Financial Review

A Deluge and an Eclipse

Sinclair Noe — April 27, 2017

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DOW + 6 = 20,981
SPX + 1 = 2388
NAS + 23 = 6048 (record high close)
RUT – 2 = 1417
10 Y – .02 = 2.29%
OIL – 1.01 = 48.61
GOLD – 5.50 = 1264.50

Today brought a deluge of earnings.

Google parent Alphabet posted a 29 percent rise in quarterly profit, driven by a surge in advertising on mobiles and its popular YouTube video service. Alphabet’s net income rose to $5.43 billion. The company’s consolidated revenue rose 22 percent to $24.75 billion.

Google’s ad revenue, which accounts for a lion’s share of its business, rose 18 percent to $21.4 billion in the first quarter. Revenue from its Google Other unit, which includes Pixel smartphone, Play Store and cloud business, rose 49 percent to $3.10 billion.

Alphabet sales from its moonshots projects like Fiber and Nest also grew to $244 million in the quarter, up from $165 million a year earlier. However, Google’s loss for these ambitious projects ticked up slightly to $855 million. Up 5% in after-hours trade.

Also, after the closing bell, Amazon reported revenue of $35.7 billion, versus Wall Street estimates of $35.3 billion. A nice beat. This compares to $29.1 billion a year ago. EPS of $1.48, versus estimates of $1.13 per share. A big beat.

Analysts were also closely watching the performance of Amazon’s cloud computing unit, Amazon Web Services. AWS reported $3.66 billion in sales, and 43% percent growth, which is not quite as strong as the growth seen in the past 3 quarters but it is still a big beat. Amazon up almost 5% in after-hours trade.

Microsoft net income rose to $4.8 billion, or 61 cents per share, from $3.7 billion, or 47 cents per share, a year earlier. That was an earnings miss. Revenue climbed 6 percent to $23.5 billion, missing estimates.

Microsoft said LinkedIn, which it bought for about $26 billion, contributed $975 million in revenue in the quarter. Revenue from Microsoft’s personal computing unit, its largest by revenue, fell 7.4 percent. Demand for its cloud computing services failed to offset weak growth in its personal computing division. Microsoft down about 2% in after-hours.

Intel reported lower-than-expected revenue for the first quarter. Intel still gets most of its revenue from selling PC chips, a business that returned to growth in 2016 due to stabilizing demand in the second half of the year.

Revenue from Intel’s higher-margin data center business rose 6 percent to $4.2 billion in the quarter, missing analysts’ expectations. Revenue from client computing rose 6 percent to $8 billion. Intel’s net income rose to $2.96 billion, or 61 cents per share, from $2.05 billion, or 42 cents per share, a year earlier. That was a miss of 4 cents per share. Intel dropped about 3.5% after-hours.

Starbucks reported fiscal second-quarter profit of $652 million, or 45 cents per share – in line with estimates. Revenue of $5.29 billion was a slight miss. Comparable-store sales rose 3%, below analysts’ forecast for 3.6%.

United Parcel Service reported a higher-than-expected quarterly net profit as revenue grew across its domestic and international package delivery segments and as well as freight and supply chain operations.

Often seen as a bellwether of US economic activity, UPS said revenue increased to $15.3 billion in the first quarter from $14.4 billion in the year-ago period. Revenue beat estimates. Net income rose 2.4% to $1.15, also beating estimates.  During the quarter, UPS invested to expand its new Saturday deliveries, with $35 million in increased costs.

Ford Motor’s first-quarter profit fell 35% from a year earlier to $1.6 billion, down from $2.5 billion in 2016’s first period, when strong demand for a newly redesigned F-150 pickup truck helped Ford post its best quarterly operating profit in history.

Earnings per share were 39 cents in the latest quarter, beating analysts’ consensus of 36 cents. Revenue for the first quarter rose 4% to $39.1 billion, driven by a favorable mix of pickup trucks and sport-utility vehicles. Ford plans to cut $3 billion in costs this year and expects profit to rebound in 2018, driven by continued strength in the pickup-truck market.

American Airlines Group has a healthy track record with respect to earnings. The company has delivered positive earnings surprises in three of the last four quarters, with an average beat of 20%. The first quarter down 60% from the year ago quarter but it was another beat. Adjusted earnings per share came in at 61 cents per share, beating estimates of 57 cents. American shares dropped about 5% today.

