US FINANCIAL MARKET
U.S. EQUITIES FLUCTUATE AT THE OPEN
- The S&P 500 Index was little changed early in the session.
- HP rose after Xerox is considering a cash-stock offer for the PC maker.
- Shares of CVS rose 4.4% after the company posted a stronger-than-expected profit and raised its outlook.
- Share of Uber fell 5.7% as the “lockup” period on the company’s IPO expired, meaning investors in the initial offer can now sell shares. The stock is down about 40% from its May IPO price.
- Banks were among the biggest gainers in Europe. Shares in Société Générale rose 5.6% after a key measure of the French lender’s capital strength improved in the third quarter. UniCredit shares increased 2.3% as the Italian lender moved a bad-loan portfolio off its books in a transaction that it said would amount to a “significant risk transfer.”
CVS Beats Revenue Expectations, Raises Earnings Outlook
- CVS reported a stronger-than-expected adjusted profit in the third quarter and raised its outlook for earnings.
- The company on Wednesday posted net income of $1.53 billion compared with $1.39 billion a year ago.
- Revenue rose to $64.81 billion from $47.49 billion a year earlier. Analysts had expected $63.01 billion in revenue for the quarter, according to FactSet
- CVS said its pharmacy-services business recorded revenue of $36.02 billion in the quarter, up about 6% versus a year ago.
- Its retail business saw revenue increase 3% to $21.47 billion.
- Prescription volumes grew 6.4% from a year earlier.
- The company’s health-care benefits business, housing Aetna, reported revenue of $17.18 billion.
- CVS also said it now expects to post an adjusted profit between $6.97 and $7.05 a share for the year, compared with its previous outlook of between $6.89 and $7 a share.
Wendy’s reports strong results, with same-store sales rising
- Wendy’s reported North America same-store sales rose 4.4% in the third quarter, powered by new launches such as the $5 Biggie Bag deal and spicy chicken nuggets.
- The fast food burger chain also raised its full-year outlook for global systemwide sales to 3.5% to 4%, from 3% to 4%.
- Adjusted revenues rose 10.1% to $351.1 million.
- Wendy’s announcement in September that it would launch breakfast in U.S. locations next year led some investors to initially be skeptical.
- The company believed it could increase breakfast offerings to at least 10% of U.S. sales.
- Internationally, Wendy’s said it can grow to 1,500 restaurants and double sales to about $2 billion by 2024, by expanding in existing markets and entering Europe with new company restaurants in the UK within the next 12 to 18 months.
New York Times beats profit estimates on higher digital subscriptions
- New York Times beat third-quarter profit estimates, as more people signed up for the newspaper’s digital subscription, priced as low as $2 a week.
- Newspapers are wooing subscribers by offering huge discounts for their digital editions as they lose online advertising revenue to Google and Facebook.
- The Times is also trying to beef up its digital offerings by adding a host of features such as podcasts and crosswords to its flagship website.
- Paid digital-only subscriptions rose 273,000 from the preceding quarter, taking the total subscribers to about 4 million.
- Of the additions, 209,000 came purely from its news-only products.
- Total revenue rose to $428.5 million from $417.3 million a year earlier, marginally falling short of analysts’ average estimate of $429.1 million.
- The company, which had forecast a “challenging” second half for digital advertising, said it expects a “fairly challenging” fourth quarter. Print advertising revenue fell 6.7% to $113.5 million.
- Net income fell to $16.4 million from about $25 million a year earlier.
Coty Posts Quarterly Profit, Lower Sales
- Cosmetics maker Coty posted its first profit in seven quarters but continued to struggle with meeting sales’ expectations.
- The maker of CoverGirl cosmetics on Wednesday reported a net income of 7 cents a share, compared with a loss of 2 cents a share in the same period last year.
- The company’s last reported a profit for its second quarter of fiscal 2018.
- The profit was largely driven by an $84.5 million gain on its Younique cosmetics business divestiture in September.
- Sales fell 4.4% to $1.94 billion from the comparable quarter last year, driven by a 9% decline in North America sales.
- Analysts polled by FactSet were looking for $1.97 billion.
