• Spam Recall
    Posted by on May 27th, 2018 at 3:29 pm

    From Money Magazine:

    Spam lovers beware.

    A recall has been issued for 228,614 pounds of the famous canned meat product due to contamination from shards of metal.

    The recall was announced Saturday after Hormel Food Corp., which manufactures Spam, “received four consumer complaints stating that metal objects were found in the canned products,” according to the United States Department of Agriculture.

    The types of Spam affected are 12-ounce “Spam classic” cans, which were shipped nationally across the U.S., and 12-ounce “Hormel Foods Black-Label Luncheon Loaf” cans, which were only shipped to Guam.

    The canned meat products were produced Feb. 8 through Feb. 10 and the USDA’s Food Safety and Inspection Service said it is concerned some of the Spam product may still be in people’s homes.

    While only reports of “minor oral injuries” have been reported, anyone worried about further sickness or injury should get in touch with a health care provider. Regardless of illness, any Spam cans fitting the description “should be thrown away or returned to the place of purchase,” according to the USDA.

    Here’s what to look for on the labels of Spam to check whether you have a potentially contaminated product:

    Spam Classic: a “best by” date of February 2021 and production codes: F020881, F020882, F020883, F020884, F020885, F020886, F020887, F020888 and F020889.
    Hormel Foods Black-Label Luncheon Loaf: a “best by” date of February 2021 and production codes F02098 and F02108.
    If you have any questions or concerns about the recalled Spam you can contact Hormel Foods’ consumer response at (800) 523-4635.

  • Reagan’s Remarks at the Veterans Day 1985
    Posted by on May 27th, 2018 at 2:08 pm

    This is Ronald Reagan’s speech for Veteran’s Day in 1985, but I thought it was appropriate for Memorial Day.

  • Hormel Rebounds
    Posted by on May 25th, 2018 at 11:04 am

    We had two earnings reports yesterday. Hormel Foods was in the morning and Ross Stores was after the close.

    Yesterday, Hormel opened sharply lower but moved back up as the day wore on. We saw the same thing happen recently with Cerner. That seems to be a common move — traders panic and only slowly regain their senses.

    Ross Stores is down this morning just as HRL was yesterday. We may see another rebound. Their earnings report looked just fine to me.

  • Morning News: May 25, 2018
    Posted by on May 25th, 2018 at 7:06 am

    Russia, OPEC Members to Discuss Easing Oil Output Cap

    Europe to Clinch Cheaper Russian Gas With Gazprom Deal

    Erdogan Needs to Leave Turkey’s Central Bank Alone

    BOE’s Carney Says His Guidance Is Vital in ‘Crucial’ Brexit Phase

    Tech Companies Scramble as Sweeping Data Rules Take Effect

    Rusal CEO Quits Amid Pressure Over U.S. Sanctions

    Disney Wants to Kill Netflix, But Comcast Has Totally Different Reasons for Wanting Fox

    Doctor, No: Short Seller Steps Up Fight With Samsonite Over CEO’s Credentials

    Chesapeake Energy: Still Ugly

    Maker of Necco Wafers Gets Sweet Reprieve at Bankruptcy Auction

    What the Hell Happened at GE?

    J&J Verdict Reaches Almost $26 Million in Baby Powder Trial

    Joshua Brown: Stock Prices Are a Proxy For Our Beliefs About the Future

    Blue Harbinger: The Most Costly Trading Mistakes To Avoid

    Jeff Carter: Perpetrating a Fraud

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  • Ross Stores Earns $1.17 per Share for Q1
    Posted by on May 24th, 2018 at 4:05 pm

    Ross Stores (ROST) just reported fiscal Q1 earnings of $1.17 per share. The company had projected earnings of $1.03 to $1.07 per share. They made 82 cents per share for last year’s Q1.

    Ross said they were helped in Q1 by 17 cents per share due to tax reform plus two cents per share thanks to “the favorable timing of packaway-related expenses that we expect to reverse in subsequent quarters.”

    Q1 sales rose 9% to $3.6 billion, and comparable-stores sales were up 3%. Ross had been expecting 1% to 2%. I knew that forecast was too low.

