The crisis around Boeing, once a blue-chip stock, is getting worse. Investors are about to find out exactly how much damage has been done.
Boeing (BA), which reports third quarter earnings on Wednesday, is expected to show a return to profitability. But that will be overshadowed by all the bad newsplaguing the company.
The chief concern: Investors are desperate for guidance on when Boeing's best-selling plane, the 737 Max, can return to service. The plane has been grounded since March, following two fatal accidents that killed everyone on board.
Boeing has already taken a $5 billion charge related to compensation it expects to give to its airline customers.
It's likely to announce a new charge Wednesday because of continuing delays in getting approval for the plane to fly again, according to Cai von Rumohr, an aerospace analyst at Cowen.
The company faces ongoing scrutiny from US regulators about the original certification process for the plane back in 2016.
The Federal Aviation Administration chastised Boeing last week for only recently alerting the agency to concerns expressed during the process by employees.
That revelation has weighed on Boeing shares, which have plunged more than 20% since March.
When the music stopped Tuesday afternoon, the CEOs of three large public companies were sitting in new seats.
Nike Inc.
NKE, -0.64%
announced Tuesday afternoon that Chief Executive Mark Parker would step down by the end of the year, and be replaced by ServiceNow Inc.
NOW, -5.21%
CEO John Donahoe. Just minutes later, ServiceNow said that its new CEO will be Bill McDermott, who stepped down from the CEO role at SAP SESAP, -0.69%
less than two weeks ago.
The top sportswear companies have been embroiled in controversies involving college athletics, which landed one former Adidas executive a prison term earlier this year. Well-known track coach Alberto Salazar was recently hit with a four-year ban by the U.S. Anti-Doping Agency for testosterone experiments on athletes that were reportedly bankrolled and supported by Nike, though Parker told CNBC that the scandal was not related to his planned departure.
Donohoe’s departure for Nike appeared to shock ServiceNow investors, who sent shares of the cloud-software company down more than 10% in after-hours trading. Donahoe, who previously served as CEO of eBay Inc.
EBAY, -0.82%
and chairman of Paypal Holdings Inc.
PYPL, -4.02%
, had led ServiceNow since April 2017, and shares had increased more than 160% since he took the helm.
“ServiceNow is a special company and leading the team has been an honor,” Donahoe said in a statement as he headed out the door to lead a high-profile Dow Jones Industrial Average
DJIA, -0.15%
component.
McDermott’s exit from SAP earlier this month was a surprise to many observers. SAP said at the time that he had decided not to renew his contract, leading the company to activate a succession plan that included naming Jennifer Morgan and Christian Klein as co-CEOs.
“ServiceNow’s board is thrilled to have Bill McDermott join the company,” said Jeff Miller, lead independent director of the ServiceNow board of directors. “His global experience and proven track record will provide for a smooth transition and continued strong leadership.”
While ServiceNow shares took a big hit in late trading Tuesday, Nike shares were up about 0.4% in after-hours action and SAP’s U.S.-traded shares were unaffected.
SoftBank(SFTBF) will pump $5 billion into The We Company and accelerate a $1.5 billion equity investment originally due to the company next year, according to a statement released by the two firms.
SoftBank, which is already WeWork's largest investor, is also offering to buy up to $3 billion worth of stock from existing investors and shareholders. SoftBank's Vision Fund will also exchange all of its interests in regional WeWork joint ventures across Asia, excluding the Japan joint venture, for shares in WeWork.
All told, the deal will give SoftBank 80% ownership of the beleaguered startup, an enormous boost over the nearly 30% that SoftBank and its Vision Fund are reported to already own.
The rescue package is expected to value WeWork at about $8 billion, according to a person familiar with the matter. That's a stunning fall from a peak of $47 billion, and an additional embarrassment for a company that not long ago was planning to go public. At the lower valuation, SoftBank(SFTBF) would have put more money into WeWork to date than the company is worth.
