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Monday December 18, 2017



Carnival Sails Profitable Waters

Carnival Corporation (CCL) announced its quarterly earnings on Tuesday, December 20. The cruise company reported a boost in both revenue and profit in the fourth quarter.

Carnival reported quarterly revenue of $3.94 billion. This was a 6% increase from last year's fourth quarter revenue of $3.71 billion.

"We achieved the most profitable year in our company's history as well as record fourth quarter earnings," said Carnival CEO Arnold Donald. "The continued execution of our core strategy to drive consumer demand in excess of measured capacity growth, contain costs and leverage our industry-leading scale resulted in our third consecutive year of significantly higher earnings and return on invested capital."

Net income in the fourth quarter increased to $609 million from $207 million a year ago. On an earnings per share basis, profit rose to $0.84 per share compared to $0.35 per share in the same quarter last year.

Carnival shares have climbed 22% since July, helped in large part by an increase in gross revenue yields. During the fourth quarter, Carnival's newest ship—Carnival Vista—set sail. The company also announced plans to construct three 180,000-ton cruise ships that will be powered by liquefied natural gas. The ships are estimated to be complete in 2020 and 2022.

Carnival Corporation (CCL) shares ended the week at $52.07, down 2% for the week.

General Mills' Earnings Fall Short

General Mills Inc. (GIS) announced its fourth quarter earnings on Tuesday, December 20. The company reported lower-than-expected revenue and profit, causing shares to drop 3.3% in pre-market trading after earnings were released.

General Mills announced quarterly revenue of $4.11 billion, down 7% from last year's fourth quarter revenue of $4.42 billion. This was below the $4.2 billion in revenue expected by analysts.

"Although we posted disappointing net sales performance in the second quarter, we delivered good growth in adjusted diluted EPS, driven by significant expansion in our adjusted operating profit margin," said General Mills CEO Ken Powell. "Our organic sales declines reflect the actions we've taken to optimize our spending and prioritize profitable volume, as well as weakening food-industry trends in the U.S."

General Mills announced adjusted earnings of $0.80 per share. Last year at this time, General Mills reported adjusted earnings of $0.87 per share.

The maker of Cheerios, Haagen-Dazs, Yoplait and Progresso soup experienced a difficult fiscal year, due in large part to fluctuating consumer preferences. The shift from processed foods to natural alternatives has lead to a drop in sales for the food giant. General Mills is trying generate sales by adding new yogurt products to compete with rival yogurt makers Chobani and Dannon.

General Mills Inc. (GIS) shares ended the week at $61.78, down 1% for the week.

Bed Bath and Beyond Reports Drop in Sales

Bed Bath & Beyond Inc. (BBBY) reported quarterly earnings on Wednesday, December 21. The home furnishing company's earnings were negatively impacted by a decrease in in-store sales.

Bed Bath & Beyond announced that revenue for the third quarter was $2.96 billion, compared to last year's third quarter revenue of $2.95 billion. This fell below the $3.10 billion in revenue predicted by analysts.

"It continues to be a transitional time for retail," said Bed Bath & Beyond CEO Steven Temares during a conference call with analysts. "As our business transforms, we are navigating the competitive landscape and adapting as customer preferences and purchasing behaviors evolve."

The company reported net income of $126 million, down from last year's third quarter earnings of $178 million. Adjusted earnings per share for the third quarter were $0.85, down from $1.09 per share a year ago and below analysts' estimates of $0.98 per share.

While digital sales rose in the third quarter, sales at brick and mortar stores declined. After Bed Bath & Beyond announced earnings, shares fell 10.2% on Thursday. The company is hopeful that its new membership program will boost sales. The program, called Beyond+, offers members 20% off all purchases in-store and free shipping online for $29 a year.

Bed Bath & Beyond Inc. (BBBY) shares ended the week at $40.64, down 1% for the week.

The Dow started the week of 12/27 at 19,943 and closed at 19,762 on 12/30. The S&P 500 started the week at 2,266 and closed at 2,239. The NASDAQ started the week at 5,471 and closed at 5,393.

Treasury Yields Fall

U.S. benchmark Treasury yields hit a two-week low on Thursday after the U.S. dollar continued to fall following the release of weak U.S. housing data in November. Yields were also impacted by the larger-than-expected demand at the final Treasury Department auction this year.

Data released by the National Association of Realtors (NAR) on Wednesday revealed that the pending home sales index, which tracks the number of contracts signed for home purchases, plunged to a 10-month low in November. Analysts were expecting a 0.5% rise in November and were disappointed to learn that the index fell 2.5%.

"The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election," said Lawrence Yun, NAR chief economist. "Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract."

On Wednesday and Thursday, the Treasury Department auctioned off $34 billion worth of five-year notes and $28 billion in seven-year notes. The demand at both auctions was higher than analysts expected, causing Treasury yields to drop and bond prices to rise.

"This was another remarkably strong auction," said Thomas Simons, senior money market economist at Jefferies. He continued to note that the demand was "somewhat surprising given the thin volumes of the holiday week and the recent selloff."

The fall in yields this week represents a departure from their multi-month peaks reached weeks ago following positive speculation regarding the Federal Reserve's projected rate-hike path for 2017 and hope that U.S. President-elect Donald Trump's policies could boost inflation. Despite Treasury yields falling this week, many analysts remain hopeful that 2017 will bring positive economic changes.

"The Fed called for three rate hikes [in 2017] and that wakes the giant," said Eric Donovan, managing director of OTC FX and interest rates at INTL FCStone Inc. "I think the bond market is pricing in only about a 50% probability that the Trump administration is going to be able to implement policies. If he's successful, we could have a 10-year Treasury yield in the 3.0% to 4.0% range in 2017."

The 10-year Treasury note yield finished the week of 12/27 at 2.45%, while the 30-year Treasury note yield was 3.06%.

Mortgage Rates Move Higher

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, December 29. The report revealed that rates have risen for the ninth consecutive week.

The 30-year fixed rate mortgage averaged 4.32% this week. This represents an increase from last week when it averaged 4.30%. Last year at this time, the 30-year fixed rate mortgage averaged 4.01%.

This week, the 15-year fixed rate mortgage averaged 3.55%. This was higher than last week's average of 3.32%. The 15-year fixed rate mortgage averaged 3.24% one year ago.

"On a short week following the Christmas holiday, the 10-year Treasury yield was relatively unchanged," said Sean Becketti, Chief Economist at Freddie Mac. "The 30-year mortgage rate rose two basis points to 4.32%, closing the year with nine consecutive weeks of increases. As mortgage rates continue to increase, home sales and affordability will continue to be a concern for housing in 2017."

Based on published national averages, the money market account finished the week of 12/27 at 0.57%. The 1-year CD finished at 1.16%.

Published December 30, 2016
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