Market Snapshot
briefing.com
| Dow | 33625.12 | -49.17 | (-0.15%) | | Nasdaq | 12261.74 | +26.15 | (0.21%) | | SP 500 | 4141.74 | +4.22 | (0.10%) | | 10-yr Note | -28/32 | 3.52 |
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| | NYSE | Adv 1350 | Dec 1564 | Vol 816 mln | | Nasdaq | Adv 2121 | Dec 2324 | Vol 4.2 bln |
Industry Watch
| Strong: Energy, Financials, Communication Services |
| | Weak: Health Care, Real Estate, Industrials, Utilities |
Moving the Market
-- Regional bank stock leadership fading during the session
-- Wait-and-see in front of inflation data this week in the form of Consumer Price Index and Producer Price Index for April
-- Lack of follow through of Friday's rally
-- Rising Treasury yields
-- Concerns over the debt ceiling
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Closing Summary
08-May-23 16:30 ET
Dow -55.69 at 33618.60, Nasdaq +21.50 at 12257.09, S&P +1.87 at 4139.39
[BRIEFING.COM] The major indices had a somewhat mixed showing today. The session started with a wait-and-see vibe ahead of the 2:00 p.m. ET release of April Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS).
In brief, the SLOOS confirmed what the market had already been expecting following the regional banking crisis that began in mid-March. Lending standards have tightened and banks expect to tighten standards across all loan categories over the remainder of 2023. Furthermore, they expect credit quality to deteriorate. There was a bout of volatility initially following the SLOOS release, but the market soon steadied itself and traded back to where it was just before the release.
Ultimately, the major indices closed the session near their flat lines, sporting only modest gains or losses. Index performance was supported by gains in some mega cap stocks, driving a 0.3% gain in the Vanguard Mega Cap Growth ETF (MGK). The Invesco S&P 500 Equal Weight ETF (RSP), meanwhile, fell 0.2%.
Many of the regional bank stocks started the session in rally mode before rolling over, giving back a lot of their gains. The SPDR S&P Regional Bank ETF (KRE) had been up 2.7% this morning, but closed with a 2.0% loss. Notably, PacWest (PACW 5.97, +0.21, +3.7%) closed with a gain, albeit well off its session high, despite cutting its dividend to $0.01 per share from $0.25. PACW had been up as much as 30.2% earlier.
Most of the S&P 500 sectors closed in the red with real estate (-0.7%) and industrials (-0.4%) showing the biggest losses. The communication services sector (+1.3%) was the only sector to move more than 1.0%, leading the outperformers thanks to gains in Meta Platforms (META 233.27, +0.49, +0.2%) and Alphabet (GOOG 108.24, +2.02, +1.9%).
Some individual companies with specific catalysts made outsized moves today. Catalent (CTLT 35.46, -12.29, -25.7%) plunged after delaying its third quarter results and conference call, saying it expects to significantly reduce both its fiscal 2023 net revenue and Adjusted EBITDA guidance by more than $400 million each. Tyson Foods (TSN 50.73, -9.96, -16.4%) was another top laggard after missing on earnings and revenue estimates.
On the flip side, American Airlines (AAL 14.36, +0.49, +3.5%) outperformed after being upgraded to Overweight from Neutral at JPMorgan and Zscaler (ZS 107.92, +18.46, +20.6%) registered a big gain after raising its fiscal Q3 revenue outlook.
Concerns over the debt ceiling were a distracting factor for the stock market today. Over the weekend, Treasury Secretary Yellen warned of "economic chaos" if the debt ceiling is not raised, according to CNBC. Also, President Biden will meet with House Speaker McCarthy and other Congressional leaders Tuesday at 4:00 p.m. ET.
Separately, the NY Fed's Survey of Consumer Expectations for April reflected a 0.3 percentage point decline in the one-year ahead horizon to 4.4%, yet three-year and five-year ahead inflation expectations increased by 0.1 percentage point to 2.9% and 2.6%, respectively. This comes ahead of the latest inflation data in the form of the April Consumer Price Index (CPI) Wednesday at 8:30 a.m. ET.
Treasuries built on their losses today. The 2-yr note yield rose eight basis points to 3.99% and the 10-yr note yield rose eight basis points to 3.52%.
