Saturday December 14, 2019



Hewlett Packard Enterprise Reports Earnings

Hewlett Packard Enterprise Co. (HPE) released its quarterly earnings report on Tuesday, December 4. The information technology products and services provider reported better-than-expected revenue for the quarter.

Hewlett Packard Enterprise reported quarterly revenue of $7.95 billion. This is up from last year's fourth quarter revenue of $7.66 billion and above the $7.84 billion that Wall Street predicted.

"Hewlett Packard Enterprise delivered another impressive quarter in Q4, concluding a very successful fiscal year 2018 marked by significant transformation and achievement," said Hewlett Packard Enterprise President and CEO Antonio Neri. "We excelled in delivering differentiated new capabilities for our customers that drove meaningful top line growth while expanding margins that fueled strong cash flow and shareholder returns."

The company announced an earnings loss of $757 million for the quarter, which was down from earnings of $524 million one year ago. On an adjusted earnings per share basis, the company reported earnings of $0.45 per share, which was more than the $0.43 per share that analysts predicted.

In November 2015, Hewlett-Packard split into two separate companies. While HP Inc.'s business focuses on computers and printing, Hewlett Packard Enterprise provides software and analytics. After the split, Hewlett Packard Enterprise's sales struggled but have since rebounded from its post-split lows. On Tuesday, the company announced that its fiscal 2018 revenue rose to $30.9 billion, up 7% from fiscal 2017.

Hewlett Packard Enterprise Co. (HPE) shares closed at $14.71, down 3.6% for the week.

Kroger's Profits Dip

The Kroger Co. (KR) reported quarterly earnings on Thursday, December 6. The grocer reported that revenue and earnings for the third quarter were down year-over-year.

Kroger announced revenue of $27.67 billion for the quarter. This is down from revenue of $27.75 billion reported in the same quarter last year and above the $27.56 billion in revenue that Wall Street expected.

"Kroger is transforming our business model. We're moving from a traditional grocer to a growth company with both a strong customer ecosystem that offers anything, anytime, anywhere, and asset-light, high-margin alternative partnerships and services," said Kroger CEO Rodney McMullen. "We are strengthening the Kroger ecosystem by reducing costs and investing the savings in our associates, technology and price to grow units, traffic and share."

The company reported earnings of $317 million for the quarter, down from earnings of $397 million one year ago. On an adjusted earnings per share basis, the company posted earnings of $0.48 per share, which was above analysts' estimates of $0.43 per share.

Kroger's digital sales spiked 60% in the third quarter due to the company's expansion of its online delivery service and deliveries from its newly acquired meal-kit service, Home Chef. The company hopes to boost sales even further through its newest partnership with Walgreens. On Wednesday, Kroger announced that it will add "Kroger Express" locations at 13 Walgreens pharmacies in Kentucky. The locations will be stocked with produce, frozen foods, meat, dairy and other food items and shoppers will have the ability to pick up online orders in-store.

The Kroger Co. (KR) shares closed at $29.18, down 1.0% for the week.

Lululemon Surpasses Earnings Estimates

Lululemon Athletica Inc. (LULU) announced quarterly earnings on Thursday, December 6. The athleisure wear company reported earnings and revenue that surpassed analysts' predictions.

Revenue for the third quarter reached $747.66 million. This was up 21% from revenue of $619.02 million reported during the same quarter last year and above the $737.50 billion in revenue that analysts expected.

"Lululemon has achieved a high level of success over the past year and has established a solid foundation to continue to build our future," said Lululemon CEO Calvin McDonald. "It's been exciting to see guests around the world respond so strongly to our product offerings and improved digital experience. I look forward to what's ahead for our brand as we strive to exceed the expectations of our guests."

Lululemon reported quarterly net earnings of $94.41 million, which exceeded last year's third quarter earnings of $58.94 million. On an adjusted earnings per share basis, the company posted earnings of $0.75 per share, surpassing the $0.70 per share that analysts predicted.

On Thursday, the company announced that it expects up to $1.13 billion in revenue and earnings of $1.64 per share during the holiday quarter, which was mostly in-line with analysts' estimates. For the full-year, Lululemon anticipates that revenue will be in the range of $3.24 billion to $3.25 billion, up from prior guidance of $3.19 billion to $3.24 billion. For full-year earnings, the company expects earnings of $3.65 per share to $3.68 per share.

Lululemon Athletica Inc. (LULU) shares closed at $113.87, down 16.8% for the week.

The Dow started the week at 24,819 and closed at 25,271 on 12/7. The S&P 500 started the week at 2,683 and closed at 2,723. The NASDAQ started the week at 7,272 and closed at 7,357.

Yields Fall on Weak Economic Data and Global Uncertainty

After peaking Monday, the yields on the 10-year U.S. Treasury note fell to 2.83% on Thursday amid trade uncertainty. Earlier in the week, Treasury yields were buoyed by news of a 90-day trade truce between the U.S. and China.

On Friday morning, the Labor Department released the latest nonfarm payroll data, which showed that nonfarm jobs increased by 155,000 in November, missing analysts' expectations of 198,000 jobs added. Unemployment held steady at 3.7%.

"Basically we got a ho-hum labor market report, lukewarm. It doesn't bolster the argument that the economy is strong; it's just right down the middle," said Nathan Sheets, chief economist at PGIM Fixed Income. "It gives those that are hoping the Fed is shifting to a more dovish stance a little bit more evidence to point to in that discussion."

The bond market was closed on Wednesday in observance of a National Day of Mourning for President George H.W. Bush. The markets resumed trading on Thursday with the yield on the 10-year Treasury note opening at 2.96%.

Earlier in the week, yields on U.S. Treasuries were lifted to a high of 3.05% following the announcement that the U.S. and China would delay increasing tariffs for 90 days. Following the news, the yield curve between the 2-year and 10-year Treasuries flattened to 11 basis points, the lowest it has been in over a decade.

"We've seen a repricing in the Treasury market as a result of some of the optimism that came out of the G20," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York. "Clearly it is progress to delay the implementation of some of Trump's looming tariffs, however I don't think that the market is interpreting this as clear resolution to a problem."

The 10-year Treasury note yield closed at 2.85% on 12/7, while the 30-year Treasury bond yield was 3.14%.

Mortgage Rates Drop

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, December 6. The report revealed that mortgage rates fell after holding steady last week.

The 30-year fixed rate mortgage averaged 4.75% this week, down from 4.81% last week. During this time last year, the 30-year fixed rate mortgage averaged 3.94%.

This week, the 15-year fixed rate mortgage averaged 4.21%, down from last week when it averaged 4.25%. Last year at this time, the 15-year fixed rate mortgage averaged 3.36%.

"Mortgage rates declined this week amid a steep sell-off in U.S. stocks," said Sam Khater, Chief Economist at Freddie Mac. "This week's rate reaction to the volatile stock market is a welcome relief to prospective homebuyers who have recently experienced rising rates and rising home prices."

Based on published national averages, the money market account closed at 1.22% on 12/7. The one-year CD finished at 2.57%.

Published December 7, 2018

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