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First Move with Julia Chatterley
Tesla Stocks Has Investors Sending Share Prices Sky High; Facebook's Mark Zuckerberg Didn't Appear To Reassure Lawmakers, Super Mario Draghi Presides Over His Final Interest Rate Decision As The President Of The ECB. Aired 9-10a ET
Aired October 24, 2019 - 09:00 ET
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[09:00:27]
ZAIN ASHER, CNN INTERNATIONAL ANCHOR: Coming to you live from the New York Stock Exchange, I'm Zain Asher, in for my colleague, Julia Chatterley and
here is what you need to know.
Supercharged Tesla stocks: Investors are sending share prices sky high.
Not moving the needle -- Facebook's Mark Zuckerberg didn't appear to reassure lawmakers.
And Draghi's last dance. Super Mario presides over his final interest rate decision as the President of the ECB.
It is Thursday and this is FIRST MOVE.
All right, welcome to FIRST MOVE. I'm Zain Asher, so glad to have you with us here on Wall Street. It is the busiest day of the third quarter
earnings season. So far, dozens of S&P 500 companies are reporting profits. Results are coming in thick and fast and they are mixed.
Shares of Twitter and 3M are lower premarket on disappointing results. Twitter is set to fall about 18 percent also in early trading.
But earnings from Southwest Airlines beat estimates and defense giant, Raytheon is raising its outlook -- all of this after those blow out numbers
from Tesla late yesterday, which we will be getting into as the results pour in.
Futures are pointing to a higher open for stocks with tech leading the charge. All the major averages were able to eke out modest gains
yesterday, but stocks have been stuck in a narrow trading window -- a narrow range for much of the week as investors await a clearer picture on
earnings.
European stocks also leaning higher as earnings season heats up there. That said, Nokia shares are tumbling, 20 percent after lowering guidance
for this year and next -- all of this as investors monitor Mario Draghi's last ever press conference as ECB President. We will have more than just a
moment.
But first, let's get right to our drivers. I want to start without Tesla. Tesla, back in the black. Third quarter earnings posted as a price profit
of $342 million, while Wall Street expected a net loss in after-hour trading. Telsa stock went into overdrive. Let's bring in Paul La Monica.
So Paul, Tesla pretty much surprised the Street with this profit. Just walk us through what changed for them particularly in terms of efficiency
and cost cutting methods as well.
PAUL LA MONICA, CNN BUSINESS REPORTER: Exactly, Zain, I think that really is the main part of the story. The company has gotten a lot more efficient
with the manufacturing all of its cars, and that has helped Tesla actually generate profitability.
Now whether or not this is sustainable is going to be the big question, but everyone is very excited by the progress that Elon Musk's company has made
with regards to the Giga Factory in Shanghai, which really will help Tesla sell a lot more cars in China going forward; possibility of you know, the
Model 3 and the Model Y, which is going to be the cheaper version of the Model X Crossover.
Whether or not those two products can generate a lot of sales, I think that's the key to Tesla going from more of a niche luxury automaker to a
company that is more of a mass market maker of cars that are a little bit more affordable for average people and if that happens, then this might be
the beginning of a great run for Tesla.
ASHER: So does your gut instinct tell you, Paul that they can actually keep this up?
LA MONICA: My gut tells me that you need to be wary because Elon Musk is obviously prone to making promises that he hasn't been able to always keep.
So, being a bit of a skeptic, I would be wary, especially with the stock having this big pop today. I mean, keep in mind, the stock hadn't been
doing that well as of late until today's solid jump on earnings.
So I think there is definitely a lot of skepticism that remains on Wall Street about Tesla's long term viability and you know, the future
prospects, but you know, take your hat off to Musk, this was a great quarter and if they can keep it up, then you know, you're going to have
more conversations about Tesla being a legitimate competitor to the likes of GM and Toyota and Ford and Volkswagen and other major global auto
giants.
ASHER: All right, Paul Las Monica, live for us there. Thank you so much.
When Facebook CEO Mark Zuckerberg came before the U.S. Congress on Wednesday, he probably expected to be grilled and then he got it, and then
some.
[09:05:06]
ASHER: The hours long hearing was meant to be about Libra, that's Facebook plan, the controversial cryptocurrency, but it ended up being about all of
that plus political ads, plus censorship, child abuse content, and more.
The questioning was at times somewhat aggressive and combative as well. Here's an example from Maxine Waters who heads up the House Financial
Services Committee. Take a listen.
(BEGIN VIDEO CLIP)
REP. MAXINE WATERS (D-CA): Perhaps you believe that you're above the law, and it appears that you are aggressively increasing the size of your
company, and are willing to step on over anyone, including your competitors, women, people of color, your own users, and even our democracy
to get what you want.
All of these problems I've outlined and given the company's size and reach, it should be clear why we have serious concerns about your plans to
establish a global digital currency that would challenge the U.S. dollar.
