News Archive

Lower tax rate fuels Ford beat, seen boosting 2017 net profit

DETROIT (Reuters) – Ford Motor Co (F.N) on Wednesday reported a better-than-expected quarterly net profit due to a lower tax rate and increased U.S. sales of more-profitable pickup trucks, but forecast a slightly lower 2017 pre-tax profit, sending its shares down 2.3 percent.

Against a backdrop of declining sales for the U.S. auto industry, Ford leaned heavily on consumer discounts during the quarter and the value of its unsold vehicles rose. Ford warned its full-year automotive operating margin and cash flow would be lower than in 2016.

The No. 2 U.S. automaker said, however, a reduced tax rate would boost its full-year net profit. The results are the first for Chief Executive Jim Hackett since Ford ousted his predecessor in late May and elected him to the top spot.

Hackett has promised a broad-reaching review of Ford’s operations within his first 100 days.

Analysts are concerned about the high discounts that Ford and other automakers are relying on to sell cars and high supplies of unsold vehicles.

Ford’s global sales were down 43,000 vehicles in the quarter, with 8,000 of that coming in the U.S. market. Ford said its full-year margin in North America would be lower than in 2016 due to rising commodity costs and engineering expenses.

Rival General Motors Co (GM.N) on Tuesday reported a better-than-expected quarterly profit, helped by cost-cutting, and promised to scale back production to cut its burgeoning inventories.

Ford said it now expect full-year adjusted earnings per share in a range from $1.65 to $1.85, above the $1.51 expected by Wall Street, according to Thomson Reuters I/B/E/S.

But Chief Financial Officer Bob Shanks said this would be largely due to a 2017 tax rate of 15 percent as Ford pulls forward deferred tax losses from outside the United States and could be affected by U.S. market conditions. Wall Street had expected an effective tax rate of 30 percent for 2017.

Shanks said Ford’s pre-tax profit would be slightly lower than the $9 billion Ford has previously forecast, after a record of $10.4 billion in 2016.

In a research note for clients, Buckingham Research Group analyst Joseph Amaturo wrote that stripping out the impact of the lower tax rate, the midpoint of Ford’s full-year earnings outlook is below analyst expectations.

“We recommend investors remain on the sidelines given our concerns for lower U.S. industry volumes… and continued pricing pressure we expect for the back half of the year, which likely puts profitability under pressure,” he wrote.

Ford shares were down 25 cents or 2.3 percent at $11.02.

Ford’s CFO said the company has canceled plans to build the next generation of its compact Focus model in South America. For the North American market, Ford announced last month that it would move production of the Focus to China from Mexico.

The company reported second-quarter net income of $2.04 billion, or 51 cents per share, up from just under $2 billion, or 49 cents per share, a year earlier. Excluding one-time items, the No. 2 U.S. automaker reported earnings per share of 56 cents, and on that basis analysts, on average, looked for 43 cents.

Revenue for the quarter rose to $39.9 billion from $39.5 billion.

Reporting by Nick Carey; Editing by Jeffrey Benkoe and Nick Zieminski

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Wal-Mart proposes policy actions to boost U.S. manufacturing

CHICAGO (Reuters) – Wal-Mart Stores Inc (WMT.N) on Wednesday proposed 10 policy actions to boost U.S. manufacturing that the retailer said could help recapture $300 billion of the $650 billion worth of consumer goods that are currently imported.

Wal-Mart said barriers to manufacturing growth include a lack of available and qualified workers and of co-ordination and financing to support U.S. manufacturers, complex regulations that create high compliance costs and legal risks, and the need for an overhaul of the U.S. tax system and trade deals.

The world’s largest retailer, which committed to sourcing $250 billion worth of U.S.-made goods in 2013, said it identified those challenges as it worked with suppliers over the last four years.

Wal-Mart’s comments come at a time when U.S. President Donald Trump has made boosting domestic manufacturing a key focus of his economic agenda. Earlier this month the White House held its “Made in America” week showcasing U.S. goods.

