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Investors look to Apple’s cash, services as iPhone sales seen stalling

(Reuters) – Apple Inc’s (AAPL.O) multi-hundred billion cash stockpile and stalling growth in services such as iCloud present an opportunity and a concern that some investors hope will be addressed in the company’s quarterly earnings report on Tuesday.

FILE PHOTO: An iPhone X is seen on a large video screen in the new Apple Visitor Center in Cupertino, California, U.S., November 17, 2017. REUTERS/Elijah Nouvelage/File Photo

The iPhone is by far the biggest product from Apple, accounting for more than 60 percent of its revenue last year, but Chief Executive Tim Cook and other executives have targeted services as a path to growth.

Disappointing forecasts from the iPhone supply chain have lowered expectations for unit sales.

Analysts such as Bernstein’s Toni Sacconaghi estimate as few as 51 million handsets were sold in the fiscal second quarter, versus Wall Street expectations of 54 million phones, versus 50.7 million in the year-ago period. Overall, Wall Street has lowered its expectations for iPhone revenue from $39.7 billion on April 17 to $39.2 billion, according to an average of estimates from 17 analysts by Thomson Reuters.

Sacconaghi expects the iPhone business to dominate discussions of the results, but some investors think a better question is whether Apple can deliver on its plan to ramp up services revenue from Apple Music, iCloud and the App Store.

“When people asked what Apple’s next big product was, we kept saying it was services for several years, but then last quarter it stalled. Apple is like an A student with a bad report card. We’re not going to throw them out of the house just yet, but we want to see that number pick back up,” said Trip Miller, managing partner at Gullane Capital Partners.

Miller, an Apple investor, wants Apple to use some of its cash to boost share repurchases and reinvest some in the services business. In February, Apple said that segment grew 18 percent to $8.4 billion, missing analyst expectations of $8.6 billion and down slightly from $8.5 billion the quarter before.

Wall Street expects $8.4 billion in services revenue this quarter, according to a Thomson Reuters average of 17 analyst estimates.

Tom Plumb, founder of Wisconsin Capital Management and an Apple shareholder, said Apple should seek out recurring revenue in areas such as financial services. Apple could use the cash to bolster its Apple Pay product by buying a company like American Express Co (AXP.N) or making other investments to make consistent revenue off transactions.

“They’re seeing the maturing of this technology cycle. I’m afraid their mentality is, ‘Oh, we need another big product and cycle with opportunities like this one,’” Plumb said. “But what they really need is a recurring revenue model to participate in all these changes around the world.”

Hal Eddins, chief economist at Apple shareholder Capital Investment Counsel, said that many of the massive acquisition targets often tossed around as possibilities for Apple, such as Netflix Inc (NFLX.O) or Tesla Inc (TSLA.O), do not make sense from a valuation standpoint. This is because Apple would be paying a premium relative to its own price-earnings ratio, which sits below overall market averages, he noted.

His request: an increase in Apple’s dividend, which lags those of other tech firms such as Intel Corp (INTC.O) or Cisco Systems Inc (CSCO.O).

Reporting by Stephen Nellis; Editing by Greg Mitchell, Peter Henderson and Susan Thomas

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Wall Street slides as healthcare drags but manages monthly gain

NEW YORK (Reuters) – Wall Street fell on Monday as healthcare stocks slid and investors worried about rising costs for companies as oil prices rose, although the major indexes eked out a gain in April to snap a two-month losing streak.

The healthcare sector .SPXHC, which dropped 1.6 percent, weighed most heavily on the SP 500, as shares of Allergan plc (AGN.N) and Celgene Corp (CELG.O) led the sector’s slide.

Some investors suggested that on balance, a strong earnings season has not been enough for U.S. stocks to break out of their recent trading range.

“The earnings are priced in,” said Robert Phipps, a director at Per Stirling Capital Management in Austin, Texas. “There’s not a whole lot of reason to buy. We’re stuck in the mud right now.”

Oil prices rallied after Israeli Prime Minister Benjamin Netanyahu said Iran had lied about not pursuing nuclear weapons after signing a 2015 deal with global powers.

Even as companies’ quarterly results have come in strong, their earnings calls have raised concerns that rising commodity prices may pinch profit margins in the future.

The possibility that temporary exemptions on steel and aluminum tariffs might expire for several U.S. allies also weighed on U.S. stocks. Without an extension from U.S. President Donald Trump, the exemptions will expire on Tuesday.

