Skip to Content

CEO Daily: Friday, 22nd July

Can big still be beautiful?


Johnson & Johnson is the kind of company activists love to hate. It’s a sprawling $70 billion behemoth – number 103 on the Fortune Global 500 – with 250 operating companies making everything from band-aids to tuberculosis medicines. Some top analysts have been pushing to break the consumer and medical device businesses from the drug business, arguing the pieces could be worth as much as $40 billion more than the whole.


But CEO Alex Gorsky is having none of it. He vigorously touts the company’s “broad based advantages”: its consistent financial performance (one of only two U.S. companies that still has a AAA credit rating), its massive consumer base, and its wide-ranging expertise. And he is working overtime to get the 130-year-old company to act like a nimble startup. Fortune’s Erika Fry takes a closer look at the company in the August issue of our magazine. You can read her story online today here.


Meanwhile, Donald Trump accepted the Republican nomination last night, presenting a dark, dystopian view of a broken U.S. that only he can fix.


More news below.


Alan Murray

Top News

• “I Am Your Voice”

Donald Trump formally accepted the Republican Party nomination for the presidency with a speech that focused heavily on familiar themes of trade, immigration, law and order and a complacent, out-of-touch political establishment. It also included a pledge to protect the rights of the LGBTQ community “from the violence and oppression of a hateful foreign ideology” (i.e. Islam), although he was less explicit about protecting it from, for example, a Supreme Court that might be more sympathetic to conservative Christians under his Presidency. The evening was also notable for a full-throated endorsement of Trump by the openly gay Silicon Valley eminence Peter Thiel. Whether such gusto can compensate for the effectiveness that comes from party unity (seemingly not a priority for the GOP this week) still an open question. Fortune, WSJ, subscription required

PMIs Show the Brexit Effect

Markit’s Purchasing Manager Indexes for July suggested the U.K.’s economy is contracting at the fastest rate since 2009 in the wake of the June 23rd vote to leave the European Union. There’s no putting a gloss on it: the manufacturing orders sub-index dropped 6.8 points, its sharpest ever decline. Output in both manufacturing and services both fell sharply, while input price inflation hit a five-year high owing to the 10% drop in sterling since the vote. Markit said the U.K. economy was on course to shrink 0.4% in the third quarter. The same Brexit factor helped drive the Eurozone PMI down to its lowest level since the start of last year. The only ray of light was that managers surveyed suggested that the longer-term impact to the U.K.’s economic outlook was much less dramatic. Markit

GE’s Makeover Is Going Well

More encouraging news from General Electric as it completes its return to its industrial roots. The company reported a better-than-expected profit in the three months to June, thanks to its long-suffering power business. Excluding one-off items, the company earned 51 cents per share, beating the average analyst estimate of 46 cents. That was on a 15% rise in revenue to $33.5 billion. The second quarter was when the bluest of the U.S.’s industrial blue-chips shed its designation as a non-bank systemically important financial institution after divesting most of its GE Capital business. The change freed up about $18 billion in capital, which GE plans to return to shareholders through share buybacks, and it positions GE to take on debt to fund acquisitions and growth. Reuters

Brexit Is the Slug on GM’s Lettuce

General Motors posted a thumping beat of Wall Street’s forecasts in its second-quarter earnings, thanks mainly to a sweet spot in the cycle in North America. The U.S. accounted for over 90% of pretax profits. The company also returned to profit in Europe for the first time in five years, as Opel made big gains at Volkswagen’s expense in the wake of the diesel emissions scandal. However, GM feared that the uncertainty caused by Britain’s vote to leave the EU could take up to $400 million off profits in the second half of the year. It also flagged another $550 million in potential liabilities, IF regulators force it to recall millions more vehicles using Takata airbag inflators.  Fortune, Fortune

Around the Water Cooler

Boeing Takes 3 Big Hits

Boeing said it will take more than $2 billion in accounting charges related to three different aircraft programs when it reports second-quarter results next Wednesday. The biggest charge of $847 million after tax, relates to the 787 Dreamliner program. Two heavily-modded test planes that it had hoped to sell to ultra-rich buyers are still unsold. Another $814 million is due to weaker-than-expected demand for its 747-8 cargo aircraft (in turn a statement on the weakening of global trade in the last year). Boeing now expects to make no more than six a year, rising to 12 a year by 2019. The remainder of the charge is due to the KC-46 military tanker program, over issues with the delivery schedule and hardware issues that the company had already announced. The company said this did not include any compensation for the U.S. Air Force. That will be announced next week, Boeing said. Fortune

The End of the Ailes Era

Roger Ailes resigned as CEO of Fox News after 20 years at the network that he built into one of the most influential media outlets in the U.S., although he seems set to be retained as a consultant. The timing of his departure has an almost ironic, almost poetic, quality: it came on the very day that Donald Trump—who has channeled the passions raised by Fox over the last 20 years to devastating effect—accepted the Republican nomination for the presidency. Trump’s campaign has propelled the network to the highest ratings in its history, as it became the showcase of the battle for the soul of the Republican party. Fox founder Rupert Murdoch will take over as CEO while the company searches for a longer-term replacement. Fortune

Apple Watch Sales Plummet

It was a rough second quarter for Apple Watch, new data from research firm IDC shows. Apple’s worldwide smartwatch shipments plummeted by 55% in the second quarter, falling to 1.6 million units. In fact, it was a pretty rough quarter for the whole industry, as total shipments fell 32% from 5.1 million a year earlier to 3.2 million. The fact that Apple underperformed the market may have something to do with the fact that it hasn’t launched a new iteration of the product this year. Those who had, such as Samsung and Lenovo, saw shipments rise by 51% and 75% respectively. IDC’s senior analyst Jitesh Ubrani reckons the whole industry’s growth will stay “muted” due to “challenges related to fashion and functionality”, which looks to the cynical eye like a polite way of saying that a smartwatch is a fad item that fulfils no basic need better than existing alternatives. Fortune

Student Loans From Amazon (via Wells Fargo)

Amazon is taking its nickname—the Everything Store— seriously. On Thursday, it announced a partnership with Wells Fargo to supply some Amazon customers with student loans. The bank will give a new interest rate discount of 0.5% to borrowers who are members of Amazon Prime Student, a subscription-based service for college students that costs half the price of regular Amazon Prime. For Wells Fargo, it’s a new way of getting its hooks into lifelong customers at an early stage by “meeting our customers where they are…in the digital space,” according to personal lending head John Rasmussen. Wells Fargo will be bearing the credit risk.  Fortune