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Friday July 20, 2018



Delta's Earnings Dive

Delta Air Lines, Inc. (DAL) announced quarterly earnings on Thursday, July 13. The No. 2 U.S. airline by passenger traffic reported a sharp decline in profit despite increased revenue year-over-year.

Delta reported quarterly revenue of $10.79 billion. This was a 3% increase from last year's second quarter revenue of $10.45 billion, but below the $10.82 billion in revenue expected by analysts.

"The June quarter ranks among the best in Delta's history as our people delivered top financial, operational and customer satisfaction results - and it is an honor to recognize that performance with an additional $338 million toward our 2017 profit sharing," said Delta CEO Ed Bastian. "While 2017 is a transition period for Delta, we are encouraged by the improvement in unit revenues, leading to increasing conviction in our ability to expand margins as we move through the back half of the year."

Delta announced net earnings of $1.22 billion, or $1.68 per share. This is down 21% from $1.55 billion, or $2.03 per share that the company reported in the same quarter one year ago.

The airline company reported that passenger revenue per available seat mile increased 2.5% for the quarter. However, higher fuel and labor costs took a bite out of the company's profit with fuel related expenses climbing 18% to $1.45 billion in the second quarter. Salary costs were up 9% to $2.62 billion due to renegotiated contracts with pilots, flight attendants and mechanics' unions.

Delta Air Lines, Inc. (DAL) shares ended the week at $55.13, up 0.2% for the week.

JPMorgan Chase Reports Earnings

JPMorgan Chase & Co. (JPM) released its latest quarterly earnings report on Friday, July 14. The bank's revenue and profit beat Wall Street expectations.

The company's reported net revenue for the quarter reached $25.5 billion. This is up from revenue of $24.4 billion reported during the same quarter last year.

"We continued to post very solid results against a stable-to-improving global economic backdrop," said JPMorgan Chase CEO Jamie Dimon. "The U.S. consumer remains healthy, evidenced in our strong underlying performance in Consumer & Community Banking. Loans and deposits continue to grow strongly, and card sales and merchant processing volumes were up double digits, reflecting our consistent investment in the business."

Net income for the quarter was $7.0 billion, up 13% from $6.2 billion during the prior year's quarter. The company posted earnings per share of $1.82, surpassing analysts' estimated $1.58.

Despite strong quarterly earnings results, shares of JPMorgan Chase & Co. stock fell during early trading on Friday. This is due in part to the company's announcement on Friday that it is lowering its expected net interest income projection for the year. JPMorgan Chase initially expected $4.5 billion in net interest income, but that number is now down to $4.0 billion.

JPMorgan Chase & Co. (JPM) shares ended the week at $92.22, down 1.2% for the week.

Pepsi's Earnings Pop

PepsiCo, Inc. (PEP) reported quarterly earnings on Tuesday, June 16. The company saw revenue and earnings increase in the quarter thanks to increased soda prices and new product offerings.

PepsiCo announced revenue for the second quarter was $15.71 billion—topping the $15.60 billion in revenue that analysts predicted. Last year, revenue in the second quarter was $15.41 billion.

"Our results for the second quarter were very much in line with our expectations and we remain on track to meet our 2017 financial goals," said Pepsi CEO Indra Nooyi. "The power and durability of our brand and product portfolios, strong marketplace execution and the balance of our geographic footprint enabled us to deliver strong operating results in the midst of pockets of macroeconomic challenges and increasingly dynamic retail and consumer landscapes."

PepsiCo reported net income of $2.11 billion, up from last year's second quarter earnings of $2.01 billion. Earnings per share for the third quarter were $1.46, up from $1.38 per share a year ago.

The beverage and snack company's boost in sales was impacted by the company's new product offerings, including Lay's Poppables—a new healthier potato chip that boasts less sugar than other brands. The company is also revitalizing its beverage business to appeal to health conscious consumers by adding unsweetened tea and LIFEWTR to its beverage lineup. Also contributing to PepsiCo's increased second quarter revenue was the company's shift to smaller, higher margin soda packs.

PepsiCo, Inc. (PEP) shares ended the week at $114.93, down 0.9% for the week.

The Dow started the week of 7/10 at 21,381 and closed at 21,638 on 7/14. The S&P 500 started the week at 2,425 and closed at 2,459. The NASDAQ started the week at 6,156 and closed at 6,312.

Yellen Testimony and Weak Economic Data Push Yields Lower

Treasury yields fell this week after congressional testimony from Federal Reserve Chairwoman Janet Yellen casted doubt as to whether or not the Fed will implement an interest rate hike before the year's end. Yields were driven lower on Friday following disappointing retail and inflation data.

In her prepared remarks in front of the House Financial Services Committee, Yellen stated that she expects a "gradual" increase in interest rates over the next few years and that rates "would not have to rise all that much further" to reach a neutral level. Yellen's statements caused the 10-year Treasury yield to fall 3.7 basis points to 2.313%—its lowest point in two weeks.

"This is a game change for market expectations," said BMO head US rate strategist Ian Lyngen. "It just means easier monetary policy and lower rates for longer—that's the narrative that the equity market is following at the moment."

On Friday, Treasury yields fell further following the release of soft Consumer Price Index (CPI) data and a weaker-than-expected retail report for June. Retail sales in the U.S. fell 0.2%, which was worse than the 0.1% that analysts predicted.

"The reaction in the bond market, it's more of a function of retail sales," said investment strategist for Allianz Investment Management John Bredemus. "The consumer is employed, but retail sales aren't going very fast. They don't seem to want to spend money."

The CPI was relatively unchanged in June, the Labor Department said on Friday. This surprised economists who were expecting the CPI to increase and caused Treasury yields to react accordingly. Following the data's release, the 10-year Treasury yield fell 5.1 basis points to 2.296%.

The 10-year Treasury note yield finished the week of 7/10 at 2.32%, while the 30-year Treasury note yield was 2.91%.

Mortgage Rates Continue to Rise

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, July 13. The report revealed that mortgage rates rose for the second consecutive week.

The 30-year fixed rate mortgage averaged 4.03% this week. This represents an increase from last week when it averaged 3.96%. Last year at this time, the 30-year fixed rate mortgage averaged 3.42%.

This week, the 15-year fixed rate mortgage averaged 3.29%. This was higher than last week's average of 3.22%. The 15-year fixed rate mortgage averaged 2.72% one year ago.

"After fully absorbing the sharp increases in Treasury yields over the past couple of weeks, the 30-year mortgage rate has cleared the psychologically important 4% mark for the first time since May," said Sean Becketti, Chief Economist at Freddie Mac. "Today's survey rate stands at 4.03%, up 7 basis points from last week."

Based on published national averages, the money market account finished the week of 7/10 at 0.64%. The 1-year CD finished at 1.42%.

Published July 14, 2017
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