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Tuesday July 28, 2015



Yahoo Sees Earnings Decline

Yahoo! Inc. (YHOO) announced its second quarter results on Tuesday, July 16. Investors were disappointed to see revenue and earnings decline during the quarter.

Yahoo reported that second quarter revenue was $1.08 billion, a 4% drop from $1.14 billion reported during the same period last year. Analysts expected quarterly revenue of $1.09 billion.

“Our top priority is revenue growth and by that measure, we are not satisfied with our Q2 results,” said Yahoo CEO Marissa Mayer. “In Q2, we saw display revenue decline, further highlighting the fact that we need to work faster to ameliorate the negative trends. I believe we can and will do better moving forward. Overall, I remain confident in Yahoo’s future, our strategy, and our return to long-term growth.”

Earnings per share for the quarter was $0.26, which fell below pre-release estimates calling for $0.39 per share. It was also a 15% drop from the comparable period last year when earnings per share was $0.30.

Yahoo’s revenue decline reflected the fact that its ad sales are slumping compared to competitors Google and Facebook. According to a prominent Internet research firm, eMarketer, Microsoft is expected to soon supplant Yahoo as number three in the world when it comes to digital ad sales. Yahoo’s recent challenges of late have not been kind on its share price, which has fallen close to 12% since the beginning of the year.

Yahoo! Inc. (YHOO) shares ended the week at $33.33.

eBay Survives Challenging Quarter

eBay Inc. (EBAY), operator of an online auction house, announced its second quarter results on Wednesday, July 16. Despite some difficult setbacks during the quarter, the company’s revenue and net income increased.

eBay reported net revenue during the quarter of $4.366 billion. This was 13% better than the comparable period last year and in line with pre-release forecasts.

John Donahoe, eBay’s President and CEO, had this to say about the quarter: “In a challenging second quarter, our commerce and payments platforms delivered strong enabled commerce volume growth of 26%. PayPal generated another strong quarter while eBay’s growth was hampered by its global password reset for all users. We continued our momentum in the four competitive commerce battlegrounds of mobile, local, global and data. We delivered new experiences for PayPal and eBay customers, extended PayPal and eBay into new markets, made it simple and easy for developers to integrate PayPal and offered new ways to help merchants grow.”

Net income for the quarter was $868 million or $0.69 per share. This was a 6% increase over the $822 million reported during the same period last year. Pre-release estimates called for earnings per share to be slightly lower at $0.68 per share.

Investors were pleased with eBay’s quarterly results, especially in light of a cyberattack on the company during the spring. In early May, eBay announced that it discovered a breach on its servers that occurred between February and March of this year. The number of users potentially affected was as high as 145 million. Despite the breach, eBay claimed that no financial data was compromised. Still, the cyberattack caused eBay to lower its annual sales targets by $200 million. Following the earnings announcement on July 16, eBay’s share price increased a little over 1% in after-hours trading.

eBay Inc. (EBAY) shares ended the week at $51.48.

Yum’s Results Not Quite Enough

Yum! Brands, Inc. (YUM), operator of brands such as Taco Bell, Pizza Hut and KFC, announced its second quarter earnings on Wednesday, July 16. Despite positive improvement from Taco Bell and KFC, results from Pizza Hut disappointed investors.

Yum reported that revenue during the quarter was $3.2 billion. This was a 10% increase over the $2.9 billion reported during the same period last year.

“Yum! Brands is well on its way to delivering full-year EPS growth of at least 20%, with second-quarter EPS growth of 30%,” said David C. Novak, Chairman and CEO. “Overall, we have a compelling business model and will continue to invest behind the significant growth opportunities we see around the world. We remain focused on the three keys to driving shareholder value: new-unit development, same-store sales growth and generating high returns on invested capital.”

The company reported net income for the quarter of $334 million or $0.73 per share. This was a 19% increase over the $281 million or $0.61 per share reported during the comparable period last year.

Looking deeper into the numbers, Yum’s KFC division experienced a 21% same-store sales increase while the Taco Bell division’s same-store sales increased 2%. Analysts pointed to Taco Bell’s addition of a breakfast menu during the spring as a contributor to the increase. Although Yum Brands saw growth in its KFC and Taco Bell divisions, investors were more worried about the performance of the Pizza Hut division. Led by a 4% decline in U.S. sales, Pizza Hut experienced a global same-store sales decline of 3%. On news of the disappointing Pizza Hut sales, the company’s share price fell 2.5% in after-hours trading on July 16.

Yum! Brands, Inc. (YUM) shares ended the week at $77.42.

The Dow started the week of 7/14 at 16,951 and closed at 17,100 on 7/18. The S&P 500 started the week at 1,970 and closed at 1,978. The NASDAQ started the week at 4,441 and closed at 4,432.

World Tensions Cause Treasuries to Fall

Treasury prices fell on Friday, July 18 as the crises in Ukraine and Israel took dark turns. International events were strong enough to overshadow new economic data released this week, muting their effect on Treasury yields.

The world was shocked yesterday when a Malaysian flight carrying 298 passengers from Amsterdam to Kuala Lampur was shot down over eastern Ukraine. So far, both Ukraine and Russia blame each other for the incident, though early indications point to pro-Russian separatists as the culprits.

The tragic events in Ukraine happened the same day the ceasefire between Israel and Palestine ended. Claiming Hamas terrorists were using underground tunnels to shuttle weapons, supplies and soldiers into Israel, Israeli troops and tanks plunged deep into the Gaza strip. Israel hopes the new ground operations will allow them to close the tunnels and prevent further Hamas attacks inside the country.

During early Friday trading the 10-year note yield rose 2.5 basis points to 2.498%. Yields move inversely to prices, so as yields rise, prices fall. The 30-year bond rose 2 basis points to 3.310%.

“The market is digesting what the geopolitical concerns mean for the economy,” said Jason Rogan, managing director of U.S. government trading at Guggenheim Securities. “When you get these geopolitical concerns, economic data gets pushed to the side.”

In terms of economic news this week, the Conference Board’s gauge of leading economic indicators, which measures the economic outlook for the next three to six months, rose 0.3%. In addition, James Bullard, President of the St. Louis Fed, said he believes the central bank may need to raise interest rates sooner than planned because of falling unemployment and rising inflation.

The 10-year Treasury note yield finished the week of 7/14 at 2.48% while the 30-year Treasury note yield finished the week at 3.29%.

Interest Rates Trend Lower

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, July 17. The results show mortgage rates slightly falling compared to the previous week.

The 30-year fixed rate mortgage averaged 4.13% this week. This represents a decrease from last week when the 30-year fixed rate mortgage averaged 4.15%.

This week, the 15-year fixed rate mortgage averaged 3.23%. This was a slight decrease from last week when the 15-year fixed rate mortgage averaged 3.24%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, had this to say about this week’s rates decrease: “Mortgage rates were little changed amid a week of light economic reports. Of the few releases, industrial production rose by 0.2% in June, below the market consensus forecast. Also, the producer price index for final demand rose 0.4% in June, rebounding from a 0.2% decline the prior month.”

The money market fund finished the week of 7/14 at 0.4%. The 1-year CD finished at 0.7%.

Published July 18, 2014

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