SoftBank's stock dropped 2.5% in Tokyo after the deal was announced.
Adam Neumann, WeWork's controversial co-founder, will also step down from the company's board and become a board observer. He already left his role as CEO. Marcelo Claure, SoftBank's chief operating officer, will become executive chairman of an expanded WeWork board. The board will receive voting control over Neumann's shares.
The announcement did not disclose details of Neumann's payout, but the WeWork founder could walk away with up to nearly $1.7 billion. SoftBank's offer to buy Neumann's shares is capped at $975 million, and the package includes an additional $500 million loan to repay a credit line, plus a $185 million 'consulting fee' for SoftBank, the person familiar with the matter said.
The deal caps a turbulent two months for WeWork, during which Neumann oversaw a disastrous attempt to take the firm public. The highly anticipated IPO was shelved after investors balked at its valuation and criticized the shared workspace provider's corporate governance.
But in a statement, SoftBank CEO Masayoshi Son downplayed the debacle.
"It is not unusual for the world's leading technology disruptors to experience growth challenges as the one WeWork just faced," Son said.
Claure — who already holds multiple roles as CEO of SoftBank's international arm, SoftBank's chief operating officer, executive chairman of Sprint(S), and runs point on SoftBank's Latin American Innovation Fund — has now been tasked with turning around a struggling unicorn under intense scrutiny.
"The new capital SoftBank is providing will restore momentum to the company and I am committed to delivering profitability and positive free cash flow," Claure said in a statement.
The transition comes as the Baltimore-based retailer has been caught up in a sales slump in North America, combating the likes of Nike, Adidas and Lululemon in a cut-throat sports apparel and sneaker market. The company also came face to face with its own #MeToo moment in 2018, when the public learned employees had charged visits to strip clubs on their corporate credit cards. Women at the company said it was a symptom of poor culture.
Now Plank and Frisk will continue to work closely together, with Plank being named executive chairman and brand chief. And Frisk will still report into him.
Having been the face of the brand for so long, and holding such a loud voice about his vision for Under Armour's future, some people are happy to see Plank sticking around. Plank told CNBC the move was ultimately his decision and that him and Frisk will "divide and conquer" duties, moving forward. He added, he will be able to better focus on the longer term.
Plank built Under Armour from scratch in his grandmother's basement in Washington, D.C. In its first full year in business, in 1996, Under Armour did $17,000 in sales. Last year, it did $5.2 billion.
Growing up in Kensington, Maryland, Plank,now 47 years old,was the youngest of five boys, and was always into sports. He loved football — so much so he earned a walk-on spot at the University of Maryland, later becoming a special teams captain. While he was playing at the collegiate level, he – and his teammates – grew frustrated with always sweating through their cotton T-shirts. Plank, who's described himself as a big entrepreneur growing up, wanted to create a better, sweat-wicking top.
He started by designing a synthetic base layer that was meant to wick away sweat. And he grew Under Armour's product assortment from there, into long-sleeve shirts, cold-weather gear and later shoes for football, cross training and running.
In 1998, Under Armour's headquarters moved from Plank's grandmother's basement in Georgetown to Baltimore, where the company has been based since. A huge moment for the brand would come a year later, when Under Armour landed a deal in 1999 to have its products featured in the Oliver Stone film "Any Given Sunday," starring Al Pacino and Jamie Foxx.
Kevin Plank, chairman and chief executive officer of Under Armour Inc., speaks during the Women's Wear Daily Apparel/Retail CEO Summit in New York, U.S., on Tuesday, Nov. 10, 2009.
Daniel Acker | Bloomberg | Getty Images
Following a welcome surge in awareness thanks to its Hollywood moment, Plank kept his brand focused on sports. And in 2001, Under Armour became the official supplier of the National Hockey League, and had licensing deals with both Major League Baseball and USA Baseball. That gave its name even greater appeal and the validation it needed to secure key sponsorships. It would also lead to even bigger business opportunities.
