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Wednesday December 17, 2014



More Milk Needed in General Mills' Bowl

General Mills, Inc. (GIS) announced its second quarter 2014 results on December 18, 2013. The company's results disappointed investors and contributed to a negative outlook for the company's prospects going forward.

General Mills reported revenue of $4.88 billion for the quarter, virtually unchanged from what was reported during the same period last year. No movement in quarterly revenue disappointed investors who expected revenue to be close to $4.93 billion.

The company reported earnings per share of $0.83 for the quarter, which was lower than the $0.86 reported during the comparable quarter last year. Once again, investors were disappointed as they hoped earnings per share would be slightly higher at $0.89.

"The second quarter was a difficult comparison to strong prior-year sales and earnings results for our business," said Ken Powell, CEO of General Mills. "As we enter the second half of fiscal 2014, we expect our earnings growth to accelerate from first-half levels."

General Mills, like its competitor Kellogg, has been experiencing slower growth over the past couple years. Consumers are increasingly turning to other products instead of the processed goods that General Mills produces. During the comparable period last year, General Mills saw earnings growth of 13.16% while this quarter its earnings growth declined. Naturally, analysts and investors are concerned about the decline in growth and whether the company can turn it around. For General Mills, the challenge is whether it can add more milk to its financial bowl.

General Mills, Inc. (GIS) shares ended the week at $49.26.

CarMax Narrowly Misses Expectations

CarMax, Inc. (KMX), a used-car dealership, announced its third quarter results on December 20, 2013. Although the company had a strong third-quarter, it missed earnings estimates by a penny per share, a fact investors did not like.

The company reported quarterly revenue of $2.94 billion. This represents an increase of 13% over the $2.6 billion reported during the same period last year. Analysts had expected revenue of $2.87 billion for the quarter.

Earnings per share for the quarter increased nearly 15% to $0.47 per share from $0.41. This figure missed analysts' expectations by $0.01, however.

With a significant jump in sales, investors were disappointed to see CarMax's earnings per share miss expectations. Much of the blame appeared to rest on the fact that CarMax had difficulty competing with third-party lenders in the profitable auto-financing market.

In a statement, the company had this to say about the difficulties it faced in the auto-financing market this past quarter. "Given the relevance of subprime to our business and the overall market, we believe it is prudent to gain further insight into underwriting and servicing accounts within this credit profile."

The company's otherwise successful quarter and announcement that it plans to address its new difficulties in the auto-finance market were not enough to prevent significant damage to its stock price. As a result of the earnings per share miss, CarMax's stock price fell 10%, a drop it has not yet overcome.

CarMax, Inc. (KMX) shares ended the week at $46.44.

Winnebago Industries Reports Strong Earnings

Winnebago Industries, Inc. (WGO), a recreation vehicle manufacturer, announced its first quarter results on December 19, 2013. The company had an impressive quarter that unfortunately was unable to match the lofty expectations investors had placed on the company.

The company reported revenue of $222.7 million, an increase of 15% over the $193.6 million reported during the same period last year. The large revenue increase was unable to match lofty expectations that revenue would be $233.1 million.

Winnebago's earnings per share for the quarter was $0.40, a whopping 53.8% increase over the $0.26 reported during the comparable period last year. This figure was $0.03 higher than analysts' estimates.

"Our strong first quarter results are a reflection of our dedicated team running the business well," said Randy Potts, Winnebago Industries' Chairman, CEO and President. "We plan to continue to bring new and innovative products to market and believe we have tremendous growth opportunities ahead. In addition to our new products, the backlog reflects a large rental order to be delivered primarily in our third fiscal quarter, which is incremental to our normal rental business."

Winnebago industries has delivered impressive results as of late with this past quarter being its seventh consecutive quarter of double-digit sales and profit growth. More impressively, Winnebago has seen sales and profit growth during a tepid economic recovery. It is no surprise, then, that the stock price has risen dramatically over the past year, a trend that looks to continue.

Winnebago Industries, Inc. (WGO) shares ended the week at $26.84.

The Dow started the week of 12/30 at 16,485 and closed at 16,470 on 1/3. The S&P 500 started the week at 1,841 and closed at 1,831. The NASDAQ started the week at 4,154 and closed at 4,132.

Treasuries Little Changed To Start 2014

Treasury yields rose slightly on Friday January 3rd just before departing Federal Reserve Chairman Ben Bernanke was to speak at an economics conference in Philadelphia. Ben Bernanke's comments will come less than three weeks after the Federal Reserve announced its intentions to begin reducing its monthly bond purchases.

There was little change in bond yields this week. On January 2nd, the 10-year note reached its highest level since July 2011 when it reached 3.05%. Early on January 3rd, the 10-year note yield rose one basis point to 3%. As bond yields rise, prices fall. The 30-year bond yield rose two basis points to 3.94%, though it had reached 3.97% January 2nd, its highest level since August 2011.

Dan Heckerman, Senior Fixed-Income Strategist at U.S. Bank Wealth Management, doesn't see much change in bond yields without further economic news. "The market is kind of settled in here in terms of a trading range until we get some further confirmation that the economy is improving," he said.

Investors will get some of this further economic news next week as the U.S. Labor Department will report the jobs numbers for December. Economists estimate that the report will show an increase of 195,000 jobs for December versus 203,000 added in November.

Most economic signs of late have been positive. Third quarter GDP grew 4.1% in the third quarter of 2013 and the most recent jobs report showed the unemployment rate falling to 7.0%. As a result, the Federal Reserve announced on December 18 plans to begin reducing its monthly bond purchases of $85 billion by $10 billion per month. Time will tell how the economic recovery, and thus the markets, will react to the Fed's decision.

The 10-year Treasury note yield finished the week of 12/30 at 3.0% while the 30-year Treasury note yield finished the week at 3.93%.

Interest Rates Increase in the New Year

Freddie Mac released the results of its weekly Primary Mortgage Market Survey on Thursday, January 2. The results show average fixed mortgage rates moving higher at the start of 2014.

This week, the 15-year fixed rate mortgage averaged 3.55%. This represents an increase from last week when it averaged 3.52%. One year ago, the 15-year fixed rate mortgage averaged 2.64%.

The 30-year fixed rate mortgage averaged 4.53% this week. This represents an increase from last week when it averaged 4.48%. Last year at this time, the 30-year fixed rate mortgage averaged 3.34%.

"Mortgage rates edged up to begin the year on signs of a stronger economic recovery," said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. "The pending home sales index inched up 0.2% in November, after five consecutive months of decline. The Conference Board reported that confidence among consumers rose in December and the S&P/Case-Shiller 20-city composite house price index rose 13.6% over the 12-months ending in October 2013."

The money market fund finished the week of 12/30 at 0.4%. The 1-year CD finished at 0.7%.

Published January 3, 2014

Previous Articles

Scholastic Reports Strong Results

Nike Reports Strong Earnings

Men’s Wearhouse on the Comeback Trail

Dollar General Delivers Strong Results

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