Updated: 02-19-2018

Quotes at time of story, top stories today: 04:47PM | 01:39PM | 12:36PM | 11:30AM | 10:48AM | 10:41AM | 10:00AM | 08:42AM | 07:39AM

04:47PM ET
Weekly Wrap

Week In Review: Bouncing Back

The equity market rallied this week, reclaiming about half of the losses it registered over the previous two weeks. The tech-heavy Nasdaq Composite climbed 5.3% as technology shares outperformed, while the S&P 500 and the Dow Jones Industrial Average added 4.3% apiece. The S&P 500 and the Dow ended Friday on a six-session winning streak.

This week's gains put the S&P 500, the Nasdaq, and the Dow back into the green for the year and back above their respective 50-day simple moving averages. They're still a ways below record territory, however, settling Friday about 5.0% beneath the record highs they posted on January 26.

11 of 11 S&P 500 sectors finished the week in positive territory, with gains ranging between 1.8% and 5.8%. The top-weighted technology group (+5.8%) was the strongest sector, while the energy (+1.9%), utilities (+2.9%), telecom services (+2.4%), and real estate (+1.8%) groups were the weakest.

In general, cyclical sectors, which tend to do well when the economic outlook is favorable, outperformed their countercyclical peers.

Within the tech group, Apple (AAPL), surged 10.2% this week, reclaiming most of the 13.5% it lost between January 18 and February 8, and Cisco Systems (CSCO) rallied 4.7% on Thursday--hitting its best level in nearly 20 years--after reporting better-than-expected profits for the quarter ending in January and raising its earnings and revenue guidance.

Investors received a big batch of economic data this week, highlighted by a hotter-than-expected CPI reading: the Consumer Price Index increased 0.5% month over month in January (Briefing.com consensus +0.4%) and the core CPI, which excludes food and energy, rose by 0.3% (Briefing.com consensus +0.2%). The headline month-over-month figures sparked a knee-jerk reaction from the market, which has been fighting fears of inflation--and, in turn, fears of a more hawkish Fed--in recent weeks.

However, the year-over-year figures helped restore order and keep the week's upward trajectory intact, showing that both the CPI and the core CPI are still within a range they've held to for some time; the total CPI is up 2.1% year over year and has been between 2.0% and 2.2% for five months, while the core CPI is up 1.8% year over year and has been between 1.7% and 1.9% for ten months. 

The yield on the benchmark 10-yr Treasury note climbed to a four-year high on Wednesday following the CPI release, closing at 2.91%, but gave up some ground on Thursday and Friday to finish the week little changed at 2.88%. Meanwhile, the 2-yr yield climbed 12 basis points this week, closing at 2.19%--its highest level in nearly a decade.

Meanwhile, in the currency market, the U.S. Dollar Index returned to a three-year low on Thursday (88.50), but bounced back a bit on Friday to finish the week with a loss of 1.4%. The greenback showed particular weakness against the Japanese yen, dropping 2.4% to 106.22, which is its lowest level since November 2016.

In Washington, the White House released its infrastructure plan on Monday, which is designed to stimulate $1.5 trillion in spending over a decade.

U.S. markets will be closed on Monday in observance of Presidents' Day.

IndexStarted WeekEnded WeekChange% ChangeYTD %
DJIA24190.9025219.381028.484.32.0
Nasdaq6874.497239.47364.985.34.9
S&P 5002619.552732.22112.674.32.2
Russell 20001477.841543.5565.714.40.5

01:39PM ET
Coca-Cola beats fourth quarter estimates and sees higher organic growth in 2018

Coca-Cola (KO) is up 1% after the company reported better than expected fourth quarter results and guided fiscal 2018 above Wall Street estimates this morning.

Net revenues declined 20% to $7.5 billion for the quarter, impacted by headwinds of 26% from the ongoing refranchising of bottling territories. Organic revenues grew an impressive 6% for the quarter, driven by price/mix growth of 4%, concentrate sales growth of 1% and growth of 1% from one extra day during the quarter.

Total unit case volume was even for the quarter and full year. Developing and emerging markets generated positive volume growth for the second consecutive quarter, including volume growth in Brazil. While volume growth in developed markets overall was even during the quarter, North America volume grew 1%. Notably, transactions are outpacing volume as the company sells smaller packaging for portion control in the developed markets and affordability in emerging markets.

