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Wednesday May 27, 2020

Finance News


Home Depot Posts Earnings

The Home Depot (HD) reported first quarter earnings on Thursday, May 19. The Atlanta-based home improvement retailer reported better-than-expected sales.

The company announced revenue of $28.26 billion for the second quarter, up 7.1% from $26.38 billion in the same quarter last year. This exceeded analysts’ expectations of $27.54 billion.

“As the COVID-19 pandemic evolved, we anchored to the core values of our Company by focusing on two key priorities: working to ensure the safety and well-being of our associates and customers, and providing our customers and communities with essential products,” said Home Depot CEO, chairman and president Craig Menear. “We took early and decisive action to intentionally limit customer traffic in our stores which we believe had a significant impact to sales in many markets.”

Home Depot reported first quarter earnings of $2.25 billion or $2.08 per share. This is down 10.7% from earnings of $2.51 billion or $2.27 per share reported during the same quarter last year.

In mid-March, Home Depot expanded paid time off for hourly associates and provided additional paid time off for senior associates or those at higher risk for COVID-19. To encourage employees to work, the company provided weekly bonuses for hourly workers, doubled overtime pay, extended dependent health care benefits and waived co-pays. These expanded benefits cost the company $640 million, causing a decrease in profits and a 2% drop in shares after the earnings’ release. However, sales per square foot were up 7% and the average ticket size was up 11% from this time last year.

The Home Depot (HD) shares ended at $241.88, down 1.6% for the week.

Walmart Reports Earnings

Walmart Inc. (WMT) released its second quarter earnings report on Tuesday, May 19. The largest retailer in the world reported strong revenue and profits.

The company posted quarterly revenue of $134.62 billion, up from $123.90 billion in revenue reported at the same time last year. This beat analysts’ expectations of $132.80 billion.

“More than ever, the news this quarter is our amazing associates,” said Walmart’s President and CEO Doug McMillon. “They are rising to the challenge to serve our customers and our communities. I’m proud of how they’re adapting and performing. Our omnichannel strategy, enabling customers to shop in seamless, flexible ways, is built for serving the needs of customers during this crisis and in the future.”

For the quarter, Walmart reported earnings of $3.99 billion or $1.40 per share. This is up from $3.84 billion or $1.33 per share reported at this time last year.

Despite reporting $900 million in additional costs related to the coronavirus, the company still outpaced expectations and reported high operating profits. Walmart awarded cash bonuses to all hourly associates, totaling $755 million, and temporarily increased pay $2 per hour in fulfillment centers. The company hired 235,000 new associates during the period and launched 139 coronavirus testing sites in store parking lots.

Walmart Inc. (WMT) shares closed at $124.33, down 2.5% for the week.

Target Reports Earnings

Target Corporation (TGT) announced its first quarter earnings on Wednesday, May 20. The Minneapolis-based retailer beat analysts’ revenue expectations but fell short on profits.

Target reported quarterly revenue of $19.62 billion, up from revenue of $17.63 billion at this time last year. Analysts expected revenue of $19.04 billion.

"Throughout the first quarter, our team and guests faced unprecedented challenges arising from the spread of COVID-19,” said Target CEO and chairman Brian Cornell. “In the face of those challenges, our team showed extraordinary resilience as guests relied on Target as a trusted resource for their families. With our stores at the center of our strategy, and a significant investment in the safety of our team and guests, our operations had the agility and flexibility needed to meet the changing needs of our business.”

Target reported net income of $284 million or $0.56 per share for the quarter. This is down from $795 million or $1.53 per share reported at the same time last year.

The company reported $500 million in expenses due to the coronavirus pandemic. These costs stemmed from increased store cleaning, the temporary expansion of employee benefits and a $2 per hour associate wage increase. Digital comparable sales increased 141% and same-day services, such as order pick up in stores and curbside, grew 278%.

Target Corporation (TGT) shares closed at $117.49, down 5% for the week.

The Dow started the week at 24,060 and closed at 24,465 on 5/22. The S&P 500 started the week at 2,914 and closed at 2,955. The NASDAQ started the week at 9,177 and closed at 9,325.

Treasury Yields Remain Low

Yields hovered just above all-time lows as investors anticipate a long recovery and a low federal funds rate, according to analysts. Stocks, which have been trading at their highest prices since early March, ticked lower as the United States addressed ongoing tensions with China.

Ten-year treasury notes were trading between 0.638% and 0.742% the week of May 18 while the 30-year bond traded between 1.329% and 1.465%. In March, the 10-year Treasury hit an all-time low of 0.318% and the 30-year hit a record low of 0.702%. Bond yields rise as bond prices fall. In the United States, the 10-year yield is used as a benchmark for everything from mortgage rates to auto loans.

“Mortgage rates fell to new lows this week, as broad market uncertainty continues to keep downward pressure on rates,” said Zillow economist Matthew Speakman. “Even as the stock market has improved in recent weeks - normally prompting an upward move in mortgage rates - the still-uncertain outlook for the economy and seemingly low risk of inflation has kept bond yields in check, with mortgage rates following suit.”

The benchmark 10-year Treasury note yield opened the week at 0.646%, hit a low of 0.638% on Monday, May 18, and was trading at 0.690% on Friday, May 22.

On Wednesday, the White House issued a report to Congress regarding its trade strategy with China. The report expressed concerns about the communist state’s transparency in light of the coronavirus outbreak and China’s attempted expansion of control in Hong Kong. Stocks traded slightly lower after the news. Investors are usually driven to the safe-haven of bonds at signs of trade tensions, but many analysts believe investors are currently seeking the chance of higher yields that the stock market offers.

“Rates should remain rangebound simply based on current economic conditions,” said mortgage planner Jim Sahnger. “Stocks seem to be oblivious to unemployment and the damage inflicted as the S&P is up nearly 35% since the lows of March as the slightest hint of a medical breakthrough takes them higher.”

The 10-year Treasury note yield closed at 0.66% on 5/8, while the 30-year Treasury bond yield was 1.37%.

Mortgage Rates Fall

Freddie Mac released its latest Primary Mortgage Market Survey on Thursday, May 21. The report showed a slight decrease in rates.

The 30-year fixed rate mortgage rate averaged 3.24%, down from 3.28% last week. At this time last year, the 30-year fixed rate mortgage averaged 4.06%.

This week, the 15-year fixed rate mortgage averaged 2.70%, down from 2.72% last week. Last year at this time, the 15-year fixed rate mortgage averaged 3.51%.

“For the fourth consecutive week, the 30-year fixed-rate mortgage has been below 3.30%, giving potential buyers a good reason to continue shopping even amid the pandemic,” said Freddie Mac’s Chief Economist Sam Khater. “As states reopen, we’re seeing purchase demand improve remarkably fast, now essentially flat relative to a year ago. Going forward, mortgage rates have room to decline as mortgage spreads remain elevated.”

Based on published national averages, the national average savings rate was 0.06% on 5/22. The one-year CD finished at 0.27%.

Published May 22, 2020
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