The company’s policy proposals included building vocational training programs, reducing costs for private industry to train workers, rebranding U.S. manufacturing to attract workers and drive demand for domestic products, encouraging component production to close supply chain gaps and promoting manufacturing clusters through public-private cooperation.

Other proposals included eliminating federal overlap in manufacturing regulations, creating flexible compliance requirements for small businesses, creating a globally competitive tax environment, expanding tax deductions to foster manufacturing investments and overhauling trade agreements.

Wal-Mart said it discussed these proposals at a meeting with individuals and organizations representing business, government and non-governmental organizations in Washington D.C.

Citing an analysis by the Boston Consulting Group, Wal-Mart said every $100 billion that is onshored has the potential to create more than 500,000 direct manufacturing jobs which could then create an additional 1.5 million jobs.

Reporting by Nandita Bose in Chicago; Editing by Meredith Mazzilli

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Fed expected to leave rates unchanged; balance sheet in focus

WASHINGTON (Reuters) – The Federal Reserve is expected to hold interest rates unchanged on Wednesday and possibly hint that it will start winding down its massive holdings of bonds as soon as September in what would be a vote of confidence in the U.S. economy.

The U.S. central bank will issue its latest rates decision following the end of a two-day policy meeting at 2 p.m. EDT. Economists expect the Fed’s benchmark lending rate to remain in a target range of 1.00 percent to 1.25 percent.

That would mark another pause in the monetary tightening campaign that the Fed began in December 2015. The central bank has raised rates twice this year, including at its last policy meeting in June.

Wall Street analysts see little chance the Fed will announce the start of the wind down of its $4.5 trillion balance sheet. However, the Fed’s policy statement may provide more visibility on when that might occur.

Citibank economists said in a note to clients that the Fed’s rate-setting committee was more likely to say that the trimming would start soon. “(That would) signal that the committee plans to announce balance sheet reduction in September,” they said in the note.

Reducing the balance sheet will unwind one of the Fed’s most controversial tools used to fight the 2007-2009 financial crisis and its aftermath.

After pushing rates nearly to zero in a bid to boost investment and hiring, the Fed pumped over $3 trillion into the economy through purchases of U.S. Treasury securities and government-backed mortgage debt to further reduce rates. That program drew criticism from Republican lawmakers in Congress.

The subsequent economic recovery, marked by strong and steady job gains, has pushed the U.S. unemployment rate to 4.3 percent, near a 16-year low. Fed policymakers have said labor market strength could eventually push inflation too high.

The Fed recently signaled it would begin to trim its balance sheet this year. Yellen said earlier this month that process could begin relatively soon and economists polled by Reuters expect the announcement will come in September.

But a slowdown in inflation this year has caused jitters among some Fed officials who are already concerned that inflation has been below the central bank’s 2 percent target for five years.

The Fed’s preferred measure of underlying inflation dropped to 1.4 percent in May. It was 1.8 percent in February.

Reporting by Jason Lange; Editing by Paul Simao

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Asia stocks, dollar steady as investors await Fed clues

TOKYO (Reuters) – Asian stocks steadied on Wednesday and the dollar held firm as investors awaited the Federal Reserve’s policy decision later in the day for more clues on its tightening plans.

The Fed concludes a two-day meeting later on Wednesday, and is widely expected to keep interest rates unchanged.

With a rate hike not in the picture this time, the focus will be on the Fed’s statement, with markets looking for signs of when the central bank will begin paring its massive bond holdings and next raise rates. A statement is expected at 1800 GMT.

“The stock markets are generally of a view that the Fed is not in too much of a hurry to normalize monetary policy. So equities would be able to take this Fed meeting in stride if the Fed’s statement is in line with such views,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Federal funds futures implied traders saw the chance of a Fed rate increase in September at about 8 percent and a December hike possibility at 48 percent.

A more assertive policy message by the Fed, on the other hand, was expected to lift U.S. yields and boost the dollar.

