ABMD +5.9%, ASLN +5.6%, PS +5.4%, LITE +5.4%, NEWM +5.3%, FLWS +5.3%, RCEL +4.8%, HCC +4.3%, CDW +4.2%, KHC +4.2%, FB +4.1%, TDOC +4%, BOOT +3.6%, SPAR +3.6%, LYFT +3.5%, RDN +3.5%, TEN +3.5%, SU +3.3%, ELY +3.2%, HUBG +3.2%, QLYS +3.2%, CATM +3.2%, VAL +3.1%, NVCR +3.1%, MUR +2.8%, SRCL +2.8%, TREE +2.7%, AME +2.7%, HTGC +2.6%, GPN +2.5%, APO +2.4%, FORM +2.3%, ZNGA +2.3%, AKRX +2.3%, PRAH +2.2%, SBUX +2.1%, TKR +2.1%, ADM +2.1%, ROG +2%, CI +2%, AHH +1.9%, GNRC +1.9%, MNTA +1.9%, PPC +1.8%, CG +1.7%, AGI +1.6%, AXTI +1.6%, STAG +1.6%, MO +1.6%, AAPL +1.4%, OII +1.3%, PCTY +1.2%, ING +1.1%, INGR +1.1%, EQT +1%, NTLA +1%
Other news:
- DRNA +11.2% (to receive $200 million up front plus up to $1.47 billion in potential milestone payments related to DCR-HBVS from Roche)
- MIC +9% (to actively pursue strategic alternatives including a sale of the company or its operating businesses as a means of unlocking value for shareholders)
- BJ +6.2% (to join S&P MidCap 400)
- ALDX +6% (announces expanded results from allergen chamber clinical methods trial of topical ocular reproxalap in patients with allergic conjunctivitis, and Phase 3 clinical trial plans)
- REPH +4.9% (granted appeal from FDA regarding Complete Response Letter relating to the New Drug Application seeking approval for intravenous meloxicam)
- FCAU +3.2% (Fiat Chrysler and Groupe PSA to join together in merger of equals; aslo released earnings)
- CDAY +2% (to join S&P MidCap 400)
- OII +1.3% (to join S&P SmallCap 600)
- WING +0.9% (ongoing earnings volatility; also CEO interview was on CNBC MadMoney)
- CVET +0.9% (to join S&P SmallCap 600)
Analyst comments:
- TTPH +10.9% (upgraded to Buy from Hold at Gabelli & Co)
- EAT +1.5% (upgraded to Overweight from Neutral at Piper Jaffray)
Early premarket gappers
- Gapping up:
- OLED +14%, SPWR +12.1%, ICD +8.1%, SFM +8%, EGHT +7.9%, MUSA +7.8%, UCTT +7.7%, MC +7.4%, INOV +7.2%, HABT +7.2%, CRUS +6.4%, SKT +6.3%, BJ +6.2%, NE +6.2%, ASLN +5.6%, NEWM +5.3%, LM +5.1%, CVET +5%, BOOT +5%, LYFT +4.6%, HCC +4.3%, FB +4.3%, TDOC +4%, TPX +3.8%, DT +3.7%, YETI +3.7%, RDN +3.5%, SU +3.3%, ELY +3.2%, HUBG +3.2%, QLYS +3.2%, CATM +3.2%, VAL +3.1%, RBBN +3.1%, VIAV +2.8%, SBUX +2.8%, TREE +2.7%, HTGC +2.6%, FORM +2.3%, ZNGA +2.3%, IT +2.3%, PRAH +2.2%, MPC +2.2%, AAPL +2.1%, TKR +2.1%, CDAY +2%, ROG +2%, SKY +1.9%, PPC +1.8%, CG +1.7%, CI +1.7%, AXTI +1.6%, STAG +1.6%, WING +1.3%, OII +1.3%, OII +1.3%, PCTY +1.2%, LPG +1.2%, ING +1.1%, PS +1%, EQT +1%
- Gapping down:
- MMSI -30.5%, PVG -13.7%, HVT -10.1%, TTMI -10%, NGHC -9.7%, TEX -9.1%, ETSY -9.1%, AKS -8.2%, CROX -7.9%, TWLO -7.6%, WDC -7.5%, FARO -7.4%, SOI -7.3%, SWI -7%, CF -6.5%, BLDP -6%, PKI -5.4%, LNC -5%, DDD -4.6%, RDS.B -3.6%, EXEL -3.4%, NR -3.3%, RDS.A -3.2%, EL -3.2%, LYG -2.7%, CNMD -2.6%, CHEF -2.5%, NLY -2.2%, DLPH -2.2%, TWTR -1.9%, GNRC -1.8%, CMPR -1.6%, AGI -1.6%, TYL -1.6%, DCO -1.5%, WCC -1.5%, MU -1.4%, ENSG -1.4%, BLL -1.4%, BBVA -1.3%, VRTX -1.1%, TS -1.1%, XHR -1.1%
Apple Plays the Underdog in Streaming Wars
Tech giant brings lower price, fewer shows to Hollywood battle
Apple Inc. AAPL -0.01% became a colossus by redefining gadgets including the smartphone, the tablet and the smartwatch. As it takes aim at Hollywood, it is working from a very different script.
