Market Snapshot
| Dow | 42063.36 | +38.17 | (0.09%) | | Nasdaq | 17948.30 | -65.66 | (-0.36%) | | SP 500 | 5702.55 | -11.09 | (-0.19%) | | 10-yr Note | -1/32 | 3.73 |
|
| | NYSE | Adv 949 | Dec 1733 | Vol 403 mln | | Nasdaq | Adv 1467 | Dec 2749 | Vol 1.0 bln |
Industry Watch
| Strong: Utilities, Communication Services, Consumer Staples |
| | Weak: Energy, Industrials, Materials, Real Estate, Financials |
Moving the Market
-- Consolidation after solid run for stocks
-- Negative response to earnings and guidance from FedEx (FDX)
-- Quarterly expiration of stock options, index options, single stock futures, and index futures
|
Closing Summary
20-Sep-24 16:30 ET
Dow +38.17 at 42063.36, Nasdaq -65.66 at 17948.30, S&P -11.09 at 5702.55
[BRIEFING.COM] Today's trade featured above-average volume due to the quarterly expiration of stock options, index options, single stock futures, and index futures. The Dow Jones Industrial Average reached a fresh all-time high, closing 0.1% above yesterday's close, while the S&P 500 (-0.2%) and Nasdaq Composite (-0.4%) settled slightly lower than yesterday. The Russell 2000 lagged its peers, dropping 1.1%.
The overall downside bias was related to consolidation activity after a solid run for stocks. The Russell 2000 still logged a 2.1% gain this week and the S&P 500 climbed 1.4% since last Friday.
Weakness in the chipmaker space was another factor in today's trade, leading the PHLX Semiconductor Index (SOX) to decline 1.3%. Intel (INTC 21.84, +0.70, +3.3%) was a standout from the space, surging in the afternoon trade following news that Qualcomm (QCOM 168.92, -5.00, -2.9%) is interested in a takeover deal, according to The Wall Street Journal.
Losses in semiconductor names, as well as in Microsoft (MSFT 435.27, -3.42, -0.8%) and Apple (AAPL 228.20, -0.67, -0.3%), contributed to the price action in the S&P 500 information technology sector (-0.5%). None of the sectors moved more than 0.7% in either direction except utilities (+2.7%).
The utilities sector benefitted from a big move up in Constellation Energy (CEG 254.98, +46.48, +22.3%), which announced a 20-year power purchase agreement with Microsoft that will include the restart of Three Mile Island Unit 1.
NIKE (NKE 86.52, +5.54, +6.8%) also made headlines today after announcing that Elliott Hill will become President and CEO, effective October 14, 2024.
There was no US economic data of note today.
Looking ahead to next week, the September Consumer Confidence Index will be released on Tuesday, the August New Home Sales report will be released on Wednesday, the weekly jobless claims report will be released on Thursday, and the August Personal Income and Spending report will be released on Friday.
- Nasdaq Composite: +19.6% YTD
- S&P 500: +19.6% YTD
- S&P Midcap 400: +11.6% YTD
- Dow Jones Industrial Average: +11.6% YTD
- Russell 2000: +9.9% YTD
INTC surges after QCOM takeover report
20-Sep-24 15:30 ET
Dow +18.92 at 42044.11, Nasdaq -32.50 at 17981.46, S&P -9.03 at 5704.61
[BRIEFING.COM] The Dow Jones Industrial Average (+0.04%) tipped back into positive territory ahead of the close.
Intel (INTC 22.55, +1.37, +6.7%) shares surged in response to news that Qualcomm (QCOM 167.99, -5.98, -3.4%) is interested in a takeover deal, according to The Wall Street Journal.
Other semiconductor-related names are lagging the broader market. The PHLX Semiconductor Index (SOX) shows a 1.3% decline.
Separately, the 2-yr note yield dropped three basis points today to 3.57% and the 10-yr yield dropped one basis point to 3.73%.
Some of next week's econ calendar and earnings reports
20-Sep-24 14:55 ET
Dow -22.56 at 42002.63, Nasdaq -75.65 at 17938.31, S&P -18.56 at 5695.08
[BRIEFING.COM] The three major indices turned lower in recent trading. The S&P 500 sports a 0.4% decline and the Nasdaq Composite trades 0.5% lower.
