Financial Review

Earnings Season

…10-yr. yield holds above 3%. Earnings season in full bloom: Boeing, Facebook, AMD, Qualcomm, Ford, Chipotle, AT&T, Comcast, and more.

Financial Review by Sinclair Noe for 04-25-2018

DOW + 59 = 24,083
SPX + 4 = 2639
NAS – 3 = 7003
RUT – 2 = 1550
10 Y + .03 = 3.03%
OIL + .34 = 68.04
GOLD – 7.20 = 1323.60

 

This was an up and down session. Boeing rose 4.2 percent after reporting quarterly results that easily beat analyst expectations. The stock’s rise helped the Dow bounce back from a 201.05-point deficit and snap a five-day losing streak. Wall Street still seems jittery about bond yields. The benchmark 10-year Treasury yield traded at 3.03 percent after breaking above 3 percent for the first time since 2014 on Tuesday. Investors are worried rising borrowing costs may slow the economy. Also, with the S&P 500 dividend yield at 1.9 percent, a risk-free investment like U.S. Treasuries yielding 3 percent makes more sense in a volatile environment. But that reasoning is weak. The play assumes holding the bond to duration and clipping coupons, and the stock market has never shown inflation-adjusted returns that low over a 10-year period. Absent a major crash and a deep recession it likely won’t over the next decade as well. The next two years, though? That could be a different story. The 2-year note yield rose above 2.5 percent, a level it last closed at August 2008. And while that might not offer serious competition for stocks, it might offer a parking spot for a smaller portion of the portfolio to hedge against market volatility and inflation risks. Over the past 10 years, investors were penalized for parking cash on the sidelines, now with yields moving higher, there is a small reward.

 

The recent market volatility is taking place despite a string of strong corporate earnings. Of the S&P 500 companies that have reported thus far, 81 percent have topped analyst expectations, according to Thomson Reuters.

 

Boeing reported earnings that trounced analyst expectations and hiked its outlook for 2018 earnings. Net income was $2.4 billion, up from $1.5 billion a year ago. Adjusted EPS came to $3.64, beating the consensus of $2.58. Revenue also beat estimates. Boeing shares gained more than 4%.

 

Facebook gained more than 4% in after-hours trading after beating earnings and revenue expectations. Facebook stock closed flat at $159 during regular trading. The company reported first-quarter net income of $4.9 billion, or $1.69 a share, compared with $3.06 billion, or $1.04 a share, in the year-ago period. Revenue rose to $11.97 billion from $8.03 billion in the year-ago period. Facebook said monthly active users in the first quarter rose to 2.2 billion, up 13 percent from a year earlier and matching expectations. There may be some damage to the Facebook brand following the disclosure in March that consultancy Cambridge Analytica had harvested data belonging to millions of users, and negative headlines about the company’s handling of personal information, its role in elections and its fueling of violence in developing countries – but the bad news did not show up in the earnings report.

 

Twitter reported solid first-quarter growth, beating expectations for revenue, earnings and monthly active users. Sales rose 21% despite sluggish growth in the U.S., as Twitter’s growth was driven by two things: international revenues, up 53%, and data-licensing, up 20%.While it’s good that Twitter’s high-margin data-licensing segment had its best quarter ever at $90 million in sales, it’s also not the best time to have a business that’s literally built around selling access to user data.

 

PayPal shares are up 2.8% in after-hours trading after the company reported better-than-expected earnings and revenue for its first quarter. PayPal said it had 237 million active accounts in the first quarter, an increase of 8.1 million. PayPal’s peer-to-peer Venmo service processed more than $12 billion in volume, up 80% from a year ago.

 

Chipotle Mexican Grill jumped more than 10% late today, after the fast-casual restaurant chain posted a first-quarter profit above Wall Street expectations and said its same-store sales rose 2.2%. Chipotle said it had net income of $59.4 million, or $2.13 a share, in the quarter, up from $46.1 million, or $1.60 a share, in the year-earlier period. Sales rose 7% to $1.1 billion, thanks to new-restaurant openings and to a lesser extent to the increase in comparable-restaurant sales. The increase in sales was largely attributed to higher menu prices.

 

Qualcomm said net income fell to $363 million or 24 cents per share in the three months ended March 25, from $749 million or 50 cents per share a year earlier – that’s more than a 50% drop. Total revenue rose 4.9 percent to $5.26 billion. The results topped Wall Street estimates, but shares were slightly lower in after-hours trade.

