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Wednesday July 1, 2015



FedEx Impresses Investors

FedEx Corp. (FDX), a global delivery transportation and business services company, announced its fourth quarter and fiscal 2014 earnings on Tuesday, June 17. The company impressed investors with solid revenue and net income.

FedEx reported total annual revenue of $45.57 billion. This represents an increase compared to fiscal 2013 when the company reported total annual revenue of $44.29 billion.

“Fiscal 2014 was a good year for FedEx and we expect fiscal 2015 to be even better,” said FedEx Executive Vice President and CFO Alan B. Graf, Jr. “With continued modest economic improvement, our results in fiscal 2015 should benefit from base performance improvement and ongoing execution of our profit improvement initiatives at FedEx Express, continued profitable growth at FedEx Ground and FedEx Freight, and our share repurchase program. We remain committed to improving earnings, cash flows, returns on invested capital and returns to shareowners, with the most recent example of the latter being our announced 33% increase in the quarterly dividend.”

The company reported annual net income of $2.1 billion. This represents an increase from fiscal 2013 when the company reported net income of $1.56 billion. The company reported earnings per share of $6.75. The company reported earnings per share of $4.95 for fiscal 2013.

FedEx holds a Small Business Grant Contest every year in which small businesses across the country compete for a grand prize of $25,000 to help grow their business. This year, a Vermont based goat dairy won the grant. Fat Toad Farm is a small, family owned and operated goat dairy specializing in hand-crafted goat’s milk caramel sauces. The business plans to use the grant to improve their caramel production facility. The 2013 grand prize winner was Darn Good Yarn, a company that sells yarn made from discarded Indian silk and focuses on providing women in rural India with a stable income.

FedEx Corp. (FDX) shares ended the week of 06/16 at $148.12, up 5.94% for the week.

Pier 1 Imports Disappoints

Pier 1 Imports, Inc. (PIR), retailer of decorative home furnishings, reported its latest quarterly earnings on Thursday, June 18. The company disappointed investors with poor earnings.

Pier 1 reported quarterly net sales of $419.06 million. This represents an increase of 6.13% compared to the same quarter last year when the company reported net sales of $394.85 million.

“Our expanded spring and outdoor assortments resonated with customers and were buoyed by a strong marketing message,” said Alex W. Smith, President and CEO of Pier 1 Imports. “Our talented merchants continue to curate exceptional merchandise which, combined with our ‘1 Pier 1’ strategy, creates an engaging shopping experience. We believe this is an exciting time to be a retailer – we’re seeing a profound shift in the shopping behavior of our customers. Our timely transformation from a brick-and-mortar retailer to one with full omni-channel capabilities has us well positioned to seize upon this change and drive brand growth.”

The company reported net income of $15.06 million for the quarter. This represents a decrease of 26% from the comparable period last year when the company reported net income of $20.35 million. Earnings per share came in at $0.16 per share.

Pier 1 Imports nearly went bankrupt during the great recession of 2008. During the past year the company reported increased earnings and it looked as if the company was on the mend. However, this latest quarterly earnings report has investors seriously rethinking the company’s future prospects. With the housing market continuing its slow resurgence and increasing competition from household furnishings retailers such as Restoration Hardware and Williams-Sonoma, Pier 1 Imports is quickly running out of space in their niche market. The company’s stock price plunged after this week’s earnings report and it will have some convincing to do before investors jump back on the company’s bandwagon.

Pier 1 Imports, Inc. (PIR) shares ended the week of 6/16 at $15.18, down 12.4% for the week.

BlackBerry May Be On the Mend

BlackBerry Limited (BBRY), manufacturer and retailer of mobile phones, reported its latest quarterly earnings on Thursday, June 19. BlackBerry has been going through some major changes as a company and investors are looking at this latest earnings report as a sign that the company may be back on the road to recovery.

BlackBerry reported revenue of $966 million for the quarter. This represents a decrease of 68.5% from the same period last year when the company reported revenue of $3.07 billion.

