The Mission Report

The MissionIR Report - July 2015

In-depth analysis, timely updates, latest market news


Market News

Company Updates


Economy Grows in All 12 Districts According to Fed

The U.S. economy gained momentum in May and June on a pickup in consumer spending and the housing market, but the strong dollar and pullback in oil drilling continued to hamper manufacturing, the Federal Reserve said Wednesday.

The Fed's "beige book," named for the color of its cover, generally painted a more upbeat picture of the economy than its previous report. Seven Fed regional bank districts -- Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas and San Francisco – posted moderate economic growth, up from just four in the last summary.

The economy expanded modestly in other areas, including New York, Philadelphia and Kansas City. Still, all 12 districts reported expansion and several key regions voiced optimism about future growth.

The report, an anecdotal snapshot of business conditions around the country, is consistent with economists' projections that the economy rebounded solidly in the second quarter after shrinking early in the year. Many analysts expects the economy to grow a solid 3% or so and annual pace in the second half of 2015.

Consumer spending advanced across the country from mid-May through June, with low gasoline prices stoking outlays in Philadelphia, Cleveland and San Francisco. But a strong dollar, which makes imports cheaper for U.S. consumers, impeded sales in border areas. Auto sales, however, were generally strong and buyers shifted from cars SUVs in the Cleveland, Chicago and Kansas City, a trend that has been fueled by low gas prices.

Tourism also was a bright spot, though it slowed further in New York, normally a popular destination for summer travelers.

The housing market also continued to improve after the harsh winter curtailed home sales and construction. Home sales rose in most districts, including Boston, Cleveland, Atlanta, Chicago and Minneapolis. But sales were mixed in Philadelphia and Dallas and fell in some New York markets. Low inventory discouraged buyers several markets.

Meanwhile, single-family housing starts picked up in Cleveland, Atlanta and Kansas City and were mixed in Richmond, St. Louis and Minneapolis. Multifamily building continued to largely support the market, with construction strong in New York, Richmond, Atlanta, Dallas and San Francisco.

Commercial real estate is also bouncing back from the mid-2000's crash. Vacancy rates declined in Chicago, St. Louis, Kansas City and Dallas.

But the rebound in manufacturing was uneven, the Fed said. The strong dollar hurt demand for exports in Boston, Cleveland and Dallas. And slowdowns in the oil and gas industry amid low crude prices curbed factory orders in Cleveland, Chicago and Dallas.

At the same time, auto makers generally continued to report brisk activity. And semiconductor manufacturers in Boston and San Francisco said business was strong or improving.

The labor market also picked up, particularly for services companies. Payroll gains for manufacturers were mixed, with companies in Boston and Dallas citing layoffs. Job cuts in the oil industry continued in Atlanta, Minneapolis and Dallas, but the pace of layoffs eased in Dallas.

And although wage increases continued to be modest, reports from Cleveland, Chicago and San Francisco showed that recent state minimum wage hikes and pay increases by large retailers "could prompt broader wage pressure across other industries as firms compete to remain attractive employers."

Oil Prices Decline after Hefty Climb of Supplies

Oil futures headed lower on Wednesday, as a hefty climb in weekly U.S. distillate supplies outweighed a bigger-than-expected decline in crude inventories.

Traders also continued to mull the energy-market impact of the Iran nuclear agreement and likely lifting of sanctions on Iran.

On the New York Mercantile Exchange, August West Texas Intermediate crude fell 77 cents, or 1.5%, to $52.23 a barrel. It was trading at $52.40 right before the supply data. August Brent crude on London's ICE Futures exchange fell 86 cents, or 1.5%, to $57.65 a barrel.

Early Wednesday, the U.S. Energy Information Administration on Wednesday reported a drop of 4.3 million barrels in crude supplies for the week ended July 10. Analysts polled by Platts had forecast a crude-stock fall of 1.8 million barrels, while the American Petroleum Institute on Tuesday said supplies declined by 7.3 million barrels.

The initial reaction to the initial reaction to the EIA data was "choppy and volatile," said Tyler Richey, co-editor of The 7:00's Report.