On Nov. 18, 2005, Plank took Under Armour public, raising $157 million in the company's IPO. Plank has about a 15% stake in the company today, but he controls it through a special voting class of stock.
Under Armour surpassed $1 billion in annual sales five years later, in 2010.
Meantime, the company's "Protect this House" marketing campaigns were working to solidify Under Armour as a very male-centric, high performance-focused brand. Under Plank's tenure, it has signed deals with athletes ranging from golfer Jordan Spieth to NBA star Stephen Curry to professional boxer Muhammad Ali.
But some analysts have said this laser focus on "performance," hyped by Plank, is what has led to some of Under Armour's more recent struggles. So-called athleisure wear — more comfortable items like joggers, women's legging and yoga pants — have exploded in popularity in the U.S., boosting Lululemon and pushing Nike and Adidas to invest more in fashion-forward apparel. But Under Armour has largely been sitting on the sidelines of the trend. It also is still working to grow its women's business, something that hasn't been as much of a priority in the past.
2017 was a tough year for Plank. Under Armour shares cratered more than 40%. The company reported its first quarterly loss. Momentum clearly started to slow.
In his presentation, he said 2017 had been a year to "get organized," 2018 was to "get to work," and 2019 was meant for Under Armour to "execute." Results wouldn't come overnight.
"So now in our 23rd year in business, our 14th as a public company our ability to innovate, adapt and improve is stronger and holistically more capable than it's ever been," Plank told the audience. "It's an unbreakable part of our DNA."
Under Armour's sales in North America dropped 2% in 2018, to $3.7 billion. It September, it named Stephanie Pugliese as its new president of that division, offering Wall Street a glimmer of hope that Under Armour's struggles on its home turf might subside under new management. Pugliese had previously been president and CEO at Duluth Trading Company. But Under Armour is still calling for sales to decline slightly in North America in 2019.
Under Armour shares are up more than 18% this year. But those gains lag rivals. Nike's stock is up about 30% over the same time, while Lululemon shares have rallied more than 68%.
On Tuesday, Under Armour's announcement sent shares up more than 4%.
Under Armour's Patrik Frisk, left, and Kevin Plank
Source: CNBC
"We view the CEO transition as positive and believe Mr. Frisk is the right person to lead the company forward," Telsey Advisory Group analyst Cristina Fernandez said. "The two leaders seem to have a good working relationship and appear aligned in their goals for the company, which should help ensure a smooth transition."
"We expect Under Armour to continue to execute against the plan and long-term targets the company laid out at its December 2018 investor day and don't see a change in strategy," she added in a note to clients.
Plank just last week sat side by side with Richard Branson to unveil the new spacesuits that Under Armour has designed for Virgin Galactic, which the first space tourists are soon set to wear to space. In an interview with CNBC, Plank said: "It's a bit of a coming-out party for what we've been talking about for three years, that people have a hard time getting their arms around where Under Armour truly wants to be. ... The human performance company. ... We want to stand for all things innovation."
As the company's new brand chief, one would expect Plank will continue to make appearances like his one with Branson, touting the company he founded as one sweat-wicking shirt.
Kiosks for ordering food sit in the dining area of a McDonald's restaurant located inside the company's new corporate headquarters on June 4, 2018 in Chicago.
Scott Olson | Getty Images
McDonald's reported weaker-than-expected quarterly earnings and revenue on Tuesday as its promotions struggled to lure U.S. customers away from the competition.
Shares of the company fell 3% in premarket trading.
Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
Earnings per share: $2.11 vs. $2.21 expected
Revenue: $5.4 billion vs. $5.5 billion expected
Global same-store sales: 5.9% vs. 5.6% expected
The fast-food giant reported fiscal third-quarter net income of $1.6 billion, or $2.11 per share, unchanged from $1.6 billion, or $2.10 per share, a year earlier. Analysts surveyed by Refinitiv were expecting earnings per share of $2.21.
