German luxury carmaker Daimler AG said on Tuesday that it will expand its current “service action” for European owners of its Mercedes-Benz compact-class and V-class vans to include more than 3 million Mercedes-Benz vehicles. The company said in a statement that it is investing about €220 million in the recall and that customers will not be charged for the service.
So far the recall has involved about 274,000 compact cars and an unspecified number of vans.
Daimler last week attended a meeting with German officials following revelations that two of the company’s diesel engines were being investigated for possible emissions testing cheating. A German analyst told Bloomberg News that the voluntary recall was an attempt to get out in front of the issue and that the expected cost is “extraordinarily low” and could likely rise.
Since Volkswagen used software to cheat on emissions testing in the U.S. in 2015, the European Union has come down hard on marketing claims by automakers about “clean” diesel.
Daimler’s chairman, Dr. Dieter Zetsche, said:
The public debate about diesel engines is creating uncertainty – especially for our customers. We have therefore decided on additional measures to reassure drivers of diesel cars and to strengthen confidence in diesel technology. We are convinced that diesel engines will continue to be a fixed element of the drive-system mix, not least due to their low CO2 emissions.
The company will begin implementing the recall next week for what Daimler said will be “nearly all” Mercedes-Benz diesel models that are required to meet the European Union’s EU-5 and EU-6 emissions standards.
Daimler said the company has already proved that it can meet the tighter EU regulations with a new diesel engine that first appeared in the 2016 E-class. Daimler said the company plans to propagate that engine design “across the entire model portfolio.” According to the company, diesel engines will be around “for a long time yet” because they are significantly more efficient than gasoline engines.
To comply with tough new cybersecurity rules, Apple Inc will begin storing all cloud data for its China customers with a government owned company, a move that means relinquishing some control over its Chinese data. Apple will build its first Chinese data center in the southern province of Guizlou to house data for customers of its iCloud service. The data include photos, documents, messages, apps and videos uploaded by Apple users throughout the mainland. The center will be operated by a company owned by the Guizhou provincial government and whose chairman was a local government official until last year.
Under the agreement, Apple will retain control over encryption keys at the data center. It was not clear if it would have access to any of the data itself, which would be overseen by its Guizhou partner. In addition, Apple would not be able to transfer data from Chinese customers to the US in compliance with China's new cross border data guidelines that were also part of the latest cybersecurity rules.
IBM (NYSE: IBM) has continued to sell a turnaround, driven by its cloud and artificial intelligence businesses. Ahead of second quarter earnings, investors have not bought the pitch.
IBM shares are off 7% this year, to $154. Arguably it closest competitor is Microsoft (NASDAQ: MSFT). Its shares are higher by 17% to $73. Wall St has gained confidence in Microsoft’s case as a dominant force in the cloud sector.
The most recent attack on IBM’s prospects an analysis from investment banking firm Jefferies In a sharply negative report, analyst James Kisner wrote that the company’s run at the cloud has and will be underwhelming:
Our analysis and conversations with industry contacts suggest that while IBM offers one of the more mature and broad cognitive computing platforms today, the hefty services component of many AI deployments will be a hindrance to adoption. We also believe, based on our analysis, that IBM appears outgunned in the war for talent and will likely see increasing competition over time. Finally, our analysis suggests that IBM’s AI investments aren’t likely to be NPV positive. Reiterate Underperform.
He continued that “Watson”, the cloud and AI consulting face of IBM, has likely been a mediocre contributor to the company’s fortunes, at best. Otherwise, IBM would be proud enough of its performance to break out its finances, something IBM has refused to do despite Wall St. pressure to give details
The proof of IBM’s success, or lack thereof, will be its the financial results for its second quarter. Most investors believe it will be yet another quarter in which revenue fell year over year. And, also, IBM will provide sketchy data on Watson and related businesses.
