DAILY MARKET REPORTS
- U.S. stocks headed lower on Thursday as investors remained wary about the outcome of U.S.-China trade talks, while a slew of disappointing earnings weighed on the indexes.
- AIG dropped 8.5% after the insurer reported a lower-than-expected quarterly profit, while Cardinal Health declined 15.6% after the drug distributor cut its annual earnings forecast.
- Tesla shares fell 6% after Elon Musk cut off analysts asking about the company’s profit potential.
- Kraft Heinz rose 3% after its quarterly profit beat expectations, benefiting from U.S. tax changes and price hikes to counter higher input costs.
US FINANCIAL MARKET
Lower Tax Bills Fuel Best Earnings Quarter Since 2011
- The tax savings are helping to drive profits to new highs among companies in the S&P 500 index.
- Overall, first-quarter after-tax earnings for index companies are on track to rise 25.3% over the same period in 2017, according to Thomson Reuters.
- More than half of the combined net-income growth reported by 200 large public companies in the first quarter stemmed from a decline in the companies’ effective tax rates.
- At a third of the companies, tax expenses fell in dollar terms even as pretax income rose, boosted by strong revenue growth and the expanding economy.
- S&P 500 revenues are expected to rise 8.3% from a year earlier, tied with the fourth quarter for the fastest clip since late 2011 and the seventh straight quarter of growth.
Tesla Can’t Make Its Cash Problems Disappear
- Tesla Chief Executive Elon Musk’s refusal to take questions from analysts about the electric car maker’s financial condition drew sharp criticism from Wall Street analysts and investors on Thursday, pushing its stock down 7%.
- The electric-car maker on Wednesday reported a loss of $710 million in the first three months of the year.
- Revenue rose to $3.41 billion from $2.7 billion a year ago, and outpaced analysts estimates of $3.22 billion.
- Tesla ended the quarter with about $2.7 billion in cash on its books. That cash balance barely covers the portion of its long-term debt and capital leases due this year.
- Tesla’s cash dwindled to $2.7 billion by the end of this quarter. While it trimmed its projected capital expenditures for the year, it still expects to spend $3 billion, down from a prior estimate of $3.4 billion.
- To increase its Model 3 production rate, Tesla will run the Fremont factory around the clock.
- Adding employees, shifts and paying more overtime to workers has boosted Tesla’s costs.
- Its weekly production rate for the mass market electric sedan went as high as 2,270 in mid-April, and Tesla is still targeting a rate of about 5,000 per week in about two months.
Cardinal Health misses profit, cuts forecast on Cordis woes
- U.S. drug distributor Cardinal Health reported a lower-than-expected quarterly profit and cut its annual earnings forecast as its medical device unit Cordis was hit by supply chain issues and higher costs.
- Revenue rose 5.7% to $33.63 billion.
- Net earnings fell 33% to $255 million in the quarter.
- The company cut its fiscal 2018 adjusted earnings forecast to $4.85-$4.95 per share from $5.25-$5.50 per share, reflecting a negative tax rate and Cordis’s performance.
AIG profit falls 21% on catastrophe costs, lower yields
- American International Group reported a 21% decline in first-quarter profit on Wednesday, due to higher catastrophe and bad weather claims, as well as weaker investment income.
- The insurer posted $938 million in net income for the first quarter, down from $1.2 billion in the same period a year earlier.
- Mudslides in California, winter storms across the United States and an earthquake in Papua New Guinea contributed to $376 million worth of catastrophe losses in AIG’s general insurance business during the quarter.
Kraft Heinz’s Profit Rises Despite Sales Decline
- The food-making conglomerate’s global revenue fell slightly to $6.3 billion in the latest quarter, as sales of such brands as Planters nuts and Oscar Mayer cold-cut meats dropped in the U.S.
- In the latest quarter, Kraft Heinz’s sales in the U.S., its largest market, fell 3.3% to $4.37 billion.
- Net income rose 11.1% to $993 million, primarily reflecting benefits from the biggest overhaul of the U.S. tax code in over 30 years, which slashed the corporate income tax rate to 21% from 35%.
Square’s Loss Widens as Spending Picks Up
- Square reported a wider first-quarter loss as the financial-technology firm spent more on product development and marketing, and signaled that it would continue to invest big sums into its payments and services businesses.
- Net revenue rose 45% to $669 million, ahead of analysts’ expectations, thanks to a 30% boost in payments revenue and a doubling in subscription and services-based revenue.
- The company reported a net loss of $24 million, compared with a net loss of $15 million for the same quarter a year earlier.
- Meanwhile, Square has been spending more on product development and marketing, which contributed to a 47% increase in overall operating expenses in the first quarter.
Sprint reports quarterly profit, appoints new CEO
- U.S. wireless carrier Sprint posted net annual income for the first time in 11 years and named a new chief executive ahead of its proposed $26 billion merger with bigger rival T-Mobile US
- Net operating revenue fell to $8.09 billion from $8.54 billion over the same period.
