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The Morning Ledger: U.S. Profits Blunted by Currency Headwinds

DOW JONES & COMPANY, INC. 6:31 AM ET 01/28/15

Symbol Last Price Change
PG 86.49down 0 (0%)
MSFT 42.66 0 (0%)
AAPL 109.14down 0 (0%)
FB 75.78down 0 (0%)
DB 28.88down 0 (0%)
RDS/A 66.69up 0 (0%)
YHOO 47.99 0 (0%)
BABA 102.94 0 (0%)
MAR 78.61down 0 (0%)
FXCM 2.38down 0 (0%)
HXSCF 0 0 (0%)
AAL 52.695down 0 (0%)
CAT 79.85down 0 (0%)
WBA 74.93down 0 (0%)
QUOTES AS OF 04:02:58 PM ET 01/27/2015

The Morning Ledger from CFO Journal cues up the most important news in corporate finance every weekday morning. Send us tips, suggestions and complaints: [e-mail]. Get The Morning Ledger emailed to you each weekday morning by clicking http://on.wsj.com/TheMorningLedgerSignup . Follow us on Twitter @CFOJournal.

Good morning. Big American companies are shifting their focus to cutting costs as the surge in the dollar is shrinking the value of foreign earnings and making U.S. products more expensive abroad, the WSJ reports. The currency effects are hitting a wide swath of industry sectors, from consumer product firms such as Procter & Gamble Co.(PG) to technology stalwarts including Microsoft Corp.(MSFT)

Apple Inc. (AAPL) on Tuesday reported record profits for the quarter (more on that below), but said results would have been even better had the strong dollar not been a burden. Heavier currency hedging over the summer helped Apple(AAPL) mitigate the damage, but CFO Journal'sMaxwell Murphy reports that Apple's(AAPL) CFO, Luca Maestri, warned that those hedges will become less powerful over time.

And fresh data Tuesday suggested that currency headwinds and sagging oil prices are rippling through the economy in unpredictable ways, leading firms to broadly cut capital spending in the final months of 2014, and thereby raising red flags about the economy's ability to sustain momentum amid troubles around the globe. Is your firm facing questions from investors over the risks from a strengthening dollar? Send us a note and let us know.

CFO JOURNAL TODAY

Corning changes yen hedging strategy. Glassmaker Corning Inc. is conceding that the yen will remain weak for the next few years, CFO Journal'sVipal Monga reports. As a result, the company has changed its hedging strategy to protect only against more weakening, said James Flaws, finance chief. The glass that Corning makes for LCD displays used in flat- screen televisions is priced in yen, so a decline in the currency hurts the company's bottom line when it translates those sales into U.S. dollars.

THE DAY AHEAD

Facebook (FB) finds it tougher to make new friends. The social-media site must find new ways to grow to stay ahead in Wall Street's popularity contest, Ahead of the Tape's Spencer Jakab reports. Facebook Inc.(FB) is expected to report adjusted fourth-quarter earnings of 48 cents a share, though the earnings it must report to securities regulators will likely only be half the adjusted number.

Deutsche Bank's (DB) retail results to draw focus. When investment-banking giant Deutsche Bank AG(DB) reports fourth-quarter results Thursday, investors will turn their attention to one particular unit: retail banking. Analysts predict Deutsche Bank's(DB) retail unit will post a pretax profit of $416 million for the fourth quarter. The retail unit is hampered by tighter government banking regulation, the overcrowded domestic retail-banking market and persistently low interest rates.

Big Oil faces time of reckoning. In the coming days, the world's biggest publicly traded oil companies will report fourth-quarter earnings, offering the best look yet at the bite lower crude prices have taken out of Big Oil. Royal Dutch Shell PLC(RDS/A) kicks off earnings on Thursday, and while analysts expect a hit from cheap oil, they predict Shell's quarterly results will look good in comparison to the year-earlier quarter.

CORPORATE NEWS

A radical idea for activist investors. What if activist shareholders pressed companies not to cut costs, but to invest more, with an eye on long-term progress instead of short-term gains? Now that would be different, writes the WSJ's Dennis Berman.

Yahoo (YHOO) to spin off remaining Alibaba(BABA) stake . Yahoo Inc.(YHOO) plans to spin off its $40 billion stake in Alibaba Group Holding Ltd.(BABA) The new company will own all of Yahoo's(YHOO) remaining shares of Alibaba(BABA), Yahoo(YHOO) said. It will assume no debt in the deal, and Yahoo(YHOO) will retain its cash. The plan saves Yahoo(YHOO) from paying billions of dollars in taxes and gives CEO Marissa Meyer more time to make her case to shareholders. But a spinoff will put more investor focus on Yahoo's(YHOO) core ad business, which continues to shrink. Yahoo(YHOO) reported on Tuesday that revenue in the fourth quarter fell short of analyst expectations.