The headlines of the report, however, were "largely bullish," excluding distillate inventories, which rose more than expected," he said.

The report also showed that oil production in the lower 48 states fell by 66,000 barrels to 9.1 million barrels a day.

Gasoline supplies rose 100,000 barrels, which was roughly within market expectations but stockpiles for distillates, which include heating oil and jet fuel, jumped by 3.8 million barrels last week, according to the EIA.

On Nymex, August gasoline fell 3 cents, or 1.6%, to $1.90 a gallon and August heating oil traded at $1.687 a gallon, down 3.8 cents, or 2.2%.

Tim Evans, chief market strategist at Long Leaf Trading Group, said the report shows the "current glut of distillates."

"The drop in crude-oil stocks simply shows that refiners cut back on crude-oil purchases while they are working off the excess supply of the distillates," he said. "The crude-oil market is pricing in its bearish outlook, given the poor demand picture and potentially much greater supply coming from Iran."

On Tuesday, oil prices were also volatile but ended on a positive note after news of the Iran nuclear deal was confirmed.

While the deal between Iran and six world powers is bearish for oil prices as it could boost Iranian crude exports and add to the global oil glut, it also clears some of the uncertainty that has been weighing on oil markets in recent days.

Meanwhile, August natural gas was the lone gainer, adding 5.3 cents, or 1.9%, to $2.893 per million British thermal units ahead of the EIA's weekly report on natural-gas supplies due Thursday.

Yellen Reiterates Rate Hike is Likely

Federal Reserve Chair Janet Yellen sees a number of encouraging signs that the economy is reviving after a brutal winter and says if the improvements stay on track, the Fed will likely start raising interest rates later this year.

Delivering the Fed's mid-year economic outlook to Congress, Yellen said Wednesday the importance of the first rate hike should not be over-emphasized because interest rates are likely to remain at very low levels "for quite some time after the first increase." The Fed's benchmark rate has been at a record low near zero since December 2008, meaning that borrowing rates for consumers and businesses have been at historic lows.

Many economists believe the Fed's first rate hike will occur in September, but they see at most only two quarter-point moves this year.

"If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds target," Yellen said in prepared remarks. The funds rate, the Fed's key policy lever, has not been lifted in nearly a decade.

Yellen stressed that her outlook is based on the expectation that the labor market will continue to improve and inflation will begin to move closer to the Fed's 2 percent target for annual price gains. Inflation is currently running lower than the pace the Fed believes is optimal for a healthy economy.

A decision to raise rates, Yellen said, "will signal how much progress the economy has made in healing from the trauma of the financial crisis."

Yellen noted a number of areas that had improved.

The unemployment rate dropped in June to a seven-year low of 5.3 percent. She also cited "noticeable declines" over the past year in the number of long-term unemployed — people who have been out of work six months or longer — and in the number of people working part-time because they can't find full-time jobs. But she said problems with the labor market remained, including anemic wage growth.

Many of the problems that sent the economy into reverse in the January-March quarter appeared to be waning, she said.

"Consumer spending has picked up and sales of motor vehicles in May and June were strong," Yellen said, also noting recent improvements in home construction.

But she described business investment and export sales as weak. Investment has been hurt by spending cutbacks by energy companies responding to falling energy prices, and exports have suffered by the rising value of the dollar, which makes U.S. goods less competitive in foreign markets.

Yellen listed foreign developments as one of the key uncertainties that could weigh on U.S. growth in coming months.

"The situation in Greece remains difficult," she said. "And China continues to grapple with the challenges posed by high debt, weak property markets and volatile financial conditions."

Anticipating tough questions from Republican lawmakers over the Fed's powers and what critics see as excessive secrecy, Yellen described a number of steps the central bank has taken in recent years to become more transparent. She said the Fed holds press conferences after four of its eight meetings each year and has increased the frequency that it updates its economic forecasts.

"The Federal Reserve ranks among the most transparent central banks," Yellen said.

But she added that efforts to increase openness "no matter how well intentioned must avoid unintended consequences" that could undermine the Fed's ability to conduct policy.

