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The Morning Ledger: Strong Dollar Cuts Into Profits

DOW JONES & COMPANY, INC. 7:39 AM ET 4/24/2015

Symbol Last Price Change
PG 80.95 0 (0%)
MJN 96.41down 0 (0%)
ZIXI 4.43up 0 (0%)
MCD 97down 0 (0%)
AAL 51.45up 0 (0%)
CMCSA 59.23up 0 (0%)
TWC 148.76down 0 (0%)
DB 34.15up 0 (0%)
GOOG 547up 0 (0%)
MSFT 43.34 0 (0%)
AMZN 389.99up 0 (0%)
SBUX 49.43up 0 (0%)
MDSO 57.54up 0 (0%)
MOBL 7.11down 0 (0%)
BMY 66down 0 (0%)
QUOTES AS OF 04:00:39 PM ET 04/23/2015

Good Morning. A strong U.S. dollar is wreaking havoc on the profit margins of American multinationals. And raising prices to make up for the shortfall isn't enough. As the WSJ's Theo Francis and Serena Ng report, consumer-goods giant Procter & Gamble Co.(PG) said price increases to offset currency issues in developing countries contributed to a 2% drop in sales volume in the quarter ended in March. Mead Johnson Nutrition Co.(MJN), maker of Enfamil formula, said currency declines in Latin America still outpaced the company's price increases.

CFO JOURNAL TODAY

CFO Lessons: Michael English, CFO Zix Corp.Michael English, currently finance chief at Dallas-based e-mail encryption services company Zix Corp.(ZIXI), joined the company in 2007- serving first as its controller and then in 2011 became treasurer and CFO. Zix has about 190 employees in offices in Dallas, Boston and Ottawa. Mr. English recently spoke with CFO Journal'sJohn Kester about partnering with large companies and how network security breaches are good for business.

McDonald's (MCD) struggling with impact of looming wage increase . McDonald's Corp.'s(MCD) recent decision to raise wages is causing the fast food giant some angst, as it battles with the effects on its bottom line. As the CFO Journal'sVipal Monga reports, the company could be forced to pass some of the expense on to its customers.

"The minimum-wage cost, as well as all other costs, certainly impact how we look at pricing, how we look at our margins," said McDonald's CFO Kevin Ozan, during a first-quarter earnings call on Wednesday.

THE DAY AHEAD

American Airlines (AAL) reaching maximum altitude. American Airlines Group Inc.(AAL) releases first-quarter results on Friday. As Ahead of the Tape's Spencer Jakab reports, analysts expect the airline to report earnings of $1.65 a share, a jump up from 65 cents a year earlier. Updating investors earlier this month, company said quarterly passenger revenue per available seat mile would dip and foreign-exchange losses would be higher than anticipated. Still, 2015 may be the best year ever for airlines, as analysts predict the nation's five-largest carriers to earn $19 billion, four times what they earned in 2013.

CORPORATE NEWS

Comcast (CMCSA) to drop proposal to buy Time Warner Cable . Pressure from U.S. regulators has put the brakes on one of the largest proposed media mergers in recent history. Comcast Corp.(CMCSA) is ditching plans to acquire Time Warner Cable Inc.(TWC), according to people familiar with the matter. It's a stunning turnaround for the $45.2 billion deal, reports Shalini Ramachandran. Many on Wall Street expected the acquisition, announced last February, to pass regulatory muster with a few concessions.

AT&T looks to bond market for DirecTV Deal. AT&T Inc.sold $17.5 billion in bonds Thursday to bankroll its acquisition of DirecTV, in the latest giant debt sale to exploit low rates. As the WSJ's Mike Cherney reports, the offering is the third largest corporate-bond sale on record and the second largest this year, behind Actavis PLC's $21 billion deal in March. The AT&T deal adds to this year's record pace of debt sales, as companies seek to take advantage of low borrowing costs before an expected increase in interest rates by the Federal Reserve later this year.

Pimco says U.S. bonds to fall while stocks may weather rate rise. The manager of the world's largest bond fund is forecasting a fall in U.S bonds when the Federal Reserve finally raises interest rates. Pacific Investment Management Co. told Bloomberg that stocks and corporate bonds should be able to weather the shift. "We expect about a 50 to 70- basis point backup in 10-year rates over the next year or so," Pimco money manager Mihir Worah told reporters Thursday in Sydney. "Risky assets, whether they're corporate bonds or equities, should be able to handle that kind of backup in rates."