Among the most disturbing aspects of IBM’s failure is how CEO Virginia Marie “Ginni” Rometty has kept her job for over five years. The answer may come if IBM proves itself to be a financial failure again in the second quarter. At that point, she may lose her job. Certainly, a number of investors hope so. Then the company has a chance to pull itself from the wreckage of its current turnaround.
International Business Machines Corp on Monday is unveiling its next generation of mainframes, the industrial strength computers that underpin industries like banking and insurance, highlighting an old product category that still drives much of its profile. The new line of mainframe computers pairs what IBM claimed as the industry's fastest processor with additional resources in a package designed to handle large scale ongoing tasks such as processing credit card transactions. In addition to increased speed, the company was the new systems, branded IBM Z and price starting $500,000, offer extra horsepower for encrypting data at all times throughout the system and automating compliance with international data regulations. Mainframes, which date back to the 1950s, in recent decades have been overshadowed by networks of smaller computers and more recently cloud computing. Their extraordinary reliability security and ability to move data in and out means they continue to crunch numbers in the back offices of many large organizations
Ford Motor Co. (NYSE: F) on Tuesday reported June sales rose 1.2% year over year to 230,635 Ford and Lincoln vehicles, compared with June 2017 sales of 227,979. Passenger car sales fell 14% in the month, while sport utility vehicle (SUV) sales rose 8.9%. For the first half of the year, total sales are down 1.8%. Only truck sales are up for the year to date.
Total retail sales rose 2.9% year over year in June to 156,788 units and fleet sales fell 2.3% to 73,847 units. Truck sales rose 3.2% for the month, and sales of F-Series pickups increased by 1.7% to 79,204 units.
Total monthly sales compare to an estimate of 225,000 by analysts Cox Automotive. Kelley Blue Book estimated an average transaction price of $39,916, up 3% year over year and up 0.2% compared with May’s average selling price of $39,839. Kelley Blue Book transaction prices do not include applied consumer incentives.
Ford said its average transaction price for the month rose $540. F-Series transaction prices rose to $46,800.
Truck sales comprised 43.6% of June sales and the F-Series pickups accounted for 34.3% of total monthly sales.
Total Ford SUV sales rose by 8.9% year over year in June with the Explorer seeing a decrease of 9.4%, and the Edge a decrease of 11.8%. Expedition (up 10.1%), Flex (up 15.4%), and Escape (up 6.4%) posted year-over-year sales gains in June.
Passenger car sales dropped by 14% year over year with sales of Fusion down 13.6% and Fiesta up 19.2%. Focus sales dropped 30%.
Sales of the Lincoln brand rose by 2.8% year over year in June as sales of Lincoln cars dropped 26.6%. Car sales totaled 2,370 units in the month and utility vehicle sales totaled 9,534 units. SUV sales rose 18.5% year over year in July.
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Ford reported 78 days of total inventory, up from 73 in May but down from 79 in June of last year. Dealer stock totaled 62 days of supply, up from 61 days in May and down from 66 last year.
Ford’s stock traded down about 0.8% Tuesday morning at $11.02. The 52-week range is $10.14 to $13.48 and the 12-month consensus price target is $12.45.
Facebook Inc has spent years developing two of the world's most popular messaging apps. Now with slowing revenue growth in its core service it wants to cash in. On Tuesday, Facebook started showing advertisements inside Messenger, the chat app that Facebook says is now used by 1.2 billion people every month The ads are shown between user's messages, similar to the way ads are sandwiched between posts in Facebook's news feed, the main scroll of picturesvideos and posts that greets everyone who uses the service.
Facebook plans to roll out the ads slowly and carefully to Messenger's users, replicating the strategy followed by its photo sahing app, Instagram which started showing ads to users in 2013 and took a couple of years to implement more widely Facebook is trying to make money froom Messenger as it braces for an expected slown down in revenue growth from news feed, the primary source of Facebooks revenue today . Executives have told investors that Facebook would no longer increase the number of ads whown to users in the news feed.
