Wall Street, searching for a fresh burst of growth, is going all-in on Main Street.
The latest effort on this front came this past week when Morgan Stanley (ticker: MS) unveiled a $13 billion all-stock deal to buy E*Trade Financial (ETFC), signaling that the elite Wall Street bank will compete aggressively for retail banking and brokerage customers. The combined entity will have revenue of $44 billion, eight million customer accounts, and $3.1 trillion of client assets.
Deere on Friday reported an unexpected increase in first-quarter profit and retained its full-year earnings forecast as signs of stabilization in the U.S. farm sector offset weak demand for construction machines, sending its shares soaring.
The farm equipment manufacturer reported net income of $517 million, or $1.63 per share, for the quarter ended Feb. 2, up from $498 million, or $1.54 per share, in the same period last year.
That compares with the average analyst estimate of $1.26 per share, according to Refinitiv Eikon data.
The Moline, Ill., company still expects net income in 2020 to be in the range of $2.7 billion to $3.1 billion.
The world's largest farm equipment maker's shares were last up 9% at $180.75.
Deere's earnings in the past quarters were buffeted by a nearly two-year-long U.S.-China trade war that hit U.S. agricultural exports, leaving farmers struggling to turn a profit.
But President Donald Trump's interim trade deal with China has raised hopes of a recovery in farm machinery demand.
"Farmer confidence, though still subdued, has improved due in part to hopes for a relaxation of trade tensions and higher agricultural exports," Chief Executive John May said in a statement.
Improved pricing power along with lower production costs and warranty expenses in the latest quarter drove up operating profits at its farm and turf business, which accounts for nearly 60% of Deere's revenue.
Deere on Friday reported earnings for its fiscal first quarter that easily topped Wall Street's forecasts, and revenue fell by less than analysts had expected.
The tractor maker and bellwether for agriculture said the "US farm sector shows early signs of stabilization." Net income rose 4% even though revenue was down 6%.
Deere's sales have been battered in the past year due to trade tensions between the United States and China, with China launching several retaliatory tariffs aimed directly at agricultural products in America's heartland, such as soybeans and pork.
But the trade truce between China and the Trump administration is good news for farmers -- and Deere.
"Farmer confidence, though still subdued, has improved due in part to hopes for a relaxation of trade tensions and higher agricultural exports," said Deere CEO John May in a statement.
The rebound in farming helped offset a slowdown in the company's construction and forestry equipment division.
Investors may also be relieved to hear that Deere did not lower its profit outlook for 2020, despite worries about how the coronavirus outbreak in China could hurt demand. Shares of Deere(DE) rose more than 6% in premarket trading.
A Deere & Co. John Deere 9560 combine harvester unloads soft red winter (SRW) wheat during a harvest in the village of Kirkland in Dekalb, Illinois, July 9, 2018.
Daniel Acker | Bloomberg | Getty Images
Shares of Deere spiked Friday morning after the agriculture company topped estimates for its fiscal first quarter and said the farming sector in the United States is starting to stabilize.
The company reported $1.63 in adjusted earnings per share and $6.53 billion of revenue for the quarter. Analysts expected $1.25 in earnings per share and $6.409 billion of revenue, according to Refinitiv. The stock was up more than 8% to about $180 per share in early trading.
"John Deere's first-quarter performance reflected early signs of stabilization in the U.S. farm sector," CEO John May said in a statement.
Deere and other major agriculture companies have been hit by the trade war between the U.S. and China, which has made farmers unsure of how large the market for their products will be.
Sales in the company's agriculture and turf segment were down 4% compared with the same quarter last year, but operating profit rose 7% segment. The company said operating profit grew in part due to lower production costs.
The company said it expects net income of between $2.7 billion and $3.1 billion for the full year. It did not change its guidance for agriculture and turf equipment sales, which includes a 5% decline in the United States and Canada.
Friday's sharp increase represents a turnaround for the stock, which had been down more than 4% so far this year. The stock is within a few percentage points of its 52-week high at $180.48 per share.
Deere suffered sales and profit declines in its construction and forestry segment for the quarter, and the company said it expects those to be down 10 to 15% for the year.
U.S. stock futures declined Friday morning, adding to losses from the prior session. IHS Markit’s February purchasing managers’ indices for the U.S. and coronavirus developments remained a focus for investors.
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7:49 a.m. ET: Deere & Co. shares jump in pre-market trading after company beats 1Q expectations
Heavy equipment seller Deere & Co. (DE) posted better than expected results for its fiscal first quarter as farmer sentiment picked up after U.S.-China trade tensions deescalated.
The company posted adjusted earnings of $1.63 per share on sales of $6.53 billion, better than the $1.25 per share on $6.28 billion in sales anticipated, according to Bloomberg data.
Deere maintained its guidance for the full year, saying it expected net income in a range of between $2.7 billion to $3.1 billion. The midpoint of this range was higher than consensus analysts expected.