“That might be the most negative (news event) this week,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco. “It’s not going to be viewed well by the market.”

The Dow Jones Industrial Average .DJI fell 148.04 points, or 0.61 percent, to 24,163.15, the SP 500 .SPX lost 21.86 points, or 0.82 percent, to 2,648.05 and the Nasdaq Composite .IXIC dropped 53.53 points, or 0.75 percent, to 7,066.27.

For the month, the SP 500 rose 0.27 percent, the Dow added 0.25 percent and the Nasdaq gained 0.04 percent.

A specialist trader works at his post on the floor of the New York Stock Exchange (NYSE) in New York, U.S., April 27, 2018. REUTERS/Brendan McDermid

Earlier in Monday’s session, U.S. stocks were helped by data on income and spending that kept broader inflation worries in check. U.S. personal income rose 0.3 percent in March, compared with expectations of 0.4 percent. On the consumption side, personal spending growth in February was revised lower to 0.3 percent, instead of the previously reported 0.4 percent.

McDonald’s Corp (MCD.N) shares jumped 5.8 percent after the world’s biggest fast-food chain by revenue topped analysts’ forecasts for profit and sales.

Shares of Allergan fell 5.2 percent after the company’s chief executive said he was opposed to fundamental changes to the drug company’s business strategy.

Celgene shares fell 4.5 percent. Morgan Stanley said it expects a delay of up to three years for Celgene’s key multiple sclerosis drug, ozanimod.

Shares of T-Mobile US Inc (TMUS.O) and Sprint Corp (S.N) sank on worries that the two companies’ $26 billion merger would face regulatory challenges. Sprint shares tumbled 13.7 percent, and T-Mobile shares dropped 6.2 percent.

Arconic Inc (ARNC.N) shares fell 20.6 percent after the aluminum products maker slashed its 2018 forecasts.

Declining issues outnumbered advancing ones on the NYSE by a 1.74-to-1 ratio; on Nasdaq, a 1.99-to-1 ratio favored decliners.

The SP 500 posted 22 new 52-week highs and 11 new lows; the Nasdaq Composite recorded 55 new highs and 46 new lows.

Volume on U.S. exchanges was 6.81 billion shares, compared to the 6.57 billion average over the last 20 trading days.

Additional reporting by Sruthi Shankar in Bengaluru; Editing by Jonathan Oatis and James Dalgleish

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Exclusive: U.S. Treasury meets business groups on Chinese investment bill

WASHINGTON (Reuters) – U.S. Treasury officials met with about 10 industry groups on Monday to discuss the latest draft of legislation that would tighten scrutiny of foreign investment in order to limit Chinese efforts to acquire sophisticated U.S. technology, four sources familiar with the meeting said.

FILE PHOTO: U.S. Treasury Secretary Steve Mnuchin speaks at a news conference during the IMF/World Bank spring meeting in Washington, U.S., April 21, 2018. REUTERS/Yuri Gripas/File Photo

A senior Treasury official described the meeting as “uniformly positive.”

“We didn’t negotiate text at the meeting so much as get everyone in the room to tell them where we are and the direction the bill would take,” the senior official, who wasn’t authorized to speak on the record, said. “We had made a number of changes to provide clarity in the bill for industry, but at the same time, hold the line on national security.”

The official said it remained to be seen how the House and Senate would ultimately craft the legislation, which would broaden the reach of the inter-agency Committee on Foreign Investment in the United States (CFIUS).

Corporate America has taken a keen interest in the bill because it would give CFIUS the power to further restrict Chinese investment in U.S. companies. It could also potentially lead the Chinese to retaliate and restrict U.S. company access to the world’s second-largest economy.

Tightening the CFIUS process is one of several efforts supported by the Trump administration, including tariffs on steel and aluminum, to establish a more protectionist stance in an effort to tamp down Chinese imports while raising the regulatory bar on what deals get approved.

Attendees include the most powerful U.S. business lobbying group, the Chamber of Commerce, a source familiar with the situation said.

Supporters of re-writing the CFIUS rules are now hoping to attach the legislation to the National Defense Appropriations Act (NDAA), legislation that is passed annually to fund U.S. defense needs, two of the sources said. The NDAA has been voted into law for 55 consecutive years, and will likely pass even with the midterm elections on the horizon.