(END VIDEO CLIP)
ASHER: Boy, Brian Fung joins us live now in Washington. So Brian, this was clearly about trust. Lawmakers simply do not trust Facebook. They
don't trust Mark Zuckerberg. I mean, walk us through whether he was actually able to move the needle, just in terms of convincing them that
Libra should be allowed.
BRIAN FUNG, CNN TECHNOLOGY REPORTER: Yes, well in talking to lawmakers after the hearing, they told me many of them were unimpressed by his
testimony. They still had further questions, even though that the hearing was very tough and substantive in terms of the questioning of Zuckerberg.
You know, as an example, you had Congresswoman Alexandria Ocasio-Cortez pressing Zuckerberg on Facebook's policy, not to fact check politicians
ads, let's have a listen.
(BEGIN VIDEO CLIP)
REP. ALEXANDRIA OCASIO-CORTEZ (D-NY): Would I be able to run advertisements on Facebook targeting Republicans in the primary saying that
they voted for the Green New Deal?
I mean, if you're not fact checking political advertisements, I'm just trying to understand the balance here, what's fair game?
MARK ZUCKERBERG, CEO, FACEBOOK: Congresswoman, I don't know the answer to that off the top my head, I think --
OCASIO-CORTEZ: So you don't know if I'll be able to do that.
ZUCKERBERG: I think probably.
OCASIO-CORTEZ: Do you see a potential problem here with a complete lack of fact checking on political advertisements?
ZUCKERBERG: Well, Congresswoman, I think lying is bad, and I think if you were to run an ad that had a lie, that would be bad.
OCASIO-CORTEZ: So we can we -- so you won't take down lies or you will take down lies? I think it's just a pretty simple yes or no.
(END VIDEO CLIP)
FUNG: Meanwhile, Congresswoman Joyce Beatty, the Vice Chair of the Congressional Black Caucus, quizzed Zuckerberg on Facebook's own Civil
Rights Report and said, you know, Facebook's lack of preparation on Civil Rights, she called appalling and disgusting.
Meanwhile, Zuckerberg made news when he let slip details of a private meeting he had with President Trump last month. He said the company's
various antitrust investigations facing Facebook did not come up in that meeting. He also said nor did the policy on fact checking politicians'
ads.
You know, all of this is just showing how Facebook faces so many problems and so many questions in Washington. And the hearing yesterday was just
further evidence of that.
ASHER: So how was Zuckerberg's performance overall? How good was he at defending himself just in terms of all the pressure he was under yesterday?
FUNG: Well, Zuckerberg was very calm and measured. He seemed very relaxed, especially compared to his previous performance before the Senate
last year.
And, you know, I think he is getting more experienced talking to policymakers. He, you know, understand the issues that are in play here.
I think the challenge that he faces is in trying to answer the questions that are posed to him by referencing, you know the company's policies, but
you know, while he is trying to do that, his policies are very, very complicated, so he needs to translate those complex -- that complex
language to a non-expert audience and that's really the challenge for him here.
ASHER: All right, Brian Fung, live for us there. Thank you so much.
Okay, so it is the end of an era at the European Central Bank. Mario Draghi is sharing his last news conference as ECB President. Anna Stewart
joining us live now. So Anna, just walk us through today's announcement. His final policy decision was basically to keep interest rates unchanged.
ANNA STEWART, CNN REPORTER: Unchanged, no big surprises. And that's really not surprising, given all the action we saw last month, pushing
rates further into negative territory and of course announcing a new round of QE.
And that really divided the Governing Council at the ECB last month and that was the first question out of the gate for Mario Draghi today. How
does he see this rift and he said, with such a smile, that you know, disagreements happen at Central Banks all the time when they make these big
decisions, perhaps smiling because it's no longer his problem.
Christine Lagarde will be his successor and she takes over a really tricky context. You think about all the economic headwinds, weak economic growth
for Europe, weak inflation, negative interest rates.
[09:10:05]
STEWART: Although, I imagine Draghi would argue he took the reins in even trickier circumstances -- Zain.
ASHER: So Anna, just walk us through overall though, what will his legacy be? Just in terms of all of his achievements, particularly when it comes
to the debt crisis, unemployment, and that sort of thing?
STEWART: Well, he's known largely as Super Mario, and he is credited with saving the euro. And you've got to give him some credit, he took over in
November 2011 bang the middle of the financial crisis.
We had borrowing costs from various countries really spiraling out of control. Investors concerned that the likes of Greece may fall out of the
Eurozone completely revert back to a national currency.
And then Mario Draghi said three words that really seemed to change everything. Take a listen.
(BEGIN VIDEO CLIP)
MARIO DRAGHI, OUTGOING ECB PRESIDENT: There is another measure that I want to tell you today is that within our mandate -- within our mandate -- the
ECB is ready to do whatever it takes to preserve the euro.
And believe me, it will be enough.