JULY NEWSLETTER 4
APPLE EASES ITS GRIP ON CHINESE DATA
Visa Inc has a new offer for small merchants: Take thousands of dollars from trhe card giant to upgrade your payment technology and in return stop accepting cash from customers. The company unveiled the initiative on Wednesday as part of a broader effort to steer Americans away from using old fashiioned money. Visa says it plans give $10,000 apiece to as many as 50 restaurants, and food vendors to cover technology and marketing costs, as long as the businesses pledge to start what Visa executives calls a journey jto cashless. Shoppers at the stores involved would be able to pay for goods or services only with debit or credit cards or their cellphones. Visa's payments to vendors would enable them to upgrade their checkout technology to they can accept contactless payments, such as Apple Pay The $10,000 incentive can also be used for marketing expenses.
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More good news is on the way for Europe's economy. The past six quarters of GDP growth among the 19 countries that use the euro outpaced forecats and were ranked the strongest since the Great Recession. Europe's GDP expansion for 2017 will tally a solid 1.7 % and should maintain its momentum through 2018. The European central bank will be slow to tighten the monetary policy. The ECB is committed to buying 60 billion euros per month of assets through 2017 to inject credit into regional economies and fight against persistently low inflation. Threats loom on the horizon. Europe's growth is uneven. It is strong in Germany, France and Italy and weak in Latvia, Lithuania and Portugal. Protectionism is on the rise, credit remains tight and banking reform is needed
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LOWER GROWTH EXPECTATIONS
Early excitement that President Trump would be able to revitalize the US economy is fading as Congress struggles to pass major legislation . Forecasters in the Wall St Journal's monthly survey of economists marked down their outlooks for growth inflation and interest rates this month. a partial reversal of the post election bump. Forecasters assess whether they think the economy is more likely to out perform or under perform forecasts. The number of economists seeing those risks to the downside climbed to 57% in this month's survey the highest since before the election. That was up from 51% last month and 37% just two mongths ago.
A national craving for bacon is pushing pork belly prices to records. Prices for the part of a hog used to make bacon have risen around 80% this year., while frozen reserves are at a six decade low. Americans bought around 14% more bacon at stores in 2016 than in 2013. The consumer has simply woken up to the joy of having bacon on more and more things said Arian Suderman chief commodities economist at INTL Once considered a more unhealthy byproduct of a hog compared with prized cuts like pork chops and tenderloin, bacon has become a guilty pleasure amid broader embrace of fatty meats. Bacon themed summer festivals have sprung up in cities across the country. Appetite for beef and bacon typically swells ahead of a July 4 and Memorial Day grilling b oost. Wholesale beef prices followed that seasonal trajecctory this year. Some analysts say bacon is becoming a yearlong staple that consumers are eager to procure .
The market has already seen lower-than-expected news on the consumer inflation front for June. Now the Labor Department is showing more confirmation of that news from its report on June’s import and export prices.
U.S. import prices declined by 0.2% in the month of June, following a 0.1% decrease in May. This matched the Bloomberg consensus estimate of -0.2% on the monthly reading. According to the Bureau of Labor Statistics, lower fuel prices drove the drop in June and this more than offset higher non-fuel prices in other categories.
The price index for U.S. exports also fell by 0.2% in June after a 0.5% decline reported for May. Bloomberg had projected that export prices would be flat for June’s report.
It is important to realize that import and export prices are just one component of the larger economic situation. The Federal Reserve and market observers have to rank this into monthly data along with more than a half-dozen other economic reports to get a fuller picture on inflation and the economy.
While the monthly numbers rarely look large, it is the annualized numbers that make up real inflation and which are used by the central bank for targeting their 2% to 2.5% inflation rates. Import prices were up 1.5% in June of 2017 compared with June of a year ago. Export prices year over year were only up by 0.6%.
