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Monday June 17, 2019



Adobe's Earnings Beat Wall Street's Estimates

Adobe Systems Incorporated (ADBE) announced quarterly earnings on Thursday, June 14. The software company's revenue and profit surpassed Wall Street's expectations for the eighth consecutive quarter.

Revenue for the second quarter reached $2.20 billion. This is up 24% from the $1.77 billion reported during the same quarter last year and is above the $2.16 billion that analysts predicted.

"Adobe delivers all the capabilities to enable transformative digital experiences, including content creation and management, predictive analytics and commerce," said Adobe CEO Shantanu Narayen. "Our record results in Q2 reflect continued execution against this significant opportunity where Adobe is the clear market leader."

Adobe reported net earnings of $663.17 million, up from last year's second quarter earnings of $374.39 million. On an adjusted earnings per share basis, the company posted profit of $1.66 per share, surpassing the $1.54 per share Wall Street expected.

The company's biggest platform is its Digital Media segment, which includes Adobe's Photoshop and Illustrator software. In the second quarter, this segment brought in $1.55 billion in revenue, up from $1.21 billion one year ago. Adobe's Experience Cloud segment, which provides analytics, advertising and marketing services, delivered $586 million in revenue, an 18% increase from the year-ago quarter.

Adobe Systems Incorporated (ADBE) shares ended the week at $ 251.82, relatively unchanged for the week.

Michaels Stock Falls on Disappointing Outlook

The Michaels Companies, Inc. (MIK) released its latest quarterly earnings report on Thursday, June 14. While revenue and earnings came in above analysts' expectations, the arts and crafts retailer's second quarter earnings outlook missed the mark, causing shares to fall more than 17%.

Michaels reported quarterly revenue of $1.16 billion. This is relatively unchanged from last year's first quarter revenue and is above the $1.15 billion Wall Street expected.

"Our first quarter results were in-line with our expectations, and our team is executing well against our plans to make it easier for customers to bring their creativity to life," said Michaels CEO Chuck Rubin. "We continue to operate from a position of financial strength, as the industry leader with healthy operating margins, strong cash flows and high returns on invested capital, and we remain committed to leveraging these strengths to accelerate key initiatives in fiscal 2018 to drive future sales and earnings growth."

The company announced quarterly profits of $26.89 million, down from earnings of $72.21 million one year ago. Michaels reported adjusted earnings of $0.39 per share, topping the $0.38 per share that analysts predicted.

Michaels' shares fell more than 17% Thursday, following the report's release, as investors reacted to lower-than-expected second quarter earnings guidance. The craft retailer announced that it expects earnings to be between $0.12 and $0.14 per share in the second quarter, which was less than the $0.19 per share that Wall Street estimated. The company's same-store sales numbers also contributed to the earnings tumble. Michaels reported same-store sales growth of 0.4% in the first quarter, falling short of the 0.7% growth predicted by analysts.

The Michaels Companies, Inc. (MIK) shares ended the week at $ 18.00, down 13.3% for the week.

H&R Block's Shares Tumble

H&R Block, Inc. (HRB) reported full-year and quarterly earnings on Tuesday, June 12. Despite beating earnings and revenue estimates, the tax preparation service provider's shares fell more than 19% following the earnings' release, marking the company's largest single-day drop in more than three decades, due to lower-than-expected 2019 revenue projections.

H&R Block announced revenue of $2.39 billion for the fourth quarter. This is up 2.6% from revenue of $2.33 billion reported in the same quarter last year and above the $2.34 billion in revenue that Wall Street expected.

"We achieved our goal of improving the client trajectory and delivered positive financial results for the fiscal year," said H&R Block President and CEO Jeff Jones. "We're also making progress on our multi-year strategic framework. As we look ahead to fiscal 2019, we will make strategic investments to enhance the relevance of our brand, strengthen technology platforms and improve the fundamental value clients receive from H&R Block."

H&R Block reported net earnings of $1.14 billion, up from $783 million reported one year ago. On an adjusted earnings per share basis, the company reported profit of $5.43 per share, surpassing the $5.27 per share that analysts predicted.

