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Sunday September 15, 2019



General Mills Revenue Falls Short

General Mills (GIS) announced quarterly earnings on Tuesday, September 18. The company reported decreased profits, causing shares to experience their sharpest decline since March.

Revenue for the first quarter reached $4.09 billion, up 8.6% from the $3.77 billion reported during the same quarter last year. The reported revenue missed analysts' predicted revenue of $4.12 billion.

"Fiscal 2019 is off to a good start," said General Mills Chairman and CEO Jeff Harmening. "We drove organic net sales growth for the fourth consecutive quarter. The Blue Buffalo transition is progressing well, and we continue to expect double-digit top and bottom-line growth for that business this year, excluding acquisition related charges."

General Mills reported net earnings of $392.3 million, down 3.1% from last year's first quarter earnings of $404.7 million. On an adjusted earnings per share basis, the company posted profit of $0.65 per share, down from $0.69 per share in last year's first quarter.

The maker of Lucky Charms, Haagen-Dazs and Progresso soup generated a modest increase in organic net sales in the quarter. General Mills experienced a 14% increase in pro forma net sales in its pet division, due in part to its acquisition of the Blue Buffalo brand at the end of fiscal 2018. Digital sales in the company's pet segment increased significantly, offsetting a decline in pet specialty items. Shares fell almost 9% following the report's release.

General Mills (GIS) shares ended the week at $44.47, down 6.3% for the week.

Cracker Barrel Serves Fewer Patrons

Cracker Barrel Old Country Store, Inc. (CBRL) released its quarterly and full-year earnings report on Tuesday, September 18. The company announced a quarterly dividend of $1.25 per share.

Cracker Barrel reported revenue of $810.9 million for the fourth quarter. This is up 9.1% from $743.2 million during the same quarter last year. For the full year, the company posted revenue of $3.0 billion, up from $2.9 billion the previous year.

"Our traffic was challenged, particularly with lighter users and during the dinner daypart, some of which was attributable to our menu and marketing promotion not delivering the anticipated topline traffic and sales," said Cracker Barrel President and CEO Sandra B. Cochran. "While our results did not meet our expectations, I am confident that our initiatives and plans for fiscal 2019 will drive improved performance."

Net income for the quarter was $61.35 million, or $2.56 per share. This is in comparison to $53.89 million, or $2.24 per share, reported at this time last year. For the full year, the company reported net income of $247.62 million.

Cracker Barrel operates over 650 restaurant and retail locations under its two brands, Cracker Barrel Old Country Store and Holler & Dash Biscuit House. During the fourth quarter, Cracker Barrel experienced a decrease of 0.4% in comparable restaurant sales. The company's comparable restaurant traffic decreased by 3.5%, while menu prices increased by 2.7% in the quarter. Cracker Barrel expects to open eight new locations during fiscal 2019 and expects total revenues to be $3.04 billion for the year.

Cracker Barrel Old Country Store, Inc. (CBRL) stock ended the week at $146.45, down 2.4% for the week.

FedEx's Profits Fail to Deliver

FedEx Corp. (FDX) released its first quarter earnings report on Monday, September 17. The company reported increased revenue, beating Wall Street's estimates, but fell short of profit expectations.

The company reported revenue of $17.1 billion for the quarter, up 11% from $15.3 billion in the same quarter last year. This exceeded analysts' predicted revenue of $16.9 billion.

"FedEx delivered higher first-quarter earnings driven by solid execution of our business plan and a strong U.S. economy," said FedEx Chairman and CEO Frederick W. Smith. "We are very optimistic about our prospects for profitable growth and remain confident we will reach our goal to improve FedEx Express operating income by $1.2 billion to $1.5 billion in fiscal 2020 versus fiscal 2017."

Net income for the quarter was $835 million, or $3.10 per share. This is up from $596 million, or $2.19 per share during the same time last year. Analysts expected earnings per share of $3.80.

Despite double-digit growth in the quarter, FedEx experienced lagging profits due to wage increases. In the quarter, FedEx Express revenues grew 10% due to increased volumes, higher freight pounds and improvements in its domestic package business. FedEx Ground and Freight revenues grew 13% and 18%, respectively. Profits were affected by increasing employee wages in the first quarter. The company increased total compensation by 11% to $6.3 billion. FedEx cited the Tax Cuts and Jobs Act (TCJA) as the reason for its accelerated wage increase for certain employees.

FedEx Corp. (FDX) shares ended the week at $247.21, down 3.9% for the week.

The Dow started the week of 9/17 at 26,152 and closed at 26,744 on 9/21. The S&P 500 started the week at 2,904 and closed at 2,930. The NASDAQ started the week at 7,992 and closed at 7,987.

Treasury Yields Rise on Increased Tariffs

The U.S. 10-year Treasury yield increased mid-week to its highest level since May due to continuing trade concerns. Treasury yields went even higher on Thursday in response to the latest U.S. jobless report.

On Monday, the U.S. announced an additional 10% tariff on approximately $200 billion of Chinese goods, effective September 24. On Tuesday, China issued its own statement issuing tariffs on $60 billion of U.S. goods also effective September 24. The 10-year Treasury yield jumped to 3.06% in response to the continued trade tensions.

"We still believe that there is scope for a [trade] settlement sometime in the first half of 2019, risks that the trade war goes beyond our current assumptions have increased," wrote analysts at Deutsche Bank. "Should this happen, the impact on the U.S. economy would likely be more meaningful."

On Thursday, the U.S. Labor Department released its initial jobless claims report, a measure of layoffs in the U.S. Jobless claims reached its lowest level since 1969, reported for the week at 201,000. This is a decline from 204,000 reported last week and well below the expected 210,000 by economists.

The benchmark 10-year Treasury note hit a seven-year high of 3.096% during trading on Thursday. The 30-year Treasury note peaked at 3.242%.

"The good economic news has put us into a bit of a momentum streak," said Larry Peruzzi managing director of international equity trading at Mischler. "And with bond yields going higher, people are willing to take more risk and put more money into the equity side."

The 10-year Treasury note yield closed at 3.07% on 9/21 while the 30-year Treasury bond yield was 3.20%.

Mortgage Rates Increase

Freddie Mac released the results of its latest Primary Mortgage Market Survey on Thursday, September 20. The 15-year and 30-year mortgage rates rose for the fourth consecutive week.

The 30-year fixed rate mortgage averaged 4.65% this week, up from 4.60% at this time last week. Last year at this time, the 30-year fixed rate mortgage averaged 3.83%.

This week, the 15-year fixed rate mortgage averaged 4.11%, up from last week's average of 4.06%. The 15-year fixed rate mortgage averaged 3.13% at this time last year.

"Mortgage rates are drifting upward again and represent continued affordability challenges for prospective buyers — especially first-time buyers," said Sam Khater, Chief Economist at Freddie Mac. "Borrowing costs are moving right now for three main reasons: the very strong economy, higher U.S. government debt issuances and global trade tensions."

Based on published national averages, the money market account closed at 1.24% on 9/21. The 1-year CD finished at 2.55%.

Published September 21, 2018
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