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Wednesday October 1, 2014



Nike Just Does It

Nike, Inc. (NKE) announced its first quarter results on Thursday, September 25. The company’s results got a huge boost thanks to the FIFA World Cup.

Nike reported that revenues for the quarter increased 15% to $7.98 billion. This surpassed pre-release estimates calling for revenues of $7.78 billion.

Nike President and CEO Mark Parker had this to say about the quarter: “Fiscal year 2015 is off to a strong start. Our connection to consumers and ability to innovate, combined with our powerful global portfolio, is a complete offense. Nike has never been better positioned to realize our tremendous growth potential.”

Net income during the quarter increased 23% to $962 million or $1.09 per share. Analyst estimates were for earnings per share of only $0.88.

Investors were incredibly pleased with Nike’s first quarter, which according to all measures surpassed expectations. A large part of the company’s quarterly success was attributed to the World Cup soccer tournament in Brazil that took place during the quarter. The World Cup is the world’s most watched sporting event and Nike used it as a platform to market its products. Following the earnings announcement Nike’s stock price rose over 7% in after-hours trading.

Nike, Inc. (NKE) shares ended the week at $89.50.

CarMax Powers to a Disappointing Quarter

CarMax, Inc. (KMX), a leading retailer of used cars, announced its second quarter results on Tuesday, September 23. Investors were disappointed as the company’s results fell below expectations.

CarMax announced that net sales during the quarter increased 10.9% to $3.6 billion, slightly ahead of estimates. However, comparable store sales increased only 0.2% during the quarter, which was less than the 2.7% estimate.

“We are pleased to report record second quarter results, even before considering the benefit of the settlement proceeds,” said CarMax President and CEO Tom Folliard. “The continued growth in our store base and improvements across our used, wholesale and CAF operations, as well as our share repurchase program, all contributed to our record second quarter earnings per share.”

The company reported net earnings during the quarter of $155 million. This was a 4.3% increase over the $140.3 million reported during the same period last year.

CarMax suffered a disappointing second quarter compared to the same period last year. During the second quarter of 2013 the company reported comparable unit sales increased 15.9%. This quarter’s 0.2% comparable unit sales fell far short of such an increase. In addition, CarMax’s net earnings during the quarter got a boost from settlement proceeds related to a class-action lawsuit. Without the settlement, CarMax’s earnings would have been below Wall Street expectations.

CarMax, Inc. (KMX) shares ended the week at $47.50.

AutoZone Misses the Zone

AutoZone, Inc. (AZO), an automotive parts and accessories retailer, announced its fourth quarter results on Monday, September 22. The company reported net sales growth that was much smaller than expected.

AutoZone reported that net sales during the fourth quarter increased 4.5% to $3.05 billion. This was slightly below estimates calling for net sales of $3.07 billion.

“We are pleased to report that the fourth quarter of fiscal 2014, on a 16 week adjusted basis, marked our thirty-second consecutive quarter of double digit earnings per share growth,” said AutoZone Chairman, President and CEO Bill Rhodes. “As we have routinely stated, we will remain committed to our disciplined approach to growing operating earnings and utilizing our capital effectively.”

Net income during the quarter increased 7.4% to $373.7 million. On an earnings per share basis, earnings increased 15.6% to $11.28 per share.

AutoZone has been one of the most reliable investments for investors, but this most recent quarter cast some doubt on that belief. Though the company saw sales and income increase, there were some concerns. Specifically, same-store sales increased 2.1%, which was the smallest increase in three quarters. In addition, the company still has some work to do when it comes to establishing a foothold in the commercial repair business. Currently the company has a 2% market share, something it will need to improve going forward.

AutoZone, Inc. (AZO) shares ended the week at $508.38.

The Dow started the week of 9/22 at 17,272 and closed at 17,114 on 9/26. The S&P 500 started the week at 2,009 and closed at 1,983. The NASDAQ started the week at 4,568 and closed at 4,541.

Treasuries Fall on Exit of PIMCO’s Gross

Treasury prices fell on Friday, September 26 after Bill Gross, co-founder of Pacific Investment Management Co. or PIMCO, announced he would be leaving the firm to join Janus Capital. Gross has been one of the most bullish advocates for Treasuries in recent years.

Bill Gross’ unexpected departure from PIMCO surprised analysts and investors on Friday, especially since Gross co-founded the company. Gross’ departure was due to a claimed difference of opinion regarding the firm’s direction, but other sources claimed “erratic behavior” on the part of Gross was the cause.

The news of Gross’ departure cast doubt on the future stake that PIMCO will take in Treasury bonds. Even though Gross was one of the most bullish proponents of Treasuries, he had reduced the fund’s Treasury holdings from 50% in May to 41% in August. Many analysts have speculated his departure will lead PIMCO to reduce its Treasury holdings even further.

Aaron Kohli, an Interest-Rate Strategist at BNP Paribas, said the fear is that the next PIMCO bond managers won’t be as bullish as Gross. “He’s been the face of the bond market for some time. It’s hard to attribute the move in the market to anything else,” he said.

During early Friday trading the benchmark 10-year note yield rose 1.5 basis points to 2.53%. The 30-year bond yield rose 0.5 basis points to 3.22%.

The news of Gross’ departure overshadowed the finalized GDP report for the second quarter, which showed the U.S. economy growing at a 4.6% annualized rate during the quarter. This positive news seemed to have little impact on Treasury prices.

The 10-year Treasury note yield finished the week of 9/22 at 2.54% while the 30-year Treasury note yield finished the week at 3.22%.

Interest Rates Fall

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, September 25. The results show mortgage rates dropping this week on the release of housing data that reflected a mixed view of the housing recovery.

The 30-year fixed rate mortgage averaged 4.20% this week. This was a decrease from last week when it averaged 4.23%.

This week, the 15-year fixed rate mortgage averaged 3.36%. This was a slight decrease from last week when the 15-year fixed rate mortgage averaged 3.37%.

Frank Nothaft, Vice President and Chief Economist at Freddie Mac, had this to say about this week’s rates: “Mortgage rates were slightly changed with the rate on the 30-year fixed mortgage down three basis points. Meanwhile, existing home sales dropped 1.8% in August to a seasonally-adjusted annual rate of 5.05 million. Sales of new single-family homes surged 18.0% in August to an annual pace of 504,000 units. Also, the Federal Housing Finance Agency reported house prices rose just 0.1% on a seasonally-adjusted basis in July, and were up 4.4% over the past year.”

The money market fund finished the week of 9/22 at 0.4%. The 1-year CD finished at 0.7%.

Published September 26, 2014

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