(END VIDEO CLIP)
STEWART: Whatever it takes -- and that's really all it took. It was bolstered by a program called OMT, that's the Outright Monetary
Transactions Program. It was a bond buying emergency program of the ECB and it never ever had to be used. That promise was all that was really
needed.
Other highlights, so moments that we will remember in Draghi's career -- who can forget this moment when a protester jumped on top of his desk. She
was from a radical feminist group. She jumped on the desk. She showered Draghi with confetti and yelled, "End ECB dictatorship."
And also there's very dry press conferences where a lot of focus in recent years has been on what tie Super Mario was wearing, because there started
to be some correlation, some analysts found with what tie, what color he wore, and what action the ECB took.
Perhaps we can now look forward to looking at what silk scarves Christine Lagarde wears -- Zain.
ASHER: All right, Anna Stewart live for us there. Thank you so much. Okay, so these are the stories making headlines around the world right now.
All 39 people found dead in a truck container in Grays, England on Wednesday are believed to have been Chinese nationals. Eight women, 31
men.
The Chinese Embassy in the U.K. says they're sending staff to the scene. Police have actually moved the truck to secure location to maintain the
dignity of the victims.
The death toll in Chile has risen to 18 as police and protesters clashed for a sixth day running. Two people including a child were killed when a
car rammed into a crowd. The Chilean President's apology, Tuesday, for quote, "decades of problems," failed to quell deep seated anger over the
country's economic inequality.
And the Kremlin says Russian troops are the only legitimate foreign military in Syria at the request of Syrian leadership after President Trump
said a small number of American troops remain to protect oil in the region.
The President also says, the U.S. presence in Syria is over and is content letting Turkey and Russia run the so-called safe zone.
Okay, so still to come here from WeWork to no work. The troubled company warns staff that layoffs are coming.
And how the U.S.-China trade war is hitting profits in America. Stay with CNN.
(COMMERCIAL BREAK)
[09:16:31]
ASHER: All right. Welcome back. Shares of Softbank have taken a further hit following its bailout of WeWork, closing three percent lower in Tokyo.
The Japanese investor is pumping $5 billion into the co-working space operator. This has not alleviated concerns of WeWork staff about their
jobs.
Clare Sebastian is joining us live now. So Clare, words that WeWork is expecting -- workers there are expecting to be laid off in the thousands.
How far will that go in terms of bringing that company to profitability?
CLARE SEBASTIAN, CNN BUSINESS CORRESPONDENT: Well, look, I mean, I think it's clear from their financial troubles and the fact that they've had to
be bailed out that they simply grew too fast. And they're now going to have to right size to continue.
This is in a manner of speaking a kind of restructuring, Zain. What we know is that the new executive chairman, Marcelo Claure who is the COO of
Softbank, he sent a memo to staff on Wednesday warning that there would be layoffs. He said he didn't know how many.
"The Financial Times" though was reporting that there could be as much as 4,000. That's about 30 percent of WeWork's global workforce and they are
also reporting that they could be pulling back from some markets prioritizing the U.S., Europe and Japan.
And this really brings up another part of the story, Zain, which is the impact that WeWork has had on the office market, the commercial real estate
market. Their rapid growth made them the biggest private office tenant in both Manhattan, Washington, D.C. and in London and I've been out speaking
to people in the real estate market in New York about what comes next.
(BEGIN VIDEOTAPE)
BILL RUDIN, CEO AND CO-CHAIRMAN, RUDIN MANAGEMENT COMPANY: We're coming into Dock 72.
SEBASTIAN (voice over): It is fair to say WeWork's newest New York City location comes with a pretty stylish commute.
SEBASTIAN (on camera): How much of the building is occupied by WeWork?
RUDIN: They've got about 220,000 feet, which is about a third of the building. Welcome to we work at Dock 72.
SEBASTIAN (voice over): For Bill Rudin, a major New York City developer, this is now the second time he has taken on WeWork as a tenant.
RUDIN: This is their main lounge area, coffee.
SEBASTIAN (voice over): He's also an early investor in the company and despite its failed IPO attempt and spiraling losses, a true believer in the
business.
RUDIN: If you look at the space and what we've created, together with WeWork in Boston properties, it really, I think resonates in terms of where
the real estate market is headed in terms of co-working flex space.
They were probably growing a little bit too fast and now they're going to throttle back and think have a more reasonable paced growth.
SEBASTIAN (voice over): A little bit too fast may be an understatement. WeWork is now the biggest private office tenants in Manhattan. And between
the second quarter of 2018 and the same period this year, the company almost doubled its square footage in the U.S. according to real estate
firm, CBRE.
DAN ALPERT, MANAGING PARTNER, WESTWOOD CAPITAL: The problem is, WeWork with such an enormous pleaser of space during the course of the last three
years, especially the last two years. You know, at least, in this market alone, over three million square feet of space.
And so if you eliminate them, you may have significant impact on pricing in the market.
