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Monday March 19, 2018



Carnival's Revenue Cruises Upward

Carnival Corporation & plc (CCL) announced its quarterly earnings on Tuesday, March 28. Lower fuel costs and increased revenue boosted profits and brought in earnings that surpassed Wall Street estimates.

Carnival reported revenue of $3.79 billion in the first quarter. Last year, revenue in the first quarter came in at $3.65 billion.

"We are off to a good start delivering another quarter of operational improvement on top of a very strong first quarter last year," said Carnival President and CEO Arnold Donald. "Our performance was driven by increased demand, particularly for our core Caribbean itineraries, leading to higher year-over-year ticket prices which enabled us to overcome the significant negative impact of both fuel and currency to exceed the high end of our guidance range."

Carnival reported $352 million in net income for the first quarter, up from $142 million a year ago. On an adjusted earnings per share basis, the company reported profit of $0.38 per share, beating analysts' earnings predictions of $0.35 per share.

The Miami-based cruise line transported 2.77 million passengers in the first quarter, which represents an increase from the 2.56 million passengers carried in the same quarter last year. The increase in guests boosted on-board spending to $978 million from $923 million a year ago. Since the start of the year, Carnival shares have increased 13%.

Carnival Corporation & plc (CCL) shares ended the week at $58.91, relatively unchanged for the week.

Darden Dishes Up Profits

Darden Restaurants Inc. (DRI) announced its third quarter earnings on Monday, March 27. The restaurant operator saw shares increase more than 7% the day after the earnings report was released, thanks to a boost in profits and the company's announcement that it will be adding Cheddar's Scratch Kitchen to its list of restaurant chains.

Darden, parent company of Olive Garden and LongHorn Steakhouse, announced quarterly revenue of $1.88 billion, up from last year's third quarter revenue of $1.85 billion. This was above the $1.86 billion in revenue expected by analysts.

"We continued to gain market share as we outperformed industry same-restaurant sales by a considerable margin again this quarter," said Darden CEO Gene Lee. "Our teams remain incredibly focused on driving strong operating fundamentals, and I'm very proud of the work they are doing to create memorable experiences for our guests."

Darden announced net earnings of $165.6 million, or $1.32 per share. Last year at this time, Darden reported net earnings of $105.8 million, or $0.82 per share.

In addition to releasing its latest earnings report, Darden announced that it will be acquiring Cheddar's Scratch Kitchen for $780 million in an all-cash transaction at the close of Darden's fiscal 2017 fourth quarter. Cheddar's Scratch Kitchen currently operates 165 casual restaurants in 28 states, primarily in Texas and the Southeast. The restaurant dishes up classic comfort food and has experienced growth in revenue of 12% to 15% in the last 10 years. Darden shares reached an eight-year high of $82.62 on Tuesday following the announcement.

Darden Restaurants Inc. (DRI) shares ended the week at $83.67, up 10% for the week.

Lululemon Shares Fall on Weak Sales Outlook

Lululemon Athletica Inc. (LULU) reported quarterly earnings on Wednesday, March 29. Shares fell more than 16% following the company's admission that 2017 is off to a slow start.

The athleisure-wear company announced revenue for the fourth quarter was $789.9 million. Last year revenue in the fourth quarter was $704.3 million.

"2016 marks a milestone year where our successful execution against long-term strategies returned the company to positive operating income growth for the first time in three years," said Lululemon CEO Laurent Potdevin. "Although we've had a slow start to 2017, our teams are passionately committed to delivering on our robust plans across product innovation, digital, North America and international as we realize our ambitious vision for the future."

Lululemon reported net income of $136.1 million—an increase from last year's fourth quarter earnings of $117.4 million. Earnings per share for the fourth quarter were $0.99, up from $0.85 per share a year ago but below analysts' estimates of $1.01 per share.

While Lululemon has experienced a rise in sales and profits year-over-year, the company warned that growth would slow this year due to a decrease in both in-store and online sales. Lululemon has faced tough competition from retailers that are unveiling their own lines of athleisure-wear, including Under Armour and Nike. Lululemon disappointed investors by announcing that it expects earnings of $0.25 to $0.27 per share in the current quarter on revenue of $510 million to $515 million. Analysts were expecting earnings of $0.30 per share on revenue of $552 million. The wide discrepancy caused shares to plummet more than 16% to $54.78 in after-hours trading.

Lululemon Athletica Inc. (LULU) shares ended the week at $51.85, down 18% for the week.

The Dow started the week of 03/27 at 20,488 and closed at 20,663 on 03/31. The S&P 500 started the week at 2,329 and closed at 2,363. The NASDAQ started the week at 5,776 and closed at 5,912.

Treasury Yields End March Lower

The yield on the benchmark 10-year note was headed for a monthly decline on the last day of March trading. The monthly drop in yields capped off the first quarterly decline in three quarters.

During early trading on Friday, March 31, the 10-year note yield was 2.41%, barely unchanged from Thursday. The 10-year yield, which moves inversely to prices, began March at 2.46%.

The yield ended 2016 at 2.45% after rising 0.84% between October and December. Much of the yield increase resulted from investor optimism that President Trump's administration would pursue large fiscal stimulus in the form of tax cuts and infrastructure spending.

Optimism regarding President Trump's ability to achieve large fiscal stimulus has waned in recent weeks. The failure of last week's healthcare bill has led many analysts and investors to doubt whether the President can pass his agenda.

"We have no real idea if the [President's] policies will turn into growth," said Rick Pitcairn, chief investment officer of the Pitcairn investment firm in Philadelphia. "To the extent they don't work, bonds will hang in there."

Inflation is also chipping away at the value of Treasury bonds. The Commerce Departments said Friday that the personal expenditures consumption index rose 2.1% over the past 12 months, exceeding the Federal Reserve's 2% target. Rising inflation increases the chance the Fed will raise interest rates, hurting the value of bonds.

The 10-year Treasury note yield finished the week of 03/27 at 2.40%, while the 30-year Treasury note yield was 3.02%.

Mortgage Rates Continue to Decline

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, March 30. The report indicated that rates continued a fall that started last week.

The 30-year fixed rate mortgage averaged 4.14% this week. This represents a decrease from last week when it averaged 4.23%. Last year at this time, the 30-year fixed rate mortgage averaged 3.71%.

This week, the 15-year fixed rate mortgage averaged 3.39%. This was lower than last week's average of 3.44%. The 15-year fixed rate mortgage averaged 2.98% one year ago.

"The 10-year Treasury yield remained relatively flat this week," said Sean Becketti, chief economist at Freddie Mac. "The 30-year mortgage rate fell 9 basis points to 4.14%, another significant week-over-week decline. Despite recent mortgage rate fluctuation, new home sales far exceeded expectations in February and jumped 6.1% to an annualized rate of 592,000."

Based on published national averages, the money market account finished the week of 03/27 at 0.56%. The 1-year CD finished at 1.29%.

Published March 31, 2017

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