Net salesrose 1% to $5.4 billion, narrowly missing expectations of $5.5 billion. The company reported global same-store sales growth of 5.9%, thanks to strong performance in its international markets.
U.S. same-store sales grew by 4.8% during the quarter, falling short of Wall Street's estimates of 5.2%. McDonald's said national and local promotions, menu price increases and tech-focused upgrades to stores drove domestic same-store sales growth. Traffic to U.S. locations, however, continues to decline.
McDonald's competition has been generating more buzz when it comes to menu additions. With some help from social media, Popeyes Louisiana Kitchen, which is owned by Burger King's parent Restaurant Brands International, sold out of its chicken sandwich in less than a month after its launch this summer.
Burger King has also been stealing some spotlight from McDonald's with the nationwide launch of its plant-based Impossible Whopper. In September, McDonald's announced plans to test a burger made with a Beyond Meat patty in select stores in Ontario, Canada.
This story is developing. Please check back for updates.
In a surprise announcement, Kevin Plank, who founded the company in 1996 while still in college, announced Tuesday he is stepping down as CEO. He will be replaced by Chief Operating Officer Patrik Frisk, effective Jan. 1. Frisk will also join the board, while Plank transitions to executive chairman and brand chief.
"Patrik is the right person to serve as Under Armour's next CEO," the 47-year-old Plank said in a statement. "As my partner during the most transformative chapter in our history, he has been exceptional in his ability to translate our brand's vision into world-class execution by focusing on our long-term strategy and re-engineering our ecosystem through a strategic operational and cultural transformation."
Under Armour shares jumped 2% in premarket trading Tuesday following the announcement.
Frisk joined Under Armour in July 2017 from his position as CEO of Aldo Group. There, like at Under Armour, Frisk worked under a legendary founder, Aldo Bensadoun. Prior to Aldo, Frisk held various leadership positions at VF Corp.
He has been a key part of Baltimore-based Under Armour's three-year transformation plan. On the most recent earnings call, he listed "lengthy achievements" the athleisure company has logged so far, including optimizing the supply chain and defining the target customer.
However, a big part of Frisk's focus has been revitalizing North America for the brand, which has not yet returned to growth. North America revenue fell 3.2% in its fiscal second quarter, which it reported in July. The company forecast a "slight decline" in the region's sales for 2019. Previously, the company expected North American sales to be "relatively flat."
"The opportunity that lies ahead of us is incredible," Frisk said in the announcement. "As our entire global team continues to lean hard into our transformation, I am honored to lead this great brand toward the realization of its full potential."
Often joining Plank for interviews since arriving at Under Armour, Frisk has been the heir apparent, though the timing of the transition has not previously been made public.
There have been a number of Under Armour executive departures in recent years including Kerry Chandler, chief human resources officer, in October 2018. Chief Merchandising Officer Henry Stafford and Chief Digital Officer Robin Thurston left in 2016.
Some critics have called for executive changes in recent years after its disappointing performance coupled with unflattering news reports about its work culture. Last year, The Wall Street Journal reported strip club visits were allowed as work-related expenses, while reports surfaced citing some female and minority employees felt passed over for promotions or otherwise left out of the company's competitive culture.
The company ended the practice of allowing employees to expense visits to strip clubs in early 2018, and sent a statement to the Journal last November that said it "can and will do better."
Plank founded the company while he was working out of his grandmother's basement. He took it public in 2005 and remains an active CEO inside and outside the corporate walls.
With Plank holding the executive chairman and also the brand chief titles, he will likely remain very involved in the larger direction of the company, while leaving the daily operational details to Frisk.
Under Armour's brand has largely been associated with performance attributes, but many consumers have been buying athletic wear to run errands around town. This shift toward fashion has helped rivals such as Nike, Adidas and Lululemon.
As of Monday's close, Under Armour shares were up nearly 14% this year. The company has a market value of $9.1 billion. By comparison, Lululemon shares, which have a market value of $26.7 billion, have gained nearly 69%, while Nike, valued at $150.2 billion, has gained nearly 30%.