Comparable operating margin expanded more than 530 basis points for the quarter, driven by divestitures of lower-margin bottling businesses and the Company's ongoing productivity efforts. Adjusted EPS was up $0.02 year-over-year to $0.39, $0.01 above estimates.

Coca-Cola's outlook for this year is quite bullish. Coke called for adjusted EPS up 8-10% to $2.06-2.08, above estimates. Management forecasted organic revenue growth of 4% (up from 3% growth last year), with comparable currency neutral operating income up 8-9%, cash from operations of at least $8.5 billion and $1 billion in share repurchases. The company's tax rate is expected to fall 300 bps to 21% from 24%. Management said it has yet to see improved demand stemming from lower taxes in the US yet but higher incomes should lead to higher consumption.

At the Investor Day in November, the company reiterated its long-term targets of mid-single-digit organic revenue growth (+4-6%) and high single-digit comparable currency neutral EPS growth.

On the call, some analysts were skeptical of the company hitting 4% organic sales growth this year. Management said 4% growth would come from a mix of price and volume, the company has momentum after making sequential improvement throughout 2017, executing on initiatives like revenue management, while the global macroeconomic environment improves.

Coca-Cola has a market cap of ~$193 billion and trades at ~22x earnings, a modest premium to the average consumer packaged goods stock that trades closer to 20x.

12:36PM ET
Looking Ahead - February 19, 2018 - Japan Trade Balance Report

The U.S. market will be closed on Monday, although foreign markets open for trading could be paying some close attention to Japan's Trade Balance report and its potential implications for the Bank of Japan's monetary policy outlook.

Japan's Trade Balance Report for January (Sunday, February 18, at 6:50 p.m. ET)

  • Why it's important
    • Policymakers have flooded Japan with fiscal and monetary stimulus in a bid to eradicate deflationary forces. Import data will provide important insight on consumer demand that is key to stamping out deflation.
    • The trade balance report from Japan will offer a glimpse of demand out of China, which is Japan's largest trading partner.
    • The yen has strengthened noticeably against the dollar in recent months as market participants have been positioning for the prospect of the Bank of Japan distancing itself from its ultra-easy monetary policy.  The strengthening yen, if it persists, will put Japanese exporters at a competitive disadvantage against foreign competitors. 
      • The yen trades at 106.18 against the dollar versus 110.67 six months ago and 114.19 one year ago.
    • This report will help influence the market's perception of the effectiveness of policy stimulus measures in Japan.

  • A closer look
    • Exports have increased on a year-over-year basis for 13 consecutive months. In December, exports were up 9.2% after increasing 16.2% in November.
    • Imports have increased year-over-year for 12 consecutive months.  In December, imports were up 14.9% after increasing 17.2% in November.

  • What's in play?
    • Japan ETFs
      • iShares MSCI Japan ETF (EWJ)
      • Japan Hedged Equity Fund (DXJ)
      • Currency Hedged MSCI Japan ETF (HEWJ)
      • MSCI Japan Hedged Equity Fund (DBJP)
      • MAXIS Nikkei 225 Index Fund (NKY)
    • Regional ETFs
      • iShares China Large-Cap ETF (FXI)
      • ProShares UltraShort FTSE China 50 (FXP)
      • iShares MSCI South Korea Capped ETF (EWY)
      • MSCI Australia ETF (EWA)
      • iShares MSCI Singapore ETF (EWS)
      • MSCI All Country Asia, ex Japan, Fund (AAXJ)
    • Currencies
      • USD/JPY
      • EUR/JPY
      • AUD/JPY
    • Treasuries
    • S&P futures
    • Index ETFs
      • SPDR S&P 500 ETF (SPY)
      • PowerShares QQQ ETF (QQQ)
      • iShares Russell 2000 ETF (IWM)
      • SPDR Dow Jones Industrial Average ETF (DIA)

11:30AM ET
DFB Healthcare Acquisitions Prices IPO Inline With Expectations
It's been a very quiet week for IPOs, but, we finally have some action as blank check company DFB Healthcare Acquisitions (DFBHU) priced its 25.0 million share IPO earlier this morning, The deal priced at $10, inline with expectations, raising $250 million in gross proceeds. The lead underwriters on the deal feature two tier one firms in Goldman Sachs and Deutsche Bank. Soon after the pricing, shares opened for trading at its $10 IPO price on the Nasdaq.