    Barbara Rentler, Chief Executive Officer, commented, “Despite unfavorable weather throughout the period, we achieved above-plan growth in both sales and earnings in the first quarter. Operating margin for the period of 15.1% was down slightly from the prior year as an improvement in merchandise gross margin and favorable timing of packaway-related expenses were offset by higher freight costs and wage-related investments.”

    Ms. Rentler continued, “During the first quarter of fiscal 2018, we repurchased 3.3 million shares of common stock for an aggregate price of $255 million. As planned, we remain on track to buy back a total of $1.075 billion in common stock during fiscal 2018.”

    Looking ahead, Ms. Rentler said, “For the 13 weeks ending August 4, 2018, we are forecasting same store sales to be up 1% to 2% over the 13 weeks ended August 5, 2017. Second quarter 2018 earnings per share are projected to be $.95 to $.99, which includes the benefit from lower taxes, partially offset by the previously mentioned shift in packaway expenses.”

    Ms. Rentler continued, “Based on our first quarter results and guidance for the second quarter, we now project earnings per share for the 52 weeks ending February 2, 2019 to be in the range of $3.92 to $4.05, which includes the benefit from lower taxes.”

    That’s up from previous range of $3.86 to $4.03 per share. Shares of ROST are down about 4% in the after-hours market.

  • The Market-Timing Game
    Posted by on May 24th, 2018 at 10:32 am

    You know why I don’t time the market? Check out the game at this link, and you’ll see why.

    The game asks you to make buy/sell decisions over a three-year period of the market. It’s based on real data between 1950 and 2018, we just don’t know when.

    Investors often think they can “feel” the market based on recent movements. Well, it’s pretty hard to outguess the line.

    After playing this a few times, the hardest part psychologically is being out of a market that spikes higher. The fear of missing out is powerful.

    One of the parts that makes the game challenging is the fluid vertical axis. When we look at a static chart, the playing field is known. That’s not how it works in real life.

  • Hormel Foods Earns 44 Cents per Share
    Posted by on May 24th, 2018 at 8:53 am

    This morning, Hormel Foods (HRL) posted fiscal Q2 earnings of 44 cents per share. That was up 13% over last year’s Q2.

    In last week’s CWS Market Review, I said Wall Street’s estimate of 45 cents per share might be a bit too high. I was right on that. I also said I didn’t see Hormel adjusting their full-year guidance. I was right on that as well. The company reaffirmed that full-year range of $1.81 to $1.95 per share.

    Here are some details from the earnings report:

    COMMENTARY

    “Our team delivered record earnings per share of $0.44 which was in line with our expectation and keeps us on track to maintain our full year earnings guidance,” said Jim Snee, chairman of the board, president, and chief executive officer. “We were particularly pleased with the bottom-line performance from Refrigerated Foods as our experienced team grew our value-added profits while navigating through volatile markets. Our balanced business model helped mitigate higher freight costs and a difficult commodity environment.”

    “We delivered record sales led by our Refrigerated Foods and International segments. Strong top-line growth from brands such as Hormel® Natural Choice® and Hormel® Bacon 1TM and international sales of products such as Skippy® peanut butter was complemented by the strategic acquisitions of Fontanini, Columbus Craft Meats, and Ceratti,” Snee said. “Our core center store portfolio of brands such as SPAM®, Dinty Moore®, and Herdez® also showed strong growth this quarter.”

    SEGMENT HIGHLIGHTS – SECOND QUARTER

    Refrigerated Foods

    Volume up 6%; Organic volume1 down 1%
    Net sales up 14%; Organic net sales1 flat to last year
    Segment profit up 18%
    Volume and sales increases benefited from the inclusion of the Columbus and Fontanini acquisitions in addition to strong retail sales of Hormel® Natural Choice® products and foodservice sales of Hormel® pepperoni and Hormel® Bacon 1TM fully cooked bacon. Organic volume decreased due to lower hog harvest volumes.

    Refrigerated Foods delivered segment profit growth of 18% despite a 25% decline in commodity profits, a double-digit increase in per-unit freight expenses, and higher advertising expenses. Strong results were delivered by our branded retail and foodservice businesses in addition to the inclusion of the Fontanini and Columbus acquisitions.

    Grocery Products

    Volume down 2%
    Net sales down 1%
    Segment profit down 12%
    Low-single-digit sales growth in our core Grocery Products portfolio, led by Wholly Guacamole® dips, the SPAM® family of products, Herdez® salsas, Dinty Moore® stew, and Hormel® chili, was more than offset by significant sales declines across the CytoSport portfolio and our contract manufacturing business. Total Grocery Products segment profit was down due to increased promotional activity and lower volumes at CytoSport and lower earnings from our contract manufacturing business.

