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Saturday August 15, 2020



Disney Disappoints in Revenue and Earnings

Walt Disney Co (DIS) released its latest earnings report on Tuesday, August 6. The entertainment giant missed expectations for revenue and earnings in the quarter.

The company reported revenue of $20.25 billion during the third quarter. This was up from $15.23 billion at the same time last year, but below the $21.46 billion that analysts predicted.

"Our third-quarter results reflect our efforts to effectively integrate the 21st Century Fox assets to enhance and advance our strategic transformation," said CEO and Chairman Robert Iger. "I'd like to congratulate The Walt Disney Studios for reaching $8 billion at the global box office so far this year - a new industry record - thanks to the stellar performance of our Marvel, Pixar and Disney films.

Disney's net income for the quarter was $1.76 billion, down from $2.92 billion in the same quarter last year. The company earned an adjusted $1.35 per share, missing analysts' expected target of $1.71 per share.

This was Disney's first full quarter since the company acquired 21st Century Fox for $71.3 billion in March. The acquisition allows Disney to unite characters such as the X-Men and Fantastic Four with Disney's already-owned Marvel characters, thus completing the full Marvel family. Disney's "Avengers: Endgame" was the highest grossing film of all time bringing in $2.79 billion at the box office and boosting earnings this quarter.

Walt Disney Co (DIS) shares ended the week at $138.51, relatively unchanged for the week.

CVS Reports Healthy Revenue

CVS Health Corporation (CVS) posted quarterly earnings on Wednesday, August 7. The company reported strong revenue growth for the quarter.

The health care company reported revenue of $63.43 billion for the second quarter. This was a 35% increase from $46.92 billion in revenue at this time last year and above the $62.65 billion that analysts predicted.

"We posted strong second quarter results, with all of our businesses performing at or above expectations," said Larry Merlo, president and CEO of CVS. "These results demonstrate our ability to execute on our strategic priorities to accelerate enterprise growth as we seek to fundamentally transform the consumer health experience. Given our performance to date and our expectations for the remainder of the year, we are raising and narrowing our Adjusted EPS guidance range to $6.89 to $7.00."

The company's net income for the quarter was $1.94 billion. This was up from a loss of $2.56 billion in net income during the same quarter last year.

CVS stock rose 4.6% in premarket trading Wednesday following the company's earnings release. CVS, which stands for "Consumer Value Stores," acquired Aetna Health Insurance company for $70 billion in November 2018. CVS hopes to open 1500 new HealthHUBs by 2021. These health-focused stores will have expanded clinic services, pharmacy support and more health and wellness products than traditional CVS locations. This is just one example of how CVS and Aetna will work together.

CVS Health (CVS) shares ended the week at $55.05, up 7.7% for the week.

Zillow Moves Up in Revenue but Down in Earnings

Zillow Group, Inc. (Z) reported its latest quarterly earnings on Wednesday, August 7. The Seattle-based online real estate company reported gains in revenue but losses in earnings.

Revenue for the quarter came in at $599.58 million. This is up 84% from $325.25 million reported during the same quarter last year.

"Our second quarter results reflect the momentum we are seeing across our businesses," said Zillow co-founder and CEO Rich Barton. "The demand signal for Zillow Offers is incredibly impressive as seen in the annualized revenue run rate going from zero to $1 billion in just a year. Our Premier Agent business is performing well, and our partnerships with the highest performing and most client-focused agents position us well to deliver a truly seamless transaction experience for home buyers and sellers."

Zillow reported net losses of $71.98 million during the second quarter, much higher than the $3.09 million loss posted last year at this time. The company reported an adjusted loss of $0.14 per share this quarter.

In July of 2018, Zillow rolled out "Zillow Offers," which allows homeowners to request an offer from Zillow to purchase their homes. Zillow's foray into the market of buying and selling real estate rather than simply providing an online search and advertising platform already represents 40% of the company's total revenue. In the first quarter of this year, Zillow bought 898 homes and has sold 414, generating an average loss of $3,268 per home. This quarter, 69,000 homeowners requested an offer from Zillow to purchase their home. Zillow bought only 1,500 of these and has sold 800 homes this quarter.

Zillow Group, Inc. (Z) shares ended the week at $39.54, down 17.8% for the week.

The Dow started the week at 26,259 and closed at 26,287 on 8/9. The S&P 500 started the week at 2,898 and closed at 2,919. The NASDAQ started the week at 7,823 and closed at 7,959.

Trade Tensions Depress Yields

Yields on U.S. Treasurys fell Wednesday but moved higher as the week came to a close. Trade tensions with China and fear of a recession pushed investors into the safe haven of bonds midweek.

On August 1, President Trump announced another 10% tariff increase on imported goods. The increase is set to take effect September 1. On Sunday, August 4, the People's Bank of China (PBOC) weakened the yuan to its lowest levels since 2008.

"The fact that they have now stopped defending 7.00 [yuan] against the dollar suggests that they have all but abandoned hopes for a trade deal with the U.S.," said senior China economist at Capital Economics, Julian Evans-Pritchard. "The PBOC has effectively weaponized the exchange rate, even if it is not proactively weakening the currency with direct FX intervention."

A weaker yuan makes American imports more expensive for Chinese consumers. However, some economists argue that the Treasury Department's official charge of currency manipulation is too strong and will push China into an all-out currency war, with global effects.

"The financial instability associated with the trade wars will increase uncertainty and hurt confidence and investment, which can have a bigger impact on the U.S. economy," said Mark Sobel, a former Treasury official.

The 10-year Treasury note yield closed at 1.73% on 8/9, while the 30-year Treasury bond yield was 2.25%.

Mortgage Rates Dramatically Decrease

Freddie Mac released its latest Primary Mortgage Market Survey on Thursday, August 8. The results show the 30-year fixed rate mortgage is at its lowest since November 2016.

The 30-year fixed rate mortgage averaged 3.60% this week, down from last week's average of 3.75%. Last year at this time, the 30-year fixed rate mortgage averaged 4.59%.

This week, the 15-year fixed rate mortgage averaged 3.05%, down from 3.20% last week. The 15-year fixed rate mortgage averaged 3.90% at this time last year.

"There is a tug of war in the financial markets between weaker business sentiment and consumer sentiment," said Sam Khater, Chief Economist with Freddie Mac. "Business sentiment is declining on negative trade and manufacturing headlines, but consumer sentiment remains buoyed by a strong labor market and low rates that will continue to drive home sales into the fall."

Based on published national averages, the money market account closed at 1.26% on 8/9. The one-year CD finished at 2.25%.

Published August 9, 2019
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