Overview

As noted above, DFB Healthcare Acquisitions is a blank check company, which means it does not have any real operating business. Instead, the company was formed explicitly for the purpose of acquiring or merging with another company. In the case of DFBHU, it's strategy will be to identify, acquire, and build a healthcare or healthcare related businesses. Within the healthcare sector, it plans to take a diverse approach, focusing on opportunities in therapeutics, devices, diagnostics, and animal health.

The company was founded by its management team and Deerfield Management Company, which is a healthcare firm with over $9.6 billion in assets under management. Its management team is led by Richard Barasch (President & CEO), who previously was CEO of Universal American Corporation, which was acquired by WellCare Health in April 2017 for $2.5 billion. As CEO of Universal American, Mr. Barasch executed over 20 acquisitions and divestitures.

As for Deerfield Management, its investment activity spans both the public and private markets and it invests across all healthcare sectors, without restriction on the size of the company. In 2017, the firm executed over 50 transactions involving new and existing portfolio companies.

In terms of the specific acquisition opportunities it will be seeking, DFBHU says it will focus mainly on middle-market businesses as it believes it has the strongest network to identify the greatest number of opportunities there. So, it does not intend to acquire start-up companies that do not have a clear-path to profitability.

Also, it will seek businesses that have achieved or have the potential for significant revenue and earnings growth through a combination of organic growth (new products, geographies) and add-on acquisitions. And lastly, it will focus on acquiring companies that have a proven and experienced management team, and, companies that would benefit from being taken public.

The company has not yet identified an initial business combination. But, it says that its anticipates structuring the initial business combination so that the post-transaction company in which its public stockholders own shares, will own or acquire 100% of the equity interests or assets of the target business or businesses.

10:48AM ET
Wendy's Set to Deliver More Capital to Shareholders

Quick service restaurant company Wendy's (WEN 16.59, +0.89, +5.7%) has been actively engaged in a turnaround process that has included restaurant remodeling and transiting its business from a company-owned model to more of a franchise/franchisee model. 

For the most part, investors have liked what they have seen from Wendy's.  It hasn't always been a love-fest, but considering shares of WEN have increased nearly 300% from their 2012 lows, it is evident investors have been pleased with the progress the company has been making.

One of those investors is Trian Fund Management, which is led by activist investor Nelson Peltz, who also has a seat on Wendy's Board of Directors.

The company's Board is factoring prominently in the stock's advance today, as it approved a 21% increase in the quarterly cash dividend rate from $0.07 to $0.085, marking the sixth straight year the dividend has been increased.  In addition, the company was authorized to repurchase up to $175 million of the company's common stock through March 3, 2019.

Wendy's had approximately 239.5 million shares outstanding as of February 13, 2018.  At the current price, then, it could effectively repurchase about 4.4% of the common shares outstanding.

The dividend and buyback news was announced after Thursday's close and it was said to be a testament to Wendy's strong cash flow generation from its sustainable and predictable business model.

Including today's gain, WEN is up 1.0% year-to-date and up 21.2% over the last 52 weeks.

10:41AM ET
MuleSoft breaks out of post-IPO high as investors digest solid FY18 guidance

Shares of software firm MuleSoft (MULE 29.66, 3.53 +13.5%) have grabbed fresh all-time highs in reaction to the company's solid FY18 guidance as Q4 results and the Q1 guide were frankly nothing to write home about. With that being said, the relatively recent IPO (March 2017) reported in-line earnings for the current quarter while revenues lifted better than 60% while beating market expectations.

Given the relative newness of the company on the public markets, it may be prudent to give a refresher on what exactly MULE does. Founded in 2006, MULE is a Software-as-a-Service (SaaS) company which allows customers to connect their devices and apps to the cloud. MULE's Anypoint Platform is built to design, build and manage integration and APIs.