American Airlines announced it was increasing pilot and flight attendant salaries an average of 6.5 percent, or by a total of $930 million through 2019. A JPMorgan analyst described it as a “wealth transfer” to labor groups. American CEO Doug Parker described the higher wages as a correction to years of “incredibly difficult times” for airline employees. American employees had been underpaid compared to other airline employees. Parker called the pay hikes an “investment” in better service.

Southwest Airlines dropped about 2%, after the air carrier reported first-quarter profit and revenue that missed expectations. CEO Gary Kelly announced that Southwest will no longer overbook its flights, ending a practice that sometimes leaves paying passengers without a seat.

It’s impossible for an airline to guarantee it will never have to bump a passenger. Carriers still must transport other pilots and crew members to work, and an air marshal could also need a seat. But ending overbooking does make it less likely.

Comcast beat expectations ahead of the bell and jumped 3%, while Abbvie performed similarly. Those companies were joined by railroad company Union UNP, which also gained 3% in early trade, and another pharmaceutical giant, Bristol-Myers Squibb + 3.5%. Other post-earnings gainers included KKR +5% and Domino’s Pizza, up 2.5%.

European markets closed slightly lower Thursday. The European Central Bank kept interest rates unchanged. ECB President Mario Draghi surprised some investors by explicitly recognizing the bloc’s economic recovery.

The euro initially reached the day’s peak of $1.0930 as Draghi struck an optimistic tone when answering questions from reporters. The ECB maintained a deposit rate of -0.4% for banks, a base interest rate of 0.0%, and a quantitative easing (QE) program of up to €60 billion per month.

President Trump said he’ll give the re-negotiation of the North American Free Trade Agreement a “good, strong shot” but reiterated he would “terminate” U.S. participation if he doesn’t get what he called a fair deal. He said he decided to have talks since pulling out would be a “shock to the system.”

House Speaker Paul Ryan said he’s confident Congress will pass a “short-term extension” of current government funding that would keep operations going past Friday. Ryan did not give a time for a vote.

A gauge of pending home sales declined in March as inventory continued to tighten. The National Association of Realtors’ index fell 0.8% to a reading of 111.4. The index forecasts future sales by tracking real estate transactions in which a contract has been signed, but the deal has not yet closed.

Thanks to a strong first quarter, the Realtors forecast sales in 2017 to rise 3.5% compared to 2016. But supply isn’t keeping up with demand. There were 3.8 months of supply in March, and properties stayed on the market an average of only 34 days. A balanced market is usually thought to have 6 months of supply.

West Virginia is coal country. Chris Beam, president of Appalachian Power, the state’s largest utility, is not a coal guy. Beam told the West Virginia Gazette-Mail he had a recent conversation with the governor of West Virginia, who asked him to burn more coal.  Beam responded, “That’s not going to happen.” And the reason is customers don’t want it.

Beam says the debate over climate change, and the role of coal in it, is essentially over. Appalachian Power’s parent company AES believes the regulation of carbon dioxide is inevitable. In the coming decades, renewable energy and natural gas are poised to dominate the fuel mix. Appalachian Power’s residential and industrial customers are now asking about switching to 100% renewables.

To get out in front of this growing demand, the utility, which serves more than a million customers across the US mid-Atlantic region, has begun preparing power plans that would allow customers to stop using fossil fuels. Appalachian Power estimates it will reduce its coal capacity from 60% of its energy mix to about 50% by 2020.

At the same time, wind and solar will rise from about 4% of capacity to 20% by 2031. And yes, West Virginia trails most of the rest of the country in its switch to renewables.

And we finish with a special note for the philatelists among us. The Postal Service will debut a new shape-shifting Forever stamp in June ahead of a rare solar eclipse set for Aug. 21. The new issue will transform from an image of a total solar eclipse into an image of the moon when you press it with your finger. The back will feature a U.S. map tracking when the eclipse will appear across the country.

It’s the first time a stamp will make use of thermochromic ink, which is sensitive to body heat (and changing temperatures — which means stamps should be kept away from direct sunlight). The stamp’s photo of the eclipse was taken in Libya in 2006 by an Arizona-based astrophysicist, Fred Espenak, aka Mr. Eclipse, of Portal, AZ.