Because so much of the imports and exports are around energy, the BLS data noted:
The main contributor to the drop was a 2.2% decline in petroleum prices. Natural gas prices also fell in June, decreasing 1%. Despite the recent drops, import fuel prices advanced 6.3% over the 12-month period ended in June. The import price index for petroleum increased 4.5% over the past year and natural gas prices rose 58.6%.24/7 Wall St.
Companies Stashing the Most Money Overseas
And on imports excluding fuel, the BLS said of June’s report:
Higher import prices for foods, feeds, and beverages and capital goods more than offset lower prices for automotive vehicles, consumer goods, and nonfuel industrial supplies and materials. Prices for nonfuel imports advanced 1% over the past 12 months and the index has not recorded a 12-month decline since a 0.2% decrease in November. Rising prices for nonfuel industrial supplies and materials and foods, feeds, and beverages more than offset decreasing prices for capital goods and automotive vehicles over the 12-month period ended in June. Consumer goods prices recorded no change over the past year.
China is often cited by market observers and politicians alike as one of the problems in the ongoing trade deficit. On the price front, prices from China are not altering the landscape any further. Import prices from China were shown to have dropped by 0.1% in June on the monthly reading, and they were down by 1% over the past 12 months. In fact, the BLS data showed that there has not been a 12-month increase in prices from China since a 0.1% gain back in October 2014.
AUTO SALES DOWN
UnitedHealth Group Inc. (NYSE: UNH) reported second-quarter 2017 results before markets opened Tuesday morning. The health insurance and benefits management company reported adjusted diluted quarterly earnings per share (EPS) of $2.46 on revenue of $50.1 billion. In the same period a year ago, UnitedHealth reported EPS of $1.96 on revenue of $46.5 billion. Second-quarter results topped the consensus estimates for EPS of $2.38 on revenue of $50.06 billion.
The health-care giant raised its earnings outlook for the fiscal year on both a GAAP and non-GAAP basis. UnitedHealth raised its GAAP EPS estimate to a new range of $9.20 to $9.35 a share, from a range of $9.10 to $9.30. It lifted its adjusted EPS to a new range of $9.75 to $9.90 a share, from a prior range of $9.65 to $9.85.
The company did not change either its prior revenue estimate of about $200 billion for the year or its $12 billion estimate for operating cash flow.
Revenue from the company’s UnitedHealthcare division rose 8.6% year over year to $40.8 billion and revenue at its Optum benefits management division increased 9.9% to $22.7 billion.
The company said that its withdrawal from the Affordable Care Act’s (ACA) individual markets, combined with the 2017 health insurance tax deferral, reduced consolidated second-quarter revenue by about $1.8 billion and lowered the revenue growth rate by 4.5%. Second-quarter employer and individual revenue of $13 billion decreased $543 million year-over-year because of the effects of the previously disclosed individual market withdrawals and health insurance tax deferral.
Total enrollment numbers increased year over year to 49.47 million from 47.98 million. Commercial enrollments rose to 26.88 million from 26.11 million. Medicare and Medicaid enrollment increased to 15.08 million from 13.44 million, and international enrollment increased to 4.12 million from 4.05 million.
The consolidated medical care ratio rose by 0.2% to 82.2% compared with the prior year quarter. UnitedHealth attributed the increase to a 150 basis-point increase from the health insurance tax deferral that was offset by improved business mix, product performance and favorable reserve development.
Shares closed down about 0.3% on Monday at $186.35 in a 52-week range of $132.39 to $188.66. The stock traded down about 0.1% at $186.25 in Tuesday’s pre-market session. The consensus 12-month price target was $196.77 before results were announced.