The vehicle for passage will be determined by members of Congress, the Treasury official said.

A draft of the bill to be discussed in the meeting, seen by Reuters, would eliminate a measure which some tech companies complained would force them to go to CFIUS to get approval for technology sales if they involved intellectual property licensing and support.

The draft also spells out that an investment fund can be passive, and not subject to CFIUS oversight even if there are foreign investors, as long as investment decisions are made by Americans and the decision on hiring those Americans is also made by Americans.

Investment funds had complained that under an older version of the bill they could be subject to CFIUS if they managed Chinese money and wanted to invest in certain companies with high end technology.

The draft also defines passive investment as “direct or indirect,” but strikes a measure that says passive investors may be subject to a CFIUS review if they have access to non-technical information. Any access to technical information would remain subject to CFIUS oversight.

Treasury oversees CFIUS, whose remit is all foreign investments into the United States, including equity investments.

Under pressure from tech companies and others, the bill has already undergone a number of changes to soften its approach.

Negotiators in the administration, on Capitol Hill and working for the investment and high tech community are on their fourth version of a bill on CFIUS. The bill previously underwent at least one proposed revision that would seek to narrow its scope.

Reporting by Ginger Gibson and Diane Bartz; Writing by Chris Sanders; Editing by Nick Zieminski and Susan Thomas

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Allergan tops estimates as Botox, aesthetics products drive gains

(Reuters) – Allergan Plc’s (AGN.N) quarterly profit topped Wall Street forecasts, driven by higher sales of its medical aesthetics products including blockbuster wrinkle treatment Botox.

FILE PHOTO: A sign marks Allergan’s offices in Medford, Massachusetts, U.S., July 31, 2017. REUTERS/Brian Snyder/File Photo

Allergan said on Monday revenue from the aesthetics unit, which also sells products that can melt excess body fat, rose nearly 30 percent in the three months ended March 31.

The company’s revenue overall rose 2.8 percent to $3.67 billion, topping analysts’ average estimate of $3.59 billion, according to Thomson Reuters I/B/E/S.

Net loss attributable to shareholders was $332.5 million or 99 cents per share, compared with $2.63 billion or $7.86 per share a year earlier.

Excluding one-time items, Allergan reported a profit of $3.74 per share, topping expectations of $3.36.

The company now expects 2018 adjusted earnings of $15.65 to $16.25 per share, slightly above its previous forecast of $15.25 to $16 per share.

Reporting by Manas Mishra in Bengaluru; Editing by Anil D’Silva and Sai Sachin Ravikumar

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Prairie’s courtroom quarter

The London, Warsaw and Australian-listed company has two coal projects in Poland, Jan Karski and Bebiensko, and has signed a six-month non-disclosure agreement with JSW while the miner looks at buying them or partnering with Prairie.

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Canada’s stock market set to reopen after rare shutdown

TORONTO (Reuters) – Canada’s stock exchange, the world’s sixth largest, is set to reopen on Monday after its operator said over the weekend that it fixed the error that halted the market for several hours on Friday afternoon.

A logo for TMX Group, which operates the Toronto Stock Exchange, is seen after the company announced it was shutting down all markets for the rest of the day after experiencing issues with trading on all its exchange platforms in Toronto, Ontario, Canada April 27, 2018. REUTERS/Chris Helgren

The rare outage on Friday disrupted Canada’s stock trading, sending investors to rival platforms, and had the potential to dent the credibility of the exchange, fund managers and traders told Reuters.

TMX Group Ltd (X.TO), which operates the Toronto Stock Exchange and smaller Canadian trading platforms, said in a statement on Saturday that the failure of data storage equipment caused the outage.

The saving grace for TMX, which has been vying to host Saudi Aramco’s mega IPO overseas listing, was that the glitch occurred on a low-volume trading day and on a Friday, giving the operator the weekend to resolve the issue.

Jos Schmitt, chief executive of rival operator NEO Exchange, said the market went dark when the outage occurred. “There is a lack of real-time market data in Canada and Friday’s events demonstrate this is a big problem,” he added.

Outages can inconvenience investors and prove expensive for the exchanges themselves. But many of Canada’s blue-chip stocks are also traded on U.S. stock exchanges, giving investors another avenue to trade. Investors are hopeful that TMX has taken sufficient measures to ensure the smooth resumption of trade at 9:30 a.m. (1330 GMT) on Monday.