On Friday, the company plans to launch the Apple TV+ video service, its contender in the battle between media and tech giants for people’s streaming dollars. Apple TV+ is slated to start with nine programs, including a buzzy drama about television news called “The Morning Show” featuring Jennifer Aniston, Reese Witherspoon and Steve Carell. Other offerings include “See,” set in a future when humans lack sight, and “Snoopy in Space,” for children.
Apple’s enormous size, $100-billion cash hoard and fat profit margins mean it can afford the costs of developing and distributing new content. And the more than 900 million iPhones and 500 million other Apple gadgets in use world-wide give it an enormous, built-in base of potential TV+ customers.
But entertainment takes Apple well outside its wheelhouse, and much about its approach to the streaming wars departs from its usual strategy.
Apple is used to charging far more for its iPhones, iPads and Macs than rivals do for their products. It controls its own ecosystem of hardware and software products and carefully rolls out new versions of its gadgets once a year at most.
With TV+, Apple is charging less than competitors and pushing its service aggressively on other platforms. A company accustomed to hits is entering a world where TV shows and movies fail with regularity. And the secretive Silicon Valley titan is contending with critical scrutiny in Hollywood that far exceeds the business’s importance to Apple’s bottom line.
Critical reviews of the offerings on Apple TV+ have been mixed. Time said “The Morning Show” lacks the depth and spirit of top TV shows, while New York Media’s Vulture called it a “glossy, largely compelling new series.” Hollywood-focused Variety’s critics found fault with other Apple shows, saying none was “stellar enough to justify someone buying in to a whole new streaming service.”
An Apple spokesman declined to comment.
“Honestly the world should give Apple a little leeway,” said “See” executive producer Francis Lawrence. “Nobody can be perfect 100% of the time.”
Hollywood is central to Chief Executive Tim Cook’s effort to refashion Apple as a services company as sales have slowed for its original products. Sales of its bread-and-butter iPhone fell 14% for the fiscal year ended in September, dragging the company’s total revenue down 2% to $260.17 billion.
The hardware heavyweight, though, has a threadbare entertainment library. So its service will cost $4.99 monthly for subscribers and will be free for a year with the purchase of a new iPhone, iPad or Mac.
Netflix Inc., which charges $12.99 a month for its most popular service, pioneered the category and offers more than 1,500 shows and 4,000 movies. Walt Disney Co. will charge $6.99 for Disney+, which launches 11 days after Apple’s offering, with popular franchises such as “Star Wars.”
And WarnerMedia, a unit of AT&T Inc., said Tuesday it will charge $14.99 a month for HBO Max, set to launch next year with classics such as “Friends” and original fare.
Apple struck deals to make its Apple TV app available on Roku and on smart TVs from Samsung Electronics Co.
Mr. Cook called the offering a bold move during a Wednesday call with analysts. He said the price is aggressive because Apple wants as many people as possible to view the shows. “This allows us to focus on maximizing subscribers,” he said.
Apple is also rolling out its programming in a way that straddles Netflix’s all-at-once strategy with the one-episode-a-week style of HBO and others. Initially, it will offer three episodes of some shows, such as “For All Mankind,” about the U.S. space program in a world where Russia landed first on the moon, and add a new episode each subsequent week. Others such as “Dickinson,” about a young Emily Dickinson, will be available in their totality.