- Sprint reported a profit of $69 million compared with a loss of $283 million in the year-ago quarter.
- The No. 4 U.S. wireless carrier added 39,000 phone customers who pay a monthly bill during the fourth quarter compared with losses of 118,000 customers a year earlier.
Snacks Lift Kellogg Sales
- Fruit Loops cereal maker Kellogg topped Wall Street forecasts for first-quarter profit and sales, boosted by stronger sales of snacks including Pringles chips and protein bars.
- Overall sales of $3.40 billion topped analysts’ expectations of $3.30 billion.
- Kellogg’s net income rose to $444 million in the first quarter of 2018 from $266 million a year earlier.
- Highlighting the falling demand for cereal in the United States, Kellogg on Thursday also announced a $420 million investment in Nigeria’s Tolaram Africa Foods, its distributing partner in Africa, which makes noodles in addition to cereal.
MetLife quarterly profit rises 8%, helped by tax reform, Asia growth
- MetLife reported an 8% rise in adjusted first-quarter profit on Wednesday, boosted by U.S. tax reforms, as well as volume growth in Asia and better results in auto and catastrophe businesses.
- Revenue declined to $14.8 billion from $14.9 in the year ago period.
- The U.S. insurer reported adjusted earnings of $1.4 billion compared to $1.3 billion in the same period of 2017.
Prudential tops profit estimates on strength in annuities business
- Prudential Financial posted a better-than-expected quarterly adjusted profit on Wednesday as the insurer earned more fees from its annuities business.
- Prudential, the largest U.S. life insurer by assets, earned $1.34 billion in adjusted operating profit after-tax for the first quarter, up from $1.24 billion a year earlier.
- Adjusted operating earnings in Prudential’s U.S. individual annuities division rose about 10.9% to $519 million.
- The company, which has already returned about $760 million to shareholders through share repurchases and dividends, said it sees “strong return prospects” in the future.
Regeneron tops estimates on stronger sales of flagship eye drug
- Regeneron Pharmaceuticals flagship eye drug Eylea helped the drugmaker top Wall Street forecasts for first-quarter profit on Thursday, offsetting weaker-than-expected sales of eczema medicine Dupixent.
- Revenue rose to $1.51 billion, edging past estimates of $1.50 billion.
- Regeneron said U.S. sales of Eylea rose 15% to $984 million in the quarter, exceeding analysts’ estimates of $922.4 million.
- Regeneron’s net income rose 92% to $478 million, reflecting a lower income tax rate as well as a 15% jump in revenue.
Cigna profit beat wraps up strong quarter for health insurers
- Cigna reported a better-than-expected quarterly profit and raised its full-year earnings forecast, wrapping up a strong quarter for U.S. health insurers as the sector undergoes rapid consolidation.
- The company, which focuses on large and medium-sized corporate healthcare plans as well as government-backed Medicare plans, said membership rose 3% to 16.2 million in the quarter.
- Operating revenue rose 9.5% to $11.42 billion.
- Net income rose to $915 million in the first quarter from $598 million a year earlier.
- The company now expects adjusted income of $12.85 per share to $13.25 per share in 2018, compared with its previous forecast of $12.40 to $12.90 per share
New York Times beats estimates as digital subscriptions soar
- The New York Times reported better-than-expected quarterly profit and revenue as the newspaper publisher saw strong growth in digital subscription revenue.
- Total revenue rose to $413.9 million from $398.8 million. Analysts on average estimated revenue of $409.1 million
- Net income rose to $21.9 million in the first quarter of 2018, from $13.2 million a year earlier.
- The Times added 139,000 digital subscribers in the quarter compared with 348,000 a year earlier.
ICE posts better-than-expected profit on higher trading volumes
- Intercontinental Exchange, owner of the New York Stock Exchange, posted a better-than-expected quarterly profit as a spike in market volatility pushed trading volumes higher.
- Total revenue, excluding transaction-based expenses, rose 5% to $1.23 billion.
- Net income fell to $464 million in the first quarter, from $503 million a year earlier.
Fannie Mae 1st quarter profit rises, to pay $938 million dividend to Treasury
- Fannie Mae said its net income rose to $4.26 billion in the first quarter from $2.77 billion a year ago as a result of a hefty gain on its derivatives.
- The No. 1 U.S. mortgage financing company swung back from a net loss of $6.53 billion in the fourth quarter due to a $9.9 billion write-down of its deferred tax assets tied to the sweeping federal tax overhaul enacted last December.
- Fannie’s net interest income dipped to $5.23 billion from $5.35 billion in the first quarter in 2017. In the fourth quarter, net interest income was $5.11 billion.
- The Washington-based company said it expects to pay the U.S. Treasury $938 million in a dividend by June 30.
KKR to Ditch Partnership Structure and Become Corporation
- KKR said Thursday it would convert to a corporation from a partnership, a structural change that many publicly traded private-equity firms have been contemplating on the heels of sweeping U.S. tax legislation.
- The partnership structure, with its multiple share classes and special tax-reporting requirements, has long limited the pool of investors willing or able to own shares of private-equity firms.
