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Sunday April 26, 2015



GM's Earnings Disappoint

General Motors Co. (GM) announced its quarterly results on Thursday, April 23. Investor's high hopes for the quarter were dashed as GM's top and bottom line numbers were below expectations.

GM reported that revenue during the quarter decreased 4.5% to $35.7 billion. Analysts expected quarterly revenue to be higher at $36.46 billion.

"Our results in the first quarter provide a solid foundation to achieve our financial commitments for the year," said GM CEO Mary Barra. "Continued execution of our plan, including our capital allocation framework, will drive profitable growth, return on invested capital and shareholder value."

The company reported earnings per share of $0.56 after taking into account a net loss from special items of $0.30 per share. Analysts had expected earnings per share of $0.95.

GM has been on the comeback trail over the past few years. Unfortunately, GM's latest quarter indicates the company does not have an easy road ahead. While the company is having success in North America and China, it is struggling to gain traction in the rest of the world. GM is experiencing significant trouble in Russia where it recorded a one-time loss this quarter of $400 million as it downsizes its business in the country. The company also saw its market share decrease from 11.1% to 11%. Following the earnings release, GM's share price fell 3%.

General Motors Co. (GM) shares ended the week at $35.59, down 3.7% for the week.

Amazon Feels Confident in Web Business, Inc. (AMZN) announced its quarterly results on Thursday, April 23. The company's results were in-line with expectations and showed its web-services business continues to grow.

The company reported that net sales during the quarter increased 15% to $22.72 billion. During the same quarter last year net sales were $19.74 billion.

"Amazon Web Services is a $5 billion business and still growing fast — in fact it's accelerating," said Amazon founder and CEO Jeff Bezos. "Born a decade ago, AWS is a good example of how we approach ideas and risk-taking at Amazon. We strive to focus relentlessly on the customer, innovate rapidly, and drive operational excellence. We manage by two seemingly contradictory traits: impatience to deliver faster and a willingness to think long term. We are so grateful to our AWS customers and remain dedicated to inventing on their behalf."

Amazon recorded a net loss during the quarter of $57 million. This was a slight change from net income of $108 million during the comparable period last year.

Despite a small loss during the quarter, investors found much to like in Amazon's latest quarter. Both revenue and net earnings were in line with expectations. Investors were also pleased to see that Amazon Web Services (AWS) generated revenue of $1.57 billion during the quarter. AWS is Amazon's cloud-computing business and produces its largest profit margin. Though CEO Jeff Bezos said AWS is a $5 billion-a-year business, analysts believe that number could grow to $6 billion by the end of 2015. After the earnings release Amazon's share price increased 7.2%., Inc. (AMZN) shares ended the week at $445.10, up 17.6% for the week.

Hershey's Quarter Not So Sweet

The Hershey Company (HSY) announced its first quarter results on Thursday, April 23. The company reported sales and earnings that fell below pre-release estimates.

Hershey reported that net sales during the quarter increased 3.5% to $1.94 billion. Analysts had expected the company to report net sales of $1.96 billion.

"In the first quarter we made progress against the initiatives we outlined in January, particularly in our U.S. business where net sales and operating income were slightly ahead of expectations and market share increased 0.2 points," said Hershey Chairman, President and CEO John P. Bilbrey. "Additionally, we believe that select input cost strategies initiated in April will result in greater gross margin expansion than initially anticipated, putting us on track to deliver our earnings per share-diluted goals."

The company reported that net income during the quarter was $244.7 million or $1.10 per share. This was less than the comparable period last year and below expectations that earnings per share would be $1.15.

Hershey announced that quarterly results were impacted by a slowdown in the Chinese economy. Sales in China fell 47% during the quarter. The company also reduced its guidance for the rest of the year. The company now expects revenue to rise between 4.5% and 5.5%, down from 5.5% to 7.5%. Following the earnings release, Hershey's share price decreased 3.7%.

The Hershey Company (HSY) shares ended the week at $94.63, down 5.4% for the week.

The Dow started the week of 4/20 at 17,841 and closed at 18,080 on 4/24. The S&P 500 started the week at 2,084 and closed at 2,118. The NASDAQ started the week at 4,958 and closed at 5,092.

Treasury Prices End Week on Upswing

Treasury prices rose to end the week of April 20. The rise in prices was due in part to a report released on Friday, April 24 that showed purchases of long-lasting nondefense goods fell for the seventh consecutive month in March.

This week Treasury yields had been trending higher, which caused prices to fall. The closing yield for the 10-year Treasury note was 1.97% on Wednesday. By Thursday, the yield had fallen to 1.95%. During early Friday trading, the 10-year yield had fallen further to 1.93%.

A number of factors continue to keep U.S. Treasury prices high and yields low. The U.S. economy continues to search for sustained momentum. A report on orders for equipment and software showed purchases fell 0.5% in March. This was the seventh consecutive reported decrease.

The weak foreign bond market also continues to play a significant role in driving Treasury prices. Last week, the German 10-year bond produced a record-low yield of 0.047%, though it last reached 0.16%. Other European and Asian bonds continue to struggle as well, making Treasury bonds more attractive to foreign investors.

Still, weak economic activity at home and abroad is not the only factor driving Treasury yields. Investors continue to wait for concrete signs that the Federal Reserve plans to raise interest rates. The Federal Reserve's next policy-making committee is set for April 28-29.

Until investors get a better idea of what the Federal Reserve's plans are, the 10-year Treasury yield will probably continue to hover within a range of 1.8% to 2%. "The market remains unwilling to make bold bets on the direction of yields," said Gennadiy Goldberg, a U.S. strategist at TD Securities.

The 10-year Treasury note yield finished the week of 4/20 at 1.91% while the 30-year Treasury note yield finished the week at 2.61%.

Interest Rates Trend Lower

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, April 23. The results show mortgage rates trending lower this week as the spring homebuying season is in full swing.

The 30-year fixed rate mortgage averaged 3.65% this week. This was down from last week when it averaged 3.67%.

This week, the 15-year fixed rate mortgage averaged 2.92%. This number was down from last week when it averaged 2.94%.

"Mortgage rates fell slightly to 3.65% this week, positive news for potential homebuyers in the market this spring," said Len Kiefer, Deputy Chief Economist at Freddie Mac. "Purchase applications in 60 of the 100 markets that MiMi tracks are up from the same time last year, including 20 markets that are showing double-digit increases. Reinforcing this positive momentum, existing home sales surged 6.1% to a seasonally adjusted annual rate of 5.19 million units in March, the highest annual rate since September 2013. Housing inventory rose 5.3% to 2 million homes for sale, but unsold inventory was little changed at a 4.6 month supply."

The money market fund finished the week of 4/20 at 0.4%. The 1-year CD finished at 0.7%.

Published April 24, 2015
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