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Saturday March 28, 2015



Carnival's Quarterly Results Sink

Carnival Corporation (CCL), a leading operator of cruise ships, reported its first quarter results on Tuesday, March 25. Although the company's revenue and income beat expectations, its second quarter financial guidance did not.

Carnival reported first quarter revenue of $3.59 billion. Even though this figure was essentially unchanged from the same period last year, it did beat Wall Street estimates calling for revenue of $3.56 billion.

For the quarter Carnival recorded a net loss of $15 million, or $0.02 per share. This was a drop from the $37 million profit the company reported during the comparable period last year. Still, the $0.02 per share loss was better than Wall Street estimates calling for a loss of $0.08 per share.

Arnold Donald, Carnival Corporation President and CEO, had this to say about the results, "We see progress with our continental European brands and continue to be pleased with Carnival Cruise Lines' pace of improvement. Exciting product innovations and strategic marketing initiatives at Carnival Cruise Lines have driven strong close-in demand resulting in sequential improvement in year-over-year quarterly ticket prices for the brand."

Carnival has faced a difficult time the past couple years. The company is still dealing with lawsuits stemming from a February 2013 mishap when the engine of one of its ships was disabled following a fire. In addition, in 2012 one of its ships hit a reef, resulting in the deaths of 32 people. The company has been using discounts to lure customers back onto its ships. However, Carnival announced that during this recent quarter it lost bets on fuel prices, which were $10 per metric ton higher than previously forecast.

Carnival Corporation (CCL) shares ended the week at $37.23.

Sonic Drives In Second Quarter Success

Sonic Corp. (SONC), the nation's largest drive-in restaurant, announced its second quarter results on Monday, March 24. The company's profit beat expectations and helped drive the stock price to new heights.

Sonic reported revenue of $109.7 million for the quarter, a 1.3% decrease from the same period last year. However, the company did report that company-wide same-store sales increased 1.4%.

Net income for the quarter was $4.1 million, or $0.07 per share, which beat Wall Street expectations. This was a 15% increase over the $3.6 million, or $0.06 per share, reported during the same period last year.

"We are very pleased with our second quarter results, especially in light of the difficult weather that impacted many of our markets," said Cliff Hudson, Sonic CEO and President. "Our solid sales and financial performance resulted from multiple system-wide initiatives such as increased media efficiency, innovative products and layered day-part promotions. These initiatives complement our focus on service, products and pricing."

Many analysts were pleasantly surprised by Sonic's positive same-store sales growth of 1.4%, especially considering challenging weather the company faced during the quarter. Ever since the recession in 2009 the company has made efforts to improve its offerings and attract customers. As part of that process, the company now makes its milkshakes with real ice cream, offers more ice cream cone sizes and uses ciabatta rolls for its chicken sandwich. Evidently some of these changes are having a positive impact on the company's bottom line. Following the earnings announcement on March 24, the company's stock surged 11% to a new high above $22 per share.

Sonic Corp. (SONC) shares ended the week at $22.56.

GameStop Facing Stiff Competition

GameStop Corp. (GME), the number one retailer of videogames, announced its fourth quarter results on Thursday, March 27. Despite new videogame console releases during the quarter, the results missed expectations.

GameStop reported fourth quarter revenue of $3.68 billion, a 3.4% increase over the $3.56 billion reported during the same period last year. Expectations were for revenue to be slightly higher at $3.78 billion.

Net income for the quarter was $220.5 million, a drop from the $261.1 million reported during the comparable period last year. The drop was larger than expected, especially considering the fact Sony and Microsoft released new game consoles during the quarter.

"The launch of new consoles in 2013 marked the return of innovation to the video game category and GameStop's market share increased to an all-time high," said Paul Raines, GameStop CEO. "Our emerging digital and mobile businesses, which did not exist three years ago, surpassed $1 billion of revenue. As we push forward into 2014, both the re-energized video game category and our new Technology Brands business unit provide us with solid growth opportunities in the consumer electronics and wireless markets."

GameStop's fourth quarter earnings release disappointed investors in a number of ways. First, the company's revenue and net income for the quarter missed expectations even as Microsoft and Sony released new game consoles during the quarter. Second, GameStop's financial guidance for the year came in lower than expected. Because GameStop's used-game business is its most profitable, investors are concerned about increased competition from Wal-Mart and Sony, who both plan to begin trading and selling used games. Following the earnings announcement, GameStop's stock price fell 9.3%.

GameStop Corp. (GME) shares ended the week at $40.62.

The Dow started the week of 3/24 at 16,303 and closed at 16,323 on 3/28. The S&P 500 started the week at 1,868 and closed at 1,858. The NASDAQ started the week at 4,289 and closed at 4,156.

Treasuries Set For First 2014 Monthly Loss

Treasury prices fell Friday, March 28, as consumer spending data for March rose for the first time in nearly three months. In addition, bond traders are preparing themselves for further changes in Federal Reserve policy after comments from some of its members in the past week.

Consumer spending rose 0.3% in February, which was the quickest pace recorded since November of 2013. February's spending increase encouraged economists after January's increase was revised downward to 0.2%. Personal incomes for February were also revealed to have increased 0.3%.

The positive consumer spending data reaffirmed opinions that the Federal Reserve will stay committed to its plan to reduce monthly bond purchases. "Unless there is a sharp slowdown in the U.S. economy, which is unlikely at this point, the Fed will continue with this pace of tapering," said Axel Botte, a strategist at Natixis Asset Management.

On news of the rise in consumer spending, the 10-year Treasury note yield, which moves inversely to prices, rose four basis points to 2.726% during early Friday trading. February's final 10-year Treasury note yield was 2.649%, so with two trading days left in March it appears the 10-year note is headed for its first monthly loss of 2014.

Despite the positive consumer spending data, the final University of Michigan and Thomson Reuters gauge of consumer sentiment for the month of March fell to 80 from an 81.6 reading in February. The gauge missed expectations that called for a reading of 80.5 and was the lowest reading since November.

Treasuries have been responding lately not only to economic data but also statements from Federal Reserve members. Last week Federal Reserve Chair Janet Yellen said bond purchases may completely end this fall and that borrowing costs may be raised six months later. In addition, Federal Reserve Bank of Chicago President Charles Evans indicated interest rates will probably rise in the second half of next year.

The 10-year Treasury note yield finished the week of 3/24 at 2.71% while the 30-year Treasury note yield finished the week at 3.54%.

Interest Rates Rise

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, March 27. The results show mortgage rates rising this week following comments from new Federal Reserve Chair Janet Yellen late last week that a possible interest rate increase was in order in early 2015.

The 30-year fixed rate mortgage averaged 4.40% this week. This represents an increase from last week when the 30-year fixed rate mortgage averaged 4.32%.

This week, the 15-year fixed rate mortgage averaged 3.42%. This was an increase from last week when the 15-year fixed rate mortgage averaged 3.32%.

"Mortgage rates rose following the uptick on the 10-year Treasury note after comments by the Federal Reserve Board Chair Janet Yellen indicated a possible increase in interest rates as soon as early 2015," said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. "Also, the S&P/Case-Shiller 20-city composite house price index rose 13.2% over the 12-months ending in January 2014."

The money market fund finished the week of 3/24 at 0.4%. The 1-year CD finished at 0.6%.

Published March 28, 2014

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