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Saturday June 25, 2016



Oracle's Traditional Software Slows, Cloud Rises

Oracle Corp. (ORCL) released its fourth quarter earnings on Thursday, June 16. Earnings were boosted by Oracle's cloud business, which experienced a 49% increase in revenue.

Oracle reported revenue of $10.59 billion in the fourth quarter. This was a 1% fall from last year's fourth quarter revenue of $10.71 billion.

"Fourth quarter [cloud software as a service (SaaS) and platform as a service (PaaS)] revenue growth accelerated to 68% in constant currency, significantly higher than my guidance," said Oracle CEO, Safra Catz. "SaaS and PaaS gross margins continued to improve throughout the year, exiting FY16 at 56%. Bookings in Q4 were also very strong enabling us to raise our guidance for Q1 SaaS and PaaS revenue growth, which we now expect to be between 75% and 80%."

Oracle reported that net income in the fourth quarter was $2.81 billion, up from $2.76 billion a year ago. On an earnings per share basis, profit rose to $0.66 a share compared to $0.62 a share in the same quarter last year.

Oracle develops, manufactures, markets, sells, hosts and supports database software, cloud infrastructure, hardware products and services. Like other tech companies, Oracle is shifting toward web-based cloud services rather than installed software. Oracle's traditional software business continued to slow during the fourth quarter, as revenue from new software licenses fell 12%.

Oracle Corp. (ORCL) shares ended the week at $39.68, up 3.0% for the week.

Kroger Continues 50-Quarter Growth Streak

The Kroger Co. (KR) announced its first quarter earnings on Thursday, June 16. This quarter marked the fiftieth consecutive quarter of positive supermarket sales growth, excluding fuel.

The supermarket chain posted revenue of $34.6 billion, up from last year's first quarter revenue of $33.1 billion. While revenue continues to increase, same-store sales growth is slowing, increasing only 2.4% in the first quarter compared to 3.9% in the fourth quarter.

"We are very pleased with a solid quarter during which we continued to strengthen our connection with customers and expand our ClickList offering to more customers in more markets," said Kroger CEO Rodney McMullen. "Fifty consecutive quarters of positive identical supermarket sales growth, excluding fuel, is extraordinary."

Kroger announced earnings of $680 million, or $0.70 per share. Last year at this time, Kroger reported earnings of $619 million, or $0.62 per share.

Kroger, the largest supermarket chain and second-largest retail food seller after Wal-Mart Stores Inc., has stepped up efforts to attract new customers and fend off competition. In addition to its acquisition of the Midwestern supermarket company Roundy's last year, Kroger has directed its efforts toward increasing its natural and organic food offerings. The supermarket chain has expanded its online ordering and pickup service, "Clicklist," to 25 markets, up from only seven markets in the previous quarter.

The Kroger Co. (KR) shares ended the week at $35.18, down 3.6% for the week.

Rite Aid's Earnings Disappoint

Rite Aid Corporation (RAD) announced quarterly earnings on Thursday, June 16. The company reported increased revenue, but fell below analysts' expectations.

Rite Aid reported that revenue for the first quarter was $8.18 billion compared to $6.65 billion in the first quarter last year. The figure missed the $8.26 billion revenue mark predicted by analysts.

"Our results for the first quarter reflect strong performance in our Pharmacy Services Segment and our front-end business as well as good overall expense control," said Chairman and CEO John Standley. "Our challenge was pharmacy reimbursement rate pressure, which we were unable to offset largely due to drug purchasing efficiencies that did not meet our expectations."

The company reported a loss in profit of $4.6 million. Adjusted earnings per share for the first quarter were $0.01, down from a year ago when adjusted earnings per share in the first quarter were reported at $0.02.

Rite Aid, the third-largest drugstore chain in the U.S., has faced challenges recently due to lower reimbursement rates, which have prevented the company from meeting expectations in the area of drug cost reduction. The company continues to increase its number of "RediClinics" and remodel its wellness stores, bringing the company's total store count to 4,560. In October, Rite Aid entered into a $17.2 billion agreement to be acquired by the nation's largest drugstore operator, Walgreens Boots Alliance Inc. While the merger is still awaiting regulatory approval, Rite Aid announced on Thursday that it anticipates the merger to close before year's end.

Rite Aid Corporation (RAD) shares ended the week at $7.78, down 0.6% for the week.

The Dow started the week of 6/13 at 17,830 and closed at 17,675 on 6/17. The S&P 500 started the week at 2,092 and closed at 2,071. The NASDAQ started the week at 4,868 and closed at 4,800.

Yields Continue Decline Amid Global Uncertainty

U.S. benchmark Treasury yields tumbled to their lowest level since August 2012 on Thursday as Japan's decision not to add stimulus, coupled with the Fed's Wednesday announcement that it will not be raising interest rates, further fueled the already increased demand for safe-haven U.S. bonds. Yields have been steadily decreasing as investors speculate whether or not the U.K. will leave the European Union.

The Bank of Japan's (BOJ) decision to leave its monetary policies unchanged caused global stocks to fall. Despite the yen surging to its strongest levels in over two years on Thursday, the BOJ decide to hold back from boosting its stimulus amid the growing concern surrounding the tumultuous state of the global economy.

"The BOJ will have to take bold action to arrest the strengthening yen," said Takeshi Minami, chief economist at Norinchukin Research Institute. "With the Brexit vote ahead, the BOJ couldn't move this time because the result on June 23 may erase the impact of whatever it did now."

Fears regarding a financial disruption in the wake of the U.K.'s vote next week were put on hold following the death of British Parliament member Jo Cox. On Thursday, British politicians suspended campaigning for next week's vote and responded to Cox's death, giving yields a chance to retreat slightly from their continued fall.

"[There] is no doubt that a pause in the campaign is giving a breather to European equities and also allowing for some consolidation after a big rally in bonds," said David Schnautz, fixed income strategist at Commerzbank. Despite the slight reprieve, yields continue to hover around a four-week low.

The 10-year Treasury note yield finished the week of 6/13 at 1.62%, while the 30-year Treasury note yield was 2.43%.

Interest Rates Decline for Second Straight Week

Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, June 16. The report revealed interest rates declining for the second consecutive week.

The 30-year fixed rate mortgage averaged 3.54% this week. This represents a decrease from last week when it averaged 3.60%. Last year at this time, the 30-year fixed rate mortgage averaged 4.00%.

This week, the 15-year fixed rate mortgage averaged 2.81%. This was lower than last week when it averaged 2.87%. The 15-year fixed rate mortgage averaged 3.23% one year ago.

"The 10-year Treasury yield continued its free fall this week as global risks and expectations for the Fed's June meeting drove investors to the safety of government bonds," said Sean Becketti, Chief Economist at Freddie Mac. "The 30-year mortgage rate responded by falling 6 basis points for the second straight week to 3.54% – yet another low for 2016. Wednesday's Fed decision to once again stand pat on rates, as well as growing anticipation of the U.K.'s upcoming European Union referendum will make it difficult for Treasury yields and – more importantly – mortgage rates to substantially rise in the upcoming weeks."

Based on published national averages, the money market account finished the week of 6/13 at 0.54%. The 1-year CD finished at 1.08%.

Published June 17, 2016

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Daniel S. White, MBA
Director of Development
Director of Planned and Special Gifts

phone: 978.867.4843

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Planned and Special Gifts
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