Market Wrap: Energy Sector Declines Sap Stocks More Broadly

October 22, 2014, 10:12 am

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Filed under: Energy, Earnings, Market News

By BERNARD CONDON

NEW YORK -- Stocks fell broadly on Wednesday, snapping a four-day winning streak for the Standard & Poor's 500 index, as investors shaken by recent swings in the market sold some of their holdings.

A slide in the price of oil dragged down energy stocks. Eight of the 10 industry groups in the S&P 500 fell, led by a 1.7 percent drop in energy. Small-company stocks also fell as traders unloaded riskier assets.

"The market is still nervous," said John Manley, chief equity strategist at Wells Fargo Funds Management. "The extreme volatility of the last few weeks is on our minds."

The drop in the S&P 500 came a day after the index's biggest gain this year.

Stocks were higher most of the morning on hopes that the European Central Bank would add to its stimulus program as well as news that U.S. inflation remained low last month. A batch of good earnings reports from U.S. companies also helped.

Those gains vanished in the afternoon as the price of crude oil began to drop. Traders have worried about a steady decline in oil as global demand for energy recedes.

"The market is taking a bit of breather," shrugged TD Ameritrade Chief Strategist JJ Kinahan. "People are reassessing what their expectations should be for the rest of the earnings season."

The S&P 500 (^GPSC) dropped 14.17 points, or 0.7 percent, to 1,927.11. The Dow Jones industrial average (^DJI) fell 153.49 points, or 0.9 percent, to 16,461.32. The Nasdaq composite (^IXIC) fell 36.63 points, or 0.8 percent, to 4,382.85.

The losses were mitigated by a batch of generally positive third-quarter earnings reports, which suggested that corporate profits were still growing at a healthy clip. Yahoo jumped 5 percent after reporting blowout earnings.

The closely watched VIX index, a gauge of expected swings in stock prices, surged nearly two points to 18. That is above the recent average of 15, but far below last week's high of 30.

TD Ameritrade's Kinahan suggested investors may have pushed up the VIX in reaction to news of a gunman killing a soldier outside a war memorial in Canada earlier in the day. But he was doubtful the shooting impacted the overall market much.

A big question hanging over stocks is just how good can corporate earnings get as Europe inches closer to recession and China slows.

So far this earnings season, investors have been encouraged. With about a fifth of S&P 500 companies out with their results and outlooks, stocks look reasonably priced as measured by expectations of future earnings. The index is trading at 15.8 times expected earnings per share over the next 12 months, according to S&P Capital IQ, a research firm. That is not much lower -- meaning cheaper -- than the average of 16.4 since 2001.

But other measures, comparing stock prices to earnings over the past 10 years, for instance, suggest the market may be overvalued.

Investors will get a clearer view on Thursday, a big day for earnings across industries. Those reporting include Microsoft (MSFT), 3M (MMM), Amazon.com (AMZN), Caterpillar (CAT) and United Continental (UAL).

The government reported that consumer prices rose 1.7 percent in the year to date through September, below the 2 percent target set by the Federal Reserve. Low inflation has allowed the central bank to keep rates at record lows to help the economy by encouraging lending and hiring.

Frank Fantozzi, CEO of money management firm Planned Financial Services, says low inflation is another reason to resist selling when stocks are dropping, like they did Wednesday.

"Energy prices are pretty low and wages have stayed pretty flat. You look at that, and GDP growing pretty healthily, and there are too many good things," Fantozzi said. "The market should push through this."

Among stocks making big news:

• Broadcom (BRCM), a semiconductor company, rose 5.5 percent, the largest gain in the S&P 500, after reporting earnings late Tuesday that topped Wall Street estimates. The stock rose $2.04 to $39.37.
• Biogen Idec (BIIB) dropped 5 percent despite a strong quarter. The drug company said a patient who took its newest multiple sclerosis drug suffered a brain inflammation and later died. The stock dropped $17.70 to $309.07.

The price of oil fell sharply after the Energy Department reported an increase in oil inventories that was far larger than analysts expected. The benchmark U.S. crude contract fell $1.97 to $80.52 a barrel in New York.

Brent crude, a benchmark for international oils used by many U.S. refineries, fell $1.51 to close at $84.71 on the ICE Futures exchange in London.

In other energy futures trading on the NYMEX, wholesale gasoline fell 5.7 cents to close at $2.156 a gallon, heating oil fell 4.0 cents to close at $2.473 a gallon and natural gas fell 5.2 cents to close at $3.659 per 1,000 cubic feet.

Bond prices didn't move much. The yield on the 10-year Treasury note held steady at 2.22 percent.

Gold fell $6.20 to $1,245.50 an ounce, silver fell 32 cents to $17.23 an ounce and copper fell a penny to $3.02 a pound.

What to Watch Thursday:

• The Labor Department report weekly jobless claims at 8:30 a.m. Eastern time.
• The Federal Housing Finance Agency releases its house price index for August at 9 a.m.

These major companies are scheduled to release quarterly financial statements:

• 3M (MMM)
• Altera (ALTR)
• Amazon.com (AMZN)
• American Airlines Group (AAL)
• Caterpillar (CAT)
• Comcast (CMCSA) (CMCSA)
• Credit Suisse (CS)
• Dr. Pepper Snapple Group (DPS)
• Dunkin' Brands Group (DNKN)
• Eli Lilly (LLY)
• General Motors (GM)
• Jarden (JAH)
• JetBlue Airways (JBLU)
• Juniper Networks (JNPR)
• KKR & Co. (KKR)
• Lorillard (LO)
• Microsoft (MSFT)
• Nokia (NOK)
• Pandora Media (P)
• PulteGroup (PHM)
• Quest Diagnostics (DGX)
• Royal Caribbean Cruises (RCL)
• Southwest Airlines (LUV)
• T. Rowe Price Group (TROW)
• Under Armour (UA)
• Unilever NV (UN)
• Unilever PLC (UL)
• Union Pacific (UNP)
• United Continental Group (UAL)

 

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Toxic Chemicals Taint Many Halloween Costumes, Products

October 22, 2014, 5:02 pm

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Filed under: Consumer Ally, Consumer Issues, Spending

Getting ready for a night of trick or treating with the kids or grandkids? Better check that store-bought costume or bag, because it may be packed with toxic chemicals, according to a study out today by the nonprofit Ecology Center's HealthyStuff.org project.

HealthyStuff.org tested 105 Halloween items -- 44 costumes, 40 accessories and 21 decorations and party favors -- for chemicals linked to asthma, birth defects, learning disabilities, reproductive problems, liver toxicity and cancer. The chemicals included lead, bromine from flame retardants, chlorine from vinyl or PVC plastic, phthalates, arsenic, tin, lead, chromium, cadmium and mercury. The products were purchased from such retailers as CVS (CVS), Kroger (KR), Target (TGT), Walmart (WMT), Walgreens (WAG) and Party City.

"We don't want to frighten consumers, but we do think there's a public health concern," Rebecca Meuninck, environmental health campaign director, told DailyFinance. "These [substances] don't need to be in these products. There are safer alternatives. And there were products that didn't have any hazards." The results:

• Almost one-third contained antimony.
• 33 contained vinyl.
• Ten, mostly decorations and party accessories, contained bromine.
• Five had high levels of lead, and seven had lower lead levels.
• Two contained high levels of phthalates that were recently banned in children's products.

Risks for Children, Adults

Some substances -- like the heavy metals lead, chromium, and cadmium -- act as neurotoxins and are unsafe at any dosage. Others -- like some flame retardants that Meuninck said have been linked to certain cancers and neurotoxicity -- fall off products as dust and build up in people's systems over time. They appear in many household products -- such as as carpeting and televisions -- and can take longer to exhibit effects.

Meuninck says that having potentially harmful chemicals in bags that hold candy or items that children can play with is an unwarranted risk.

DailyFinance contacted all the companies mentioned in the report. Of those, Walmart, Party City and CVS responded before publication. Target and Walgreens acknowledged the request for comment, but were unable to send statements in time. Kroger and Disney (DIS) did not respond at all.

What the Retailers Said

Here is Walmart's response:

At Walmart we take the issue of product safety very seriously. Standard testing procedures are in place for our products to assure compliance with all regulatory requirements and give customers trust in the quality, and safety of items on our shelves. We are reviewing this matter further with our suppliers and will perform additional testing if necessary to help ensure items meet applicable requirements.

