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Monday October 20, 2014



Kellogg to Restructure

Kellogg Company (K), manufacturer and marketer of cereals and snacks, reported its third quarter earnings on November 4. The company reported revenue and earnings in line with expectations. However, weak sales and earnings resulting from strong competition in the breakfast market have pushed the company to restructure.

Kellogg reported total sales of $3.71 billion for the quarter. This represents a decrease of 0.1% from the same period last year when the company reported total sales of $3.72 billion. This number was in line with analysts' expectations.

The company reported quarterly net income of $325 million. This represents an increase of 2.5% from the comparable quarter last year when the company reported net income of $318 million. Kellogg reported earnings per share of $0.90 compared with $0.89 during the third quarter of 2012.

"We are excited by the potential and opportunities we see for growth in the categories in which we operate," said John Bryant, Kellogg Company's President and CEO. "As a result, we are making the difficult decisions necessary to address structural cost-saving opportunities which will enable us to increase investment in our core markets and in opportunities for future growth. These actions will set the foundation of our Sustainable Growth operating principle."

Mr. Bryant is referring to the recent implementation of Kellogg's restructuring program dubbed "Project K." In order to boost earnings Kellogg will focus on core markets, emerging markets and create global category teams. As a result of the program about 7% of Kellogg's workforce will lose their jobs. The program will cost between $1.2 and $1.4 billion, but will save the company about $450 million per year.

Kellogg Company (K) shares ended the week of 11/4/2013 at $62.19, down 2.08% for the week.

A Tough Week for Tesla

Tesla Motors (TSLA), the California-based electric car manufacturer, reported its third quarter earnings on November 5. The company reported earnings in line with expectations, but its stock price fell sharply due to a battery shortage and reports of three car fires involving Tesla vehicles.

Tesla reported quarterly revenue of $431.35 million. This was a significant increase from the same period last year when the company reported revenue of $50.1 million.

The company reported a net loss of $38.5 million. This loss is not as significant as the same period last year when the company reported a loss of $110.8 million.

Tesla's third quarter 2013 shareholder letter states, "Model S is becoming more pervasive every day. Over 19,000 Model S owners are driving in excess of 700,000 miles per day in over 20 countries and have now driven their cars more than 100 million miles. As more people see our car on the road, take a test drive or talk with another Model S owner, more demand is created for our product. Demand exceeds supply, despite no advertising, no discounts and no paid endorsements."

Tesla has developed somewhat of a cult following. Investors bid up the price per share from $33.87 at the end of 2012 to a high of $194.50 on September 30, 2013. However, recent developments have caused investors to question Tesla's current valuation. Tesla currently makes one electric car, the Model S. It was revealed this week that the company is having trouble meeting demand for the Model S because they have a shortage of lithium-ion battery cells needed to power the cars. Tesla is not due for a shipment of the batteries until next year. In addition to their battery woes, news reports this week revealed that three Model S cars caught fire after driving accidents. These developments have caused Tesla's stock price to fall precipitously this week.

Tesla Motors (TSLA) shares ended the week of 11/4/2013 at $137.95, down 16.4% for the week.

Stratasys Reports Record Earnings

Stratasys Ltd. (SSYS), a 3-D printing company, reported its quarterly earnings on November 7. The company reported record revenue, but a net loss for the quarter.

Stratasys reported net sales of $125.63 million. This represents an increase of 153% from the same period last year when the company reported net sales of $49.72 million.

The company reported a net loss of $6.12 million. Last year at this time, the company reported net income of $9.11 million.

David Reis, CEO of Stratasys, commented on the quarterly results. "As we enter the fourth quarter, we believe the acceleration in our organic growth rate, combined with the positive impact from our recent acquisition of MakerBot, will contribute to a strong finish to the year. Looking beyond 2013, we are well positioned to sustain our positive momentum as we accelerate our rate of new product introductions, and prepare to capitalize on additional inorganic growth opportunities. In addition, our industry remains ripe for growth as new and innovative applications continue to emerge for our technology. We are very excited about the future."

3-D printing has received significant attention from analysts and investors in the past several weeks. 3D Systems and Statasys are two companies that are leading the way in this industry. Much of the discussion surrounding these companies has been focused on the many possible applications of 3-D printing technology in manufacturing, medical and consumer markets. Whether 3-D printing has simply captured the public's imagination or is truly a disruptive technology remains to be seen.

Stratasys Ltd. (SSYS) shares ended the week of 11/4/2013 at $119.05, up 0.9% for the week.

The Dow started the week of 11/4 at 15,621 and closed at 15,762 on 11/8. The S&P 500 started the week at 1,763 and closed at 1,771. The NASDAQ started the week at 3,933 and closed at 3,919.

Job Growth Causes Treasuries to Fall

Treasury prices fell the most since July after the Department of Labor announced employment figures for the month of October. According to the Department of Labor, employers added 204,000 jobs in October. This number is significantly higher than average forecasts stating that 120,000 jobs would be added last month.

The encouraging jobs number has caused speculation that the Federal Reserve will begin cutting back its monthly bond purchases earlier than March or April of next year. "The discussion and decision of taper is back on the table," said Dan Heckman, Fixed-Income Strategist at U.S. Bank Wealth Management. "They could announce it in December and start in January, that's a real possibility. This is forcing yields on the long end higher."

This speculation caused Treasury prices to fall and yields to rise the most since July 2013. The 10-year Treasury note yield rose 14 basis points to 2.76% in early trading on November 8. The 10-year Treasury is now at its cheapest price since September 23.

The jobs report was not the only major announcement affecting the bond market this week. The European Central Bank (ECB) announced that it is cutting its main refinancing rate to a record low of 0.25% on November 7. Companies took advantage of lower borrowing costs by issuing bonds at the fastest pace in two months. AT&T was one of the companies leading the way to €22 billion in corporate bonds sold for the week ending November 8. This is twice the value of corporate bonds sold the previous week.

The 10-year Treasury note yield finished the week of 11/4 at 2.75% while the 30-year Treasury note yield finished the week at 3.84%.

Interest Rates Rise Slightly

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on November 7. The results show average fixed mortgage rates climbing for the first time in three weeks.

The 30-year fixed rate mortgage averaged 4.16% this week. This represents an increase from last week when it averaged 4.1%. One year ago, the fixed rate mortgage averaged 3.4%.

This week, the 15-year fixed rate mortgage averaged 3.27%. This is an increase from last week when it averaged 3.2%. Last year at this time, the 15-year fixed rate mortgage averaged 2.69%.

"Fixed mortgage rates rebounded slightly this week on more positive economic data releases," said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. "Production in the manufacturing industry expanded for the fifth month in a row in October to the strongest pace since April 2011. Similarly, the non-manufacturing sector grew for the second consecutive month in October and beat the market consensus forecast of a decline. These increases were widespread across the nation, from Chicago to Milwaukee to New York."

The money market fund finished the week of 11/4 at 0.4%. The 1-year CD finished at 0.7%.

Published November 8, 2013

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