tv Nightly Business Report PBS February 19, 2019 5:00pm-5:31pm PST
>> announcer: this is "nightly w business reporh bill griffeth and sue herera. what sales thump? world's largest retailer says the consumer is strong, and walmart todayted the numbers to prove it. sticker shock. why corporate america is telling consumers that they should pr what's in your index fund? if you're likeost investors, you probably own them but some say they're not as simple as you might think. those stories and more tonight on "nightly business report" for tuesday,. good do bid you a evening, everybody, and welcome. sue is off tonight. now, we heard last week that retail sales in decemberri exced their biggest decline in almost a decade. but clearly shoppers still went to walmart.
the world's largest retailer today blew pastanalysts' earnings estimates for the critical holiday quarter. revenue was higher than a year ago and comparable store sales w one of their biggest quarterly gains in a decade. more people shopped in walmart stores and on its especially for groceries. and that had investors breathing a sigh of relief today, especially after last week's umtail sales report suggested that the co, of course, a pillar of the economy, may be starting tolow wn. today shares of walmart rose 2%, making it thebest-performing component of the dow industrials. kate rogers takes a look now at what's working for walmart. >> reporter: the world's biggest retailer reportedig a very quarter. shoppers bought toys, they purchased groceries and they filled their carts online.wa art cites a favorable economic environment for solid reiclts. foot tra grew and same-store sales increased by more than 4%, marking theth consecutive
quarter of positive growth. walmar has been pushing further ito groceries, selling items online and stores. grocery makes up more than half of walmart's revenue offering delivery in 1800 locations and pickup in 2100 stores nationwide, as the food segment of its business >> walmart has really improved their offering in fresh and in ornic and are moving in that direction. they now have brought some digital capability to that which is what customers are looking for with their order online and pickup at store. things're doing a lot of right in food and that's why i think they have built a moat around their busines t withir really strong grocery offering. >> store pickup will be huge because customers love this service. it has very high net promoter scores. also the amount of money people spend on the curbside service is about double in-store. so it's very well received. highly satisfied people. the future of retail i quite simple. >> reporter: then there's its challenge to amazonus and p
into e-commerce which saw sales increase by 43% for the quarter and he40% for year. >> long term they're using their size to increase their dominance and to really go head-to-head mpainst amazon. i think that'stant and i think it's obviously -- it's working. >> reporter: the resul deport o retail sales from the kmer department last week. cfo brett biggs told cnbc by phone that despite concerns ofn an ec slowdown the consumer looks to be in pretty good shape through the walmart lens. on the earnings call, ceo doug mcmillen said they are continuing toor mon ongoing trade tensions and geopolitical conditions, including brexit. goods imported from china may also afft the prices that walmart charges its for goods. for "nightly business report," i'm kate rogers. >> for more on walmart,he retail industry and state of the consumer, charlie o'shea is back with us from moody's. good to see you again.
>> good to be here. >> kate just told us,online sales very strong. the grocery lineup very strong. that getse people in stores as well. but how do we reconcile that with that commerce department number last week where sales in december overall for theetail industry were down 1.2%? >> that's a head scratcher to me. really don't understand where that number comes from. when you look at things, you look at walmart's results, you look athat target said from a sales perspective. costco had big numberman posted a big number. the e-commerce part ofpo that was a real mystery to me. so i don't know what to make of that. i think that may it was the shutdown. maybe, you know -- >> well,t the stock marent down in december as well, had their biggest decline in decaacs. >> exy. it's a survey. so youeaevery know what you're going to get with the data. it will be interesting to see how well i holds up because those stats typically get adjusted. let's see where we are in another month. >> so how do you feel the consumer is doing right now? >> i think the consumer is in
pretty good shape. we still have a positive outlook on the sector, which takes us through the end of 20ns. that m that we think operating income will grow 5% for our rated universe. we're onrack to do that. 's a barbell. the good retailers and stronger retailers are out in front or the wea ones. the consumer is driving that. the consumer is driving that from a food perspective. the food business for walmart is critical. that's where it has a distinct advantage over everyone, including amazon >> can theyeep up this kind of sales pace right now? >> i think so. so.finitely think they're continuing to invest. when i started covering the company at moody's in '02, they're building a ton of stores. now they're spending the sameam nting in cap ex but not building the stores anymore. it's going into commerce and price investments on the other side of the equation. tech, e spending on they're spending on store remodels to keep them fresh because 85 of retail is still
done in the store. so they have a playbook,fohey're owing it and following it religiously. >> do you like the stock? >> i can't comment on the stock. >> okay. >> i think from a credit perspective the company is in as good at'hape as been since i've been covering it. >> and we have more company retailers going to chapter 11. they're closing stores. payles shoesource over theek d. and what kind of world will we have in >>retail. think amazons, best buys, costcos and those weaker retailers, we've got 35 names w considdistressed. that gap is getting wider. those retailers don't have the wherewithal to compete head-to-head with the other gu. it's just a matter of time before they go the payless route. i can't predict who it will be but there will be names we'll be talking about in a year. >> thas, arlie. charlie o'shea from moody's.
