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Chipotle profit down 76%


How the world's largest food company keeps your food safe

How the world’s largest food company keeps your food safe

Chipotle profit down 76%


Published at Thu, 02 Feb 2017 22:17:29 +0000

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Dan Loeb: Trump will make hedge funds great again

Hedge fund manager Daniel Loeb speaks during a Reuters Newsmaker event in Manhattan, New York, U.S., September 21, 2016. REUTERS/Andrew Kelly

Hedge fund manager Daniel Loeb speaks during a Reuters Newsmaker event in Manhattan, New York, U.S., September 21, 2016.REUTERS/Andrew Kelly

By Lawrence Delevingne

U.S. hedge fund manager Dan Loeb is betting President Donald Trump will be good for investments thanks to his planned mix of tax cuts, reduced regulation and infrastructure spending.

“This environment is undoubtedly better for active investing – just as active investing was considered to be on its deathbed,” Loeb wrote in a letter to clients of his $15 billion Third Point LLC Wednesday.

A shift from government monetary stimulus to measures that will increase personal and corporate spending will create lower correlations between various types of securities and greater dispersion of results within them, such as stocks, Loeb said.

Higher interest rates will also create investment opportunities, Loeb added.

Third Point’s main hedge fund lost 1.1 percent in the fourth quarter, wrapping up a year that Loeb said was “disappointing”. The fund gained only 6.1 percent in 2016, below its 15.7 percent average annual return since 1996 and less than an approximately 12 percent gain for the S&P 500 Index, with dividends.

Loeb wrote he had made changes to New York-based Third Point’s investment holdings immediately after Trump’s election win, shifting to stocks and away from corporate and structured credit. Third Point now has similar-sized holdings in the healthcare, technology, industrial and financial sectors, according to the letter.

One large change was in securities of financial companies. The sector now represents 11.8 percent of the fund, up from 4.4 percent on Nov. 8, according to the letter. Loeb’s focus is now on banks and brokers and includes exposure to Japan.


“The pendulum in monetary policy has begun to shift away from the past decade of extraordinary easing just as the pendulum in fiscal policy has begun to shift away from austerity and its limiting factors,” Loeb wrote. “The U.S. elections served as a marker for these policy shifts which, in our view, are bullish for rate‐sensitive financials.”

Loeb did urge some caution on investment during the Trump presidency, noting hedges on Third Point’s portfolio. But he said that even volatility could be a boon.

“While America may or may not be made great again, there is no question that the rules are literally being rewritten,” Loeb wrote. “We do not plan to trade the tweets but we expect an increasing number of real and, even better, fake dislocations to create some extremely rewarding investing opportunities.”

Third Point’s offshore hedge fund rose 2.6 percent in January, according to a person familiar with the situation who requested anonymity because the information is private.


(Reporting by Lawrence Delevingne; Editing by Lauren Tara LaCapra and Himani Sarkar)

Published at Thu, 02 Feb 2017 06:21:08 +0000

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Journey to running top hotels started with rigorous first jobs


By fotoerich from Pixabay


No matter your politics, it’s the middle of winter and most Americans would be happy to take a vacation right about now.

Want a nice room on a beach somewhere? Many of the hotels around the globe, by the way, are part of large chains overseen by just a handful of people.

For the latest in Reuters’ “First Jobs” series, we talked to a few of those high-powered hoteliers about the gigs that got them started in life.

Arne Sorenson

President & CEO, Marriott International

First job: Motel night cleaner

I was assistant foreman of the night cleaning crew at the Ambassador Motor Lodge in Wayzata, Minnesota. It was not a fancy job, so it didn’t take extraordinary connections to get it.

The shift was from around 10 p.m. to 6 a.m., and we were responsible for cleaning all the public areas – vacuuming the carpets, mopping the bathrooms. The night shift is an interesting collection of folks, working for all sorts of different reasons. Everyone came from their own unique circumstances, but we all had to learn how to work together.

One of the life lessons from it was that there is pride and dignity in every single job – even the ones you literally don’t see, because they take place in the middle of the night. I even volunteered to clean the bathrooms myself. That was because no one else wanted to do it, I could get it done relatively quickly – and it let me get some reading done.


Allen Smith

President & CEO, Four Seasons Hotels and Resorts

First job: Brickmason’s helper

The summer I turned 16, I got a job at a construction site in Lexington, South Carolina earning $1.85 an hour. I was the youngest person on the jobsite, and I was tested very early by the more experienced workers on the crew. They wanted to see if I was really up for backbreaking work in the intense South Carolina heat.

I guess I passed the test, mixing mortar and hauling bricks up scaffolding to where the masons were working. Over the course of the summer I graduated to become a ‘concrete finisher.’ In the context of manual labor, that was a big move up.

That job is something I reflect on quite a bit, and made me appreciate that kind of hard work.


Herve Humler

President & COO, The Ritz-Carlton Hotel Company

First job: Busboy

My first job while at school and growing up as a teenager was working in a restaurant and bar in the South of France. My position was the all-around boy – mostly the busboy, clearing the food station, making sure the glasses and silverware were polished, and vacuuming the restaurant after every shift. I was eligible for a very small portion of the tip pool, and a small base salary.

What did I do with that money growing up in the South of France? At that time there was no restriction for teenagers to drink alcohol, so I spent some of this money on a beer after work, and the rest on gas for my moped.

My first ‘real’ job came after my military service in Abidjan in the Ivory Coast, where I remained and worked at the Hotel Ivoire, which was part of InterContinental. As the night auditor, I had no supervisor – and I liked roaming the hotel by myself at night.

Sheila Johnson

Founder & CEO, Salamander Hotels & Resorts

First job: Music teacher

I had been a violinist since I was 9 years old, playing in the Chicago Youth Symphony and winning state competitions. So my first job out of college was as orchestra director for five district schools in New Jersey. I lived in Princeton, New Jersey, and traveled up and down Route 1.

After that I went to teach at Sidwell Friends school in Washington, D.C., making $7,200 a year. That was too little to live on, so I had to supplement that by getting a job as an actress. What I learned is that everyone has to be resourceful in life. Work hard, stay focused, and just do what you have to do.

(The writer is a Reuters contributor. The opinions expressed are his own.)

(Editing by Beth Pinsker and Frances Kerry)
Published at Thu, 02 Feb 2017 14:28:15 +0000

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Facebook now has 1.86 billion users

Facebook now has 1.86 billion users


Facebook is quickly closing in on the two billion user mark.

The social network had 1.86 billion monthly active users as of the end of 2016, up from 1.79 billion the previous quarter and 1.59 billion a year earlier, according to its fourth quarter earnings report on Wednesday.

In fact, Facebook added more users this quarter compared to a year earlier than any quarter since the company went public in 2012, according to CFO David Wehner.

Wehner attributed the impressive user growth to “promotional data plans” from third parties in countries like India as well as, Facebook’s free stripped-down Internet offering in developing markets.