Hedge funds, private equity win big at TARP auctions. A government program to rid itself of TARP investments in small banks has proved a boon to hedge funds, private-equity and other private investors, according to a new watchdog report.

High-end malls get boost from tech stores. Apple Inc.(AAPL), Microsoft Corp.(MSFT), Tesla Motors Inc. and other high-tech companies are drawing customers to U.S. shopping malls, helping to drive their bottom lines. Landlords say the technology retailers are supplanting "anchor" department stores that malls used to rely on to bring in customers.

Currency-trading volumes jump. CFOs aren't the only ones responding to rapid shifts in currency values. Currency- trading volumes soared to record highs late last year, according to new data released by six central banks, underscoring the profit opportunities created by a series of monetary-policy shifts around the world.

A new set of eyes on P&G's beauty business. David Taylor, who has emerged as the top contender for the CEO job at Procter & Gamble Co.(PG), made his mark in part by overseeing big divestitures. Now he is tasked with fixing the beauty division, a move that makes him responsible for 43% of P&G's $83 billion in sales and nearly half its profit.

Steel's heady revival is short-lived. U.S. steelmakers gained new life with the energy boom, but now face a reversal of fortune as the slump in oil prices saps demand from drillers. Imports of steel into the U.S. jumped 34% during the first 11 months of 2014 and have continued to rise despite the imposition of new import tariffs last summer, raising the chances of further trade action.

Nadella's charmed first year as Microsoft(MSFT) CEO comes to an abrupt end . Microsoft Corp.(MSFT) shares Tuesday morning were down 10% after the company reported quarterly earnings that were short of expectations. It seems like only yesterday that CEO Satya Nadella had shifted investors' sentiment from hate to love with a series of dashing maneuvers, including a willingness to embrace cross-platform and a robust hybrid cloud business. Wait, it was only yesterday. Until Tuesday, the company's stock until traded at more than 16 times analyst estimates of earnings over the next year, up from about 13 times a year ago, according to Capital IQ data. "Management is making sound strategic changes and operational choices, but the period of easy [comparisons], one-time benefit from XP upgrades, and low-hanging cost cutting appears to be over," Wells Fargo analyst Jason Maynard wrote in a research note.

On-demand workers: "We are not robots." Companies that rely on freelance labor describe their workers as micro- entrepreneurs. But lawsuits, protests and forums suggest that many flexible laborers feel less enthusiastic about the new work model. Current and former workers for Uber Technologies Inc., Amazon.com Inc.'s Mechanical Turk and Handybook, better known as Handy, say on-demand work platforms give them little control over the terms of their labor, and complain that the contracts they're required to accept force them to shoulder personal and financial risk without the returns or advantages they'd hoped for.

REGULATION

FTC seeks to restrict Internet of Things. Internet-connected wearables, cars, door locks, thermostats and such are all the rage in Silicon Valley. But those devices can come with security and privacy holes that leave consumers exposed, regulators warn. The Federal Trade Commission said Tuesday that businesses should build security into devices, rather than as an afterthought, and also recommended that they take measures to keep unauthorized users from accessing personal information stored on a network, limit the data collected and discard it after a time. Consumers should also be informed of which information is collected and why, and they should have the opportunity to opt out, the FTC said.

FCC warns hotels, others not to block personal Wi-Fi . The Federal Communications Commission warned hotels and other businesses against attempting to block wireless consumers from using personal Wi-Fi hot spots on their premises. Hotels and convention centers have tried to make a profit selling Wi-Fi access, but their efforts have sometimes involved blocking other access, attracting the attention of the FCC as well as lawyers from Microsoft Corp.(MSFT) and Google Inc. FCC officials already have cracked down on Marriott International Inc.(MAR), following an incident in which the hotel chain blocked people from using personal hot spots in Nashville, Tenn.Marriott(MAR) agreed to settle the matter by paying a $ 600,000 civil penalty.

Overseas forex trades laid FXCM(FXCM) low. Retail foreign-exchange broker FXCM Inc.(FXCM) was nearly felled by outsize bets made by foreign customers who aren't subject to U.S. regulations, according to people familiar with regulators' review of the firm. The bulk of the losses from the Swiss National Bank's decision to scrap a cap on the country's currency were borne by clients at FXCM's(FXCM) affiliates in London, Singapore and other locations that weren't subject to leverage caps imposed by U.S. regulators.