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Despite calls from within her own party that it is time to step down, House Democratic leader Nancy Pelosi is not going anywhere anytime soon. Pelosi has been the chamber's top Democrat since 2003, but she is taking heat from a handful of colleagues who say the San Francisco lawmaker is a liability in centrists districts, citing the recent loss in Atlanta. Republicans are happy to paint Pelosi as an out-of-touch far-left liberal when trying her to Democratic candiates. President Trump is weighing in too, saying he hopes she stays because she 's such an easy target to beat up on. Pelosi has staying power, surviving a tough 2016 leadership election. The challenge came from Ohio's Tim Ryan 43, who won one third of the caucus by appealing to noncoastal members, Pelosi 77, still has no heir apparent. Retirement is not in the cards before 2018. Pelosi wants to stick around and see if the Democrats can win back the House so she can retake the speakership.
UNITED AIRLINES EARNINGS FLAT
Daniel Cullinane CPA
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United Continental Holdings Inc. (NYSE: UAL) reported second-quarter 2017 results after markets closed Tuesday afternoon. The airline reported adjusted diluted quarterly earnings per share (EPS) of $2.75 on revenues of $10 billion. In the same period a year ago, United reported EPS of $2.61 on revenues of $9.4 billion. Second-quarter results compare to the consensus estimates for EPS of $2.63 on revenues of $9.95 billion.
Adjusted to excluding fuel-hedging losses, fuel cost averaged $1.62 a gallon, an increase of 12.5% a gallon year over year. Total fuel expense for the quarter equaled $1.67 billion, up 16.1% compared with $1.44 billion in the same quarter last year.
Passenger revenue per available seat mile (PRASM) was up 2.1% year over year and consolidated yield rose 2% year over year in the second quarter. Cargo revenue jumped 22.1% to $254 million.
Cost per available seat mile(CASM, the unit cost) including special charges, third-party business expenses, fuel and profit sharing decreased by 1% compared to the second quarter of 2016 due mainly to lower special charges. Consolidated CASM, excluding special charges, third-party business expenses, fuel and profit sharing, increased 3.1% year-over-year, driven mainly by higher labor expense.
United’s president and CEO, Oscar Munoz, said:
The positive financial and operational performance this past quarter demonstrates that United is firmly on the right path. From investing in our products and our people, redoubling our focus on the customer experience, closing the margin gap with our peers and delivering strong returns to our investors, we have made important progress and moved United decisively forward. No single quarter constitutes a trend and we still have much further to go before we fully realize the potential of this airline and exceed the expectations of our customers. But, we also know that one success begets another and the strong financial and operating performance we posted this quarter adds to the momentum that all of us here at United are determined to build upon.
Available seat miles rose 4.2% compared with the same quarter last year and passenger revenue increased by 2.1% per available seat mile. For all segments the consolidated load factor was 83.5%, unchanged year over year. Domestic load factor improved by 0.3 percentage points and international fell by a like amount.
The company did not offer third-quarter guidance, but consensus estimates call for revenues of $10.39 billion and EPS of $3.13. In the third quarter of 2016 revenues totaled $9.91 billion and EPS came in at $3.11.
Shares traded down about 2.8% at $76.70 in Tuesday’s after-hours session. The stock’s 52-week range is $44.15 to $93.04. Prior to the earnings release the 12-month consensus price target on the company’s shares was $93.29.
MERCEDES TO RECALL 3 MILLION CARS
TRAIN WRECK CONTINUES
Bi partsian bills raising the ethanol content of gasoline face an uphill climb. Currently, most retail outlets can not sell gas containing more than 10% ethanol during summer because of ozone emissions. Two recent bills would approve summer sales on gasoline with higher ethanol blends, increasing the ethanol limit from 10% to 15%. The 15% blend is several cents cheaper per gallon than the 10% blend. Since demand would rise for corn based ethanol the farm industry backs the move. The oil, industry, meanwhile is fightding back to avoid taking a significant hit on summer gas sales
JUNE SALES UP
INFLATION REMAINS LOW
U.S. new car sales are widely predicted to be lower this year and automakers have been both reducing production and offering incentives to keep inventory levels at normal levels. Rising inventories have been a particular problem for General Motors Co. (NYSE: GM) and the company is offering some strong incentives to buyers of its best-selling Chevrolet Silverado pickups.