- The corporate structure became more attractive late last year after Congress passed the new tax law, which lowered the corporate tax rate to 21% from 35%.
Warren Buffett’s Berkshire Is Now America’s Second Largest Real-Estate Broker
- The Omaha conglomerate was the nation’s second-largest residential real-estate brokerage last year.
- It has franchised the Berkshire Hathaway HomeServices name to 1,330 offices and more than 45,000 agents.
- Berkshire’s real-estate business earned $220 million last year.
- Its revenues grew by 23%, to $3.5 billion.
Amazon Studies Body Sizes to Get That Perfect Clothing Fit
- Amazon wants to understand one of the more intimate things about you: body size.
- The online retailer is inviting people to an office in New York to measure small changes in size and shape over the course of 20 weeks. Those chosen via a survey to participate in the 10, bimonthly visits will receive Amazon gift cards worth up to $250.
- “We are interested in understanding how bodies change shape over time,” according to the survey. The invite comes from Amazon’s new 3-D body scanning unit, an outgrowth of its acquisition last year of computer vision startup Body Labs.
- Amazon has made a bigger push into clothing in recent years, launching a number of private labels. The company last year introduced “Prime Wardrobe,” a free service that allows members to fill up a box with eligible items and return what they don’t want for free.
US ECONOMY & POLITIC
U.S. Jobless Claims Edged Higher Last Week
- Initial jobless claims, a proxy for layoffs across the U.S., increased by 2,000 to a seasonally adjusted 211,000 in the week ended April 28. Economists had expected 225,000 new claims last week.
- Claims can be volatile from week to week; the four-week moving average fell last week to 221,500, its lowest level since March 3, 1973.
- Thursday’s report also showed the number of jobless claims made by workers longer than a week declined by 77,000 to 1.756 million in the week ended April 21.
- The Labor Department on Friday will release its April jobs report. Economists expect 195,000 new jobs for the month and an unemployment rate of 4.0%.
U.S. Workers’ Productivity Edged Up in First Quarter
- Nonfarm business productivity—a measure of the goods and services Americans produced per hour worked—advanced at a seasonally adjusted annual rate of 0.7% in the first quarter, the Labor Department said.
- Meanwhile, unit labor costs grew at an annual rate of 2.7% in January through March.
- Economists expected productivity to rise at a 1% rate and labor costs to increase at a 3% pace.
- From a year earlier, worker productivity advanced 1.3%, consistent with sluggish improvement recorded over much of the past decade.
U.S. Foreign-Trade Deficit Narrowed in March
- The international-trade deficit in goods and services shrank 15.2% from a month earlier to a seasonally adjusted $48.96 billion in March. Economists had expected a slightly larger March deficit of $49.6 billion.
- Exports climbed 2.0% to an all-time high of $208.5 billion. Exports to China jumped 26.3% in March.
- Imports were down 1.8% to $257.5 billion, in part fewer purchases of foreign-made consumer and capital goods.
U.S. and China Dive In for Prolonged Trade Talks
- Trade negotiators from the U.S. and China are digging in for the first round of what they expect to be recurring, difficult talks that don’t produce an immediate settlement.
- U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin and other senior Trump administration officials opened the discussions Thursday afternoon with Chinese negotiators.
- Neither side commented substantively on the talks, with the first round scheduled to end Friday.
EUROPE & WORLD
Teva raises 2018 outlook, expects migraine drug approval by year-end
- Israel’s heavily indebted Teva Pharmaceutical raised its financial outlook for 2018 after reporting a smaller than expected drop in first-quarter net profit and revenue.
- Revenue fell 10% to $5.1 billion, analysts had forecast Teva would earn revenue of $4.8 billion.
- The world’s largest generic drugmaker said it earned 94 cents per share excluding one-off items in the first three months of the year, down from $1.06 a year ago.
- For the full year it raised its outlook for adjusted earnings per share to $2.40-$2.65 from $2.25-$2.50. Revenue expectations were raised to between $18.5 billion and $19 billion, up from $18.3 billion to $18.8 billion.
EU Paints Rosy Economic Picture but Warns of Threats From U.S
- The European Union unveiled an upbeat economic outlook for the eurozone Thursday but warned of rising risks from President Donald Trump’s protectionist trade policies and of the U.S. economy overheating.
- Gross domestic product (GDP) in the 19-member eurozone is set to grow by 2.3% in 2018, easing to 2% expansion next year, the EU said in its quarterly report, in line with earlier forecasts.
- EU officials are racing against a June 1 deadline to clinch permanent exemptions from Mr. Trump’s tariffs of 25% on steel and 10% on aluminum imports, with no quick and clear path for an agreement.
TODAY in HISTORY
- The Shelley v. Kraemer Supreme Court decision stated that it is unconstitutional for a court to enforce a restrictive covenant which prevents people of a certain race from owning or occupying property. (1948)
- Margaret Thatcher became the first woman elected prime minister of the UK. (1979)
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