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Wednesday October 22, 2014

Finances

Finances
 

Nike Reports Strong Earnings

Nike, Inc. (NKE), a leading retailer of sports equipment and apparel, reported its quarterly earnings on Thursday, December 19. The sports retailer beat Wall Street analysts' estimates for quarterly earnings per share.

Nike announced revenue of $6.43 billion for the quarter. This figure was just $10 million shy of Wall Street forecasts. It represents an increase of 8% from the same quarter last year when the company reported revenue of $5.96 billion.

The company reported quarterly net income of $537 million. This represents an increase of 40% from the comparable period last year when the company reported net income of $384 million. Nike reported earnings per share of $0.59, which beat analysts' estimates of $0.58 per share.

"Our strong second quarter results show why NIKE leads the industry," said Mark Parker, President and CEO of NIKE, Inc. "Our powerful portfolio fuels growth across our categories and geographies. Because we never stop innovating, we enhance our ability to serve the athlete, inspire consumers and elevate the marketplace. We will continue to seize the best opportunities to drive sustainable, profitable growth for our shareholders."

Two years ago Nike began selling "stroboscopic" eyeglasses. The idea behind stroboscopic training is that blinding an athlete intermittently while practicing will help improve certain types of visual skills (e.g., passing a hockey puck or shooting on goal). Stephen Mitroff, a neuroscientist at Duke University, has been studying stroboscopic training for several years and says that athletes who train with this method "are better able to pick up subtle motion cues, better able to hold a thing in their working memory." Nike's glasses facilitate stroboscopic training by flashing between transparent and opaque at a rate set by the wearer. However, Nike recently decided to discontinue the glasses. The company has not provided an explanation for this decision.

Nike, Inc. (NKE) shares ended the week at $77.34, up 0.6% for the week.

BlackBerry on the Road to Recovery


BlackBerry Limited (BBRY), global retailer of wireless products, reported its quarterly earnings on Friday, December 20. The company's stock price increased after it announced a strategic partnership with a world leading electronics manufacturer.

The company reported quarterly revenue of $1.19 billion. This represents a decrease 56.3% from the same period last year when the company reported revenue of $2.73 billion. Analysts had expected revenue of $1.66 billion for the quarter.

BlackBerry reported a net loss of $4.4 billion. During the comparable quarter last year the company reported net income of $9 million. This substantial loss was largely due to inventory write downs.

"With the operational and organization changes we have announced, BlackBerry has established a clear roadmap that will allow it to target a return to improved financial performance in the coming year," said John Chen, Executive Chairman and CEO of BlackBerry. "We have accomplished a lot in the past 45 days, but still have significant work ahead of us as we target improved financial performance next year." BlackBerry has gone through significant changes in the past two months. On November 4, 2013 the company announced that John Chen would replace Thorsten Heins as CEO and Executive Chairman. Since then, Mr. Chen, who sits on the boards of Walt Disney and Wells Fargo, has put a plan in place to replace key executives and move the company in a direction that focuses on its strengths.

The company took the first major step in implementing its new strategy when it announced on December 20 a five-year strategic partnership with Foxconn. Foxconn is currently the world's largest manufacturer of electronic products. Under this partnership, Foxconn will manufacture products for BlackBerry at facilities in Indonesia and Mexico. "This partnership demonstrates BlackBerry's commitment to the device market for the long-term and our determination to remain the innovation leader in secure end-to end mobile solutions," said Mr. Chen.

BlackBerry Limited (BBRY) shares ended the week at $7.22, up 17.2% for the week.

One Ship, Two Ship, Red Ship, Cruise Ship


Carnival Corp. (CCL), an international cruise and vacation company, reported its quarterly earnings on Thursday, December 19. The company has been plagued this past year with a difficult consumer spending environment, problems with its cruise liners and attempts to improve its public image after the Costa Concordia disaster in 2012.

The company reported revenue of $3.66 billion for the quarter. This represents a slight increase from the same quarter last year when the company reported revenue of $3.58 billion.

Carnival reported quarterly net income of $66 million. This represents a decrease from the comparable quarter last year when the company reported net income of $93 million.

