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Wednesday February 21, 2018



Pepsi Reports Increased Revenue

PepsiCo, Inc. (PEP) announced its quarterly earnings on Wednesday, February 15. The food and beverage company reported an increase in revenue and a decrease in profits in the fourth quarter.

PepsiCo reported record quarterly revenue of $19.5 billion in the fourth quarter. Last year, the company reported fourth quarter revenue of $18.6 billion.

"We concluded 2016 with another strong quarter of operating performance, capping off a successful year," said PepsiCo CEO Indra Nooyi. "Looking ahead to 2017, we expect solid financial performance despite anticipated continued macroeconomic challenges."

PepsiCo reported $1.4 billion in net income for the fourth quarter. On an earnings per share basis, profit fell to $0.97 per share compared to $1.17 per share in the same quarter last year.

The company, which boasts a large product line including Pepsi, Gatorade, Lay's and Quaker Oats, has been focusing its investment efforts on the development of products that will satisfy the increasing consumer demand for healthier products. According to Beverage Digest, per capita soda consumption has fallen to a three-decade low, and soda companies, like PepsiCo, are having to work hard in order to adapt to the new beverage landscape. Specifically, the company's "everyday nutrition" segment, which includes unsweetened tea, water and healthier snacks with less fat, salt and sugar, now makes up 25% of the company's sales.

PepsiCo, Inc. (PEP) shares ended the week at $108.11, up 1% for the week.

T-Mobile Adds Customers and Beats Expectations

T-Mobile US, Inc. (TMUS) announced its fourth quarter earnings on Tuesday, February 14. The third-largest wireless carrier in the U.S. beat Wall Street's expectations in both revenue and profits for the quarter.

T-Mobile announced quarterly revenue of $10.18 billion, up 23% from last year's fourth quarter revenue of $8.25 billion. This was above the $9.86 billion in revenue expected by analysts.

"Not only are customers flocking to T-Mobile, but we're also producing rock-solid financial results including 11% growth in service revenues, 23% in total revenues, 31% in net income and 12% in Adjusted EBITDA year-over-year in Q4," said T-Mobile President and CEO John Legere. "That's three years in a row that we've added more than 8 million customers and taken all of the postpaid phone growth in the industry."

T-Mobile announced net earnings of $390 million, or $0.45 per share. Last year at this time, T-Mobile reported net earnings of $297 million, or $0.34 per share.

The company has stepped up to its competition by offering several promotions to lure customers away from its primary rivals, Verizon, Sprint and AT&T. T-Mobile's fourth quarter promotions included free video streaming and unlimited data plans for families. In the fourth quarter, the company added 2.1 million customers, bringing T-Mobile's total customer count to 71.5 million.

T-Mobile US, Inc. (TMUS) shares ended the week at $63.92, up 5% for the week.

Kraft Heinz Reports Drop in Sales

The Kraft Heinz Company (KHC) reported quarterly earnings on Wednesday, February 15. While revenue and profit in the fourth quarter surpassed analysts' expectations, the food giant saw a decrease in sales, which caused its shares to fall 4% following the report's release.

Kraft Heinz announced revenue for the fourth quarter was $6.9 billion, down 3.7% from last year's fourth quarter revenue of $7.1 billion. This was above the $6.8 billion in revenue predicted by analysts.

"We finished 2016 consistent with our expectations and with good momentum heading into 2017," said Kraft Heinz CEO Bernardo Hees. "Looking forward, our objectives and opportunities are clear. But we need to sharpen our focus on profitable sales, and further improve our capabilities and execution to deliver another year of strong, sustainable growth in 2017."

The company reported net income of $944 million, up from last year's fourth quarter earnings of $645 million. Adjusted earnings per share for the fourth quarter were $0.91, up from $0.62 per share a year ago and above analysts' estimates of $0.87 per share.

Kraft Heinz, maker of Heinz ketchup, Oscar Mayer meats and Velveeta cheese, saw increased profit in the fourth quarter, despite a decrease in sales, thanks to lowering costs. Moving forward, the company plans to emphasize five main categories, including condiments and sauces, cheese, meals, nuts and baby foods. Additionally, the company will move forward in its joint venture with Oprah Winfrey to produce and market nutritious ready-to-eat products.

The Kraft Heinz Company (KHC) shares ended the week at $96.65, up 7% for the week.

The Dow started the week of 02/13 at 20,339 and closed at 20,624 on 02/17. The S&P 500 started the week at 2,322 and closed at 2,351. The NASDAQ started the week at 5,753 and closed at 5,839.

Yields Retreat from Five-Day Climb

After a five-day climbing streak, U.S. benchmark Treasury yields fell on Thursday and Friday. The fall comes after a surge in investment activity that set recent records for U.S. equity benchmarks.

On Thursday, the S&P 500 index fell from its seven-day winning streak, which marks its longest upward run in over three years. As investors backed away from riskier equity investments on Thursday and Friday, they turned to U.S. bonds, which had fallen in price as yields crept upward earlier in the week.

"The market has reacted quite strongly to the Trump reflation trade, deregulation and lower-tax comments over the last couple weeks," said Nate Thooft, senior portfolio manager at Manulife Asset Management. "And, on top of that, we've had a pretty darn good earnings season. It just needs a little bit of a breather today."

During trading on Friday, the yield on the 10-year Treasury note fell 4.4 basis points to 2.40%, while the yield on the 30-year Treasury note dipped 4 basis points to 3.01%. With the holiday weekend approaching, analysts expect trading action to slow and Treasury yields to remain relatively flat.

"It's a low-event day in the market, and bonds are in a reactionary mode ahead of the holiday and what will likely be a lightly attended market next week in terms of trading," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets. "However, there is still uncertainty over government tax policy, the Trump administration's remaining political capital and the opposition that any of his policy proposals will face. That has layered in a meaningful bid of uncertainty in the market."

Earlier in the week, yields rose in response to upbeat U.S. inflation data and Federal Reserve Chairman Janet Yellen's statements. During Yellen's testimony before the Senate Banking Committee on Wednesday, she stated that waiting too long to raise interest rates again would be "unwise." Her statements raised expectations that a rate hike be in store in the coming months.

The 10-year Treasury note yield finished the week of 02/13 at 2.42%, while the 30-year Treasury note yield was 3.03%.

Mortgage Rates Stay Steady

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, February 16. The report indicated that rates have fallen slightly for the second consecutive week.

The 30-year fixed rate mortgage averaged 4.15% this week. This represents a decrease from last week when it averaged 4.17%. Last year at this time, the 30-year fixed rate mortgage averaged 3.65%.

This week, the 15-year fixed rate mortgage averaged 3.35%. This was lower than last week's average of 3.39%. The 15-year fixed rate mortgage averaged 2.95% one year ago.

"For the last 46 years, the 30-year mortgage rate has been almost perfectly correlated with the yield on the 10-year Treasury, but not this year," said Sean Becketti, Chief Economist at Freddie Mac. "From Dec. 29, 2016, through today, the 30-year mortgage rate fell 17 basis points to this week's reading of 4.15%. In contrast, the 10-year Treasury yield began and ended the same period at 2.49%. While we expect mortgage rates to fall into line with Treasury yields shortly, this just may be a year full of surprises."

Based on published national averages, the money market account finished the week of 02/13 at 0.57%. The 1-year CD finished at 1.22%.

Published February 17, 2017
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