- Sales in the company’s consumer-beauty segment declined 13.5% to $716.5 million.
Xerox Considers Takeover Offer for HP
- Xerox has set its sights on a takeover of personal-computer and printer maker HP, an audacious move that would unite two fading stars of technology.
- Xerox is considering making a cash-and-stock offer for HP, which has a market value of about $27 billion.
Walgreens Boots Is Exploring a Potential Take-Private Deal
- Walgreens Boots, led by Chief Executive Officer Stefano Pessina, has been reviewing a potential deal to take the company private in what could become the largest leveraged buyout in history, people familiar with the matter said.
- The company has recently held informal talks with private equity firms including KKR & Co.
- Pessina is Walgreens Boots’ largest shareholder with a stake of about 16%, according to data compiled by Bloomberg.
- Walgreens Boots has a market value of about $55 billion and $16.8 billion of debt.
- At that size, a take-private of the company would top the largest leveraged buyout in history: the 2007 sale of utility TXU Corp. to KKR & Co. and TPG, which was worth about $45 billion including debt.
- The company is under immense pressure from online competitors including Amazon.com Inc., which have chipped away at front-of-the-store sales of household and beauty items. While top rival CVS Health Corp. has grown into a vertically integrated health-care giant, Walgreens Boots has doubled down on retail, announcing pilot partnerships with retailers including grocer Kroger Co.
Uber Shares Face More Pressure as Post-IPO Lockup Is Set to Expire
- Uber shares, which dropped about 10% after a third-quarter earnings report that failed to reassure investors, face additional selling pressure Wednesday as the “lockup” period following the company’s May IPO expires.
- Uber reported this week both higher revenue and a narrower net loss.
- Still, Uber shares closed at $28.02 Tuesday, down nearly 40% since the IPO, as slower growth on several key metrics—including bookings and user growth—hurt investor confidence.
- Of the 1.7 billion shares outstanding, Wedbush estimates that 763 million will unlock on Wednesday. Out of those, Wedbush estimates that 25% are either early-stage private investors or insiders that they expect to hit the sell button.
- Investors are divided over Uber’s long-term vision for its Uber Eats division, which remains highly unprofitable.
- On Monday, Uber said it is expanding restaurant product offerings.
Google Counts on Fitbit to Make Imprint in Health Market
- Behind Google’s $2.1 billion deal for wearables maker Fitbit is a dream of the search giant to become a major player in health data after a failed attempt to establish a foothold in it several years ago.
- Big technology companies have long been tantalized by the promise of devices like smartwatches and wireless earbuds to collect a wealth of real-time user data on heart rates, body temperature and the like.
- Makers of these wearable products sometimes share that data, though they aren’t particularly transparent with whom.
- Analysts say it’s logical that Fitbit and others would find ways to make money from the data by partnering with health-care companies to monitor chronic conditions among users and developing new health-care services, among other methods.
Tesla plans after-sales network expansion in China as Shanghai factory spins up
- Tesla plans to double the number of repair and maintenance shops, add about 100 charging stations and revamp showrooms in China as the electric vehicle maker gears up to open its Shanghai plant.
- In coming months, the company also plans to double its service centers to 63 from 29 and boost fast charging stations by 39% to 362.
US ECONOMY & POLITICS
U.S. Productivity Unexpectedly Posts First Drop Since 2015
- Nonfarm business employee output per hour decreased at a 0.3% annualized rate in the third quarter.
- That compared with the median projection for a 0.9% increase in Bloomberg’s survey of economists.
- Unit labor costs rose at a 3.6% rate following 2.4% in the prior period.
- From a year earlier, productivity rose 1.4%, down from 1.8% in the prior period.
- Unit labor costs were up 3.1% year-over-year — the fastest since early 2014 — which could be a sign that a tight job market is filtering through to what companies are spending on wages.
- There is debate over what has driven the broader slowdown in productivity compared with prior decades. Federal Reserve Chairman Jerome Powell, in a recent speech, suggested several possible reasons, including that official statistics may understate productivity growth by failing to capture the value of fast internet connections and smartphones.