Facebook’s(FB, Tech30) ability to keep growing its community while also creating more advertising products continues to help the company beat Wall Street expectations for sales growth.

Facebook’s sales for the December quarter totaled $8.8 billion, up more than 50% from the same period a year earlier. The company’s overall sales for 2016 also grew by about 50% to $27.6 billion.

Facebook generated nearly $20 from each user in the U.S. and Canada during the quarter, up from $13.70 a year earlier as it offers more lucrative video ads.

The company’s stock rose as much as 2.5% in after hours trading Wednesday following the earnings release.

“Our business did well in 2016, but we have a lot of work ahead to help bring people together,” Mark Zuckerberg, Facebook’s CEO and cofounder, said in a statement

Facebook’s spooked investors last quarter by talking up plans for “aggressive investment” in 2017 even as sales growth is expected to slow. He reiterated that point on a conference call with analysts Wednesday.

The reason: Facebook has nearly saturated the number of ads it can put in front of users.

Despite that warning, Facebook’s sales have continued to grow at a faster clip than investors expected.

Facebook’s stock, like much of the tech industry, took a hit when Donald Trump won the election.

As a candidate, Trump called out Zuckerberg for his immigration policies. He has also threatened to crack down on the hiring of foreign workers, which is a key source of talent for Silicon Valley.

Facebook’s top two execs both came out against Trump’s travel ban, after staying mostly silent during the first days of the new administration.

“Like many of you, I’m concerned about the impact of the recent executive orders signed by President Trump,” Zuckerberg wrote in a Facebook post. COO Sheryl Sandberg called it “particularly unforgiving” for women.
Published at Wed, 01 Feb 2017 21:32:57 +0000

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Apple iPhone sales beat estimates


Apple sold 78.29 million iPhones in the first quarter ended Dec. 31, up from 74.78 million last year, marking the first quarterly growth in iPhone sales in a year.

Analysts on average had estimated iPhone sales of 77.42 million, according to research firm FactSet StreetAccount.

The results, which reflected the first full quarter of iPhone 7 sales, come at a time when global demand for smartphones is slowing and cheaper Android alternatives are flooding the market.


Apple’s services business, which includes the App Store, Apple Pay and iCloud, recorded an 18.4 percent growth in revenue, helped by the popularity of games such as Pokemon Go and Super Mario Run and higher revenue from subscriptions.

The company forecast total revenue of between $51.5 billion and $53.5 billion for the current quarter. Analysts, on average, had expected revenue of $53.79 billion, according to Thomson Reuters I/B/E/S.

The company’s net income fell to $17.89 billion, or $3.36 per share, in the quarter from $18.36 billion, or $3.28 per share a year earlier. Analysts on average had expected $3.21 per share, according to Thomson Reuters I/B/E/S.

Revenue rose 3.3 percent to $78.35 billion in the quarter, compared with the average estimate of $77.25 billion.

(Reporting by Narottam Medhora in Bengaluru; Editing by Saumyadeb Chakrabarty)
Published at Tue, 31 Jan 2017 21:35:58 +0000

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Under Armour under siege: Stock plunges 25%

by rstinnett from Flickr

Under Armour under siege: Stock plunges 25%


Stephen Curry and the Golden State Warriors have the best record in the NBA. Tom Brady will attempt to win his fifth Super Bowl with the New England Patriots on Sunday.

Both endorse Under Armour. But their winning ways aren’t helping the company. At all.

The sportswear company reported sales and earnings that missed forecasts. It also said revenues for 2017 would be lower than what Wall Street expected.

And the company said its chief financial officer was stepping down for “personal reasons.” Wall Street often assumes that an executive leaving for “personal reasons” is a sign that a company is in trouble and that someone needs to take the fall.

Under Armour (UAA) tanked on this trifecta of bad news. Shares plunged nearly 25% in early trading Tuesday. That put the stock on track for its worst one-day drop ever.

Under Armour CEO Kevin Plank, who is part of a group of business leaders advising President Trump about economic policy for U.S. manufacturers, said in the earnings announcement that there were “numerous challenges and disruptions” in the quarter.

Many big retailers — most notably Macy’s (M) and Kohl’s (KSS) — reported weak results for the holidays, leading investors to wonder whether the American consumer is in trouble or if traditional retailers are just losing more ground to Amazon.

Under Armour has been hit particularly hard by the problems facing brick-and-mortar retailers, especially those specializing in athletic wear. The Sports Authority went out of business. Finish Line (FINL) closed hundreds of stores last year.

The poor start to 2017 for Under Armour is even more troubling when you consider how awful a year the company had in 2016. The stock plummeted nearly 30% last year because of weak sales and the broader challenges in the athletic apparel industry.

Archrival Nike (NKE) also had a dismal 2016. In fact, it was the worst-performing Dow stock last year.

Both were hurt by a resurgent Adidas (ADDDF), which posted strong sales and earnings last year, partly because of ties to the Summer Olympics in Rio and the Euro 2016 soccer tournament.

But while Under Armour is still struggling, Nike has bounced back. It reported solid results for its latest quarter, fueled by a rebound in China and Europe.

Nike’s stock did fall Tuesday along with Under Armour. But the House of Swoosh’s shares are still up nearly 4% this year. Nike also recently announced plans to set up small Nike stores at JCPenney (JCP) — a deal that could hurt Under Armour, too.

Under Armour can’t seem to catch a break. It was once a Wall Street darling. Investors embraced its upstart, underdog story.

They also loved that the company was able to sign big names like Curry, Brady and others — such as Carolina Panthers quarterback Cam Newton, baseball star Bryce Harper and golf champion Jordan Spieth — to big deals.

But Under Armour has a lot of challenges it now has to overcome. The company’s famous marketing tagline — “We Must Protect This House!” — now sounds like a rallying cry that’s fallen on deaf ears on Wall Street … and with sneaker-buying consumers.

Published at Tue, 31 Jan 2017 15:43:27 +0000

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Goldman CEO takes lead on Wall Street in slamming Trump travel ban


Goldman Sachs Chairman and CEO, Lloyd Blankfein, waits to speak at the 10,000 Women/State Department Entrepreneurship Program at the State Department in Washington, March 9, 2015. REUTERS/Gary Cameron


Goldman CEO takes lead on Wall Street in slamming Trump travel ban

By Olivia Oran

Goldman Sachs Group Inc Chief Executive Lloyd Blankfein became the first major Wall Street leader to speak out against President Donald Trump’s order to halt arrivals from several Muslim-majority countries.

In a voicemail to employees on Sunday, Blankfein said diversity was a hallmark of Goldman’s success, and if the temporary freeze became permanent, it could create “disruption” for the bank and its staff.

“This is not a policy we support, and I would note that it has already been challenged in federal court, and some of the order has been enjoined at least temporarily,” Blankfein said, according to a transcript seen by Reuters.