Eric Schmidt's family office buys Lehman estate's stake in D.E Shaw. The family office of Google Inc.'s executive chairman Eric Schmidt bought a 20% stake in New York hedge-fund firm D.E. Shaw Group from the estate of Lehman Brothers Holdings Inc. Hillspire LLC bought the stake for roughly $500 million, compared with the $750 million to $800 million securities firm Lehman paid, according to people familiar with the matter. Lehman bought the stake in 2007 and collapsed in September 2008 during the height of the last financial crisis.

REGULATION

Europe looks to tame web's economic risks. The European Union could create a powerful new regulator to oversee a roster of mainly U.S.-based Internet companies, according to an internal document seen by The Wall Street Journal. The possible highlights concerns in top EU policy circles around the economic threat posed by companies like Google Inc. and Facebook Inc., the WSJ's Tom Fairless reports.

A number of U.S. firms operating in the region are already embroiled in investigations and lawsuits over issues including unfair competition and tax avoidance. But establishing a new watchdog would throw the biggest obstacle yet in the way of U.S. Internet companies operating in Europe.

The document, prepared in February by senior officials for EU Digital Commissioner Günther Oettinger provides a blueprint for the regulation of online networks in Europe that goes far beyond a general plan for the region's digital sector due to be announced next month.

Deutsche Bank (DB) to pay $2.5 billion in Libor case. Deutsche Bank AG(DB) will pay a record $2.5 billion penalty to settle U.S. and British allegations that it manipulated interest rates. The settlement will conclude a years-long investigation that was delayed by the German bank's lack of cooperation with government authorities.

As part of Thursday's settlement, a Deutsche Bank(DB) unit in London pleaded guilty to U.S. Justice Department criminal charges. Deutsche Bank(DB) becomes the eighth major global financial institution to settle similar U.S. and British allegations.

In 2013 Deutsche Bank(DB) paid nearly $1 billion to resolve a European antitrust investigation into Libor. Its total of about $3.5 billion in penalties is more than double the next-highest penalty, $1.5 billion, paid in late 2012 by UBS AG.

Justice Department sues Quicken Loans . The U.S. Justice Department is suing mortgage lender Quicken Loans Inc., alleging the company lied to the government when making loans backed by the Federal Housing Administration. The Justice Department said that between September 2007 and December 2011, Detroit-based Quicken originated hundreds of FHA-insured loans that shouldn't have been eligible for federal backing.

The proceedings come less than a week after Quicken filed a pre-emptive lawsuit against the department and the U.S. Department of Housing and Urban Development, alleging the government had attempted to coerce the firm into admitting to claims of fraud that Quicken executives say it didn't commit. Quicken Loans last year surpassed Wells Fargo& Co. to become the biggest FHA lender by volume, issuing $6.7 billion of FHA loans, according to trade publication Inside Mortgage Finance.

EARNINGS

Google (GOOG) caps costs as growth slows. Google Inc.got burned from the strong dollar last quarter like many other U.S multinationals. But better expense control boosted first-quarter profit margins, lifting the company's shares.

The search giant reported revenue of $17.3 billion for the quarter, up 12% from $15.4 billion a year earlier.

Net income rose 3.9% to $3.6 billion, or $5.20 a share, from $3.5 billion or $5.04 a share. Excluding certain expenses, Google(GOOG) posted per-share earnings of $6.57. Analysts had expected $6.61 on that basis, according to FactSet. Google(GOOG) said revenue would have grown 17% if it weren't for the dollar's rising value. The company generates more than 55% of its revenue outside the U.S.

Microsoft (MSFT) outperforms, gives itself some breathing room . Microsoft Corp.(MSFT) did better than its CEO expected, giving the company some space to invest in new businesses without worrying about second guesses from investors.

Microsoft (MSFT) said sales in the third quarter ended March 31 rose nearly 6.5% from a year earlier to $21.7 billion. Microsoft(MSFT) said net income fell nearly 12% to $4.99 billion, or 61 cents a share, from $5.66 billion, or 68 cents a share, a year earlier.