    Jennie-O Turkey Store

    Volume down 3%
    Net sales down 4%
    Segment profit down 34%
    Sales declines were primarily due to lower whole bird pricing and volume as a result of continued oversupply of turkeys in the industry and excess meat in cold storage. Sales declines of whole birds were partially offset by increased retail sales, led by Jennie-O® lean ground turkey and Jennie-O® Oven Ready® products. Segment profit decreased as a result of lower profits from whole bird and commodity sales, double-digit increases in per-unit freight costs, and increased advertising.

    International & Other

    Volume up 14%; Organic volume1 up 1%
    Net sales up 22%; Organic net sales1 up 8%
    Segment profit up 6%
    International volume and sales increases were related to strong results in China, increased export sales, and the inclusion of the Ceratti business. Earnings increased on improved profitability in China due to lower raw material costs but were partially offset by higher advertising expenses and lower branded export margins.

    SELECTED FINANCIAL DETAILS

    Income Statement

    Selling, general and administrative expenses increased due to the impact from acquisitions and higher advertising expense.
    Advertising expenses were $37 million compared to $30 million last year. Full year advertising expenses are expected to increase by approximately 20% over last year.
    Operating margin was 13.1% compared to 14.4% last year.
    The effective tax rate was 20.0% compared to 33.2% last year due to the passage of The Tax Cuts and Jobs Act in December 2017. The full year effective tax rate is expected to be between 17.5% and 19.5%.

    Cash Flow Statement

    Capital expenditures in the second quarter were $87 million compared to $39 million last year. Full year capital expenditures are expected to total $425 million. Key projects include bacon capacity increases in our Wichita, Kans., facility, a new whole bird facility in Melrose, Minn., modernization of the Austin, Minn., plant, and projects designed to increase value-added capacity.
    Depreciation and amortization expense in the second quarter was $41 million compared to $32 million last year. Full year expenses are expected to be approximately $160 million.
    Share repurchases to date total $45 million, representing 1.3 million shares purchased.
    The Company repaid $70 million in short-term debt in the quarter.
    The Company paid its 359th consecutive quarterly dividend at the annual rate of $0.75 per share, a 10% increase over the prior year.

    Balance Sheet

    Working capital increased to $702 million from $625 million in the first quarter, primarily related to a higher inventories from acquisitions and lower accounts payable.
    Cash on hand decreased to $262 million from $386 million for the first quarter as the Company continues to pay down short-term debt related to the Columbus Craft Meats acquisition.
    Total debt is $810 million. The debt is split between short-term borrowings of $185 million and long-term borrowings of $625 million.
    The Company remains in a strong financial position to fund other capital needs.

    OUTLOOK

    “We are reaffirming our sales and earnings outlook for fiscal 2018,” Snee said. “Our balanced business model allows us to manage through volatility and deliver consistent earnings growth. We continue to execute our value-added growth strategy in Refrigerated Foods and expect our retail and foodservice branded businesses to offset higher freight costs and lower pork commodity profits. Our expectation is for strong year-over-year earnings growth for International and for Grocery Products to return to its growth trajectory. While we are starting to see early signs of a recovery in the turkey industry, we expect Jennie-O Turkey Store to continue showing earnings declines for the remainder of this year.”

    “We are making excellent progress on the integrations of our recent acquisitions. These efforts, in combination with continued execution of our strategic imperatives, will ensure we remain in a position to deliver strong growth in the future.”