The Fed, responding to the 2008 financial crisis and the worst economic downturn in seven decades, expanded its balance sheet by purchasing trillions of dollars in bonds and took other aggressive actions to lower interest rates and battle high unemployment.

The moves triggered criticism that the Fed has become too powerful and is too secretive and unaccountable. Lawmakers in both the House and Senate have introduced legislation to rein in the Fed's independence, measures that the central bank have warned could damage the independence the Fed needs to maintain its credibility with financial markets.

ENGlobal (ENG)

ENGlobal recently reported its financial results for the quarter ended March 28, 2015. The company generated $23.1 million in revenues during the quarter with a net income of $0.6 million, or $0.02 per diluted share. During the quarter ended March 28, 2015, ENGlobal incurred non-cash expenses for depreciation, amortization and stock compensation of $0.6 million.

Mark Hess, ENGlobal's Chief Financial Officer, said, "We ended the first quarter with a healthy cash balance and working capital of $24.4 million, and have no borrowings under our current credit facility. In addition, notes receivable totaling $5.1 million were collected after the end of the quarter, contributing significantly to our cash position. While there is always room for improvement, I believe we are in a strong financial position and poised for future growth."

About ENGlobal

As a top-ranked provider of energy-related automation and engineering services, ENGlobal Corp. emphasizes quality and safety to deliver innovative, energy-related automation integration services and EPCM projects for clients worldwide. Operating through two strategic business segments, ENGlobal provides its services to the energy, pulp and paper, and government sectors throughout the United States and internationally.

ENGlobal's Automation segment provides a wide range of services related to the design, fabrication and implementation of distributed control, instrumentation and process analytical systems. Products and services supporting the environmental technology fields are also offered by the Automation segment. The Engineering (EPCM) segment provides consulting services for the development, management and execution of projects requiring professional engineering, construction management, and related support services. Within the Engineering segment, ENGlobal's Government Services group provides engineering, design, installation and operation and maintenance of various government, public sector and international facilities, and specializes in the turnkey installation and maintenance of automation and instrumentation systems for the U.S. defense industry worldwide.

Additionally, ENGlobal's Subsea Controls and Integration (SCI) group provides advanced process automation design, engineering service and equipment for the effective integration of communication protocols between topsides production facilities and subsea devices. The SCI team was initiated when a major global E&P company set out to standardize the subsea process control environment. In 2008, ENGlobal's SCI group was commissioned to further develop the concept commencing with a detailed design. Working together, they defined a long-term vision and commercialization plan for a now patented Universal Master Control Station (UMCS) that could communicate to virtually any subsea equipment.

In its 29 years of operations, ENGlobal has created a global workforce of more than 400 industry leaders in a variety of fields, ranging from drafters and designers to technical specialists. The company's highly experienced core leadership team has established a solid financial foundation and proven ability to consistently grow company revenues and value.

Sajan Inc. (SAJA)

Sajan was recently selected by Stanley Black & Decker, Inc. as a global language translation provider. All of Stanley Black & Decker's primary product and services groups globally request projects through the translation center, which has streamlined the workflow, reduced costs through translation memory software, and fostered branding consistency. Translation projects span website content, user manuals, packaging, eLearning and more. Sajan is currently doing translations into over 20 different language pairs for Stanley Black & Decker.

As the program grows, Sajan and Stanley Black & Decker plan to drive further efforts in localizing Stanley Black & Decker's content and continuing to grow the adoption into the translation center, while reducing the overall cost to translate content. "We couldn't be more pleased with how quickly we're seeing benefits after rolling out this translation program," said Tim Perra, vice president of Communications at Stanley Black & Decker. "Not only are we experiencing positive results from the cost reduction strategy that Sajan put into place, customer service is consistently excellent as well. It's also great to see the enthusiasm of the program across our organization."

About Sajan Inc.

Sajan is a leading provider of global language translation services, supplying clients around the world with the means to seamlessly expand into any global market. Using the company's proprietary language translation management system technology, Transplicity, clients gain access to a cloud-based tool designed to simplify the translation workflow process through the use of an industry-leading combination of top-notch performance, versatility, scalability and cost savings. In April, Sajan improved upon the marketability of Transplicity by adding a groundbreaking terminology management feature, which is specially designed to allow users in all locales to preserve brand identities and messaging through the creation of product-specific glossaries of terms, ensuring consistent use of branding across all marketing efforts.