CRAIG DEITELZWEIG, PRESIDENT AND CEO, MARX REALITY: So this is our club floor --
SEBASTIAN (voice over): Developer Craig Deitelzweig says WeWork approached him six months ago wanting space in this 1930s office tower, right by Grand
Central Station. WeWork declined to comment on this and didn't respond to questions about its broader business.
DEITELZWEIG: They were willing to at least well in advance and they were willing to pay a premium to be in this building.
SEBASTIAN (on camera): So it was a pretty aggressive approach.
DEITELZWEIG: It was. They wanted to together our attention.
SEBASTIAN (voice over): The problem was, he wasn't comfortable with their business model.
DEITELZWEIG: They sign long term leases with landlords and short term licenses with their customers. And the concern is what happens during a
downturn and all these tenants that are now leasing with them decide, you know, they don't need to be in WeWork? They could be in a coffee shop or
at their home.
SEBASTIAN (voice over): He knows these opportunity in WeWork in a different way.
DEITELZWEIG: We, as a landlord, yes, we're always looking to expand and we're looking at some of the buildings where WeWork has too much space as a
target for us to acquire in the future.
(END VIDEOTAPE)
[09:20:32]
SEBASTIAN: Certainly, a sign of the times, Zain, for a company that was set to be the hottest IPO of the year. There is some concern in New York
that landlords with heavy exposure to WeWork might end up in some trouble.
And speaking of exposure to WeWork, look at Softbank's shares. They continue to slide today. There is concerned that the company has now
pumped more money into WeWork than WeWork is actually worth -- down -- Softbank shares is about 30 percent since their peak in July -- Zain.
ASHER: All right, Clare Sebastian, thank you so much. Okay, so let's take a quick look at futures now. We have got about 10 minutes until the
opening bell. It is looking like, let's see, a higher open for U.S. stocks on a very busy day for the Dow there, just ever so slightly in terms of
futures.
We've got a lot of corporate results coming in. Earnings are coming in mixed overall. Twitter earnings and revenues missed estimates. 3M is
lowering its guidance; eBay lowered its sales guidance late yesterday. Shares of all three companies are lower in premarket trading.
But Southwest Airlines shares are set to rise on good results and defense giant, Raytheon is raising his profit outlook as well. Microsoft shares
are also higher premarket after its earnings beat.
Julian Emanuel joins us live now. He is the Managing Director and Chief Equity and Derivatives Strategist at the BTIG. Thank you so much.
JULIAN EMANUEL, MANAGING DIRECTOR AND CHIEF EQUITY AND DERIVATIVES STRATEGIST, BTIG: Great to be here.
ASHER: So, obviously, earnings season, results are coming in mixed right now. We're seeing wild swings. Just walk us through how defensive
companies are being just given the uncertainty overall.
EMANUEL: Well, so if you take a step back, what you see is that this is truly a market of stocks and not a stock market. There are a number of
good earnings, bad earnings very, very mixed picture. Ultimately, that's going to cause a slight earnings recession this quarter.
But the fact is that what you've had for the most part is the cyclically minded companies, the big industrials have already sort of, you know, had
the hit from the trade war. You're seeing it in the results.
And really what the market is saying is there is some expectation that conditions are going to improve geopolitically, economically. The global
economy is likely to be, if anything potentially surprising to the upside if we have good news, and that, ultimately, in our view, is particularly
with regard to these large exporters and industrial companies going to end up a headwind becoming tailwinds.
ASHER: So when you think about the fact that we will hopefully see a trade deal soon between the U.S. and China, companies that have already made
changes to their supply chain, how quickly can they re-adapt to that? How hard is it going to be for them?
EMANUEL: Well, the process is difficult and you know, if you look at it, we've been in a trade war for 18 months, and these things take a while.
What we expect is that the changes that have been made are likely to stay in place, sort of a hedge mechanism, because obviously, this is not going
to be a sort of a one and done deal with China. They will be Phase 2, Phase 3 -- it may go on for a number of years.
But the fact is, is that the plans have been sort of re-altered and if anything, a little bit more certainty on the corporate level is a positive.
And so what you potentially could get is more CapEx from some of these companies, both domestically and internationally. As long as they know the
rules, the operation can be smoother.
ASHER: So putting the U.S.-China trade war aside, another things that companies obviously, are dealing with the past few years has obviously been
Brexit. Now, companies can actually breathe a tiny sigh of relief because it doesn't appear likely that we are going to see a Brexit on October 31st.
It seems as though we are going to get a delay possibly until early next year. Is that good news for them?
EMANUEL: It is good news, and if you look at it, the fatigue of the last 18 months of the trade war is almost nothing when compared to the fatigue
of the last three plus years of Brexit and the reality is, the Eurozone if anywhere has felt the brunt of both of these.