Apple is famously fastidious about its brand. So far, its slate of shows features themes of resilience and aspiration. The focus—combined with an aversion to over-the-top gratuitous sex, violence and language—has led some Hollywood creators to question if Apple TV+ will be as risqué as Netflix, FX or HBO, whose programs often embrace the underbelly of culture and society.
To be sure, in entertainment the definition of a brand is often fluid, especially if the shows designed to fit that brand fail to catch on and a show that doesn’t becomes a success.
“You’re not allowed to go into this without pretending you have a brand, but then your brand becomes whatever your hit show is,” said producer Mike Royce, whose credits include “Everybody Loves Raymond” and the reboot of “One Day at a Time.”
If Apple can amass 50 million subscribers for TV+, about as many as it has for its music-streaming service, it would add $3 billion in annual sales, estimates Toni Sacconaghi, an analyst with Bernstein Research. That steady subscription revenue would help reduce iPhone dependency—though it is tiny compared with Apple’s $250 billion in total annual sales.
Apple also wants to draw viewers to its TV app and encourage them to subscribe to other services, such as Starz and Showtime, that can be accessed through the app, according to people familiar with the strategy. It gets a 30% cut of other subscriptions initially.
The business strategy is being fashioned by Peter Stern, who joined Apple in 2016 after overseeing strategy at Time Warner Cable Inc. Last year, the Yale Law School graduate was promoted to oversee Apple’s video, news, books, iCloud and ad-services businesses. He has looked for ways to bundle services and directly market subscriptions, people familiar with the strategy said.
The company unveiled one offer Wednesday, with actor Hailee Steinfeld, who stars in “Dickinson,” announcing on Instagram that TV+ will be free to college students who subscribe to Apple Music.
Apple’s decision to bundle TV+ with sales of its gadgets will hurt its hardware business for financial reporting purposes but help services, because it reduces a $699 iPhone sale by $60—the annual cost to subscribe to TV+—which will be recognized as services revenue, analysts say.
In the future, though, TV+ can serve as a marketing tool that deepens the appeal of new iPhones with incremental features, Mr. Sacconaghi said. “They now have something they can use to help maybe iPhone or other product demand,” he said.
Better-Than-Expected Earnings Ease Growth Fears—For Now
Corporate profits haven’t waned as much as analysts had predicted
Investors are breathing sighs of relief that corporate profits haven’t waned as much as feared, giving new life to a stock-market rally that had largely stalled since the summer.
Although earnings are on track to decline for the third consecutive quarter, about 75% of the 280 companies in the S&P 500 that have posted results through Wednesday morning have beaten expectations, according to FactSet. That is slightly above the five-year average of 72%. More than 100 companies report through the end of the week.
While overall profits are expected to fall about 3.2% from a year earlier, the steepest decline since 2016, most analysts have called a bottom. They project earnings growth to accelerate next year, helping to allay fears of a potential recession.
“Earnings…are truly better than expected,” said Peter Vanderlee, a portfolio manager at ClearBridge Investments who helps oversee $22 billion in assets. “As a result, there hasn’t been a moment where you would say, ‘Look, it is upon us. A recession is nearing.’”
Companies including Intel Corp. , Johnson & Johnson and United Technologies Corp. raised their outlooks for the year after posting strong financial results. Intel logged record quarterly revenue, easing concerns about softening demand for its products. Johnson & Johnson said sales of such consumer products as Band-Aid bandages and Tylenol grew, while United Technologies said it expects sales to keep rising.
Some investors caution that expectations for 2020 are too high. Earnings are expected to rise 5.8% and 6.9% for the first and second quarters, respectively, FactSet data show, following a roughly flat performance in the last three months of this year.
And more companies have been lowering earnings forecasts than raising them. Thirty-nine companies in the S&P 500 have issued negative outlooks, compared with 15 giving positive guidance, according to FactSet.
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“Essentially all of us came into the earnings season with very low expectations,” said Supriya Menon, senior multiasset strategist at Pictet Asset Management. “The problem is that earnings expectations are still too high next year.”
