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Monday May 30, 2016



AutoZone's Profit Rises, but Disappoints

AutoZone, Inc. (AZO) announced its third quarter results on Tuesday, May 24. The auto parts retailer reported increased earnings that fell short of analyst expectations.

The company reported revenue of $2.6 billion, a 4% increase compared to the same period last year. Despite the increase, revenue missed analyst estimates of $2.65 billion.

"Regarding the third quarter's results, sales were below our expectations as weather negatively impacted sales primarily in Midwestern, Middle Atlantic, and Northeastern states," said AutoZone Chairman, President and CEO Bill Rhodes. "As we continue to strategically invest in our business in order to support our long term growth, remaining committed to our disciplined approach to growing operating earnings and utilizing our capital effectively, we are excited by our opportunities this summer."

AutoZone's net income increased 6% to $327.5 million. Adjusted earnings per share increased 12.6% to $10.77, $0.15 below estimates.

The company announced that it opened 33 new stores in the U.S. during the quarter. Counting all of its stores globally, AutoZone now has over 5,700 locations. Despite the disappointing quarterly results, the company's stock is up 1.6% so far in 2016 and 9.5% over the past twelve months.

AutoZone, Inc. (AZO) shares ended the week at $765.75, up 1% for the week.

Popeyes Earnings Lack the Spice Investors Seek

Popeyes Louisiana Kitchen, Inc. (PLKI) announced its first quarter results on Wednesday, May 25. The quick-service chicken restaurant chain reported mixed results that failed to match estimates.

The company reported that revenue increased 3.4% during the quarter to $82.2 million. Pre-release estimates predicted slightly higher revenue of $84.4 million.

"We are on track to deliver our 2016 full year guidance and we are confident in our future outlook as we make progress against our new, next generation Strategic Roadmap," said Popeyes CEO Cheryl Bachelder. "We are excited about our future as we begin executing our key strategies, which will help us to achieve our long term growth goals."

Popeyes net income during the quarter was $12.9 million or $0.58 per share. Consensus estimates anticipated earnings per share of $0.63.

Though earnings fell below expectations, there were some silver linings in the release. While revenue increased, the company also experienced domestic same-store sales growth of 1.1%, the 21st consecutive quarter of positive growth. International same-store sales were even better, showing a 6.2% increase for the 27th consecutive quarter of positive growth. Even with growing same-store sales, it is clear that investors are looking for more from Popeyes, as its stock price has fallen 11% in 2016.

Popeyes Louisiana Kitchen, Inc. (PLKI) shares ended the week at $57.29, up 9% for the week.

Best Buy's Earnings Top Estimates

Best Buy Co., Inc. (BBY) announced its first quarter results on Tuesday, May 24. The consumer electronics retailer posted results that surpassed Wall Street estimates.

The company reported that revenue fell 1.4% during the quarter to $8.44 billion. This topped consensus estimates for revenue of $8.29 billion.

"Our teams delivered a strong first quarter, with better-than-expected revenue, improved profitability and progress against our fiscal 2017 initiatives," said Best Buy Chairman and CEO Hubert Joly. "Although we are reporting better-than-expected results today, we are not raising our full year outlook as the first quarter represents less than 15% of full year earnings and at this stage we have no new material information as it relates to product launches throughout the year."

Best Buy reported adjusted earnings per share increased 19% during the quarter to $0.44. This bested estimates for adjusted earnings per share of $0.35.

While investors were pleased with Best Buy's better-than-expected quarter, they were concerned about the company's fiscal guidance for the upcoming quarter. Best Buy expects revenue to be 1 to 2% lower than previously announced. In addition, it projects earnings per share between $0.38 to $0.42 a share. This is a sharp drop from the previously announced target of $0.49 per share and Wall Street estimates of $0.50 a share.

Best Buy Co., Inc. (BBY) shares ended the week at $32.09, down 2% for the week.

The Dow started the week of 5/23 at 17,507 and closed at 17,873 on 5/27. The S&P 500 started the week at 2,052 and closed at 2,099. The NASDAQ started the week at 4,772 and closed at 4,934.

Yields Teeter-Totter With Rate Hike Speculation

Treasury yields fluctuated this week as the government revised its economic outlook while speculation continues regarding the Fed's next rate hike. Early in the week, yields rose and prices fell in anticipation of next month's Federal Open Market Committee (FOMC) meeting. Yields dipped, however, following this week's bond auction.

The 10-year note finished Tuesday at 1.86% but dropped to 1.82% by the end of Thursday. The two-year Treasury note dropped from 0.92% to 0.87% on Thursday.

The potential for a rate hike at next month's FOMC meeting had been pushing treasury yields upward this month. Much of the Fed's decision will be influenced by economic data that will be released in the coming days, as the Fed will have freshly updated jobs, wages and spending numbers going into to the June meeting.

On Friday, the U.S. Department of Commerce released its revised GDP numbers for the first quarter. Gross domestic product rose 0.8% in the first quarter, up from the department's original report of 0.5%. Personal consumer expenditures (PCE) remained at 1.9%.

"It's appropriate, and I've said this in the past, I think for the Fed to gradually and cautiously increase our overnight interest rate over time and probably in the coming months, such a move would be appropriate," said Federal Reserve Chair Janet Yellen on Friday.

The 10-year Treasury note yield finished the week of 5/23 at 1.85% while the 30-year Treasury note yield was 2.65%

Mortgage Rates Rise Following Fed News

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, May 26. The report revealed interest rates inched up this week after last week's minutes of the Federal Reserve policy meeting indicated an interest rate hike this summer is still on the table.

The 30-year fixed rate mortgage averaged 3.64% this week. This represents an increase from last week when it averaged 3.58%. Last year at this time, the 30-year fixed rate mortgage averaged 3.87%.

This week, the 15-year fixed rate mortgage averaged 2.89%. This was up from last week when it averaged 2.80%. The 15-year fixed rate mortgage averaged 2.90% one year ago.

"U.S. Treasury yields moved up in response to the Fed minutes release, which kept alive the possibility of a summer rate-hike," said Sean Becketti, Chief Economist at Freddie Mac. "Mortgage rates followed, with the 30-year fixed-rate mortgage increasing 6 basis points to 3.64%. Despite this increase, May ends the month averaging only 3.60%, 1 basis point below April's average, and the lowest monthly average in 3 years. Homebuyers are taking advantage of these historically low rates with April's new-home sales increasing by 16.6%, the fastest pace since January 2008."

Based on published national averages, the money market account finished the week of 5/23 at 0.52%. The 1-year CD finished at 1.10%.

Published May 27, 2016

Previous Articles

Home Depot Builds Customer Base

Disney Missing Some Magic This Quarter

Sprint Rings in More Customers

Apple Earnings Fall For First Time in Decade

Alphabet Posts Mixed Results, Stock Tumbles

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