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Saturday April 19, 2014



FedEx Delivers Ominous Outlook to Investors

FedEx Corp. (FDX), an international shipping firm, delivered its fourth quarter results on Thursday, June 20. Although the results were better than expected, the company provided pessimistic guidance for the present year.

FedEx reported revenue for the fourth quarter of $11.4 billion, a 3.6% increase over the comparable period last year. The company also reported net income of $679 million for the quarter compared to $634 million during the fourth quarter last year.

Although FedEx's revenue and net income numbers were positive, the numbers at its core FedEx Express division were not. The Express division's operating income was down $281 million from the comparable quarter last year despite a 3% increase in fourth quarter revenue this year.

Frederick W. Smith, FedEx Chairman, President and CEO, had this to say about the results: "FedEx Ground posted another strong year and FedEx Freight margins continued to improve. These positive developments did not fully offset tepid economic growth and customer preference for less costly international shipping services. FedEx Express results improved in the fourth quarter, and while near-term challenges remain, we are confident we are positioning FedEx for profitable, long-term growth."

Investors and analysts seized on the last two sentences in Mr. Smith's statement, believing he has a mixed view of the company's profitability going forward as customers choose less expensive delivery services. This negative outlook regarding FedEx's profitability caused its share price to fall nearly 5% during Thursday trading.

FedEx (FDX) shares ended the week at $96.46.

Adobe's Quarterly Results Beat Expectations

Adobe Systems Incorporated (ADBE) reported its fiscal 2013 second quarter results on Wednesday, June 19. The company reported strong growth in its Creative Cloud subscriptions, which caused its share price to rise.

Adobe reported revenue of $1.01 billion for the quarter, a figure in line with analysts' expectations. The company also reported earnings per share of $0.36, which beat analysts' expectations of between $0.33 and $0.34 per share.

Additionally, Adobe had positive news to report regarding its move to sell design tools as a Web subscription service. Its paid Creative Cloud subscriptions grew to 700,000 at the end of the quarter, an increase of 221,000 from the end of the prior quarter. Adobe views this increase in online subscriptions as a necessary part of their strategy given the weakening personal computer market.

Commenting on the Creative Cloud subscriptions numbers, Shantanu Narayen, President and CEO, said, "Creative Cloud is revolutionizing the creative process, and Adobe Marketing Cloud is quickly becoming the platform of choice for the world's leading brands, advertising agencies and media companies."

Following the earnings report Adobe's share price rose, ending 5.6% higher at the end of trading on Wednesday. The share price has risen 21% so far this year.

Adobe Systems Incorporated (ADBE) shares ended the week at $44.77.

Quarterly Results Show No Rest For La-Z-Boy

La-Z-Boy Incorporated (LZB) reported its fiscal 2013 fourth quarter results on Tuesday, June 18. Results were mixed as the company's sales and net income beat expectations despite a drop in net income during the quarter.

La-Z-Boy reported fourth quarter sales of $360 million, an increase of 9.8% compared to the same period last year. Net income fell during the quarter to $18.3 million from $19.6 million during the comparable period last year. However, both the sales and net income figures beat analysts' expectations.

Commenting on the results, Kurt L. Darrow, President and CEO, said, "We are pleased with our results for the quarter and full year and believe they demonstrate the successful execution and effectiveness of our strategic plan to operate as an efficient integrated retailer, through which we are enjoying a double-digit wholesale/retail margin."

Despite results that beat expectations, La-Z-Boy's share price fell following the earnings report. By early afternoon on Wednesday the price had fallen nearly 4%. The fall in price is the result of analysts' continued neutral outlook regarding the company's performance, which remained unchanged by the quarter's better-than-expected results.

La-Z-Boy (LZB) shares ended the week at $18.66.

The Dow started the week at 15,069 and closed at 14,799. The S&P 500 started the week at 1,627 and closed at 1,592. The NASDAQ started the week at 3,424 and closed at 3,357.

Treasury Prices Fall Following Fed Report

Treasuries fell on Friday as investors continued to react to the Federal Reserve's most recent monetary policy announcement on Wednesday, June 19. The fall in prices caused the 10-year note yield to rise to 2.5% for the first time since August 2011.

During early Friday trading, the 10-year note yield rose 4 basis points to 2.46%. It had earlier reached 2.51%. Yields move inversely to prices, so as yields rise prices fall. Yields on the 30-year bond were up 1.5 basis points to 3.53%.

The rise in Treasury yields this week was triggered by the Federal Reserve's announcement Wednesday that it may soon begin to taper its quantitative easing program. The central bank has been purchasing $85 billion a month of government debt and mortgage-backed securities. Federal Reserve Chairman Ben Bernanke indicated that the purchases could eventually end altogether in mid-2014.

The Federal Reserve's announcement caused many investors to flee the uncertainty of stocks for the security of Treasuries. Furthermore, many analysts remain understandably concerned about the effect that the Federal Reserve's decision will have on the markets going forward.

"The market is very sensitive and very thin so any type of move can push the market pretty far," said Jason Rogan, managing director of U.S. Treasury trading with Guggenheim Partners.

Mr. Rogan's concerns were echoed by Richard Gilhooly, U.S. Director of Interest Rate Strategy at TD Securities. He said, "We do think that the market has crossed the Rubicon and Bernanke has unleashed a torrent of pent-up selling, which it is not completely clear at this stage he is prepared for."

The 10-year Treasury note yield finished the week at 2.51% while the 30-year Treasury note yield finished the week at 3.57%.

Interest Rates See a Slight Dip

On June 20 Freddie Mac released the results of its weekly Primary Mortgage Market Survey (PMMS). Unlike past weeks, the results show average fixed mortgage rates falling slightly. Freddie Mac attributed the decrease to the market's anticipated reaction to the Federal Reserve's latest monetary policy report.

The 15-year fixed rate mortgage averaged 3.04% this week. This represents a decrease from last week when it averaged 3.10%. Last year at this time, the 15-year fixed rate mortgage averaged 2.95%.

The 30-year fixed rate mortgage averaged 3.93% this week. This represents a decrease from last week when it averaged 3.98%. One year ago at this time, the 30-year fixed rate mortgage averaged 3.66%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, commented on the slight decrease in rates this week. He said, "Mortgage rates were relatively unchanged this week as market participants awaited the Federal Reserve's (Fed) monetary policy announcement. The Fed stated that economic growth has been expanding at a moderate pace and that labor market conditions have shown further improvement, although the unemployment rate remains elevated. It noted inflation has been running below the Fed's longer-run objective as well. As a result, the Fed will continue its bond-buying program at the current pace and maintain its highly accommodative monetary policy stance."

The money market fund finished this week at 0.4%. The 1-year CD finished at 0.6%.

Published June 21, 2013

Previous Articles

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Despite Good Results, Dollar General's Stock Stumbles

Is Tiffany & Co. a Diamond in the Rough?

Home Depot Reports Quarterly Results

Macy's Reports Quarterly Earnings

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