Financial Review

A Hot One

Sinclair Noe — January 21, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW + 115 = 15,882
SPX + 9 = 1868
NAS + 0.37 = 4472
10 Y + .04 = 2.02%
OIL + 1.50 = 29.85
GOLD + .20 = 1102.40

The European Central Bank announced today that they will hold interest rates at record lows of 0.3%. Mario Draghi said the European Central Bank may need to provide more stimulus programs as soon as March to address concerns about the euro-area recovery. Draghi said, “Downside risks have increased again amid heightened uncertainties about emerging-market growth prospects. It would therefore be necessary to review and possibly reconsider our monetary-policy stance at our next meeting.” Now remember that the markets just love free money, and that was essentially what Draghi promised.

China’s central bank cranked up cash injections in its money-market operations for the third week in a row, trying to counter capital outflows. The PBOC added $60 billion to the financial system using reverse-repurchase agreements, the most in three years. The Shanghai composite dropped 3.2%.

Brazil’s central bank kept policy on hold. The Central Bank of Brazil held its benchmark rate at 14.25%, surprising the consensus, which was calling for a 50-basis-point hike to 14.75%. The bank has been under pressure from politicians and local businesses to raise rates in an effort to combat inflation that is running at a 12-year high, above 10%.

Oil prices moved higher today. Yesterday the API report showed a U.S. crude inventory build of 4.5 million barrels last week – about double trade expectations. Today the U.S. Energy Information Administration reported crude inventories rose by 4 million barrels for the week ended Jan. 15. Now normally, you might expect prices to drop on news that inventories are growing, but the best explanation I can offer is that oil was a little oversold; even with today’s gain, prices are still under $30 a barrel.

Russia’s ruble fell more than 5% overnight, to hit a new record low of 85.97 per dollar. The country is suffering from the slump in oil prices, which has sparked widespread predictions of a second straight year of recession. Russia’s central bank has indicated it will not intervene to support the currency.

The number of applications for unemployment benefits unexpectedly increased last week to a six-month high. Initial jobless claims climbed by 10,000 to 293,000 in the week ended Jan. 16. The four-week moving average increased to 285,000, the highest since mid-April.

The Philadelphia Fed’s manufacturing index was in negative territory in January for the fifth month in a row. The index rose to negative 3.5 from negative 10.2

The first Friday of each month brings the report on non-farm payrolls, or the shorthand is the Jobs Report; a couple of weeks later we get a state by state breakdown. Today, the Arizona Department of Labor Stats reported Arizona’s seasonally adjusted unemployment rate dropped two-tenths of a percentage point from 6.0% in November to 5.8% in December.

The US seasonally adjusted unemployment rate remained unchanged at 5.0% in December. A year ago, the Arizona seasonally adjusted rate was 6.6% and the U.S. rate was 5.6%. The biggest job gains were found in trade, transportation, and utilities; the biggest job losses were in government and construction. Arizona employment grew by 2.5% (65,700 jobs) over the year ending in December.

January 21, 1970 marks the day of the first commercial flight of a Boeing 747. Today, Boeing announced plans to report a $569 million after-tax accounting loss as it cuts production of the iconic 747 jumbo jet in half. Boeing announced that it would lower its production rate on 747-8 jets to match demand in the cargo market.

In other words, it does not want to overproduce for a market that’s not demanding a lot right now. But demand for flight from the consumer economy are running above their recent trend. And this is really the whole economic story in a nutshell. In short, the outlook for consumers is solid while things are falling apart for manufacturers.

United Continental Holdings’ fourth-quarter profit missed analysts’ estimates as a strong dollar and weak economies in energy-dependent markets hurt demand from travelers. Adjusted earnings were $2.54 a share, missing estimates by 2-cents. Revenue dropped 3%.

Southwest Airlines reported it nearly tripled its profit in the final quarter of the year. The No. 4 U.S. airline by traffic said its fuel and oil expense dropped 37% in the latest quarter. Overall, the company posted a profit of $536 million, or 82 cents a share, up from $190 million or 28 cents a share a year earlier. Revenue was up 7.5%

Verizon Communications added 1.5 million new subscribers and exceeded analysts’ profit estimates even as rivals pushed price cuts and promotions to lure customers away. Fourth-quarter earnings excluding some items were 89 cents a share, a penny better than estimates.

