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Thursday September 29, 2016



FedEx Delivers Strong Earnings

FedEx Corp. (FDX) announced its quarterly earnings on Tuesday, September 20. Despite incurring costs with its acquisition of Dutch delivery company TNT Express, FedEx reported an increase in earnings and surpassed Wall Street's expectations for the quarter.

FedEx reported revenue of $14.7 billion in the first quarter. This was a boost from last year's first quarter revenue of $12.3 billion and above the $14.6 billion predicted by analysts.

"The integration of TNT Express is proceeding smoothly, and the level of team members' engagement is outstanding," said FedEx CEO Frederick W. Smith. "Managing our operating companies as a portfolio of customer solutions helped FedEx achieve strong financial and operating results in the quarter, especially given the global economy's continued low growth."

Net income in the first quarter increased to $715 million from $692 million a year ago. On an earnings per share basis, profit rose to $2.65 per share compared to $2.42 per share in the same quarter last year.

On Tuesday, FedEx announced that it plans to hire more than 50,000 temporary employees to assist during the peak holiday shipping period between Thanksgiving and Christmas. Despite having hired 5,000 more temporary workers last year, FedEx said on Tuesday that it expects another record-breaking holiday season. Earlier in the week, the company also announced that it will be boosting its shipping rates by an average of 3.9% for U.S. domestic, U.S. export and U.S. import services, while FedEx Ground and FedEx Home Delivery will experience an average increase of 4.9%.

FedEx Corp. (FDX) shares ended the week at $174.39, up 8% for the week.

Adobe Announces Record Revenue

Adobe Systems Inc. (ADBE) announced its third quarter earnings on Tuesday, September 20. The software company topped expectations with record quarterly revenue and predicted better than expected earnings in the upcoming quarter.

Adobe announced record quarterly revenue of $1.46 billion, up 20% from last year's third quarter revenue of $1.22 billion. This was above the $1.45 billion in revenue expected by analysts.

"We drove strong revenue and earnings performance in Q3, further distancing ourselves from our competitors," said Shantanu Narayen, Adobe President and CEO. "Our leadership in cloud-based content and data platforms make us a mission critical partner to the world's biggest brands as they transform how they engage with their customers."

Adobe announced adjusted earnings of $0.75 per share, beating Wall Street's prediction of $0.72 per share. Last year at this time, Adobe reported adjusted earnings of $0.54 per share.

On Tuesday, Adobe CFO Mark Garrett said that they are expecting next quarter to be another record breaker. The company forecasted adjusted earnings next quarter to be between $0.83 and $0.89 per share, well above Wall Street estimates of $0.78 per share. Adobe has benefited from an increase in its cloud-based subscriptions. The subscriptions give customers access to various Adobe software—including Photoshop, Illustrator and InDesign—for a monthly or annual price.

Adobe Systems Inc. (ADBE) shares ended the week at $107.47, up 8% for the week.

General Mills' Sales Struggle

General Mills Inc. (GIS) reported quarterly earnings on Wednesday, September 21. The food company announced a decline in both revenue and earnings but still surpassed Wall Street's estimates.

General Mills reported that revenue for the first quarter was $3.91 billion, a 7% decrease from last year's second quarter revenue of $4.21 billion. General Mills attributed the decline to lower organic net sales, the sale of its Green Giant business and the impact of foreign exchange.

"Our first-quarter profit margin expansion and EPS results reflect continued good progress on our productivity and cost-savings initiatives," said General Mills CEO Ken Powell. "However, our net sales performance did not meet our expectations due to the challenging macro environment, a difficult year-over-year comparison, and a slower start to the year on certain businesses."

The company reported net income of $409 million, down from last year's first quarter earnings of $426.6 million. Adjusted earnings per share for the first quarter were $0.78, down from $0.79 per share a year ago but above analysts' estimates of $0.75 per share.

The maker of Cheerios, Haagen-Dazs, Yoplait and Progresso soup experienced a difficult start to the fiscal year, specifically in its yogurt sector. General Mills is trying to get its yogurt business up to speed by adding more varieties of organic yogurt under its Annie's Homegrown brand. Despite the slow start, General Mills reaffirmed its full-year outlook, noting that it expects its organic net sales performance to improve over the remainder of the year

General Mills Inc. (GIS) shares ended the week at $64.65, down 1% for the week.

The Dow started the week of 9/19 at 18,155 and closed at 18,261 on 9/23. The S&P 500 started the week at 2,144 and closed at 2,165. The NASDAQ started the week at 5,264 and closed at 5,306.

Fed Inaction Causes Yields to Fall

U.S. benchmark Treasury yields dropped on Wednesday as the Federal Reserve left interest rates unchanged at the end of its two-day policy meeting. The inaction sparked a bond rally, causing bond prices to spike and yields to drop to a two-week low.

With inflation stuck below the Fed's 2% goal, analysts speculate future rate hikes will move slowly and gradually. While the Fed left the door open for a December rate increase, it also reduced the number of rate increases that it expects to see next year from three to two.

"The Fed reinforced the message that their rate hike campaign is going to be very slow, which encouraged buyers back to the bond market,'' said Donald Ellenberger, head of multisector strategies at Federated Investors. On Tuesday, before the Fed's announcement, the 10-year Treasury note was 1.687%. By Thursday, the 10-year yield dropped to 1.627%.

The Fed's cautious approach has kept yields hovering near historical lows this year as weary investors clamor to safe-haven government bonds to ensure investment safety. However, on Wednesday, Fed Chair Janet Yellen was optimistic about the state of the economy.

"Our decision does not reflect a lack of confidence in the economy," said Yellen. "It's better to err on the side of caution."

On Friday, weak manufacturing data caused yields to remain flat. Data released Friday morning revealed that activity in the manufacturing sector in September grew at its slowest pace in three months.

The 10-year Treasury note yield finished the week of 9/19 at 1.61%, while the 30-year Treasury note yield was 2.34%.

Mortgage Rates Edge Lower

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, September 22. The report revealed that rates have fallen slightly from last week's post-Brexit high.

The 30-year fixed rate mortgage averaged 3.48% this week. This represents a decrease from last week when it averaged 3.50%. Last year at this time, the 30-year fixed rate mortgage averaged 3.86%.

This week, the 15-year fixed rate mortgage averaged 2.76%. This was lower than last week's average of 2.77%. The 15-year fixed rate mortgage averaged 3.08% one year ago.

"The 10-year Treasury yield declined after last week's post-Brexit high in anticipation of the Fed's September policy meeting," said Sean Becketti, Chief Economist at Freddie Mac. "The 30-year fixed-rate mortgage followed Treasury yields, falling 2 basis points and settling at 3.48%. Despite the decrease in rates, the Refinance Index plunged 8% to its lowest level since June."

Based on published national averages, the money market account finished the week of 9/19 at 0.45%. The 1-year CD finished at 1.16%.

Published September 23, 2016
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