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Tuesday October 15, 2019



PepsiCo's Earnings Exceed Estimates

PepsiCo, Inc. (PEP) released its quarterly earnings report on Tuesday, October 2. The beverage and snack giant reported better-than-expected revenue and earnings for the quarter.

PepsiCo reported quarterly revenue of $16.49 billion. This is up from last year's third quarter revenue of $16.24 billion and is above the $16.36 billion that Wall Street predicted.

"We continued to see very strong operating performance from our international divisions, propelled by developing and emerging markets; Frito-Lay North America generated solid net revenue and operating profit growth; and North America Beverages delivered another quarter of sequential improvement in top-line performance," said PepsiCo Chairman and CEO Indra Nooyi. "On the strength of our year-to-date results, we have revised upward our full-year organic revenue growth target. Additionally, given the recent strengthening in the U.S. dollar we have revised our full-year core earnings per share target to reflect our updated expectation of an approximate 1 percentage point headwind from foreign exchange translation."

The company announced earnings of $2.50 billion for the quarter, which is up from earnings of $2.14 billion one year ago. On an adjusted earnings per share basis, the company reported earnings of $1.59 per share, which was more than the $1.57 per share that analysts predicted.

Tuesday marked Nooyi's last day as CEO. After occupying the position of CEO for 12 years, Nooyi announced in August that she would be stepping down as CEO but will continue to act as Chairman until early 2019. On Wednesday, PepsiCo President Ramon Laguarta officially became PepsiCo's new CEO.

PepsiCo, Inc. (PEP) shares ended the week at $106.49, down 5% for the week.

Pier 1 Posts Earnings Loss

Pier 1 Imports, Inc. (PIR) reported quarterly earnings on Wednesday, October 3. The home furnishings retailer posted an earnings loss and revenue that fell short of expectations.

Pier 1 announced revenue of $355.34 million for the second quarter. This is down from revenue of $407.61 million reported in the same quarter last year and below the $360.29 million in revenue that Wall Street expected.

"As previously communicated, our second quarter financial results reflect execution challenges around our August brand re-launch and our 'New Day' strategic plan initiatives taking longer than expected to gain traction," said Pier 1 Imports President and CEO Alasdair James. "However, we have already taken steps to refine our marketing program and product allocation and are encouraged by early signs of improvement in some of our key customer metrics in recent weeks, including conversion and customer growth."

The company reported an earnings loss of $51.08 million for the quarter, compared to an earnings loss of $7.83 million one year ago. On an adjusted earnings per share basis, the company posted a loss of $0.63 per share, which was in line with analysts' estimates.

Earlier this year, Pier 1 revealed its "Pier 1 2021: A New Day" transition plan to increase sales and boost profits over a three-year period. As part of this effort, the company has tightened its inventory, reducing it by 15.4% in the second quarter. The Texas-based company's shares fell 6% following the earnings release and were down 60% year-to-date when markets closed on Wednesday.

Pier 1 Imports, Inc. (PIR) shares ended the week at $1.52, relatively unchanged for the week.

Stitch Fix's Shares Tumble Following Earnings Release

Stitch Fix, Inc. (SFIX) announced full-year and quarterly earnings on Monday, October 1. The online personal styling service reported fewer-than-expected active clients and revenue that fell short of expectations, causing shares to plummet more than 35% following the report's release.

Revenue for the fourth quarter reached $318.30 million. This was up 23% from revenue of $258.29 million reported during the same quarter last year but was short of the $318.90 million in revenue that analysts expected. For the full year, Stitch Fix reported revenue of $1.23 billion.

"Q4 was another strong quarter for us," said Stitch Fix Founder and CEO Katrina Lake. "We grew our active client count 25% year over year and delivered $318.3 million in net revenue and $11.1 million in adjusted EBITDA. In our first year as a public company, we have demonstrated our ability to transform the shopping experience while consistently delighting our clients across Women's, Men's and Kids."

Stitch Fix reported quarterly net earnings of $18.3 million, which is more than last year's fourth quarter earnings loss of $4.51 million. On an adjusted earnings per share basis, the company posted earnings of $0.18 per share, which exceeded the $0.04 per share that analysts predicted.

The company, which went public in November 2017, provides personalized shipments of boxes containing apparel, shoes and accessories to its clients. In the fourth quarter, Stitch Fix reported 2.70 million active clients, falling short of the 2.81 million clients that analysts expected. The shortfall caused investors to question the company's ability to hold its ground against competitors, like Amazon, who are now offering similar clothing box services. The earnings released sparked a sell-off, causing shares to drop more than 35% following the report's release.

Stitch Fix, Inc. (SFIX) shares ended the week at $26.30, down 41.6% for the week.

The Dow started the week of 10/1 at 26,598 and closed at 26,447 on 10/5. The S&P 500 started the week at 2,926 and closed at 2,886. The NASDAQ started the week at 8,092 and closed at 8,020.

Treasury Yields Hit Multiyear Highs

Yields on U.S. Treasury bonds rose to multiyear highs midweek following the release of upbeat economic data. On Friday, unemployment fell to its lowest rate in nearly 50 years, causing U.S. Treasury yields to continue their climb.

On Wednesday, a report revealed that private companies added 230,000 jobs in September, which was far more than expected and marked this as the best gain since February. In addition, the ISM non-manufacturing index hit 61.6 in September, well above the projected target of 58.

As a result of the positive economic reports, Treasury yields rose as investors shifted away from safe haven bonds and toward riskier investments. Treasury yields move inversely to prices. The yield on the 10-year U.S. Treasury note rose from 3.056% on Tuesday to 3.159% on Wednesday, marking its highest level since July 1, 2011 and its largest one-day jump in more than a year.

"The U.S. economy is strong; there's just no other way to frame it," said Nathan Sheets, chief economist at PGIM Fixed Income. "The economy is strong, growth is strong, inflation is gradually moving up as the Fed projects. And the reality is the U.S. Treasury will be doing a lot of issuing over the next few years, which all put upward pressure on rates in the near term."

On Friday, the Labor Department released its monthly employment report. The U.S. added 134,000 jobs in September, reaching a record of eight consecutive years of monthly job growth, but missing economists' expectations of adding 180,000 jobs. Unemployment dropped to 3.7%, its lowest rate since 1969. Following the report's release, the 10-year Treasury yield rose to 3.23%, a high last reached in May 2011.

"The September data have shown a tendency in recent years to be underreported initially, and revised up later," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics. "Storm Florence likely caused some temporary weakness as well."

The 10-year Treasury note yield closed at 3.22% on 10/5, while the 30-year Treasury bond yield was 3.40%.

Mortgage Rates Dip

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, October 4. The report revealed that mortgage rates edged lower for the first time in five weeks.

The 30-year fixed rate mortgage averaged 4.71% this week, down from 4.72% last week. During this time last year, the 30-year fixed rate mortgage averaged 3.85%.

This week, the 15-year fixed rate mortgage averaged 4.15%, down from last week when it averaged 4.16%. Last year at this time, the 15-year fixed rate mortgage averaged 3.15%.

"Mortgage rates inched back a little in this week's survey, easing 1 basis point to 4.71% after hitting a seven year high last week," said Sam Khater, Chief Economist at Freddie Mac. "There is upside risk to mortgage rates as the economy remains very robust and this is reflected in the very recent strength in the fixed income and equities markets. However, the strength in the economy has failed to translate to gains in the housing market as higher mortgage rates have contributed to the decrease in home purchase applications, which are down from a year ago."

Based on published national averages, the money market account closed at 1.23% on 10/5. The 1-year CD finished at 2.57%.

Published October 5, 2018

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