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Second-Quarter US Growth Revised Above Expectations on Improved Consumer Spending

9:40 AM, Aug 30, 2017 — The US economy grew more than earlier thought in the second quarter amid increases in consumer spending, according to the second estimate from the Department of Commerce .

Real gross domestic product growth was 3% in the three months ended June, faster than the advance estimate of 2.6% made last month and compared with the first-quarter pace of 1.2%, data from the department’s Bureau of Economic Affairs showed on Tuesday. Analysts polled by Econoday had projected second quarter growth of 2.8%.

“The revision to consumer spending was the highlight of this report, indicating that the consumer, helped along by strong job and income growth, has definitely woken up after the first quarter lull,” Michael Dolega, director and senior economist with TD Economics, said in a note.

Personal consumption expenditures, a measure of consumer spending on goods and services, rose 3.3% in the second quarter from 1.2% in the first three months of 2017, the BEA said. In the advance estimate, PCE was up 2.6%.

The report should “embolden Fed hawks to suggest additional rate rises,” Dolega said. “Still, the weak inflation figures remain a constraint at this point.”

Morgan Stanley lowered its third-quarter GDP tracking estimate to 2.5% from 2.7% after the better-than-expected revision, with the results implying “a bit less sequential growth,” according to a statement.

And the third quarter will likely face headwinds from Hurricane Harvey’s assault on the US Gulf Coast, according to TD Economics, which said the storm could slow GDP growth by between 0.1 and 0.4 percentage points.

“Both consumer spending and business investment are likely to sustain weaker performance as a result, but most of the drag is likely to come from net exports — with refined product exports hard hit given the outages of Gulf Coast refineries and ports shuttered,” Dolega said in the note.

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Refiners Facing ‘Significant’ Disruption From Harvey With 3 Million Barrels a Day Offline, Goldman Says

10:11 AM, Aug 28, 2017 — Prices for gasoline surged on Monday as refiners in the Gulf Coast assessed operations in the wake of Hurricane Harvey, which has led to widespread flooding in Houston, the fourth-biggest city in the US.

Now a tropical storm that’s still dumping rain on parts of Texas, Harvey is “significantly disrupting” refining in the state, with nearly three million barrels a day of capacity taken offline, according to a report from Goldman Sachs on Monday. That’s about 17% of the country’s capacity.

“At this stage, most of the refining outages are reported as preventative, with only a few comments on minor flooding,” according to the report. “However, the slow moving nature of the storm will likely lead to these shut-downs continuing in coming days and may generate persistent damage as well.”

If Harvey tracks east toward Houston, another 850,000 barrels a day of refining capacity could be affected with outages, the analysis showed. On Sunday, ExxonMobil (XOM) said flooding led to operational issues at the Baytown Complex, while other facilities on the Gulf Coast are operating normally, the company said.

Valero Energy’s (VLO) Corpus Christi and Three Rivers sites haven’t have substantial impacts from the storm, and they are working to “evaluate infrastructure needed to resume refinery operations, in particular, port operations,” according to a statement Sunday.

On the production side, Denbury Resources (DNR) said it “suspended operations and temporarily shut-in all production at its Houston area fields, representing net production of approximately 16,000 barrels of oil equivalent per day.” RBOB gasoline jumped nearly 4%, while West Texas Intermediate was down about 0.9%.

Also, United Airlines (UAL) had more than 400 flight cancellations Monday, according to flight tracking website FlightAware. Southwest (LUV) had more than 300. Royal Caribbean (RCL) diverted a vessel to Miami and cancelled a sailing out of the port of Galveston, Texas according to its website Sunday, while Carnival (CCL) said three ships will stop in New Orleans during the next two days to allow guests to disembark and make other arrangements.

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Walmart and Google Plan Voice Shopping Tie-Up In Challenge to Amazon

10:24 AM, Aug 23, 2017 — Wal-Mart Stores (WMT) and Alphabet’s (GOOG, GOOGL) Google are set to offer hundreds of thousands of products for sale via the Google Assistant as the retail and tech giants team up to take on rival (AMZN) with voice shopping.

Customers can link their Walmart accounts to Google Express, the shopping service, and be able to use Walmart’s reordering feature that remembers previous purchases, according to blogs from the firms.

Separately, one to three day delivery is now being offered for free with Google Assistant on Express as long as the order is above a store’s minimum, with no membership fees required.

