Friday, January 23, 2015

Markets fluctuate on earnings and drop in oil prices

Dow lost 86, decliners just ahead of advancers & NAZ added 9.  The MLP index shot up 4+ to 455 & the REIT index slipped 1+ to the 352s.  Junk bond funds climbed higher & Treasuries advanced.  Oil sank below 46 & gold is still under 1300 (but up more than 100 from recent lows).

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CLH15.NYM...Crude Oil Mar 15....45.75 Down ...0.56  (1.2%)

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General Electric, a Dow stock, said rising sales in its power & water business helped Q4 earnings beat estimates.  Revenue surged 22% at the power unit, which agreed to provide gas turbines for a large project in Egypt, helping blunt the impact of falling oil prices.  The biggest industrial division, which is set to grow more with the Alstom acquisition, is central to CEO Jeffrey Immelt's effort to expand the manufacturing business while shrinking the finance arm.  “The environment remains volatile, but we continue to see infrastructure growth opportunities,” Immelt said.  He also said that Europe will be “flattish” while GE is seeing strength in Asia & “the U.S. is the best we’ve seen since the financial crisis.”  Adjusted EPS from continuing operations climbed 4% from a year earlier to 56¢.  That exceeded the 55¢ estimate.  Operating profit in the industrial segment rose 9.3% as the margin increased 0.5 percentage point.  The oil & gas unit performed “as expected,” with sales falling 5.6% & operating profit up 1.5%.  Excluding the effects of acquisitions, divestitures & currency exchange rates, sales in the oil division were little changed & profit rose 6%.  Oil prices slid 39%.  GE reiterated that profit in the division, which sells equipment for drilling & production activities, may fall in 2015 because of the effects of global crude markets.  “It’s going to be a very tough orders year and we’re going to see an impact on our business,” CFO Jeff Bornstein said.  “We’re not expecting oil prices to materially go up in 2015.”  Total quarterly revenue rose 4% to $42B, short of the $42.2B estimate.  Sales climbed 4.1% in the aviation division.  The CEO said today that GE remains “comfortable” with its 2015 outlook.  The company last month forecast 2015 EPS of $1.10-$1.20 in its industrial units & 60¢ in the finance division.  The stock rose 46¢.  I you would like to learn more about GE, click on this link:

GE Advances as Earnings Top Estimates on Sales in Power Unit

General Electric (GE)

After missing millions of deliveries on Christmas in 2013, United Parcel Services promised it would do better next time.  It hired thousands more workers to ensure it could handle a deluge of shipments on its busiest days.  The improvements worked, maybe too well.  While they nailed on-time deliveries during the 2014 Christmas season, on less busy days many workers & trucks were left idle.  The drop in productivity & the extra expenses for training & overtime dragged down 2014 preliminary earnings well below forecasts.  “UPS invested heavily to ensure we would provide excellent service during peak when deliveries more than double,” said CEO David Abney.  “Though customers enjoyed high quality service, it came at a cost to UPS. Going forward, we will reduce operating costs and implement new pricing strategies during peak season.”  UPS worked almost all of last year on perfecting its plans for the busiest season.  It hired 95K workers, 73% more than initial plans the previous year, & spent $675M on improvements including software to aid drivers, building temporary sorting facilities & extra staff.  The EPS will be $1.25, compared with estimates of $1.47.  It expects 2015 earnings growth to be “slightly below” its previous long-term target of 9-13%, due to increased pension costs & currency fluctuations.  UPS is struggling with how to balance big swings in volume as more people push holiday orders later & do more of their shopping online.  The extra capacity was needed to process the extreme spike in holiday package volume.  But demand was less than it expected.  The stock sank 11.00.  I you would like to learn more about UPS, click on this link:

UPS Falls as Peak Season Costs Crimp Annual Profit

United Parcel Service (UPS)

McDonald's, another Dow stock, posted same-store sales that declined less than  expected as menu changes started to turn around results in the US.  Sales at global locations open at least 13 months fell 0.9% in Q4 while analysts estimated a 1.5%.  Net income, meanwhile, fell 21%.  MCD is reorganizing its US operations, trimming menu items to speed up service & adding more customizable burger options to win back younger customers from fast-casual chains.  In a sign that the changes may be starting to gain some traction, US same-store sales rose 0.4% in Dec, the first monthly gain in more than a year.  Last month’s US same-store sales increase beat estimates for a 0.8% drop & marked the first gain since Oct 2013.  For Q4, US same-store sales fell 1.7%, better than the 2.1% drop projected.  EPR was $1.13, down from $1.40 a year earlier.  Excluding the effects of foreign-currency exchange-rate fluctuations, EPS would have been $1.21, below the $1.22 estimate.  Q4 revenue fell 7.3% to $6.57B, trailing the projection of $6.67B. In the region that includes Asia, the Middle East & Africa, same-store sales fell 4.8%, compared with a projected 4.6% drop.  Same-store sales in Japan slid 21% in Dec after the chain was forced to ration potato fries as a labor dispute at US ports crimped supplies of potatoes.  Analysts estimated a 1.3% decline.  The stock fell 1.10.  I you would like to learn more about MCD, click on this link:
McDonald’s Same-Store Sales Exceed Analysts’ Estimates as Declines Abate

McDonald's (MCD)

Stocks managed a gain this week, although Dow remains in the red for Jan.  Not a promising start for the new year, but better than last year's tough start.  REITs continue red hot while MLPs have been flattish with high volatility for more than months.  Earnings & intl news will be the driver for stocks this month.  Earnings have been mixed & intl stories (largely in the Ukraine & MidEast) are unpredictable.  The stock market remains on defense.

Dow Jones Industrials

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