Morning News: February 15, 2018
Posted by Eddy Elfenbein on February 15th, 2018 at 7:06 am

How Inflation Works (or Why Your Chicken Is Going to Cost More)

It’s Getting Harder to Tell Banks From Tech Companies

Here’s What Warren Buffett Is Buying and Selling Now

AT&T Intensifies Battle for Time Warner by Targeting Trump’s Role

Cisco’s Plan to Bring $67 Billion Back to the U.S. Could Be a Major Windfall for Its Investors

As the Streaming Wars Heat Up, Ryan Murphy Cashes In

Airbus Expects Strong Growth, Looks Past Plane Troubles

Amazon Bets on Band-Aids as Health Industry Braces for Shakeup

Qualcomm Meets Broadcom to Discuss $121 Billion Acquisition Offer

Uber CEO Aims to Pare Losses and Get ‘The Love Back’

McDonald’s Cuts Cheeseburgers From Happy Meals

Is Love More Dependable Than Dependability When It Comes To Brand Loyalty?

Roger Nusbaum: It Was a Bad Week For Volatility

Josh Brown: Of Course & A Message For Young Investors

Howard Lindzon: The Death Of Retail Is The Birth of Retail …Update

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Carriage Services Earns 39 Cents per Share
Posted by Eddy Elfenbein on February 14th, 2018 at 4:38 pm

Carriage Services (CSV) reported Q4 earnings of 39 cents per share. We decided to add the stock this year due to some poor business performance in 2017, so bear in mind that that’s old news.

Mel Payne, Chief Executive Officer, stated, “After eight consecutive years of record performance, our 2017 consolidated operational and financial performance did not meet our reported high performance expectations, as Adjusted Diluted Earnings Per Share declined 14.2% to $1.39, Adjusted Consolidated EBITDA declined 6.8% to $68.7 million, Adjusted Consolidated EBITDA Margin declined 310 basis points to 26.6% and Adjusted Free Cash Flow declined 21.4% to $37.4 million.

Many of the reasons behind the decline in our operating performance were addressed in our Second and Third quarter earnings releases, e.g. weak cemetery preneed sales, lower Field EBITDA Margins of funeral home acquisitions made in 2016 not yet integrated under our Standards Operating Model, and investment in overhead infrastructure and people. However, beneath the covers of the reported performance our company was continuously improving in many areas during the year. We were encouraged by the fourth quarter results from our Acquisition Funeral Home and Cemetery segments as these businesses achieved year over year improvement in both organic revenue growth and Field EBITDA Margins. The momentum shown in these segments in the fourth quarter has accelerated into 2018.

For the year, sales rose 4% to $258.1 million. Earnings-per-share fell 14.2% to $1.39 per share.

For Q4, sales rose 3.5% to $65.1 million. Earnings-per-share rose 8% to 39 cents per share. That was a penny below expectations (of just two analysts).

The best news is that Carriage is increasing its outlook:

We are increasing our Rolling Four Quarter ‘Roughly Right Outlook Range’ of Adjusted Diluted EPS to $2.00 – $2.05, a 16% increase compared to the previous Outlook. The Rolling Four Quarter Outlook includes the impact from the recently enacted tax reform legislation and a continuation of the positive operating momentum we experienced in the latter part of 2017 that has continued into 2018. The Outlook does not include any future acquisition activity, although we are more excited than ever about the industry consolidation landscape and the pipeline of high quality candidates produced by our Corporate Development Team. We expect our effective GAAP tax rate to be in a range of 26%-28% in 2018, compared to our historic rate of 40%.

CPI and Retail Sales Knock the Market
Posted by Eddy Elfenbein on February 14th, 2018 at 8:50 am

Wall Street had been nervous going into this morning because today brought the CPI report for January and the retail sales report.

As it turned out, both were bad. The Dow futures lost 500 points in the blink of an eye. The dollar surged and Treasury yields dropped.

Consumer prices rose 0.5% last month while the core rate was up 0.3%. Both numbers were 0.1% higher than expectations.

The WSJ:

The increase in inflation last month was largely driven by higher prices for gasoline, shelter costs like rent, medical care, food and apparel.

Wednesday’s report showed wage inflation was broadly muted. Real average weekly earnings fell a seasonally adjusted 0.8% in January and were up 0.4% from January 2017.

The report showed overall inflationary pressures are intensifying, and it comes five weeks before Federal Reserve officials’ next scheduled policy meeting in Washington on March 20-21.