MSCI’s broadest index of Asia-Pacific shares outside Japan was little changed, but drew mild support after the SP 500 climbed to an all-time high overnight on well-received results from McDonald’s and Caterpillar in addition to bank share gains.

Australian stocks gained 1 percent with a smaller-than-expected rise in local inflation supporting views that interest rates will remain at record lows for some time to come. The Australian dollar slipped 0.3 percent to $0.7918.

Japan’s Nikkei added 0.5 percent after the dollar rallied against the yen overnight to pull away from seven-week lows.

Shanghai lost 0.2 percent while South Korea’s KOSPI slipped 0.3 percent.

The dollar regained some ground against major currencies in the previous session after U.S. Treasury yields jumped the most in almost five months in response to Wall Street’s rise and on reduced demand for safe-haven bonds.

But the greenback remained hobbled by uncertainty about the progress of healthcare reforms and the prospect of further delays for President Donald’s Trump’s ambitious stimulus and tax reform polices.

U.S. Senate Republicans narrowly agreed on Tuesday to open debate on a bill to end Democratic President Barack Obama’s signature healthcare law, but it still faces significant hurdles.

The dollar has also been kept in check by political uncertainty as lawmakers investigate possible meddling by Russia in the 2016 presidential election and whether there was any collusion by Trump’s campaign.

The euro was effectively flat at $1.1651, pulling back from a two-year high of $1.1712 hit on Tuesday on a stronger-than-expected German Ifo business survey.

Expectations that the European Central Bank would begin phasing out its easy monetary policy sooner rather than later have supported the common currency this month.

The dollar index against a basket of major currencies was little changed at 94.061, after managing to put some distance between a 13-month low of 93.638 plumbed on Tuesday.

The dollar was steady at 111.915 yen after surging about 0.7 percent overnight.

“The dollar continues to lack clear direction against the yen. Uncertainty towards U.S. politics is capping the pair. But ‘risk on’ is also taking place in equities thanks to good corporate results, so dollar/yen is not headed for a big slide either,” said Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities.

In commodities, crude oil extended its surge after jumping overnight on data showing a sharp fall in U.S. crude stocks last week.

U.S. crude rose 1 percent to $48.37 a barrel and Brent added 0.8 percent to $50.61 a barrel.

Gold struggled as improved investor risk appetite curbed the precious metal’s appeal. Spot gold was a shade lower at $1,248.26 an ounce following its ascent to a one-month peak of $1,258.79 on Monday.

Editing by Kim Coghill

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Australian watchdog takes Ford local unit to court over transmission complaints

(Reuters) – Australia’s consumer watchdog said on Wednesday it has started court proceedings against Ford Motor Co’s local unit, accusing the company of engaging in misleading or deceptive conduct when responding to customer complaints.

Ford refused to provide a refund or replacement vehicle to customers reporting transmission problems that included excessive shuddering, loss of gear selection and sudden loss of power, the Australian Competition and Consumer Commission (ACCC) said in a statement.

The complaints concerned three vehicles – the Focus, Fiesta and EcoSport, it said, adding that it was seeking court-imposed financial penalties and redress for customers.

Ford Australia said in a statement that it rejected the allegations and would be challenging the ACCC’s claims, adding that it provides refunds and replacements in accordance with consumer law.

“As each of these issues has been identified, the Ford team has investigated and worked with customers to implement manufacturing and repair solutions,” Ford Australia said.

ACCC Chairman Rod Sims said Ford told affected customers the transmission issues were caused by the way drivers handled the vehicle, even though the company was aware of systemic issues dating back to at least 2013.

Sims said Ford’s conduct was unconscionable and that it sold surrendered vehicles to wholesalers and customers without disclosing the performance issues.

Reporting by Susan Mathew in Bengaluru; Editing by Jonathan Barrett and Edwina Gibbs

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Apple ordered to pay $506 million to university in patent dispute

(Reuters) – A U.S. judge on Monday ordered Apple Inc to pay $506 million for infringing on a patent owned by the University of Wisconsin-Madison’s patent licensing arm, more than doubling the damages initially imposed on Apple by a jury.