“I suspect the TSX has undertaken many system reviews over the weekend to ensure an orderly and smooth reopening of exchanges on Monday morning,” said Mike Archibald, associate portfolio manager at AGF Investments.

Traders warned that another disruption could hurt confidence and fuel anxiety.

TMX said on Saturday the disruption was caused by a “hardware failure in a central storage appliance of the trading system,” and noted it was not the result of a hack.

Asked for additional comment on Sunday, a TMX spokeswoman referred to the company’s statement on Saturday.

“Given it wasn’t an overly heavy volume day on Friday, I suspect most market participants will manage being able to execute orders early on Monday morning,” Archibald said.

TMX’s exchanges in Canada, which include the Toronto Stock Exchange, Toronto Venture Exchange, TSX Alpha Exchange and the Montreal Exchange, account for about 61 percent of trading, according to official data.

Canada’s last major trading outage occurred nearly a decade ago, when a system fault linked to data feeds shut down trading for a full day in December 2008.

“Stuff happens from time to time,” said Matt Skipp, president of SW8 Asset Management. “If it happened on an epic down day, it would be far more concerning for professionals.”

Reporting by Fergal Smith and John Tilak; Editing by Peter Cooney

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Germany wants wider trade talks with U.S. even if tariffs hit

BERLIN (Reuters) – Germany on Monday dampened hopes that an exemption from U.S. tariffs on steel and aluminum could be extended for European Union countries, but called for trade negotiations to continue regardless of whether the levies are applied.

FILE PHOTO: A worker of German steel manufacturer Salzgitter AG stands in front of a furnace at a plant in Salzgitter, Germany, March 1, 2018. REUTERS/Fabian Bimmer/File Photo

The United States imposed import tariffs of 25 percent on steel and 10 percent on aluminum in March, but it provided a temporary exemption until May 1 for the EU.

Peter Beyer, Germany’s transatlantic coordinator, said an extension of the exemption would be a success. “But we should not put too much hope in that,” he told the daily Rhein-Neckar Zeitung.

Neither Chancellor Angela Merkel nor French President Emmanuel Macron appeared to make significant progress convincing U.S. President Donald Trump to grant EU nations exemptions from the tariffs during meetings with him in Washington last week.

“Given the many crises and conflicts, the expectations around this visit by the chancellor were far too high,” Beyer said.

Should the United States drop the exemptions for the EU, Economy Minister Peter Altmaier said European states would decide whether to implement countermeasures it has prepared.

But regardless of whether or not there is an exemption, Altmaier said the Europeans should talk to the United States about trying to reach an agreement to lower tariffs across a broader spectrum of products, especially in manufacturing.

“I personally believe we should present an offer,” he told Deutschlandfunk radio.

Securing broader EU support, especially from France, for such a broad package could prove challenging, however.

Altmaier saw little chance of reviving the stalled U.S.-European trade deal known as the Transatlantic Trade and Investment Partnership (TTIP). “A new edition of TTIP is not realistic now,” he said.

Joachim Lang, managing director of Germany’s largest industry group (BDI), urged the EU to exercise restraint with any countermeasures. “I would urge prudence,” he told broadcaster ARD.

Frank Sportolari, the new president of AmCham Germany, believed a solution to the tariff dispute could still he reached. “We are cautiously optimistic that a reasonable solution can still be found in the dispute about punitive tariffs,” he told the Handelsblatt business daily.

“In the end, President Trump won’t do anything unreasonable,” he said, noting his particular negotiating style. “He piles in with announcements of draconian measures. But in the end, there is often a solution both sides can live with.”

Writing by Paul Carrel; Editing by Mark Heinrich

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Exclusive: U.S. EPA grants biofuels waiver to billionaire Icahn’s oil refinery

NEW YORK (Reuters) – The U.S. Environmental Protection Agency has granted a financial hardship waiver to an oil refinery owned by billionaire Carl Icahn, a former adviser to President Donald Trump, exempting the Oklahoma facility from requirements under a federal biofuels law, according to two industry sources briefed on the matter.