Now back to the print; as mentioned, MuleSoft reported a mostly in-line loss of ($0.12) per share in Q4 while revenues were up more than the market expected -- 60% -- to $88.7 million. Results were driven by 57% growth in Subscription and support revenues to $70.6 million. Professional services and other revenues were up 75% to $18.1 million in the quarter.

Non-GAAP gross margins were 72.9% in Q4 compared to 73.2% in the year-ago period. On a non-GAAP basis, gross margin for subscription and support and professional services revenue each increased year-over-year; however, total gross margin decreased due to the higher mix of services revenue, which has a lower gross margin than subscription and support.

Further, MuleSoft earned the business of more large customers in the quarter; namely, MuleSoft ended 2017 with 45 customers with over $1.0 million in annual contract value, up from 30 at year-end 2016.

The outlook for Q1 was a bit more muted; MuleSoft sees in-line Q1 EPS and revenues at a loss between ($0.07)-($0.09) per share and $87-90 million in revenues.

For FY18, the company sees EPS at a loss which is slated to come in better than the market expects between ($0.26)-($0.30). Revenues are also expected to come in ahead of the Street views at $405-415 million.

Management provided some visibility for revenues going forward; the company set a target of $1 billion in revenues by 2021, which suggests about a 35% CAGR for the next few years.

A vote of confidence, MuleSoft broke out of the post-IPO high at $29 (from late May, 2017) following the strong guidance. The stock had been riding a lower channel between about $20-26 since last August, a level which was broken through this morning as investors give the proverbial nod of approval after earnings.

10:00AM ET
Deere Volatile Post-Earnings/Guidance, Now Near The Unchanged Mark
Shares of Deere (DE 166.60 -0.21) initially trade higher following earnings results, but shortly before the open the stock began to sell off, falling from over $168/share to $164/share. Now, the stock is back near the flat line.

In its earnings release, the company reported first quarter earnings of $1.31 per share, excluding non-recurring items, topping Street expectations. On the top line, revenues (equipment sales) rose 27.2% year/year to $5.97 billion, which easily fell short of expectations.

Affecting first-quarter 2018 results were charges to the provision for income taxes due to the enactment of U.S. tax reform legislation on December 22, 2017 (tax reform). The provisional income tax expense includes a write-down of net deferred tax assets of $715.6 million, reflecting a reduction in the U.S. corporate tax rate from 35% to 21% beginning on the enactment date, as well as the cost of a mandatory deemed repatriation of previously untaxed non-U.S. earnings of $261.6 million, partially offset by a favorable reduction in the annual effective tax rate and other adjustments of $12.1 million. Without these adjustments, first-quarter net income would have been $430.0 million, or $1.31 per share.

Deere has continued to experience strong increases in demand for its products as conditions in key markets show further improvement. Sales gains for the quarter, however, were moderated by bottlenecks in the supply chain and logistical delays in shipping products to our dealers.

Net sales of the worldwide equipment operations increased 27% for the quarter. Deere's completion of the acquisition of the Wirtgen Group (Wirtgen) in December 2017 added 5% to net sales for the quarter. Sales also included a favorable currency-translation effect of 3%. Equipment net sales in the United States and Canada increased 24%, with Wirtgen adding 1%. Outside the U.S. and Canada, net sales increased 33%, with Wirtgen adding 12%, and a favorable currency-translation effect of 5%.

Deere's equipment operations reported operating profit of $419 million for the quarter, compared with $255 million for the period in 2017. Results for the quarter included an operating loss for Wirtgen of $92 million, attributable to the unfavorable effects of purchase accounting and acquisition costs. Excluding the Wirtgen loss, the improvement was primarily driven by higher shipment volumes and lower warranty costs, partially offset by higher production costs.

Looking ahead, the company issued upside guidance for the second quarter, calling for revenue (equipment sales) growth of +30-40%, which calculates to approximately $9.44-10.16 billion, which comes in above current expectations.

For the full year, the company raised revenue (equipment sales) growth expectations to +29% from +22%, which calculates to approximately $33.39 billion, which also comes in ahead of current expectations.