While both companies touted the tie-up as a way to make shopping more convenient, tech blogs like Recode said they were taking a run at e-commerce giant Amazon, which offers voice shopping through its own Alexa personal assistant. Amazon’s dominance in online retailing has proven to be a steep challenge for brick-and-mortar operations, and companies like Walmart have been investing in their own online presence to compete.

Walmart’s products will be available on Google Express at the end of September. Next year, the company will use its US stores and fulfillment network to allow more choices including in-store pick up and voice shopping for fresh groceries.

Google has “made significant investments in natural language processing and artificial intelligence to deliver a powerful voice shopping experience,” Walmart e-commerce head Marc Lore said on the blog. “We know this means being compared side-by-side with other retailers, and we think that’s the way it should be.”

Price: 80.38 Price Change: +0.36 Percent Change: +0.45

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Transocean Agrees to Buy Norway’s Songa Offshore for $1.14 Billion

7:06 AM, Aug 15, 2017 — Transocean (RIG), a Swiss offshore drilling company, has agreed to acquire Norwegian rival Songa Offshore for 9.1 billion Norwegian kroner ($1.14 billion) as it seeks to strengthen its position in ultra deep-water drilling.

The Zug-headquartered company is offering 47.50 kronor per share of Songa Offshore, a 37.0% premium to Songa Offshore’s five-day average closing price, the company said on Tuesday. The enterprise value of the transaction totals about 26.4 billion Norwegian kroner.

Songa operates four harsh environment, semi-submersible drilling rigs based on long-term contracts with Norway’s largest oil company Statoil (STO), which will now become part of Tarnsocean’s fleet, along with three additional semi-submersible drilling rigs.

“Songa Offshore is an excellent strategic fit for Transocean,” Jeremy Thigpen, Transocean’s chief executive said. “With this combination, we add four new state-of-the-art Cat-D semisubmersible rigs to our existing fleet, further enhancing our position in the harsh environment market.”

The deal, which is expected to close in the fourth quarter, increases Transocean’s contracted backlog by $4.1 billion to a combined total of $14.3 billion. The company expects the deal to generate annual cost savings of about $40 million.

Companies: Transocean Ltd.
Price: 8.31 Price Change: -0.08 Percent Change: -0.95

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Geopolitical Jitters Pressure US Stocks With Disney Weighing on Dow

12:43 PM, Aug 9, 2017 — Stocks fell for a second day on Wednesday as geopolitical tensions between the US and North Korea were ratcheted up, sending the Dow Jones industrial Average lower in its first multi-day decline since in more than two weeks.

A day after President Donald Trump warned of “fire and fury” if North Korea threatens the US, he tweeted that his first order as leader was to renovate and modernize the country’s nuclear arsenal. He added that “hopefully” the US won’t have to use the weapons.

Stocks, especially the Dow, had been on a steady upswung through the quarterly earnings seasons, but swung into loss territory late Tuesday after Trump’s first comments, and stayed there from the opening bell onward Wednesday.

The Dow was dragged lower by Walt Disney (DIS), which dropped 3.8% to lead decliners on the blue-chip measure after reporting mixed fiscal third quarter results and saying it’s ending a distribution deal with Netflix (NFLX) in favor of its own branded streaming service. Netflix slipped 1.8%.

Consumer discretionary was down 0.5% in the steepest loss among on the Standard & Poor’s 500, leading six of the 11 sectors lower. Financials and telecoms were both down 0.3%.

MakeMyTrip (MMYT) fell 3% after the online travel firm reported a wider-than-expected fiscal first quarter adjusted loss on sharply improved revenues that beat forecasts compiled by Capital IQ. Kelly Services (KELYA) added 3.6% after second-quarter earnings rose year-on-year.

In afternoon trading, the Dow and the Nasdaq were both down 0.3% and the S&P 500 fell 0.2%.

Globally, the Nikkei 225 lost 1.3%, the FTSE 100 fell 0.6%, the Hang Seng retreated 0.4% and the Shanghai Composite slipped 0.2%.

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Apple Sales and Earnings Beat Wall Street Estimates; Guidance Hints at New Models This Year

7:18 AM, Aug 2, 2017 — Apple (AAPL) reported fiscal third-quarter sales and earnings that topped analyst forecasts and gave a sales projection for the fourth quarter, which analysts said implies that the tech giant will release at least some of the latest editions of its blockbuster iPhone on schedule this year.