Schlumberger reported better-than-expected fourth-quarter earnings and quarterly sales in line with Wall Street consensus. The company said it earned an adjusted 65 cents a share in the quarter, down from $1.50 a share in the year-ago period. Revenue hit $7.7 billion, down from $12.6 billion in the year-ago period. The company faced a continued decline in rig activity, project delays and cancellations and other problems stemming from lower oil prices. The good news is that it wasn’t worse news.

American Express reported its fourth-quarter earnings fell to $899 million, or 89 cents a share, from $1.45 billion, or $1.39 a share, a year earlier. AmEx beat earnings estimates. Revenue dropped to $8.3 billion from $9 billion a year ago.

Union Pacific Corp. reported quarterly earnings that missed analysts’ estimates for the third time this year as a freight slump accelerated. Net income fell to $1.31 a share, 11 cents less than the average of estimates. Revenue decreased 15 percent to $5.21 billion compared with a forecast of $5.44 billion. It was the biggest miss in at least 10 years. The weakness in rail cargo probably will last this year as coal demand continues to drop and U.S. production lags.

General Motors said it sold 9.8 million vehicles in 2015. The results represent a third consecutive year of record global sales for GM. North American deliveries rose 6% to 3.6 million cars, trucks and crossovers, and it also delivered 3.6 million vehicles in China, an increase of 5% from 2014.

Sharp is leaning toward accepting a rescue by government-backed Innovation Network of Japan over a potentially larger offer from Foxconn Technology. A deal with INCJ would allow the firm to keep its technology within Japan and cooperate more closely with domestic companies. Sharp’s stock climbed as much as 25% in Tokyo after Foxconn offered $5.3 billion to take it over.

The next installment of the Star Wars franchise, originally slated to debut on May 26, 2017, is now scheduled to be released seven months later on Dec. 15, 2017. Disney did not cite specific reasons for the push, but did note the success of Star Wars: The Force Awakens. The film has garnered more than $861 million domestically and $1.9 billion internationally – the third largest global release ever.

If you believe in math and gravity and other such “theories” there appears to be precise evidence of a big, fat planet spinning far beyond the planetoid Pluto.  The clues started piling up when astronomers discovered a mini Pluto (aka, rocky Kuiper Belt object far out in the nether regions of the solar system) with an interesting orbital twist… literally. Astronomers then noticed other objects floating around in distance and in the angle of the orbit relative to the horizon of the solar system. So it was more than coincidence.

Using very sharp pencils two Caltech astronomers Michael Brown and Konstantin Batygin, not only have validated the existence of this mystery planet they’ve referred to as “Planet 9”, they have determined both its mass and exact orbit.  Planet 9 from Outer Space is apparently about 10 times the mass of Earth with an orbit 20 times farther out from the sun than Neptune. The only thing really missing from “9” is a fuzzy picture and a real name.

A blizzard watch has been posted from Virginia to New York, for a storm that threatens to bring high winds and heavy snow starting Friday and lasting through the weekend. The snow should begin falling in Washington before sundown Friday, with heavier amounts arriving overnight. In New York, the heaviest accumulations will come on Saturday, which is when Boston may get some snow as well.

Last year shattered 2014’s record to become the hottest year since reliable record-keeping began, according to separate sets of records kept by NASA and the National Oceanic and Atmospheric Administration; 2015’s sharp spike in temperatures was aided by a strong El Niño weather pattern late in the year that caused ocean waters in the central Pacific to heat up. But the unusual warming started early and steadily gained strength in a year in which 10 of 12 months set records.

NASA reported that 2015 was officially 0.23 degrees Fahrenheit (0.13 degrees Celsius) hotter than 2014, the prior record year. NOAA’s figures showed slightly greater warming, of about 0.29 degrees Fahrenheit (0.16 degrees C) hotter than 2014. A quarter of a degree may not sound like much, but on a planetary scale it’s a huge leap. Most previous records were measured by hundredths of a degree.

The El Niño weather pattern of 2015 produced some of the hottest temperatures ever witnessed across swaths of the equatorial Pacific. Across the globe, El Niño triggered powerful typhoons, spoiled cocoa harvests in Africa, and contributed to vast fires in Indonesia. California is getting pummeled with floods, and residents on the U.S. East Coast are bracing for an El Niño fueled snow dump this weekend. Because a strong El Niño still is in place, 2016 is expected to be an exceptionally warm year, and perhaps even another record.