Carnival President and CEO Arnold Donald stated, "We are aggressively seeking opportunities…to drive top line improvement and gain cost efficiencies. To support that effort, we have realigned our leadership team and processes to achieve greater collaboration and cooperation. We have heightened our focus on the guest experience and further exceeding guest expectations. As 2014 progresses, we will commence a number of strategic initiatives designed to fuel our earnings power, drive cash flow and improve return on invested capital over time."

In 2014, Carnival will begin its "Carnival Seuss at Sea" program. Carnival is partnering with Dr. Seuss Enterprises to bring the iconic kids books to life on board its cruise ships. The program will include a Dr. Seuss inspired breakfast (including Green Eggs and Ham) and Dr. Seuss books, toys and themed activities for children. "We're excited to be working with Carnival Cruise Lines to bring some of the timeless magic of Dr. Seuss to the families that sail each year," said Susan Brandt, President of Dr. Seuss Enterprises.

Carnival Corp. (CCL) shares ended the week at $38.85, up 8.3% for the week.

The Dow started the week of 12/16 at 15,760 and closed at 16,221 on 12/20. The S&P 500 started the week at 1,777 and closed at 1,818. The NASDAQ started the week at 4,019 and closed at 4,105.
 

Treasuries Respond to Fed Announcement

The Federal Open Market Committee ("FOMC") announced at its monthly meeting on December 18 that it will begin tapering bond purchases starting in January 2014. The Federal Reserve has been purchasing $85 billion in bonds each month since the program began in September 2012. However, due to improvement in certain economic indicators, the FOMC announced that the Fed will reduce its monthly purchase to $75 billion next month.

Ben Bernanke, Chair of the Federal Open Market Committee, said, "Reflecting cumulative progress and an improved outlook for the job market, the committee decided today to modestly reduce the monthly pace at which it is adding to the longer-term securities on its balance sheet." Unemployment has dropped from 7.8% in September 2012 to 7% in November 2013, though initial claims for unemployment insurance are around the same level as they were last year at this time.

Following the announcement, the stock market soared. However, the tapering announcement has had a mixed effect on bond yields. The five-year Treasury bond yield rose eight basis points to 1.71% on the morning of December 20. Meanwhile, the thirty-year Treasury bond and the ten-year Treasury bond yields dropped seven and four basis points to 3.84% and 2.89%, respectively.

This is an interesting time for Ben Bernanke to be making the tapering announcement since he will be stepping down as Federal Reserve Chairman on January 31, 2014. On that date Janet Yellen will succeed him as Federal Reserve Chairman. However, it is expected that Ms. Yellen will continue the gradual reduction in bond purchases over the coming months. She voted in favor of the tapering decision at the meeting on December 17-18.

In addition to announcing a reduction in bond purchases, the Federal Open Market Committee announced that it will keep interest rates low well past the time the unemployment rate drops below the Fed's previous target of 6.5%. The Fed's low interest rates have spurred home purchases, car purchases and mortgage refinancing. It is likely that the full effect of the Fed's shift in policy will not be felt for some time.

The 10-year Treasury note yield finished the week of 12/16 at 2.89% while the 30-year Treasury note yield finished the week at 3.82%.
 

Interest Rates Increase Slightly

Freddie Mac released the results of its weekly Primary Mortgage Market Survey on Thursday, December 19. The results show average fixed mortgage rates increasing slightly following positive economic news.

The 30-year fixed rate mortgage averaged 4.47% this week. This represents an increase from last week when it averaged 4.42%. Last year at this time, the 30-year fixed rate mortgage averaged 3.37%.

This week, the 15-year fixed rate mortgage averaged 3.51%. This represents an increase from last week when it averaged 3.43%. One year ago, the 15-year fixed rate mortgage averaged 2.65%.

"Mortgage rates rose slightly leading up to the Federal Reserve's policy announcement," said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. "The statement indicated that the central bank would begin to trim its bond buying program. The Fed noted that the economy expanded at a modest pace, but the unemployment rate remains elevated. In addition, housing starts in November rose to a seasonally adjusted annual rate of 1,091,000, the highest rate since February 2008. Permits were at a seasonally adjusted annual rate of 1,007,000 in November, 7.9% higher than in November 2012."

The money market fund finished the week of 12/16 at 0.4%. The 1-year CD finished at 0.7%.

Published December 20, 2013


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