Looking ahead to next week, the September Consumer Confidence Index will be released on Tuesday, the August New Home Sales report will be released on Wednesday, the weekly jobless claims report will be released on Thursday, and the August Personal Income and Spending report will be released on Friday.
Micron (MU 89.52, +0.26, +0.3%), Accenture (ACN 333.58, -1.66, -0.5%), and Costco (COST 898.93, -1.81, -0.2%) are among the names reporting earnings next week.
ON Semi follows chip peers lower in S&P 500 on Friday
20-Sep-24 14:30 ET
Dow -37.24 at 41987.95, Nasdaq -97.21 at 17916.75, S&P -23.35 at 5690.29
[BRIEFING.COM] All three major averages are now in the red after the Dow Jones Industrial Average (-0.09%) relinquished flat lines in the last half hour; the S&P 500 (-0.41%) is in second place.
Elsewhere, S&P 500 constituents ON Semiconductor (ON 68.53, -4.82, -6.57%), Old Dominion (ODFL 193.09, -11.43, -5.59%), and Mosaic (MOS 25.68, -1.05, -3.93%) dot the bottom of the average. Most of the chip sector, including ON, dips on Friday after Mercedes (MBGYY 15.35, -0.25, -1.60%) cut guidance yesterday in a possible cautious signal for the auto chip industry, while MOS slides alongside general weakness in the S&P 500 materials group (-0.89%).
Meanwhile, Texas-based cybersecurity firm CrowdStrike (CRWD 294.00, +16.62, +5.99%) popped to two-month highs today, aided in part by a favorable mention on Mad Money last night.
Gold pushes higher on Friday, adding to weekly gains
20-Sep-24 14:00 ET
Dow +71.50 at 42096.69, Nasdaq -65.25 at 17948.71, S&P -9.99 at 5703.65
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-0.36%) is down about 65 points.
Gold futures settled $13.60 higher (+1.2%) to $2,646.20/oz, ending higher by a little shy of +1.4% this week, rising above $2,600 for the first time after this week's Fed rate cut; some Wall Street analysts suggest a correction is in order given the yellow metal's +20% advance in 2024.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $100.73.
MillerKnoll falls to 2024 lows as an uptick in customer-requested delays in Q1 spark concern (MLKN)
Furniture maker MillerKnoll (MLKN -12%) topples over today after delivering a few discouraging numbers in Q1 (Aug), including a top and bottom-line miss and mixed Q2 (Nov) guidance. As interest rates fall following a 50 bp cut from the Federal Reserve on Wednesday, investors anticipate that companies operating in highly discretionary fields, like MLKN, will benefit. As such, while the market may have been willing to shrug off downbeat Q1 results, it does not accept near-term earnings guidance falling short of expectations. Meanwhile, shares of MLKN held up relatively well despite its counterpart Steelcase (SCS) registering a lukewarm AugQ report and issuing bearish NovQ revenue guidance earlier this week. The amalgamation of these factors set MLKN up for a steep pullback, with shares sinking to 2024 lows.
- In Q1, adjusted EPS inched a penny lower yr/yr to $0.36, falling short of consensus for the first time since 2021. Revenue remained stuck in reverse for the seventh straight quarter, dropping by 6.1% yr/yr to $861.5 mln.
- Driving MLKN's top-line miss was a similar problem SCS encountered. The average time from order entry to customer-requested ship date is widening. As we mentioned in our analysis on SCS yesterday, delays are not as troubling as cancellations. However, they inject increased uncertainty. Delays limit MLKN's ability to build and ship products within the quarter, causing a higher percentage of orders to remain in its backlog.
- On a positive note, new orders climbed by 2.4% yr/yr to $935.9 mln. In MLKN's largest Americas Contract segment, new orders climbed 5.2% higher, gaining momentum throughout the quarter, with August touting the highest levels. International Contract and Specialty new orders enjoyed a 2.7% bump higher. Global Retail lagged, with new orders sliding by 4.7%, reflecting particular weakness across the housing market.
- MLKN's retail operations are a key differentiator compared to its rivals, and this may have been why the market was not too quick to push the stock lower yesterday despite SCS's concerning guidance. The reason is that the Fed's 50 bp cut is expected to lift the housing market, eventually spurring increased order trends.
