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Saturday October 3, 2015



Nike's Earnings Easily Top Estimates

Nike, Inc. (NKE) announced its first quarter results on Thursday, September 24. The company's results easily surpassed Wall Street estimates, which helped the company's share price reach new highs.

The company reported that revenue increased 5% to $8.4 billion. This surpassed the lower analyst estimate for revenue of $8.22 billion.

"Fiscal 2016 is off to a great start," said Nike President and CEO Mark Parker. "Our relentless pace of growth is driven by our proven strategy of putting the consumer first, obsessing over innovation in everything we do and leveraging our powerful portfolio. We're well-positioned to continue to deliver long-term growth that is both sustainable and profitable."

Nike's net income increased 23% during the quarter to $1.2 billion or $1.34 per share. Earnings per share was significantly higher than estimates of $1.19.

While most stocks over the past few months have suffered, Nike seems to only be getting stronger. The company's last earnings report beat expectations and propelled the share price to new highs. Amazingly, the company was able to repeat the same feat again. Following the earnings release, Nike's share price rose 8% to an all-time high of $124.07.

Nike, Inc. (NKE) shares ended the week at $125.00, up 8% for the week.

General Mills Sees Earnings Improve

General Mills (GIS) announced its first quarter results on Tuesday, September 24. The company reported better-than-expected earnings, an encouraging sign for a company that is looking to regain its footing in a changing market.

The company reported that net sales fell 1% to $4.21 billion, below expectations for revenue of $4.23 billion. General Mills attributed the fall in sales to a stronger U.S. dollar.

"Net sales for the Convenience Stores and Foodservice segment increased 1%," said General Mills Chairman and CEO Ken Powell. "And our International segment achieved 5% net sales growth in constant currency, led by excellent results in Europe and Canada. This strong net sales performance, combined with significant margin expansion efforts, drove double-digit growth in total segment operating profit and adjusted diluted EPS. These results represent a positive first step in delivering our full-year fiscal 2016 growth objectives."

Adjusted earnings per share increased 30% to $0.79 per share during the quarter. This was significantly higher than analyst expectations for earnings per share of $0.69.

Over the past few years General Mills has seen its financial results wain as consumers' preferences have drifted away from packaged foods like cereal to healthier options. In order to combat declining cereal sales, the company recently introduced gluten-free Cheerios, and that was after the end of this most recent quarter that saw cereal sales rising 6%. General Mills is hoping that other product innovations, such as cutting the amount of sugar in its Yoplait yogurt, can further boost sales.

General Mills (GIS) shares ended the week at $57.43, up 1% for the week.

Darden Restaurants Reports Earnings

Darden Restaurants, Inc. (DRI), the parent company of brands such as Olive Garden and Yard House, announced its first quarter results on Tuesday, September 22. The company reported earnings that beat expectations.

The company reported that sales for the quarter grew 5.7% to $1.69 billion. This beat analyst estimates for sales of $1.68 billion.

"Our brands performed well in the first quarter, building on the momentum from last year," said Darden Restaurants CEO Gene Lee. "We continue to make progress on our operating fundamentals of culinary innovation, attentive service and engaging atmospheres while continuing to focus on disciplined cost management. This progress is a direct result of our hard work and commitment to creating memorable guest experiences in our restaurants."

Darden Restaurants reported earnings per share during the quarter of $0.68. This was higher than estimates for earnings per share of $0.58.

After encountering some difficulties the past couple years, Darden Restaurants has been undergoing a resurgence over the past year. This most recent quarter was the fourth consecutive quarter of same-store sales growth. Olive Garden, the company's biggest brand, reported same-store sales growth of 2.7% and operating profit of 29.4%. Investors have reacted strongly to Darden Restaurant's resurgence as shares are up 21% since the start of the year.

Darden Restaurants, Inc. (DRI) shares ended the week at $70.76, up 1% for the week.

The Dow started the week of 9/21 at 16,406 and closed at 16,315 on 9/25. The S&P 500 started the week at 1,961 and closed at 1,931. The NASDAQ started the week at 4,851 and closed at 4,686.

Yellen's Comments Push Treasuries Down

Treasury prices fell on Friday, September 25 after comments from Federal Reserve Chief Janet Yellen indicated the Fed's commitment to raising interest rates by year's end. Further driving prices down was an upward revision in the growth of the U.S. economy in the second quarter.

Just last week the Federal Reserve decided to keep interest rates near zero instead of raising them. The Fed's reasons for doing so included weakening economic growth in China, which has had a dampening effect on global markets.

It therefore came as a surprise on Thursday when Janet Yellen stated the Fed will stick to a plan to raise interest rates before the end of the year. Considering the Fed's decision to forego raising rates just last week, some investors were understandably skeptical of Ms. Yellen's comments. For example, the odds of a rate increase by the end of the year remained 35% before and after the Fed Chief's comments.

Though some investors and analysts were skeptical of Ms. Yellen's comments, others welcomed them. "Yellen's assurance on her rate outlook reduced an important source of uncertainty,'' said Jim Vogel, Interest-Rate Strategist at FTN Financial Capital Markets.

Ms. Yellen's comments weren't the only factors driving investors away from Treasuries on Friday. Data showed that the U.S. economy grew at a 3.9% rate during the second quarter instead of the previously reported 3.7%. This upbeat data further drew investors away from Treasuries and into stocks and other riskier investments. As of early Friday, the 10-year Treasury bond had dropped five basis points to 2.13%.

The 10-year Treasury note yield finished the week of 9/21 at 2.17% while the 30-year Treasury note yield finished the week at 2.96%.

Interest Rates Edge Lower

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, September 24. The report showed interest rates moving lower a week after the Federal Reserve decided not to raise benchmark short-term interest rates.

The 30-year fixed rate mortgage averaged 3.86% this week. This represents a decrease from last week when it averaged 3.91%. Last year at this time, the fixed rate mortgage averaged 4.20%.

This week, the 15-year fixed rate mortgage averaged 3.08%. This is down from last week when it averaged 3.11%. The 15-year fixed rate mortgage averaged 3.36% one year ago.

"Global growth concerns and lackluster inflation convinced the Fed to defer a hike in the Federal funds rate," said Sean Becketti, Chief Economist at Freddie Mac. "In response, Treasury yields fell about 9 basis points over the week, with some larger day-to-day swings along the way. In response, the interest rate on 30-year fixed rate mortgages dropped by 5 basis points to 3.86%. Mortgage rates have remained below 4% for 9 consecutive weeks and have remained range-bound between 3.8 and 4.1% since May. These low mortgage rates have supported strong home sales, and 2015 is on pace to have the highest home sales total since 2007."

The money market fund finished the week of 9/21 at 0.3%. The 1-year CD finished at 0.6%.

Published September 25, 2015
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