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Friday October 31, 2014



Rivals Coke and Pepsi Report Earnings

Coca-Cola Co. (KO) and PepsiCo (PEP), the cola and beverage giants, reported their third-quarter earnings back-to-back on October 15 and 16, respectively. Both companies saw revenue decreases while posting net income gains.

Pepsi reported revenue for the quarter of $16.91 billion, which missed expectations by $120 million. The company's net income for the quarter was $1.91 billion, which was a slight increase over the $1.9 billion reported during the comparable period last year.

Pepsi CEO Indra Nooyi had this to say about the company's results, "Our year-to-date results give us confidence in achieving our 2013 financial goals and we continue to believe that we have the right strategies in place to create long-term value for our shareholders."

Coke, on the other hand, reported a 3% decrease in quarterly revenue to $12.03 billion. The company was able to record a 6% increase in net income, however, which increased to $2.45 billion from $2.31 billion.

Coke CEO Muhtar Kent commented on the results, "In all, we delivered 181 billion servings thanks to global volume growth of 2% driven by 2% global growth in brand Coca-Cola."

Both cola giants are under siege by a consumer trend away from soda consumption as consumers become more conscious about high-sugar products. In addition, there have been declining sales of diet soda products because of consumer concerns about the sweeteners used in them. Coke and Pepsi have both introduced new low-calorie and sugar-free products to keep consumers interested. Perhaps as a sign of each company's performance, Pepsi's stock price has risen 20% on the year while Coke's has managed only a 5% rise.

Coca-Cola Co. (KO) shares ended the week at $38.78 while PepsiCo (PEP) shares ended the week at $83.01.

Google Has Monster Quarter

Google Inc. (GOOG) reported its third-quarter earnings on Thursday, October 17. The company's results beat Wall Street expectations and sent the stock to new highs.

Google reported revenue of $14.89 billion, a 6% increase over the $14.79 billion reported during the same period last year. That figure beat expectations that revenue would be $14.8 billion.

Net income for the quarter was $2.97 billion, or $8.75 per share, which greatly surpassed expectations. The net income figure was also significantly higher than the $2.18 billion, or $6.53 per share, reported during the same period last year.

Google CEO Larry Page had this to say about the results, "When you look across the company, it's amazing how all of the teams are executing. For example, we rolled out enhanced campaigns in AdWords across all devices for all our advertisers in less than a year."

Despite having lower ad prices during the quarter than in the past, Google was able to substantially increase revenue and net income. Ad clicks increased 26% over the comparable period last year even as the price per click decreased. As a result of Google's impressive quarter, the company's stock rose over 8% in after-hours trading to $962.00, a $73 increase.

Google Inc. (GOOG) shares ended the week at an all-time high of $1,011.41.

Chipotle Wraps Up Great Third Quarter

Chipotle Mexican Grill, Inc. (CMG) announced its third-quarter results on Thursday, October 17. The company saw huge revenue and net income gains that caused the stock price to skyrocket in after-hours trading.

Chipotle reported revenue for the quarter of $826.9 million, which was an impressive 18% increase over the comparable period last year. Significantly, the revenue growth included a 6.2% increase in comparable restaurant sales.

Net income for the quarter was $83.4 million, or $2.66 per share, a 15.3% increase from the comparable period last year. Analysts, however, had expected earnings per share of $2.78.

"Our unique food culture continues to resonate with our customers," said Steve Ells, Founder, Chairman and Co-CEO of Chipotle. "We are proud of the investments we have made over the years to source sustainably raised ingredients, which allows us to serve delicious food. By sourcing the best possible ingredients and cooking them according to classic cooking techniques we continue to demonstrate that just because food is served fast, it doesn't have to be a typical fast food experience."

Chipotle's third quarter results were impressive, but the company did lower its forecast of same-restaurant growth for the rest of the year. Despite this news, the company's quarterly results were enough to please investors. During after-hours trading the stock price increased close to 8%.

Chipotle Mexican Grill, Inc. (CMG) shares ended the week at $509.74.

The Dow started the week at 15,231 and closed at 15,400. The S&P 500 started the week at 1,700 and closed at 1,745. The NASDAQ started the week at 3,767 and closed at 3,914.

Treasuries Rise Amid Shutdown Fallout

Treasuries rose Friday, two days after lawmakers were finally able to reach a compromise to end the government shutdown and avoid a debt default. With further budget and debt deadlines set for early next year, however, investors continue to trend toward the security of U.S. Treasury bonds.

After more than two weeks of budget brinkmanship, lawmakers were able to hash out a short-term compromise on Wednesday, October 16. Under the compromise, the federal government is funded through mid-January and the debt limit is raised until early February.

The short-term compromise has already created uncertainty and doubt among investors that another round of fiscal brinkmanship will result early next year. Treasuries have benefited from this negative outlook as investors have sought the security of U.S. government bonds. As of early Friday trading, the yield on the benchmark 10-year Treasury note had fallen to 2.59%, pushing prices higher.

Standard & Poor's indicated in a report this week that the government shutdown would decrease U.S. gross domestic product by at least 0.6%. This news, combined with President Obama's nomination of Janet Yellen, a quantitative easing supporter, as the next Federal Reserve Chairman solidified opinions that the bond purchasing program may be around for a while longer.

"The U.S. fiscal debacle provides for a more positive liquidity outlook," said Richard McGuire, Senior Fixed-Income Strategist at Rabobank International in London. "It means tapering is going to happen later rather than sooner. All boats are rising on the back of this central-bank sponsored liquidity, which is why we've seen an ongoing rally in safe havens like Treasuries."

Investors will get further insight into the health of the U.S. economy when the U.S. Department of Labor releases the September jobs report on Tuesday, October 22. The report had been delayed because of the government shutdown. Earlier in the month, other jobs data and employment trackers indicated the month of September was one of anemic job growth.

The 10-year Treasury note yield finished the week at 2.59% while the 30-year Treasury note yield finished the week at 3.65%.

Interest Rates Move on Up

Freddie Mac released the results of its weekly Primary Mortgage Market Survey (PMMS) on Thursday, October 17. Interest rates moved higher this week as the federal budget showdown reached its zenith.

The 15-year fixed rate mortgage averaged 3.33% this week, up from last week's average of 3.31%. Last year at this time, the 15-year fixed rate mortgage averaged 2.66%.

The 30-year fixed rate mortgage averaged 4.28% this week. This represents an increase from last week when it averaged 4.23%. One year ago at this time, the 30-year fixed rate mortgage averaged 3.37%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, commented on this week's rates, "Fixed mortgage rates edged up leading to the federal budget deadline this week. Recent confidence measures depict some of the effects of the government shutdown and uncertainty of the budget impasse. For instance, consumer sentiment in October fell for the second straight month to the lowest reading since January, according to the University of Michigan. Similarly, October's homebuilder confidence fell to a four-month low. However, despite these downturns in confidence, mortgage applications rose for the second consecutive week as of October 11th, elevated by increases in applications for refinancing."

The money market fund finished this week at 0.4%. The 1-year CD finished at 0.7%.

Published October 18, 2013

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