And what you've seen is the deterioration in manufacturing sentiment, the really near-recession conditions in Germany, but in fact, when you look at
it, industrial companies in Germany are more optimistic about the future than they are about the present for the first time in five years. And that
tells us that there's a light at the end of the tunnel and it's likely to be positive
ASHER: The tunnel has been long though. Just walk us through the Feds' decision. It is likely, according to most economists that they will be
cutting interest rates next time. Do you think they actually need to, just given the respite in the U.S.-China trade war that seems likely and also
that Brexit is likely going to be delayed?
[09:25:18]
EMANUEL: So if you look at the fundamentals, you really can make the case that they don't need to. Now, the market is very much, if you look at the
pricing, there's a 90 percent expectation that they will end. The Fed doesn't like to disappoint when the market is that insistent.
But you know, whether it's inflation, which is really approaching trend and a lot of measures, the economy, which continues to chug along at around two
percent. The message is that lower rates, there's ample liquidity to businesses, lower rates can only do so much to protect against the risks of
the geopolitics we've been discussing. And it's probably time for the Fed to signal that they're likely to step back after next week.
ASHER: Okay, and how will investors react to that?
EMANUEL: There might be a little bit of nervousness. You know, the market thinks that there's likely to be another cut between now and the next
number of months.
But from our point of view, again, the fundamentals really don't warrant it. And in fact, what we think is likely to happen is you're going to have
a little bit of volatility, but with the memory of the fourth quarter of last year being so ingrained in people's mind with the market sliding the
way they did, the positioning is defensive.
So we think any selloff because of a more hawkish Fed is likely to be met with buying.
ASHER: All right, Julian, thank you so much for being with us.
EMANUEL: Pleasure.
ASHER: Appreciate it. Okay, you are watching the FIRST MOVE. The opening bell is next. See you in a couple of minutes.
(COMMERCIAL BREAK)
[09:30:00]
ASHER: All right, you just heard the opening bell ringing there on this Thursday. I'm Zain Asher coming to you live from the New York Stock
Exchange.
As expected, we do have a slightly higher open for U.S. stocks. Another mixed day though for corporate results. Actually, my last guest said to me
this is not a stock market, it is a market of stocks because all eyes are on corporate earnings. That is what's moving the needle today.
A whole slew of companies in the S&P 500 are reporting today and it has really been a bit of a mixed bag so far in terms of results. Amazon and
Intel are reporting today after the closing bell.
Companies are largely affected of course by the U.S.-China trade war. Yes, that's back in the spotlight. Vice President Mike Pence delivers a speech
on China today.
Pence, a China hawk is expected to take a more conservative, conciliatory tone in today's address. That said, China remains a trouble spot for
companies.
Ford is cutting its full year forecast amid weaker China sales. 3M says demand is slowing across the Asia-Pacific region. Christine Romans has
been digging into the details. She joins us live now.
So Christine, just walk us through how American companies just in terms of earnings and profits have been affected by the U.S.-China trade war.
CHRISTINE ROMANS, CNN BUSINESS CHIEF BUSINESS: Well, you know, it's so interesting because when the trade war really began and the tariffs went on
more than a year ago, right, companies -- for companies, it was like a bad cold. It was something that was irritating, but temporary. They knew
they'd get over it.
Now a year and a half later, it's chronic, and they're trying to figure out how to move supply lines, whether they should move supply lines, how to do
negotiating with suppliers to try to lower costs.
But when you look at these earnings, you can see that in some cases, profits are being demolished by tariffs and by slowing global trade because
of the trade war.
And in some cases, you know, these companies are really seeing their margins squeezed. So what kind of companies I'm talking about? Hasbro
said that if you have tariffs to go up in December, they're going to have to raise prices.
Mark Zandi has pushed these and crunched these numbers for me and he said if in December, those tariffs on toys and games and books go on, you're
going to be basically feeling $100 billion tax increase for consumers next year.
So we have kind of a de-escalation in the trade war, but in the earnings reports, you can see where it has gone on long enough and is deep enough
that it is starting to hurt so many different kinds of companies.
Here's what Zandi told me, "Investment spending has flat-lined across the globe and hiring is weakening. If the President does raise tariffs again
in December, the U.S. and global economies will suffer recessions." That's a pretty strong statement from Zandi who watches all of this.
When I talk to business leaders, Zain, they don't think the President is going to go any further than he has right now. That there's a pause on new
tariffs and tariffs escalation. But how many times have we seen negotiations turn sour and then the President turns around and jacks up
rates or something on Chinese imports coming in. So there's a feeling that there's a pause and de-escalation in this trade war. Phase 1 of a trade
agreement has been sort of -- not even on paper, but at least you know, behind closed doors, it has been decided upon.
But there's a lot of risks trade-wise and then these earnings reports, you're definitely seeing how the companies are trying to navigate around
that risk.
ASHER: So then, if a trade deal is reached soon enough, how long will it take for companies to turn things around, especially if they've already
made changes to their supply chain?
ROMANS: So they have been making changes to their supply chain. You know, Harley-Davidson, for example, wants to move some production to Thailand so
that it can sell bikes, both to Asia, but also to the European Union to try to avoid some tariffs.