“Farmer confidence, though still subdued, has improved due in part to hopes for a relaxation of trade tensions and higher agricultural exports. At the same time, activity in the construction sector has slowed leading to lower sales and profit for our Construction & Forestry division,” CEO John May said in a statement.
“Also impacting results in Deere’s construction equipment business were our actions to reduce factory production and lower inventories in response to current market conditions,” he added. “Additionally, the quarter included costs of a voluntary employee-separation program, which is among the steps Deere is taking to improve flexibility and efficiency.”
Shares of Deere were up 7% in early trading. The stock had been down 4% for the year to date through Thursday’s close.
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7:38 a.m. ET: Stock futures decline in early trading
U.S. stock futures edged lower in early trading, extending losses from Thursday. Each of the three major indices was set to decline for a second straight session.
Friday’s trading day comes on the heels of a volatile session Thursday, with the S&P 500, Dow and Nasdaq each off by more than 1% at the lows of the session. While no single catalyst was necessarily to blame, some analysts suggested a broad-based erosion of investor confidence was at play.
“[Thursday’s’ midday selloff had many root causes, but all signal poorer investor confidence than that reflected in U.S. stock prices,” Nicolas Colas, co-founder of DataTrek, wrote in a note. “3M-10Y Treasury spreads went to new 2020 levels of inversion and 30-Year yields [neared] record lows again.”
Meanwhile, the euro declined, and the Japanese yen and South Korean won fell in response to coronavirus fears, Colas added. “Bottom line: export more turbulence ahead,” he said.
In China, the Hubei province at the epicenter of the coronavirus outbreak revised its method of counting cases for the third time this month, further undermining confidence in the country’s official counts. The province’s health commission said on Friday that the total number of new confirmed cases for Thursday was 631, versus the 411 reported earlier, since prison tallies had not previously been accounted for in the region’s coronavirus reporting network. Globally, the coronavirus has killed more than 2,200 individuals among more than 76,000 cases.
Here were the main moves during the pre-market session, as of 7:38 a.m. ET:
S&P 500 futures (ES=F): 3,357.00, down 12.25 points or 0.36%
Dow futures (YM=F): 29,081, down 90 points or 0.31%
Nasdaq futures (NQ=F): 9,582.25, down 42 points or 0.44%
Crude oil (CL=F): $52.94 per barrel, down $0.94 or 1.74%
Gold (GC=F): $1,636.80 per ounce, up $16.30 or 1.01%
Traders work during the opening bell at the New York Stock Exchange (NYSE). (Photo by Johannes EISELE / AFP) (Photo by JOHANNES EISELE/AFP via Getty Images)
(Bloomberg) -- T-Mobile US Inc. and Sprint Corp. agreed to new terms for their pending merger that take account of the deterioration in Sprint shares since the transaction was first agreed, putting the industry-altering deal a step closer to completing.
T-Mobile owners will get roughly 11 shares of Sprint for each of their stock, the companies said Thursday. That’s an increase from a ratio of 9.75 previously -- a more favorable deal for T-Mobile’s German owner Deutsche Telekom AG.
Getting one of the biggest U.S. wireless mergers ever over the finish line would be a boon for Deutsche Telekom as it will reduce its reliance on Europe, where carriers are struggling to grow amid fierce competition. T-Mobile makes up more than half of Deutsche Telekom’s sales, up from about a third in 2014. A completed deal will also benefit Sprint owner SoftBank Group Corp. by allowing its chairman, Masayoshi Son, to better focus on his technology investments and the $100 billion Vision Fund.
The combined company, which will operate under the T-Mobile name, will have a regular monthly subscriber base of about 80 million -- in the same league as AT&T Inc., which has 75 million subscribers, and Verizon Communications Inc., which has 114 million.
When the transaction closes, which could happen as soon as April 1, Deutsche Telekom is expected to keep 43% of the merged entity, while SoftBank has 24%. The rest will be held by public shareholders.
Deutsche Telekom shares were little changed in early trading in Frankfurt.
The original accord, which united the third- and fourth-largest U.S. wireless carriers in a $26.5 billion deal, was forged in April 2018. That pact lapsed on Nov. 1, and the companies didn’t initially renew the terms while they fought for government approval. When a federal judge rejected a state lawsuit to block the transaction earlier this month, that put the talks on the front burner.
Along the way, Sprint’s condition has worsened. That added pressure to redraw the agreement so that it was more favorable to Deutsche Telecom.
SoftBank agreed to surrender 48.8 million T-Mobile shares that it will acquire in the merger to the combined company immediately after the transaction closes. But those shares could be reissued to SoftBank by 2025 if the new company’s stock stays above $150 for a period of time.
Sprint investors other than SoftBank will still get the original ratio of 0.10256 T-Mobile shares for each Sprint share -- the equivalent of about 9.75 Sprint shares for each T-Mobile share.
Sprint’s monthly churn -- a closely watched measure of how many customers leave -- has risen to nearly 2%. That means roughly a quarter of its subscriber base is quitting the carrier each year. And the company isn’t making up for the decline by charging more: Average revenue per customer has fallen 5% since the deal was announced.