 

Advanced Micro Devices reported higher profit than expected, sending shares about 8% higher in after-hours trading. The chip maker, which has faced concerns about potential decreases in revenue from cryptocurrency mining, but AMD predicted stronger revenue in the current quarter than analysts expected.

 

Ford reported quarterly earnings and revenue that beat analysts’ expectations, helped by cost cutting measures and a lower tax rate. However, the company was hurt by rising commodity costs and unfavorable foreign exchange rates. Ford has also faced declining demand for its passenger cars, and said it will not invest in next generation models of its traditional sedans for North America.

 

AT&T shares fell more than 3% in after-hours trading after reporting first-quarter earnings and sales that missed expectations. AT&T maintains its full-year expectations for 3.2 million total wireless customers, including 2.6 million in the U.S., driven by connected devices and prepaid customers, and 312,000 DirectNow TV additions to reach nearly 1.5 million subscribers.

 

Comcast posted strong first-quarter earnings growth, despite continuing cable TV subscriber losses, and formally submitted its $31 billion proposal to buy Sky PLC. The company reported 21% profit growth compared with the year-earlier period. Revenue at its NBCUniversal media unit rose 21% to $9.5 billion, boosted by its Winter Olympics and Super Bowl broadcasts, which offset a weak performance in the film division. Comcast lost 96,000 cable TV customers, compared with a gain of 42,000 in the prior-year quarter, as it continues to feel the impact of rising competition from streaming services. This was its fourth consecutive quarter of subscriber losses. Comcast made a $31 billion bid to buy European pay-TV operator Sky PLC, topping an existing offer from 21st Century Fox, which already owns a 39% stake in Sky. The official Comcast offer sent Sky shares more than 2% higher — and above the Comcast bid, suggesting investors are positioning for a bidding war. The formal bid officially kicks off what has been a long-expected corporate takeover battle pitting Comcast against Rupert Murdoch’s 21st Fox over the European TV giant. Sky said in response to the official offer that it was terminating its previous pact agreeing to the 21st Century Fox takeover.

 

Separately, Comcast is weighing whether to play interloper on the pending Walt Disney acquisition of 21st Century Fox’s entertainment assets. Comcast is gaming out the possibility of making a public case to the company’s shareholders that they should reject the Disney deal, which is expected to come to a vote this summer, and opt for a Comcast tie-up instead. Besides lining up investor backing, there are other considerations for Comcast in whether to go to war over the Fox assets. One is its stock price, since its shares would likely be used to help pay for a major acquisition, the people familiar with the situation said. Comcast shares have declined 22% since late January, wiping out more than $40 billion in market value.

 

Shares of Wynn Resorts dropped, as the casino operator’s revenue was slightly below Street estimates; Trivago was also trading lower today, as the travel site reported a Q1 loss and lowered its current quarter forecast; and Goodyear Tire & Rubber reported profit was off more than 50% as demand for tires was weaker than expected, and raw material costs weighed on results.

 

Texas Instruments beat earnings estimates, citing strength in its automotive and industrial units; and Six Flags Entertainment reported revenue increased 30% to a record $129 million.

 

The New York Stock Exchange said on Wednesday that trading was suspended on its exchange in five stocks, including Amazon and Alphabet, for the rest of the day due to a technical glitch involving trade reporting. The exchange, which is owned by Intercontinental Exchange, said the suspension was due to a “price scale code” issue and any open orders in those securities would be canceled.

 

As of today, U.S. airports removed all Virgin America signage from ticket counters, baggage claim, curbside check-in and kiosks. The signage was replaced with Alaska Airlines logos overnight. Virgin America also flew its final flight— Flight 1947 from Los Angeles to San Francisco at 9:35 p.m. on Tuesday — signaling the official end of the low-cost carrier started by Richard Branson in 2007. Alaska Airlines acquired Virgin America for whopping $2.6 billion back in December 2016. Branson had hoped his brand would stay intact, but in March 2017 it was announced that the two carriers would merge under the Alaska Airlines brand. In January, Alaska received a single operating certificate from the Federal Aviation Administration.

 

Republican Debbie Lesko, a former state senator, defeated Democrat Hiral Tipirneni, a physician new to politics, in a special election in Arizona’s 8th Congressional District; but Lesko’s lead was only about five percent, in a district where Republicans typically dominate. Trump won the district in 2016 by 21 points. In 2016, the former GOP congressman won the seat with more than 68 percent of the vote. Rep. Trent Franks resigned in December over allegations of sexual harassment.

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