…..Earnings season heats up. Apple is weak. VW reaches a settlement. Takata heads to BK. Driverless beer. Home prices rise, inventories are tight. Consumer confidence drops. Obamacare premiums will jump. Renewable energy installations pass fossil fuel.
Financial Review by Sinclair Noe for 10-25-2016
DOW – 53 = 18,169
SPX – 8 = 2143
NAS – 26 = 5283
10 Y un 1.75%
OIL – 1.22 = 49.30
GOLD + 8.70 = 1274.10
More than 90 companies delivered quarterly results today. Dow components 3M, Caterpillar and DuPont reported earnings before the bell. Caterpillar and 3M posted mixed results, as both beat estimates on the bottom line, while missing on revenues. Caterpillar also lowered its 2016 earnings per share guidance. DuPont posted better than expected quarterly earnings and raised its yearly profit forecast.
The largest S&P 500 stock by market capitalization – Apple – is the highlight of today’s earnings reports. After the closing bell, Apple reported net income per share of $1.67, down from $1.96 a share a year earlier. Revenue fell 9 percent to $46.9 billion. Analysts expected profit of $1.66 a share on sales of $46.9 billion. Apple experienced its first annual sales decline since 2001. For the third consecutive quarter, iPhone sales were down from the year-ago period. Apple sold 45.5 million iPhones, down from last year’s sales of 48 million. But only a few weeks of iPhone 7 sales were included in this quarter. Next quarter is the holiday quarter, which is Apple’s biggest quarter, and it will be the first full period of iPhone 7 sales. Apple is projecting revenue of between $76 billion and $78 billion, which would be a slight return to growth for the company. Apple spent much of the past year pushing services, such as the App Store, iCloud storage and Apple Music. That division has become the company’s fastest growing. Though those businesses represent a fraction of iPhone revenue, they foster customer loyalty by making it harder to trade in handsets for those made by rivals. Apple was trading down about 2% in after hours.
European earnings roundup: Syngenta’s third quarter revenue came in at $2.5 billion dollars, down 3%, dragged lower by weak Latin American sales. Orange’s core operating profit beat expectations as strong growth in Spain offset waning revenue in its home market of France. Novartis posted a 4% slump in third quarter profit as sales in its Alcon eye care division and cancer drug Gleevec continued to see declines.
Merck gained 1.9% after beating earnings and sales expectations. Whirlpool took an 11% hit after missing sales and earnings estimates, and lowering its outlook. Procter & Gamble reported better than expected earnings. Lockheed Martin posted higher than expected revenue as sales of Sikorsky helicopters rose nearly 15% and Lockheed announced it will hike its dividend.
Under Armour, the No. 2 U.S. sportswear maker, reported its slowest quarterly sales growth in six years. Although, net sales in North America grew 15% in the third quarter, it was below the 20 percent growth mark that the company normally. The stock dropped 14%.
FreePort McMoRan reported earnings of $217 million, or 13 cents a share on an adjusted basis – missing estimates. Revenue grew to $3.8 billion from $3.3 billion – missing estimates.
General Motors doubled its net income and notched record revenue in the third quarter with strong truck sales in the U.S. market and continued strength in China, but the auto maker signaled continued weakness in Europe because of Brexit fallout. Profit and revenue beat analysts’ estimates. Still, there is a nagging concern that the auto industry has seen 6 years of improving earnings and sales have plateaued. GM dropped about 4% today.
A federal judge has approved Volkswagen’s $14.7 billion settlement with regulators and owners of 475,000 polluting diesel vehicles that don’t meet emissions standard. Volkswagen admitted last year that the cars were programmed to cheat on emissions tests. The German automaker will spend up to $10 billion to either buy the cars back or fix them and compensate owners. The deal covers 475,000 VW models with 2-liter diesel engines dating to 2009. U.S. models include the 2009-2015 Jetta and Audi A3, the 2010-2015 Golf, and the 2012-2015 Beetle and Passat.
