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Wall Street eases from record highs on coronavirus concerns, Cisco results

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US FINANCIAL MARKET

Wall Street eases from record highs on coronavirus concerns, Cisco results

  • Wall Street’s main indexes eased from record highs on Thursday, pressured by shares of Cisco after its disappointing quarterly forecast, while a spike in new coronavirus cases in China weighed on the sentiment.
  • The Chinese province at the center of the coronavirus outbreak reported a record rise in deaths and thousands more infections using a new diagnostic method, casting fresh uncertainty over the scale of the virus outbreak.
  • The fourth-quarter earnings season is winding down with 351 S&P 500 companies having reported so far. Of those, 70.9% have topped profit estimates, according to IBES data from Refinitiv.
  • Cisco Systems shares declined more than 6%, the biggest drag on the three indexes, after the network gear maker’s lackluster revenue and profit forecasts.
  • Among other stocks, Kraft Heinz shed 7.6% as it missed quarterly sales estimates and wrote down the value of some businesses – including coffee brand Maxwell House – by $666 million.

Cisco Sales Fall in Latest Quarter

  • Cisco Systems said global economic uncertainties have slowed technology investments decisions at some companies, denting the network-equipment giant’s sales growth.
  • Overall, Cisco reported $12 billion in revenue for the latest period, compared with $12.45 billion the year earlier.
  • The latest results beat analysts’ forecasts.
  • Cisco’s infrastructureplatforms business, covering its main networking hardware and software products, reported an 8% decline in sales to $6.53 billion in the latest quarter.
  • The company’s applications unit, which includes videoconference and tools for monitoring various applications, generated $1.35 billion in revenue, also down 8%.
  • Cisco reported a quarterly net income of $2.88 billion, up from $2.82 billion the year earlier.
  • The router maker on Wednesday said it expects revenue to drop between 1.5% and 3.5% in its current quarter.
  • Cisco also predicted it would earn a profit, following adjustments, of 79 cents to 81 cents a share in its current fiscal quarter.

Kraft Heinz Reports Weaker Sales

  • Kraft Heinz on Thursday missed quarterly sales estimates, forecast lower full-year core earnings, and wrote down the value of some businesses – including coffee brand Maxwell House – by $666 million.
  • The company, which also makes Philadelphia cream cheese and Jell-O, said sales fell to $6.54 billion down 5.1% from $6.89 billion, short of the analyst estimate of $6.61 billion.
  • Comparable sales, which exclude currency fluctuations, mergers and divestitures, declined 2.2% globally in the latest quarter, including a 2.7% drop in the U.S., its biggest market.
  • Net earnings were $183 million, compared with a loss of $12.63 billion the year earlier.
  • Kraft Heinz took a $453 million charge in the fourth quarter due to lower goodwill in businesses in Australia, New Zealand and Latin America. It also wrote down the value of its Maxwell House brand by about $213 million.

Pepsi Gets Boost from Snacks, Sugar-Free Drinks

  • Strong sales of salty snacks lifted PepsiCo’s sales for the fourth quarter, as sugar-free versions of Pepsi and Gatorade are helping turn around the company’s challenged North America beverage business.
  • For the fourth quarter, net revenue rose 5.7% to $20.64 billion, beating the estimate of $20.27 billion.
  • The company said its organic revenue grew 4.3% for the latest period and said it anticipates the metric, which strips out the effect of currency swings and acquisitions, to grow 4% in 2020.
  • Net income fell to $1.77 billion from $6.85 billion a year earlier. The company booked $4.93 billion in income-tax benefits in the same period last year.
  • For 2020, PepsiCo forecast core earnings of $5.88 per share, below $5.95 expected by analysts.

Boeing’s MAX delivery schedule to Norwegian ‘unrealistic’: CFO

  • Boeing’s plan to deliver 16 MAX aircraft this year to Norwegian Air is “unrealistic”, the airline’s chief financial officer said.
  • “It is unrealistic but this is what Boeing has in its delivery schedule,” Geir Karlsen told analysts and media on Thursday after presenting the firm’s fourth-quarter results.
  • He added that Norwegian Air had found a solution with engine-maker Rolls-Royce regarding compensation for problems with the engines on its 787 Dreamliners.

SEC Probes Tesla Over Financing Arrangements

  • Tesla is facing fresh regulatory scrutiny over its financing arrangements and accounting practices, as it looks to raise more than $2 billion from a stock sale to help accelerate its ambitious vehicle production plans.
  • The electric-car maker said Thursday the Securities and Exchange Commission issued it a subpoena in December seeking information regarding certain financial data and contracts on Tesla’s regular financing arrangements.
  • The SEC has closed its investigation into projections and public statements about Model 3 production, Tesla said.