- Nevertheless, due to timing issues, MLKN's guidance was mixed. The company expects adjusted EPS of $0.51-0.57 in Q2, missing analyst expectations. However, MLKN guided to $950-990 mln in sales next quarter, nicely exceeding consensus. Margins are an underlying factor in the uneven outlook. MLKN commented that a shift in the business and product mix offsets labor and overhead efficiency improvements, keeping a lid on margin performance moving into Q2.
- However, MLKN left its FY25 (May) adjusted EPS outlook of $2.20 unchanged, pointing to uplifting trends in global contract demand alongside an anticipated boost from lower interest rates.
There were bright spots from Q1, primarily revolving around an easing monetary policy. Also, as more companies ask workers to return to the office, MLKN stands to benefit significantly. However, customers requesting delayed delivery, which has a lagging effect on revenue, is producing nervousness among investors today. HNI (HNI) could encounter a similar development when it reports SepQ results next month.
NIKE running higher on hopes that CEO change can reignite innovation and growth engines (NKE)
Mired in one of its worst slumps in recent history, as reflected in the stock's 50% plunge since the beginning of 2022, NIKE (NKE) has determined that a change at the top is needed to return to its former winning ways. After the close last night, NKE announced that Elliott Hill will be returning after retiring from the company in 2020, replacing John Donahoe as President and CEO, effective October 14, 2024.
- Based on the positive reaction in the stock, it's evident that shareholders are optimistic that Mr. Hill can reignite NKE's innovation and growth engine following a rough stretch that saw revenue decline by 1.6% in 4Q24, preceded by flat growth in Q3, and a pedestrian 0.8% sales increase in Q2. Those hopes are partly grounded on the fact that Mr. Hill, a 32-year veteran of NKE, rose to the position of President of Consumer and Marketplace and is well versed with all aspects of the business, including the key retail partnerships that need to be reprioritized.
- Interestingly enough, when Mr. Donahoe was appointed CEO in January 2020, after serving as eBay's (EBAY) CEO, one of his first moves was an executive shakeup that included Mr. Hill's retirement as President of Consumer and Marketplace. At the time, NKE's focus centered on building out its digital and DTC channels, so bringing in a leader with an extensive eCommerce background was fitting. When Mr. Donahoe arrived, he looked to build an executive team that would help steer NKE away from its retail partners in order to drive higher-margin DTC sales.
- Just two months after Mr. Donahoe's appointment as CEO, the pandemic struck, making the company's pivot towards digital look prescient. Business was booming in 2020 and 2021 as the stay-at-home movement drove consumers to NKE's digital platforms while the athleisure wear and fitness categories took off. However, once the pandemic's grip began to loosen in 2022, NKE was too slow to readjust and kept relying on best-selling products to drive DTC sales.
- The end result was that NKE began losing its main competitive edge -- product innovation and brand power -- as competitors like Deckers' (DECK) HOKA and On Holdings (ONON) filled the new product void, capturing market share in the process.
- NKE's struggles were on display when it issued disappointing Q4 results on June 27 that included a 10% drop in digital sales and a 1% decline in North America revenue. The company also lowered its FY25 revenue outlook, forecasting a mid-single-digit decline compared to its prior outlook for positive growth. Mr. Donahoe, who characterized FY25 as a transition year for NKE, stated that early results in the innovation efforts were encouraging and that a pipeline of new products in the lifestyle and footwear categories are planned for 2H25.
It's apparent, though, that NKE's Board of Directors and Founder Phil Knight are not satisfied with the progress and are ready for a new direction. For a company known for its top-notch execution, it's been surprising to see it struggle through some painful missteps, so the change at the top doesn't come as a huge surprise. Lastly, the choice of Mr. Hill looks like a solid one given his long history with NKE and his knowledge of what has made the company such a success in the past.
FedEx delivers a big EPS miss, facing challenging demand environment (FDX)
FedEx (FDX -15%) is down sharply after getting FY25 got off to a slow start. The package delivery giant reported a large EPS miss with its Q1 (Aug) report last night. Revenue fell 0.5% yr/yr to $21.58 bln, which was also a miss but the EPS downside was much more pronounced. It also lowered the top end of its FY25 adjusted EPS outlook to $20.00-21.00 from $20.00-22.00. Its FY25 revenue outlook was also lowered to low single-digit growth vs its prior forecast of low-to-mid single digit growth.