Central bank officials have been monitoring the inflation picture closely, looking for signs that a tightening labor market and continued economic growth are generating stronger wage and price increases after years of weak inflation.

This was the highest monthly headline inflation in five years.

The Japanese yen is at an 18-month high:

This was the highest core inflation report in close to 13 years.

Retail sales fell 0.3% last month. That was the biggest drop in 11 months.

The Commerce Department said on Wednesday that retail sales decreased 0.3 percent last month, the largest decline since February 2017. Data for December was revised to show sales unchanged instead of rising 0.4 percent as previously reported.

Economists polled by Reuters had forecast retail sales climbing 0.2 percent in January. Retail sales in January rose 3.6 percent from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales were unchanged last month after a downwardly revised 0.2 percent drop in December. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Morning News: February 14, 2018
Posted by Eddy Elfenbein on February 14th, 2018 at 7:08 am

Cash is King No More in German as Cards Gain Ground

Billions in VIX-Rigging Profits? Bruised Index Takes New Hit

New Hedge-Fund Tax Dodge Triggers Wild Rush Back Into Delaware

IRS Issues Urgent Warning On New Tax Refund Scam – And It’s Not What You’d Expect

Six Top US Intelligence Chiefs Caution Against Buying Huawei Phones

AT&T Is Said to Seek Antitrust Chief as Witness, NYT Reports

Chipotle Turns to Taco Bell’s ‘Doritos Locos’ Chief as New CEO

Credit Suisse Trims Loss, Cites Upside of US Tax Reform

Sam’s Club Makes E-Commerce Push With Amazon Prime Competitor

Blankfein Says Marcus Will ‘Move the Needle’ in Coming Years

Under Armour Struggles to Turn the Page

Uber Posts $1.1 Billion Fourth-Quarter Loss as Revenue Rises to $2.2 Billion

Jeff Carter: CME’s Speed

Michael Batnick: A Worthwhile Timesuck

Ben Carlson: The New Permanent Portfolio for Millennials

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AFLAC Is Splitting 2-for-1
Posted by Eddy Elfenbein on February 13th, 2018 at 4:20 pm

Press release:

Aflac Incorporated (NYSE: AFL) announced today that its Board of Directors has declared a two-for-one stock split of the company’s common stock in the form of a 100% stock dividend payable on March 16, 2018 to shareholders of record as of the close of business on March 2, 2018.

Commenting on the announcement, Aflac Incorporated Chairman and Chief Executive Officer Daniel P. Amos said: “I am pleased with the Board’s action to split Aflac Incorporated’s stock. As you’ll recall, this follows a year of strong share price performance and is on top of our announcement of the Board’s action to approve an increase in the first quarter cash dividend of 15.6%. This is the ninth split of the company’s common stock since listing on the NYSE in 1974 and the first in 17 years. This split enhances the liquidity of our shares, which is in addition to our efforts to increase shareholder value.”

Hershey Looks Good Here
Posted by Eddy Elfenbein on February 13th, 2018 at 11:46 am

One of the signs that we’re late in a stock cycle is that defensive stocks start to underperform the market. This makes perfect sense.

You can really see the effect by looking at a long-term chart of Hershey (HSY), a classic defensive stock. This is Hershey’s share price divided by the S&P 500 Total Return Index.

You can see that HSY has been a very good long-term winner. You can also see how the shares badly lagged in 1999-2000 and again in 2007-08. They’re doing so again. HSY has underperformed for four years, and it recently touched a seven-year low for relative strength.

Of course, that’s not the only analysis required, but it’s a good starting point. HSY is going for 17.2 times next year’s earnings and the stock’s yield is up to 2.6%.

NYT vs AOBC
Posted by Eddy Elfenbein on February 13th, 2018 at 11:00 am

Here’s an interesting stock chart. This shows the price of the New York Times (in blue) along with American Outdoor Brands (in red). That’s the new name for Smith & Wesson.

What gun stocks are for Democratic presidents, large media stocks are for Republican presidents.

Morning News: February 13, 2018
Posted by Eddy Elfenbein on February 13th, 2018 at 7:07 am

Facebook Broke German Privacy Laws, Court Rules

U.S. CPI Report Takes on Bigger Importance After Markets Plunge

Trump’s Infrastructure Plan Puts Burden on State and Private Money

Treasury Yields Will Climb to 3.5% on Fed, Goldman Sachs Asset Management Says

5G Is Making Its Global Debut at Olympics, and It’s Wicked Fast

PepsiCo Leans More Heavily on Snacks as Beverages Fizzle

What Is AmerisourceBergen and Why Does Walgreens Want to Buy It?

