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CEO Daily: Friday, April 29

Corporate profits may be in a slump, but no one bothered to tell Amazon, which reported its largest profit ever yesterday, blowing away analysts expectations, causing the stock to soar 13%, and adding $6 billion to Jeff Bezos’ personal wealth.

 

There was lots of good news for Amazon in the report. The company showed surprising strength in the sale of devices, big growth in its Amazon Prime loyalty program, and increased use of its video services. CFO Brian Olsavsky fired a warning shot over the bow of Netflix, saying Amazon plans to “significantly increase” its spending on video content in the coming year.

 

But the real stunner in the Amazon report was Amazon Web Services. Sales rose an amazing 64% to total over $2.5 billion, and profits more than doubled to $604 million from $265 million in the same quarter last year. You can read Barb Darrow’s report on the AWS juggernaut here. If there is a new industrial revolution underway, it’s being built on Amazon’s cloud platform.

 

Bezos, you will remember, topped Fortune’s World’s Greatest Leaders list this year, for good reason. If you missed Adam Lashinsky’s fascinating profile, go back and read it now. This one has legs.

 

And speaking of lists, we’re beginning work on the Fortune’s 2016 Change the World list, which highlights companies that have addressed major global social problems as part of their core business activity. I’ll be interviewing executives from four companies that were on last year’s list – Novo Nordisk, Ayala, MasterCard and CVS – at the Shared Value Leadership Summit in New York on May 10. If you are interested in attending, let me know.

 

More news below.

 

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”alan.murray@fortune.com”
 You Don’t Have to Disrupt to Succeed

It was a terrific quarter, too, for the venerable Ford Motor Co., which is now on track for its second successive year of record earnings. The company owed its success in large measure to the success of the aluminum-bodied F-150 pickup, which finally hit its stride last quarter after teething problems. Some three quarters of the vehicles Ford sells in the U.S. are either trucks or SUVs, which command higher margins that cars. For that reason, the company’s operating margin rose to a record 12.9%–well above industry norms. That, however, may be as good as it gets this year.  CFO Bob Shanks said the second half of the year won’t be as profitable due largely to downtime for production plants in North America for summer and end-of-year shutdowns.  Fortune

Goldman and the SEC’s Kid Gloves 

The too-cozy relationship between supervisor and supervised on Wall Street has been a recurring theme since 2008  (and before, of course, but just more controversially so since then). Today on our website, Fortune’s finance editor Stephen Gandel takes a disturbing look at how the Securities and Exchanges Commission failed where the Department of Justice ultimately (if still only partially) succeeded in bringing Goldman Sachs to book for mis-selling mortgage-backed securities. Goldman settled with the DoJ last month for $5.1 billion and a wide-ranging admission of naughtiness, but no individual bankers were held responsible in the settlement. An important part of being the ‘smartest guy in the room’, it seems, is not being in the room when the subpoenas start to fly.  Fortune

 Oil Hits New 2016 High 

Oil prices are at fresh highs for the year this morning, lifted by the perception that the global market is finally coming back into balance. According to a new report out by the investment bank Jefferies, global spare capacity is now down to 2 million barrels a day—not much more than 2% of global demand and a very small cushion in the context of all the geopolitical risks that can derail output from Libya to Iran and beyond. Another thing that catches the eye is that the share prices of oilfield services firms such as Halliburton and Schlumberger are all at their highest in eight months, while Baker Hughes is at a five-month high—despite giving very gloomy outlooks and despite having their efforts to improve margins by consolidation skewered by regulators. Schlumberger said it expected the North American market for drilling services to shrink by as much as 50% this year. For all that individual upstream U.S. oil and gas companies are impaired by debt and negative cash flow, the market must believe that there’s plenty of life left in shale as an asset class if it can discount so much bad news from the oilfield services sector.  Reuters

Valeant’s Board Makeover

Valeant Pharmaceuticals is shaking up its board as it tries to reinvent itself in the wake of the corporate governance scandal that has wrecked its reputation and its share price. The Wall Street Journal reports that the company will announce four new directors Friday, most of them coming from more, um, traditionally governed pharma companies (the same ones that Valeant so gleefully trashed while its star was in the ascendant). One of those stepping down will be activist investor Mason Morfit of ValueAct Capital, who helped recruit Michael Pearson from McKinsey as CEO, and backed Pearson’s controversial acquisition and pricing strategies.  WSJ, susbscription required

 

Around the Water Cooler

Google in for Telegram?

Russian media reports that Google has been considering a takeover of Telegram, the encrypted messaging app created by émigré Russian tech entrepreneur Pavel Durov. The story was first reported by Trade Secret, which said Google initiated a meeting last year, then backed up by RBC, which also quoted sources as saying Durov’s proposal was not to Google’s liking.  According to the reports, Google CEO Sundar Pichai met with Durov back in May 2015, back when Pichai was Google’s product chief. Reportedly, the two sides had very different ideas on valuation ($1 billion vs  $3-4 billion). Durov is famous for having founded Vkontakte, a social network that bested Facebook in the country by tailoring itself better to local tastes. He then fled the country after the authorities put pressure on him to censor the site more actively in the wake of Russia’s annexation of Crimea. Google, which doesn’t have a messaging app of its own, declined to comment.  Fortune

Icahn Sells out of Apple

Fears of Chinese government intervention were the trigger for Carl Icahn to sell his Apple shares, the veteran investor told CNBC.  Icahn’s interview joined some dots between the sharp sell-off in the wake of the company’s disappointing earnings release and the news earlier in the week that Beijing had closed down its iBooks store and its iTunes Movies services in China under new laws tightening controls over foreign media in the country. It’s an interesting difference in focus from the rest of the crowd following Apple. On an investor conference call after the results, CEO Tim Cook was asked 14 times about China, but none of the questions focused on its relationship with the government, and Cook didn’t volunteer any information on that either.

Fortune

Terror, Brexit Shadows Over BA Owner

Fuel may be cheaper than it has been in a long time, but it can’t compensate for everything, according to ICAG, the airline group behind British Airways and Iberia.  The holding company trimmed its growth plans this year earlier Friday to adjust for weaker demand in the second quarter, as people flew less after the Brussels terror attacks and as worries about Britain’s E.U. referendum depressed business travel. The Brussels attacks, which included a bombing in the departure hall of Zaventem airport and claimed 32 lives on March 22, had curbed travel appetite over the last six weeks, ICAG said.  ICAG’s CEO Willie Walsh said the group would cut its 2016 capacity growth to 4.9% from a previously planned 5.2%.  Fortune

• The 5000-1 Shot That Paid Off

Small-town outfit Leicester City is set to be crowned as English soccer champions this weekend in what will be one of the biggest upsets in modern professional sport. A collection of journeymen rejected by bigger clubs, and offered by bookmakers at 5,000-1 at the start of the season back in August, Leicester’s rise testifies to the power of careful recruitment, engaged management and, as we highlighted yesterday, trust in key employees. As well as from being the kind of  against-the-odds fairytale that gives sport its eternal power as a metaphor for life. As one rival coach of a bunch of perennial also-rans, Tony Pulis, put it back in March: “We’d all love Leicester to win it now. It gives us all hope.” Quite.