Also for Harley-Davidson, the President's tariffs comes at the same time that the American bike riding consumer, bike buying consumer is dwindling.
Just look at the demographics. I mean, the demographics favor motorcycles elsewhere around the world. So there's that issue for companies like
Harley-Davidson.
Over at Polaris, they make snowmobiles, and they make they make boats and they make ATVs. They've been trying to figure out different ways that they
can try to squeeze some of those extra costs out of the system. And they've been successful in squeezing $5 billion -- $5 million, rather of
that cost out of the system, but they've still got a lot of work and a lot of different companies are trying to figure it out.
So look, if you think that there will be no more tariffs, maybe you can navigate around it, right? But today, nobody knows for sure if there will
be more tariffs, if there could be even more punitive tariffs, if the tariffs are going to come off. How do you plan in the corporate suite if
you're not sure what the tariff regime is going to look like in 12 months?
ASHER: All right, Christine Romans live for us there. Thank you so much.
ROMANS: You're welcome.
ASHER: Among the companies hit by U.S.-China tensions is UPS. It managed to beat Wall Street earnings estimates. But its CEO warned that trade
tensions are a drag on business. He told me growth in the U.S. economy rests on one key factor --
[08:35:03]
(BEGIN VIDEOTAPE)
DAVOD ABNEY, CHAIRMAN AND CEO, UPS: The consumer is very important and very strong right now. In fact, the U.S. economy is being led by that and
when we look at -- especially e-commerce sales, so the ASMO (ph) Index has just been very, very healthy and were expected to continue.
Now would we'd like to see industrial production and manufacturing grow in the U.S.? We would. The trade concerns, they do put a damper. But we
have seen solid growth from the consumer.
ASHER: Are they putting a damper on which area specifically international package volumes?
ABNEY: Yes, what you see is you see exports from China in to the U.S. have reduced and exports from the U.S. to China have reduced.
At the same time we have seen China to the rest of the world actually increase, but not enough to make up for the shortage into the U.S. But
there are some positive rays of hope.
This first step of the negotiations, it looked like we're off to a good positive start. So we're hoping that it builds upon and that we find a
solution that will help improve trade in both directions.
ASHER: You mention that the U.S. consumer is strong. One thing that the U.S. consumer certainly want more of right now is faster and faster package
deliveries. How do you at UPS compete on time, given that overnight, next day deliveries are becoming increasingly important in this environment?
ABNEY: We've seen a real structural change in the market and it is going from two days or more to next day, and it was led by the big e-retailers,
but now most everyone is trying to join in.
We believe this was going to happen and we added 11 aircrafts for this year and up to 747-H which is the largest freighter that is made and so it has
worked really good for us.
Our next day volume grew 24 percent this past quarter. Our second day, 17 percent; also, next day by ground through our extended hours service has
really grown, too. So this is a change that is here to stay and UPS is embracing it.
ASHER: So how are you -- just given the uncertainty coming out of the U.K. right now -- how are you hedging against a no deal Brexit? How would that
impact you?
ABNEY: Well, we're spending a lot of time talking to all the authorities that we can talk to, to get as much information as we can. We do think
there's some positive developments when the U.K. and Ireland seemed to reach the deal and then the U.K. and the E.U.
Now it has got to get through Parliament. We'll see how it goes. We are prepared if there is a hard Brexit. It is not what we would prefer, but we
already have things in place and we will be able to help our customers progress through that.
We're still hopeful though that at the very least, there will be an extension and then there will be a more controlled Brexit that will allow a
little more consistency.
But right now, our customers need some certainty. They need to know what's going to happen.
ASHER: Okay, so just back to some hopefully optimistic news. Obviously, it's about two months -- less than two months, I would say before the
holiday season really gears up. What sort of holiday season are you expecting this year?
ABNEY: We're starting a very healthy holiday season. I talked about ASMO (ph) and how the electronics sales is really increasing. But when you
think about our daily volume, we deliver 20 million to 21 million packages a day.
During Christmas that will go up to 35 million, but we will consistently be over 30 million. So that's more than a 50 percent growth. So what I'd
like to do to you and your viewers is thank you very much for all the shipments that you give us. But could you order just a little early. You
don't have to wait until December 22.
ASHER: Okay, that's a specific message for me and my family. But just in terms of the Christmas season, it is big when it comes to e-commerce. Do
you feel that you at UPS have fully capitalized on the boost in e-commerce just given how expensive it is, especially as you mention for last minute
deliveries?
ABNEY: And I'll give this quarter as an example. We had positive operating leverage which means our cost per package increased or decreased
and it was a positive relationship to our revenue per packet. So that is very important in our business.
[09:40:07]
ABNEY: In fact, for the third quarter, due to our investments and our strategies, we reduced our cost per unit by two and a half percent. That
will carry over into the fourth quarter as being less than last year. To what number, we won't know until the quarter goes. But that gives us a lot
of momentum.