later in the program we will have more details on a new report on consumer spending and whyrices for various basic items may be headed higher. in the meantime that rise in walmart shares today was not enough to give the broader market a big boost. in fact stocks finished the day pretty dloclose to where they the dow jones industrial average rose just 8 points to close at 25,891, the nasdaq was up 14, the s&p added bob pisani has more on this cautious tone that's taking over wall street. >> stocks started on a somewhat defensive tone guttly lifted throughout the session and the overall trend has been remarkably positive. the market internals are really strong. breadth has been expanding since bottom.mber 24th new highs are growing, selling pressure is low. the dow is ridg an eight-week win streak. cyclical stocks have been lead t charge, like technology and financials. the market bulls always like
that. meanwhe the defensive sector like health care autilities, consumer staples, they have all lagged this year. there's even a modest global market breakout going on as well with chinese stocksng hit four-month highs. japanese stocks hitting two-monthhighs. so why are so many strategists cautious about the markets right now? the good news of the trade talk momentum, the federaleserve putting rate hikes on hold and the strong market momentum has been offset by clearigns of slower global growth in europe and china, where last month's production and retail sal numbers were very disappointing and u.s. earnings growth expectations are near zero for the year. still traders say no one expected a fast and furious rally coming out of that christmas eve sell-off. now all of a sudden stocks are up almost 20% off their december lows and the markets appear to be looking fe any exc to go higher. as one trader pointed out to me, a lotf people who got out during the december downturn are now notably underperforming the
markets. that's positive. for "nightly business report," a i'm bob pisa. elsewhere, the president of the federal reserve bank of cleveland said today that the fed may have to raise interest rates later this year. lorett s mastersd it would only happen if the economy continues to grow, but she did addhat the pace of growth could slow. she also became the latestnt l banker to support ending a further reduction of the fed's balance sheet for thisyear. that balance sheet, as you know, has greatly expanded during the financial crisis as the fed bought up toxic financial assets from troubled financial .sstitutions. well, the trade talks with china resumed in washington today after two days of talks in beijing last week. president trump says that the negotiations are going wd he once again signalled flexibility on that march 1st deadline to achieve deal. >> i can't tell you exactlyou timing, but the date is not a magical date.
a lot of things c happen. the real question will be will we raise the tariffs, because they automatically kick into 25% on $200 billi worth of goods that they send. so i know that china would like not for that thappen, so i think they're trying to move fast so that doesn't happen. >> as you know,fshose tar on $200 billion of chinese imports are scheduled to rise to 25% from 10% on march 1st. that heis, if u.s. and china fail to reach some type of an agreement. elsewhere, the auto industry isracing for the possibility of a new round of tariffs on imported vehicles. this time they could impact cars and trucks built in europe ande sold in the u.s. phil lebeau looks at how these much higher taxes could hurt new car prices and sales. >> reporter: there's plenty of nervousness atealerships ound the country where they sell bmws, mercedes and other cars and suvs imported from
eupe. y? because president trump has threatened to raise the tariff on european autos and parts from 2.5% to 25%. the cmerce department hasent president trump a report looking in hether vehicles built europe and shipped to the u.s. are a threat to the country's national security. that's a prerequisite for the president jtifying if imported vehicles should face a higher tax. e most recent data from 2017 shows just under 7% of the vehicles sold in the u.s. came from europe. how much would industry sales fall if c fs importedm europe had a tariff that drove up prices by hundreds or thousands of dollars? the center for automotive research estimates sales could op by as much as 700,000 vehicles and prices for all models could jp an average of $1,400. the reason even u.s. automakers are opposed to higher tariffs on
imported vehicles. it's unclear when or if president trump will release the findings of the commerce dertment report, but if he's planning to use it as justification for raitang ffs on european autos, he has to make that decision by mid-may. phil lebeau, "nightly business port," chicago. > and separately, honda is closing its only plant in the united kingdom. that factory currently implies 3,500 people and produces up to 150,000 civics a year. honda plans to ship that production to njapan, toth america and to china as it accelerates itsct efication strategy. the automaker did not say whether the decision was influenced by thent brexit talks going on in the uk. time to take a look at some of today'supdwradgrades and downgrades. we begin with mcdonald's who was upgraded at stevens. the analyst cites mcdonald's core u.s. businesss accelerating. price target now $200.
