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Wednesday October 17, 2018



PepsiCo Inc. Reports Increased Earnings

PepsiCo, Inc. (PEP) released its latest quarterly earnings report on Wednesday, October 4. The beverage and snack producer's profits exceeded the prior year's third quarter numbers.

The company reported revenue of $16.24 billion for the quarter. This was an increase of 1% from $16.03 billion reported during the same quarter last year, but was below the $16.31 billion Wall Street expected.

"Overall, our businesses performed well in the third quarter in what continues to be a challenging environment," said PepsiCo Chairman and CEO Indra Nooyi. "Each of our operating sectors delivered results in line with or ahead of our expectations, with the exception of North America Beverages (NAB) where revenues declined following two consecutive years of very strong third-quarter growth. Despite the challenges in our NAB business, the PepsiCo portfolio overall generated revenue, operating profit and earnings per share growth."

Net income for the third quarter was $2.14 billion, up from $1.99 billion at this time last year. This is an 8% increase in year-over-year net income. PepsiCo reported earnings per share of $1.49, which beat Wall Street's expectations of $1.43 per share.

PepsiCo experienced a decline in beverage sales during the third quarter in North America. PepsiCo attributes the quarterly decline to a heightened focus on low-calorie and healthy beverages and weak Gatorade sales performance. The company adjusted its full-year outlook to reflect the decline in beverage sales. PepsiCo subsidiary Frito-Lay North America saw a 3% increase in sales for the quarter.

PepsiCo, Inc. (PEP) stock ended the week at $110.40, virtually unchanged this week.

Rocky Mountain Chocolate Factory Releases Earnings

Rocky Mountain Chocolate Factory (RMCF) posted quarterly earnings on Thursday, October 5. The confectionery producer reported lagging retail and factory sales.

Revenue for the second quarter was $8.27 million. This is a decrease of 3.9% from $8.60 million during the same quarter last year. The company's six month sales figures indicated that revenue decreased 2.0% year-over-year.

"We saw some margin improvements," said Rocky Mountain Chocolate Factory CFO and COO Bryan Merryman. "I think we saw some efficiency improvements. We've built some inventory more so in the past for the back half of the year and really expect to see some margin expansion in the next six months."

The company reported net income of $2.21 billion for the quarter. This is a 21% increase year-over-year from $1.83 billion.

Rocky Mountain Chocolate Factory has opened one domestic and one international franchise location, as well as three Cold Stone Creamery co-branded locations in the first half of its fiscal year. The company experienced a 15.9% decrease in its domestic franchise locations in the second quarter, which had a major impact on sales. The company plans to pay all of its long-term debt within the next two years to free up cash flow and make increased dividend payments.

Rocky Mountain Chocolate Factory (RMCF) shares ended the week at $11.36, down 3.7% for the week.

Costco Wholesale Corp. Posts Profit

Costco Wholesale Corp. (COST) released its quarterly and full-year earnings on Thursday, October 5. The big box retailer reported higher year-over-year sales and profits.

The company posted quarterly net sales of $41.36 billion, up 15.8% from $35.73 billion during the same quarter last year. Full year net sales were $126.17 billion, up 8.7% from the 2016 fiscal year.

"In terms of membership, our renewal rates are fine," said Costco CFO Richard Galanti. "There's still some slight negative renewal rate impact from the US credit card conversion last year and we expect that to continue for at least a quarter or two and we continue to see increased penetration of our executive membership."

The company's net income of $919 million, or $2.08 per share, surpassed the prior year's fourth quarter net income of $779 million, or $1.77 per share. For the full year, the company posted net income of $2.68 billion.

Costco has rolled out lower prices on certain non-perishable food items as well as two-day delivery. The company started offering same-day delivery options for most perishable fresh and frozen foods at 376 of its locations this week. Delivery times can be as short as one hour and delivery fees may be waived if orders meet a threshold amount. Costco memberships grew by 13% in the fourth quarter and comparable sales increased by about 6%. The company has also added 12 new locations during the quarter and 26 new locations for the full year.

Costco Wholesale Corp. (COST) shares ended the week at $157.09, down 4.7% for the week.

The Dow started the week of 10/2 at 22,423 and closed at 22,774 on 10/6. The S&P started the week at 2,521 and closed at 2,549. The NASDAQ started the week at 6,506 and closed at 6,590.

Treasury Yields Rise

U.S. Treasury bond yields remained largely unchanged early this week after the Institute for Supply Management (ISM) released its latest index for manufacturing and non-manufacturing activity. The index showed a 13-year high in factory and manufacturing activity and a 12-year high for non-manufacturing activity.

Treasury yields held steady on Wednesday as the manufacturing and non-manufacturing activity data was released from ISM. Payroll data provided by Automatic Data Processing (ADP) was also released on Wednesday showing private sector job growth of 135,000 in September, which is significantly smaller than in recent months. Analysts attribute this slower than usual growth to the business disruptions caused by recent storms.

"Hurricanes Harvey and Irma hurt the job market in September," said Mark Zandi, Moody's Analytics Chief Economist. "Looking through the storms the job market remains sturdy and strong."

On Friday, yields for the 10-year Treasury bond jumped to 2.40% after the U.S. Bureau of Labor released its latest jobs report. The yield fell back to 2.35% by mid-day.

Average hourly wages grew by 2.9% year-over-year. Investors believe this wage growth will keep the Fed on track for a rate hike in December.

"For the first time in potentially a decade we're actually looking at real wage pressure. The slack in the labor force is finally dissipating," said Larry McDonald, Managing Director of U.S. Macro Strategies at ACG Analytics. "Young people were just not working, but now they're finally coming back. That's what going to shock the Fed."

The 10-year Treasury note yield finished the week of 10/2 at 2.37%. The 30-year Treasury note yield was 2.91%.

Mortgage Rates See Uptick

Freddie Mac released its latest Primary Mortgage Market Survey on Thursday, October 5. The report showed an increase for both the 15 and 30-year mortgage rate averages.

The 30-year fixed rate mortgage averaged 3.85% this week, up from last week's average of 3.83%. During the same time last year, the 30-year fixed rate mortgage averaged 3.42%.

This week, the 15-year fixed rate mortgage averaged 3.15%, which is an increase from 3.13% last week. Last year at this time, the 15-year fixed rate mortgage averaged 2.72%.

"After holding steady last week, rates ticked up this week." said Freddie Mac Chief Economist Sean Becketti. "The 10-year Treasury yield rose 8 basis points, while the 30-year mortgage rate increased 2 basis points to 3.85%."

Based on published national averages, the money market account finished the week of 10/2 at 0.72%. The 1-year CD finished at 1.47%.

Published October 6, 2017
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