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Friday February 27, 2015



PepsiCo's Quarter Fails to Impress

PepsiCo, Inc. (PEP) announced its fourth quarter and full-year results on Thursday, February 13. The company had a solid quarter reporting revenue close to expectations with positive net income growth.

Pepsi reported fourth quarter revenue of $20.1 billion, a 1% increase over the same period last year, and full-year revenue of $66.4 billion. Pepsi's fourth quarter revenue missed market estimates that it would be $20.2 billion.

Net income for the quarter was $1.7 billion and full-year net income was $6.7 billion. These figures were increases of 5% and 9%, respectively, over the comparable periods last year.

Pepsi Chairman and CEO Indra Nooyi had this to say about the results, "We are pleased to report that PepsiCo achieved its financial goals for 2013, despite continued challenging and volatile macroeconomic conditions around the globe. We met or exceeded our organic revenue, cash flow, productivity, and core operating margin, constant currency EPS, and net ROIC targets and, at the same time, continued to invest in our brands, innovation and execution to strengthen the long-term health of our business."

During the earnings announcement, Pepsi announced its intention to return $8.7 billion to shareholders in 2014. This is an increase from previous years. In a show of confidence, Pepsi rejected a suggestion from activist investor Nelson Peltz that the company separate its beverage and snack divisions. The company also announced that it expects 7% earnings per share growth in 2014. Even though Pepsi showcased some positive news this quarter, the stock fell 3% after the earnings announcement.

PepsiCo, Inc. (PEP) shares ended the week of 2/10 at $78.09.

Fossil Investors Watch Its Success

Fossil Group, Inc. (FOSL) announced its fourth quarter results on Thursday, February 13. The company's results exceeded expectations and resulted in a rise in the company's stock price. Much of this success was attributed to the company's watch segment.

Revenue for the fourth quarter was $1.06 billion, a 12.1% increase over the same period last year. Fossil saw sales grow in all of its regions as its revenue beat an estimate of $1.02 billion.

Fossil's net income for the quarter was $148.5 million compared to $151.1 million reported during the same period last year. However, on a diluted earnings per share basis, earnings grew 7% to $2.68 from $2.51 per share.

"We're very pleased with our fourth quarter results, which exceeded our expectations and concluded a successful year where we made significant progress on many of our strategic initiatives," said Kosta Kartsotis, Fossil CEO. "In 2014, our priorities are focused on building on the positive momentum in our business, as we continue to invest in and grow our brands."

Fossil's 12.1% increase in revenue during the quarter was the result of strong double digit sales increases in North America and Europe. Furthermore, direct-to-consumer sales increased 8.7%. A strong driver of this growth was the company's watch segment that increased 14.3% to $833.8 million. Fossil's strong results this past quarter resulted in shares moving higher following the announcement.

Fossil (FOSL) shares ended the week of 2/10 at $120.82.

Goodyear Tire Sees Fortunes Rise

Goodyear Tire & Rubber Company (GT) reported its 2013 fourth quarter and full-year results on Thursday, February 13. With strong sales in North America during the fourth quarter, the company experienced a significant boost to net income.

Goodyear announced that fourth quarter sales were $4.8 billion, 5% lower than the same period last year. Fourth quarter sales also missed the estimate of $4.98 billion. Full-year sales were $19.5 billion, slightly lower than last year's $20.9 billion.

Net income for the fourth quarter was $228 million, or $0.84 per share, a fourth quarter record. For the full-year net income was $600 million, or $2.28 per share, up from 2012's $183 million, or $0.74 per share.

"Our outstanding fourth quarter and full-year earnings confirm that our strategy is working and demonstrate Goodyear's ability to deliver sustainable earnings growth and strong free cash flow," said Richard J. Kramer, Chairman and CEO. "Our North America business achieved record earnings in all four quarters of 2013."

Mr. Kramer went on to explain that the company's strong performance in 2013 provided Goodyear with the opportunity to fully fund its hourly U.S. pension fund so that it has an available balance of $1.15 billion. Mr. Kramer said he believes resolving the pension standoff will allow Goodyear to "devote 100% of our efforts to creating competitive advantage." Following the earnings announcement, Goodyear shares rose 11% to $26.75.

Goodyear Tire & Rubber Company (GT) shares ended the week of 2/10 at $26.76.

The Dow started the week of 2/10 at 15,794 and closed at 16,154 on 2/14. The S&P 500 started the week at 1,796 and closed at 1,839. The NASDAQ started the week at 4,125 and closed at 4,244.

Treasuries Decline on Negative News

Treasury prices rose and then fell Friday on a pair of differing reports regarding the health of the economy. Uncertainty has once again descended upon the Treasury market as investors try to predict whether the Fed will stay committed to its reduction in bond purchases.

Early Friday the Federal Reserve announced that industrial production fell 0.3% in January, a surprise to forecasters who predicted a gain of 0.2%. The largest contributing factor to the decline in industrial production was the cold weather blanketing much of the eastern United States. Specifically, manufacturing output fell 0.8% and mining output fell 0.9%. This early news caused Treasury prices to rise.

Just as Treasury prices began to rise, however, the Thomson Reuters/University of Michigan index of consumer sentiment caused prices to fall. The index remained unchanged during the month of February at 81.2, which was good news as forecasters expected a lower reading of 80.

Fortunately, there was positive news on Thursday, February 13 when Congress passed a 13-month extension in the U.S. government's debt ceiling. While the debate surrounding the debt-ceiling has been continuous for the past year, this latest Congressional move provides some much needed stability for the next year.

The past couple months have seen continually mixed to negative data concerning the U.S. economy, raising questions about whether the Federal Reserve will adhere to its planned reduction in bond purchases. Earlier this week, however, new Fed Chairman Janet Yellen announced that only a "notable change" in the economy would result in a change in fiscal policy.

Justin Lederer, an Interest-Rate Strategist at Cantor Fitzgerald in New York, believes the Federal Reserve will stick to its tapering course. "A lot of the data has been affected by the weather. A lot of people are not focusing on them so much quite yet. They will be looking toward March or April to get a better read," he said.

The 10-year Treasury note yield finished the week of 2/10 at 2.75% while the 30-year Treasury note yield finished the week at 3.7%.

Interest Rates Remain Constant

Freddie Mac released the results of its weekly Primary Mortgage Market Survey on Thursday, February 13. With few economic reports this week to affect rates, the report showed average fixed mortgage rates remaining relatively unchanged from last week.

This week, the 15-year fixed rate mortgage averaged 3.33%, unchanged from last week. One year ago, the 15-year fixed rate mortgage averaged 2.77%.

The 30-year fixed rate mortgage averaged 4.28% this week, an increase from last week when it averaged 4.23%. Last year at this time, the 30-year fixed rate mortgage averaged 3.53%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, commented on this week's rates. "Mortgage rates were little changed amid a week of light economic reports. Of the few releases, the economy added 113,000 jobs in January, which was below the market consensus forecast and followed a slight upward revision of 1,000 jobs in December. Meanwhile, the unemployment rate fell to 6.6%, which makes thirteen consecutive months without an increase."

The money market fund finished the week of 2/10 at 0.4%. The 1-year CD finished at 0.7%.

Published February 14, 2014

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