That and the fact that we're growing our business, so we think we'll have a very good peak. We've added the buildings. We're adding 100,000 employees
just for that peak season timeframe.
ASHER: All right, David Abney, thank you so much. Appreciate it.
ABNEY: Thank you. Appreciate it.
(END VIDEOTAPE)
ASHER: All right, still to come here on FIRST MOVE. Tesla tons of profit. We find out how the carmaker's sped past Wall Street's expectation. I'll
have an analyst walk us through all the results after a short break. Don't go away.
(COMMERCIAL BREAK)
ASHER: All right. Welcome back. Time now for a look at our Global Movers. Twitter shares are tumbling 19 percent. The social media giant's
daily active user numbers beat expectations, but earnings and revenue missed estimates and guidance was weak as well.
Let's take a look at 3M. Their shares are also down. The Dow component, an economic bellwether actually reported better than expected profits, but
revenues beat estimates and the company is lowering its forward guidance as well.
Tesla shares, we're going to talk about that in just a moment. As expected are up 16 percent after reporting a surprise, huge surprise actually, third
quarter profit. The company posted $1.86 a share profit. Analysts were looking for a loss of 24 cents a share. So that's quite a turnaround.
Microsoft shares are also moving higher after their third quarter earnings results and revenues topped estimates as well, but the company's, Azure,
Cloud computing business had softer growth, but still 59 percent growth compared to our previous quarter.
[09:45:08]
ASHER: Dan Ives is joining us live now. He is Managing Director of Equity Research at Wedbush Securities. Thank you so much for joining us.
DAN IVES, MANAGING DIRECTOR OF EQUITY RESEARCH, WEDBUSH SECURITIES: It's good to be here.
ASHER: So let's start with Tesla. Quite a surprise. I mean that really - - that profit really took the Street by surprise what happened?
IVES: Here is a jaw dropper in terms of just profit, I mean, even the biggest bulls, no one expected a profit this quarter and look Musk and
Tesla ultimately, they cut costs, gross margins on Model 3 as well as S and X were stronger than expected.
And this was what I believe could be a major inflection point quarter for a company that's had a massive black cloud over their head over the last
year.
ASHER: So it is an inflection point and a turning point that would imply that they can sustain this. Do you actually think that they can?
IVES: I think right now, we still have a bit of skepticism that this is fully sustainable. I mean -- and this is -- it all comes down to just the
math. It is going to be very difficult for them given the Giga 3 buildout. That's what they're trying to do in Europe, as well as the U.S. to see
sustained profitability.
But you've got to give credit where credit is due. This is something where if I'm Musk and Tesla, I'd print the press release from last night out and
frame it over in FEMA.
ASHER: Okay, so one of the standouts obviously is the news about the Shanghai Giga Factory, specifically because China is such a hugely
important market for Tesla. When it comes to electric vehicles, China is basically -- it's everything.
IVES: China is the heart and lungs of the passive growth story over the next three to five years. That's why Giga 3 is so key in terms of that
build out, your sort of seeing trial production already now starting to happen ahead of expectations.
When you get China, you get overall demand. You are looking at potentially 150,000 to 200,000 units and they can now start to capitalize in the EV
side.
That's why right now, if you look at the profitability, what you're seeing in China, and just the overall demand. For Tesla, this is really sort of a
Goldilocks scenario in terms of what they showed last night.
ASHER: Model Y beginning production ahead of schedule. You've tested them. Then why does that cannibalize the Model 3, do you think?
IVES: That's going to be the question. I mean, I mean, I could tell you, test driving it, it continues to be what I think is going to be a strong
product coming out. It looks like production will start next -- you know, during the summer.
I think it's something where this is going to be an opportunity. This could be a silver bullet of growth. I do think there's some
cannibalization when it comes to Model 3, but nonetheless that means the street is going to try to gauge to see what type of growth catalyst Model Y
will be for Tesla going forward.
ASHER: Okay, switching stocks. Microsoft beat on a revenue and profits as well. Just walk us through why the stock seems not that changed as a
result. Where is the skepticism coming from?
IVES: I think many on the Street have missed this just parabolic move from 30 to 140. And then there's a view that can they -- do they still have
fuel in the engine from Cloud? And I think what you saw last night from the Dell and Redmond is that it's only in the early innings of planning out
in terms of growth.
I mean, Azure, 59 percent growth, overall Cloud, commercial Cloud up 36 percent. There's a share gain situation going on versus AWS. But I think
the Street continues to be skeptical. That's why it's an investor, in my opinion, this is in the next five to 10 years, I could see up 40 to 50
percent.
ASHER: Okay, and another stuff that we've been watching very closely is Twitter. What a disaster. I mean, you and I were talking before the break
and you described it as a complete train wreck. Shares are down about -- I don't know if we can pull it up -- shares are down about 18 percent or so.