U.S. Job Openings Edged Lower
- The number of unfilled jobs declined to a seasonally adjusted 7.02 million at the end of September.
- That was the fewest available jobs in 18 months.
- But openings still exceeded the number of unemployed Americans—those without work but actively looking—by 1.26 million.
- Before 2018, openings had never exceeded unemployment in records back to 2000.
- Openings, down from 7.39 million a year earlier, have generally declined this year. But hiring held fairly steady in recent months. For September, 5.93 million Americans were hired, up from 5.67 million a year earlier.
U.S. Collects a Record $7 Billion in Tariffs in September
- Tariff revenue jumped 9% from August and was up more than 59% from a year earlier.
- The revenue is a bounty for the U.S. Treasury, but is an increasing burden on the American businesses that import Chinese products—and their customers.
- Last month’s sharp rise was driven by a new 15% levy on consumer goods that went into effect Sept. 1.
- Imports of these items were valued at $111 billion last year.
EUROPE & WORLD
IMF Warns Europe to Make Emergency Plan for Economic Slump
- Europe needs to come up with emergency plans, since monetary policy has all but exhausted its arsenal and risks spread, the fund warned.
- “A synchronized fiscal response” may be necessary, the fund said in the report, highlighting the dangers from trade protectionism, a chaotic Brexit and geopolitics.
- For the IMF, more trouble could lie ahead.
- If the U.K. leaves the European Union in January without an orderly withdrawal agreement, the country’s economic output would be 3.5% lower in two years, according to the Fund’s forecast. The EU economy would be 0.5% smaller in that scenario.
- Adding to Brexit uncertainty, “the weakness in trade and manufacturing could spread to other sectors — notably services — faster and to a greater extent than currently envisaged,” the IMF said.
Adidas Boosts Sales as Sneaker Race with Nike Steps Up
- But Nike’s rising dominance in shoe technology could put the German sportswear maker on the back foot.
- According to a Wall Street Journal analysis of the six major global marathons, Adidas athletes have won fewer titles since the Vaporflys were introduced by Nike in 2017, with just two victories in 2019, down from four in 2016. Nike runners, won 10 major marathon titles this year, up from eight in 2016.
- Adidas’ sales rose 9% from the comparable period a year earlier to €6.4 billion, while profit fell 2% to €646 million, in line with the company’s guidance. Adidas sales in its home market of Europe were flat, while North America and Asia Pacific posted sales increases of 13% and 11%, respectively.
BMW’s stronger SUV sales help new CEO deliver profit lift
- Sales of BMW’s passenger cars rose 3.6% in the quarter including a 5.8% rise in China sales in September, thanks to a newly launched X3 sports utility vehicle, even as overall car sales in China fell for the past 15 months in a row.
- The Munich-based company said its earnings before interest and taxes (EBIT) rose to 2.29 billion euros ($2.54 billion), up from 1.72 billion euros in the year-earlier quarter and ahead of the 2.16 billion euros forecast in a Refinitiv poll.
Mitsubishi Motors Slashes Profit Outlook by $550 Million
- Operating profit for the fiscal year through March 2020 will be 30 billion yen ($275 million) instead of 90 billion yen, citing decreases in wholesale volumes and the impact of currency swings that erode income brought home.
- The revenue outlook for the period was cut 5% to 2.45 trillion yen.
- Sales volumes fell in North America, Australia and Indonesia, while Thailand, Vietnam and Japan saw increases.
China Considers Up to $10 Billion Stake in Saudi State Oil Giant’s IPO
- Chinese state-owned entities are in talks about investing a combined $5 billion to $10 billion in Aramco’s initial public offering.
- The Beijing-based Silk Road Fund is among parties that have been in discussions to buy stock in the offering.
- State-owned oil producer Sinopec Group and sovereign wealth fund China Investment Corp. have also held talks in recent months about investing in the Aramco IPO.
- The Silk Road Fund was set up in 2014 with $40 billion of initial capital. It was later supplemented with another 100 billion yuan ($14 billion) of funds, according to its website.
TODAY in HISTORY
- Abraham Lincoln was elected president of the United States. 1860
- Jefferson Davis was elected president of the Confederate States of America. 1861
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