On Tuesday, the tax-preparation service company announced that it expects revenue in 2019 to be between $3.05 billion and $3.10 billion. This disappointed investors, who were expecting revenue projections around $3.15 billion, and caused shares to tumble 19.2% to $23.33. This marked the largest single-day drop for H&R Block since October 19, 1987 when shares fell 20%. The company's lower-than-expected revenue projections stem from its plan to adjust prices for the 2018 tax season in response to the Tax Cuts and Jobs Act, which is expected to simplify tax return preparation and filing processes.

H&R Block, Inc. (HRB) shares ended the week at $ 23.66, down 19.2% for the week.

The Dow started the week of 6/11 at 25,337 and closed at 25,090 on 6/15. The S&P 500 started the week at 2,780 and closed at 2,779. The NASDAQ started the week at 7,647 and closed at 7,746.

Tariff-Tensions Push Treasury Yields Lower

After rising mid-week, following the Federal Reserve's interest rate hike, yields on U.S. Treasury bonds slipped as the week came to an end. The fall came after the Trump administration announced new tariffs on imports from China, reigniting concern about the possibility of a trade war between the world's two largest economies.

On Friday, president Trump announced that the U.S. will impose a 25% tariff on $50 billion of Chinese imports. China's Ministry of Commerce responded by saying the U.S. has "now launched a trade war" and that China will "immediately launch tariff measures that will match the scale and intensity of those launched by the United States."

The announcement quashed investors' risk appetite and sent them flocking to safe-haven assets, like government bonds, causing yields to fall in response. Bond yields move inversely to prices.

By mid-morning on Friday, following the tariffs announcement, the yield on the 10-year Treasury note had fallen more than two basis points to 2.89%. The yield on the 30-year Treasury bond fell to 3.02%.

"It doesn't look like investors really believe we're going into a full-blown trade war, but we're going into a full-blown trade skirmish," said Kim Forrest, senior portfolio manager at Fort Pitt Capital Group LLC in Pittsburgh. "Because we're going to put some tariffs on China, China's putting tariffs on us, and this is the market saying we're not super happy about this turn of events."

Earlier in the week, Treasury yields were higher following the Federal Open Market Committee's (FOMC) announcement that it would be raising its benchmark federal funds rate by 0.25% to a range of 1.75% to 2%. The move was expected by investors and marked the second rate hike this year with two more anticipated before 2018 comes to a close.

"Today's announcement, including updates to the post-meeting statement and to policymakers' forecasts for growth, labor markets, inflation and interest rates, reinforce our expectation that the FOMC will raise the funds rate a total of four times in 2018, and additional times in subsequent years," wrote Ken Matheny, executive director US Economics at IHS Markit. "The most likely date for the next Fed rate increase is at the September 25-26 FOMC meeting."

The 10-year Treasury note yield closed at 2.93% on 6/15 while the 30-year Treasury bond yield was 3.05%.

Mortgage Rates Rise Again

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, June 14. The report revealed that, after their two-week decline, mortgage rates reversed course and have risen to their highest levels this year.

The 30-year fixed rate mortgage averaged 4.62% this week, up from 4.54% last week. During this time last year, the 30-year fixed rate mortgage averaged 3.91%.

The 15-year fixed rate mortgage averaged 4.07% this week, up from 4.01% last week. Last year at this time, the 15-year fixed rate mortgage averaged 3.18%.

"The 30-year fixed-rate mortgage climbed eight basis points to 4.62%, and the Federal Reserve Board on Wednesday raised the federal funds rate by 25 basis points," said Sam Khater, Chief Economist at Freddie Mac. "The good news is that the impact on consumer budgets will be smaller than past rate hike cycles. That is because a much smaller segment of mortgage loans in today's market are pegged to short-term rate movements. The adjustable rate mortgage (ARM) share of outstanding loans is a lot smaller now — 8% versus 31% — than during the Fed's last round of tightening between 2004 and 2006."

Based on published national averages, the money market account closed at 1.28% on 6/15. The 1-year CD finished at 2.30%.

Published June 15, 2018
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