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Sunday July 5, 2015



Sonic Skates to Another Strong Quarter

Sonic Corp. (SONC), the nation’s largest drive-in chain, announced its third quarter results on Monday, June 23. The company experienced impressive revenue and earnings growth.

Sonic reported net revenue for the quarter of $152.2 million compared to revenue of $146.6 million reported during the same period last year. Sonic’s revenue growth was driven by a 5.3% same-store sales increase.

Sonic Corp. CEO Clifford Hudson had this to say about the company’s results: “Same-store sales for the quarter were especially strong, driven by our innovative product news, layered day-part promotional strategy and increased media efficiency. The multiple initiatives we have in place to increase sales, profits and new drive-in development are working together nicely to optimize shareholder value. We have implemented our new point-of-sale system in all of our company drive-ins and expect to have the new digital point-of-purchase technology implemented in all of our company drive-ins by the end of summer.”

Net income for the quarter was $16.8 million or $0.30 per share. This was a significant increase over the net income of $14.8 million or $0.26 per share reported during the comparable period last year.

Sonic has been turning in positive results for the past few quarters producing growth in revenue and net income. The company now operates around 3,500 drive-ins and serves close to three million customers a day. This latest quarter was just another reason for investors to have confidence in the company. Especially encouraging was the same-store sales increase of 5.3%. The stock has gone from a 52-week low of $13.63 to over $22 per share.

Sonic Corp. (SONC) shares ended the week at $22.16.

Barnes & Noble Siphons Off NOOK

Barnes & Noble, Inc. (BKS) reported its fourth quarter results on Wednesday, June 25. As part of the earnings release the company announced plans to separate its retail business from its NOOK segment.

Barnes & Noble reported revenue for the quarter of $1.3 billion. This was a 3.5% increase from the $1.28 billion reported during the same period last year.

“In fiscal 2014 we have taken certain actions to strengthen the Company, including the ongoing rationalization of the NOOK® business, growing the College business through new contract acquisitions and increased offerings to students and faculty, and initiatives to improve Retail’s sales trends,” said Barnes & Noble CEO Michael P. Huseby. “Our fiscal 2014 results and solid financial position at year-end reflect the positive impact of those actions. We believe we are now in a better position to begin in earnest those steps necessary to accomplish a separation of NOOK Media and Barnes & Noble Retail. We have determined that these businesses will have the best chance of optimizing shareholder value if they are capitalized and operated separately.”

The company recorded a net loss for the quarter of $36.7 million. Despite the quarterly loss, it was an improvement over the net loss of $114.8 million reported during the comparable period last year.

The big news with Barnes & Noble’s quarterly results was the company’s announcement of plans to separate its retail business from its NOOK business. Barnes & Noble’s NOOK tablet has faced difficulties as it has increasingly lagged behind Amazon’s Kindle and Apple’s iPad. Many investors believe Barnes & Noble’s retail business will be in a better position going forward without the NOOK segment dragging it down. In addition, investors hope the NOOK segment can be better operated as an independent entity. Reflecting that optimism for Barnes & Noble’s future, shares rose 5.3% after the earnings announcement.

Barnes & Noble, Inc. (BKS) shares ended the week at $23.42.

General Mills Experiences Declining Sales

General Mills, Inc. (GIS) announced the results for its fourth quarter on Wednesday, June 25. Investors were disappointed to see the company report a decline in sales and worse-than-expected earnings per share growth.

General Mills recorded net sales during the quarter of $4.28 billion. This was a 2.9% decline from the net sales of $4.41 billion reported during the comparable period last year. In addition, it was below pre-release estimates calling for net sales of $4.4 billion.

“Our plans for 2014 called for sales and earnings growth consistent with our long-term business model, along with increased cash returns to shareholders” said General Mills Chairman and CEO Ken Powell. “But our sales and operating profit results were disappointing. In the fourth quarter, promotional spending in developed markets was less effective than we planned and input cost inflation was a bit above our forecast. Net sales and adjusted gross margin fell short of our targets.”

The company reported that earnings per share experienced a 16% increase to $0.66 from the comparable period last year. However, this figure was below pre-release estimates that earnings per share would rise to $0.72.

Like other cereal producers, General Mills has faced difficulties as consumers have turned to healthier breakfast options like oatmeal, energy bars and yogurt. Though the company has launched Greek yogurt varieties of its Yoplait brand, it still has been unable to top industry leader Chobani. Delving into the company’s fourth quarter performance, investors were not pleased to see domestic sales fall 1% and international sales fall 7%. In an effort to get back on track, General Mills announced plans to cut costs through a review of its manufacturing and distribution networks.

General Mills, Inc. (GIS) shares ended the week at $52.31.

The Dow started the week of 6/23 at 16,947 and closed at 16,852 on 6/27. The S&P 500 started the week at 1,963 and closed at 1,961. The NASDAQ started the week at 4,369 and closed at 4,398.

Bleak GDP Report Drives Treasury Gains

Treasury prices rose on Friday, June 27 as investors fled to the security of U.S. government bonds on the heels of a disappointing first quarter final GDP estimate. As the second quarter comes to a close, the ten-year note is poised to gain for a second consecutive quarter.

On June 25 the Commerce Department announced that its final estimate of U.S. GDP for the first quarter showed the economy shrank at an annualized rate of 2.9%. This news shocked economists. The 2.9% contraction in GDP was the worst quarterly performance the U.S. economy has experienced since the first quarter of 2009. In addition, claims for jobless benefits were higher than economists’ forecast.

“The data have been very disappointing—2014 should have been a breakout year for growth with consensus estimates close to 3% for the year,” said strategists Amitabh Arora and Kevin Shapiro.

The decline in GDP resulted in yields on the 10-year Treasury note falling one basis point to 2.518% during early Friday trading. This caused prices to rise because yields move inversely to prices. The 30-year bond yield fell one basis point to 3.346%.

The sharp decline in U.S. economic growth during the first quarter cast doubt on the prospect that the Federal Reserve will raise interest rates in the near future. Traders lowered the chance the central bank will raise interest rates by July of 2015 from 66% to 54% in response to the GDP news.

“We’re going to linger near current rate levels until we get a better read on Q3 growth in the U.S.,” said William O’Donnell and Gabriel Mann of RBS. “This is when we should get a better sense of the true run rate of the U.S. economy with numbers that will be presumably free of the weather distortions that made for such a bumpy ride in the first half of this year.”

The 10-year Treasury note yield finished the week of 6/23 at 2.53% while the 30-year Treasury note yield finished the week at 3.36%.

Interest Rates Decline on GDP Report

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, June 26. The results show mortgage rates declining as the final estimate of GDP for the first quarter showed the economy contracting by 2.9%.

The 30-year fixed rate mortgage averaged 4.14% this week. This represents a decrease from last week when the 30-year fixed rate mortgage averaged 4.17%.

This week, the 15-year fixed rate mortgage averaged 3.22%. This was a decrease from last week when the 15-year fixed rate mortgage averaged 3.30%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, commented on this week’s rate decrease: “Mortgage rates were down following the release of first quarter real GDP final estimate, which fell at a 2.9% annualized rate, a steeper than expected decline and the worst reading since the first quarter of 2009. Also, the seasonally-adjusted S&P/Case-Shiller 20-city home price index was up only 0.2% in April from the previous month. On a year-over-year basis, prices remained strong in April up 10.8%, but slower than the 12.3% in March.”

The money market fund finished the week of 6/23 at 0.4%. The 1-year CD finished at 0.7%.

Published June 27, 2014

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