Outlook Details:
Company equipment sales are projected to increase by about 29% for fiscal 2018 and by 30-40% for the second quarter compared with the same periods of 2017. Of these amounts, Wirtgen is expected to add about 12% to Deere's net sales for the full year and about 16% for the second quarter. Also included in the forecast is a positive foreign-currency translation effect of about 3% for the year and about 4% for the second quarter. Net sales and revenues are projected to increase by about 25% for fiscal 2018.

Net income attributable to Deere & Company is forecast to be about $2.1 billion. The net income outlook includes an unfavorable impact of tax reform estimated at $750 million, representing the net impact of the tax provision recorded at the enactment date of tax reform, partially offset by a lower effective tax rate over the remainder of the year.

08:42AM ET
Kraft Heinz Tracks Lower Open After Missing Expectations

Kraft Heinz (KHC 71.49, -1.22) has given up 1.7% in pre-market after missing fourth quarter estimates.

The food company reported below-consensus fourth quarter earnings of $0.90 per share on a 0.3% year-over-year uptick in revenue to $6.88 billion, which was also shy of expectations.

Organic net sales declined 0.6% year-over-year even though pricing increased 1.0% due to increases in the United States and Rest of World. Volume/mix declined 1.6% due to lower shipments across categories like nuts, natural cheese, and cold cuts in the U.S. and cheese and coffee in Canada. The declines were partially offset by growth in macaroni and cheese in the U.S. and strong growth in condiments and sauces in Europe, China, and Indonesia.

Looking at the segment breakdown, net sales and organic sales in the United States declined 1.1% to $4.79 billion. Pricing increased 0.6% while volume/mix declined 1.7%. Segment adjusted EBITDA grew 1.4% to $1.52 billion thanks to cost savings initiatives, lower overhead costs, and higher pricing. The increase was partially offset by unfavorable key commodity costs, lower volume/mix, and higher investment.

Net sales in Canada declined 4.1% to $591 million while organic net sales fell 8.6%. Pricing was unchanged year-over-year while volume/mix fell 8.6% due to lower inventory levels at retail locations, the discontinuation of select cheese products, and lower shipments of coffee. Segment adjusted EBITDA rose 7.1% to $162 million due to favorable exchange rates and gains from cost savings.

Net sales in Europe rose 9.3% year-over-year to $656 million while organic net sales increased 0.9%. Pricing declined 0.9% due to changes in promotional spending levels in Italy, UK, and Russia. Volume/mix rose 1.8% due to growth in condiments and sauces in Germany, Spain, and France. Segment adjusted EBITDA rose 7.4% to $203 million, entirely due to favorable currency translations.

Rest of World net sales rose 5.2% to $843 million while organic net sales grew 7.0%. Pricing rose 5.7% due to actions taken to offset higher input costs in local currency. Volume/mix increased 1.3% as strong growth in China and Indonesia was offset by negative mix impacts in Australia and lower shipments in Brazil. Segment adjusted EBITDA declined 0.8% to $142 million due to unfavorable currency translations.

Kraft Heinz acknowledged that big food companies are facing pressure to consolidate, suggesting the company may be seeking an acquisition target.

07:39AM ET
Yandex hits record high after beating fourth quarter estimates

Yandex (YNDX) closed up 8% at a new all-time high yesterday after the company reported better than expected fourth quarter results.

Yandex is the leading search engine in Russia. Market share of the Russian search market, including mobile, averaged 56.5% in Q4 2017, compared with 54.9% in Q3 2017, and reached 56.7% in December 2017, according to Yandex.Radar. Paid clicks grew 10% while average cost per click grew 9%.

Fourth quarter adjusted net income rose 62% to $91 million or 5.2 billion rubles while revenue excluding traffic acquisition costs grew 26% to $484 million or 27.9 billion rubles. Both figures were better than expected.

On February 7, 2018, Yandex completed the merger of its ride-sharing business Yandex.Taxi with Uber in Russia and neighbouring countries.

The company guided for ruble-based revenue to grow in the range of 25% to 30% in the full year 2018 compared with 2017. This outlook implies consolidation of Yandex.Taxi with Uber's operations in Russia and neighboring countries starting from February 7, 2018, but excludes the effect of potential deconsolidation of Yandex.Market. The company expects Search and Portal ruble-based revenue to grow in the range of 18% to 20% in the full year 2018 compared with 2017.

Yandex has a market cap of just under $14 billion.

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