In Silicon Valley, the heads of companies such as Apple and Facebook swiftly denounced Trump’s immigration ban. But the rest of corporate America has been more circumspect in speaking out, underscoring the sensitivities around opposing policies that could provoke a backlash from the White House.

Tepid responses from many of Blankfein’s peers made his comments all the more potent, especially because Goldman has gotten attention for the number of its alumni who have joined Trump’s administration.

Top BlackRock Inc executives including CEO Larry Fink, sent a memo to staff on Monday saying Trump’s order presented “challenges” to its goals of diversity and inclusion. BlackRock is examining the direct impact on its employees, as well as the broader implications of the order, they said.

“We, of course, all want to promote security and combat terrorism, but we believe it needs to be done with respect for due process, individual rights and the principle of inclusion,” they wrote.’


Citigroup CEO Mike Corbat said in a memo to employees on Monday the bank is concerned about “the message the executive order sends” as well as the impact immigration policies might have “on our ability to serve our clients and contribute to growth.”

JPMorgan Chase & Co’s operating committee, which includes CEO Jamie Dimon, avoided directly criticizing the policy. In a note to staff over the weekend, the firm said it was reaching out to all employees affected and noted that the country was “strengthened by the rich diversity of the world around us.”

Bank of America Corp CEO Brian Moynihan wrote in an internal memo obtained by Reuters and confirmed by a spokesman that the bank is “closely monitoring” the order and connecting with staff who may be affected and have questions.

“We depend upon the diverse sources of talent that our teammates represent,” the memo stated.


Other banks, including Morgan Stanley and Wells Fargo & Co, said they were reviewing the executive order and its implication on staff.

Representatives for stock exchange operators Bats Global Markets, Nasdaq Inc and New York Stock Exchange parent Intercontinental Exchange Inc all declined to comment.

The U.S. hedge fund industry was also virtually silent on the immigration restrictions. Representatives for most major firms —including Bridgewater Associates, Renaissance Technologies, Millennium Management and Two Sigma Investments — did not respond to requests for comment over the weekend.

Private equity firms, including Blackstone Group LP, whose CEO, Stephen Schwarzman, chairs Trump’s advisory panel of business leaders, also would not comment on the travel ban.


People familiar with some of the banks’ and firms’ decisions in making public statements said a fear of riling Trump was inhibiting most CEOs’ responses.

Since the election, he has taken to Twitter to excoriate certain companies, causing stock price swings. And because Wall Street is hoping for an easing of financial reform regulations, most firms want to stay in Trump’s good graces, they said.

The most high-ranking Goldman executive to have joined the Trump administration is former Chief Operating Officer Gary Cohn, who left the bank in December to become head of the White House National Economic Council. Others include Treasury Secretary nominee Steven Mnuchin and Trump advisers Steve Bannon, Anthony Scaramucci and Dina Powell.

Those recruits have put the Goldman back in the spotlight as a bank that long had influence in government and public policy, from the days of the Great Depression to the 2008 financial crisis.

But after the bank was embroiled in scandals over its mortgage-market bets, it embarked on a campaign to improve its image. Blankfein has promoted its focus on philanthropy and diversity initiatives, as well as Goldman’s role in job creation.

(Reporting by Olivia Oran in New York; additional reporting by Richa Naidu in Bengaluru and Lawrence Delevingne, David Henry and Trevor Hunnicutt in New York; Editing by Nick Zieminski and Tom Brown)
Published at Tue, 31 Jan 2017 00:05:48 +0000

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Deutsche to pay $425 million to New York regulator over Russian ‘mirror trades’


By Karen Freifeld and Arno Schuetze

Deutsche Bank AG (DBKGn.DE) has agreed to pay $425 million to New York’s banking regulator over a “mirror trading” scheme that moved $10 billion out of Russia between 2011 and 2015, the regulator said on Monday.

In addition, Britain’s Financial Conduct Authority is about to penalize the bank roughly $200 million for the suspicious trades, a person familiar with the matter said.

The scheme involved clients buying stocks in Moscow in rubles and related parties selling the same stocks shortly thereafter through the bank’s London branch, the New York Department of Financial Services (DFS) said in a statement.

The trade of a Russian blue chip stock, typically valued at between $2 million to $3 million an order, was cleared through the bank’s New York operations, with the sellers typically paid in U.S. dollars, DFS said.

The regulator, which licenses and supervises the New York branch, found the bank conducted its business in an unsafe and unsound manner in violation of state banking law.

Though the trades appeared to have no legitimate economic purpose, Deutsche’s deficient anti-money laundering controls and know-your-customer policies did not detect and stop the scheme for years, DFS superintendent Maria Vullo said.

Deutsche Bank said “it has been unable to identify the actual purpose behind this scheme,” according to a consent order between the New York regulator and the bank. “It is obvious, though, that the scheme could have facilitated capital flight, tax evasion or other potentially illegal objectives.”

In addition to the penalty, Deutsche is required to retain an independent monitor to review the bank’s compliance programs.


Deutsche Bank said in a statement that the settlement monies were already reflected in existing litigation reserves. It said the regulator considered its cooperation and remediation in reaching the penalty.

Deutsche also said it was cooperating with other regulators and law enforcement authorities with their ongoing investigations of the trades.

A spokesperson for the Financial Conduct Authority declined to comment. The source on the FCA’s expected penalty did not want to be identified because the terms were not public.

The New York regulator said it worked closely on the investigation with the FCA.


Reuters reported on Monday that Deutsche Bank was poised to settle with British and U.S. authorities over the trades.

The U.S. Department of Justice, which also has been investigating the suspicious trades, is not party to the deal. A spokesman for the department declined to comment on the status of its probe.

Deutsche Bank disclosed last September that it had taken disciplinary measures against certain employees as part of an investigation of the trades and would continue to do so.

The bank also cut back on its investment banking activities in Russia last year.


Monday’s consent order found Deutsche Bank’s Moscow traders facilitated the scheme, with most of the trades placed by a single trader representing both sides of the transaction.

Deutsche’s Moscow traders did not question the suspicious trades because it made for easy commissions when their Russian business had slowed, the regulator found.

The regulator also noted that one Moscow supervisor may have been bribed to facilitate the schemes, and that senior bank employees missed red flags and did not take action towards real reform until 2016.

Deutsche Bank had set aside 1 billion euros ($1.1 billion) in provisions for the Russian probes, people close to the matter have told Reuters.

The resolution of the New York mirror trade probe comes on the heels of a $7.2 billion agreement with the Justice Department for misleading investors in selling mortgage-backed securities in the run-up to the financial crisis. The two settlements lift much of the uncertainty swirling around the bank over its exposure to fines and enforcement.

The bank is due to report fourth-quarter financial results on Thursday.