It isn’t unusual for companies to beat earnings expectations because the bar can be low to begin with, as companies manage expectations. The latest results helped push the S&P 500 to a fresh record this week for the first time in three months. The index, which is up 21.5% in 2019, had faced resistance breaking out of a narrow trading range in recent weeks. It has climbed 2.4% in October.
Mr. Vanderlee said he has been impressed by results from such big banks as JPMorgan Chase & Co., which posted strong growth and highlighted the strength of the U.S. consumer, a key engine of growth. He said he expects corporate earnings to expand next year.
“The fears of a recession have been high for the past six to nine months,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management. “Earnings have certainly helped put some of that to rest.”
Also helping ease concerns about the economy, data on Wednesday showed gross domestic product rose at an annual rate of 1.9% from July through September, a slowdown from the second quarter but above the expectations of economists surveyed by The Wall Street Journal.
Investors will get another glimpse of the health of the domestic economy when the monthly jobs report is released Friday. The latest figures showed unemployment hovering at a 50-year low.
Still, there are signs that a stronger U.S. dollar, waning economic growth around the world and the U.S.-China trade dispute have been weighing on companies, especially those more reliant on overseas business.
For some, the latest earnings season has highlighted the strength of the U.S. economy relative to others around the world, especially with the continuing trade battle between the U.S. and China. Though tensions have eased lately, the countries haven’t reached a final pact, and many investors fear that relations could sour in coming months.
“The companies that are more domestically focused are doing quite well,” said Hans Olsen, chief investment officer at Fiduciary Trust Co., which oversees $7 billion in assets under management. “The ones overseas are really struggling…There’s a notable lack of robust growth around the world.”
Companies in the S&P 500 with relatively high international exposure are poised to underperform those that derive a bigger chunk of revenue domestically. Those that get less than 50% of revenue from the U.S. are on track for an 8.6% earnings decline and a 2.4% fall in revenue, FactSet data show, compared with a more modest 0.3% earnings decline and 4.9% jump in revenue for those that generate more than half of their revenue in the U.S.
Ford Motor Co. and Caterpillar Inc. have been among the companies that have pointed to international headwinds. Ford’s quarterly results beat estimates, but executives said weakness in China will crimp earnings, dimming its outlook for the year. Caterpillar executives said that global economic uncertainty is weighing on profits.
“We’re clearly not satisfied with our standing in China, and the team is working exhaustively to return to profitable growth in this important market,” Ford Chief Executive James Hackett said on the company’s latest earnings call on Oct. 23.
In contrast, Microsoft Corp. , which gets more than half its revenue from within the U.S., according to FactSet, recorded per-share earnings and revenue that beat analysts’ expectations thanks to strength in its cloud-computing business. Its shares set a record Wednesday.
Avon Products beats by $0.09, misses on revs (4.26)
- Reports Q3 (Sep) earnings of $0.11 per share, excluding non-recurring items, $0.09 better than the S&P Capital IQ Consensus of $0.02; revenues fell 16.6% year/year to $1.19 bln vs the $1.26 bln S&P Capital IQ Consensus.
- Total Reportable Segment Revenue decreased 16% in reported currency. Adjusted Total Reportable Segment Revenue decreased 6% in constant dollars, driven by unit volume declines from less profitable products.
- Adjusted Gross Margin increased 100 basis points to 58.1%, driven by price/mix which offset foreign exchange.
Tempur Sealy Int'l beats by $0.16, beats on revs; raises EBITDA outlook (81.86)
- Reports Q3 (Sep) earnings of $1.30 per share, excluding non-recurring items, $0.16 better than the S&P Capital IQ Consensus of $1.14; revenues rose 12.5% year/year to $821 mln vs the $797.24 mln S&P Capital IQ Consensus. On a constant currency basis, total net sales increased 13.4%, with an increase of 14.6% in the North America business segment and an increase of 8.0% in the International business segment.
- The Company raised its financial guidance for 2019. For the full year 2019, the Company currently expects adjusted EBITDA to range from $485 million to $500 million, raising the mid-point by $28 million. This increase of the mid-point is driven by the above-expectations performance of the North America business during the third quarter and the more favorable outlook in timing for the Company's launch and channel fill with Mattress Firm, partially offset by the increases to variable compensation. At the mid-point, this would represent growth of 16% versus the reported full year 2018 adjusted EBITDA