Analysts such as LightShed Partners’ Walt Piecyk said the merger’s exchange ratio should be closer to 12, given Sprint’s deteriorated business.
(Updates with share price in sixth paragraph.)
--With assistance from Stefan Nicola.
To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net
To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Jennifer Ryan
For more articles like this, please visit us at bloomberg.com
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WASHINGTON/RIYADH/FRANKFURT - (Reuters) - In the days after a new virus was identified in China on Dec. 31, global central bankers fell back on past experience for a comforting early analysis.
FILE PHOTO: A man wearing a face mask walks past a shop of a French luxury cosmetic brand Lancome at the Wangfujing shopping street as the country is hit by an outbreak of the novel coronavirus, in Beijing, China February 20, 2020. REUTERS/Tingshu Wang
The SARS epidemic in 2003, they noted, had come and gone with little economic impact.
Weeks later, that parallel has failed.
A disease that has sickened around 75,000 in China and ground its economy to a near halt continues to spread outside its epicenter. The latest blow to hopes for a successful containment came Thursday when confirmed cases in South Korea topped 100 and it reported its first death. The streets of that country’s fourth-largest city stood abandoned as residents holed up indoors.
Now, as global finance officials gather in Riyadh, Saudi Arabia, for the latest Group of 20 summit, they will do so having intensified both their level of concern and the breadth of their detective work to understand the economic implications of the outbreak.
That has meant watching measures of coal use and local travel in China for any independent evidence the world’s second largest economy is returning to normal. They are watching disease counts outside China as the best indicator of whether the virus has been contained.
In Japan officials are surveying the empty streets of the Ginza shopping district and tallying airline and cruise ship cancellations, and pondering if an economic rebound they had counted on for later this year will fizzle.
In the United States, Fed officials are quizzing local business contacts and hearing from entrepreneurs blindsided by vulnerabilities in their supply networks.
Businesses “have supply chains that are intimately involved in China sometimes in ways they did not know,” Richmond Federal Reserve Bank President Thomas Barkin said in an interview Wednesday, recalling a conversation with one medical manufacturer that “had a supplier who had a supplier who had a part in China.”
SHORT HIT OR GLOBAL RECESSION?
Given the evolving and unpredictable nature of any viral outbreak, analysts have no tried and true way to model the event.
But policymakers and analysts say this much is clear: the more they talk to people, they more they understand China’s deep role in global supply chains. That means the longer the outbreak remains uncontained, the higher the likelihood that it could become a systemic problem.
Barkin said unknowables include just how flush businesses were with parts inventories before China began quarantines and business closures to stop the spread of the virus or how flexibly companies can move to other suppliers. These are issues not captured in any particular economic model, leaving central bankers globally in a scramble to get a grip on them.
Forecasters have sketched scenarios that cluster around a limited impact, mostly a drop in China’s first-quarter growth. But they also include a possible contraction in the global economy or, in the worst case, a European and U.S. recession as global demand falls.
That’s not the base case at the Fed, the European Central Bank or the Bank of Japan, with no push yet for policy action or rate cuts to offset an unwelcome economic shock. But policymakers acknowledge they are flying somewhat blind.
“My read is if everything gets up to speed in the next few weeks it will be a minor bump that won’t be an issue. If you are out for months then you have a more significant impact on probably 10 to 15 percent of the economy” that depends on Chinese suppliers or exports to the country, Barkin said.
Similar time-dependent assessments are offered in Europe and Japan, where that country’s close economic ties to China have officials particularly wary.
“The picture has changed completely from before the outbreak,” said a BOJ official, who was not authorized to speak publicly about the matter.
RISK OF ‘CONSEQUENTIAL SPILLOVERS’
Economists typically look at events like this with a sanguine eye. They hurt the economy in the moment, but some losses are permanent: While a consumer can still buy that car a month or two later, forgone trips or restaurant meals are not necessarily made up.
But overall, an inevitable bounce back offsets the shock.
Some events, however, prove systemic. Policymakers and analysts point to how a 2011 earthquake and flooding compromised a nuclear reactor in Japan’s Fukushima province, and led global businesses to rethink supply networks to make them less dependent on any single source.
In a paper last year (here), Fed researchers studied what a "hard landing" in China - a combination of financial stress and a sharp drop in gross domestic product - would mean for the U.S. and global economies.
The results weren’t pretty.
The research predicted “consequential spillovers to the United States and global economy through both real trade links and financial channels.” U.S. officials as a rough rule of thumb say a 1 percentage point drop in China’s growth shaves about a 0.2 percentage point from U.S. GDP - noticeable, but not likely to cause a recession unless the shock is massive.
From Europe’s perspective, it is not yet time to worry - but to stay watchful.
“The history of these has been that there could be a significant short-term effect of events like these, but no long-lasting effect,” ECB chief economist Philip Lane said in Berlin. “So this is the baseline. Let’s see - it depends on how quickly it is contained.”
