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Monday July 28, 2014



Exxon's Earnings Miss Projections

Exxon Mobile (XOM), the world's third largest company according to Fortune Magazine, reported its quarterly earnings on Thursday, August 1. The company missed revenue and net income projections for the quarter. Big oil companies, including Exxon, are facing the challenge of rising extraction costs as newly discovered oil deposits are difficult to reach.

Exxon announced total revenue of $106.47 billion for the quarter. This represents a decrease from the comparable quarter last year when the company reported total revenue of $127.36 billion.

The company reported quarterly net income of $6.86 billion. This represents a decrease of 57% from the same period last year when the company reported net income of $15.91 billion.

Rex Tillerson, Chairman of Exxon Mobile, had this to say about the company's quarterly earnings, "Exxon Mobile's second quarter results reflect continued strong operational performance and investments to meet growing demand for oil, natural gas and chemical products in the years ahead."

In the last decade, new technology has made drilling for shale oil less costly. The U.S. Department of Energy estimates that U.S. shale oil reserves total 58 billion barrels, second only to Russia. The U.S. Geological Survey has said that The Bakken Formation in the northern United States contains 7.4 billion barrels of shale oil. In 2012 alone, oil production in the U.S. increased 14% to 8.9 million barrels per day, the largest annual increase since 1967. However, big oil companies are not benefiting from this shale oil boom like one might expect. They were late getting into the U.S. shale oil business and so had to pay top dollar for access to reserves already held by others. Furthermore, the cost to extract shale oil is higher than crude oil making the venture less profitable. Therefore, companies like Exxon and Shell are seeing costs rise and production decline.

Exxon Mobile (XOM) shares ended the week at $91.91, down 2.75% for the week.

Time Warner Reports Mixed Earnings

Time Warner Cable Inc. (TWC), a provider of television and internet services, reported its quarterly earnings on August 1. The company reported revenue below expectations, but reported earnings per share above analysts' estimates.

Time Warner reported revenue of $5.55 billion for the quarter, an increase of 2.7% over the same period last year. Analysts had expected revenue of $5.58 billion.

Net income for the quarter was $481 million, an increase from the comparable quarter last year when the net income was $453 million. In addition, the company reported earnings per share of $1.69, above analyst's estimates of $1.66 per share.

Glenn Britt, Chairman and CEO of Time Warner, commented on the earnings report, "Time Warner Cable continues to build significant shareholder value by investing in rapidly expanding business services and by revitalizing our residential services operations. I am pleased with our progress in operations and expect to see the benefits in the second half of the year and in 2014."

In addition to missing revenue estimates, Time Warner has been losing television subscribers. Just in the most recent quarter, Time Warner lost 191,000 television subscribers. With these difficulties in mind it was reported that John Malone's Liberty Media, which owns 27% of Charter Communications, was pushing for a merger between Charter and Time Warner. This caused Time Warner's stock value to increase this week despite the less-than-impressive earnings. However, on Friday, Bloomberg reported that Cox Communications and Charter were talking about a possible merger as well. This caused Time Warner stock to fall more than 7% in early Friday trading before stabilizing.

Time Warner Cable Inc. (TWC) shares ended the week at $117.08, up 0.1% for the week.

DreamWorks Earnings a Dream Come True

DreamWorks Animation SKG Inc. (DWA), a producer of animated films, reported its quarterly earnings on Wednesday, July 31. The recent success of "The Croods" and "Turbo" caused both revenue and earnings per share to beat analysts' expectations.

DreamWorks reported revenue of $213.44 million for the quarter. This represents an increase of 31% from the comparable quarter last year when the company reported revenue of $162.8 million. Analysts had expected revenue of $188.7 million.

The company announced quarterly net income of $22.25 million, a 75% increase from the same period last year. In addition, earnings per share came in at $0.26 per share, beating analysts' estimates of $0.18 per share.

"DreamWorks Animation significantly outperformed in the second quarter, thanks primarily to 'The Croods' incredibly successful box office run, where it has amassed $584 million worldwide to become the fifth highest grossing movie of the year," said Jeffrey Katzenberg, CEO of DreamWorks. "We also have a great deal of momentum within our television, consumer products and location-based entertainment businesses today, as DreamWorks Animation continues to diversify and evolve into a branded family entertainment company."

DreamWorks' financial health up to this point has hinged on the success of its latest films. However, the company is attempting to fix that by diversifying into other areas such as television, consumer products and theme park attractions. If these efforts succeed, it will improve the company's financial stability and enable DreamWorks to weather the storm of a box office flop with less fluctuation in earnings.

DreamWorks Animation SKG Inc. (DWA) shares ended the week at $26.73, up 9.64% for the week.

The Dow started the week at 15,557 and closed at 15,656. The S&P 500 started the week at 1,690 and closed at 1,710. The NASDAQ started the week at 3,604 and closed at 3,690.

Bonds Fall on Release of Economic Data

Treasuries fell on Friday upon the release of July's employment data. Wednesday and Thursday saw yields rise as investors anticipated solid job growth. However, Friday's numbers proved to be a disappointment.

According to the U.S. Department of Labor, the U.S. economy added 162,000 jobs in July. This figure disappointed analysts who had estimated 185,000 would be added last month.

Upon the release of the employment data, the 10-year Treasury note yield fell 10 basis points to 2.61%. The 30-year Treasury note yield, which had previously reached a two-year high of 3.78% on Thursday, dropped to 3.7% in early Friday trading. "We are reversing the increase in yields we had over the last couple of days on an optimistic assessment of where the labor market was likely to go," said Christopher Sullivan, Chief Investment Officer at United Nations Federal Credit Union of New York.

This employment data has eased the concerns of many investors that the Federal Reserve will begin scaling back its $85 billion monthly bond purchasing program in September. "Its continued progress on the labor front, but the September tapering concerns are being pushed back," said Richard Schlanger, Vice President at Pioneer Investments in Boston. "Maybe we've seen the highs near-term in 10-year Treasury rates."

While the number of jobs added in July was less than anticipated, the overall unemployment rate in July dropped from 7.5% to 7.4%. The Federal Reserve has consistently said that it will continue its accommodative monetary policy until unemployment reaches 6.5%.

The 10-year Treasury note yield finished the week at 2.60% while the 30-year Treasury note yield finished the week at 3.69%.

Interest Rates Rise

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, August 1. The results showed average fixed mortgage rates rising this week before the release of the Federal Open Market Committee's latest statement on July 31.

The 15-year fixed mortgage rate averaged 3.43% this week. This represents an increase from last week when it averaged 3.39%. One year ago, the 15-year fixed mortgage rate averaged 2.83%.

This week, the 30-year fixed mortgage rate averaged 4.39%. This is an increase from last week when it averaged 4.31%. Last year at this time, the 30-year fixed mortgage rate averaged 3.55%.

"Mortgage rates rose slightly leading up to the Federal Reserve's (Fed) monetary policy statement this week," said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. "The statement indicated no change in monetary policy. The Fed indicated that the economy expanded at a modest pace, but that the unemployment rate remains elevated. With mortgage rates still relatively low, the housing recovery continues to support the overall economy. May's S&P/Case Shiller® 20-city composite index was up 12.2% from last May and represented the largest annual increase since March 2006. In addition, pending home sales in June hovered near a six and a half year high. Finally, second-quarter GDP growth came in at 1.7% with a residential fixed investment contributing 0.4%. This makes it the eleventh consecutive quarter housing has made a positive contribution to real GDP growth."

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

Published August 2, 2013

Previous Articles

Netflix's Earnings Don't Match Sky-High Expectations

Google's Earnings Miss Expectations

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