Party City's statement included the following:

Party City is dedicated to ensuring that all of its supplier's products meet or exceed federal, state and municipal requirements.

To this end, Party City requires testing and compliance of its suppliers' products by using nationally recognized product testing organizations. Any product that fails to meet governmental or Party City's standards will not be distributed.

Regarding alleged levels of either brominated and chlorinated flame retardants, antimony compounds, or organotin compounds, Party City requires all of its suppliers to meet applicable standards for bromated and other flame retardants. For the two items allegedly with high levels of certain chemicals, we shall inform the suppliers, investigate the allegations and take necessary actions.

This is Target's statement:

Target is committed to providing high quality and safe products to our guests. The product in question meets all federal product safety requirements. Any additional questions should be directed to the manufacturer identified on the product.

And here is the CVS response:

We are committed to ensuring that the products we sell are safe and of high-quality. We will be reviewing [the] findings.

According to Meuninck, there are two major problems:

• Federal standards are old and typically splintered among different agencies. "[The products] likely are up to the current standards," she said. "Our arguments are those standards do not protect health." Furthermore, some regulatory language is very narrow. Under the applicable standard a toy is "essentially a product made for the care, feeding, or soothing of a child under the age of 3," she said. "However, we know exposure to toxic chemicals happens well past 3. Costumes and decorations may not count as toys even though kids will play with them like any other toy."
• For overseas factories, manufacturers "don't necessarily know enough about their supply chain for really complex products that have different fabrics and foams that aren't necessarily manufactured in one shop," Meuninck said.

Consumers have safer options, according to the Ecology Center. They include using an old pillow case for a candy sack, making costumes out of cloth or paper bags and boxes, using face paints or making masks out of papier-mâché.

Updated (12:05 p.m.): Walgreen sent the following statement:

We have stringent requirements and proactively work with our vendors to ensure the quality, safety and regulatory compliance of the products we offer for sale. We don't know what methodology HealthyStuff.org used to test these products, so we can't comment on their accuracy. We have verified that our own testing or our vendors' testing for Walgreens owned-brand products listed by HealthyStuff.org showed full compliance with safety requirements.

 

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Texting Scammers to Pay $10 Million to Settle FTC Suit

October 22, 2014, 11:00 pm

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Filed under: Consumer Ally, Consumer Protection, Junk Mail and Telemarketing, Ripoffs & Scams

Three sets of companies accused of bombarding millions of consumers with texts that set them up for scams of all sorts -- including unauthorized cell phone charges, illegal telemarketing calls and fake offers for free gift cards -- agreed to pay $10 million to settle government charges, the Federal Trade Commission said on Wednesday.

The scam involved sending texts that enticed consumers to sign up for what purported to be an offer to get a gift card, typically for $1,000, from major retailers including Best Buy (BBY), Walmart (WMT) and Target (TGT). Instead, those who took the bait were led down a path that cost many of them money and caused most of them a lot of annoyance.

To qualify for the supposed gift cards required providing a lot of personal information. Those details were typically sold to marketing companies that tried to sell subscription services, the FTC said.

"The operators of this scam bombarded consumers for months with deceptive text messages offering 'free' items, but the costs to consumers were very real -- including the misuse of their personal information to cram unwanted charges on their phone bills," said Jessica Rich, director of the FTC's Bureau of Consumer Protection.

The Judgment

The FTC's announcement didn't say if consumers who lost money would be compensated.

The bulk of the settlement is to be paid by one of the groups of defendants. Acquinity Interactive; 7657030 Canada 1; Garry Jonas; Gregory Van Horn; Revenue Path E-Consulting; Revenuepath; and Sarita Somani, were accused of sending the text messages and cramming phone bills with unauthorized charges. They are required to pay $7.8 million.

Polling Associates Inc. and Boomerang International and its principals must pay to $1.4 million to settle charges for their role in alleged cell phone bill cramming.

The last group, which allegedly made millions of illegal robocalls, had an $8 million judgment suspended due to its inability to pay. Firebrand Group, Worldwide Commerce Associates and Matthew Beucler instead had to pay $100,000 and surrender assets including a Cadillac Escalade, two motorcycles and a piece of property in California.

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A Little Living Above My Means Taught Me a Lot of Lessons

October 22, 2014, 11:00 pm

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Filed under: Life Stage Lessons

Every one of us has had "aha! moments." Epiphanies. Days when we reach a crossroads and realize that we have to make some changes. For the next two months, we're sharing moments like those in our Life Stage Lessons series: Real stories straight from the financial lives of our DailyFinance contributors about times when they realized they were due for a serious course correction. So read on, learn from our mistakes, and get inspired to improve your relationship with your money.

There's no other experience quite like getting that first grownup paycheck. Granted, I was close to 30 before that happened to me -- but still, it meant no more ramen noodle dinners, no more thrift shop fashions or hand-me-down furnishings. Most of all, my first solo apartment.

It was cause for celebration, but I celebrated too much -- not in a bar but in a mall. Worse, I used credit cards to pay for it. I'm hardly the first to make that mistake.

There's an old saying: "You live up to your income." That is, as your paycheck rises, so do your expectations, and your "basic" living expenses. There's nothing wrong with living well.

Average Credit Card Debt Is $15,000

But, increasingly, people are borrowing up to their incomes, too. And that is a trap. In 2014, the average household that uses credit cards has more than $15,000 in revolving credit debt, according to an analysis by NerdWallet. That's in addition to any mortgage and student loan debt.

For many of us, refusing to use credit cards is simply not an option. Without one, it is difficult or impossible to rent a car, pay for a business lunch, book a hotel, cover an emergency, or get a haircut the day before payday.

But excessive revolving debt limits your options, for now and for the future. If you're dancing as fast as you can, slow down and work out a plan. Here's what worked for me:

• I got rid of all my credit cards, except for two. I kept an American Express (AXP) card -- the zero-status green card that must be paid in full each month. Plus, I kept one MasterCard (MA), although Visa (V) will do just as well. The AmEx was for routine purchases. The other was for purchases at businesses that didn't take AmEx and for emergencies that could not be covered in one month.
• I paid off my debt slowly but surely, one card at a time, starting with the card with the highest interest rate and paying more than the minimum each month. (That's called the snowball method.) Every extra dollar I could scrape together at the end of the month went to that card payment. It felt great.

My Rules to Stay Out of Trouble

Longer term, it's all about passive resistance. Years later, I still have just those two cards, and I'm still resisting any and all offers of new credit. That includes these personal rules:

• Never accept an offer of "special savings on your purchase" if you open a credit line at a department or specialty store. The interest rates on store cards are notoriously high.
• Resist upgrading your American Express card to one that allows payments over time. You don't want the option to bust your budget.
• Set up your automatic monthly payments straight through your checking account, rather than through your credit card, to avoid balance bloat.
• If you feel your credit line is insufficient, you've probably allowed too much debt to pile up again. Pay it off before you make another big purchase.
• If you're a good customer, the bank that issues your credit card probably will automatically boost your credit limit from time to time. Stay strong in the face of this added temptation.

One more thing: Take a look at your monthly credit card statement. It shows how long it will take you to pay off your balance and how much interest you'll pay if you pay only the minimum each month. (The short answers are "forever" and "tons.") It also shows the same numbers if the monthly payment is about 50 percent more than the minimum. This information is highly motivating.

 

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Halloween Is Raking in Scary Profits for Theme Parks

October 22, 2014, 11:00 pm

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Filed under: Company News, Market News, Industry News, Entertainment Industry, Investing

There was a time when this was the sleepy part of the calendar for amusement parks. With summer vacationers back in school, seasonal parks went into hibernation. The year-round parks tried to make the most of the off-season, wooing foreigners and conventions who don't necessarily hew to the same seasonal tendencies as stateside teens and families.

However, things have started to change in recent years as parks embraced the magnetic appeal of Halloween. Six Flags (SIX), Cedar Fair (FUN), SeaWorld's (SEAS) Busch Gardens and Comcast's (CMCSA) Universal Studios are dolling up their parks with haunted houses and other scary attractions.

Disney (DIS) is opting for a more family-friendly approach in hosting Mickey's Not-So-Scary Halloween, where children can go trick-or-treating through the Magic Kingdom in Florida and see festive themed shows. All the nights of Mickey's Halloween Party in Disneyland have sold out.