(Reporting by Karen Freifeld and Arno Schuetze; Editing by Bernard Orr)
Published at Tue, 31 Jan 2017 00:33:54 +0000

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Walgreens/Rite Aid Deal Gets Price Cut, Extension


Walgreens/Rite Aid Deal Gets Price Cut, Extension

The price of the long-simmering buyout of Rite Aid (NYSE: RAD) by fellow pharmacy giant Walgreens Boots Alliance (NASDAQ: WBA) has dropped. In a joint press release the two companies announced a modification of their merger agreement that will see the price fall to between $6.50 and $7.00 per Rite Aid share.

Additionally, the end date of the merger agreement has been extended to July 31 of this year. Originally, they had targeted Jan. 27.

The exact buyout price will depend on the extent of the store divestments. The amended agreement stipulates that Rite Aid will be required to sell up to 1,200 of its stores, plus “certain additional related assets” if such sales are required to obtain regulatory approval. The more outlets that are sold, the lower the theoretical value of Rite Aid, hence the lower the sale price.

Walgreens and Rite Aid originally agreed to a price of $9.00 per share in a deal valued at over $17 billion, including debt. That agreement was signed in October 2015.

Last month, the two companies agreed to sell 865 Rite Aid locations to regional pharmacy operator Fred’s (NASDAQ: FRED) for $950 million. This was done to appease the Federal Trade Commission, which had previously mandated the sale of between 500 and 1,000 Rite Aids in order to win its approval for the merger. However, the FTC indicated that deal was not sufficient to ease its concerns about the anticompetitive nature of the merger.

If it ever goes through, the Walgreens/Rite Aid deal will create the largest pharmacy chain by far in the U.S. As of late last year, Walgreens was already the largest such company in the country, while Rite Aid was No. 4.

Understandably, Rite Aid’s shares fell significantly on news of the modifications; they closed 17% down on Monday. Walgreens’ stock essentially traded flat.

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Eric Volkman has no position in any stocks mentioned
Published at Mon, 30 Jan 2017 23:10:03 +0000

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Pentagon Reviewing Boeing, Lockheed Contracts


Pentagon Reviewing Boeing, Lockheed Contracts

Apparently taking his cue from on President Donald Trump’s recent tweet storm, Defense Secretary James Mattis has ordered reviews of Boeing‘s (NYSE: BA) contract to build new aircraft that will serve as Air Force One and Lockheed Martin‘s (NYSE: LMT) contract to build F-35 fighter jets.

In early December, Trump tweeted: “Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!”

The technologically advanced military-class aircraft is designed to be a fortress that can serve as a flying White House and keep the president safe even in the event of a nuclear war. A plane with those unique features is naturally going to be expensive, but Trump issued a follow-up statement to the media saying, “The plane is totally out of control … I think Boeing is doing a little bit of a number. We want Boeing to make a lot of money but not that much money.”

A short time later, Trump sent out a separate tweet taking aim at Lockeheed’s fifth-generation fighter jet program: “The F-35 program and cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th.” The defense contract features some $7.2 billion worth of contracts to build 90 of the fighter jets, about $80 million per plane.

Although both companies publicly pledged to work with the president on controlling costs, Trump is apparently holding their feet to the fire to ensure they make good on their promises. A Pentagon spokesman said Mattis issued the reviews in order to “inform programmatic and budgetary decisions, recognizing the critical importance of each of these acquisition programs…This action is also consistent with the president’s guidance to provide the strongest and most efficient military possible for our nation’s defense.”

According to Bloomberg, Mattis is also giving Boeing an opportunity to get the fighter jet contract by reviewing whether a version of its F-18 jet could make a viable substitute. That seems to be in line with yet another Trump tweet: “Based on the tremendous cost and cost overruns of the Lockheed Martin F-35, I have asked Boeing to price-out a comparable F-18 Super Hornet!”

Mattis’s directive calls for the deputy defense secretary to “oversee a review that compares F-35C and F/A-18E/F operational capabilities and assesses the extent that F/A-18E/F improvements (an advanced Super Hornet) can be made in order to provide a competitive, cost effective, fighter aircraft alternative.”

Experts have been clear that there is no way to build an F-18 model that could supplant the F-35 for a host of reasons; among the biggest is that the older plane can’t be given the stealth of the new one. However, it seems this latest move from the new administration is a strong signal that Trump’s tweets aren’t necessarily empty words.

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Published at Mon, 30 Jan 2017 15:05:05 +0000

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Goldman Sachs CEO warns of ‘disruption’ from Trump travel ban


Protesters storm airports nationwide
Protesters storm airports nationwide

Goldman Sachs CEO warns of ‘disruption’ from Trump travel ban


Goldman Sachs CEO Lloyd Blankfein fired off a companywide voicemail Sunday night saying he does not support President Trump’s travel ban and warned it could cause “disruption” to the Wall Street bank.

“This is not a policy we support,” Blankfein said in the message sent out to the firm’s global staff.

The comments followed a weekend of confusion and protests over Trump’s ban on travelers from seven Muslim-majority countries and a freeze on the U.S. refugee program.

“I recognize that there is potential for disruption, and especially to some of our people and their families,” the Goldman Sachs (GS) boss said in the voicemail, a transcript of which the bank provided to CNNMoney.

Like other global banks, Goldman has a significant presence in the Middle East. The Wall Street firm has offices in Israel, Qatar, Saudi Arabia and the United Arab Emirates — none of which are part of the ban.

Blankfein said Goldman executives will “work to minimize such disruption to the extent we can within the law and are focused on supporting our colleagues and their families who may be affected.”

In a subtle rebuke to Trump, Blankfein also quoted from Goldman’s business principles that preach the importance of diversity.

“We must attract, retain and motivate people from many backgrounds and perspectives. Being diverse is not optional; it is what we must be,” Blankfein quoted the principles as saying.

“Now is a fitting time to reflect on those words,” the CEO said.

Interestingly, a former Goldman employee is said to have played a role in the Trump travel ban: Steve Bannon. Trump’s chief strategist worked at Goldman in the 1980s as an M&A banker and has since emerged as a critic of Wall Street. Bannon was among the senior White House advisers who helped interpret the meaning of the executive order amid widespread confusion in the government, sources told CNN.

Bannon is one of several former Goldman execs who Trump has tapped for senior roles in his administration, including treasury secretary nominee Steven Mnuchin and top economic adviser Gary Cohn.

Goldman is the latest global company to raise concern over Trump’s travel ban.

The response has been the loudest from Silicon Valley, where Lyft donated $1 million to the ACLU, Google launched a $4 million fund that will also partly benefit ACLU, Airbnb offered free housing to those impacted and a slew of executives donated money to fighting the travel ban.

Elsewhere, Starbucks (SBUX) announced plans to hire 10,000 refugees over five years and General Electric (GE) CEO Jeff Immelt said in a blog post that he shares the “concern” felt by his employees.

JPMorgan Chase (JPM)CEO Jamie Dimon pledged “unwavering commitment to the dedicated people” who work at the bank and said the company has reached out to impacted employees.

