Daily Comment


August 1, 2014

The market had its worst day since February with the Dow Jones Industrial Average falling 317.06 points (1.88 percent), the S&P 500 index declining 39.40 points (2.00 percent), and the Nasdaq Composite sliding 93.13 points (2.09 percent).  While a number of reasons were cited for the market's plunge, ranging from the possible ramifications of an economic "war" with Russia to growing fears that the Federal Reserve may be getting closer to raising interest rates to a big net loss at Portuguese bank Banco Espirito Santo for the first half of the year that wiped out its capital buffer, there really was not any truly new news.  It may just be that after a long advance without significant pullbacks growing investor anticipation of a market correction became self-fulfilling. Trading volume was above-average with more than 900 million shares changing hands at the New York Stock Exchange. In economic news, the initial jobless claims level increased to 302,000 from a downwardly revised 279,000 (from 284,000); the consensus estimate had been for 310,000. The Employment Cost Index increased 0.7 percent in the second quarter, up from a 0.3 percent increase in the first quarter; the average estimate had been 0.4 percent. Wages and salaries rose 0.6 percent in the second quarter, up from a 0.3 percent increase in the second quarter. Benefits spending rose 1.0 percent and is up 2.5 percent year-over-year. The Chicago Purchasing Manager Manufacturing Index declined in July to 52.6 from 62.6 in June; the consensus had expected little change in the reading. 


In the News

T-Mobile US Inc. (TMUS-32.94) shares rallied 6.5 percent as French low-cost telecommunications company Iliad SA confirmed it had made a buyout offer.    It said in a statement it had offered $15 billion in cash for 56.6 percent of T-Mobile US at $33 per share. T-Mobile, the fourth-largest U.S. carrier, is 67 percent-owned by Deutsche Telekom.  Iliad's bid is backed by its billionaire founder Xavier Niel, who said he expected the deal would result in $10 billion in cost savings.  The bid already has financing from unnamed international banks and would also require a capital increase, supported by Niel. Iliad has 5.7 million broadband subscribers and 8.6 million wireless subscribers. T-Mobile has 50.5 million subscribers on its wireless network.  Sprint (S), the third-largest U.S. carrier, has been in talks with T-Mobile for months, but no deal has been announced and there are concerns that U.S. regulators may block a T-Mobile-Sprint pairing because of concerns that it would reduce competition and thus raise prices for consumers.

Vistaprint N.V. (VPRT-49.26) reported adjusted fourth (June) quarter EPS of $0.75, up from $0.41 in the year-earlier period and well above the consensus estimate of $0.53. Full year earnings were $2.95 versus $2.15 in fiscal 2013. Total revenue in the quarter, benefitting from changes in pricing and marketing practices, rose 21 percent year over year to $338.2 Geographically, revenues were up 6% in North America to $179.9 million, up 50% in Europe to $142.2 million and up 3% in Most of the World to $16.1 million. For the full fiscal year, revenues were $1.27 billion.  Vistaprint is shifting its value proposition away from deep discounts and free-offer direct marketing efforts to tap the large market opportunity beyond the traditional base of highly price-sensitive customers. Gross margin in the reported quarter fell to 60.5% from 64.6% in the year-ago period. The year-over-year reduction in gross margin was driven by the recent acquisitions of People & Print Group and Pixartprinting, which have different business models with a relatively lower gross margin than Vistaprint-branded business. For fiscal 2015, the Company is forecasting adjusted EPS of $3.46 to $3.96 on revenues between $1.47 billion and $1.54 billion. The stock rallied 30.6 percent on the news.




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