Rising From the Dead

Halloween Horror Nights at Universal Studios Florida is a tradition that is now 24 years strong. Six Flags began dabbling in haunted houses in the 1970s before arriving at Fright Fest in 1989. It debuted at Six Flags Over Texas, expanding to what will now be 13 of the chain's parks this season.

"Fright Fest 2013 was our best ever as we increased our investment in the offering and guest satisfaction rose to new heights," Six Flags CEO Jim Reid-Anderson said after last year's season. "These types of events extend our operating season, allowing us to utilize our available capacity, leverage our fixed costs and provide a diversified product offering to single-day guests as well as our loyal season-pass and membership base."

The ability for seasonal parks to stay open later in the year is huge given the high fixed costs associated with operating an attraction. It's even sweeter for the premium outfits that can charge extra for the nightly events.

Disney is charging $71 a night for Mickey's Not-So-Scary Halloween, and Universal Studios Florida is commanding as much as $95.99 for Halloween Horror Nights. Both parks are open earlier in the day for regular guests, and then closing early so they can reopen for the Halloween revelry on select nights that started as early as Labor Day.

Grave Matters

I made my way out to Halloween Horror Nights at Universal Studios Florida on the first Sunday of October. The park was crowded, with waits as long as 90 minutes for some of the eight haunted houses set up throughout the park's sound stages. A security official confided that there were 17,000 guests at the park that night, but that figure would balloon up to 30,000 on Saturday nights by the end of the month. Between admissions, VIP experiences and money spent on food and drinks, the park is raking in millions a night.

Not everybody charges extra for their Halloween events. SeaWorld includes Halloween Spooktacular for day guests during October weekends. Legoland charges for Brick-or-Treat at its California park, but it's included for day guests in Florida.

Motley Fool contributor Rick Munarriz owns shares of Walt Disney. The Motley Fool recommends and owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor -- no tricks included -- check out our free report.

 

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Yahoo CEO Defends Strategy in Face of Criticism

October 22, 2014, 11:28 pm

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Filed under: Technology, Yahoo, Internet, CEOs, Investing

By MICHAEL LIEDTKE

SAN FRANCISCO -- Signaling her reign has reached a pivotal juncture, Yahoo CEO Marissa Mayer is trying to convince restless shareholders that the long-struggling Internet company is heading in the right direction.

Mayer staunchly defended her strategy during a Tuesday presentation that addressed recent criticism leveled by activist investor Starboard Value, a New York hedge fund with a history of leading shareholder mutinies.

Starboard contends that since Mayer became CEO in July 2012, Yahoo (YHOO) has been wasting money on ill-advised acquisitions and a bloated payroll while mismanaging its lucrative stake in Chinese e-commerce company Alibaba Group (BABA).

In her rebuttal, Mayer described the $1.6 billion spent her more than 30 acquisitions as smart investments that have made Yahoo more competitive in the increasingly important mobile-device market. She also highlighted cost-cutting measures that have included closing eight offices, dumping 65 products and jettisoning about 1,600 contractors.

This team has now been in place for two years and we've achieved much more than many people realize.

And she insisted that Yahoo wouldn't have been in a position to make as much money as it has on its Alibaba holdings if she hadn't taken steps to ease "years of tension and hard feelings" that existed between the two companies before she came to Yahoo.

"This team has now been in place for two years and we've achieved much more than many people realize," Mayer said.

Starboard didn't immediately respond to requests for comment late Tuesday.

Yahoo's biggest problem has been its inability to sell more digital advertising, even though marketers are shifting more of their budgets to the Internet and mobile devices.

The issue surfaced again in Yahoo's latest quarterly results, even though the company fared slightly better than analysts anticipated. Yahoo's revenue during the three months ending in September rose by just 1 percent from last year to $1.15 billion, a dramatic contrast to the 20 percent increase posted by rival Google (GOOG).

Yahoo's share of the roughly $141 billion worldwide market for digital advertising now stands at 2.4 percent, down from 3.9 percent in 2011, according to the research firm eMarketer. Google holds a 32 percent share Facebook's (FB) shares stands at 8 percent.

Mayer, a former Google executive, is the sixth CEO since 2007 to try to turn around Yahoo. It remains unclear whether she is on the right track, said Forrester Research (FORR) analyst Shar VanBoskirk.

"I don't think anyone is in a hurry to get [Mayer] out of there, but the company remains a bit of a question mark," VanBoskirk said. "This is a critical time for her to demonstrate she has a long-term vision."

Vote of Confidence

Investors gave Mayer a vote of confidence Tuesday, prompted in part by the third-quarter earnings. Yahoo's stock added $1.50, or 3.7 percent, to $41.68 in extended trading.

When Mayer arrived, Yahoo's stock was trading at just $15.65. But most of those gains since then have been driven by Alibaba's evolution into one of the world's most profitable Internet companies rather than anything Yahoo has been doing -- a point that even Mayer has acknowledged.

Before Alibaba went public in a record-setting IPO last month, Yahoo provided one of the few ways for investors to own a piece in Alibaba. That's because Yahoo owned a 23 percent stake in Alibaba leading up to the initial public offering.

As part of the IPO, Yahoo sold 140 million shares of its Alibaba stock to generate a pre-tax windfall of $9.5 billon that was booked in Yahoo's third quarter. Lifted by that one-time gain, Yahoo earned $6.8 billion, or $6.70 a share, in the third quarter.

Yahoo still owns nearly 384 million Alibaba shares currently worth about $35 billion, eclipsing the value of Yahoo's ongoing Internet business.

Now, Yahoo shareholders want to know how Mayer will spend the money from the recent windfall and whether she will come up with a way to reduce future taxes when the remaining Alibaba stock is eventually sold.

After taxes, Yahoo pocketed about $6 billion from the Alibaba IPO. Mayer has promised to return at least half that amount to shareholders, most likely by buying back stock. Yahoo has spent $7.7 billion buying back 293 million shares during Mayer's tenure so far.

Starboard wants Mayer to spell out a plan that will reduce Yahoo's taxes on future sales of Alibaba stock, possibly by spinning off the stake. Mayer didn't shed much light on that issue Tuesday, saying only that Yahoo is consulting with tax experts and will provide more details in January.

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GM 3Q Profit Nearly Doubles, Led by North America

October 23, 2014, 12:50 am

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Filed under: Earnings, General Motors, Automotive Industry, Manufacturing, This Built America

By TOM KRISHER

DETROIT -- Big profits from rising SUV and truck sales in North America helped General Motors nearly double its third-quarter net profit and more than offset its struggles in Europe and South America.

The automaker posted net income of $1.38 billion, or 81 cents a share. In the year-ago quarter, GM made $698 million, or 45 cents a share.

The July-September quarter was the first this year without significant charges for recalls. GM has issued 75 recalls in 2014 covering more than 30 million vehicles, costing the company more than $2.8 billion.

Without $331 million in one-time items, GM would have made 97 cents a share, exceeding Wall Street's expectations. Analysts polled by FactSet expected 95 cents.

Revenue grew 2 percent to $39.25 billion, above expectations of $38.79 billion. GM (GM) shares rose more than 2 percent in premarket trading.

In North America, revamped pickup trucks and SUVs helped to push GM's pretax profit up 12.1 percent to just over $2.4 billion. The company's profit margin -- the amount of revenue it gets to keep -- hit 9.5 percent, the fifth-straight quarter of growth. In China, pretax profit rose 14 percent to $484 million.

GM's North American wholesale vehicle sales rose about 60,000 over last year, and half the increase came from pickup trucks and SUVs with high sales prices, said Chief Financial Officer Chuck Stevens.

"The new trucks and SUVs are more profitable than the ones they replaced. That certainly helps from a profit perspective," he said.

GM sold 884,000 vehicles in North America during the quarter, an increase of 9.4 percent.

But the company's loss in Europe, including Russia, grew 63 percent to $387 million. GM also lost $32 million in South America. But Stevens said both regions improved from previous quarters as cost cuts took hold. The company expects to record a pretax profit in Europe during 2016.

Stevens said GM spent about $700 million on recall repairs during the third quarter, although the expenses were booked during the first half of the year. The biggest recall expense stems from the call back of 2.6 million small cars to fix faulty ignition switches that have been linked to 29 deaths. GM has hired compensation expert Kenneth Feinberg to pay victims and their families and expects to pay $400 million to $600 million in claims.

