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Wednesday May 6, 2015

Finances

Finances
 

Apple Reports Record Earnings

Apple Inc. (AAPL) released its latest quarterly earnings report on Monday, April 27. Earnings for the quarter ending in March 2015 hit record levels.

Apple reported quarterly revenue of $58 billion. This represents an increase from the comparable period last year when the company reported revenue of $45.6 billion.

"We are thrilled by the continued strength of iPhone, Mac and the App Store, which drove our best March quarter results ever," said Apple CEO Tim Cook. "We're seeing a higher rate of people switching to iPhone than we've experienced in previous cycles, and we're off to an exciting start to the June quarter with the launch of Apple Watch."

The company reported net income of $13.6 billion or $2.33 per share for the quarter. This represents an increase from the same period last year when Apple reported net income of $10.2 billion or $1.66 per share.

Apple reported record earnings. Earnings per share rose 40% and sales rose 27% from the same period last year. Just when things couldn't seem to get any better for the company a report surfaced that the taptic engine in the Apple Watch is not working for people with darker skin or tattoos. The taptic engine is the sensor that enables the watch to monitor users' heartbeats. So, despite the record earnings, Apple's stock price declined this week.

Apple (AAPL) shares ended the week at $128.95, down 2.5% for the week.

Twitter Disappoints Investors


Twitter, Inc. (TWTR) reported its latest quarterly results on Tuesday, April 28. The company's results disappointed investors.

The company reported revenue of $435.94 million for the quarter. This represents an increase compared to the comparable quarter last year when Twitter reported revenue of $250.49 million.

"While we exceeded our EBITDA target for the first quarter, revenue growth fell slightly short of our expectations due to lower-than-expected contribution from some of our newer direct response products," said Dick Costolo, CEO of Twitter. "It is still early days for these products, and we have a strong pipeline that we believe will drive increased value for direct response advertisers in the future. We remain confident in our strategy and in Twitter's long-term opportunity, and our focus remains on creating sustainable shareholder value by executing against our three priorities: strengthening the core, reducing barriers to consumption and delivering new apps and services."

Twitter reported a quarterly net loss of $162.44 million. This net loss is larger than the net loss of $132.36 million that Twitter reported in the same quarter last year.

Twitter had a difficult week this week. In addition to an earnings report that showed the company performing below expectations, Yahoo Finance reported that Twitter is under investigation for possible securities fraud. Twitter announced a loss of $162 million for its latest quarter and this caps a string of losses since the company went public in November 2013. Specifically, the investigation is looking into whether Twitter released unduly optimistic and misleading public statements concerning its advertising revenues and growth for the latest quarter. In addition, there are questions about Twitter's use of stock based compensation and the amount of compensation earned by its new CEO.

Twitter (TWTR) shares ended the week at $37.84, down 25.6% for the week.

Time Warner Cable at a Crossroads


Time Warner, Inc. (TWX) reported its latest quarterly earnings on Wednesday, April 29. The company sought to reassure investors as Comcast's $45 billion acquisition of the company fell through.

Time Warner reported quarterly revenue of $7.13 billion. This represents an increase from the same period last year when the company reported revenue of $6.80 billion.

"We got off to a very strong start in 2015, with revenues up 5%, and adjusted operating income growing 12% to a quarterly record of $1.8 billion," said Jeff Bewkes, Chairman and CEO of Time Warner. "This led to a 23% increase in adjusted EPS and puts us on track to achieve our goals for the year. Reflecting our strong commitment to provide direct returns to shareholders, we returned more than $1.4 billion in dividends and share repurchases year-to-date."

The company reported net income of $970 million. This represents a significant decline from the comparable period last year when the company reported net income of $1.29 billion. Earnings per share came in at $1.10 per share.

Comcast Corporation offered to purchase Time Warner Cable for $45 billion in February 2014. Since the deal posed antitrust concerns it had to be reviewed by the FCC. During the past several weeks, regulators indicated that the DOJ would file for an injunction to block the deal. As a result, Comcast announced last Thursday that it would abandon the proposed acquisition. There are rumors that Time Warner may now consider a deal with Charter Communications.

Time Warner Cable (TWX) shares ended the week at $85.58, down 0.2% for the week.

The Dow started the week of 4/27 at 18,098 and closed at 18,024 on 5/1. The S&P 500 started the week at 2,119 and closed at 2,108. The NASDAQ started the week at 5,104 and closed at 5,005.
 

Treasury Prices Fall

Treasury yields rose and prices fell this week as sovereign yields in Europe and U.S. economic data caused investors to sell U.S. debt. Economic data released in the U.S. this week included an interest-rate statement by the Federal Open Market Committee (FOMC), the U.S. economy's first quarter GDP report and the Institute for Supply Management's (ISM) manufacturing index.

The Commerce Department released its first estimate of the U.S. economy's first quarter 2015 Gross Domestic Product (GDP) on Wednesday, April 29. The report announced that the economy grew at an annually adjusted rate of 0.2%. That is a significant decrease from the 2.2% growth experienced in the fourth quarter of 2014. The Commerce Department identified factors such as harsh weather, a strong dollar and labor disputes at ports on the West Coast as reasons for the slowdown.

The ISM released its monthly manufacturing index on Friday, May 1. To generate the index, the ISM surveys over 300 manufacturing firms across the US asking questions related to employment, inventories, new orders and supplier deliveries. An increasing index typically means that bond markets will decrease because of sensitivity to increasing inflation. In April, the index held steady at 51.5. Economists had expected the index to increase to 52. During the past six months, the index has dropped steadily from 57.9 in October to its current level.

The FOMC released its monthly monetary policy release on Wednesday, April 29. The committee reaffirmed its current policy. The release stated, "The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term."

Investors have wondered during the past several months whether the Federal Reserve will begin raising interest rates as early as June 2015. However, after this latest round of economic reports, many investors believe that the federal funds rate will remain at its current level through the middle of the year.

The economic news caused investors to sell U.S. Treasury bonds. The 10-year Treasury yield rose to a high of 2.12% in early Friday morning trading. This is the highest yield since March 13.

The 10-year Treasury note yield finished the week of 4/27 at 2.12% while the 30-year Treasury note yield finished the week at 2.83%.
 

Interest Rates Increase Slightly

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, April 30. The results showed average fixed mortgage rates increasing slightly on mixed economic reports.

The 30-year fixed rate mortgage averaged 3.68% this week. This is a slight increase from last week when it averaged 3.65%. Last year at this time, the 30-year fixed rate mortgage averaged 4.29%.

This week, the 15-year fixed rate mortgage averaged 2.94%. This is up slightly from last week when it averaged 2.92%. One year ago, the 15-year fixed rate mortgage averaged 3.38%.

"Mortgage rates were up slightly following a week of mixed economic releases," said Len Kiefer, Deputy Chief Economist at Freddie Mac. "Real GDP grew at a paltry 0.2% annualized rate in the first quarter of 2015, well below expectations. However, the National Association of Realtors' pending home sales index rose 1.1% in March for the third consecutive month. The S&P/Case-Shiller National House Price Index also rose 5% in February on a yearly basis."

The money market fund finished the week of 4/27 at 0.4%. The 1-year CD finished at 0.6%.

Published May 1, 2015

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