Good news for the economy was good news for stocks Friday after the U.S. Labor Department reported that unemployment kept falling in September and job growth is continuing. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) closed near their highs of the session. All sectors gained ground, with financial and technology shares in the lead.
As for individual stocks, Costco Wholesale (NASDAQ:COST) reported continued growth in its latest quarter, and RingCentral (NYSE:RNG) and Avaya Holdings announced a partnership.
Costco profits are on track
Costco announced fiscal fourth-quarter results that beat profit expectations, and shares edged up 0.9%. Revenue grew 7% to $47.5 billion. Earnings per share rose 4.7% to $2.47, but excluding a one-time tax assessment that the company intends to contest, EPS jumped 14% to $2.69, above the $2.54 analyst consensus.
Sales numbers were released a month ago, so there were no surprises there. Comparable sales were up 5.1% and adjusted e-commerce sales increased 21.9%. Customer traffic at the warehouse club grew 3.7%, a slight improvement from last quarter, and gross margin excluding gas and an accounting change rose 20 basis points from the period a year earlier. The membership renewal rate improved to 90.9%, compared with 90.7% last quarter.
Costco’s business appears to be on track, and despite analysts’ concern about tariffs on the conference call, the company doesn’t see any major competitive issues arising from recent hikes in tariff levies.
RingCentral and Avaya make a connection
Shares of cloud communications solutions provider RingCentral soared 28% today after the company announced a partnership with telecommunications specialist Avaya Holdings. RingCentral and Avaya will introduce a cloud-based, communications-as-a-service solution called “Avaya Cloud Office by RingCentral.” Shares of Avaya skyrocketed 31%.
As part of the deal, fast-growing RingCentral will pay Avaya an advance of $375 million, mostly in the form of stock, for future commissions and certain licensing rights. The company will also purchase Avaya preferred stock, giving it a 6% ownership position. The transaction was approved by both boards and is expected to close before the end of the year.
The deal with Avaya, which was originally part of AT&T and Lucent and has been a subject of recent buyout rumors, gives RingCentral access to Avaya’s large installed base of over 100 million users. For its part, Avaya will get a technology partner that will help its customers transition to cloud-based solutions. Investors clearly thought that the deal was a win for both companies.