GM said the quarter included $200 million in restructuring costs, mainly for the closure of an assembly plant in Germany.

 

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Weekly Jobless Claims Rise; 4-Week Average Lowest Since 2000

October 23, 2014, 1:33 am

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Filed under: Personal Finance, Labor, Economic Indicators, Job Market, Unemployment

By Lucia Mutikani

WASHINGTON -- The number of Americans filing new claims for unemployment benefits rose last week, but the underlying trend remained consistent with a firming labor market.

Initial claims for state unemployment benefits increased 17,000 to a seasonally adjusted 283,000 for the week ended Oct. 18, the Labor Department said Thursday.

Claims had declined for three straight weeks and last week's increase was in line with economists' expectations.

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 18,260 to 281,000, the lowest level since May 2000.

A Labor Department analyst said there were no special factors influencing the state level data.

The claims data covered the week during which the government surveys businesses for October's nonfarm payrolls. The four-week average fell 18,750 between the September and October survey periods, suggesting another month of solid employment gains.

Payrolls increased by 248,000 last month and the unemployment rate fell below 6 percent for the first time since July 2008.

The jobless claims report showed the number of people still receiving benefits after an initial week of aid fell 38,000 to 2.35 million in the week ended Oct. 11.

That was the lowest reading for the so-called continuing claims since December 2000.

 

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Weekly Jobless Claims Post Larger-Than-Expected Rise

October 23, 2014, 1:50 am

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Filed under: Economy

The U.S. Department of Labor has released its latest installment of weekly jobless claims. The report came in at 283,000. Bloomberg was calling for 285,000. The prior week's reading was initially reported as 264,000, but that was revised to 266,000. This may seem like a big jump on the surface, but it remains well under the 300,000 mark and is more or less in line with the estimates.

As we usually see, the Bureau of Labor Statistics said that no special factors had an impact on this week's initial claims.

The four-week moving average was 281,000, a drop of 3,000 from the prior week's revised average, and it was the lowest level for this average since May 6, 2000.

The advance number for seasonally adjusted insured unemployment — the continuing claims — was 2,351,000 during the week ending October 11, down some 38,000 from the previous week's unrevised level of 2,389,000. This was listed by the Labor Department as the lowest level for insured unemployment since December 23, 2000.

The good news here is that jobless claims have remained handily under the 300,000 mark, despite weak numbers elsewhere.

ALSO READ: 24/7 Wall St. Guide to Fracking

 

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Federal Reserve Showing Better Economic Picture at National Level

October 23, 2014, 2:30 am

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Filed under: Economy

The Chicago Federal Reserve's National Activity Index (CFNAI) rose to +0.47 in September from -0.25 in August. Three of the four economic categories made positive contributions to the index in September. Also, there were three of the four categories that posted increases from August. The CFNAI was constructed using data available as of October 21, 2014. At that time, September data for 50 of the 85 indicators had been published.

While this is a regional Federal Reserve branch, the report measures national activity.

The index's three-month moving average, CFNAI-MA3, increased to +0.25 in September from +0.16 in August, its seventh consecutive reading above zero. The economic growth reflected in this suggests limited inflationary pressure from economic activity over the coming year. The CFNAI Diffusion Index rose to +0.24 in September from +0.18 in August.

There were some 58 of the 85 individual indicators that made positive contributions to the CFNAI in September, while 27 made negative contributions. Some 56 indicators improved from August to September, while 29 indicators deteriorated. Of those indicators that improved, 12 made negative contributions.

Individual component data was follows:

• Production-related indicators made a contribution of +0.30 to the CFNAI in September, up from -0.20 in August.
• Employment-related indicators contributed +0.22 to the CFNAI in September, up from +0.04 in August.
• The contribution of the consumption and housing category to the CFNAI decreased to -0.13 in September from -0.09 in August.

ALSO READ: 24/7 Wall St. Guide to Fracking

 

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Sears Closing 100 Stores, Laying Off Over 5,000 Workers

October 23, 2014, 2:34 am

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Filed under: Company News, Retail, Layoffs, Consumer Issues, Stores

By Sruthi Ramakrishnan

Struggling retailer Sears Holdings (SHLD) will lay off at least 5,457 employees and close over 100 stores, many before Christmas, according to a Seeking Alpha report citing liquidation notices and employees.

Sears shares rose 4.6 percent to $36 in premarket trading.

At least 46 Kmart stores, 30 Sears department stores and 31 Sears Auto Centers are scheduled to close before the end of January, the report said.

Sears officials weren't immediately available for comment.

The company, which is struggling to reduce costs as its sales dwindle, closed 75 Kmart stores and 21 Sears stores in the first half of 2014.

It said last week that it would lease out seven stores, including the one at Pennsylvania's King of Prussia Mall, to discount fashion chain Primark for an undisclosed amount.

Sears had 1,077 Kmart stores and 793 Sears stores in the United States as of Aug. 2. The company had 226,000 U.S. employees as of Feb. 1.

 

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Mortgage Rates Continue Slide for Fifth Straight Week

October 23, 2014, 3:29 am

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Filed under: Mortgages, Refinancing, Real Estate, Housing Market, Home Buying

WASHINGTON -- Average U.S. long-term mortgage rates continued to slide this week, raising prospects of a wave of consumers refinancing their loans. The 30-year mortgage fell further below 4 percent.

Mortgage company Freddie Mac said Thursday that the nationwide average for a 30-year loan declined to 3.92 percent from 3.97 percent last week - the lowest level since June 2013. It stood at 4.53 percent back in January. The average for a 15-year mortgage, a popular choice for people who are refinancing, fell to 3.08 percent from 3.18 percent.

It was the fifth straight week that mortgage rates retreated.

The possibility of locking in a mortgage rate below 4 percent can be tantalizing for consumers. Across the country last week, homeowners and would-be homeowners eager for a bargain rate fired off inquiries to lenders.

Before last week, many bankers, lenders and borrowers had assumed that mortgage rates would soon start rising closer to a two-decade average of 6 percent. That was based on expectations that the Federal Reserve would start raising its key short-term rate next year - a move that likely would lead to higher mortgage rates.

But that assumption fell suddenly into doubt as stocks plunged last Monday and Wednesday amid fears about global economic weaknesses, the spread of Ebola and the threat of the Islamic State militia group in the Middle East.

Seeking safety, investors poured money into U.S. Treasurys. Higher demand drives up prices for those government bonds and causes their yields to drop. The yield on the 10-year note traded as low as 1.91 percent last Wednesday.

This week the yield on the benchmark Treasury note recovered to 2.22 percent Wednesday. It traded at 2.26 percent Thursday morning.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country between Monday and Wednesday each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

• The average fee for a 30-year mortgage was unchanged from last week at 0.5 point. The fee for a 15-year mortgage also remained at 0.5 point.
• The average rate on a five-year adjustable-rate mortgage slipped to 2.91 percent from 2.92 percent. The fee was steady at 0.5 point.
• For a one-year ARM, the average rate rose to 2.41 percent from 2.38 percent. The fee held at 0.4 point.

 

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One Simple Act Can Protect You From Credit Card Fraud

October 23, 2014, 3:44 am

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Filed under: Identity Theft, Credit, Personal Finance, Credit Cards

By Matt Schultz

Fourteen times a day.

That's how often the average Facebook (FB) user with a smartphone checks the social network, according to a 2013 International Data Corp. study commissioned by Facebook. Add all those visits up, and smartphone users spend about a half hour each day just on that one website.

We don't think anything of visiting our favorite sites every day, often more than once. But what about your bank's website, or your credit card issuer's? How often do you visit them? The answer is likely very different. And in this age of data breaches and fraud, that can lead to trouble.

When you log in to your bank or credit card website, you might be surprised to see just how many transactions there are. After all, you probably can't recall every single purchase you made in the past 30 days -- possibly even the past 10 days. We all have more important things to think about than the last time we got gas or a soda at the convenience store. That's a problem. And it's one that credit card and debit card fraudsters count on.

The $2 Test

One of the most common ploys used by credit card fraudsters is to make a small purchase at a gas station or a convenience store to make sure that the stolen credit card information they have is valid, and that the account is still active. Keeping that initial purchase small helps them avoid setting off any alarm bells with the victimized cardholder.