Morgan Stanley (MS) CEO James Gorman sent an email to all employees Sunday afternoon saying he is “concerned” for employees who may be impacted by the new U.S. travel restrictions.

Gorman didn’t expressly say he opposes the travel ban, but the Australia native said Morgan Stanley “immensely” values the contributions of “all our employees from all over the world.”

–CNNMoney’s Jill Disis and Cristina Alesci contributed to this report.

 CNNMoney (New York)First published January 30, 2017: 9:45 AM ET

Published at Mon, 30 Jan 2017 14:45:16 +0000

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Back to zero: Companies use 1970s budget tool to cut costs as they hunt for growth

by Meditations from Pixabay

Back to zero: Companies use 1970s budget tool to cut costs as they hunt for growth

By Tim McLaughlin

The number of U.S. companies using a budgeting tool made famous in the 1970s by former U.S. President Jimmy Carter is surging as they turn their spending habits upside down to boost profits and to re-invest in their businesses.

The upswing in zero-based budgeting (ZBB) signals that a broader cross-section of U.S. companies anticipate turbulence in their revenue growth. They face more pressure on profits, too, as wages and interest rates increase, and a stronger dollar makes their products more expensive overseas.

In consumer staples, where sales growth is often capped in the low-to-mid single digits, Campbell Soup Co (CPB.N), Kellogg Co (K.N), and Oreo cookie maker Mondelez International Ltd (MDLZ.O) have already rolled out ZBB programs that promise billions of dollars in savings.

Other industries, including finance, energy and manufacturing, are now following suit. Use of ZBB in 2017 is expected to increase dramatically in the United States and around the globe, according to consulting experts. Bain & Company reported last year in a survey of 406 North American companies that 38 percent of that group would use ZBB, up from just 10 percent in 2014.

“ZBB has taken on a life of its own,” said Greg Portell, a partner at consulting firm A.T. Kearney.

A ZBB approach requires corporate managers to justify each line item of spending in their budgets, or even build their budgets from scratch. That is a departure from the typical process of using the previous year’s budget as a starting point and adjusting it based on revenue and inflation projections, for example.

It often cracks down on the size of a company’s real estate footprint, corporate travel, terms of international assignments, redundant technology and outside consultants. Employees get cut, too.

But there are risks. One is that companies focus too keenly on restraining spending and not on reinvestment that promotes new products and revenue growth.

“You continuously have to ask what are strategic costs and how can we invest behind the things that drive the highest volume,” said Jason Heinrich, a partner in Bain & Company’s Chicago office.


ZBB first gained widespread attention in the late 1970s, when Carter, as president, said he would apply the budgeting principles to federal spending. It never fully got off the ground, however, and Ronald Reagan abandoned it when he became president in 1981.

Its recent resurgence is due in part to Brazilian buyout firm 3G Capital, which used ZBB when it combined H.J. Heinz with Kraft Foods in 2015.

The combined Kraft Heinz (KHC.O) now has the best profit margins among its peers with an estimated year-over-year gross margin expansion of 258 basis points, better than twice the average among rivals, according to Morgan Stanley. Kraft Heinz’s stock sports a 2.5-point price-to-earnings-multiple premium over its peers.

3G’s success is one reason the highest adoption rate of ZBB is in the consumer staples sector, which has banked on cost cutting to offset weak sales growth. In the current fourth quarter reporting season, the consumer staples sector is on track to report profit of 6.3 percent off revenue growth of just 3.2 percent, according to Thomson Reuters data.

Contrast that with the consumer discretionary sector where sales are seen rising 5 percent but profit just 1.1 percent.

Greg Kuczynski, a consumer staples analyst at asset manager Janus Capital, said ZBB is also being used by some to head off agitation from activist shareholders or even takeovers, like the Kraft Heinz deal.

“So many of them feel threatened,” he said. “They’re desperately implementing ZBB packages.”

Now the approach is spreading to energy, finance, health care and manufacturing. Cheniere Energy Inc (LNG.A), Huntington Bancshares Inc (HBAN.O), Baxter International Inc (BAX.N) and Ford Motor Co (F.N) are some of the latest devotees.

“If a company uses zero-based budgeting, I have more confidence it can take out cost faster than peers who do not,” said Marc Scott, who helps run the $1 billion American Century All-Cap Growth Fund (TWGTX.O).


Not everyone is sold on it. It can be an uncomfortable adjustment for managers and companies have to be careful not to alienate customers and business partners, according to analysts.

The biggest risk is that companies concentrate only on cutting costs, and don’t put some of that money back to work behind businesses with the potential for growth. One unintended consequence is cutting a product’s marketing budget only to see a rival boost spending for their product and grab market share.

“It’s not so simple as some of our other competitors out there make you believe, which has been roughly translated into, ‘Let’s cut all the costs as long as we can get away with it to show you better margins for a short period of time. But I can’t promise you any growth along the way,'” Unilever (ULVR.L) Chief Executive Paul Polman told investors in November.

Even Kraft Heinz has had trouble generating consistent growth. Its organic net sales, which excludes the impact of currency fluctuations and other items, declined by 1 percent in the three-month period that ended Oct 2.

Still, the cost cutting has caught the attention of investors, particularly when companies scrap product lines that add little value.

American Century’s Scott said ZBB was a factor when he evaluated kidney dialysis provider Baxter International, which has used ZBB principles to cancel several programs that added little value.

He began building a position in late 2015 when Baxter traded below $35 a share, according to Thomson Reuters data. The fund now owns about 540,000 shares and the stock trades around $46.

“It was just another feather in their cap,” Scott said about Baxter’s use of ZBB. “It’s not a huge growth play, but we expect their profit margins to nearly double in a couple of years.”

(Reporting by Tim McLaughlin; Editing by Dan Burns and Paul Thomasch)
Published at Mon, 30 Jan 2017 05:00:01 +0000

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Trump travel ban stirs faint corporate outcry beyond Silicon Valley


By Devika Krishna Kumar and Ross Kerber

Most U.S. corporate bosses have stayed silent on President Donald Trump’s immigration curbs, underscoring the sensitivities around opposing policies that could provoke a backlash from the White House.

While the leaders of Apple Inc APPL.O, Google (GOOGL.O) and Facebook Inc (FB.O) emailed their staff to denounce the suspension of the U.S. refugee program and the halting of arrivals from seven Muslim-majority countries, many of their counterparts in other industries either declined comment or responded with company statements reiterating their commitment to diversity.

The difference in response shows the pressure large swathes of corporate America faces to avoid tussling publicly with the new administration.

Companies such as aircraft maker Boeing Co (BA.N) and automakers Ford Motor Co (F.N) and General Motors Co (GM.N) have already had run-ins with Trump over other issues, and they have much at stake in policy decisions that the administration will make on tax, trade and regulatory matters.