FINANCIAL REVIEW

A Boatload of Economic News and Earnings Reports

Sinclair Noe — October 23, 2014

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

DOW + 216 = 16,677

SPX + 23 = 1950
NAS + 69 = 4452
10 YR YLD + .05 = 2.28%
OIL + 1.33 = 81.85
GOLD – 9.10 = 1232.90
SILV + .02 = 17.30

The S&P 500 has risen five times in the past six days, pushing the gauge up 4.9 percent since Oct. 15 and recouping about half the losses from a selloff that began in mid-September; the S&P is still down about 3 percent from a record.

The Federal Housing Finance Agency, which tracks deals involving mortgages backed by Fannie Mae and Freddie Mac, said home prices in August were up 4.8% from the year-earlier period; and up a seasonally adjusted 0.5% in August from July. The average rate for a 30-year fixed mortgage was 3.92 percent, down from 3.97 percent last week. The average 15-year rate dropped to 3.08 percent from 3.18 percent. Mortgage rates are now at the lowest levels since the summer of 2013. Refinancing applications jumped 23 percent in the week ended Oct. 17 to an 11-month high.

The number of people who applied for US unemployment benefits rose by 17,000 last week to 283,000, but initial claims remained below the key 300,000 level for the sixth straight week.

The Conference Board’s leading economic index rose 0.8% in September, after no change in August. The index points toward improving employment and income growth which are expected to support moderate economic expansion for the remainder of the year. The leading index is composed of 10 forward-pointing indicators. Nine of the 10 indicators showed strength in September, with the biggest positive contribution coming from a favorable spread of low interest rates. The only negative was average consumer expectations for business conditions.

The Chicago Fed’s national activity index rose to positive 0.47 from negative 0.25 in August. The three-month average stayed positive and accelerated, to 0.25 from 0.16 in August; indicating the economy grew at an above-trend pace in September, recovering after a slower August.

The Markit Economics flash manufacturing purchasing managers index for the US fell to a 56.2 reading in October from 57.5 in September. The index is at a three-month low. The rise in new orders was the slowest in nine months. A number of businesses expressed caution about export sales, perhaps due to the stronger dollar. Input cost inflation eased to its weakest level in six months.

Markit’s Eurozone Composite Flash Purchasing Managers’ Index rose to 52.2 in October from 52 in September. Germany’s private sector saw faster growth this month, France’s business slump deepened, with business activity hitting an eight-month low. In Britain, retail sales fell more than expected in September. Eurozone inflation slipped to its lowest for five years in September. The Flash Index is just a subset of the broader economy. For example, today, Spain reported the number of people without a job dropped by 195,000 in the third quarter, and the unemployment rate dropped to 23.7%, which is still incredibly lousy.

China’s flash HSBC/Markit manufacturing PMI edged up to a three-month high of 50.4 from a final reading of 50.2 in September.

Russian stocks have been falling sharply this week. Standard & Poor’s is scheduled to release a review of Russia tomorrow and it is widely expected that they will cut Russia’s credit rating to junk. Last week, Moody’s Investors Service cut Russia’s debt rating, citing concerns over the Ukraine crisis and the international sanctions.

The European Central Bank is scheduled to release the results of its stress test for Eurobanks on Sunday. The test of 130 lenders is aimed at answering the questions many investors still have about the health of the region’s banking system in the wake of the financial crisis. It is expected that most of the mega banks will pass the test but there are estimates that as many as 20 mid-sized banks might fall short.

The Federal Reserve will put US banks through a stress test, and the methodology was released today. US banks will have to show they can withstand a scenario where the unemployment rate jumps to 10%, the stock market dives by 60%, and oil prices reach $110 a barrel. The Dodd-Frank Act requires these tests of 31 of the largest banks, with $50 billion or more in assets, before the Fed signs off on stock buybacks and dividends. The 8 largest banks will also have to test for counterparty defaults, and 6 with large trading operations will have to test for a “global market shock scenario” that it hasn’t yet released. All the banks must submit these capital plans by January 2015.

Last year, Citi, Zions Bancorp and three foreign banks failed the tests, and Bank of America was forced to suspend a planned increase in its dividend and a stock buyback after finding it had erroneously reported $4 billion more in capital than it actually had.