Amazon (AMZN) swings to loss despite jump in sales. Amazon.com Inc.(AMZN) reported a first quarter loss despite rising revenues, as it continued to spend heavily on projects such as drone delivery and streaming-video deals. The Seattle-based online retailer recorded a loss of $57 million. Sales were up 15% to $22.72 billion.

Amazon (AMZN) again spent nearly all the money it took in. Operating expenses for Amazon(AMZN), which include the costs of handling the millions of packages it ships as well as technology development, rose 15% to $22.46 billion.

The company released financial details about its cloud computing division Amazon Web Services for the first time on Thursday. The division's revenue rose 49% to $1.57 billion in the quarter, which would put it on pace to generate more than $6 billion in sales this year. Analyst estimates for AWS revenue ranged between $6 billion and $9 billion.

Starbucks (SBUX) revenue rises as traffic grows. Starbucks Corp.'s(SBUX) bottom line for the period ended in March appeared unscathed from the backlash around its "Race Together" initiative.

For the quarter ended March 29, Starbucks(SBUX) reported a profit of $495 million, or 33 cents a share, up from $427 million, or 28 cents a share, a year earlier. The result was in line with analyst predictions. Revenue increased 18% to $4.56 billion, slightly above analyst expectations of $4.53 billion.

The initiative attempted to encourage conversations about U.S. race relations, started in mid-March, but was scaled back after a few weeks. Some consumers and pundits applauded the effort, while some critics said it was trying to capitalize on recent racially-charged controversies in the country.

ECONOMY

Nasdaq climbs to a record, again fueled by tech . Technology stocks drove the Nasdaq Composite Index to a record Thursday, 15 years after it soared to its last peak in the wake of the first dot-com boom.

The index, boosted by hopes for an improving U.S. economy and Federal Reserve restraint in raising interest rates, rose 20.89 points, or 0.4%, to 5056.06, outrunning the high of 5048.62 set on March 10, 2000.

Solid trends in new-home sales . Rising builder optimism is offering the latest signs of a revived housing market, with double-digit sales boost this March.

As the WSJ's Kris Hudson and Josh Mitchell report, sales of newly built homes declined by 11.4% in March. But this was down from February's record strongest month for sales in seven years, to a seasonally adjusted annual rate of 481,000.

But, the March tally does represent a 19.4% rise from the sales a year ago. The 129,000 newly built homes sold in this year's first quarter also mark a 21.7% gain from the same period of 2014.

CFO MOVES

Medidata Solutions Inc. (MDSO), a New York-based technology and data analytics company in the sciences industry, named Rouven Bergmann chief financial officer, effective May 18. Mr. Bergmann was previously CFO at SAP SE 's SAP North America subsidiary. He will succeed Cory Douglas, who "will pursue opportunities outside of Medidata," the company said. Mr. Bergmann will receive a signing bonus of $300,000 and equity worth $3.1 million, vesting over different periods, according to a regulatory filing. The company did not disclose his salary. Mr. Douglas received compensation valued at $ 1.6 million including a salary of $339,167 in 2013, according to a proxy filing.

MobileIron Inc. (MOBL), a Mountain View, Calif., mobile software company said CFO Todd Ford will resign by May 4 to join an unnamed business. MobileIron(MOBL) will name an interim CFO soon, the company said. Mr. Ford's 2014 compensation information is not yet available. He joined the company as CFO in December 2013 and helped take MobleIron public in June.

Tropicana Entertainment Inc., a Las Vegas casino and entertainment properties operator, named Theresa Glebocki CFO and treasurer, subject to government approval, according to a regulatory filing. Ms. Glebocki was previously CFO and treasurer at Revel Entertainment Group LLC. She will succeed Lance Millage, who resigned, effective April 3, according to a regulatory filing. Ms. Glebocki will receive a salary of $300,000. Mr. Millage received compensation valued at $ 500,924 including a salary of $350,385 in 2014, according to a proxy filing.

SafeCharge International Group Ltd., a British Virgin Islands payments company with offices in Israel and Europe, named Ali Khwaja group CFO, according to a filing. Mr. Khwaja will continue as chief executive with SafeCharge Card Services, a subsidiary in Dublin. He told CFO Journal he will focus on mergers and acquisitions, geographical expansion, and expanding the company's card-issuing business.

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04-24-150739ET
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