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Thursday December 18, 2014



Adobe’s Earnings Beat Estimates

Adobe Systems, Inc. (ADBE) announced its fourth quarter results on Thursday, December 11. The company’s results beat Wall Street expectations.

Revenue during the quarter was $1.07 billion as compared to $1.04 billion during the same period last year. Expectations were for Adobe to report quarterly revenue of $1.06 billion.

“Adobe had an outstanding 2014. Creative Cloud adoption outpaced expectations and the acquisition of Fotolia will add a vibrant marketplace for our customers,” said Shantanu Narayen, Adobe President and CEO. “Adobe Marketing Cloud, the leader in the explosive digital marketing category, continued to drive strong bookings at the world’s biggest brands, agencies and media companies.”

The company reported that net income during the quarter was $73 million or $0.14 per share. That was an increase over the $65 million reported during the fourth quarter last year.

Adobe’s fourth quarter was another confirmation that their strategy to focus on cloud-based software is succeeding. The company said it added 644,000 Creative Cloud subscribers during the quarter to bring its total to 3.5 million. Adobe also announced that it agreed to acquire stock image and video company Fotolia for $800 million. The plan is to integrate Fotolia with Adobe’s Creative Cloud software. Following the earnings announcement, the company’s stock price rose 6.5% in after-hours trading.

Adobe Systems, Inc. (ADBE) shares ended the week at $76.02.

Krispy Kreme Lacking the Glaze

Krispy Kreme Doughnuts, Inc. (KKD) announced its third quarter results on Tuesday, December 9. The company reported results that came in below expectations.

Krispy Kreme reported that revenue during the quarter increased 7.6% to $122.9 million. This was driven by a 3.7% increase in same-store sales.

“We successfully engaged with Krispy Kreme fans and grew traffic during the third quarter through effective limited-time offers and other promotional and marketing incentives,” said Krispy Kreme President and CEO Tony Thompson. “Given the enormous growth opportunity ahead of us, we are pleased with our progress in providing more consumers with the joy of experiencing our delicious, one-of-a-kind doughnuts and coffee and complementary products throughout the world.”

The company reported that net income during the quarter was $8.1 million or $0.12 per share. This was an increase compared to the net income of $6.8 million during the third quarter last year.

Krispy Kreme’s stock price has made a remarkable comeback over the past few years, but that momentum came to a halt late last year when results began to lag behind expectations. The company’s third quarter was the second consecutive earnings disappointment this year. As Krispy Kreme has once again caught Wall Street’s eye, expectations for the company have changed. The company realizes that it must do more than just get back in shape, but that it must produce significant growth beyond where it is currently. To compete, the company is attempting to expand the appeal of its beverage offerings, which if successful, would allow it to go head-to-head with the likes of Dunkin Donuts and Starbucks. Following the earnings announcement, Krispy Kreme’s share price fell 8%.

Krispy Kreme Doughnuts, Inc. (KKD) shares ended the week at $19.05.

Men’s Wearhouse’s Results Underwhelm

The Men’s Wearhouse, Inc. (MW) announced its third quarter results on Wednesday, December 10. The company posted results below expectations as it faced higher operating expenses resulting from its Jos. A. Bank acquisition.

The company reported that sales increased 37.3% to $890.6 million. Though the increase was significant, it was below estimates calling for sales of $909 million.

“We continue to be pleased with the progress we are making on the Jos. A. Bank integration,” said Men’s Wearhouse CEO Doug Ewert. “In addition, we are pleased with the overwhelmingly positive reaction of the Jos. A. Bank employees to our culture and are very optimistic about our opportunities to expand consolidated sales and margins as we complete the integration.”

Men’s Wearhouse reported that during the third quarter it earned $0.83 per share, a 7.8% decrease from the same period last year. Expectations were for earnings per share of $0.87.

Men’s Wearhouse is in a period of transition following its June 18 acquisition of competitor Jos. A. Bank. While the company continues to make progress on integrating Jos. A. Bank, it has come with increased operating expenses. The increased operating expenses were cited as a significant factor in the company’s disappointing quarterly profit. The full impact of the Jos. A. Bank acquisition won’t be seen until it is completely integrated into Men’s Wearhouse’s operations.

The Men’s Wearhouse, Inc. (MW) shares ended the week at $41.23.

The Dow started the week of 12/8 at 17,955 and closed at 17,281 on 12/12. The S&P 500 started the week at 2,075 and closed at 2,002. The NASDAQ started the week at 4,770 and closed at 4,654.

Treasuries Rise as Oil Prices Drop

Treasury prices rose during the week of December 12 as oil prices continued to drop. In addition, a global slowdown in economic activity has resulted in a flight to the security of Treasury bonds.

The yield on the 10-year Treasury note fell for the fifth consecutive day on Friday, December 12, causing a corresponding rise in prices. The falling yields were driven by a continued drop in oil prices with crude oil futures dropping below $59 a barrel. Falling oil prices together with the upbeat U.S. jobs report last week has ramped up speculation that the Federal Reserve may increase interest rates sooner than planned.

If the Federal Reserve sees falling oil prices as a reflection of the health of the U.S. economy, then it may reconsider its previously stated policy of holding interest rates at zero for a “considerable time.” “Why would they start to eliminate language that talks about an extensive period of time when the U.S. itself is not deflating, but dis-inflating?” said Bill Gross, a bond fund manager at Janus Capital Group.

Fortunately for investors, the weak global economy is tempering their fears of a quicker interest rate hike. Along with the continuing economic malaise in Europe, Greek bonds fell this week in the face of elections next year that appear to be tilting toward an anti-austerity party. In addition, GDP has not grown as rapidly in China as analysts expected, with GDP growth below 7%.

Also affecting Treasury yields this week were a pair of U.S. economic reports. The producer price index in November fell 0.2%, below the predicted 0.1% drop. In addition, the December preliminary consumer sentiment index increased to 93.8 from 88.8 last month. This was well ahead of the estimated increase to 89.5.

The 10-year Treasury note yield finished the week of 12/8 at 2.10% while the 30-year Treasury note yield finished the week at 2.76%.

Interest Rates Rise on Jobs Report

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, December 11. The results show mortgage rates rising this week on the upbeat U.S. jobs report from the week before.

The 30-year fixed rate mortgage averaged 3.93% this week. This was up from from last week when it averaged 3.89%.

This week, the 15-year fixed rate mortgage averaged 3.20%. This number was an increase from last week when it averaged 3.10%.

“Fixed mortgage rates rebounded this week with the 30-year fixed mortgage rate increasing to 3.93% after declining for four weeks in a row,” said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. “The rate rise comes on the heels of an uplifting jobs report showing nonfarm payrolls adding 321,000 new jobs in November—91,000 more jobs than expected. The unemployment rate remained unchanged at 5.8%.”

The money market fund finished the week of 12/8 at 0.4%. The 1-year CD finished at 0.7%.

Published December 12, 2014
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