Tuesday May 21, 2019



HP Reports Quarterly Earnings

HP Inc. (HPQ) released its latest quarterly earnings on Tuesday, May 29. Year-over-year increases in both revenue and profits highlighted the report.

The company reported revenue of $14.0 billion for the second quarter. This is a 13% increase from $12.4 billion in revenue from the prior year's quarter.

"We delivered another quarter of double digit year over year revenue and profit growth, strong EPS and impressive free cash flow and performed well across segments and regions," said HP Inc. President and CEO Dion Weisler. "Our sharp focus on innovation, combined with operational excellence and driving profitable growth is paying off."

HP reported $1.1 billion in net earnings for the quarter. This is up from $600 million during the same period last year.

The personal computer manufacturer also announced on Tuesday that its Chief Financial Officer, Cathie Lesjak, will be transitioning to the role of interim Chief Operating Officer on July 1. Lesjak will be a short-term replacement at the COO position, as she plans to retire in 2019. Steve Fielder will take over as the company's newest CFO.

HP Inc. (HPQ) shares ended the week at $22.70, up 4.4% for the week.

Salesforce's Earnings Send Shares to New Highs Inc. (CRM) announced quarterly earnings on Tuesday, May 29. The cloud-based software company posted increased revenue and earnings that exceeded Wall Street's estimates, sending shares to record highs following the report's release.

Revenue for the first quarter reached $3.01 billion. This is up 25% from the $2.40 billion reported during the same quarter last year and is above the $2.95 billion that analysts predicted.

"Salesforce delivered more than $3 billion in revenue in the first quarter, surpassing a $12 billion annual revenue run rate," said Salesforce CEO Marc Benioff. "Our relentless focus on customer success is yielding incredible results, including delivering nearly two billion AI predictions per day with Einstein."

Salesforce reported net earnings of $344 million, up from last year's adjusted first quarter earnings of $1 million. On an adjusted earnings per share basis, the company posted profit of $0.74 per share, surpassing the $0.46 per share Wall Street expected.

Following the earnings release, shares reached an all-time high of $132.55 on Wednesday. The San Francisco-based company's stock prices have risen 27% so far this year, as the company's cloud-based sales and marketing software continues to gain momentum. On Tuesday, Salesforce raised its 2019 fiscal year guidance to a range of $13.08 billion to $13.13 billion, exceeding the $12.76 billion analysts projected. Inc. (CRM) shares ended the week at $130.53, up 3.0% for the week.

Build-A-Bear's Earnings Fall

Build-A-Bear Workshop, Inc. (BBW) reported quarterly earnings on Thursday, May 31. The company cited economic headwinds as its report showed decreased revenues and profits for the quarter.

The toy company reported revenue of $83.2 million for the quarter. This was down from $91.2 million during the same quarter last year.

"In the first quarter, as we previously shared, we expected to see a sales and profit decline versus the prior year due to adoption of the new revenue recognition standard and the recent closure of our largest, most productive store located in Anaheim, California," said Sharon Price John, President and CEO of Build-A-Bear Workshop. "Separately, with a less robust movie lineup for the year, we anticipated softness in licensed product performance."

Net income for the quarter came in at $400,000, or $0.02 per share. Last year at this time, the company reported net income of $2.6 million, or $0.16 per share.

Build-A-Bear Workshop recently made changes to its accounting practices, which the company estimates will negatively impact revenues by $3.9 million. In addition to accounting changes and decreased movie character licensing opportunities, the company attributed its lackluster first quarter performance to the recent liquidation efforts of Toys "R" Us, which may have diverted potential customers to nearby clearance sales. Build-A-Bear Workshop expects total revenue between $345 and $355 million for fiscal year 2018.

Build-A-Bear Workshop, Inc. (BBW) shares ended the week at $7.70, down 15.4% for the week.

The Dow started the week of 5/29 at 24,607 and closed at 24,634 on 6/1. The S&P 500 started the week at 2,705 and closed at 2,734. The NASDAQ started the week at 7,399 and closed at 7,554.

Strong Jobs Report Lifts Treasury Yields

Yields on U.S. Treasuries rose on Friday following the release of the latest jobs report. Friday's rise reversed a downward trend in yields for the week, as investors prepared for the imposition of tariffs on U.S. trade partners.

On Friday, the U.S. Labor Department released the May jobs report. The report showed a 223,000 increase in nonfarm payrolls for the month. This exceeded analysts' expected increase of 190,000.

The unemployment rate dropped to 3.8% for the month. This is the lowest unemployment rate since April of 2000.

"Payrolls came in ahead of expectations, but very much in line with recent averages," said Sameer Samana of Wells Fargo Investment Institute. "Wage growth ticked up and came in a bit ahead of expectations, but nothing that would worry us about runaway wage inflation."

The benchmark 10-year Treasury note yield was at 2.90% during early trading on Friday, while the 30-year Treasury bond was at 3.05%. Treasury yields rise as prices fall.

The jobs report turned yields around following a mid-week dip on concerns over the latest round of tariff announcements. On Thursday, U.S. Commerce Secretary Wilbur Ross announced tariffs on steel and aluminum from Canada, Mexico and the European Union.

The 10-year Treasury note yield closed at 2.90% on 6/1, while the 30-year Treasury bond yield was 3.05%.

Mortgage Rates Decline

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, May 31. Mortgage rates pulled back this week after reaching a seven-year high last week.

The 30-year fixed rate mortgage averaged 4.56% this week, down from last week's average of 4.66%. At this time last year, the 30-year fixed rate mortgage averaged 3.94%.

This week the 15-year fixed rate mortgage averaged 4.06%, which is down from 4.15% last week. During this time last year, the 15-year fixed rate mortgage averaged 3.19%.

"The decline was driven by recent trade and geopolitical issues, which led to a sudden decrease in long-term Treasury yields," said Sam Khater, Chief Economist at Freddie Mac. "Meanwhile, confident American consumers shrugged off the market volatility, as purchase mortgage applications continued to trend higher from a year ago."

Based on published national averages, the money market account closed at 1.02% on 6/1. The 1-year CD finished at 2.25%.

Published June 1, 2018

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