Before office, Trump attacked Boeing over the cost of the future Air Force One program. Boeing Chief Executive Officer Dennis Muilenburg met with him earlier this month and said he and Trump had made progress on the Air Force One issue and the potential sale of fighter aircraft.

Representatives from Boeing, General Motors and Ford declined to comment on Trump’s immigration curbs.

Wall Street, meanwhile, is hoping the new administration will ease some of the regulations introduced in the wake of the 2007-08 financial crisis and adopt a lighter touch in their enforcement.

Industries including banking, healthcare and auto manufacturing “see themselves on the cusp of a new era of deregulation, and they do not want to do anything that would offend the new emperor,” said Cornelius Hurley, director of Boston University’s Center for Finance, Law & Policy.

Trump had targeted both the tech industry and Wall Street during his presidential campaign, but once elected, he tapped former investment bankers, hedge fund managers and private equity investors to join his administration.

With friends in high places, Wall Street may have less reason to be as outspoken about the new restrictions.

“Bankers have direct access to this White House,” said Erik Gordon, who teaches at the University of Michigan’s Ross School of Business. “They don’t have to protest publicly.”


Representatives of Goldman Sachs Group Inc (GS.N), Citigroup Inc (C.N), Bank of America Corp (BAC.N) and Morgan Stanley (MS.N) declined to comment on Trump’s immigration order.

Wells Fargo & Co (WFC.N) said in a statement that it was reviewing the executive order and its implications for staff and its business.

JPMorgan Chase & Co’s (JPM.N) Operating Committee, which includes CEO Jamie Dimon, sent a note to staff saying it was reaching out to all employees affected and noted that the country was, “strengthened by the rich diversity of the world around us.”

To be sure, some CEOs were more outspoken.

Nike Inc (NKE.N) CEO Mark Parker said the company did not support the executive order.

“Nike believes in a world where everyone celebrates the power of diversity,” he said in a statement. “Those values are being threatened by the recent executive order in the U.S. banning refugees, as well as visitors, from seven Muslim-majority countries.”


Brent Saunders, CEO of U.S. drugmaker Allergan Plc (AGN.N), tweeted: “Oppose any policy that puts limitations on our ability to attract the best & diverse talent.”

But many boardrooms kept quiet. Representatives for some energy companies, including Exxon Mobil Corp (XOM.N), for example, declined to comment.


As the idea of corporate social responsibility has taken root, so companies have increasingly championed a range of causes, including gay rights, diverse workplaces and a global view.

Many in corporate America are still trying to work out how to deal with a new government that takes a more conservative stance on some social issues and has an anti-globalization platform.


Those non-tech companies that did issue statements over the weekend tended to emphasize their role as good corporate citizens rather than openly criticize Trump’s policies.

Starbucks Corp (SBUX.O) CEO Howard Schultz has put the coffee chain in the national spotlight before, asking customers not to bring guns into stores and urging conversations on race relations.

In a letter to employees, he said Starbucks was developing plans to hire 10,000 refugees over five years across dozens of countries, but he did not directly criticize Trump’s order.

“I am hearing the alarm you all are sounding that the civility and human rights we have all taken for granted for so long are under attack,” he wrote.

In his statement, General Electric Co (GE.N) CEO Jeff Immelt told staff that the company would engage with the U.S. government.

“We will continue to make our voice heard with the new administration and Congress, and reiterate the importance of this issue to GE and to the business community overall,” he wrote.

One of the most immediate ways for corporate bosses to communicate with Trump about the immigration order will be the first meeting of his advisory panel of business leaders next week.

Of the 19 leaders on that panel, only two, Elon Musk, who founded Tesla Motors Inc (TSLA.O) and SpaceX, and Travis Kalanick, CEO of Uber Technologies Inc [UBER.UL], have spoken out against Trump’s immigration curbs.

A spokeswoman for Stephen Schwarzman, the billionaire chief executive of Blackstone Group LP (BX.N) whom Trump tasked to set up and chair the panel, declined to comment.

(Additional reporting by Olivia Oran, Dan Freed, Lauren Hirsch, Lawrence Delevingne and Gui Qing Koh in New York, Joe White in Detroit and David Shepardson in Washington; Writing by Carmel Crimmins; Editing by Lisa Von Ahn)
Published at Mon, 30 Jan 2017 05:01:00 +0000

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U.S. tech leaders sound alarm over Trump immigration ban


Published at Sat, 28 Jan 2017 21:49:17 +0000

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Wells Fargo complaint website has vanished


Fmr. Wells Fargo managers: the pressure was unbearable
Fmr. Wells Fargo managers: the pressure was unbearable

Wells Fargo complaint website has vanished


Alarmed by allegations that Wells Fargo retaliated against whistleblowers, the Labor Department set up a dedicated website last year for the bank’s workers to report abuse and seek advice.

Earlier this month, the website disappeared — and Senator Elizabeth Warren is demanding to know why.

Warren fired off a letter to the Labor Department on Thursday raising concern over the removal of the Wells Fargo website. She cited the “substantial harm done to workers” as a result of “widespread and continuing” management problems at the scandal-ridden bank.

The Democrat from Massachusetts said the website — — was “up and running” as of January 20, the day Trump was sworn in.

However, Stephen Barr, a Labor Department spokesman, told CNNMoney that the Wells Fargo page was taken down on January 9 while President Obama was still in office.

Barr, a four-year Labor Department veteran who called himself a “career civil servant,” said he does not know why the page was removed nor whether it will go back up.

“The current administration has given no direction whatsoever here at the Department of Labor on anything regarding Wells Fargo,” Barr said.

A search on the Internet Archive, a nonprofit digital library of archived web pages, shows that the page was available on December 21. However, the archive doesn’t indicate precisely when the page was taken down.

Warren’s office did not respond to questions over the discrepancy about when the site was removed.

Wells Fargo was unaware that the website had been taken down, a person familiar with the matter told CNNMoney. Wells Fargo declined to comment on the matter.

Click here to read an archived version of the page.

wells fargo website labor department

Wells Fargo’s fake account scandal — the bank fired 5,300 workers for creating as many as 2 million fake accounts — has revealed a toxic sales culture and allegations it mistreated workers.

The Labor Department launched the website last September as a way for Wells Fargo workers to flag potential violations and learn about their rights.

“Taking down this website enables Wells Fargo to escape full responsibility for its fraudulent actions and the Department to shirk its outstanding obligations to American workers,” Warren wrote.

In addition to launching the site, the Labor Department under former President Obama opened a “top-to-bottom review” of Wells Fargo cases, complaints and violations. That review included an inquiry into both open and closed whistleblower complaints against Wells Fargo.

The Labor Department’s focus on Wells Fargo followed a CNNMoney investigation on former employees who said they were fired after trying to put a stop to illegal practices by calling the bank’s ethics hotline.

Wells Fargo (WFC) recently admitted that a review of its ethics hotline has uncovered evidence that at least some of these whistleblower retaliation claims may have merit.