Most owners are expected to take the settlement. As of Sept. 16, which was the deadline opt out of the settlement, 3,298 owners said they wouldn’t participate. Those who don’t accept the settlement could sue VW, but it’s not guaranteed they would get better terms. Another 90,000 cars with 3-liter diesel engines also have cheating software, but they aren’t part of this settlement. Owners have a choice – VW will buy back the car or fix the car, although a fix has not yet been approved. The official settlement web site is vwcourtsettlement.com .
Reeling from the biggest and most costly car recall in history, Takata is now at the center of a messy takeover battle that could put the company on a path towards bankruptcy. Its fate will rest heavily on global automakers that will gather in New York today to discuss options for an outside investor to help the firm replace potentially defective airbags in more than 100 million vehicles.
Maybe we should call it driverless beer. In a major milestone for autonomous trucking, some 45,000 cans of Budweiser beer arrived late last week to a Colorado warehouse after traveling over 120 highway miles in a self-driving semi with no driver at the wheel. Otto, the autonomous truck subsidiary of Uber, shipped the brew with a driver monitoring from the truck’s sleeper berth for the entire two-hour journey.
U.S. home prices rose slightly in August. The S&P/Case-Shiller U.S. National Home Price Index was up 5.3 percent on an annual basis in August from 5.0 percent in July. Top gainers in August were Portland, Oregon, with an 11.7 percent increase year to date, and Seattle, at 11.4 percent over the last year. Phoenix posted a gain of 0.6% from July to August, and prices advanced 5.2% over the past year. While rising home prices point to a healthy housing market on the demand side, they also expose an affordability problem that has locked some potential buyers out. According to S&P/Case Shiller, the index of national house prices is within 0.1% of the record it set 10 years ago. Higher home prices are indicative of a shortage of homes for sale.
The Mortgage Bankers Association says lenders are expected to issue more than $1 trillion in mortgages for home purchases in 2017, marking the first year this would happen since the housing bust a decade ago. On the other hand, the MBA forecast a steep 40 percent drop in mortgage refinancing next year to $529 billion as the Federal Reserve raises interest rates gradually through 2018.
The Conference Board’s Consumer Confidence index dropped to 98.6 this month from 103.5 in September, a number that was revised lower. Consumer confidence is still near a post-recession peak despite the drop in October. The present situation index, a measure of current conditions, fell to 120.6 from 127.9. Fewer Americans said jobs are “plentiful.” The future expectations index declined to 83.9 from 87.2. That’s the lowest level since July.
The average premium for benchmark 2017 Affordable Care Act insurance plans sold on Healthcare.gov will jump 25% to $302 compared to this year, the biggest increase since the insurance first went on sale in 2013. Seeking to downplay the cost hikes, the administration said that including subsidies 77% of people would be able to find insurance plans with monthly premiums below $100, however, one in five consumers will only have one insurer from which to choose coverage.
The Federal Reserve is inclined to raise interest rates higher than would otherwise be the case if the next president pursues an expansionary fiscal policy. Speaking yesterday evening, Federal Reserve Bank of Chicago President Charles Evans said that the Fed should be more explicit about how policy makers would respond to new information on the economy. Market-implied odds of a rate increase by the central bank in 2016 were at 71 percent.
Renewable energy reached an important turning point last year with record new installations of emissions-free power surpassing sources that burn fossil fuel. According to a new report from the International Energy Agency new installations of renewable energy overtook conventional power for the first time in 2015. Global green power rose by a record 153 gigawatts, equivalent to 55 percent of newly installed capacity last year. Total installed capacity exceeded coal for the first time. The report shows the acceleration toward clean-power generation was already picking up pace before governments agreed in Paris in December to reduce carbon dioxide emissions. The IEA raised its estimate of the amount of green energy on power grids by 13 percent, revising its forecast to 42 percent by 2021. About 500,000 solar panels were installed each day across the globe in 2015, according to the report. Renewables will be the world’s fastest-growing source of electricity over the next five years. And the cost is coming down; solar panels are expected to be a quarter cheaper over the next 5 years.