Think about it: If you saw a strange $2 purchase on your card from a few weeks ago, how likely would you be to take the time to call your issuer and have the charge wiped out? Would you even be sure it was a mistake? And that assumes that you would even notice the charge. So how do fight this kind of fraud? With more frequent visits to your banks' websites.

• Make it part of your routine. We're all creatures of habit, so build checking your bank accounts into your daily schedule. It may seem a little unusual at first, but after a few days, it'll be old hat and you won't even think about it.
• Focus more on your checking account. Not willing to check all your accounts so often? If you're only up for adding one to your daily routine, make it your checking account. That's because time is of the essence when it comes to debit cards and fraud. With a credit card, federal law typically limits your liability for fraudulent activity to $50, regardless of when you report the activity. That's not the case with debit cards: If you report the fraudulent debit card activity within two days of seeing it, your liability under federal law is $50. Wait longer than that and your liability shoots up to $500. (If you wait more than 60 days, there may be no limits to your liability.) Plus, remember that debit card fraud takes real money out of your bank account -- money that can take up to two weeks for the bank to replace. That missing money could cause a mortgage payment or car payment to bounce, and that can cause even bigger problems.
• Remember that it gets easier the more often you do it. If it's the first time you've checked your bank account, it might take a little while to review several dozen transactions. But when you log in the next day, and every day thereafter, you'll only have a few to check out -- and chances are that they will be fresh in your mind, so any fraudulent ones stick out like a sore thumb.

The vast majority of times you check your account online, it'll take only a minute or so, and nothing will look amiss. But if the day comes when something does look strange, you'll be ready to act and you'll be glad you took the time -- even though it briefly kept you from viewing pictures of your friends' kids or videos of piano-playing cats on Facebook.

 

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Boeing Quarterly Earnings: By the Numbers

October 23, 2014, 4:21 am

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Filed under: Earnings, Manufacturing

The earnings trend for Boeing (BA), North America's largest jet manufacturer, continued its upward climb Thursday, beating analysts' estimates on earnings per share. Revenues grew by 7 percent and earnings by 17 percent compared to last year's third quarter, while EPS rose 23 percent to $1.86.

Despite these strong numbers, a major reduction in cash flow has decreased the positive impact of earnings. Operating cash flow fell by 67 percent compared to the same period last year, leading a major Wall Street analyst to ask "Where's the cash?" in a research note to his clients. Several attribute this negative impact to cost creep on the new 787 Dreamliner.

This earnings release for the quarter, which ended Sept. 30, follows the earnings announcements from several peers of Boeing: General Dynamics (GD), Honeywell International (HON), Lockheed Martin (LMT), Northrop Grumman (NOC), Textron (TXT) and United Technologies (UTX).

Highlights

• Summary numbers: Revenues of $23.8 billion, Net Earnings of $1.3 billion
• Earnings jumped 19 percent vs. same period last year; 7.8 percent revenue increase due to booming commercial aircraft demand and higher delivery of planes
• Gross margins now 15.6 percent from 17.8 percent compared to the same period last year, operating margins now 8.5 percent from 10 percent
• "Free cash flow" (cash from operating activities minus capital expenditures) down, partially due to big share-buyback

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

	Q3 2013	Q4 2013	Q1 2014	Q2 2014	Q3 2014
Revenue Growth (YOY)	10.6%	6.7%	8.3%	1.2%	7.5%
Earnings Growth (YOY)	12.0%	27.0%	-12.7%	52.1%	17.6%
Net Margin	5.2%	5.2%	4.7%	7.5%	5.7%
EPS	$1.51	$1.61	$1.28	$2.24	$1.86
Return on Equity	55.5%	41.0%	26.0%	45.9%	37.8%
Return on Assets	5.0%	5.3%	4.2%	7.2%	5.9%

Market Share Versus Profits

Companies sometimes focus on growing their top-line (Sales or Revenues) more than their bottom-line--(Earnings or Net Income). Investors should look at revenue growth to understand a company's ability to grow its market share, and earnings growth to look at the company's ability to generate profits.


Boeing's year-on-year change in revenue compared to the same period last year of 7.5 percent trailed its change in earnings, which was 17.6 percent. The company's performance this period suggests a focus on boosting bottom-line earnings. Despite Boeing's quarterly profit jump of 17.6 percent, cash was scarce. Also, although the revenue performance could be better, it is important to note that the change in revenues is among the highest in the peer group thus far.


Earnings Growth Analysis

The company's earnings have gone up compared to this period last year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross and operating margins are currently at 15.6 percent and 8.5 percent, respectively. This compares with last year's numbers of 17.8 percent and 10 percent. In the second quarter, gross margins were 17.4 percent and operating margins 10 percent.


Gross Margin Trend

Companies sometimes tradeoff for improvements in revenues and margins by extending friendlier terms to customers and vendors. One quick way to check against such activity is to compare the changes in gross margins with any changes in working capital. If the gross margins improved without working capital going down, it is quite possible that the company's performance is a result of truly delivering in the marketplace, and not simply a prop up using the balance sheet.

Boeing's decline in gross margins is offset by some improvements on the balance sheet side -- working capital management shows progress. The company's working capital days have gone down to 46.3 days from 59.3 for the same period last year, and suggest that the gross margin decline is not altogether bad.

Cash Versus Earnings

It is important to examine a company's cash versus earnings numbers to gauge whether a company's performance is sustainable.


Companies often post earnings numbers that are influenced by non-cash activities. One way to gauge the quality of the declared earnings number is to compare the growth in earnings to the growth in operating cash flows. In Boeing's case, a lower operating cash flow rate compared to its change in earnings suggests that the earnings number might have benefited from some unlocking of accruals, which might not be sustainable. In addition, Boeing's change in operating cash flow is less than the average among the declared results thus far in its peer group, suggesting that it may underperform its peers in the future. Margins The company's earnings growth has also been influenced by the following factors: (1) Improvements in operating margins from 8 percent to 9 percent and (2) unusual items. The company's pretax margins are now 8.5 percent compared to 7.8 percent for the same period last year. EPS Growth Versus Earnings

Growth Boeing's year-on-year change in Earnings per Share (EPS) of 23.2 percent is better than its change in earnings of 17.6 percent. In addition, this change in earnings is less than the peer average among the declared results thus far in its peer group, suggesting that the company is losing ground in generating profits in this group. Supporting Data

The table below shows the preliminary results along with the recent trend for revenues, net income and other relevant metrics:

	Q3 2013	Q4 2013	Q1 2014	Q2 2014	Q3 2014
Revenue Growth (YOY)	10.6%	6.6%	8.3%	1.2%	7.5%
Peer Average Revenue Growth (YOY)	0.0%	2.2%	1.3%	3.1%	4.6%
Earnings Growth (YOY)	12.0%	27.0%	-12.7%	52.1%	17.6%
Peer Average Earnings Growth (YOY)	8.3%	17.1%	-4.5%	8.2%	17.6%
Operating Cash Flow Growth (YOY)	-5.6%	37.9%	5.6%	24.8%	23.6%
Peer Average Operating Cash Flow Growth (YOY)	-5.0%	-3.5%	5.1%	18.1%	1.6%
Gross Margin	17.8%	16.6%	17.7%	17.4%	15.6%
Peer Average Gross Margin	24.0%	24.0%	25.6%	25.1%	22.8%
Operating Margin	10.0%	8.4%	9.4%	10.0%	8.5%
Peer Average Operating Margin	14.9%	14.9%	16.3%	14.6%	15.7%
Net Margin	5.2%	5.2%	4.7%	7.5%	5.7%
Peer Average Net Margin	8.1%	7.8%	8.8%	8.5%	8.0%
EPS	$1.51	$1.61	$1.28	$2.24	$1.86
Peer Average EPS	$1.51	$1.50	$1.28	$1.84	$1.86
Return on Equity	55.5%	41.0%	26.0%	45.9%	37.8%
Peer Average Return on Equity	21.0%	19.1%	21.9%	19.6%	20.9%
Return on Assets	5.0%	5.3%	4.2%	7.2%	5.9%
Peer Average Return on Assets	6.3%	5.4%	5.3%	7.3%	7.5%

