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Monday January 27, 2020



IBM Beats Earnings Estimates

International Business Machines, Corp. (IBM) released its quarterly and full-year earnings report on Wednesday, January 23. The technology company's shares soared more than 8% during after-hours trading following the release of its earnings report.

The company reported fourth quarter revenue of $21.76 billion, which beat Wall Street's estimated revenue of $21.71 billion, but fell below last year's fourth quarter revenue of $22.54 billion. The company reported revenue of $79.59 billion for the full year.

"In 2018 we returned to full-year revenue growth, reflecting growing demand for our services and leadership solutions in hybrid cloud, AI, analytics and security," said IBM President and CEO Ginni Rometty. "Major clients worldwide, such as BNP Paribas, are turning to the IBM Cloud and our unmatched industry expertise to transform their businesses and drive innovation."

The company reported net income of $1.95 billion, or $2.15 per share. This was better than the prior year's quarterly net loss of $1.05 billion, or $1.14 per share.

On January 22, IBM announced that it extended its partnership with BNP Paribas. IBM's partnership with BNP Paribas originated in 2003, with an aim to aid in digital transformation. The company will be extending the contract for an additional eight years. IBM announced on January 23 it will be working with the Bank of the Philippine Islands to accelerate the banking institution's digital transformation. IBM's cloud services have been central to its expansion in the banking sector.

International Business Machines, Corp. (IBM) shares ended the week at $133.95, up 8.6% for the week.

Johnson & Johnson Exceeds Expectation

Johnson & Johnson (JNJ) reported its fourth quarter and full-year earnings on Tuesday, January 22. The company posted an increase in revenue and a drop in profits from the prior year.

Revenue for the quarter was $20.4 billion, up 1% from the same quarter last year. This exceeded analysts' expected revenue of $20.2 billion. Johnson & Johnson reported its full-year revenue increased 6.7% to $81.6 billion.

"Looking ahead, the strength of our broad-based business and disciplined approach to portfolio management positions us to continue to fuel investments in innovation that enable us to capitalize on strategic opportunities and deliver strong performance over the long-term," said Alex Gorsky, CEO of Johnson & Johnson. "Our performance is the result of our talented Johnson & Johnson colleagues and their extraordinary dedication to help advance health and well-being for patients and customers around the world."

The company posted net earnings of $3.04 billion, or $1.12 per share. This was an increase from a net loss of $10.71 billion, or $3.99 per share during the same quarter last year.

On January 2, Johnson & Johnson, purveyor of pharmaceuticals, medical devices and consumer products, announced that it will pay a dividend of $0.90 per share on March 12. During the fourth quarter, the company announced a $5 billion share repurchase program. Pharmaceutical sales reached $10.19 billion in the quarter, exceeding analysts' expectations of $9.99 billion.

Johnson & Johnson (JNJ) shares ended the week at $128.23, relatively unchanged for the week.

Starbucks Reports Better-than-Expected Revenue

Starbucks Corporation (SBUX) announced its first quarter results on Thursday, January 24. The coffeehouse chain reported revenue that exceeded analysts' estimates.

The company reported quarterly revenue of $6.63 billion. This was an increase of 9% from last year's revenue of $6.07 billion and higher than the $6.49 billion analysts expected.

"Starbucks delivered solid operating results in the first quarter, demonstrating continued momentum in our business, as we drive our growth-at-scale agenda with focus and discipline," said Starbucks President and CEO Kevin Johnson. "We are particularly pleased with the sequential improvement in quarterly comparable store transactions in the U.S., underpinned by our digital initiatives and improved execution of our in-store experience."

Starbucks' net income for the quarter fell 66% to $761 million. On an adjusted per share basis, earnings were $0.68, just above expectations of $0.65 per share.

Starbucks announced better-than-expected global same stores sales growth of 4%, driven by a 3% growth in the average customer purchase. In its earnings report, the company revealed an increase of 14% in its reward members to 16 million active loyalty rewards members. In the second quarter, Starbucks plans to expand its rewards program to allow customers to earn and redeem rewards more quickly using a multi-tiered redemption program.

Starbucks Corporation (SBUX) shares ended the week at $67.09, up 3.4% for the week.

The Dow started the week of 1/22 at 24,608 and closed at 24,737 on 1/25. The S&P 500 started the week at 2,658 and closed at 2,665. The NASDAQ started the week at 7,110 and closed at 7,165.

Treasury Yields Edge Higher

On Friday, yields on U.S. Treasury bonds reversed a downward trend following the release of statements from the U.S. Commerce Secretary. Earlier in the week, the 10-year Treasury note fell following the release of existing home sales data.

On Tuesday, the National Association of Realtors released existing home sales data, which revealed home sales had fallen to a three-year low in December. Home sales dropped 6.4%, outpacing economists' estimates of a 1% decline. The 10-year Treasury yield dipped to an intra-day low of 2.726% following the report's release.

"The existing homes sales data looked really weak, and is concerning because it's across a variety of types and regions," said Jon Hill, interest rate strategist at BMO Capital Markets. "One of the outstanding questions in the market is that housing looks weak, but the fall in mortgage rates could restart the market."

On Thursday, U.S. Commerce Secretary Wilbur Ross stoked trade-war fears, signaling that trade negotiations between the U.S. and China are far from a permanent trade agreement. On December 1, the U.S. and China entered a 90-day temporary truce on tariffs. The deadline for a permanent trade deal is March 1.

After Secretary Ross' comments were released, the yield on the 10-year Treasury note fell to 2.708%. The yield on the 30-year bond also dropped to 3.032%.

"There's been a lot of anticipatory work done but we're miles and miles from getting a resolution," said Ross. "And that shouldn't be too surprising [T]rade is complicated, there are lots and lots of issues."

The 10-year Treasury note yield closed at 2.75% on 1/25, while the 30-year Treasury bond yield was 3.06%.

Mortgage Rates Remain Unchanged

Freddie Mac released its latest Primary Mortgage Market Survey on Thursday, January 24. The report showed interest rates were unchanged from last week.
This week, the 30-year fixed rate mortgage averaged 4.45%, unchanged from last week. At this time last year, the 30-year fixed rate mortgage averaged 4.15%.

The 15-year fixed rate mortgage averaged 3.88% this week, unchanged from the week prior. During the same period last year, the 15-year fixed rate mortgage averaged 3.62%.

"Mortgage rates have stabilized during the last month and are essentially at the same level as last spring – yet the most recent home sales are roughly half a million lower over the same period," said Sam Khater, Chief Economist at Freddie Mac. "Given that the economy remains on solid footing and weekly mortgage purchase application activity has been strong so far in 2019, we expect the decline in home sales to moderate or even reverse over the next couple of months."

Based on published national averages, the money market account closed at 1.29% on 1/25. The one-year CD finished at 2.75%.

Published January 25, 2019
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