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Sunday May 24, 2015



No Charge in Tesla’s Quarterly Results

Tesla Motors, Inc. (TSLA), a leading electric vehicle manufacturer, announced its first quarter results on Wednesday, May 7. Although the company has wowed investors the past year, Tesla’s earnings for the first quarter were a disappointment.

Tesla reported first quarter revenue of $620.5 million. This was a 27% increase compared to the $561.8 million reported during the comparable period last year.

In a letter to shareholders, Tesla CEO and Chairman Elon Musk and CFO Deepak Ahuja had this to say, “This year we are engaged in the most rapid expansion in Tesla’s history. In Q1, we produced a record 7,535 Model S vehicles for global delivery. We also slightly exceeded guidance by delivering 6,457 cars while also filling the pipeline of deliveries into Europe and Asia to support growing global demand.”

Tesla reported a net loss for the quarter of $49.8 million or $0.40 per share. During the same period last year the company was reporting its first quarterly profit of $11.2 million or $0.10 per share.

Tesla has been something of a Wall Street darling during the past year, reaching a high of $265 per share in February of 2014. But with this latest earnings announcement investors had reasons to doubt the company’s prospects for the foreseeable future. Part of this doubt was driven by Tesla’s quarterly loss, but the doubt was also driven by Tesla’s announcement that reinvestments in the company would negatively impact earnings the rest of the year. On this news Tesla’s stock price fell 8% on Thursday, May 8, the day after the earnings announcement.

Tesla Motors, Inc. (TSLA) shares ended the week at $182.26.

Walt Disney’s Earnings Far From Frozen

The Walt Disney Company (DIS) announced its second quarter results on Tuesday, May 6. Disney’s results for the quarter comfortably exceeded expectations and indicated that the company is in a great position going into the future.

Walt Disney reported quarterly revenue of $11.65 billion, a 10% increase from the $10.55 billion reported during the same period last year. This easily beat estimates of $11.24 billion.

“We’re extremely pleased with our results this quarter, delivering double-digit increases in operating income across all of our businesses and the highest quarterly earnings per share in the history of the Company,” said Robert A. Iger, Chairman and CEO, The Walt Disney Company. “Our continued strong performance reflects the strength of our brands, the quality of our content, and our unique ability to leverage creative success across the entire Company to drive value.”

Net income for the quarter came in at $1.92 billion or $1.08 per share. This was 27% higher than the $1.51 billion reported during the same period last year.

Walt Disney had another impressive quarter with its revenue and net income exceeding pre-release estimates. The company’s success was driven by huge gains in its studio entertainment segment. Disney’s studio division saw revenues rise 35% versus the same period last year. This was largely driven by the smash success of the animated film Frozen, which has become the world’s highest-grossing animated film of all time. Just this week Disney CEO Iger indicated that Frozen has become one of the company’s top 5 franchises, reflecting just how important the film’s popularity has been and will continue to be to Disney’s bottom line.

Last week Disney also revealed the new cast for Star Wars Episode VII, the latest entry in the Star Wars series set to be released next year. With Frozen, Star Wars and further Marvel films to come in the future, Disney has quite the opportunity to generate further growth and profit in the future.

The Walt Disney Company (DIS) shares ended the week at $81.95.

Rising Content Costs Hurt AMC’s Results

AMC Networks Inc. (AMCX), owner of several cable TV channels, announced its first quarter results on Thursday, May 8. Although the company saw its quarterly profit increase, it fell below expectations.

AMC reported first quarter revenue of $524.6 million, a 37.3% increase over the $381.96 million reported during the same period last year. Analysts had expected revenue to be $507.8 million.

AMC President and CEO Josh Sapan commented on the results, “AMC Networks continued to build momentum in the first quarter of 2014, with double digit increases in revenue and AOCF. At our national networks, our original programming performed well, driving attention for and strengthening our network brands, with series including IFC’s Spoils of Babylon, SundanceTV’s The Red Road, WE TV’s SWV: Reunited and AMC’s The Walking Dead, which grew 24% in total viewers for its fourth season and remains the highest rated show on television among the most coveted demographic.”

