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Friday May 27, 2016



Home Depot Builds Customer Base

Home Depot Inc. (HD) released its first quarter earnings on Tuesday, May 17. The world's largest home improvement retailer raised its forecast for the year and crushed expectations as favorable weather and a strengthening housing market drew in customers.

Home Depot's first quarter revenue increased 9% from last year, coming in at $22.76 billion. A year ago, the company reported revenue of $20.89 billion for the first quarter.

"We were pleased with our stronger than expected start to the year, driven by solid execution and broad-based growth across the store," said Home Depot CEO Craig Menear, "This was made possible by our hard working associates and their continued dedication to our customers in a quarter marked by week-to-week demand spikes caused by weather variability."

The home improvement company reported net earnings of $1.80 billion, or $1.44 per share. This is up from last year when the company reported earnings of $1.58 billion, or $1.21 per share.

After last week's sea of earnings disappointments from retailers Macy's (M), Kohl's (KSS), Gap (GPS), Nordstrom (JWN) and J.C. Penney (JCP), this week Home Depot has proven that consumers are still spending, they are simply choosing to improve their homes rather than their wardrobes. Home Depot's success is due, in part, to the strengthening housing market and an increase in construction of single-family homes. With the demand for homes being driven by low interest rates and continued job creation, Home Depot has been able to not only weather the retail storm, but increase its fiscal 2016 projections.

Home Depot Inc. (HD) shares ended the week at $131.85, down 1% for the week.

Wal-Mart Reports Earnings

Wal-Mart Stores, Inc. (WMT) reported its quarterly earnings on Wednesday, May 19. The company reported strong revenue and net income.

The company reported revenue of $115.9 billion, surpassing analysts' expectations of $113.2 billion. During the same quarter last year, Walmart reported revenue of $114.8 billion.

"We are pleased to see the U.S. comp result, strong performance outside the U.S., membership trends in Sam's Club and EPS results versus guidance," said Walmart CEO Doug McMillon. "In addition, we are focused on building the e-commerce capabilities we need to drive growth to a higher level and deliver the seamless shopping experience for customers they desire."

Net income for the quarter was $3.08 billion, or $0.98 per share. This is down from $3.34 billion, or $1.03 per share during the same period last year.

The company, which operates America's most recognizable big-box stores, continues to assert itself as the nation's low price leader. Taken together, Walmart and Sam's Club stores posted a 0.5% increase in same store sales for the quarter, up from 0.2% last year. Removing fuel costs and sales from the equation, however, the company posted a 0.8% rise in same store sales.

Wal-Mart Stores, Inc. (WMT) shares ended the week at $69.86, up 8% for the week.

Cisco's Stock Surges on Solid Earnings

Cisco Systems Inc. (CSCO) announced its third quarter earnings on Wednesday, May 18. Positive results and increased fourth quarter guidance caused shares in the network company to jump 5% in after-hours trading following the report's release.

Revenue for the fourth quarter was reported at $12 billion, compared to $12.14 billion in the year-earlier quarter. This figure beat the consensus estimate of $11.97 billion.

"We delivered a strong Q3, executing well despite the challenging environment," said Chuck Robbins, Cisco CEO. "I'm pleased with our performance today as well as the progress we're making in transitioning our business to a more software and subscription focus, which we'll continue to apply across our entire portfolio."

Cisco announced that its net income fell to $2.35 billion for the first quarter, or $0.46 per share. Last year at this time, Cisco reported income of $2.44 billion, or $0.47 per share.

Cisco designs, manufactures and sells Internet Protocol (IP) based networking worldwide, with its networks currently directing 85% of global Internet traffic. Cisco is currently shifting its focus toward its security and software-based networking products as its biggest business, making network switches and routers, continues to slow down. Revenue in its security division, which includes intrusion detection, prevention and firewall protection, rose 17% in the third quarter.

Cisco Systems Inc. (CSCO) shares ended the week at $27.97, up 5% for the week.

The Dow started the week of 5/16 at 17,532 and closed at 17,501 on 5/20. The S&P 500 started the week at 2,047 and closed at 2,052. The NASDAQ started the week at 4,729 and closed at 4,770.

Rate Hike Talk Sends Treasury Yields Upward

The Federal Reserve indicated this week that there is a good chance of an interest rate increase at their June policy meeting. This news sent Treasury yields climbing to their highest levels in two months.

Minutes from the Fed's April meeting were released on Wednesday, May 18. The minutes revealed an openness on the part of many Fed members to raise rates in June. The committee cited an improving labor market and slow, but steady, inflation increases that are progressing toward the Fed's goal of 2%.

"I think that the data to my mind are lining up to make a good case for rate increases in the next few meetings, not just June, which means it's very live in terms of that," said John Williams, President of the Federal Reserve Bank of San Francisco.

The yield on the 10-year Treasury note jumped to 1.88% on Wednesday, up from 1.75% on Tuesday. The 2-year Treasury note rose from 0.82% to 0.90% following the release of the Fed's minutes. Yields on the 30-year note jumped to 2.69%.

The ongoing saga over the Fed's hesitance to raise interest rates has kept the bond market on its toes. This week's news of a potential rate hike had many investors wanting to get out in front of the wave, selling safe-haven Treasury bonds and investing in stocks. With that sell-off, Treasury yields rose, while prices fell.

The 10-year Treasury note yield finished the week of 5/16 at 1.85% while the 30-year Treasury note yield was 2.64%.

Interest Rates Remain Relatively Unchanged

Freddie Mac released the latest Primary Mortgage Market Survey (PMMS) on Thursday, May 19. Mortgage interest rates rose this week by a mere one basis point.

The 30-year fixed rate mortgage remains unchanged from last week, averaging 3.58% for the week. This time last year, the 30-year fixed rate mortgage averaged 3.84%.

The 15-year fixed rate mortgage averaged 2.81%. This represents decrease from last week when it averaged 2.85%. The 15-year fixed rate mortgage averaged 3.05% one year ago.

"The 10-year Treasury yield saw minimal movement over the past week, despite encouraging news from April's consumer spending and CPI data," said Sean Becketti, Chief Economist at Freddie Mac. "Accordingly, the 30-year mortgage rate moved up just one basis point from its 2016 low to 3.58%. Although there was minimal change in rates this week, the hawkish tone of Wednesday's Fed minutes release had an immediate impact on Treasury yields, and could possibly shake up next week's survey results."

The money market fund finished the week of 5/16 at 0.50%. The 1-year CD finished at 1.10%.

Published May 20, 2016

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