Company Profile

The Boeing Co. is an aerospace company that manufactures commercial jetliners and defense, space and security systems. Its products and tailored services include commercial and military aircraft, satellites, weapons, electronic and defense systems, launch systems, advanced information and communication systems, and performance-based logistics and training. The company is organized into two business units: Boeing Commercial Airplanes and Boeing Defense, Space & Security. The Commercial Airplanes segment develops, produces and markets commercial jet aircraft and provides related support services, principally to the commercial airline industry worldwide. It produces commercial aircraft and offers a family of commercial jetliners designed to meet a broad spectrum of passenger and cargo requirements of domestic and non-U.S. airlines. This family of commercial jet aircraft in production includes the 737 narrow-body model and the 747, 767, 777 and 787 wide-body models. Its Defense, Space & Security business provides end-to-end services for large-scale systems that enhance air-, land-, sea- and space-based platforms for global military, government and commercial customers. In addition to designing, producing, modifying and supporting fighters, bombers, transports, rotorcraft, aerial refuelers, missiles, munitions and spacecraft for military, civil and commercial use, it is developing enhanced capabilities through network-enabled solutions, communications and intelligence, surveillance and reconnaissance technologies. Its Defense, Space & Security business comprises three segments: Boeing Military Aircraft, Network & Space Systems and Global Services & Support. The Boeing Military Aircraft segment is engaged in the research, development, production and modification of manned and unmanned military aircraft and weapons systems for global strike, including fighter and combat rotorcraft aircraft and missile systems; global mobility, including transport, tanker, rotorcraft and tilt-rotor aircraft; and airborne surveillance and reconnaissance, including command and control, battle management and airborne anti-submarine aircraft. The Network & Space Systems segment is engaged in the research, development, production and modification of the following products and related services: electronics and information systems, including command, control, communications, computers, intelligence, surveillance and reconnaissance, cyber and information solutions, and intelligence systems; strategic missile and defense systems; space and intelligence systems, including satellites and commercial satellite launch vehicles; and space exploration. The Global Services & Support segment provides customers with mission readiness through total support solutions. Its global services business sustains aircraft and systems with a full spectrum of products and services through integrated logistics, including supply chain management and engineering support; maintenance, modification and upgrades for aircraft; and training systems and government services, including pilot and maintenance training. The Global Services & Support segment's international operations include Boeing Defence UK Ltd., Boeing Defence Australia, and Alsalam Aircraft Co., a joint venture. The Boeing Capital segment facilitates, arranges, structures and provides selective financing solutions for its Commercial Airplanes customers. In the space & defense markets, Boeing Capital primarily arranges and structures financing solutions for its Defense, Space & Security government customers. The Other segment includes the unallocated activities of Engineering, Operations & Technology and Shared Services Group, as well as intercompany guarantees provided to Boeing Capital. The Engineering, Operations & Technology provides technical and functional capabilities, including information technology, research and development, test and evaluation, technology strategy development, environmental remediation management and intellectual property management. The company was founded by William Edward Boeing on July 15, 1916 and is headquartered in Chicago, IL.

CapitalCube does not own any shares in the stocks mentioned and focuses solely on providing unique fundamental research and analysis on approximately 50,000 stocks and ETFs globally. Try any of our analysis, screener or portfolio premium services free for 7 days. To get a quick preview of our services, check out our free quick summary analysis of BA.

 

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How to Salvage Shrunken T-Shirts and More -- Savings Experiment

October 23, 2014, 5:00 am

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Filed under: Savings Experiment, Did You Know

Sometimes we waste money by assuming used or worn items should be tossed. However, there's a way to salvage your things without breaking the bank.

If you shrunk your favorite shirt in the wash, don't panic. Simply fill your sink with cool water. Pour 1/4 cup of hair conditioner (any kind will do) into the sink and mix thoroughly.

Next, lay the shirt flat in the water for 15 minutes. Remove it and soak it in clean cool water until the hair conditioner is all gone. Then, lay the shirt on a towel and pull gently to stretch.

Once the shirt is back to it's regular size, leave it on the towel to air dry and you'll have your shirt back. It's a simple way to revive those go-to tees you thought were lost.

Vacuum filters, which cost a pretty penny to replace, are often thrown out when they can be washed and reused. When your vacuum filter gets too dirty, just get rid of extra dust, place it in your dishwasher, run and let dry. When it comes out, it will look brand new.

These DIY life hacks are easy and will cost you next to nothing. Use them to save a few bucks, while keeping your budget in tact.

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6 Hazards Every Student Loan Borrower Should Beware Of

October 23, 2014, 5:17 am

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Filed under: Student Loans, Personal Finance, College, Financial Aid, Financial Education

Student loans help millions of Americans who would otherwise be unable to afford college to get an education. But after they leave school, ever growing numbers of them are finding excessive college debt to be a major financial problem. Some people believe the $1.2 trillion that graduates and their parents now owe on student loans has become a national financial crisis: An estimated 40 million Americans now owe some form of student-loan debt, according to credit-reporting bureau Experian (EXPN).

Most student loan borrowers want to pay off their obligations. But as a recent report from the Consumer Financial Protection Bureau found, borrowers often have trouble getting the help they need from lenders to avoid default and stay on track to pay down their loans. The federal agency received 5,300 complaints about student loans over the past year, which was 38 percent more than it got during the previous year, and it noted six common themes among the complaints and misunderstandings.

1. Don't Expect Clear Guidance from Lenders on Avoiding Default

Many lenders have policies that can help you if you find yourself unable to make timely payments. But the bureau reported that it's hard to get clear information about those policies, as you often won't find them on lenders' websites. Moreover, those who filed complaints noted that different customer service representatives would give them different information about eligibility.

2. Many Lenders Unable or Unwilling to Help

The bureau found that most borrowers want to avoid the consequences of not meeting the terms of their loans. But even when they proactively sought relief in advance, many borrowers found that their lenders were unable or unwilling to help, rather than constructively working with individuals to find alternative repayment solutions that fit with the current financial predicaments they faced. Lenders' refusal to offer such assistance eventually forced borrowers to go down the path toward delinquent payments and loan default.

3. Even When Lenders Help, It Can Be Minimal

Some lenders are helpful in providing ways to help borrowers. But those solutions are often too short to address underlying financial issues. For instance, many lenders use short-term forbearance, which gives lenders a three-month window to not make payments. But for those who've been unable to find a job for years, three months is too short to do much good, and in most cases, lenders won't allow such options multiple times.

4. You Might Have to Default to Get Lenders' Attention

Perhaps the most egregious thing that some lenders do to student loan borrowers is to withhold possible solutions until borrowers have no choice but to stop paying in a timely fashion. In some cases, lenders say that borrowers' best solution is to allow a loan to go to a collection agency and then try to work out a separate arrangement that allows for partial repayment. In other cases, though, lenders themselves came out with reduced-payment solutions that would have solved borrowers' problems entirely -- if only they'd been available before the borrower had defaulted.

5. Expect Delays, Fees and Other Hassles

The process of getting loan forbearance or modification can be long and complicated, and many borrowers told the bureau they were frustrated with preparing paperwork only to find out later that they weren't eligible for help. In addition, some lenders charged fees simply to consider applications for lower payments. When borrowers can't afford to make payments, they clearly can't afford fees that can amount to $50 or more per loan, and the red tape associated with the process often leads to default before the needed help can arrive.

6. If You Can't Graduate in 4 Years, You Not Be Able to Afford It

Most lenders allow borrowers to get loan deferments and therefore not have to make payments on their loans while they're still in school. But often, there's a limit of between four years and five-and-a-half years on those programs. What that means is that many students who follow nontraditional paths for their college education, such as taking reduced course loads and working half-time to finance their tuition and other expenses, find themselves having to repay loans even before they graduate. Others have to start repaying loans in graduate school. In both cases, the burden can sometimes force borrowers to stop going to college to make enough money to make their payments.

Motley Fool contributor Dan Caplinger never met a student loan he really liked. You can follow him on Twitter @DanCaplinger or on Google Plus. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.

 

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Will Rising Profits Help GM Cruise Past Its Recall Fiasco?

October 23, 2014, 7:13 am

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Filed under: Company News, Earnings, General Motors, Automotive Industry, Investing

General Motors (GM) reported a third-quarter profit that beat estimates Thursday, thanks in part to strong U.S. sales of pickup trucks and sport utility vehicles.

Excluding some one-time items, GM's profit rose to $0.97 a share. That's up a penny from a year ago, and $0.02 ahead of Wall Street's estimate.