    Fiscal 2018 Outlook

    Net Sales Guidance (in billions)
    $9.70 – $10.10

    Earnings per Share Guidance
    $1.81 – $1.95

  • Morning News: May 24, 2018
    Posted by on May 24th, 2018 at 7:48 am

    Canada Blocks China-Led Deal for Construction Firm

    China Signals to State Giants: ‘Buy American’ Oil and Grains

    Fed Minutes Signal Rate Increase in June

    U.S. Launches Criminal Probe into Bitcoin Price Manipulation

    FCC Chair Ajit Pai Spanked by Lawmakers for Ducking Oversight Committee’s Questions

    Deutsche Bank to Cut More Than 7,000 Jobs

    Dutch Payment Giant Backed by Mark Zuckerberg and Used by Uber is Going Public

    Tesla Trims Up to $14,000 off Model X in China After Tariff Cuts

    Uber Finds Profits in Leaving Tough Overseas Markets

    Ackman Targets Lowe’s After Q1 Miss

    Kroger Buys Meal-Kit Company Home Chef in Latest Online Acquisition

    Paddy Power to Buys FanDuel in Bid to Dominate Sports Betting

    Lawrence Hamtil: 2018: A Tale of Two Sectors and the Opportunity for Contrarians

    Roger Nusbaum: Retirement: It’s Simple Math, Do The Math

    Cullen Roche: Do Bonds Still Diversify When Rates Rise?

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  • Fed Minutes from Early May
    Posted by on May 23rd, 2018 at 2:03 pm

    The Fed just released the minutes from their meeting of May 1-2. Here’s the section reviewing the financial situation.

    Staff Review of the Financial Situation

    Early in the intermeeting period, uncertainty over trade policy and negative news about the technology sector reportedly contributed to lower prices for risky assets, but these concerns subsequently seemed to recede amid stronger-than-expected corporate earnings reports. Equity prices declined, nominal Treasury yields increased modestly, and market-based measures of inflation compensation ticked up on net. Meanwhile, financing conditions for nonfinancial businesses and households largely remained supportive of spending.

    FOMC communications over the intermeeting period were generally viewed by market participants as reflecting an upbeat outlook for economic growth and as consistent with a continued gradual removal of monetary policy accommodation. The FOMC’s decision to raise the target range for the federal funds rate 25 basis points at the March meeting was widely anticipated. Market reaction to the release of the March FOMC minutes later in the intermeeting period was minimal. The probability of an increase in the target range for the federal funds rate occurring at the May FOMC meeting, as implied by quotes on federal funds futures contracts, remained close to zero; the probability of an increase at the June FOMC meeting rose to about 90 percent by the end of the intermeeting period. Expected levels of the federal funds rate at the end of 2019 and 2020 implied by OIS rates rose modestly.

    The nominal Treasury yield curve continued to flatten over the intermeeting period, with yields on 2-year and 10-year Treasury securities up 17 basis points and 7 basis points, respectively. Measures of inflation compensation derived from Treasury Inflation-Protected Securities increased 4 basis points and 7 basis points at the 5- and 5-to-10-year horizons, respectively, against a backdrop of rising oil prices. Option-implied measures of volatility of longer-term interest rates continued to decline over the intermeeting period after their marked increase earlier this year.

    The S&P 500 index decreased over the period on net. Equity prices declined early in the intermeeting period, reportedly in response to trade tensions between the United States and China as well as negative news about the technology sector. However, equity prices subsequently retraced some of the earlier declines as concerns about trade policy seemed to ease and corporate earnings reports for the first quarter of 2018 generally came in stronger than expected. Option-implied volatility on the S&P 500 index at the one-month horizon–the VIX–declined but remained at elevated levels relative to 2017, ending the period at approximately 15 percent. On net, spreads of yields of investment-grade corporate bonds over comparable‑maturity Treasury securities widened a bit, while spreads for speculative‑grade corporate bonds were unchanged.

    Conditions in short-term funding markets remained generally stable over the intermeeting period. Spreads on term money market instruments relative to comparable-maturity OIS rates were still larger than usual in some segments of the money market. Reflecting the FOMC’s policy action in March, yields on a broad set of money market instruments moved about 25 basis points higher. Bill yields also stayed high relative to OIS rates as cumulative Treasury bill supply remained elevated. Money market dynamics over quarter-end were muted relative to previous quarter-ends.

    Foreign equity markets were mixed over the intermeeting period, with investors attuned to developments related to U.S. and Chinese trade policies and to news about the U.S. technology sector. Broad Japanese and European equity indexes outperformed their U.S. counterparts, ending the period somewhat higher. Market-based measures of policy expectations and longer‑term yields were little changed in the euro area and Japan but declined modestly in the United Kingdom on weaker-than-expected economic data. Longer-term yields in Canada moved up moderately amid notably higher oil prices. In EMEs, sovereign bond spreads edged up; capital continued to flow into EME mutual funds, although at a slower pace lately.