- FedEx said its Q1 results reflect a challenging demand environment, which was weaker than expected, particularly in the US domestic package market. FDX was hurt by a mix shift, which reduced demand for priority services, increased demand for deferred services, and constrained yield growth. Also, weakness in the industrial economy pressured its B2B volumes, particularly in the US. FedEx also saw increasing demand for its lower-yielding services.
- Breaking it down by segment, Express revenue declined 0.7% yr/yr to $18.31 bln, driven by one fewer operating day and a mix shift towards deferred services. Slightly lower US domestic volume was offset by higher international export volume. Yield remained positive, driven by higher base rates and fuel surcharges. Freight segment revenue declined 2% to $2.33 bln, driven by reduced weight per shipment and priority shipment, lower fuel surcharges, and one fewer operating day.
- In terms of industry pricing, FDX says it's operating in a very competitive but still rational pricing environment. Against this backdrop, FDX is focusing on revenue quality and continues to grow yield, but at a lower rate than expected especially in the US. At Express, package yield increased 1% overall, driven by US priority and international domestic. As a reminder, Fedex's contract with the US Postal Service expires on September 29. FDX will be making network adjustments post-expiration.
- FedEx says it lowered FY25 revenue guidance, but it does expect the demand environment to moderately improve as it moves through the year driven by a slight recovery in the industrial economy, e-commerce growth, and low inventory levels. FDX expects some improvement in the pricing environment skewed toward the second half of the fiscal year. FDX also expects modest improvement in the US domestic ground parcel volume, particularly in the back half of the fiscal year.
- On the cost side, FDX has been continuing with its structural cost reductions via its DRIVE initiatives. This was able to partially offset revenue and expense pressure. FDX expects the cadence of DRIVE-related savings throughout the year to increase sequentially by quarter. FDX is on track to deliver $4 bln of savings through DRIVE in FY25 compared to the FY23 baseline. For example, it has recently implemented significant new pricing actions relating to both demand and fuel surcharges, which will benefit FDX in the coming quarters. It also said it's making significant progress on its network transformation, which will drive improved profitability by unlocking efficiencies, improving density and creating a more flexible network.
After shares gapped higher with its last earnings report, investors were not expecting a big EPS miss like this. However, we did caution in our preview that UPS reported a big EPS miss in Q2 in July and that made us nervous. FedEx was impacted by lower demand generally and by a mix shift. Basically, customers were willing to wait longer to get their packages in order to pay less. The silver lining is that the downside FY25 EPS guidance was by less than the Q1 miss, which tells us FDX still feels ok about Q2-Q4. Also, FedEx is making progress in terms of reducing costs and it does expect modest demand improvement as the fiscal year progresses.
Lennar's soft margins in Q3 fail to keep record-high stock price trending even higher today (LEN)
There were not too many cracks in the foundation of Lennar's (LEN -4%) Q3 (Aug) report. The homebuilder exceeded top and bottom-line estimates by a wide margin while surpassing its new orders and deliveries forecasts. Much excitement has been mounting over the prospect of lower interest rates. Shares of LEN exploded in early July in connection with broader sector rotation toward more interest-rate sensitive stocks. The stock reached all-time highs yesterday, a +35% run in just over three months after the Federal Reserve announced a surprise 50 bp interest rate cut on Wednesday.
Given this context, LEN was not facing typical expectations. Instead, it needed to deliver an exceptional Q3 performance. With a few minor nitpickings bubbling to the surface, its Q3 report was not perfect, igniting today's sell-the-news response.
- Gross margins on home sales are the primary hang-up today. In Q3, margins edged 190 bps lower yr/yr to 22.5%, missing LEN's prediction of about 23%. Revenue per square foot contracting while land costs increased contributed to the decline. LEN has leaned on incentives to seal the deal with purchasers facing elevated mortgage rates, placing modest pressure on margins. Meanwhile, building costs remain fluid, making it difficult to accurately predict how margins unfold.
- LEN also projected margins to stay flat in Q4 (Nov), translating to a similar yr/yr drop. This is particularly frustrating after management expressed confidence last quarter that its margins in Q4 would begin expanding, potentially hitting around 25%. Seasonality was supposed to help -- the final months of the selling season can create urgency in home buyers. LEN also noted that some margin improvement was embedded in its backlog.