U.S. District Judge William Conley in Madison added $272 million to a $234 million jury verdict the Wisconsin Alumni Research Foundation won against Apple in October 2015. Conley said WARF is owed additional damages plus interest because Apple continued to infringe the patent, which relates to computer processor technology, until it expired in December 2016.

Apple is appealing Conley’s ruling, according to court papers. An Apple spokesman did not immediately return a request for comment.

WARF sued Apple in 2014, alleging processors found in some versions of the iPhone infringe on a patent describing a “predictor circuit,” which improves processor performance by predicting what instructions a user will give the system. University of Wisconsin computer science professor Gurindar Sohi and three of his students obtained the patent in 1998.

Cupertino, California-based Apple denied any infringement during a 2015 jury trial and argued the patent is invalid. Apple also urged the U.S. Patent and Trademark Office to review the patent’s validity but the agency rejected that bid.

WARF brought a separate lawsuit against Apple in 2015, alleging chips in later versions of the iPhone infringe the same patent. Conley said he would not rule in that case until Apple has had an opportunity to appeal the 2015 jury verdict.

Reporting by Jan Wolfe; Editing by Bill Trott

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Exclusive: Viacom willing to make an all-cash deal to buy Scripps Networks

(Reuters) – Viacom Inc has informed Scripps Networks Interactive it is willing to pay all cash to acquire the U.S. TV network operator, sources familiar with the matter said on Tuesday.

The move by Viacom, which had $12.17 billion in debt as of March 31, could potentially mean that the $14.3 billion media company would lose its investment-grade status to buy the $10.6 billion Scripps. Last year Moody’s downgraded Viacom’s debt to the lowest level of investment grade – a status they would likely lose as a result of the deal.

Viacom is bidding for Scripps, which owns channels such as HGTV, Food Network and Travel Channel, against Discovery Communications, which is not expected to make an all-cash bid, according to the sources, all of whom wished to remain anonymous because they are not permitted to speak to the media.

A Viacom spokeswoman declined to comment, as did a Discovery spokesman.

It is not clear what the bids were valued at or whether Viacom or Discovery has won the bidding for Scripps, but a decision was expected within the next few days, according to the sources.

It is also possible that a deal may not happen.

Making an all-cash bid would mark an aggressive move for Viacom Chief Executive Bob Bakish, who has pledged to turn around the struggling media company, which owns MTV, Nickelodeon and Paramount Pictures.

A deal with Scripps would create a $24.9 billion cable network that brings together non-scripted programming and scripted programming, including children’s shows and a movie studio.

Bakish was named to his role late last year after discussions between CBS Corp and Viacom about a possible recombination ended. Viacom has spent the past months focusing resources on six of its brands, including the soon-to-be-launched Paramount Network.

New York-based Viacom also has been selling assets, including its stake in premium channel Epix to MGM Holdings Inc, in order to reduce debt.

By acquiring Scripps, Viacom can gain cost savings and scale. Larger programmers are thought to have more leverage in negotiations with cable and satellite providers to carry their shows.

There also is increasing competition for viewers from streaming services like Netflix Inc and Amazon.

Viacom has been talking to cable and satellite companies about launching a so-called skinny bundle of non-sports networks for less than $20 per month. By acquiring Scripps programming, Viacom has more to offer its pay TV partners for such a bundle.

Reporting by Jessica Toonkel in New York, additional reporting by Greg Roumeliotis in New York; Editing by G Crosse and Bill Trott

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Chipotle links sick worker to latest Norovirus outbreak

LOS ANGELES (Reuters) – Chipotle Mexican Grill Inc (CMG.N) is retraining kitchen crews on food safety and enforcing a zero-tolerance policy for employees refusing to abide by new rules, after identifying a sick employee as the cause of a Norovirus outbreak that forced it to briefly close a restaurant in Virginia last week.

“We believe someone was working while sick,” Chief Executive Steve Ells said on a conference call with analysts on Tuesday. Chipotle offers employees paid sick leave, but some workers told CNBC that they were forced by bosses to work while they were ill.