Some Wall Street analysts had expressed concern that GM's earnings would be hit hard by challenges in Russia and South America. But the damage was less serious than they had feared -- and GM's new trucks helped offset much of it.

New Trucks and SUVs Have Improved GM's Profits at Home

GM introduced all-new versions of its Chevy Silverado and GMC Sierra pickups last year, and new versions of its big SUVs earlier in 2014. Those products have posted good sales gains -- but more important, they're commanding much stronger markups than their predecessors.

The old Silverado and Sierra sold well too -- but to get those strong sales, GM needed to offer high incentives. Incentives are the cash-back and cheap-financing deals that are so often featured in automakers' ads. Automakers use them as a way to adjust pricing in response to competition or market conditions. High incentives can boost sales quite a bit -- but at the expense of profits.

GM's exact profit per sale is a closely guarded secret. But it's no secret that its new pickups and SUVs are much more profitable than the old ones. That means, for instance, that even though the Silverado's sales gains have been modest -- up 5.9 percent this year through September, versus a 22 percent gain for Fiat Chrysler's Ram -- GM's profits on the Silverado (and its other trucks) are almost certainly up quite a bit more.

Earlier this year, those improved profits helped offset the steep costs of GM's massive recalls, keeping the company in the black. With recall-related costs mostly in the past, that money goes to GM's bottom line. The result: a $2.5 billion profit in North America, and an outstanding 9.5 percent operating profit margin.

Working to Turn Around Losses in Europe and South America

That profit margin is a big achievement for GM's new management, which has been focused on closing the profitability gap with rival Ford (F) in GM's home market.

But GM's overseas divisions aren't nearly as profitable as North America. CEO Mary Barra has said that GM's goal is to consistently post a 9.5 percent profit margin for the whole company by early next decade. And GM still has a lot of work to do to get there.

That work starts with Europe, where GM lost $387 million in the third quarter. GM has lost billions in Europe in recent years, but it's working on an aggressive turnaround plan that is expected to swing those losses to profits by 2016.

The company has made progress. New models like the popular Opel Mokka SUV, a near-twin to the U.S.-market Buick Encore, have helped sales and profits. Meanwhile, a new management team has reduced costs, boosted sales, and helped integrate the Opel brand more closely with GM's global product plans.

More recently, challenges in South America have weighed on GM and its key rivals. Those rivals include Ford, which warned last month that it would lose a billion dollars in South America in 2014 following big slowdowns in Brazil and some other Latin American nations.

GM South America isn't doing quite that badly. But it did lose $32 million in the third quarter, down from a solid $284 million profit a year ago.

GM Is Still Strong in China, and Working to Get Stronger

Asia has been a bright spot for GM for several years now. Barra noted on Thursday that GM has a 15.2 percent share of China's market, the world's largest. That's second only to mighty Volkswagen (VLKAY) -- and GM is investing aggressively to ensure that its growth outpaces that of the overall market.

It may sound ironic to Americans, but GM's Chinese unit was caught off guard by a boom in SUV sales that materialized over the past couple of years. Of course, GM sells plenty of SUVs and crossovers in the U.S. and other markets, but it didn't have many in China. That will change over the next year or two as GM sets up new manufacturing lines for several of those SUV models in China.

Meanwhile, its existing products are still doing well. GM's Asian joint ventures made $490 million in the third quarter. Most of that was from China, and it was good enough to give GM a 9.6 percent operating profit margin in the world's largest auto market.

How GM Will Put the Recalls in the Past

Barra is clearly hoping to put GM's recall mess in the rearview mirror and get investors -- and customers -- focused on its much-improved cars and trucks, and its improving profit picture.

That will take time. GM has recalled over 30 million vehicles this year, and many have yet to be fixed. There are still lawsuits pending, and GM may end up paying billions to settle potential criminal charges.

Barra and her team can't really control how all of that unfolds. But the things they can control -- GM's business efforts and its products -- are steadily improving, and the company's long-term plans are still on track.

Those improvements, in time, are how Barra and GM will make the recalls old news.

Motley Fool contributor John Rosevear owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors and owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. Find out the easy way for investors to ride the new mega-trend in the automotive industry in our free report.

 

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BlackBerry's New Phone Is Square, Hip and Surprisingly Hot

October 23, 2014, 8:23 am

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Filed under: Company News, Technology, Market News, Electronics, Investing

A new smartphone was launched on the market to much fanfare recently. It promised a host of new features, came in a new size and was powered by the freshest version of its company's operating system.

No, we're not talking Apple's (AAPL) bulked-up iPhone 6 line. This device is the Passport, the brainchild of BlackBerry (BBRY), a company seemingly back from the dead.

Not So Smart

In its heyday, BlackBerry (then known as Research in Motion; last year the company renamed itself for its signature product) was the portable communications hardware to own. The original BlackBerrys were basically glorified pagers, with wide displays and tiny keyboards, which allowed users to access and send email.

Though it's a rather commonplace feature on phones these days, back in the late 1990s and early 2000s, easy-to-use portable email was a revolutionary concept.

But in mobile communications, innovation moves fast, and companies that remain relatively static can quickly get left behind. Similar to Nokia (NOK) and its antiquated Symbian operating system, Research in Motion relied too heavily on the core appeal of its software.

That Was Then, and This is Now

Technology moved on; once the iPhone hit the market in 2007, and Android followed, there was little chance of success for manufacturers who weren't playing the latest version of the smartphone game. Email had become just another app among many.

Starting early this decade, BlackBerry's results started to slide. Revenue dropped from just under $20 billion in fiscal 2011 to $11 billion only two years later, to nearly $7 billion for 2014. The bottom line plunged into the red to the tune of $646 million in fiscal 2013, and a scary $5.9 billion the following year.

Meanwhile, Apple and a determined Samsung (SSNLF) rose to the top of the heap with their feature-heavy phones. According to technology research firm IDC, in the second quarter of this year Samsung stood at the peak with a nearly 25 percent share of the market, with No. 2 Apple taking 12 percent. BlackBerry didn't even crack the list of top five manufacturers.

Passing Grade?

So expectations weren't particularly high last month when BlackBerry launched the Passport, its first new piece of hardware in almost two years. Reviews have generally been positive and complimentary.

According to company CEO John Chen, it sold out on BlackBerry.com within six hours of introduction, and inventory has been depleted several times since then. BlackBerry sold around 200,000 Passports on the first day of the device's launch, certainly not iPhone-level numbers, but respectable nevertheless.

Besides, massive volume isn't the goal. Realizing that its offerings can't really compete with snazzy iPhones and Samsung Galaxys, BlackBerry decided to abandon the consumer market altogether and concentrate on the corporate segment.

This is a very sensible move, as its offerings were always geared more toward productivity -- answer work emails instantly, on the go! -- than game playing or social media status updating.

Spreadsheets and X-Rays

One big selling point of the Passport is its sizable square viewscreen, which has more real estate and can display more text per line than many rivals -- all the better for a professional to work on a spreadsheet, for example, or review an X-ray.

Outside of the hardware sphere, BlackBerry has other initiatives it hopes will help lift the company back into profitability and prominence.

The company has become leaner thanks to an aggressive cost-cutting campaign that's seen it sell off assets such as real estate. It also recently closed the book on a workforce reduction program, slimming headcount by around 60 percent over the past three years.

The Numbers

In addition, it's made efforts to boost its revenue from services and software. The former, which includes offerings linked to its popular Messenger software, was the top revenue source (at $424 million) in the company's most recently reported quarter. As for software, BlackBerry hopes to double revenue from the segment next year.

All things considered, though, the company still has a fair distance to go. In its most recently reported quarter, it posted $916 million in revenue. That's well under the $950 million analysts were expecting. And although its net loss was narrower than market projections (2 cents per share vs. 6), it was still a shortfall.

Yet the company has believers on the market. They've bid up the stock over the course of this year, lifting it by nearly 40 percent to over $10 per share. They are, of course, hoping for a comeback story -- a passport to renewed success, if you will.

Motley Fool contributor Eric Volkman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. Check out our free report on the Apple Watch to learn where the real money is to be made for early investors.

 

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If Everybody Hates Yelp, Why Is It Still Growing?

October 23, 2014, 9:23 am

≫ Next: Market Wrap: Higher Corporate Profits Propel Stocks Upward

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Filed under: Company News, Technology, Earnings, Internet, Investing

Shares of Yelp (YELP) opened sharply lower on Thursday. The website that prides itself on user-submitted reviews of local establishments posted blowout quarterly results, but any good sentiment there was washed out by a weak outlook for the current quarter.