A spokeswoman for the bank emphasized that “there is no place for retaliation at Wells Fargo.”

The Labor Department was also investigating claims from hourly Wells Fargo workers who said the bank’s pressure-cooker culture forced them to work late without overtime pay. CNNMoney spoke to numerous former Wells Fargo employees who alleged wage theft.

Wells Fargo has said that its employees are compensated for all hours worked, including overtime.

Warren wrote that she hopes the Labor Department “under President Trump” will make sure Wells Fargo workers cheated out of wages or illegally retaliated against will be provided “all of the remedies available” under current law.

The letter from Warren asked Labor Department officials to respond to several questions by February 3, including whether the agency will reinstate the Wells Fargo website and if the investigation will continue despite the transition of power.

There are signs that the investigation may have hit some recent obstacles.

In mid-December, the Labor Department wrote a letter saying that an outside attorney representing Wells Fargo tried to hamper the investigation, The Wall Street Journal reported. The letter said that in addition to denying access to records and interviews, the lawyer said she could be part of the new Trump administration, the Journal reported.

Warren asked the Labor Department to expand its investigation to look into how Wells Fargo employees told The Wall Street Journal that a 24-hour heads up ahead of internal branch investigations gave them time to shred paperwork and forge documents.

Published at Fri, 27 Jan 2017 18:34:31 +0000

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Qualcomm Dips on Mixed Earnings and Legal Woes


Qualcomm Dips on Mixed Earnings and Legal Woes

Shares of Qualcomm (NASDAQ: QCOM) fell more than 5% on Thursday after the chipmaker delivered a mixed first-quarter earnings report that was overshadowed by concerns about its troubling legal issues. During the quarter, Qualcomm’s revenue rose 4% annually to $6 billion, missing estimates by $120 million. Earnings, which were boosted by $444 million in buybacks, rose 23% to $1.19 per share, beating expectations by a penny a share.

The key facts

Revenue at its QCT (chipmaking) business remained flat year-over-year at $4.1 billion, due to the commoditization of the smartphone market and ongoing market share losses to cheaper rivals like MediaTek and first-party chips from OEMs like Apple, Huawei, and Xiaomi. MSM shipments fell 10% annually to 217 million, but the unit’s pre-tax earnings still rose 23% to $724 million on sales of higher-margin chips and cost cutting measures.

Revenue at its QTL (licensing) unit improved 13% annually to $1.8 billion. Estimated reported 3G/4G device shipments rose 8%, but average selling prices fell about 4%. The unit’s pre-tax earnings rose 14% annually to $1.5 billion, but the higher-margin unit remains under intense scrutiny due to controversial 3G/4G patent license fees which Qualcomm charges to all smartphone makers worldwide — even if they don’t use its mobile chips.

Qualcomm has already been hit with big fines from China and South Korea over those licensing practices, and is currently being investigated for similar antitrust issues in Europe, Taiwan, and the United States. Apple also recently sued Qualcomm for $1 billion to recover “rebates” that Qualcomm had been paying it in exchange for exclusively using Qualcomm chips between 2011 and 2016. The iPhone maker claims that Qualcomm started withholding those payments after it assisted the Korean Fair Trade Commission in its investigation of the chipmaker.

The road ahead

All these legal troubles could jeopardize Qualcomm’s planned acquisition of NXP Semiconductors (NASDAQ: NXPI), a deal that — if it occurs — would make it the biggest automotive chipmaker in the world. Nonetheless, CEO Steve Mollenkopf expressed confidence that the sale would close, and that it would accelerate its “strategic transformation in the high growth areas of automotive, IoT, security, and networking.”

Mollenkopf dismissed the recent legal actions as being “driven by commercial disputes,” and pledged to “vigorously defend” Qualcomm’s business model. Qualcomm expects annual revenue growth in the negative 1% to 13% range for the current quarter, and earnings per share of $1.15 to $1.25 — in line with analysts’ average estimate of $1.20.

In mid-afternoon trading Friday, shares were up by around 0.5%.

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Published at Fri, 27 Jan 2017 19:19:03 +0000

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Wells Fargo Sees Upside to WMT’s Growth


Wells Fargo Sees Upside to WMT’s Growth

By Craig Adeyanju | January 26, 2017 — 8:09 PM EST

Analysts at Wells Fargo have resumed coverage of Wal-Mart Stores Inc. (WMT) at a stock price of $67.40 a share, giving it a “market perform” rating with a $70-$72 price range. (See also: Car Sales at Walmart? It’s All About the Data)

In a note published in Barron’s on January 26, analysts Zachary Fadem and Quinn Burch wrote they believe WMT is in good stead to profit from improving US consumer spending, being the largest brick-and-mortar retailer in the US. They also believe WMT’s “more-robust” e-commerce platform offers long-term opportunities. “We see Wal-Mart in the early stages of a multi-year reinvestment cycle focusing on store upgrades, sharper pricing, and improved e-commerce relevance,” they wrote.

Despite their solid outlook for WMT, the Wells Fargo analysts limited the retailer’s rating to “market perform” because competition in the retail space isn’t yet at its peak, in their view. They also pointed to boarder-adjusted tax short-term risk, considering that WMT is the nation’s biggest importer.

Competitive Pricing Puts Wal-Mart Ahead

The theme of how Wal-Mart keeps investing in pricing was persistent within the analysts’ note, and rightly so.

By the second quarter of 2016, Wal-Mart had seen an eighth straight quarter of same-store growth. That was due to an increase in foot traffic, boosted by the company’s price-slashing initiatives. The retailer announced the multi-year, billion-dollar-plus pricing investment during an October 2015 investor meeting.

Part of the pricing investment is a private-label product program. Private labels, which carry a store’s name, are cheaper for shoppers compared to popular national brands. On the other hand, they offer retailers wider profit margins because they don’t have to pay a national brand’s inherent marketing and development expenditures.

As proof, the analysts pointed out that they found WMT’s grocery items 11% cheaper than those of Kroger Co. (KR) on the average, based on their review of four regions.

At a time when median household income in the US lurks below 2007 levels, Wal-Mart’s focus on pricing is a winning strategy.
Published at Fri, 27 Jan 2017 01:09:00 +0000

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Alphabet quarterly profit misses estimates, shares fall

A Google search page is seen through a magnifying glass in this photo illustration taken in Berlin, August 11, 2015. REUTERS/Pawel Kopczynski/File Photo

By Julia Love and Anya George Tharakan

Google parent Alphabet Inc posted fourth-quarter profit below analysts’ estimates on Thursday, increasing pressure on the company to deliver on new bets in hardware and cloud computing as its advertising business matures.

While advertising still accounts for the lion’s share of Google’s revenue, rising 17.4 percent to $22.4 billion in the fourth quarter, Alphabet Chief Financial Officer Ruth Porat underscored that the company is diversifying its business, pointing to growth in hardware, app sales and the cloud business. The company’s other revenue, which captures such businesses, climbed 62 percent.

