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Monday September 24, 2018



Bed Bath & Beyond Shares Disappoint

Bed Bath & Beyond Inc. (BBBY) released its latest quarterly earnings report on Tuesday, September 19. The home goods retail chain's profits fell short of its projected numbers in comparable sales and overall growth.

The company reported revenue of $2.94 billion for the quarter, down from $2.99 million during the same quarter last year. Bed Bath & Beyond also adjusted its forecast for the second half of the fiscal year due to the latest consumer data.

"We have adopted a new model that allows us to better identify, prioritize, resource, collaborate and deliver against our ever-increasing technology roadmap," stated Bed Bath & Beyond CEO Steven Temares during the company's earnings conference call. He went on to state, "In the short-term, we are assessing our e-commerce fulfillment warehouses to identify opportunities for operational efficiencies and improved speed to the customer and enhancing our supply chain network to support the growth of our furniture and décor initiatives."

Net income for the quarter was $94.2 million, or $0.67 per share. This is down from $167.3 million or $1.21 per share at this time last year.

Bed Bath & Beyond reported a decrease of 2.6% in comparable store sales from the prior year. The company's online sales generated 15% of its overall revenue for the quarter and comparable online sales grew by more than 20%. Although comparable online sales were strong, Bed Bath & Beyond shares experienced a sharp drop following its earnings report release. The company is looking to implement new strategies, such as expanding its same-day delivery service, to meet evolving consumer demands.

Bed Bath & Beyond Inc. (BBBY) stock ended the week at $2.51, down 28.1% for the week.

Adobe Outperforms in Its Industry

Adobe Systems Inc. (ADBE) posted quarterly earnings on Tuesday, September 19. The technology company reported record growth in revenue attributed to increasing demand for its cloud software.

Revenue for the quarter was $1.84 billion, which represents a 26% increase in year-over-year growth. Adobe is expecting continued growth for the fourth quarter as more businesses switch to cloud based systems.

"Adobe delivered another record quarter with stellar year-over-year revenue growth of 26%," said Shantanu Narayen, President and CEO of Adobe. "The imperative to deliver intelligent, intuitive and effective customer experiences is key to the C-suite agenda of digital transformation, and Adobe's cloud offerings are critical to that business mandate."

Adobe's net income was $419.6 million for the quarter, or $0.85 per share. This is up from the same quarter last year, when the company reported net income of $270.8 million, or $0.54 per share.

The company's Digital Media Annualized Recurring Revenue grew by $308 million during the quarter, reflecting a strong subscription base as well as a record number of new subscriptions. Adobe announced its fourth quarter forecast was in line with analysts' projections. The company has experienced above average growth within its industry.

Adobe Systems Inc. (ADBE) shares ended the week at $148.50, down 4.4% for the week.

General Mills Falls Short of Expectations

General Mills, Inc. (GIS) released its quarterly earnings on Wednesday, September 20. The food giant reported a decline in year-over-year sales and profits due to a continued decline in product demand.

The company posted quarterly net sales of $3.77 billion. This was down from $3.91 billion during the same quarter last year.

"Our number one priority in fiscal 2018 is strengthening our topline performance," said Jeff Harmening, General Mills CEO. "Our first-quarter net sales finished in line with our expectations, and our focus on our global growth priorities drove important improvement in our retail sales trends. Looking ahead, we're taking deliberate steps through innovation, brand building, and increased organizational agility to position the company for long-term top- and bottom-line growth."

The company posted net income of $404.7 million for the quarter. This fell short of the prior year's quarterly net income of $409.0 million.

General Mills' guidance for the upcoming year indicates its earnings could continue to be impacted by decreased demand for yogurt and cereal. General Mills has been moving in the direction of consumer trends, moving away from the use of artificial ingredients and focusing more on building its natural-food brands, such as Nature Valley. This week, however, the company announced that it is reintroducing the original Trix cereal recipe, following customer dissatisfaction with its decision to replace artificial colors with plant-based coloring.

General Mills, Inc. (GIS) shares ended the week at $51.23, down 9.0% for the week.

The Dow started the week of 9/18 at 22,252 and closed at 22,350 on 9/22. The S&P started the week at 2,503 and closed at 2502. The NASDAQ started the week at 6,460 and closed at 6,427.

Treasury Yields Rise

U.S. Treasury bond yields rose early this week after the Federal Open Market Committee (FOMC) announced updated economic guidance. Despite the Fed's decision not to implement an interest rate hike this month, investors remain optimistic that they will see a rate hike before the year's end.

The Federal Reserve met on September 19 and 20 and signaled that it will start to move toward quantitative tightening policies. In October, the Fed will begin to allow $10 billion to run off its balance sheet each month, instead of reinvesting the funds when they mature. This is an expected policy shift which was used as a temporary measure to stabilize the economy during the Great Recession of 2007-2009.

While the Fed punted on raising interest rates this month, it is speculated that the likelihood of a rate increase in December is a near certainty. After the Fed's statement on Wednesday, the benchmark 10-year Treasury note yield rose to a six week high of 2.28%.

"Household spending has been supported by ongoing strength in the job market," said Federal Reserve Chairwoman Janet Yellen at a press conference after the FOMC meeting. "Business investment has picked up, and exports have shown greater strength this year, in part reflecting improved economic conditions abroad. Overall, we expect that the economy will continue to expand at a moderate pace over the next few years."

The Fed's quantitative tightening policies have much broader implications and some analysts are concerned about the broader affect this could have on mortgage rates. The Fed's balance sheet holds an estimated 40% of mortgage-backed securities. Quantitative tightening may cause mortgage interest rates to climb, which may affect the ability of first time homebuyers to qualify for a mortgage. The housing market is tied closely with economic health. Many economists are concerned the Fed's policy shift could trigger a new recession. If interest rates start to climb, the Treasury yields may respond dramatically, as they did back in March when the Fed raised interest rates.

"The Fed's decision today to begin scaling back purchases of mortgage backed securities in October is likely to lead to an uptick in mortgage rates and may mean more volatility in rates," said Danielle Hale, Chief Economist at

After rising Wednesday, yields took a tumble in early trading on Friday due to disappointing home data. The National Association of Realtors August report shows that sales of existing homes fell to a one-year low.

The 10-year Treasury note yield finished the week of 9/18 at 2.26%. The 30-year Treasury note yield was 2.80%.

Mortgage Rates Rise After Seven Week Decline

Freddie Mac released its latest Primary Mortgage Market Survey on Thursday, September 21. For the first time in seven weeks the report showed an uptick for the 15 and 30-year mortgage rates.

The 30-year fixed rate mortgage averaged 3.83% this week, up from last week's average of 3.78%. Last year at this time, the 30-year fixed rate mortgage averaged 3.48%.

The average on the 15-year fixed rate mortgage for this week was 3.13%, up from 3.08% last week. During this time last year, the 15-year fixed rate mortgage averaged 2.76%.

"The 10-year Treasury yield continued its upward trend, rising 7 basis points this week," said Freddie Mac chief economist Sean Becketti. "As we expected, the 30-year mortgage rate followed suit, increasing 5 basis points to 3.83%. This week's uptick in the 30-year mortgage rate ends a nearly two-month streak of declines."

Based on published national averages, the money market account finished the week of 9/18 at 0.70%. The 1-year CD finished at 1.44%.

Published September 22, 2017
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