Carl Icahn and Darwin Deason are trying to stop the Xerox Fujifilm deal

YouTube Revamped Its Ad System. AT&T Still Hasn’t Returned.

Remington Is Planning to File for Bankruptcy

Barnes & Noble Is Laying Off Workers Amid Declining Sales

Harley CEO Asks Investors for Patience as Sales, Stock Slide

Roger Nusbaum: Volatility Is Back In Town And It’s Angry

Joshua Brown: Larry Bonds & Passive My A**

Jeff Carter: Betting On Same Horse, Different Race

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Some Market Stats
Posted by Eddy Elfenbein on February 12th, 2018 at 1:59 pm

The market is having nice rebound today. The Dow is currently up 500 points. Measuring from Friday’s low, it’s up 1,350 points.

Here are several great stats from this Bloomberg article. Normally, I would use blockquotes, but there are so many good nuggets here:

Even after the rout, the math shows the S&P 500 remains less attractive than it has been 82 percent of the time since the index bottomed in 2009 when compared with yields on U.S. Treasuries.

Currently, the S&P 500’s earnings yield is around 6 percent, 3.1 percentage points more than the 10-year note. The post-crisis average has been 4 points.

So far, the S&P 500 has tumbled in seven of the 10 past days, and plunged into a correction (loosely defined as a 10 percent drop) faster than any time since 1950. In doing so, the index has blown through three round-number milestones, as well as technical support levels indicated by its 50-, 100- and (briefly) 200-day moving averages.

At 16.8 times forecast earnings, the S&P 500’s valuation multiple is now down from a high of 20 in late December. That’s one of the fastest declines since 2009, but it has yet to bring P/Es in line with the average ratio of 15.5 that marked the bottom of the last two corrections. To get there, the S&P 500 would have to fall to 2,417. That’s roughly 8 percent below Friday’s closing level.

Stocks still look cheap to Treasuries when viewed from a wider lens. The current yield spread is more than double the average since 1990 and compares with 2.66 percentage points since 2000. But a rise in 10-year yields to just 3.65 percent (from about 2.85 percent now) would reduce the equity advantage to the 20-year average.

The S&P 500 would have to fall to 2,417 for the P/E Ratio to reach 15.5, which marked the low of the last two corrections.

And this from MarketWatch:

“There have been 16 drawdowns of 10%+ since 1976. Of the 16 corrections, only five occurred around a recession,” Goldman wrote. “Of the remaining 11 non-recession episodes, 1987 was the only one that turned into a bear market.”

During the three months following past corrections, materials have beaten the S&P 500 by a median of 270 basis points. Industrials beat the index in 73% of the periods at a 270-basis point median. Telecom is the worst pick post-correction, lagging the S&P 500 in 64% of periods by a median of 410 basis points, Goldman found.

Low valuation and small-cap stocks historically perform best following a 10% decline, Goldman noted, with its valuation factor handing over a return 63% of the time at 350 basis points on average. Additionally, high volatility beats low volatility in a post-correction environment: low volatility lagged high volatility by 610 basis points on average in 87% of post-correction periods.

Morning News: February 12, 2018
Posted by Eddy Elfenbein on February 12th, 2018 at 7:11 am

The Fed is Officially in a Nailbiting Showdown With Wall Street

Mulvaney Says CFPB Under His Direction Is ‘Not Being Aggressive’

Record $23 Billion Flees World’s Largest ETF

Bitcoin Closes in on $9,000 as Regulatory Fears Peter Out

General Dynamics Buying CSRA for $6.8 Billion

Ford Revs Up Large SUV Production to Boost Margins, Challenge GM

Barclays Bank Unit Charged by SFO Over 2008 Qatar Loan Deal

Instacart Adds $200 Million to Defend Against Amazon Delivery

Unilever Threatens Online Ad Cuts to Clean Up Internet

Nvidia’s Cryptic Road Ahead

After Settling With Uber, Waymo Faces Bigger Challenges

With Qualcomm in Play, San Diego Fears Losing `Our Flag’

Howard Lindzon: The Shift to Decentralization

Michael Batnick: An Unprecedented Decline

Ben Carlson: Some Random Observations On The Market Correction

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