despite that upgrade, shares fell a fraction to pg&e was upgraded to buy from neutral at citi. the analyst cited negotiations with california lawmakers which could result in reduced wildfire liabilities for that state's utilities in the future. the price target $33. the stock rose more than 14%to y to $17.74. a lot of volatility in at stock lately. papa john's was downgraded to sell from hold. the analyst cited increased competition and added that it may have to subsidize franchisees to bolster sales, which in turnhrouldten its earnings. the price target $35. that stock fell 4% to $43.31. and weight watchers was ad down to underweight from neutral at jpmorgan. the analyst cited a decline in users of its app during its most important period of the price target $25.
shares fell 4.5% to $28.91. really ng up, so do you know what's in your index fund? the answer might not be as clear cut as you tnk. governor of illinois today signed a measure that will increase that imstate's m wage to $15 an hour by 2025. that put iinois on track to be the first state in the midwest to push its base wage to that level. the bill provides payroll tax credits to employers to help ease the transition period. business groups initially opposed the proposal and then ked for a longer phase-in
period. > well, consumers are expected to spend more than they did last year. a new rep tt from new york fed said today that households will lay out more money forik things clothing, housing and transportation and with spending expected to increase by 2.8% compared to last year's 2.3% increase. the truth is that we may spend more simply because goods andre services costing more. ra eisen tells us which companies are raising prices and >> prepare to pay more. that is the message from corporate america this earnings season. prices are going up from basics like bleach and toothpaste to netflix to snacks. the company that makes oreos and triscuits is one of many companies passing on higher prices to consumers. you have to put the inflation picture in perstctive. >> ws going on as it relates to our input cost is that we always see we've seen inflation over the last years. this year, '19, it's a littl
bit more pronounced. it's a bit higher. so we have to increase our prices a little bit more than we normally shoulbe. and so that's the effect you're going to see. would i call that a heavy ination of the environment? no. but it's a little bit more than we have seen in th last years, that's for sure. >> some color from company conference calls. kimberly clark says we expect higher net selling prices of at least 3%. mcdonald's, menu price increases were aund 2% for the quarter. international flavors and fragrances whose products go into cosmetics and other consumer goodss says t will require us to continue to work with our customers taking additional pricereases as we move through 2019 to ensure that we ultimatel recover these cost increases over tian. d it's not just consumer companies. fastenal along withohawk industries which makes tiles and flooring, ty were among the long list of companies citing higher prices.
so why is all of this happening? it's a triple whammy rightow of higher costs in the form of freight costs, materials, also tariffs, and a stronger dollar, all weighing on corrate profitability. but as far as the overall inflation picture in th. u.s economy, economists say it's subdued, thanks in part to lower ga prices and stabilizing renting prices. it doesn't mean, though, coumers won't start to feel the pinch through everyday items. for "nightly business . investors hit the brakesn advanced auto parts and that's where we begin tonight's market focus. the auto parts retailer turned a quarterly profit, but the company's sa-store sales rose less than expected and that was enough to send shares lower by more than 1.5% today to $167.14. student loan servicer navian has rejected a $3 billion takeover bid from canyon capital and private equity firm platinum equity advisers. they say that the offer
undervalues the company.e shares r by 9% to $12.79 today. and late friday, u.p.s. increased its quarterly dividend by 5.5% to 96 cents a ilare. it be payable on march 12th to those who own the shares on february 26th. u.p.s. has raised or maintained its dividend for nearly half a century now. shares fell a penny t $110.77. medical device mak medtronic beat earnings and revenue expectations thanks to strong sales inur its scal products unit. the company also raised its full-year guidance.er shares up a fraction today to $92.33. an opinion piece today in "the new york times" caught our attention. its hdline reads"what's really in your index fund?" not something most investors think about because something our next guest says we index think about, since funds own trillions of dollars worth of stocks and most
long-term investors own the index funds. we're joined tonight by one of the authors of that op-ed piece, s.e.c. commissioner robert jackson. commissionerjackson, thanks for joining us tonight. >> thanks so much for having me. >> index funds have become very popular. very low fees, they're cheaper, and let's face it, they have had a better track record performancewise tha actively managed funds, especially in the they'reade or so, b not that highly regulated by the s.e.c. what is your biggest fea about index funds right now? >> i think the point to start mentioned, one you which is that the index funding is the most important innovation in modernfinance. it has had extraordinary effects on ordinary american families but because it's been so successful, it's grown to the size and scale that we couldn't possibly have imined. my fear is that billions if not trillions of dollars are moved by the decisions indexes make all the time and there's not a lotf transparency or protections against conflicts of interest that are in place at the so i think it's time for u.s. law and for us to have a