Citibank reaches pact with New York on ChexSystems data. A Citigroup Inc. unit plans to announce it will change its screening processes for checking and savings accounts to be more forgiving of customers' histories, becoming the second financial institution to reach such an agreement with New York's attorney general.

EARNINGS

Apple (AAPL) tops most-optimistic quarterly outlook . Apple Inc.(AAPL) said it sold 74.5 million iPhones in the quarter, 46% above a year earlier, while lifting the average selling price of the devices by $50 from the prior year. The total equates to more than 34,000 phones an hour, around the clock. The iPhone 6 and iPhone 6 Plus made their debut in September. Apple(AAPL) posted net of $18.0 billion for its fiscal first quarter ended Dec. 27, up 38% from $13.1 billion in the same period a year earlier. That is more than 435 of the companies in the S&P 500 index each made in total profits since 2009.

Trickle-down effects of Apple's(AAPL) boom quarter. SK Hynix Inc.(HXSCF), a supplier of memory chips to Apple Inc.(AAPL), also posted record fourth-quarter profit that beat analyst estimates on sales of semiconductors for iPhones and high-margin servers, Bloomberg reports. SK Hynix(HXSCF), the world's second-largest maker of memory chips, was probably one of the biggest beneficiaries when U.S. competitor Micron Technology Inc.'s second-quarter sales forecast fell short of analysts' estimates, according to a report from Shinhan Investment Corp.

AT&T results narrowly top expectations. AT&T Inc. added 854,000 of the wireless industry's core customers in the last three months of the year, as profits and customer retention showed signs of strain from heightened competition.

American Airlines (AAL) lifted by fuel prices. American Airlines Group Inc.(AAL), flush from buoyant full-year profits and looking ahead to even better performance in 2015, won't alter its strategy as a result of sharply lower oil prices, its chief executive said. The windfall from reduced prices for the airline's most expensive item will go straight to the bottom line, said Chief Financial Officer Derek Kerr.

Caterpillar (CAT) loses traction again. Caterpillar Inc.(CAT) gave a disappointing outlook for 2015, citing plummeting commodity prices, as the heavy-machinery maker also reported earnings for the fourth quarter that missed expectations. The company reported a 25% plunge in its fourth-quarter profit and forecast a 9% drop in sales and a 22% drop in per-share earnings for the current year.

DuPont warns of currency headwinds. DuPont Co. gave a disappointing outlook for 2015, warning its profit would take a significant hit from the strengthening dollar, though the company said it would reach its goal to cut $1 billion in costs well ahead of schedule.

ECONOMY

Hard choices on easy money lie ahead for Fed chief. Janet Yellen's job is about to get harder after a relatively easy first year as Federal Reserve chairwoman, as she looks to move past the preset course of winding down a bond-buying program and begin raising interest rates.

Singapore pulls trigger in deflation fight. The Monetary Authority of Singapore said it would slow the Singapore dollar's rise against a basket of currencies, making the city-state the latest country to ease monetary policy as inflation slows across much of the world and growth prospects dim.

CFO MOVES

Walgreens Boots Alliance Inc. (WBA), a Deerfield, Ill.-based drugstore chain, named George Fairweather as its global chief financial officer, effective Feb. 20. Mr. Fairweather was previously group financial director at Alliance Boots. He will succeed Timothy McLevish, who had been CFO of Walgreen Co. since August, 2014 and became global CFO following Walgreen's merger with Alliance Boots. Mr. Fairweather received compensation valued at $2.1 million, not counting long-term incentives, in the company's fiscal year ended in March, according to its most recent annual report.

Western Refining Logistics LP, an El Paso, Texas-based oil company, named Gary Dalke interim CFO. Mr. Dalke is an executive vice president of Western Refining Logistics GP LLC, a partner company. He succeeds Karen Davis, who will resign Feb. 2 and become CFO of Northern Tier Energy LLC and Northern Tier Energy GP LLC, effective March 16, according to a news release. Ms. Davis will succeed Dave Bonczek at those companies. Ms. Davis will receive a base salary of $ 340,000, a bonus targeted at $206,250 and a further bonus targeted at 100% of her base salary, according to a regulatory filing. Additionally, she may receive compensation worth up to $1.02 million vesting over three years.

CDI Corp., a Philadelphia-based engineering and technology services company, named Michael Castleman CFO, effective after the company files its 2014 annual report in March. Mr. Castleman is an executive vice president for corporate development and operations at the company and has taken on "day-to-day responsibilities for financial operations and management," according to the news release. He succeeds Robert Larney. Mr. Larney received compensation valued at $ 717,275 in 2013, according to a proxy filing.

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01-28-150631ET
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