Part of the problem -- I mean, there are so many problems, but one of them is really demand when it comes to ads, just walk us through what else
Twitter is dealing?
IVES: It is a train wreck in terms of monetization as well as user growth. You have Dorsey and Twitter, they've had four to six strong quarters. And
this is something -- it really was a gut punch to the balls, and I think now there's just worries about what the monetization, the strategy is going
forward.
So right now Twitter, kind of -- what I would view as now, it goes into the penalty box from an investor perspective.
ASHER: So how does the company turn things around then?
IVES: I think there is going to be a key there. It is really going to be about engagement, user growth and further monetization of the platform.
They continue to be a one trick pony and if you look at what's happening right now, there's further and further competition for users in terms of
just eyeballs.
And for Twitter right now, that continues to be what looks to be an uphill battle and this kind of came out of nowhere. This came out of the left
field if you look at the last four to six quarters, and the Street is definitely taken aback.
ASHER: All right, Dan Ives. Thank you so much for being with us. Appreciate it.
IVES: Thank you.
ASHER: Hey, Dan Ives of Wedbush Securities. All right, after the break, remember when Nokia ruled the entire world. It even makes me so nostalgic
just thinking about it. The mobile phone giant has diversified into an equipment provider and the rush to 5G is causing it major, major pain. The
details on that are next.
(COMMERCIAL BREAK)
[09:52:08]
ASHER: All right, welcome back. I'm Zain Asher. Here's today's "Boardroom Brief."
Attorneys for Carlos Ghosn are demanding a Tokyo court dismiss all charges against the embattled former chairman of Nissan. Ghosn's because lawyers
alleged prosecutors colluded with Nissan executives and government officials to oust him from the order alliance. Ghosn is awaiting trial
after being arrested last year over claims of financial misconduct.
And Southwest Airlines stock is climbing, thanks to a jump in profits of more than seven percent and that's been driven by a strong travel demand
and higher fares. The world's largest 737 MAX operator says, it has taken a $210 million hit in the quarter because of the grounding of those jets.
Daimler shares are higher by about four percent. Operating profit at the company increased eight percent in the third quarter. Stronger sales of
Mercedes Benz cars were behind the rise.
Now, let's talk about Nokia. Company shares which were once dominant in the mobile handset industry have fallen by a fifth. The Finnish firm
stopped its dividend and cut its forecast because of intense competition within the 5G sector. Hadas Gold is joining us live now. So Hadas, what
on earth has gone wrong again for Nokia?
HADAS GOLD, CNN BUSINESS REPORTER: Yes, it's a lot gone wrong. I mean, if you just look at the stock price, how it just dropped significantly. It
lost more than 20 percent of value. The problem for Nokia is fierce competition, slumping orders and the cost of 5G.
This is the largest drop in decades for this Nokia stock and of course as you noted, they cut -- stopped dividend payments and they've cut their
earning forecast for this year and the next.
Now Rajeev Suri, the President and CEO said some of the risks that they feared of the initial rollout of 5G have started to materialize. These
include things like gross margin, which has affected the product mix, the high cost of 5G and the pricing pressures that they have found in early
deals.
Of course profitability challenges in China, where Huawei gets a lot of government support and uncertainty in North America where we're expecting
that Sprint and T-Mobile merger. That's causing a lot of uncertainty and concerns over the possibility of a duopoly with one of their competitors,
Ericsson.
So now, Nokia says that they are going to spend more on developing 5G products, making them less expensive and getting new products to market
faster. But these are clearly very disappointing results for Nokia, which as you noted, years ago, they were known as the dominant force in the
mobile industry, and right now, when they're coming up against Huawei and Ericsson, those two other companies are doing seemingly much better than
they are in 5G and Nokia has quite a bit to catch up on.
ASHER: So how has Ericsson, which you mentioned managed to position itself so much better than Nokia when it comes to a battle with 5G?
GOLD: Yes, well with Ericsson, they actually beat quarterly earnings expectations. They lifted their market forecast for this year, and its
sales target and they say that they just demand for their superfast 5G networks were taking off faster than expected.
[09:55:15]
GOLD: But it's clear that Nokia is having a problem, especially when they are going up against Huawei. What's interesting, actually, is that some
analysts thought that Huawei security problems being on the blacklist would be a boost for Nokia - that people would then turn to them instead of
Huawei.
But when you look at the contract side, Huawei have signed 60 contracts, despite that blacklist. Nokia has only signed 48.
ASHER: Yes, as you mentioned, the stock falling 25 percent that is the steepest decline since all the way back to 1991. There we have it,
actually, it is down 21.5 percent right now. Hadas Gold live for us. Thank you so much.
And that is it, my friends, for the show. You've been watching FIRST MOVE. I'm Zain Asher. Thank you so much for watching. "Connect the World"
starts right now. I'll see you tomorrow, same time, same place.
(COMMERCIAL BREAK)
[10:00:00]
END
