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Friday August 28, 2015



Walmart Reports Lowered Earnings

Wal-Mart Stores, Inc. (WMT) released its most recent quarterly earnings report on Tuesday, August 18. The world's largest retailer missed earnings estimates but beat revenue forecasts.

The company reported quarterly revenues of $120.2 billion, which beat analyst forecasts. However, this represents only a 0.1% increase from the same quarter last year, when the company reported revenue of $120.1 billion.

"We're pleased that the investments we've made are helping to improve our business," said Wal-Mart Stores, Inc. CEO Doug McMillon. "Even if it's not as fast as we would like, the fundamentals of serving our customers are consistently improving, and it's reflected in our comps and revenue growth. In this case, our desired changes require investments, which are pressuring earnings this year. We're confident that our strategic plan will create robust sustainable growth for shareholder returns over time."

Walmart reported net income of $3.48 billion, down 15% from a year ago. Earnings per share were $1.08, down from $1.27 last year.

Earlier this year the company responded to pressure from activists by raising its minimum hourly wage to $9.00 per hour, with plans to increase it by a dollar next year. Walmart has also begun to increase employee hours in an effort to reduce long check-out lines. Each of these moves has had a predictably negative effect on the company's bottom line. The low-cost leader will need to find ways to cut supplier costs to offset these wage increases.

Wal-Mart Stores, Inc. (WMT) shares ended the week at $66.54, down 7.4% for the week.

Home Depot Puts Together Successful Quarter

The Home Depot, Inc. (HD) announced its latest quarterly financial results on Tuesday, August 18. The home improvement retailer reported earnings that surpassed Wall Street estimates.

The company reported that revenue during the quarter increased 4.3% to $24.83 billion, better than the forecasted $24.66 billion. Driving the revenue gains was a 4.2% increase in same-store sales.

"We were pleased with this quarter's results," said Home Depot Chairman, CEO and President Craig Menear. "We saw balanced growth across our business resulting from strength in the core of the store as well as the continued recovery of the U.S. housing market."

Home Depot reported net income during the quarter of $2.23 billion or $1.73 per share. This was a significant improvement compared to the same period last year when net income was $2.05 billion or $1.52 per share.

This past quarter was Home Depot's sixth consecutive quarter of sales growth, which reflects the improving housing market and increased consumer confidence. The company said that its average receipt during the quarter increased 1.7% while the number of transactions increased 2.6%. Especially significant were the number of receipts over $900, which rose 6.3%. Following the earnings release, Home Depot's stock price reached an all-time high of $123.80.

The Home Depot, Inc. (HD) shares ended the week at $116.16, down 2.5% for the week.

Salesforce Reports Strong Earnings

Salesforce.com, Inc. (CRM), a cloud computing company specializing in customer relationship management software, announced its second quarter results on Thursday, August 20. The company's results were better than pre-release estimates, though some analysts have reservations about the company's pace of growth.

Salesforce reported that revenue during the quarter increased 24% to $1.63 billion. This was better than the $1.6 billion Wall Street estimate.

"Salesforce has now blown past the $6.5 billion annual revenue run rate faster than any other enterprise software company, and we are once again raising our fiscal year 2016 revenue guidance to $6.625 billion at the high end of our range," said Salesforce Chairman and CEO Marc Benioff. "That puts us on pace to reach a $7 billion run rate later this year, and our goal is to be the fastest to reach $10 billion in annual revenue."

Earnings per share for the quarter were $0.19 per share. This barely beat estimates of $0.18 per share.

As CEO Benioff indicated in his earnings release statement, Salesforce raised its full-year guidance for the year. The company now expects full-year revenue of $6.6 billion to $6.625 billion compared to Wall Street estimates of $6.55 billion. Earnings per share is now forecasted to be between $0.70 and $0.72 compared to estimates of $0.71. Despite this good news, some analysts are concerned about the sluggish growth of Salesforce's cloud business, which is growing at a 24% pace compared to Amazon and Oracle's cloud business growth of 80% and 40%, respectively.

Salesforce.com, Inc. (CRM) shares ended the week at $69.15, down 4.7% for the week.

The Dow started the week of 8/17 at 17,473 and closed at 16,460 on 8/21. The S&P 500 started the week at 2,090 and closed at 1,971. The NASDAQ started the week at 5,032 and closed at 4,706.

Treasuries Fall in Response to Fed Minutes

Treasury bond yields fell during the week of August 17 as prices rose in reaction to the Federal Reserve's Wednesday, August 19 release of its July policy meeting minutes. The minutes left analysts divided on whether the Federal Reserve will implement a September rate hike.

On Wednesday the Federal Reserve released the minutes from its July 28-29 Federal Open Market Committee meeting. The minutes reveal a divide among committee members. Some members believe the economy is not yet ready for an interest rate hike while others think the time has come to stop talking and raise rates.

"A lot of credibility will be lost if they don't move this year," said Richard Fisher, recently retired president of the Federal Reserve Bank of Dallas. If the Federal Reserve chooses not to move in September, it will have one more chance to raise rates this year at its December meeting. However, some analysts believe that the end of the year is a less-than-ideal time to raise rates, due to market volatility.

The uncertainty over the status of interest rates has been driven by several factors including concern over the state of the global economy, specifically China's recent devaluation of their currency, and lower oil prices. This lack of confidence in the overall state of the economy has caused Treasury bond prices to rise, thus driving down yields. "Investors are seeking a haven as the global economy is struggling," said Voya Investment Management Chief Market Strategist Douglas Coté.

The 10-year Treasury note yield finished the week of 8/17 at 2.05% while the 30-year Treasury note yield finished the week at 2.75%.

Interest Rates Show Little Movement

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, August 20. The report showed interest rates remaining mostly unchanged from the prior week.

The 30-year fixed rate mortgage averaged 3.93% this week. This represents a decrease from last week when it averaged 3.94%. Last year at this time, the fixed rate mortgage averaged 4.10%.

This week, the 15-year fixed rate mortgage averaged 3.15%. This is down from last week when it averaged 3.17%. The 15-year fixed rate mortgage averaged 3.23% one year ago.

"There was little movement in financial markets this week as the 30-year fixed mortgage rate remained steady, dropping only 1 basis point to 3.93%," said Sean Becketti, Chief Economist at Freddie Mac. "Overall inflation grew an underwhelming 0.2% year-over-year in July, but core inflation remains steady at 1.8% keeping chances alive for a potential rate hike in September. Housing markets have responded positively to low mortgage rates—the 30-year fixed mortgage rate has been below 4% for five consecutive weeks. The latest NAHB/Wells Fargo Housing Market Index for August 2015 was 61, the highest level in more than nine years. One-unit housing starts in July 2015 jumped to 782,000 units, up 12.8% from June and up 19% from last year. Overall housing markets remain on track for the best year since 2007."

The money market fund finished the week of 8/17 at 0.3%. The 1-year CD finished at 0.6%.

Published August 21, 2015
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