Oil Company Profits Hit Historic Lows, Plus Chipotle Has Its Worst Quarterly Performance Ever
“Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need.” — BlackRock CEO Larry Fink, in a letter to S&P 500 executives encouraging them to articulate long-term plans to shareholders.
- U.S. stocks dropped sharply with each major index down around 2% as investors digested some major earnings reports (most of them not great)
- European markets dropped as well, and investors were especially spooked by big declines in oil and gas stocks
Alternatives to Watch
- Treasury yields hit nine-month lows Tuesday after renewed selloffs across markets sent investors fleeing to the safety of government-backed bonds
- After Alphabet claimed its spot on the throne as the most valuable company in the world (check out yesterday’s Brew for the full scoop), its stock followed suit, soaring to an all-time high as analysts now project a 40% increase in price
Burritos Hit Historic Lows
Chipotle’s first sales decline ever? Yes sir. Revenue at the fast casual chain dropped 6.8%—its worst quarterly performance ever, and shares sold off 6% after hours in response. Recent foodborne outbreaks took a toll on demand for the delicious burritos, and to make matters worse, the federal government began a criminal investigation to uncover the cause. In response, Chipotle plans to implement stricter preparation procedures for its ingredients. Let’s hope all matters are resolved quickly, because a world without Chipotle is not a world worth living in.
Yahoo, Chapter 2
The Yahoo saga continues, and Wall Street keeps breathing down CEO Marissa Mayer’s back. The company’s earnings weren’t so juicy: although they landed in-line with analyst expectations, it was the official unveiling of its future plans that got the Street’s attention. In case you missed yesterday’s Brew, Yahoo announced a 15% workforce layoff and that it will be eliminating divisions left and right. The expected result: $400 million in cost savings, as well as a reverse spin-off (a fancy finance word for selling all its assets besides its giant Alibaba stake).
During a holiday season in which many retailers struggled, one high-end retailer stood out. Respect to Michael Kors, which managed to handily beat earnings estimates. Kors’ accessories and footwear divisions were the main drivers behind sales, which rose 6.3% to $1.4 billion, and a strong boost in e-commerce sales (which are all the rage these days) didn’t hurt either. Shares skyrocketed 24% today, its biggest one-day gain since February 2012.
Oil Companies Also Hit Historic Lows
Yesterday was a bad, bad day for oil companies: both BP and Exxon released earnings, each posting painfully grim results. Thanks to oil’s 70% slide over the last year, BP saw its biggest annual loss ever (like, since oil was discovered), including the loss posted in 2010 due to the Deepwater Horizon oil spill (and that was one heck of a loss). Exxon fared better, but that’s not saying much, considering Q4 profits were the lowest in over a decade. Needless to say, investors weren’t happy: BP shares plummeted 8.52% while Exxon was down 2.2%.
- Amazon reportedly to open as many as 400 physical bookstores
- Alibaba, Warner Bros. invest in augmented reality startup Magic Leap
- Ex-drug executive Martin Shkreli hires Jay Z, P. Diddy lawyer for fraud case
- Dow Chemical CEO Liveris to step down by mid-2017
- Monday: Alphabet (+), Aflac (+) Earnings; ISM Manufacturing Index (-); Personal Income and Outlays (+/-)
- Tuesday: Chipotle (-), Yahoo (-), BP (-), Dow Chemical (+), Exxon (-), Ferrari (-), Gilead (+), Match Group (-), Michael Kors (+), Pfizer (+/-) Earnings; Motor Vehicle Sales (+)
- Wednesday: General Motors, GoPro, Yum Brands, Buffalo Wild Wings, Comcast Earnings; Private Employment Report; ISM Non-Manufacturing Index
- Thursday: LinkedIn, Lions Gate Entertainment, Phillip Morris, Ralph Lauren, News Corp, Cigna, Clorox, ConocoPhillips, Deckers, Dunkin’ Brands Earnings; Weekly Jobless Claims
- Friday: January Jobs Report; Tyson Foods Earnings
MORTGAGE RATES DO THEIR OWN THING
Most homebuyers assumed the recent rise in U.S. interest rates by the Federal Reserve would also increase mortgage rates—luckily for them, that hasn’t been the case. In fact, this week marks the fourth straight week of declining mortgage rates. Here’s the breakdown:
- The 15- and 30-year fixed mortgage rates have both declined and are now at 3.07% and 3.79%, respectively.
- Typically, when interest rates rise, banks’ increased cost of borrowing money is passed on to the consumer. Yet rates are staying down, and mortgage applications are up 8.8% in response.
- This current trend is good for both buyers and sellers, and goes to show the Fed isn’t the sole determinant of mortgage rates (although to be fair, investors now anticipate the Fed will put the skids on any future moves, so they’re still somewhat involved). Nevertheless, power to the people.
INTERVIEW QUESTION OF THE DAY
A windowless room has three light bulbs. You are outside the room with three switches, each controlling one of the light bulbs. If you can only enter the room one time, how can you determine which switch controls which light bulb? (Answer)
BUSINESS PERSON OF THE DAY
Henry R. Kravis co-founded KKR in 1976 and is Co-Chairman and Co-Chief Executive Officer. Mr. Kravis is well known for being one of the pioneers of the private equity industry, and today KKR holds over $93.4 billion in assets. Not bad at all.
FOOD FOR THOUGHT
$5.4 billion — Legal marijuana sales in the U.S. totaled $5.4 billion in 2015, up 17.4% over 2014. And the weed train is expected to roll on in 2016 (no pun intended), with some estimates projecting sales could grow to nearly $7 billion this year.