FILE PHOTO: Billionaire activist-investor Carl Icahn gives an interview on FOX Business Network’s Neil Cavuto show in New York, U.S. on February 11, 2014. REUTERS/Brendan McDermid/File Photo

The waiver enables Icahn’s CVR Energy Inc to avoid tens of millions of dollars in costs related to the U.S. Renewable Fuel Standard (RFS) program. The regulation is meant to cut air pollution, reduce petroleum imports and support corn farmers by requiring refiners to mix billions of gallons of biofuels into the nation’s gasoline and diesel each year.

The Small Refiners Coalition, which represents companies that operate small refining facilities, has defended the EPA’s waiver program, saying the EPA is required by law to help small refineries struggling with the RFS and that the exemptions are crucial to their financial well-being.

But the exemption for CVR’s Wynnewood, Oklahoma, plant prompted fresh criticism from the powerful corn lobby, which already has accused Trump’s EPA of over-using the hardship waiver program in a way that hurts demand for ethanol.

“This one’s going to be hard for (Scott) Pruitt to explain,” Brooke Coleman, head of the Advanced Biofuels Business Council industry group, said in an email on Friday, referring to the EPA administrator.

CVR spokeswoman Brandee Stephens declined to comment regarding the waiver. EPA spokeswoman Liz Bowman did not respond to repeated requests by telephone and email for comment. Efforts to reach Icahn and his attorney for comment were not successful.

An early supporter of Trump’s 2016 presidential run and a key supporter on Wall Street, Icahn had met with Pruitt when Pruitt was being vetted in late 2016 for the EPA administrator job, according to news reports at the time.

Icahn stepped down from his position as special regulatory adviser to the Republican president last August after lawmakers cited potential ethical problems in his dual role as an adviser and an investor.

Currently, Icahn is under investigation by the U.S. Department of Justice for his role in influencing biofuels policy while serving as Trump’s adviser. Some U.S. lawmakers have expressed concern that Icahn may have used his presidential access to benefit his investments, a charge Icahn has rejected.

CVR acknowledged the Justice Department probe in an earnings statement on Friday, but noted that “the U.S. Attorney’s office has not made any claims or allegations against CVR Refining or Mr. Icahn.” The Justice Department did not respond to a request for comment on Friday, and has a policy of not discussing ongoing investigations.

To prove RFS compliance, refiners must earn or purchase tradable blending credits – awarded by the government for each blended gallon of fuel – and hand them in to the EPA yearly.

The EPA has the authority to exempt small refineries of under 75,000 barrels per day from the requirement under the hardship waiver program if they can prove that compliance would cause them “disproportionate financial hardship.”

EPA Administrator Scott Pruitt testifies before the House Appropriations Committee Subcommittee on Interior, Environment, and Related Agencies Subcommittee on Capitol Hill in Washington, U.S., April 26, 2018. REUTERS/Aaron P. Bernstein

With the exemption, CVR would not have to turn over the credits related to the Wynnewood facility for 2017, according to the two sources, who spoke on condition of anonymity.

The waiver was granted in recent months but the sources did not say precisely when.

The refinery had been denied the exemptions by Democratic former President Barack Obama’s administration, federal filings showed.


The Trump administration has fielded a surge of applications from small refiners for the hardship exemptions, driven by a 2017 federal appeals court ruling that the EPA had been using too narrow a definition of “financial hardship” in its waiver assessments under Obama.

The Trump administration has also expressed an eagerness to help refiners cope with the RFS, and hosted a series of meetings at the White House to discuss possible solutions, further encouraging applications.

The EPA has said it granted around two dozen waivers for 2017 but has declined to name the recipients, deeming it confidential business information. Under Obama, the EPA granted about eight waivers annually.

The waivers have the potential to save companies tens of millions of dollars, by allowing them to avoid blending or paying for credits on the open market, and by permitting them to sell any credits they have on hand to others.

CVR this week reported a $23 million profit in the biofuels credit market in the first quarter of 2018 due to what it called a lower RFS obligation, an unusual return for a refiner that has no biofuel blending facilities.

The company also said it expects its cost of complying with the RFS requirements to fall to $80 million for the entirety of 2018 from a previous estimate of $200 million, and from roughly $249 million in 2017.

CEO David Lamp said in a conference call with analysts on Thursday that he would not discuss whether the improved numbers were derived from an EPA waiver.

“CVR Energy has had a long history of keeping RFS compliance strategy confidential,” Lamp said.

Reporting by Jarrett Renshaw and Chris Prentice; Editing by Richard Valdmanis and Will Dunham

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Glencore downgraded on DRC woes

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