The latest outbreak, along with a separate viral video showing rodents in a Dallas restaurant, pushed Chipotle shares down 13 percent last week. It was a big setback for the burrito chain, which is fighting to rebuild consumer trust after E. coli, Salmonella and Norovirus outbreaks in 2015 battered its sales and brand.

The company’s stock had flirted around $750 two years ago before the sales-crushing food poisoning outbreaks sickened hundreds of customers in the United States.

The shares got a slight boost on Tuesday, rising 1.6 percent to $354.25 in extended trade, after the company reported a quarterly profit that more than doubled on stronger sales, fewer giveaways and lower labor costs.

Bill Marler, a Seattle attorney who represented nearly 100 people sickened in Chipotle’s 2015 outbreaks, said the company has made the right food safety moves at headquarters, but still has work ahead.

“They have more to do to make the individual restaurants responsible,” Marler said. “That is where you have to get the work done.”

Rebuilding customer confidence may prove even harder.

Chipotle has fallen from No. 1 in Brand Keys’ annual loyalty index of fast-casual restaurants to No. 9 since the 2015 outbreaks, Robert Passikoff, president of the branding consultancy, said.

“I always joked that they had a reserve table at No. 1,” said Passikoff, who added that Chipotle’s customers are no longer giving the formerly high-flying chain the benefit of the doubt.

“I wouldn’t bet on them moving up the list,” Passikoff said.

Boredom and Queso

That is not lost on Mark Crumpacker, Chipotle’s marketing chief, who told analysts that clawing back customers will be “an ongoing challenge.”

Chipotle is addressing the “boredom” cited by “lapsed defectors” who used to visit the chain frequently by considering their request that it add queso, a cheesy dip, to its small menu. It now plans to test the cheesy dip in 350 restaurants in Colorado and California.

The company is also updating its app, adding its first-ever pickup window in Ohio and improving the speed of food-preparation areas for takeout orders.

Chipotle’s second-quarter profit rose more than 160 percent to $66.7 million, or $2.32 per diluted share, beating analysts’ average estimate of $2.18, according to Thomson Reuters I/B/E/S.

Sales at restaurants open at least 13 months rose 8.1 percent, but less than the 9.5 percent gain expected by analysts polled by Consensus Metrix.

Executives said the latest Norovirus outbreak dented sales by about 5.5 percent over the last several days.

Reporting by Lisa Baertlein in Los Angeles; Editing by Bernard Orr

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Wisconsin company offers employees microchip implants

(Reuters) – A Wisconsin vending machine company is offering its employees a chance to have a microchip implanted in their hands that they could use to buy snacks, log in to computers or use the copy machine.

About 50 employees at Three Square Market have agreed to the optional implant of the chips, which are the approximate size and shape of a grain of rice, said Tony Danna, vice president of international sales at the River Falls-based company.

The company, which employs 85, said it was the first in the United States to offer staff the technology which is similar to that used by contactless credit cards and chips used to identify pets.

The implants made by Sweden’s BioHax International are part of a long-term test aimed to see if the radio-frequency identification chips could have broader commercial applications, Danna said.

“We’ve done the research and we’re pretty well educated about this,” Danna said in an interview.

The company is holding an Aug. 1 “chip party” where employees will have the device inserted between their forefinger and thumb using a syringe-like instrument.

The RFID chips use electromagnetic fields to communicate and can be read at a distance of no more than 6 inches (15 cm), Danna said.

Critics of using chips in humans include Nevada State Senator Becky Harris, who in February introduced legislation that would make forced installation of microchips illegal.

“It is possible to hack the information that is contained within the chips,” Harris told a state Senate Judiciary Committee meeting at the time.

The company’s CEO Todd Westby in a statement predicted the technology could become popular among companies.

“Eventually, this technology will become standardized allowing you to use this as your passport, public transit, all purchasing opportunities, etc.,” he said.

Reporting by Taylor Harris in New York; Editing by Andrew Hay

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