    On net, the broad nominal dollar index appreciated moderately over the intermeeting period. In the early part of the period, the index depreciated slightly, as relatively positive news about the current round of NAFTA (North American Free Trade Agreement) negotiations led to appreciation of the Mexican peso and Canadian dollar, two currencies with large weights in the index. Later in the period, there was a broad‑based appreciation of the dollar against most currencies as U.S. yields increased relative to those in AFEs and as the Mexican peso declined amid uncertainty associated with the upcoming presidential elections.

    Growth in banks’ commercial and industrial (C&I) loans strengthened in March and the first half of April following relatively weak growth in January and February. Respondents to the April Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) reported that their institutions had eased standards and terms on C&I loans in the first quarter, most often citing increased competition from other lenders as the reason for doing so. Gross issuance of corporate bonds and leveraged loans was strong in March, and equity issuance was robust. The credit quality of nonfinancial corporations was stable over the intermeeting period, and the ratio of aggregate debt to assets remained near multidecade highs.

    Commercial real estate (CRE) financing conditions remained accommodative over the intermeeting period. CRE loan growth at banks strengthened in March but edged down in the first half of April. Spreads on commercial mortgage-backed securities (CMBS) were little changed over the intermeeting period and remained near their post-crisis lows. CMBS issuance continued to be strong in March but slowed somewhat in April. Respondents to the April SLOOS reported easing stan­dards on nonfarm nonresidential loans and tightening standards on multifamily loans, whereas standards on construction and land development loans were little changed in the first quarter. Meanwhile, respondents indicated weaker demand for loans across these three CRE loan categories.

    Financing conditions in the residential mortgage market remained accommodative for most borrowers in March and April. For borrowers with low credit scores, conditions continued to ease, but credit remained relatively tight and the volume of mortgage loans extended to this group remained low. Banks responding to the April SLOOS reported weaker loan demand across most residential real estate (RRE) loan categories, while standards were reportedly about unchanged for most RRE loan types in the first quarter.

    Consumer credit growth moderated in March and the first half of April. Respondents to the April SLOOS reported that standards and terms on auto and credit card loans tightened, and that demand for these loans weakened in the first quarter. On balance, credit remained readily available to prime-rated borrowers, but tight for subprime borrowers, over the intermeeting period.

    The staff provided its latest report on potential risks to financial stability; the report again characterized the financial vulnerabilities of the U.S. financial system as moderate on balance. This overall assessment incorporated the staff’s judgment that vulnerabilities associated with asset valuation pressures, while having come down a little in recent months, nonetheless continued to be elevated. The staff judged vulnerabilities from financial-sector leverage and maturity and liquidity transformation to be low, vulnerabilities from household leverage as being in the low-to-moderate range, and vulnerabilities from leverage in the nonfinancial business sector as elevated. The staff also characterized overall vulnerabilities to foreign financial stability as moderate while highlighting specific issues in some foreign economies, including–depending on the country–elevated asset valuation pressures, high private or sovereign debt burdens, and political uncertainties.

    Eddy here. Stocks are bumping up a little on the news. I think they’re interpreting this to mean the Fed is willing to let inflation run hot for a bit. I think this is the right call.

  • Morning News: May 23, 2018
    Posted by on May 23rd, 2018 at 7:10 am

    Trade and Growth Fears Spark Dash For Safe Havens

    America’s Profit Boom Leaves Europe’s Corporations Trailing

    How Bad Can Things Get for Italian Markets?

    BOE Cuts Sterling Adrift

    Fed Survey: Americans See Brighter Economic Prospects, but Fragility Remains

    A Woman Has Been Named As NYSE President. It Only Took 226 Years

    Here’s What Happens If The Oil Rally Turns Into An ‘Oil Shock’

    StanChart Says Focus Is on Strategy, Denting Merger Speculation

    Walmart Trades Short-Term Headwinds for Decades of Opportunity

    Tesla Finally Sees Some Good News (And Other Things)

    Banned From Amazon: The Shoppers Who Make Too Many Returns

    10 Ways the Internet of Things Will Make Our Lives Better

    Nick Maggiulli: Borrow…If You Dare

    Ben Carlson: The Lump Sum vs. Dollar Cost Averaging Decision

    Howard Lindzon: Are There Any Good Ideas Left?

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