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Wednesday November 26, 2014



Hewlett-Packard's Turnaround Looking Good

Hewlett-Packard Company (HPQ) announced its fourth quarter results on Tuesday, November 26. The company reported strong revenue and net income figures, a sign its attempts at a turnaround are working.

Hewlett-Packard reported revenue of $29.1 billion during the quarter, which was a slight decrease from the $30 billion reported during the same period last year. Analysts had forecasted revenue would be around $27.86 billion.

Net income for the quarter was $1.4 billion, or $0.73 per share. This was a significant improvement over the $6.9 billion loss reported during the same period last year.

Meg Whitman, HP President and CEO, commented on the company's positive quarter. "Through improved execution, strong cost management, and with the support of our customers and partners, HP ended fiscal 2013 on a high note. Our Q4 results demonstrate that HP's turnaround remains on track heading into fiscal 2014. While we still have much more work to do, our business units and their core assets are delivering on HP's strategy to help customers thrive by providing solutions for the New Style of IT."

CEO Meg Whitman has been overseeing a turnaround effort at Hewlett-Packard ever since the company fell on hard times in the changing computer industry. During a conference call with investors, Whitman said the company's personal computing business bested the rest of the industry. As the personal computing business has lagged due to the popularity of smartphones and tablets, the company has had to shift its focus to commercial and home printing. As a result of the successful fourth quarter, the company's stock rose 6% to $26.71 after the results were released.

Hewlett-Packard (HPQ) shares ended the week at $27.35.

Barnes & Noble's Quarter Surprises

Barnes & Noble, Inc. (BKS) announced its fiscal 2014 second-quarter results on Tuesday, November 26. In a shock to investors, the company reported a profit for the quarter despite an overall drop in sales.

Barnes & Noble reported revenue during the quarter of $1.73 billion. This was an 8% decrease from the $1.88 billion reported during the same quarter last year.

Net income for the quarter was $13.23 million compared to $0.5 million reported during the same period last year. Barnes & Noble's quarterly profit was a surprise to investors, as the company had been reporting losses of late.

Michael P. Huseby, President of Barnes & Noble and NOOK Media CEO, commented on the profitable second quarter. "During the second quarter, Barnes & Noble grew earnings through improved margins and reduced expenses, while also completing another successful College rush season. The company is focused on executing its plans for the holiday season and our booksellers are prepared to welcome holiday shoppers and recommend thoughtful gift ideas for everyone on their list. We have a terrific book title line-up this holiday season, a leading assortment of educational Toys & Games and a full selection of NOOK devices, including our recently released new NOOK GlowLight."

Barnes & Noble surprised the market by posting a profitable quarter, but there is significant doubt that will continue. The company's profitable quarter was primarily the result of a doubling in the NOOK segment's gross margin, a trend that may be hard to sustain. All across the board, the company's comparable sales figures continue to fall, no doubt driven by the fact more and more consumers are flocking to e-books and e-readers. As one of the last large brick-and-mortar booksellers in the country, Barnes & Noble's future may rest on its ability to draw customers who prefer the feel of crisp paper in their hands to the soulless warmth of an electronic device.

Barnes & Noble, Inc. (BKS) shares ended the week at $16.78.

Tiffany Produces a Jewel of a Quarter

Tiffany & Co. (TIF), a leading jewelry retailer, announced its third quarter results on Tuesday, November 26. The company produced a strong quarter bolstered by extremely strong results in Asia.

Tiffany & Co. reported net sales of $911 million for the quarter, an increase of 7% from the comparable period last year. The net sales increase was driven by a 27% increase in the Asia-Pacific region.

Net earnings for the quarter were $95 million, or $0.73 per share. This was a 50% increase over the $63 million, or $0.49 per share, reported during the same period last year.

Michael J. Kowalski, Tiffany's Chairman and CEO, had this to say about the quarterly results, "We are very pleased with our overall results. Worldwide sales growth in the quarter demonstrated the growing power of the TIFFANY & CO. brand and the benefits of our expanding global presence. Operating earnings rose faster than sales, reflecting favorable product cost trends and ongoing well-controlled expenses. We're experiencing excellent customer response to our expanded fashion jewelry designs, highlighted by the ATLAS collection, as well as continued growth in our fine and statement jewelry, with particular strength in our yellow diamond collection."

With its quarterly results, Tiffany & Co. bested a number of its jewelry rivals, positioning it well for the upcoming holiday season. Tiffany's net earnings of $0.73 per share significantly exceeded expectations that earnings would be $0.58 per share. The company also raised its full-year adjusted earnings forecast, a sign of the company's confidence in the upcoming quarter. All of this positive news resulted in the company's share price rising 9% on Tuesday.

Tiffany & Co. (TIF) shares ended the week at $89.14.

The Dow started the week of 11/25 at 16,072 and closed at 16,086 on 11/29. The S&P 500 started the week at 1,806 and closed at 1,806. The NASDAQ started the week at 4,004 and closed at 4,060.

Treasuries Fall as The Economy Improves

Treasuries rose this week on news of improvement in the U.S. economy. The encouraging economic news further increased speculation that the Federal Reserve will soon begin to taper its monthly bond purchases.

The first positive economic report was the Chicago purchasing managers' index, which fell to 63 in November. A number above 50 indicates expansion. Although the number fell from the previous month, it beat economists' expectations that it would be 59.

Further encouraging economic news came in the form of the number of people applying for unemployment benefits. The number fell 10,000 to 316,000, which was better than forecasted as economists predicted the number would rise to 330,000.

It was also reported that durable goods orders, which measure business investment, dropped 2% in October. Still, economists were encouraged by this number because they had expected a larger drop of 2.2%.

Charles Comiskey, head of Treasury trading at Bank of Nova Scotia, said the data was "comforting." "It has to be followed by a stronger employment report. If not, then tapering is off for December," he said.

The improved economic reports this week have led many to believe the Federal Reserve may finally be close to having the signals it needs to begin reducing its monthly bond purchases. Many investors feel that if the November employment report is positive, that the Fed will announce a plan to scale back its purchases as early as its December meeting.

The 10-year Treasury note yield finished the week of 11/25 at 2.74% while the 30-year Treasury note yield finished the week at 3.81%.

Interest Rates Climb Higher on Good News

Due to the Thanksgiving holiday, Freddie Mac released the results of its weekly Primary Mortgage Market Survey (PMMS) early on Tuesday, November 27. The survey showed interest rates rose slightly this past week on somewhat mixed reports for pending home sales and house price gains.

The 15-year fixed rate mortgage averaged 3.30% this week, up from last week's average of 3.27%. Last year at this time, the 15-year fixed rate mortgage averaged 2.64%.

The 30-year fixed rate mortgage averaged 4.29% this week, up from last week's average of 4.22%. One year ago at this time, the 30-year fixed rate mortgage averaged 3.32%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, commented on this week's rates, "Fixed mortgage rates retraced some of their decline of the prior week as housing data portrayed mixed signals. The National Association of Realtors reported that their pending sales metric dipped for the fifth consecutive month and was slightly below year-ago levels, presaging a softening in sales near year-end. Nonetheless, house prices rose as homes-for-sale inventory remained tight in many markets. The S&P/Case-Shiller House Price index released yesterday showed prices in the 20 largest cities increased 13.3% annually in September, the highest year-over-year increase since February 2006, and a bit stronger than the Federal Housing Finance Agency's U.S.-wide Purchase-Only index, which appreciated 8.5% over the same period."

The money market fund finished the week of 11/25 at 0.4%. The 1-year CD finished at 0.7%.

Published November 29, 2013

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