— CNBC's Lauren Thomas contributed to this reporting.
WUZHEN, China (Reuters) - At one of the world’s showpiece tech conferences in China, jibes at the United States for its ‘bully behavior’ lent a Cold War tone to proceedings as trade tension once again reared its ugly head in an event that drew a dearth of top U.S. executives.
FILE PHOTO: Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019. REUTERS/Aly Song
The state-run World Internet Conference, one of the country’s most prominent tech events, took place this year against a backdrop of rising Sino-U.S. frictions and has been especially overshadowed by Washington’s moves against Chinese tech companies.
The United States earlier this month placed several Chinese AI companies on a supplier blacklist and trade talks between both countries show little sign of any quick resolution.
Attendees in previous years included the heads of Google and Apple Inc. In 2017, Apple CEO Tim Cook told the conference that the company shared China’s vision for developing a digital economy for openness.
But this year’s three-day event, which ended on Tuesday, drew few American luminaries and did not feature a U.S.-China panel like last year, reflecting the heightened tensions between the United States and China.
In his opening remarks, China’s propaganda chief Huang Kunming set the overall tone with the criticism that the cyberspace industry was being hindered by a “Cold War” mentality and “bully behavior,” a barely veiled jibe at the United States.
“No sanctions or restrictions can hinder China’s development or the development of Chinese enterprises,” Yang Shuzhen, the head of the Chinese Academy of Cyberspace Studies, a government-backed think tank, told reporters at the conference.
“No country’s enterprise can cover all the world’s technical patents, components and equipment. The irreversible trend is that all countries rely on the support of the global market.”
SPYING AND AI
In May, Washington ramped up pressure on China by placing Huawei Technologies Co Ltd [HWT.UL], the world’s largest telecoms equipment provider, on a U.S. blacklist over national security concerns, banning it from buying American-made parts without a special license.
The U.S. government, fearing Huawei equipment could be used to spy on customers, has led a campaign to convince allies to bar it from their 5G networks. Huawei has repeatedly denied the claims.
Some attendees told Reuters that they were seeing efforts by the Chinese government to allocate more resources toward the tech sector to compete with the United States.
“The trade tensions have indeed impacted on our local traditional businesses, including the apparel industry and fiberglass manufacturers, said a local government official who declined to be named as he was not authorized to speak to the press.
“But we are trying our best to encourage high-tech businesses to set up operations here, such as renewable energy-driven vehicles and self-driving cars,” the official added.
Still, many speakers including Alibaba chairman Daniel Zhang and Microsoft’s Artificial Intelligence & Research executive vice-president Harry Shum, avoided discussing the ‘entity list’ or other thorny topics publicly.
Huawei and Megvii were also among 15 companies awarded prizes by the conference organizers for new product innovations, but no mention was made of the troubles they may face from being put on Washington’s trade blacklist.
“The problem is that everyone’s avoiding the problems,” said one U.S. attendee.
“There is not a candid discussion of the problems foreign companies face in China, or some of the larger problems having to do with internet governance in China. Rather, there’s technological boosterism,” he said.
Others also tip-toed around the issue of the months-long protests in Hong Kong, even as a seminar was organized to discuss internet innovation in the city and Macau.
Baidu CEO Robin Li was one of the few speakers to make a passing reference to the protests. In a speech talking about artificial intelligence, he predicted that people could one day use the technology to store their thoughts and have conversations with people from the past.
Former Chinese paramount leader Deng Xiaoping could be among them, he said. Deng in 1984 and 1987 said if “turmoil” occurs in Hong Kong, “the central government must intervene”.
“We can also ask Mr. Deng Xiaoping what he thinks of the situation in Hong Kong today,” Li said.
(This story changes “tensions” to “tension” in first paragraph)
Reporting by Yingzhi Yang and Josh Horwitz in Wuzhen; Editing by Brenda Goh & Shri Navaratnam