- Aside from margins, LEN's Q3 report was sound. The company delivered adjusted EPS of $3.90, exceeding analyst forecasts by double digits for the 11th consecutive quarter. Revenue expanded by 7.9% yr/yr to $9.42 bln, blowing the roof off analyst expectations. New orders edged 5% higher yr/yr to 20,587, past the midpoint of LEN's 20,500-21,000 prediction. Deliveries increased by 16% to 21,516, toppling LEN's 20,500-21,000 outlook. Again, incentives were leveraged to move homes and spur new orders.
- Looking ahead to Q4, LEN projected a minor dip in new orders sequentially at 19,000-19,300 but an improvement in deliveries at 22,500-23,000. Management touched on the Fed's interest rate cut, commenting that the decision should enhance affordability and boost demand for new and existing homes.
- The latter part is important. Existing home sales have compressed yr/yr in five months this year, reflecting homeowners' unwillingness to give up attractive mortgage rates. Therefore, as rates drop, pent-up demand from existing homeowners could significantly lift LEN's orders over the coming quarters.
While not an awful performance by many metrics, LEN is enduring profit-taking today after its margins failed to keep its record-high stock price trending even higher. That said, several favorable trends remain in the works, particularly the Fed's easing monetary policy. However, profit-taking on minor blemishes could be the theme for other homebuilders following their upcoming reports, including KB Home (KBH) on September 24, PulteGroup (PHM) on October 22, and D.R. Horton (DHI) on October 29.
Terex trades lower after guidance cut, but longer-term outlook remains constructive (TEX)
Industrial company Terex (TEX) is encountering some macroeconomic headwinds as its customers scale back on planned deliveries and adjust their inventory levels, causing the provider of aerial work platforms and materials processing machines to lower its FY24 EPS and revenue guidance. So far, the losses for TEX shares have been pretty manageable considering the magnitude of the guidance cut, especially for EPS ($5.80-$6.20 from $7.15-$7.45), and some of TEX's closest peers -- CNN Industrial (CNH), Manitowoc (MTW), and Astec Industries (ASTE) -- are trading higher despite the gloomy update.
We would mostly chalk this resiliency up to yesterday's 50-bps interest rate cut from the Federal Reserve and the general expectation that rates will continue to slide lower. TEX and its competitors are highly cyclical companies with heavy exposure to construction and infrastructure projects, making them sensitive to the interest rate environment. Therefore, some participants may already be looking beyond FY24 and into FY25, when lower rates should bolster construction activity.
- With that said, the downturn that TEX has recently experienced is both sudden and considerable. Recall that when TEX reported Q2 results on July 30, it raised its FY24 EPS guidance to $7.15-$7.45, up from its prior outlook of $6.95-$7.35, while only nudging its revenue outlook slightly lower to $5.10-$5.30 bln versus its previous guidance of $5.20-$5.40 bln. In this morning's press release, TEX knocked its revenue outlook down to $4.85-$5.05 bln.
- During the Q2 earnings call, CEO Simon Meester offered a rather bright characterization of the U.S. economy, pointing to its resiliency, lower inflation, and healthy construction spending. Furthermore, he stated that TEX's U.S. rental customers are returning to more normalized ordering patterns and that he expects demand in the U.S. market to remain robust.
- Since then, conditions have clearly weakened, as reflected in TEX's guidance cut. From a longer-term perspective, though, the company is still positioned to capitalize on a number of mega trends, including the construction of data centers and EV manufacturing plants, as well as increased construction activity from road, bridge, airport, and railway infrastructure projects.
- Additionally, TEX is on track to close on its acquisition of Dover's (DOV) Environmental Solutions Group, or ESG, in early Q4. The $2.0 bln acquisition -- the largest in TEX's history -- not only will provide a major boost to the top-line (ESG is in line to generate $1.4 bln in revenue on a TTM basis), but it will also add a steady, non-cyclical North American business to the portfolio. ESG, a leader in the refuse collection and recycling markets, is also profitable and TEX expects ESG's EBITDA margins to add 130 bps of margin accretion.
The main takeaway is that while TEX's FY24 guidance cut is disappointing, especially since it comes on the heels of an encouraging Q2 report, the longer-term outlook still looks promising for the company as interest rates drift lower and as the company integrates the ESG acquisition.
|
