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Saturday December 4, 2021



Delta Air Lines Faces Headwinds

Delta Air Lines (DAL) announced fourth quarter and full year earnings on Thursday, January 14. The Atlanta-based airline reported decreased revenue and profits.

Revenue for Delta's fourth quarter declined 65% to $3.97 billion. This is down from $11.44 billion in revenue during the same quarter last year. Revenue for the full year came in at $17.09 billion, down 64% from $47.01 billion.

"Our December quarter results capped the toughest year in Delta's history," said Delta's Chief Executive Officer Ed Bastian. "I want to thank the Delta people who have risen to the occasion, focusing on delivering results for all of our stakeholders by putting our customers at the center of our recovery. While our challenges continue in 2021, I am optimistic this will be a year of recovery and a turning point that results in an even stronger Delta returning to revenue growth, profitability and free cash generation."

Delta reported a net loss of $755 million, down from net income of $1.1 billion in the same quarter last year. For the full year, the company reported a net loss of $12.39 billion, down from net income of $4.77 billion.

Delta Air Lines, which started from a small aerial crop dusting operation in 1925, experienced arguably the toughest year in the airline's history. The company's net loss for the fiscal year is its first since the economic downturn in 2009. The losses stem from travel restrictions in many states and countries due to the spread of COVID-19. Delta expects a decline in revenue of 60 to 65% in the first quarter.

Delta Air Lines (DAL) shares ended the week at $39.98, up 2.3% for the week.

Albertsons Posts Quarterly Report

Albertsons Companies, Inc. (ACI) posted its third quarter earnings report on Tuesday, January 12. The American grocery company reported increased net sales and net income.

The company reported third quarter net sales of $15.4 billion. This is up 9% from $14.1 billion reported in the same quarter last year.

"Our constant focus on our customers continued to drive strong growth and market share gains in the third quarter," said Vivek Sankaran, President & CEO of Albertsons. "It is clear that our strategy is working, and as we continue to execute on our strategic priorities, we believe we are well positioned to deliver sustainable growth over the long term. At the same time, we remain focused on delivering value to all stakeholders, including taking care of our customers, associates and the communities we serve as we continue to navigate through the pandemic."

The company reported net income of $123.7 million or $0.21 per share. At the same time last year, Albertsons reported $54.8 million or $0.09 per share.

Albertsons' increase in net sales was driven by the company's 12.3% increase in identical sales and 225% growth in digital sales. During the quarter, the Drive Up & Go service grew more than 800% at their 231 Drive Up & Go locations. Albertsons intends to open 1,400 locations with the Drive Up & Go service by the end of the fiscal year. Gross profit margin increased to 29.3% compared to 28.3% year-over-year. The increase in profit margin was partly attributed to the company's growth in digital sales.

Albertsons Companies, Inc. (ACI) shares ended the week at $17.29, up 4.44% for the week.

KB Home Posts Quarterly Report

KB Home (KBH) posted its fourth quarter and full-year earnings report on Tuesday, January 12. The largest homebuilding company reported reduced revenue and income due to the ongoing pandemic.

Quarterly revenue came in at $1.19 billion for the quarter, down 23% from $1.56 billion reported in the same quarter last year. Yearly revenue was reported at $4.18 billion, down 8% from $4.55 billion reported last year.

"We had a strong finish to this extraordinary year, particularly with the 42% year-over-year increase in our fourth quarter net orders," said Jeffrey Mezger, President and CEO of KB Homes. "Housing market conditions continue to be robust, as the pandemic has helped propel demand for homeownership, accentuating all the financial, health, safety and emotional benefits it offers. This fundamental shift has long been anticipated- with pent-up demographic forces, a housing supply shortage and favorable mortgage interest rates- and COVID-19 has accelerated these dynamics."

The company reported net income of $106.09 million or $1.12 per share. Last year at the same time, KB Home posted net income of $123.17 million or $1.31 per share.

Despite the effects of the pandemic on the housing market in general, KB Home net orders for the quarter increased 42% to 3,937 homes, which is the highest fourth quarter result since 2005. The company's cancellation rate on home builds improved to 14% from 22% in the fourth quarter last year. KB Home reported a 63% increase in backlog value. This represents potential future revenues of approximately $2.96 billion, its highest anticipated revenue since 2005. The company expects significant growth in its scale and profits in 2021, but remains cautious due to further pandemic-related shutdowns.

KB Home (KBH) shares ended the week at $35.76, up 9.1% for the week.

The Dow started the week at 31,015 and closed at 30,814 on 1/15. The S&P 500 started the week at 3,803 and closed at 3,768. The NASDAQ started the week at 13,049 and closed at 12,999.

Treasury Yields Fall

U.S. Treasury yields pared back late in the week on lower than expected retail sales data. Yields had increased following policy indications from the chairman of the Federal Reserve.

On Thursday, Federal Reserve Chairman Jerome Powell participated in "A Conversation with Federal Chair Jerome Powell" with Princeton University's Bendheim Center for Finance. He provided insight into monetary policy amidst the ongoing COVID-19 pandemic.

"If inflation were to move up in ways that are unwelcome, we have the tools for that and we will use them," stated Powell. "No one should doubt that. . . . When the time comes to raise interest rates, we'll certainly do that, and that time, by the way, is no time soon."

On Friday, the Commerce Department released its retail sales data for December 2020. While economists expected a 0.1% decline, December retail sales fell 0.7%. The Department of Labor's weekly unemployment report released on Thursday, reported initial unemployment claims at 965,000, topping expectations of 800,000.

"The rise in initial unemployment claims is bad news for economy the short term, but it was not unexpected," said Commonwealth Financial Networks' CIO, Brad McMillan. "The economic impact will be limited by the recently passed stimulus bill, which will provide support for those laid off and help preserve confidence and purchasing power."

The 10-year Treasury note yield closed at 1.10% on 1/15, while the 30-year Treasury bond yield was 1.85%.

Mortgage Rates Rise

Freddie Mac released its latest Primary Mortgage Market Survey on Thursday, January 14. The report showed interest rates increased.

The 30-year fixed rate mortgage averaged 2.79% this week, up from last week's average of 2.65%. Last year at this time, the 30-year fixed rate mortgage averaged 3.65%.

This week, the 15-year fixed rate mortgage averaged 2.23%, up from 2.16% last week. During the same time last year, the 15-year fixed rate mortgage averaged 3.09%.

"As Treasury yields have risen, it is putting pressure on mortgage rates to move up," said Freddie Mac's Chief Economist, Sam Khater. "While mortgage rates are expected to increase modestly in 2021, they will remain inarguably low, supporting homebuyer demand and leading to continued refinance activity. Borrowers are smart to take advantage of these low rates now and will certainly benefit as a result."

Based on published national averages for the week of 1/11, the national savings rate was 0.05%. The one-year CD averaged 0.16%.

Published January 15, 2021
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