While the total incentive varies by dealer and region, GM is offering a price reduction of around $2,800 on all its 2017 Silverado 1500 LT pickups. Other dealer incentives can add as much as $5,000 to that. For example, a Chicago dealer is selling a Silverado double cab with four-wheel drive with an MSRP of $39,965 and installed option packages valued at $4,240 for $37,682, a savings of about $7,700.
GM sold a total of 50,515 pickups in June, a year-over-year increase of 1.7%. And that was the company’s best month so far this year for total sales of Silverado pickups.Ford Motor Co. (NYSE: F) sold nearly 78,000 F-Series pickups in June, a rise of 9.8% year over year. According to a report at Forbes, Ford’s offer of $5,250 cash back on an F-150 is the best deal of the month. A different deal from the one we mentioned earlier on the Silverado is the second-best deal of the month, and the third-best is an incentive from Fiat Chrysler Automobiles NV (NYSE: FCAU) offering up to $4,750 cash back or $3,250 cash back and 0% financing for 36 months.
All three U.S. carmakers are making their best incentive offers on their best selling vehicles. The automakers make more of these pickups than anything else and they need to sell them because passenger car sales are tumbling and SUV/crossover sales are no longer rising at their recent record pace.The automakers will sell what they have and take a bit less margin on each pickup because the trucks have such a high markup to begin with. But they have to sell them or their inventories will continue to pile up and that’s when the bad news gets worse.
After absolutely rampaging over the last year, the PHLX Semiconductor Sector Index (SOX) corrected 7% since the highs posted in June. While the index has retraced some of the declines since early June, many of the valuations still look stretched. The good news is that some of the other stocks are looking much better, and top analysts on Wall Street are saying that this current pullback may be an outstanding chance for investors to jump in and grab some of the best companies, especially with earnings on the way.
A new Stifel research report makes the case that rather than an imminent cyclical downturn in the industry that forced the selling, overall rotation out may be the main factor in the decline. With industry fundamentals still looking positive, especially in the industrial and automotive sectors, the analysts think investors should buy some of the top companies now. They pound the table on three and like two others after steep declines in share price.
This stock spiked recently and has come back into a good buy range. Analog Devices Inc. (NASDAQ: ADI) is a leader in the design, manufacture and marketing of analog, mixed-signal and digital signal processing integrated circuits for use in industrial, automotive, consumer and communication markets worldwide. It offers signal processing products that convert, condition and process real-world phenomena, such as temperature, pressure, sound, light, speed and motion, into electrical signals.
The company recently introduced a highly integrated polyphase analog front end with power quality analysis designed to help extend the health and life of industrial equipment while saving developers significant time and cost over custom solutions. Achieving extremely accurate, high-performance power quality monitoring typically requires customized development, which can be expensive and time-consuming.
The analysts believe that the Linear Technology acquisition, which closed recently, is a big positive. In addition, many on Wall Street expect that corporate management ultimately will exceed its $150 million of targeted synergies. Toss in a very positive recent analysts day, and the signals look strong.
Analog Devices investors receive a 2.24% dividend. The Stifel price target for the stock is $97. The Wall Street consensus target is $95.02. The stock closed Wednesday at $80.37 per share.
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Maxim Integrated Products
This company supplies chips to Samsung for the Galaxy line. Maxim Integrated Products Inc. (NASDAQ: MXIM) designs, develops, manufactures and markets various linear and mixed-signal integrated circuits worldwide. The company also provides a range of high-frequency process technologies and capabilities for use in custom designs. It primarily serves automotive, communications and data center, computing, consumer and industrial markets.
This stock has traded down over 10% since early June and could be a great company to own in front of earnings. It has beaten the earnings projections for each of the past six operational quarters, and it is projected to for this quarter as well by some analysts.
Stifel has a $36 price target for the shares, while the consensus target is $35. The stock closed Wednesday at $46.70.