It was a strong third quarter. Revenue soared 67 percent over the prior year's third quarter to hit $102.5 million. Analysts were only holding out for $99 million. Yelp's adjusted profit of 5 cents a share was also comfortably ahead of expectations.

The pitfall in the report came from Yelp only targeting $107 million to $108 million in revenue for the holiday quarter. Top-line growth is decelerating. Most companies would kill for the 52 percent in year-over-year growth that Yelp is modeling, but Wall Street was forecasting 57 percent growth.

When you're a market darling trading at a lofty multiple -- and Yelp was fetching a whopping 175 times next year's projected profit -- a miss can be brutal. Sometimes 52 percent growth isn't enough.

Cry for Yelp

Wall Street wasn't impressed. Pacific Crest Securities, Barclays Capital, and JMP Securities all lowered their price targets on Yelp. Stifel Nicolaus downgraded the stock. You don't win friends among the Wall Street pros following you when you make them look like chumps. Where does Yelp go from here?

There's no denying that Yelp is succeeding in getting merchants to pay more for enhanced access to the site's growing user base. However, it has to be a little problematic to see revenue -- again, up 67 percent over the past year -- grow a lot faster than its user base. Yelp closed out the quarter with an average of 139 million unique monthly visitors, up just 19 percent over the past year. Users are contributing more reviews than they used to, but can the faster-growing base of active advertisers justify the marketing expenditures if the audience growth doesn't keep up?

Yelp may also have a problem with Google (GOOG). The world's largest search engine wants to be the top dog in local search, and an update earlier this year infuriated Yelp by pushing its listings lower in Google's organic search results. Yelp even accused Google of showing a venue's official site, Google+ page and Google reviews above Yelp pages on queries that included "Yelp" and the venue name.

Google remedied the situation in a summertime algorithm update, but it still shows how even an established leader like Yelp can be vulnerable. "Google obviously continues to make changes on their side both competitively and algorithmically, but fortunately we have incredible consumer content, and so one way or another people ultimately do find their way there," CEO Jeremy Stoppelman said during the conference call following Wednesday night's report.

Yelp's growth is proof that it's holding up just fine, but it's something that bears watching in a climate in which many consumers are starting to have doubts about the credibility of Yelp's reviews.

Taking Yelp to Task

A growing number of merchants have been accusing Yelp of shady business practices. The Federal Trade Commission has received more than 2,000 complaints from merchants accusing Yelp of doing things like requiring them to pay to suppress negative reviews or bump favorable mentions higher.

Yelp has denied the accusations. It could have been a few aggressive sales reps trying to bump up numbers by going off script to nail the sale. In some cases it could just be jealous merchants. That has attracted the attention of class action litigation specialists, but it hasn't deterred the site's growth.

Investors should still keep an eye on Yelp's reputation. There are scalable advantages to being the niche leader, but the tables could turn in a hurry if the criticism gets louder and users start looking elsewhere for similar reviews and information. Given Yelp's still-rich valuation, the inevitable face-off with Google and the complaints from select merchants, it may take some time before the stock revisits its all-time highs.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Google (A and C shares) and Yelp. The Motley Fool owns shares of Google (A and C shares). Try any of our Foolish newsletter services free for 30 days. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.

 

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Market Wrap: Higher Corporate Profits Propel Stocks Upward

October 23, 2014, 10:03 am

≫ Next: Can a Former Home Depot Exec Renovate J.C. Penney?

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Filed under: Earnings, Market News, Global Economy, Investing

By STEVE ROTHWELL

NEW YORK -- A combination of strong company earnings and encouraging economic reports, both in the U.S. and Europe, gave the stock market another day of solid gains on Thursday.

Caterpillar (CAT) jumped after its third-quarter earnings report was better than Wall Street analysts had been expecting. The company also raised its profit outlook for the year. 3M (MMM), the maker of Post-it notes, industrial coatings and ceramics, was among other companies that gained after releasing impressive third-quarter results.

Investors were also cheered by a report that showed the number of people applying for U.S. unemployment benefits remains at a historically low level, suggesting that hiring is gaining steam. In Europe, a survey of businesses eased concerns that the region may be slipping back into recession.

Solid company earnings are sending the stock market higher and helping it recover from a jarring drop in mid-October that gave the Standard & Poor's 500 index its biggest slump in two years. The index has gained on five of the last six days, and on Tuesday logged its biggest advance of the year.

"The economic backdrop here in the United States is continuing to look strong. Earnings are validating that," said Karyn Cavanaugh, a senior market strategist at Voya Investment Management.

The Standard & Poor's 500 index (^GPSC) rose 23.71 points, or 1.2 percent, to 1,950.82. The Dow Jones industrial average (^DJI) climbed 216.58 points, or 1.3 percent, to 16,677.90. The Nasdaq composite (^IXIC) rose 69.95 points, or 1.6 percent, to 4,452.79.

Eight of the ten sectors in the S&P 500 gained, led by a surge in industrial companies after Caterpillar and 3M reported their earnings.

Caterpillar said that some belt tightening had helped it contend with a slowing global economy. The company's CEO said he was hopeful that economic growth would pick up next year. Caterpillar's stock rose $4.70, or 5 percent, to $99.27. 3M gained $6.10, or 4.4 percent, to $145.05.

Companies in the S&P 500 have reported earnings growth of 5.5 percent for the third quarter, according to analysts at S&P Capital IQ. The rate of growth has slowed from 10.4 percent in the second quarter, but is forecast to pick up in the final three months of the year.

Stocks had started the day higher, following gains in European indexes, after a survey of the manufacturing and services sectors eased some fears that the region could be falling back into recession.

Financial information company Markit said its composite purchasing managers index for the 18-country bloc, a broad gauge of business activity, rose to 52.2 in October from 52 in September. Analysts had expected a small decline. Readings above 50 suggest expansion.

Although the reports from Europe "weren't fantastic," they suggested that the region would avoid sliding back into recession, said David Lebovitz, Global Market Strategist at J.P. Morgan Funds. Concerns about the worsening growth outlook in Europe helped push stocks sharply lower last week.

"It almost feels like the markets can breathe a sigh of relief for the time being," Lebovitz said. "That, combined with the earnings numbers, is what's driving the market."

European markets closed higher. France's CAC-40 rose 1.3 percent. Germany's DAX gained 1.2 percent and Britain's FTSE 100 edged up 0.3 percent.

In energy trading, the price of oil rose sharply Thursday on reports of lower production in Saudi Arabia and signs of strength in the U.S. economy.

The price of oil rose sharply on reports of lower production in Saudi Arabia and signs of strength in the U.S. economy. Benchmark U.S. crude rose $1.57 to close at $82.09 a barrel on the New York Mercantile Exchange. Brent crude, a benchmark for international oils used by many U.S. refineries, rose $2.12 to close at $86.83 on the ICE Futures exchange in London.

In other energy futures trading on the NYMEX, wholesale gasoline rose 5.1 cents to close at $2.207 a gallon, heating oil rose 2.6 cents to close at $2.499 a gallon natural gas fell 3.7 cents to close at $3.622 per 1,000 cubic feet.

In currency trading, the dollar was little changed against the euro, trading at $1.2651. The dollar climbed to 108.16 yen. U.S. government bond prices fell. The yield on the 10-year Treasury note rose to 2.28 percent from 2.22 on Wednesday.

In metals trading, gold fell $16.40 to $1,229.10 an ounce, silver fell seven cents to $17.16 an ounce and copper rose two cents to $3.04 a pound.

What to Watch Friday:

• The Commerce Department reports new homes sales for September at 10 a.m. Eastern time.

These major companies are scheduled to release quarterly financial statements:

• Bristol-Myers Squibb (BMY)
• Colgate-Palmolive (CL)
• Delphi Automotive (DLPH)
• DTE Energy (DTE)
• Ericsson (ERIC)
• Ford Motor (F)
• Lear (LEA)
• Moody's (MCO)
• Procter & Gamble (PG)
• Shire (SHPG)
• State Street (STT)
• Nasdaq OMX Group (NDAQ)
• United Parcel Service (UPS)
• Ventas (VTR)
• Wyndham Worldwide (WYN)

 

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