"This terminology management feature is our latest enhancement to Transplicity, the most personalized and flexible translations management system on the market," Stephen Homes, vice president of technology at Sajan, stated in a news release. "We've already received very positive feedback from our clients, and it paves the way toward even more features we're adding down the road."

As an established player in the language services industry, Sajan is in a strong position to promote sustainable growth in the years to come. According to a report by Common Sense Advisory, an independent market research institute, the worldwide language services market accounted for approximately $23.5 billion in revenue in 2009, and by 2013, that figure had grown to just short of $34.8 billion. This rapid growth is expected to continue in the future, with the market forecast to reach $43 billion in 2016.

In recent months, Sajan has capitalized on the performance of the market by posting strong financial results. In the first quarter of 2015, the company recorded $7,481,000 in revenues, realizing a 22 percent year-over-year improvement. These results marked the ninth consecutive quarter that the company has achieved a double-digit increase in overall revenue.

"I am extremely pleased with our continued revenue growth and improved profitability," stated Shannon Zimmerman, chief executive officer of Sajan. "The spirit of the company remains very high, and we are aggressively fixated on our objectives. I could not be happier with the great work our global staff is delivering."

Uranium Energy Corp. (UEC)

UEC this week announced that the Texas Commission on Environmental Quality has issued two final class I disposal well permits for the company's Burke Howllow Project, one of UEC's largest ISR projects. The receipt of these permits, in addition to the already approved disposal well permits, will allow for operations to commence at this project. UEC will initiate a drilling program to delineate projected extensions of previously discovered mineral trends and anticipates reporting the new drill results in the fourth quarter.

UEC began exploration drilling on the Burke Hollow Project in 2012 and discovered three mineralized trends later the same year. Subsequently the project has been expanded to its current size of almost 20,000 acres. To date, uranium mineralization has been discovered in three separate mineralized horizons, with two distinct and separate trend areas of the property, resulting in an inferred mineral resource of 5.12 million pounds of uranium ("U3O8") grading 0.09% U3O8. The company says only approximately 50% of the project acreage has been explored to date. The project is located approximately 45 miles from the company's Hobson Processing Plant.

About Uranium Energy Corp.

Uranium Energy Corp. is a uranium mining and exploration company controlling one of the largest databases of historic uranium exploration and development in the United States. With this knowledge base, the company has targeted a collection of promising properties throughout the southwestern states that have been the subject of significant exploration and development efforts by senior energy firms in the past. In recent years, UEC has limited developmental risks by utilizing a regional acquisition strategy focused on consolidating assets along the 300-mile south Texas uranium belt.

The south Texas uranium belt is known to hold significant deposits of uranium that are amenable to low-cost in-situ recovery (ISR). ISR mining generally requires lower capital and operating costs with shorter construction and permitting timelines, as compared to conventional mining methods. As a result, this environmentally-responsible method of uranium mining provides UEC with an opportunity to optimize production and maximize shareholder value.

UEC's primary processing site within the south Texas region is the Hobson Processing Plant, which is located centrally in the company's target area. This positioning eliminates the need for new processing plants at each project location, effectively maximizing UEC's financial returns from regional mining operations. In addition to its presence in south Texas, the company also controls a pipeline of advanced-stage projects in Arizona and Colorado, as well as the Republic of Paraguay.

Last month, the company demonstrated the marketability of its operations when it sold a portion of its uranium inventory for more than $3 million. This influx of capital should allow UEC to continue expanding its mining operations while capitalizing on the growing market demand for uranium, which is expected to increase in line with the global expansion of nuclear energy. According to a report by Statista, worldwide generation of nuclear energy is forecast to steadily grow in the future, reaching approximately 5.5 billion kilowatt hours by 2040.

Look for UEC to leverage the extensive industry experience of its management team in order to capitalize on the expanding uranium market moving forward. For prospective shareholders, these efforts could translate into an opportunity for improved returns in the years to come.


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