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Thursday July 2, 2015



Family Dollar Shows Improvement

Family Dollar Stores Inc. (FDO), a variety discount store, announced its third quarter results on Thursday, July 10. Although the company’s results missed expectations, investors saw signs that the company is on the right track.

Family Dollar reported net sales for the quarter of $2.66 billion, a 3.3% increase from the $2.57 billion reported during the same period last year. The sales increase masked a 1.8% decline in comparable store sales during the quarter, however.

Howard R. Levine, Family Dollar Chairman and CEO, had this to say about the company’s third quarter: “We are executing our previously announced restructuring initiatives to improve our performance. Our recent investment to permanently lower prices is resonating with customers; we are seeing savings from our workforce optimization efforts; and we are on track to close approximately 370 underperforming stores by the end of the fiscal year. We remain confident that these steps will position the Company to improve our financial performance and deliver higher long-term shareholder returns.”

Net income for the quarter was $96.5 million. This fell below the $120.9 million reported during the comparable period last year.

Like its discount store rivals Dollar General and Wal-Mart, Family Dollar faces many difficulties in the current economic environment. With a tepid economic recovery, many low-end consumers are purchasing less than they have in years past. This has cut into the revenues and profitability of Family Dollar and its competitors. Family Dollar has moved to cut prices in an effort to increase sales. In addition, the company has begun to offer newer products such as beer and frozen dairy. Investors are optimistic the company’s initiatives will help Family Dollar get back on track.

Family Dollar Stores Inc. (FDO) shares ended the week at $62.15.

Bob Evans’ Quarter Disappoints

Bob Evans Farms, Inc. (BOBE), a food processing and restaurant operator, announced its fourth quarter results on Tuesday, July 8. The company’s results disappointed investors and reinforced calls for management changes from activist investor Sandell Asset Management.

Bob Evans reported net sales for the quarter of $326.4 million, which was a decrease from the $333.9 million reported during the same period last year. Net sales also fell below pre-release estimates that called for net sales of $333 million.

“Fiscal 2014 financial performance was negatively impacted by several challenges beyond the Company's control, including unusually severe and sustained winter weather, historically high sow costs, and BEF Foods’ supplier disruption issues,” said Chairman and CEO Steve Davis. “However, by focusing on factors we can control, we continued transforming our businesses to remain relevant to our restaurant guests, food customers, and stockholders for years to come.”

The company recorded earnings per share for the quarter of $0.48, a significant drop from the $0.69 reported during the same period last year. Pre-release estimates called for earnings per share of $0.41.

Bob Evans saw a 21% decline in its earnings per share for the quarter, which was unwelcome news for management. Hedge fund Sandell Asset Management has been advocating for a shake-up in the company’s board of directors and will likely point to the fourth quarter as evidence a shake-up is needed. In addition to the earnings decline, the company reduced its guidance for fiscal 2015, lowering expectations for full-year earnings to $1.90 to $2.20 per share. Investors and analysts will be watching to see what happens to the brewing conflict between Bob Evans’ management and its activist investor.

Bob Evans Farms, Inc. (BOBE) shares ended the week at $46.73.

Alcoa’s Profits Take a Huge Leap

Alcoa Inc. (AA), the world’s largest producer of aluminum, announced its second quarter results on Tuesday, July 8. The company saw a surge in its net income for the quarter, which led its share price to reach a new 52-week high.

Alcoa reported revenue for the quarter of $5.8 billion. This number was up 7% from the first quarter for the year and in line with what the company reported during the same period last year.

“Our second quarter results prove Alcoa’s transformation is in high gear,” said Klaus Kleinfeld, Alcoa Chairman and CEO. “We are taking the downstream business to new profitability heights, capturing midstream demand as auto lightweighting accelerates, while continuing to relentlessly improve upstream performance. Our strategy of building a lightweight multi-material innovation powerhouse and a highly competitive commodities business is driving compelling and sustainable shareholder value.”

The company reported net income for the quarter of $216 million or $0.18 per share. This was an astonishing 157% increase from the net income of $76 million or $0.07 per share reported during the comparable period last year.

Alcoa’s quarter benefited from increased demand in the automotive and aerospace industries. The company expects that the aerospace industry will experience overall global growth of 8-9% in 2014. Alcoa’s success this year has seen its share price skyrocket, returning 47.2% so far. Following the earnings announcement, Alcoa’s share price hit a new 52-week high of $15.76 per share on July 9.

Alcoa Inc. (AA) shares ended the week at $15.97.

The Dow started the week of 7/7 at 17,064 and closed at 16,944 on 7/11. The S&P 500 started the week at 1,984 and closed at 1,968. The NASDAQ started the week at 4,478 and closed at 4,415.

European Woes Spur Treasuries’ Advance

Treasury prices rose on Friday, July 11 as investors grew concerned about the financial woes for Portugal’s second largest lender. In addition, two Federal Reserve presidents took competing views on the potential for rising inflation in the future.

The struggling European economy further disappointed investors this week when Banco Espirito Santo, Portugal’s second-largest lender, revealed that a parent company had missed a payment on short-term debt. Banco Espirito Santo claimed it had exposure of $1.6 billion at stake.

The news out of Portugal instigated a 12 basis point drop in the country’s 10-year government security to 3.86%. The drop in Portugal’s 10-year yield further added to the U.S. 10-year note’s attractiveness around the world. The 10-year Treasury note has produced an extra yield of 67 basis points compared to its Group-of-Seven counterparts, which include France, Germany and the U.K.

During early Friday trading the 10-year note yield fell 1 basis point to 2.52%. Yields move inversely to prices, so as yields fall prices rise. The 30-year bond fell 1.5 basis points to 3.35%.

Jim Vogel, Head of Agency-Debt Research at FTN Financial in Memphis, Tennessee, said that Europe’s continuing economic woes are now built into the Treasury price structure. “We now need at least a couple of more weeks to make sure Europe’s not going to disappoint further,” he said. “That will keep the long end of the Treasury curve in a lower range than it would be otherwise.”

Treasuries also reacted this week to differing inflation outlooks coming from Federal Reserve presidents Charles Evans and Charles Plosser. Evans, President of the Chicago Fed Bank, said he believes inflation is likely to be below 2% for the next few years. Meanwhile, Plosser, President of the Fed Bank of Philadelphia, expressed his opinion that the recent uptick in inflation is not an aberration and could continue.

The 10-year Treasury note yield finished the week of 7/7 at 2.52% while the 30-year Treasury note yield finished the week at 3.34%.

Interest Rates Show Little Change

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, July 10. The results show mortgage rates increasing slightly following the release of a better-than-expected jobs report last week.

The 30-year fixed rate mortgage averaged 4.15% this week. This represents an increase from last week when the 30-year fixed rate mortgage averaged 4.12%.

This week, the 15-year fixed rate mortgage averaged 3.24%. This was a slight increase from last week when the 15-year fixed rate mortgage averaged 3.22%.

“Mortgage rates increased for the week as the labor market appears to be improving,” said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. “Based on the employment report, released last week, the U.S. economy added 288,000 jobs in June, gained 224,000 in May and increased by 304,000 in April. Also, the unemployment rate in June fell to 6.1% from 6.3% in May.”

The money market fund finished the week of 7/7 at 0.4%. The 1-year CD finished at 0.7%.

Published July 11, 2014

Previous Articles

Bed, Bath & Beyond Disappoints

Sonic Skates to Another Strong Quarter

FedEx Impresses Investors

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