Net income was $8.72 billion, or $1.67 per diluted share in the quarter ended July 1, compared with $7.8 billion, or $1.42 per share a year earlier, the Cupertino, California-based company said on Tuesday after the market closed. The per-share earnings topped the average analyst forecast of $1.57 in a Capital IQ poll.

Revenue rose 7% to $45.4 billion, exceeding the average analyst forecast for $44.9 billion.

The company said it sold 41 million iPhone units in the quarter, 2% more than a year earlier. Sales of iPads jumped 15% to 11.4 million units and it sold 4.3 million Mac computers, up 1% from a year earlier.

Shares of the world’s most valuable company rose to a record in pre-market trading, lifted by the better-than-expected earnings figures.

Apple predicted sales this quarter will be between $49 billion and $52 billion, compared with the average Wall Street analyst forecast for $49.2 billion. Apple’s annual product launch event falls in its fiscal fourth quarter and the sales forecast helped dispel concern about reported production delays of the latest series of iPhone models.

“The firm comfortably topped its forecast and produced stellar numbers for its revenue and profit,” Naeem Aslam, chief market analyst at Think Markets UK, said by e-mail. “The big news was about the production of iPhone 8, the flagship product for the firm will hit the market on time with no issues around production.”

Tim Long, an analyst at BMO Capital Markets, said the revenue guidance “affirms our expectations that the premium iPhone ‘Pro’ will launch and ship alongside the standard ‘S’ refresh in September, though initial volumes are likely to be extremely constrained.”

Chief Executive Tim Cook said on a call with analysts, which was published on the Apple website, that sales of iPhones reached a milestone of 1.2 billion units sold cumulatively since the first model hit the market 10 years ago. He also highlighted the record revenue from services of $7.27 billion in the quarter, a 22% jump from a year earlier.

“iPhone results were impressive, with especially high demand at the high end of our lineup,” Cook said.

Companies: Apple Inc.
Price: 158.65 Price Change: +8.60 Percent Change: +5.73

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Facebook Earnings Beat Expectations as Mobile Advertising Revenue Surges

5:17 AM, Jul 27, 2017 — Facebook (FB) surpassed analysts’ expectations posting sharp growth in sales and earnings in the second quarter of the year as advertising revenue surged against a backdrop of double-digit growth in both daily and monthly users of the social networking site.

The Menlo Park-headquartered company posted total revenue of $9.32 billion in the three months ended June 30, up 45% from the corresponding quarter of the prior year, according to results published by Facebook after markets had closed on Wednesday afternoon. This beat the consensus estimate of analysts polled by Capital IQ for revenue of $9.19 billion.

Net income rose by 71% to $3.89 billion over the corresponding time frame and diluted earnings per share rose by 69% to $1.32, up from $0.78 in the prior-year period and surpassing analysts’ expectations for $1.13 per share.

The results were buoyed by a surge in advertising sales which accounts for the lion’s share of Facebook’s revenue. Advertising revenue was worth $9.16 billion, up from $6.24 billion in the prior year period, while payments and other fees, which make up the remainder of total revenue, contracted to $157 million from $197 million in the prior-year period.

Mobile advertising revenue represented approximately 87% of advertising revenue for the second quarter, up from 84% of advertising revenue in the second quarter of 2016.

Daily active users were 1.32 billion on average in June, up 17% year-on-year while monthly active users were 2.01 billion as of June 30, also 17% higher year-on-year.

“We had a good second quarter and first half of the year,” Mark Zuckerberg, Facebook’s chief executive, said. “Our community is now two billion people and we’re focusing on bringing the world closer together.”

Price: 171.10 Price Change: +5.49 Percent Change: +3.32

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Fed Keeps US Interest Rates Unchanged With Balance Sheet Unwinding Seen ‘Relatively Soon’

2:23 PM, Jul 26, 2017 — Benchmark US interest rates were left unchanged as widely expected on Wednesday, while monetary policy makers said they expect to begin unwinding the Federal Reserve’s balance sheet “relatively soon.”

The Federal Open Market Committee kept the target range on the Federal funds rate at 1% to 1.25%. It was raised to that level in June in the second hike of 2017.

“Job gains have been solid, on average, since the beginning of the year, and the unemployment rate has declined,” the FOMC said in a statement released after a two-day meeting Wednesday. “Household spending and business fixed investment have continued to expand.”

