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Monday February 24, 2020



General Mills Updates Outlook

General Mills (GIS) announced quarterly earnings on Wednesday, March 20. The company reported increased net sales and an updated outlook, causing shares to jump more than 3% on Wednesday.

Revenue for the third quarter reached $4.2 billion, up 8.1% from the $3.9 billion reported during the same quarter last year. The reported revenue was in line with analysts' predictions.

"We had a strong third quarter, with positive organic sales growth and significant operating margin expansion," said General Mills Chairman and CEO Jeff Harmening. "Our year-to-date performance and fourth quarter plans give us confidence that we will meet or exceed all of our key fiscal 2019 targets."

General Mills reported net earnings of $446.8 million, down more than 52% from last year's third quarter earnings of $941.4 million. On an adjusted earnings per share basis, the company posted profit of $0.74 per share, topping Wall Street's expectations of $0.69.

The maker of Lucky Charms, Haagen-Dazs and Progresso soup increased organic net sales by 1% in the quarter, exceeding analysts' projected 0.6% growth. The company also reported an 8% increase in net sales for the quarter. General Mills raised its earnings growth outlook. The company expects a 0% to 1% growth, up from its previous forecast of a 0% to 3% decline. Analysts forecast an earnings decline of up to 1.2% for the year. Shares jumped more than 3% following the report's release.

General Mills (GIS) shares ended the week at $50.74, up 6.4% for the week.

Michaels' Stock Soars

The Michaels Companies, Inc. (MIK) released its latest quarterly earnings report on Wednesday, March 20. While revenue and earnings came in above analysts' expectations, the arts and crafts retailer's shares jumped more than 15%.

Michaels reported quarterly revenue of $1.79 billion. This is down from last year's fourth quarter revenue of $1.89 billion but above the $1.78 billion Wall Street expected.

"A few weeks ago, I joined The Michaels Companies, a retailer I have long admired as a customer," said Michaels CEO Mark Cosby. "While I am still getting to know the customer, the operations and the team, I am excited about the long-term opportunities we have to engage with makers of all experience levels and expand our leadership position within the arts and crafts retail industry."

The company announced quarterly net income of $181.40 million, down from net income of $202.97 million one year ago. Michaels reported adjusted earnings of $1.44 per share, topping the $1.42 per share that analysts predicted.

Michaels' shares soared more than 15%, following the report's release on Wednesday, due to its positive revenue and net income results. On an adjusted calendar basis, the company's same-store sales grew 1.4% in the fourth quarter, for the full-year same-store sales grew 0.8%. The craft retailer announced that it expects earnings to be between $2.34 and $2.46 per share for the full year of 2019, less than the $2.48 per share that Wall Street estimated.

The Michaels Companies, Inc. (MIK) shares ended the week at $11.26, down 4.3% for the week.

FedEx's Shares Tumble

FedEx Corp. (FDX) announced quarterly earnings on Tuesday, March 19. The company lowered its earning guidance for the second time causing shares to fall more than 5% following the report's release.

Revenue for the third quarter reached $17.01 billion. This was up from revenue of $16.53 billion reported during the same quarter last year, but fell below analysts' expectations of $17.67 billion.

"Our third quarter financial results were below our expectations and we are focused on initiatives to improve our performance," said FedEx CEO Frederick W. Smith. "Our investments in innovation, network infrastructure and automation will increase our competitiveness and drive long-term earnings growth."

FedEx reported quarterly net earnings of $739 million, a drop of 64% from last year's third quarter earnings of $2.07 billion. On an adjusted earnings per share basis, the company posted earnings of $3.03 per share, down from $3.72 per share during the same quarter last year and missed the $3.11 per share that analysts predicted.

The logistics company's earnings in the third quarter were impacted by a decline in its FedEx Express international revenue. In its report, FedEx lowered its earnings guidance for the second time for fiscal 2019, due to weaker global trade growth trends. FedEx now expects to earn between $15.10 and $15.90 per share, down from previous earnings guidance of $15.50 to $16.60 per share.

FedEx Corp. (FDX) shares closed at $173.99, down 2.3% for the week.

The Dow started the week at 25,802 and closed at 25,502 on 3/22. The S&P 500 started the week at 2,823 and closed at 2,801. The NASDAQ started the week at 7,696 and closed at 7,643.

Yields Invert Following Fed Decision

The yield curve between the three-year Treasury note and the 10-year note inverted this week for the first time since 2007. The inversion followed the Federal Reserve's decision to hold off on any further rate hikes in 2019.

The Federal Open Market Committee (FOMC) held its latest meeting on Tuesday and Wednesday. As widely anticipated, the FOMC left interest rates unchanged. At the conclusion of its meeting on Wednesday, the FOMC announced that it will not raise rates again in 2019. The 10-year Treasury bond tumbled to a 14-month low in the wake of the Fed's announcement.

The yield on the three-year Treasury note was trading at 2.46%, while the benchmark 10-year Treasury note yield was 2.43%. This inversion, which occurs when certain short-term yields exceed yields for longer-term Treasurys, sparked concern among investors that an economic downturn may be near. The last time the three-year Treasury note and the 10-year Treasury note inverted was 2007.

"It looks like the global slowdown worries have been confirmed and the market is beginning to price in Fed easing, potential recession down the road," said Kathy Jones, chief fixed-income strategist at Charles Schwab & Co. "It's clearly a sign that the market is worried about growth and moving into Treasuries from riskier asset classes."

The FOMC also announced that its balance sheet reduction plan would be slowed in May and would end in September. The Fed has been allowing billions of dollars of Treasurys to roll off of its balance sheets since October 2017.

"What the Fed did by shelving rate hike bets this year and end the balance sheet reduction went further than what many had expected," said Mathias van der Jeugt, rates strategist at KBC. "More and more investors will take this as a signal that this is the end of the rate hiking cycle."

The 10-year Treasury note yield closed at 2.46% on 3/22, while the 30-year Treasury bond yield was 2.89%.

Mortgage Rates Dip

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, March 21. Mortgage rates declined for the second consecutive week.

The 30-year fixed rate mortgage averaged 4.28% this week, down from last week's average of 4.31%. At this time last year, the 30-year fixed rate mortgage averaged 4.45%.

This week the 15-year fixed rate mortgage averaged 3.71%, which is down from 3.76% last week. During this time last year, the 15-year fixed rate mortgage averaged 3.91%.

"Mortgage rates have dipped quite dramatically since the start of the year and house prices continue to moderate, which should help on the homebuyer affordability front," said Sam Khater, Chief Economist at Freddie Mac. "The combination of improving affordability and more inventory than the last few spring selling seasons should lead to improved home sales demand."

Based on published national averages, the money market account closed at 1.50% on 3/22. The 1-year CD finished at 2.76%.

Published March 22, 2019
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