Net income for the quarter was $71.4 million or $0.98 per share. This was a 16% increase over the $61.5 million or $0.85 reported during the comparable period last year.

Although AMC saw a 16% increase in quarterly profit, the company disappointed investors on an adjusted earnings basis. Adjusted net earnings for the quarter were $1.04 per share, lower than the $1.16 per share analysts expected. The lower adjusted earnings came even as The Walking Dead, AMC’s top rated show, saw its viewership grow 24% during the quarter. AMC has faced challenges of late expending money to develop new shows to replace series such as Breaking Bad and Mad Men. As such, investors will keep a close eye on whether AMC can successfully debut new shows that can bring in additional revenue.

AMC Networks Inc. (AMCX) shares ended the week at $58.00.

The Dow started the week of 5/5 at 16,510 and closed at 16,583 on 5/9. The S&P 500 started the week at 1,879 and closed at 1,878. The NASDAQ started the week at 4,099 and closed at 4,072.

30-Year Yield Eyes Weekly Rise

Treasury prices fell on Friday, May 9 as Treasury yields rose, especially for the 30-year bond. With little new economic data this week, Treasury yields responded to comments from Federal Reserve Chair Janet Yellen regarding future interest rate increases.

The 30-year bond, which has already risen 8 basis points this week, rose 2 basis points on Friday to reach 3.45%. This is a stark contrast from the 30-year bond’s closing yield last week of 3.37%. As bond yields rise, prices fall, reflecting reduced demand for Treasuries.

Last week the 30-year bond yield closed lower than expected following an upbeat jobs report. The 30-year bond’s performance this week has been a different story. On Thursday, May 8 the 30-year bond yield began to rise, which in turn sent prices falling. The yield rise continued into Friday, May 9.

Charles Comiskey, Head of Treasury Trading at Bank of Nova Scotia, believed Friday’s losses were merely finishing what was started yesterday. “I think it’s a little bit of a hangover from the tail in the bond auction yesterday,” he said.

Though the 30-year bond yield has risen rapidly this week, the 10-year note yield rise has been less pronounced. In early trading on Friday the 10-year note rose 1.5 basis points to 2.62% for a weekly gain of 4 basis points.

Comments from Federal Reserve Chair Janet Yellen this week indicated that the Central Bank may wait longer than previously stated to raise the lending rate. In March Yellen indicated that the Central Bank may raise interest rates within six months. In testimony to lawmakers this week she indicated that further stimulus may be needed to help the still struggling U.S. economy, suggesting the lending rate may not rise as soon as previously thought.

Finally, economic data this week appeared to back up Yellen’s concern about a weak U.S. economy. A Labor Department report this week showed that job openings fell 111,000 in March to 4.01 million from close to 4.13 million in February. In addition, retails sales fell to 0.4% in April from 1.2% in March.

The 10-year Treasury note yield finished the week of 5/5 at 2.62% while the 30-year Treasury note yield finished the week at 3.47%.

Interest Rates Move Down

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, May 8. The results show mortgage rates falling this week among declining Treasury yields and weak economic growth.

The 30-year fixed rate mortgage averaged 4.21% this week. This represents a decrease from last week when the 30-year fixed rate mortgage averaged 4.29%.

This week, the 15-year fixed rate mortgage averaged 3.32%. This was a decrease from last week when the 15-year fixed rate mortgage averaged 3.38%.

“Mortgage rates continued moving down following the decline in 10-year Treasury yields after a dismal report on real GDP growth in the first quarter. Meanwhile, the economy added 288,000 jobs in April, the largest since January 2012, and followed an upward revision of 36,000 jobs for the prior two months. Also, the unemployment rate fell to 6.3%.”

The money market fund finished the week of 5/5 at 0.4%. The 1-year CD finished at 0.7%.

Published May 9, 2014

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