PG&E’s Fire Victims Are Set to Become Its Biggest Shareholders

  • PG&E proposes to pay half of its $13.5 billion settlement with California wildfire victims in company shares, a move that would make victims the utility’s largest shareholders—and jeopardize payments if PG&E sparks future fires.
  • As part of its plan to exit bankruptcy, PG&E would pay victim claims through a trust funded with equal parts cash and stock.
  • The trust would own 20.9% of PG&E’s shares upon the company’s emergence from chapter 11, PG&E has said, and would gradually sell the stakes over several years to compensate individuals who lost family members and property.
  • Fire victims are the only major class of claimants that PG&E is proposing to pay with shares.
  • The company has agreed to pay more than $25 billion overall to compensate for losses from 2017 and 2018 wildfires, but the other major settlements—with California governments and insurance companies—would pay those parties entirely in cash.

Global Oil Demand Shrinks, Hit by Coronavirus, IEA Says

  • Global oil demand is expected to fall in the first three months of the year—the first quarterly drop in more than a decade—according to a closely watched forecast from the International Energy Agency, which blamed a likely economic slowdown in China related to the novel coronavirus outbreak there.
  • The IEA also slashed its oil demand growth forecast for 2020 by 365,000 barrels a day, a cut of 30% to its previous forecast made in January.
  • The IEA warned of a drop in oil demand this quarter of 435,000 barrels a day, compared with a year ago.
  • The IEA’s cut to its forecast demand growth was significantly larger than the one announced Wednesday by the Organization of the Petroleum Exporting Countries, which reduced its estimate by 230,000 barrels a day.

Southwest extends 737 MAX flight cancellations through early August

  • Southwest Airlines on Thursday extended its cancellation of 737 MAX flights through early August as the grounding of the Boeing jet continued and threatened to impact nearly all of the busy U.S. summer travel season.
  • Southwest, the largest operator of 737 MAX airplanes worldwide, said it would now keep the aircraft off its flight schedule until Aug. 10, instead of through June 6.
  • The revision will remove roughly 371 weekday flights from its total peak-day schedule of more than 4,000 daily flights, which is about 10% higher than the 330 weekly flights it said were being cut through June 6.

 

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US ECONOMY & POLITICS

U.S. weekly jobless claims increase slightly

  • The number of Americans filing for unemployment benefits increased less than expected last week, pointing to continued labor market strength that could keep the country’s longest economic expansion on track.
  • Initial claims for state unemployment benefits rose 2,000 to a seasonally adjusted 205,000 for the week ended Feb. 8, the Labor Department said on Thursday.
  • Economists had forecast claims rising to 210,000 in the latest week.
  • Thursday’s claims report also showed the number of people receiving benefits after an initial week of aid fell 61,000 to 1.70 million for the week ended Feb. 1.

U.S. Consumer Prices Increased 0.1% in January

  • The consumer-price index (CPI), which measures changes in how much Americans are paying for everyday items such as clothes and food, rose a seasonally adjusted 0.1% last month, the Labor Department said Thursday.
  • Prices were up 2.5% in January from a year earlier, the largest year-over-year increase since October 2018.
  • Economists were expecting a 0.2% monthly rise and a 2.5% yearly increase in prices during January.
  • Core prices, excluding the often volatile food and energy categories, were up 0.2% in January and 2.3% from a year earlier, compared with economists’ expectations for a 0.2% monthly and 2.5% yearly increase.

Drug Prices Are Suppressed Overseas, White House Study Finds

  • Foreign governments are taking unfair advantage of American drug company research and U.S. consumers by artificially suppressing drug prices abroad, a new study from the White House said.
  • The findings suggest drug pricing could become another source of friction between the U.S. and trading partners, similar to China’s appropriation of U.S. intellectual property and European “digital taxes” on big American technology companies.
  • The study compared the prices of 200 top-selling branded drugs in the U.S. and 15 other developed countries.
  • It concluded that European prices on top-selling drugs are about 32% of U.S. prices and that the difference has widened: They were 51% of U.S. equivalent prices in 2003.
  • The difference between U.S. and foreign drug prices has been widely noted and often cited by advocates of Washington doing more to reduce prices. The White House paper, however, argued that pricing is amiss abroad, not in the U.S.

Pentagon expected to back additional Huawei restrictions: source

  • The Pentagon is likely to back new U.S. restrictions on Huawei Technologies, reversing earlier opposition to a proposal meant to further crack down on exports to the blacklisted Chinese company, a person briefed on the matter told Reuters on Wednesday.
  • The reversal would make it harder for U.S. companies to get around the effective ban on exports to Huawei, the world’s second-largest smartphone maker.
  • A higher-level meeting will take place on Feb. 28, when U.S. officials will discuss further curbing technology exports to China and Huawei.
  • Reuters reported in November that the United States might expand its power to stop more foreign shipments of products with U.S. technology to Huawei.
  • This could allow authorities to regulate sales of non-sensitive items to Huawei, such as standard cell phone chips, made abroad with U.S.-origin technology, software, or components.

