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Sunday March 29, 2015



Sonic Reports Strong Sales Growth

Sonic Corporation (SONC), which operates drive-in restaurants throughout the U.S., announced its second quarter results on Tuesday, March 24. The company impressed investors with double-digit same-store sales growth during the quarter.

Sonic reported that revenue during the quarter increased from $109.7 million to $126.2 million. The revenue gain resulted from 11.5% same-store sales growth.

"Successful company initiatives combined with an improving macro environment resulted in an exceptionally strong second fiscal quarter with 11.5% same-store sales growth," said Sonic Corporation CEO Cliff Hudson. "This increase is primarily a result of growth in our core menu items and product innovation, complemented by our national media strategy."

Net income during the quarter was $7.7 million or $0.14 per share. This was an increase over the comparable period last year when net income was $4.1 million or $0.07 per share.

Unlike other fast food competitors, Sonic has been able to produce earnings that have impressed investors. Sonic's success has led analysts to claim that the company is a better bet than rival upstart Shake Shack, Inc. Much of the company's success appears to be a result of the authentic menu Sonic provides. For example, since 2012 Sonic has made all of its shakes with real ice cream. As a result, ice cream sales have increased close to 50% since that time.

Sonic Corporation (SONC) shares ended the week at $32.06, down 8.5% for the week.

Scholastic Reports Quarterly Loss

Scholastic Corporation (SCHL), a children's publishing and media company, announced its third quarter results on Thursday, March 26. The company recorded a quarterly loss but announced that it expects full-year earnings to be in the black.

The company reported that revenue during the quarter was $382.1 million. This was a 2% increase from the $373.5 million earned during the same period last year.

"We continued our positive trajectory of profitable year-over-year sales growth in the third quarter, which is typically a lower revenue quarter for the Company," said Scholastic Corporation Chairman, President and CEO Richard Robinson. "Also during the quarter, we continued with a number of targeted restructuring initiatives aimed at enhancing the margin contribution of our operating businesses, including our media unit."

Scholastic reported that it recorded a net loss during the quarter of $0.68 per share. This was worse than the $0.38 loss per share reported during the comparable period last year.

Despite the quarterly loss, Scholastic expects full-year earnings will be in the range of $1.80 to $2 per share. That is good news for investors. So far this year Scholastic has seen its share price rise 5%. Over the past twelve months the company's share price has risen 11%.

Scholastic Corporation (SCHL) shares ended the week at $40.56, up 0.07% for the week.

ConAgra's Earnings Exceed Expectations

ConAgra Foods (CAG), a provider of packaged foods, announced its third quarter results on Thursday, March 26. The company reported earnings that beat expectations.

The company reported that net sales during the quarter were $3.88 billion. This was a 2% decline from the $3.95 billion reported during the same period last year.

"We are pleased with the performance of our Consumer Foods segment and our domestic Commercial Foods business, as well as the robust efficiencies we are generating across the company," said ConAgra Foods CEO Gary Rodkin. "Our Private Brands segment, however, is significantly below expectations; we are in the midst of implementing initiatives to improve execution to drive better performance starting in fiscal 2016."

ConAgra reported that earnings during the quarter were $0.59 per share. While this was a decline from $0.62 per share during the comparable period last year, it was above expectations.

ConAgra is the producer of recognizable packaged products such as Marie Callender's, Egg Beaters and Healthy Choice. The company is in the midst of a management transition as current CEO Gary Rodkin is set to retire on April 6, 2015. While ConAgra's quarterly results have been up and down over the past couple years, it has continued to pay out a quarterly dividend of $0.25.

ConAgra Foods (CAG) shares ended the week at $36.76, up 5.3% for the week.

The Dow started the week of 3/23 at 18,137 and closed at 17,713 on 3/27. The S&P 500 started the week at 2,108 and closed at 2,061. The NASDAQ started the week at 5,021 and closed at 4,891.

Treasuries Continue Zig-Zag Pattern

Treasury yields fell during early Friday trading on March 27. With uncertainty surrounding the Federal Reserve's plans to hike interest rates, Treasury yields have risen and fallen on a weekly basis.

On Tuesday, March 24, Treasury yields fell on concerns that low inflation will encourage the Federal Reserve to hold off on increasing interest rates. But the fall in Treasury yields came to a halt on Wednesday and Thursday as the 10-year yield closed at 1.92% and 2.01%, respectively.

Following the two-day rally, the 10-year Treasury yield once again declined on Friday. During early trading it had fallen five basis points to 1.96%.

The up and down nature of yields this week is representative of the Treasury market during the first quarter of 2015. The 10-year yield reached a low of 1.70% on February 2 and a high of 2.24% on March 6.

Driving the bond market has been continued uncertainty in the economy, which will impact the Federal Reserve's decision to raise interest rates. Last week the Federal Reserve removed the word "patient" from its guidance on interest rate increases. As a result, continued improvement in the U.S. economy could bring about an increase in rates.

If the statements of St. Louis Fed President James Bullard in Frankfurt this week are any indication, the Fed may take quick action to raise rates once the economy experiences sustained recovery. "By removing ‘patient,' the . . . [Federal Open Market Committee] can return to more standard monetary policy decision-making, under which an appropriate policy rate is decided at each meeting," he said.

The 10-year Treasury note yield finished the week of 3/23 at 1.95% while the 30-year Treasury note yield finished the week at 2.53%.

Interest Rates Decline

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, March 26. The results show mortgage rates falling this week, a trend that should help home buyers.

The 30-year fixed rate mortgage averaged 3.69% this week. This was down from last week when it averaged 3.78%.

This week, the 15-year fixed rate mortgage averaged 2.97%. This number was down from last week when it averaged 3.06%.

"The average 30-year fixed mortgage rate fell to 3.69% this week following a decline in 10-year Treasury yields," said Len Kiefer, Deputy Chief Economist at Freddie Mac. "Low mortgage rates are a welcome sign for those in the market to buy a home this spring season and will help to support homebuyer affordability. Existing home sales in February increased slightly, but less than expected, to a seasonally adjusted annual rate of 4.88 million units. Meanwhile, new home sales outperformed expectations and surged 7.8% to an annual pace of 539,000 units."

The money market fund finished the week of 3/23 at 0.4%. The 1-year CD finished at 0.7%.

Published March 27, 2015
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