Upset the Apple Cart

Global markets are in the red after Apple delivered some bad news

The Express | Insight Before the Bell By Caleb Silver, Editor in Chief & Deborah D'Souza, News Editor  Tuesday's Headlines 1. Global markets tumble and Apple shares fall 2. Franklin Templeton buying Legg Mason 3. Kroger receives Buffett boost 4. Jeff Bezos giving $10 billion to fight global warming     Markets Today Global markets are a sea of red, and U.S. futures are pointing lower today as investors worry the impact of the novel coronavirus outbreak will be worse than what's priced in. The disease has now claimed 1,868 lives in mainland China and the number of cases in the country has surpassed 72,000. Apple said the return to normalcy is taking longer than expected and revised its quarterly guidance (see more below). This prompted tech stocks in Europe and Asia to drift lower. Treasuries and gold rallied, and oil prices dipped due to demand concerns. The euro also weakened after the ZEW indicator showed economic sentiment in Germany fell sharply in February.   We hope you're well rested because we've got a data-packed week coming up and choppy waters to navigate. Welcome back and stay sharp!   Headlines: Franklin Resources, known as Franklin Templeton, is buying rival Legg Mason to create an investment management behemoth with $1.5 trillion AUM. It will pay $4.5 billion, or $50 per share, and also assume $2 billion of Legg Mason's debt in the all-cash transaction announced today.   Walmart's holiday quarter results fell short of analysts' expectations. The company reported revenue of $141.67 billion and adjusted EPS of $1.38. It blamed softness in U.S. stores in the run-up to Christmas and unrest in Chile that negatively affected operating income by approximately $110 million. The annual cash dividend for 2021 has been raised 2% to $2.16/share. HSBC, Europe's largest bank by assets, said its pre-tax profit fell 33% to $13.3 billion last year, lower than analysts expected. It also reported loss before tax of $3.9 billion in Q4 2019 due to a goodwill impairment of $7.3 billion and a $1 billion U.K. bank levy charge. In order to improve its returns to 10-12% by 2022, the bank will cut 35,000 jobs and suspend share buybacks for 2020 and 2021 as part of a "high level of restructuring." Shares in Kroger are up over 6% this morning after Warren Buffett's Berkshire Hathaway revealed a 2.4% stake in the supermarket operator worth over $500 million. Berkshire also disclosed a new stake in biotech firm Biogen and increased its investments in RH, Occidental Petroleum and General Motors. Amazon CEO Jeff Bezos is committing $10 billion to fight climate change. He is starting the Bezos Earth Fund to "support scientists, activists, NGOs — any effort that offers a real possibility to help preserve and protect the natural world," he said in an Instagram post. Bezos, the richest man in the world with a net worth of about $130 billion, made his largest donation in 2018 when he and his now ex-wife launched the Bezos Day One Fund with $2 billion. The Boy Scouts of America has filed for Chapter 11 bankruptcy. The non-profit youth organization has been hit with hundred of lawsuits filed by victims of alleged sexual abuse.         SPONSORED BY FIDELITY INVESTMENTS Putting Your People Skills to Work Do you thrive on helping people? Financial services has an array of roles that could be a great fit. Here's why being a people person is perfect for a job in finance. Learn More »           Image courtesy: Aly Song/ Reuters The Big Story Apple Issues Warning Yesterday Apple told investors it expects to miss the second quarter revenue guidance it provided less than a month ago due to iPhone supply shortages and a slowdown in Chinese demand. This is despite the revenue range being "wider-than-usual" to factor in uncertainty caused by the coronavirus outbreak. Apple stock was 2.29% lower in pre-market trading.   "Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated," said the company in a letter. "The situation is evolving, and we will provide more information during our next earnings call in April. Apple is fundamentally strong, and this disruption to our business is only temporary." The tech giant is also doubling its donation to help the public health effort.   This is what was predicted for the March quarter in January: revenue between $63 billion and $67 billion gross margin between 38% and 39% operating expenses between $9.6 billion and $9.7 billion other income/(expense) of $250 million tax rate of approximately 16.5%  Due to the rapid spread of the COVID-19 virus, Apple's manufacturing partners in China are ramping up production more slowly than expected. Secondly, it had to close all its retail stores in the country at the start of February and is only now gradually reopening them. It's important to note how rare such a letter from Apple is. The last time it slashed its forecast was in Jan. 2019 due to the economic slump in China. It was the first guidance cut in 15 years. We don't yet have numbers on how the global health crisis will hurt businesses this year, but Apple's surprise announcement makes it the proverbial canary in the coal mine, especially for the tech industry. Greater China, which includes China, Hong Kong and Taiwan, accounted for 17% of Apple's net sales last year (see below) and 15% of its net sales in Q1 2020.     Image courtesy: Apple Inc. Read more: Why China Is "The World's Factory"     The Big Number: 138 That's how many companies in the S&P 500 mentioned the term "coronavirus" during fourth quarter earnings conference calls between January 1 and February 13, according to an analysis of transcripts by FactSet. This is 38% of the 364 firms that reported during that period.   These 138 companies have an average revenue exposure to China of 7.2%, compared with 4.8% for all firms on the index. The sectors most represented were Industrials (26), Information Technology (26), and Health Care (24). Forty-seven said that it was too early (or difficult) to quantify the financial impact or were not including any impact from the coronavirus in their guidance, and 34 included some impact or modified guidance in some capacity.    But there could be more negative guidance issued this quarter as executives learn more. Almost 80% of American companies with factories in the Shanghai, Suzhou, Nanjing and the wider Yangtze River Delta areas do not have sufficient staff to run a full production line, according to a new survey by the American Chamber of Commerce in Shanghai.      Image Courtesy: FactSet More coverage: What to Expect in the Markets This Week Watch out for how the PBOC responds this week to the unfolding coronavirus crisis and see what the Fed said in its meeting. Read Now »   Pete Buttigieg's Economic Plan: Keep Calm and Cut Costs Centrist Pete Buttigieg has emerged as a powerful contender among more radical rivals. Read Now »   Kroger Stock Poised to Rebound After Berkshire Reports Stake Kroger shares are poised to move higher on Tuesday after Berkshire Hathaway disclosed a 2.3% stake in the company. Read Now »   McDonald's Earnings Beat Pushes Stock Into Overbought Territory With only 3% of its revenue coming from China, the fast food giant has survived adverse effects from the spreading of the coronavirus. Read Now »   How can we improve The Express? Tell us at theexpress@investopedia.com Enjoy The Express?  Copy and share the link below to invite friends to sign up: https://link.investopedia.com/join/53o/00-fwd-theexpress CONNECT WITH INVESTOPEDIA Email sent to:  geezers.mail@gmail.com. To view online click here . To update your newsletter preferences or unsubscribe, click here.   114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC. All Rights Reserved | Privacy Policy