Ahead of the decision, the chances of a rate hike stood at just 3.1% on the CME Group’s FedWatch tool, while almost 97% expected the hold. The FOMC has been incrementally raising rates as the economy recovers from the crisis that saw unemployment levels surge to 10% in October 2009. In June, the rate was 4.4%, according to the Bureau of Labor Statistics.

The FOMC reiterated that any more rate hikes will depend on data, saying as it has previously that “with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further.”

Investors were keen to hear anything more on when the Fed will begin unwinding securities holdings. Monetary policy makers have previously said it’s expected to happen by the end of the year and in Wednesday’s statement the FOMC said it “expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated.”

Inflation on a 12-month basis is expected to remain somewhat below the Fed’s 2% goal in the near term before stabilize around that level over the medium term. The committee “will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal.”

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Analysts Forecast Year-on-Year Decline in IBM Second Quarter Sales

11:36 AM, Jul 18, 2017 — International Business Machines (IBM) is expected by analysts to report year-on-year declines in adjusted earnings per share (EPS) and revenue for the second quarter when the technology company releases the results after Tuesday’s market close.

For IBM’s second quarter adjusted EPS, the mean estimate of analysts polled by Capital IQ is $2.74, down from $2.95 a year earlier. The analysts’ mean estimate for the quarter’s revenue is $19.46 billion, down from the year-earlier period’s $20.24 billion.

Citing a “de-risked” outlook for the quarter and improved foreign-exchange backdrop, RBC Capital Markets said it expects IBM to report results in line with-to-modestly above the Street’s consensus earnings view. RBC’s estimate for adjusted EPS matches the Street view while its estimate for revenue is $19.3 billion, slightly below analysts’ consensus view.

RBC said it expects the focus to rest on four key factors: Performance of IBM’s “strategic imperatives,” stabilization of gross margins given six consecutive quarters of gross-margin declines, potential for changes and incremental details surrounding the 2017 outlook, and updates on the Watson/artificial intelligence opportunity.

The firm said while it is encouraged by a more favorable June-quarter setup and 2017 EPS guidance that reflects year-on-year pre-tax income growth, “we think investors may await more tangible signs of achieving these targets before getting positive on the name.” RBC thus maintained its investment rating on the stock at sector perform. Its price target on the stock is at $165 per share, which is above the stock’s Monday closing price of $153.01.

RBC’s overall investment summary on IBM is that the company “represents the best mix of technology businesses in the enterprise segment,” but its “top-line growth should remain limited near-term, which could result in the company’s focusing exclusively on share buybacks and margin mix to boost non-GAAP EPS growth.” The firm has been advising that its clients remain on the sidelines “until better signs of positive revenue growth emerge.”

Companies: International Business Machines Corporation
Price: 152.89 Price Change: -0.12 Percent Change: -0.08

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Target Raises Second-Quarter Profit Estimate; Forecasts Turnaround in Comparable Sales

10:59 AM, Jul 13, 2017 — US retailer Target (TGT) has adjusted its profit forecast for the second quarter and said it expects growth in comparable sales in the period after traffic and sales trends improved.

The Minneapolis-based company, which has 1,807 stores, said on Thursday it now expects adjusted and GAAP earnings per share (EPS) to be above the high end of its previously estimated range of $0.95 to $1.15. Analysts in a Capital IQ poll expected adjusted EPS of $1.06 before Thursday’s company statement.

Comparable sales are expected to see a “modest increase” in the quarter from a year earlier on better sales and customer traffic, it said. In May, after it published its first-quarter financial report it said it expected second-quarter same-store sales to decline by a low single digit percentage.

For the second quarter, both GAAP and adjusted EPS are expected to reflect a $0.05 to $0.09 benefit driven by the net tax effect of the company’s global sourcing operations. Also, GAAP EPS is expected to reflect $0.02 to $0.03 of pressure related to “the unfavorable resolution of tax matters,” it said.

Target is modernizing its stores and revamping its line of brands after competition from online retailers, such as Amazon resulted in a slump in comparable sales in the first quarter. In May, it projected a low single-digit decline in sales for the entire year. It reported a 1.3% drop in comparable sales in the first quarter.

In the first quarter, adjusted EPS was $1.21, down from $1.29 a year earlier, but better than the company’s own forecast range of $0.80 to $1.00.

The company plans to report earnings for the second quarter on Aug. 16.

Companies: Target Corporation
Price: 52.60 Price Change: +1.73 Percent Change: +3.41

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