“We see tremendous potential ahead for these businesses, as well as in the continued development of non-advertising revenue streams for YouTube,” Porat said on a call with investors.

She spotlighted the company’s line of Nest smart home products, saying sales doubled during the key holiday period including Black Friday and Cyber Monday.

Google-branded hardware also showed promise as Google Home, a smart speaker, and the Pixel smartphone gained traction over the holidays, Google Chief Executive Sundar Pichai said during the call.

“We’re committed to this for the long term as a great way to bring a beautiful, seamless Google experience to people,” he said.

The company posted a stronger-than-expected 22.2 percent increase in quarterly revenue as advertisers spent more to reach an expanding user base that spends more time on smartphones and YouTube.

Despite the slight miss on earnings per share, analyst Kerry Rice of Needham and Company said the strong revenue growth suggests that Google’s core business remains healthy.

“The top line indicated that the growth fundamentals are still well intact for the business,” he said.

Research firm eMarketer has estimated that Google will capture $60.92 billion in search ad revenue this year, or 58.8 percent of the search ad market worldwide.

Paid clicks, or clicks on Google ads, rose 36 percent, compared with a 33 percent increase in the third quarter. Paid clicks are those ads on which an advertiser pays only if a user clicks on them.

Analysts on average had expected a rise of 26.9 percent, according to FactSet StreetAccount.

Cost-per-click dropped 9 percent, a slide that has continued as Google sells more mobile ads, which command lower prices. However, the shift is not necessarily alarming as it suggests Google is selling more ads on YouTube, which are seen as a key growth driver, Rice said.

Alphabet’s Other Bets revenue increased to $262 million from $150 million a year earlier, while the operating loss of $1.09 billion narrowed from $1.21 billion.

Other Bets includes broadband business Google Fiber, home automation products Nest, self-driving technology company Waymo as well as X, the company’s research facility that works on “moon shot” ventures.

Alphabet’s net income rose to $5.33 billion, or $7.56 per Class A and B share and Class C capital stock, in the fourth quarter, from $4.92 billion, or $7.06 per share, a year earlier. See graphic on earnings: (

Excluding items, the company earned $9.36 per share, below the average estimate of $9.64 per share, according to Thomson Reuters I/B/E/S.

The company’s consolidated revenue rose to $26.06 billion above the average estimate of $25.26 billion.

Shares of the company fell 3 percent to $832 in extended trade after closing at $856.98 on Nasdaq.

(Reporting by Anya George Tharakan in Bengaluru and Julia Love in San Francisco; Editing by Saumyadeb Chakrabarty, Bernard Orr)

Published at Thu, 26 Jan 2017 22:43:17 +0000

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The Future of In-Flight Entertainment: Bring Your Own Screen


The Future of In-Flight Entertainment: Bring Your Own Screen

American Airlines Group (AAL) has decided not to install seatback screens for in-flight entertainment on certain new domestic airliners, starting later this year. With most passengers now brining one or more personal digital devices on flights—phones, tablets, laptops—and airlines desperate to cut costs, seatback monitors may soon join smoking on planes in the dustbin of history.

American’s new order of 100 Boeing 737 MAX planes, entering service before the end of 2016, will lack seatback screens. Customers will be given the option to stream entertainment on their devices using each plane’s built-in wi-fi connection.

“Every customer with a phone, tablet or laptop will be able to watch free movies and TV shows from our extensive on-board library, as well as free live television channels, all without purchasing an in-flight Internet connection,” American wrote in a memo to employees.

In June 2016, American struck a deal with ViaSat (VSAT) to outfitting the carrier’s 737 MAX fleet with high-speed, Ka-band satellite wi-fi service. This contract was later expanded to a total of 500 domestic planes. (See also: American Airlines Finds a New WiFi Provider.)

According to industry sources, installing in-flight entertainment systems cost nearly $3 million to install on each aircraft, including both the monitors, plus bulky and heavy underfloor wiring. These savings will be compounded by fuel used thanks to weight savings.
Published at Thu, 26 Jan 2017 13:34:00 +0000

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Subpar Returns Spur Layoffs at Harvard Endowment

by cplesley from Pixabay


Subpar Returns Spur Layoffs at Harvard Endowment

By Mark Kolakowski | January 26, 2017 — 3:51 AM EST

After ten years of lagging investment returns, Harvard University’s massive $35.7 billion endowment is poised to cut its current staff of 230 in half by the end of 2017, according to unnamed sources who spoke to the Wall Street Journal. The new head of the Harvard Management Company, the entity in charge of the endowment, reportedly has determined that most of the fund should be outsourced to independent money managers. (See also: Harvard’s Luster Is Tarnished By Rate Swaps.)

Back of the Class

For the 10 years ending June 30, 2016, Harvard’s endowment had an average annual total return of 5.7%, the second lowest among the eight Ivy League universities, according to the January 25 article in the Journal. At the head of the Ivy League class were Princeton, Columbia and Yale, all of whose endowments enjoyed returns in excess of 8%.

In fact, Harvard also lagged the total return on the S&P 500 Index (SPX) during the same period, per data presented by the Journal. Since the endowment now funds about 33% of the university’s operating expenses, maximizing its returns and avoiding withdrawals of principal are of paramount importance. A longer-term strategic question not addressed by the Journal is whether Harvard should put more of its funds in low-cost passive investment vehicles. (See also: Passive Funds are Killing Active Money Managers. )

Who Stays, Who Goes

Many rival institutions, such as Yale, entrust nearly all their investments to outside money managers, the Journal notes. Harvard, by contrast, has a long history of preferring to use in-house managers organized under the Harvard Management Company.

Harvard will spin-off its direct real estate investment team into an independent entity, but will keep those investments with these same managers, the Journal says. It also will shut down its internal hedge funds. Only management of a natural resources portfolio and monitoring of investments in passively managed ETFs​ will remain in-house.

The Politics of Pay

During the 1991-2005 tenure of Jack R. Meyer as head of the Harvard Management Company, the university’s endowment nearly quintupled, surging from $4.7 billion to $22.6 billion, according to a Forbes article covering his departure. In line with what they would have earned at hedge funds, annual individual performance-based bonuses for Harvard’s money managers during this period went as high as $35 million. This sparked heated protests from students, faculty and alumni, which led to caps on pay and a steady departure of top money managers, eventually including Meyer himself.

Many of these former employees continued to manage their old portfolios, outsourced by Harvard to the new firms that they founded. As a result, the proportion of Harvard endowment assets entrusted to outside managers jumped from about 20% to 50% on Meyer’s watch, Forbes reported. The recent Journal article observes that the effect of the pay caps lingers, making Harvard uncompetitive with hedge funds in the war for investment talent.
Published at Thu, 26 Jan 2017 08:51:00 +0000

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