conver ttion abo rules of the game when indexes make those decisions. >> give me a for instance. what kind of conflict of interest are you concerned about that would hurt individual investors? >> let me give you one example. ere's a recent per, and we cite it in the op-ed, noting that a number of veryustomized indices are emerging, really that only providevindex ss to one investment funding. and in fact the research showsi that som the fund and the index are related. that's the kind of conflict of interest i w beried about, where an index is reliant on one fool of capital when making i decisions giving that source of pool of capital a lot of w influence ot is and is not in the index. >> we alreadyhe saw case of the manipulation of the interest rate index out of london that really has set mortgage rates in this country for ymany, m years and found there's a atnipulation of that index right there. something of what you're talking about, right? >> that was a somewhat diffe case because that was a
benchmark, but it's a similar t of conflicts of interest. the good news is in the index space a lot of major indexes have stepped up and developed some processes andce pres around conflicts of interest and transparency. not everybody has. when ordinary americans are putting their paychecks in an index, i think we ought to have a law to make sure that they're getting what they think they're getting when they make that decision. >> briefly, what would you like toee the s.e.c. do, then? >> at the moment, the existing law is ill-suited to address these kinds of concerns about transparen and conflict of interest. so i think it's time for congress to really have a conversation about the tri dions lars of ordinary families' monies that's being moved about because of these decisions and maybe develop some law and give us at the s.e.c. the tools we ed to protect investors. >> so more transparency on how stocks are chosen for the index and chang being made in the index, being made more tr isparent as well, that the idea? >> absolutely. you want to be sure conflicts of terest are clear. when an investor makes a
decision to put money i an index, they know what conflicts those people have. >> robert nkjackson, tfor joining us tonight. >> thanks for having me. >> you bet. coming up, remember when deo games were played by individual gamers in their basement just for fun? well, now it's very big business for companies and player and it's about to get even bigger. asde we mentio earlier, payless shoesource has filed for bankruptcy and is closing all 2500 of its u.s. stores t over weekend the retailer said it will wind down its
e-commerce operations as well. it expects certain stores to begin closing inmarch, although most will stay open until may. nhis was the retailer's second bankruptcy filing two years. payless was founded in kansas back in 1956. facebook found itself the target of a scathing report b fm thtish parliament today. the report accuses the social media giant of behaving like a digital gangster by allegedly breaking data privacy and competition laws.sh the bri committee's inquiry into the company began in 2017 asevelations emerged that facebook's platform had be yoos used to spread disinformation during the u.s. presidential a electi the uk's brexit referendum. both of those in 2016.lt as a re british lawmakers are recommending greater government oversight of big technology companies. and thereere reports today that major leaguer manny machado has agreed to a record-breaking ten-year, $300 million deal with the san diego padres. but there's another league
reak s also helping to records. activision's overwatch league has kicked off its new season. with growing prize pools and bigger arenas, it's just the latest example of the incredible exosion of e-sports. josh liptonas more. >> it was a date thatideo game fans have marked on their calendars, the start of a new seasonf activision blizzard's overwatch league. teams ofamideo players competing head-to-head for a prize pool that total $5 milliill with this league, activision is capitalizing on thered-hot trend of e-sports where people tch other people play video games. it's become a true global phenomenon, attracting 454 million people this year, a jump of 15%, and revenue will grow nearly e30% to m than $1 billion. mostly from media rights,
advertising and sponsorships. >> so we have eight new teams that have joined the league. really exciting to add the expansion of franchises in amazing three new teams inchina,wo teams in canada, which is really exciting, also added a team in paris and then washington, d.c., and atlanta. so really excited to bng more teams and more overwatch league experiences to more fans around therlwod. >> this year sponsors for the overwatch league include coca-cola, toyota and intel.e atches will stream on the overwatch website, mobile app and twitch channel. select games will also air on abc, espn2 and disney xd. analysts say the league is a bright spot for activision right now, which is facing somef challenges ots own. it just recently announced a big reorganizationt the company th plans to layoff about 800
people. but if the league proves popular, it could d helpve sales of the overwatch game itself, and some bullsat argue activision is the best direct way for investors to pthy e-sports theme. for "nightly business report," i'm jo. just amazing. g before we a final look at the day on wall street. the dow rose just 8 points, nasdaq up 14, thedd s&p 4. that is "nightly business report" for tonight. i'mill griffeth. thanks for watching. we'll se