After a sharp fall, crude oil seems to be finding support at $80 a barrel. Last week, the intraday price dipped below $80 but we have not seen a closing price under $80. Today, the price dipped down to $80.05 and then rallied. The past ten sessions have created a symmetrical triangle on the charts, and within the next few days, we should see a break from that pattern. Whichever way the market breaks out, or breaks down from that triangle pattern could be the way the trend goes for a long period. There is a tendency to go out of this pattern the same way we came in, which would be going down; but right now the prudent move is to wait and let the market tell us whether it can hold this important level of support.

General Motors disclosed in a Securities and Exchange Commission filing that its GM Financial unit was served with additional investigative subpoenas to produce documents from state attorneys general and other governmental offices relating to its subprime auto finance business and securitization of subprime auto loans.

General Motors said it earned $1.4 billion in the third quarter on strength in North America and China, where newly introduced models are more profitable than the ones they replace. That’s up from $700 million, or 45 cents a share, in the 2013 third quarter. Revenue was $39 billion, down slightly from the year-ago $39.3 billion. The earnings equaled 81 cents a share, lower than the 97 cents analysts expected. But the 81 cents is minus a special charge of 16 cents primarily for repairing flood damage at the Technical Center in Michigan and charges in Russia for lost value of long-term assets.

It is earnings reporting season.

3M reported strong growth in US sales and raised its full-year earnings forecast higher. In the latest quarter, profit totaled $1.30 billion, or $1.98 per share, up from $1.23 billion, or $1.78 per share. Sales grew 2.8% to $8.14 billion. Wall Street had expected earnings of $1.96 per share.

Caterpillar reported third-quarter net income rose to $1.63 a share from $1.45 a year earlier. Excluding one-time items, profit was $1.72, surpassing the $1.35 average of estimates compiled by Bloomberg. Caterpillar said per-share earnings excluding one-time items for this year are expected to be $6.50, 30 cents more than previously projected.

In a sign that earnings do still matter to the stock market, just look at 3M and Caterpillar today. 3M was up $6.10 at $145.05; that added about 25 points to the Dow Industrial Average. Caterpillar was up $4.97 at $99.27; adding about 45 points to the Dow. Two stocks, about one-third of the Dow movement.

Microsoft reported earnings of 54 cents per share on revenue of $23.2 billion, beating Wall Street estimates of 49 cents per share on revenue of $22 billion. Microsft was up about 4% today.

Amazon reported a third-quarter loss and revenue that missed analysts’ expectations; and then salt on the wound, Amazon projected weaker-than-expected sales for the important holiday quarter. The company posted a loss of 95 cents per share, compared to a loss of 9 cents per share in the year-earlier period. Three months ago, analysts thought the company would lose 7 cents a share in the third quarter. Then, after Amazon ratcheted down expectations, the estimated loss swelled tenfold, to 74 cents; and today, they missed that by 21 cents. Revenue for the quarter came in at $20.58 billion, against the comparable year-ago figure of $17.09 billion. Amazon tanked in after-hours trading, down about 13%.

Even with Amazon likely to hit $100 billion a year in revenue in 2015, it is having a hard time making a profit. It is getting to be a familiar story. The last time Amazon made a profit in the third quarter was in 2011.

Sears is closing 77 Sears and Kmart stores and cutting 5,300 jobs. And that’s not even the worst news. Most of the store closures will happen before Christmas, which makes it look like Sears is just throwing in the towel. Even the stores that won’t close until after the holidays are already holding going out of business sales rather than gearing up for seasonal promotions. Sears Holdings was up 4.4% on the news today. Go figure.

American Airlines, earned a $942 million profit in the third quarter. The company said it was its biggest profit ever for a quarter, and it was an 87 percent increase over the amount that American and US Airways earned separately last year before their December 2013 merger. Doug Parker, the airline’s chief executive, predicted more records for fourth-quarter and full-year earnings.

United Continental posted net income of $924 million, up from $379 million a year earlier. Excluding one-time items, its adjusted profit was a record $1.1 billion. Southwest profit rose 27 percent to $329 million.

All three companies beat Wall Street expectations for earnings. The airlines increased ticket prices back in April, and since then fuel prices have dropped by about 20%, and that works out to millions in savings: United cut its fuel bill by $13 million. Southwest saved $64 million. And the airlines are likely to save even more on fuel costs in the fourth quarter.

But if you are thinking those fuel savings will be passed along to fliers in the form of lower fares, well, that’s just hilarious. Recent mergers have reduced competition and helped the airlines limit the number of flights, making it easier to increase fares. And the big airlines have just pushed through a fare increase on domestic routes.