Moderate Democrats Stress Over Crowded Center Lane

  • Democrats in search of a centrist nominee to challenge President Trump are increasingly worried after contests in Iowa and New Hampshire consolidated liberal support behind Bernie Sanders and divided the larger moderate vote among multiple candidates.
  • With no clear centrist front-runner, vulnerable freshman Democrats in Congress are texting each other anxiously, a Biden-allied fundraiser warns of a “doomsday scenario” and party strategists fret about what mixed early-state turnout means for November.
  • Adding to some Democrats’ worries is the president’s acquittal from impeachment and his strength among his most fervent supporters, as evidenced by the more than 11,000 who turned out for his Monday night rally in Manchester, N.H., a larger crowd than any assembled by a Democrat campaigning in the state.
  • The Sanders campaign disputed the notion he would hurt Democrats in swing districts, noting that candidates in states that will be crucial in 2020 had requested his help during 2018 midterms.

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EUROPE & WORLD

Alibaba’s Revenue Rose 38% in Latest Quarter

  • Alibaba warned of a drop in revenues at its key e-commerce businesses this quarter as the coronavirus sweeping China hits supply chains and deliveries.
  • Revenue was 161.45 billion yuan ($23.19 billion) in the quarter, up 38% from 117.28 billion yuan a year earlier.
  • Analysts had expected sales of 159.7 billion yuan.
  • Sales in Alibaba’s core commerce business jumped 38% to 141.48 billion yuan in its third quarter ended Dec. 31, while revenue at its cloud computing unit surged 62% to 10.72 billion.
  • Mobile monthly active users on its China retail marketplaces were 824 million, up 39% from a year earlier.
  • Annual active consumers were 711 million, up 18%.
  • Net income rose to 52.31 billion yuan from 33.05 billion.
  • In its prepared remarks, the company didn’t detail how the coronavirus is affecting its business other than saying it is trying to support its customers.

Bombardier forecasts positive 2020 cash flow after quarterly loss

  • Canadian plane and train maker Bombardier forecast positive cash flow for 2020 after it agreed to sell the remaining stake in its capital-intensive commercial aircraft program to Europe’s Airbus.
  • The deal, which gives Airbus a 75% share and the Canadian province of Quebec a 25% stake in the A220 jetliner program, allows Bombardier to avoid future investments of about $700 million.
  • Bombardier will receive about $600 million from Airbus, helping lift its cash flow, which was a negative $1.20 billion in 2019.
  • The company’s loss before interest and taxes was $1.70 billion in the fourth quarter, compared with a profit of $342 million a year earlier, partly due to charges related to some rail contracts in Europe.

Airbus negotiating to win large preliminary order for A220 jets

  • Airbus is negotiating a preliminary order for up to 100 A220 jets as it prepares to buy out Bombardier’s minority stake in the Canadian-designed jet, industry sources said.
  • The marketing effort lifted a subdued Singapore Airshow as industry sources said Canada’s Bombardier was ready to announce that it would cede its stake in the A220 program to majority owner Airbus and complete its exit from commercial aviation.
  • The Wall Street Journal identified the potential buyer as Nigeria’s Green Africa, which in late 2018 struck a tentative deal with Boeing for 50 737 MAX and options for another 50.

Airbus Puts Squeeze on Boeing’s 737 MAX as Crisis Drags

  • Airbus is ramping up production of its bestselling single-aisle jet, moving to fill a hole in the market created by the prolonged grounding of rival Boeing’s 737 MAX.
  • Airbus said Thursday it had outlined plans to raise production of its A320neo to as many as 67 a month by 2023, from the current target of 63 a month in 2021. The A320neo competes directly with the MAX.
  • Airbus said, overall, its deliveries this year will reach 880 aircraft, topping last year’s 863.
  • Still, that represents a slower rate of growth as the company reins in deliveries of its wide-body jets.

China Ousts High-Level Officials as Coronavirus Cases Soar

  • China ousted two top Communist Party officials in Hubei province, the center of the coronavirus outbreak, hours after health officials there confirmed 14,840 new infections on Wednesday alone—an almost 10-fold increase from a day earlier—indicating that the epidemic is far from tapering off.
  • The high-level firings of the Communist Party secretaries of both Hubei province and its capital of Wuhan, where the contagion is believed to have started last month at a market with live, wild animals, demonstrated Beijing’s disapproval of how they handled a threat that has since mushroomed into an epidemic killing more than 1,300 people and halting business across the country.
  • The leadership changes also helped to put some distance between the outbreak and the central government in Beijing.
  • News of the sackings spread quickly on Chinese social media, with citizens praising the moves.

Xi Installs Close Ally to Tighten Control Over Hong Kong

  • Chinese President Xi Jinping installed a former lieutenant and onetime law enforcer to head Beijing’s Hong Kong policy-making agency, continuing a shake-up meant to tighten control over the protest-racked city.
  • The appointment of Xia Baolong as director of the Hong Kong and Macau Affairs Office, announced Thursday by state media, puts the former British colony under the supervision of a man who once as a provincial leader upheld Communist Party authority with a campaign to tear down Christian churches and crosses.
  • Mr. Xia, who lacks experience in Hong Kong affairs and had retired from front-line politics nearly three years ago, was a deputy to Mr. Xi when the Chinese leader was a top provincial official in the 2000s.

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TODAY in HISTORY

  • France exploded its first atomic bomb. (1960)

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