“Our performance in fiscal Q1 demonstrates that we are firmly on track to achieve important milestones, including our financial objectives and delivering a strong product portfolio,” said John Chen, Executive Chairman and CEO of BlackBerry. “Over the past six months, we have focused on improving efficiency in all aspects of our operations to drive cost reductions and margin improvement. Looking forward, we are focusing on our growth plan to enable our return to profitability.”

The company reported quarterly net income of $23 million. This represents an improvement from the comparable quarter last year when the company reported a net loss of $84 million.

BlackBerry CEO John Chen has been making fundamental changes at the company since he arrived last November. Before Chen arrived, the company was struggling to compete in the highly competitive mobile phone market. BlackBerry stock hit a low of $5.44 in December 2013 and there was talk of a management buyout. Now, BlackBerry seems poised for a rebound. John Chen has said that he believes that BlackBerry can return to profitability by selling only 10 million units annually. During the latest quarter BlackBerry sold 1.6 million units. The company also entered into an agreement with Amazon to make the Amazon Appstore available to their BlackBerry 10 smartphone users. Establishing more of this type of strategic partnership will be important for BlackBerry moving forward.

BlackBerry Limited (BBRY) shares ended the week of 6/16 at $9.81, up 24.5% for the week.

The Dow started the week of 6/16 at 16,766 and closed at 16,947 on 6/19. The S&P 500 started the week at 1,935 and closed at 1,963. The NASDAQ started the week at 4,304 and closed at 4,368.

Treasuries Fall as CPI Rises

Treasury prices fell and yields rose this week after the Federal Open Market Committee’s (FOMC) monthly meeting on June 18. Fed Chair Janet Yellen was unsuccessful in trying to convince the market that interest rates would remain low despite a rising Consumer Price Index (CPI).

The FOMC decided at its meeting on June 18 that it would reduce bond purchases from $45 billion in June to $35 billion in July. In a press conference following the meeting Fed Chair Janet Yellen attempted to convince market participants that interest rates would remain low for a “considerable time” despite a rising consumer price index. The Fed Chair tried to dismiss the recent rise in CPI as inconsequential. At the press conference she said that while CPI was a bit on the high side the data was “noisy.”

Investors were not convinced by the Fed Chair’s remarks regarding interest rates. Some analysts are concerned that a faster than projected rise in the U.S. consumer price index indicates that inflation is on the rise. The concern is that inflation will soon reach the Federal Reserve’s 2% target forcing the Fed to raise the federal funds rate.

“We have had three upward surprises in U.S. CPI in the last three prints,” said Jorge Garayo, a Fixed-Income Strategist at Societe Generale SA. “So it looks like finally we may be looking for inflation to move out of the recent low range.”

The 10-year note yield rose two basis points to 2.64% during early Friday morning trading on June 20. The 5-year note yield rose three basis points to 1.71%.

“The market is voting with its feet and lifting rates because it doesn’t agree with Yellen’s conclusion on CPI,” said Adrian Miller, Director of Fixed-Income Strategies at GMP Securities LLC. Despite arguments on both sides, only time will tell whether the rise in the consumer price index is due to “noisy” data or is a harbinger of higher inflation.

The 10-year Treasury note yield finished the week of 6/16 at 2.62% while the 30-year Treasury note yield finished the week at 3.45%.

Interest Rates Drop Slightly

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, June 19. The results showed average fixed mortgage rates dropping slightly this week.

The 30-year fixed rate mortgage averaged 4.17% this week. This represents a decrease from last week when it averaged 4.2%. Last year at this time, the 30-year fixed rate mortgage averaged 3.93%.

This week, the 15-year fixed rate mortgage averaged 3.3%. This is a decline from last week when it averaged 3.31%. One year ago, the 15-year fixed rate mortgage averaged 3.04%.

“Mortgage rates were down slightly for the week ending on June 19, 2014,” said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. “Meanwhile, housing starts in May were 5.4% below the revised April rate. Following a similar pattern, building permits fell 6.4% in May after a 5.9% increase a month earlier. Also, CPI rose 0.4% in May, more than expected, following a 0.3% rise in April.”

The money market fund finished the week of 6/16 at 0.3%. The 1-year CD finished at 0.7%.

Published June 20, 2014

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