- Nasdaq Composite: +17.1% YTD
- S&P 500: +7.8% YTD
- Dow Jones Industrial Average: +1.4% YTD
- S&P Midcap 400: +1.0% YTD
- Russell 2000: -0.4% YTD
Economic data today is limited to the Wholesale Inventories report for March (Briefing.com consensus 0.1%; prior 0.1%) at 10:00 a.m. ET.
There is no notable U.S. economic data on Tuesday.
Duke Energy (DUK), Aramark (ARMK), Fox Corporation (FOXA), Jacobs Engineering (J), GlobalFoundries (GFS), Warner Music Group (WMG), Under Armour (UAA), Perrigo (PRGO), WeWork (WE), AMC Networks (AMCX), and Olaplex (OLPX) are among the notable companies reporting earnings ahead of tomorrow's open.
Market remains little changed ahead of the close
08-May-23 15:35 ET
Dow -66.51 at 33607.78, Nasdaq +11.78 at 12247.37, S&P +0.68 at 4138.20
[BRIEFING.COM] Things are little changed heading into the close.
After the close, McKesson (MCK), PayPal (PYPL), Devon Energy (DVN), DaVita (DVA), Western Digital (WDC), Skyworks (SWKS), and Lucid Group (LCID) are among the companies reporting earnings.
Duke Energy (DUK), Aramark (ARMK), Fox Corporation (FOXA), Jacobs Engineering (J), GlobalFoundries (GFS), Warner Music Group (WMG), Under Armour (UAA), Perrigo (PRGO), WeWork (WE), AMC Networks (AMCX), and Olaplex (OLPX) are among the notable companies reporting earnings ahead of tomorrow's open.
There is no notable U.S. economic data on Tuesday.
Energy complex futures rise
08-May-23 15:10 ET
Dow -49.17 at 33625.12, Nasdaq +26.15 at 12261.74, S&P +4.22 at 4141.74
[BRIEFING.COM] The market remains little changed from levels seen ahead of the release of the April 2023 senior loan officer opinion survey.
Treasury yields remain near their post-release highs, though. The 2-yr note yield, at 3.94% a short time ago, is up seven basis points to 3.98% and the 10-yr note yield, at 3.49% earlier, is up seven basis points to 3.51%.
Energy complex futures reclaimed some lost ground today. WTI crude oil futures rose 2.4% to $73.13/bbl and natural gas futures rose 3.7% to $2.42/mmbtu.
On a related note, the S&P 500 energy sector remains near the top of the leaderboard, up 0.5%.
Generac, Moderna among today's top S&P 500 laggards
08-May-23 14:30 ET
Dow -53.49 at 33620.80, Nasdaq +6.31 at 12241.90, S&P +1.08 at 4138.60
[BRIEFING.COM] The major averages are split, having fallen into the red followed by a swift rebound after the Fed released the April 2023 senior loan officer opinion survey on bank lending practices; the survey showed tighter lending standards and signs of weaker demand.
S&P 500 constituents Generac (GNRC 110.27, -3.91, -3.42%), Moderna (MRNA 131.81, -5.23, -3.82%), and Organon (OGN 21.84, -0.68, -3.02%) pepper the bottom of the standings. GNRC trims last week's gains, while OGN falls after Morgan Stanley cut their tgt on the stock by $1 to $25.
Meanwhile, Pennsylvania-based healthcare company Viatris (VTRS 9.95, +0.67, +7.22%) is today's top gain getter following earnings.
Gold moves higher to start the week
08-May-23 14:00 ET
Dow -62.37 at 33611.92, Nasdaq +15.03 at 12250.62, S&P +2.02 at 4139.54
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.12%) is the best-performing major average, having consolidated gains over the previous half hour.
Gold futures settled $8.40 higher (+0.4%) to $2,033.20/oz, continuing higher after finishing with gains last week.
Meanwhile, the U.S. Dollar Index is up less than +0.1% to $101.24.
Looking mixed amid many moving parts
The S&P 500 declined 0.8% last week, yet that almost felt like a gain when Friday's session ended considering the S&P 500 was down 2.6% for the week going into Friday.
A pleasing earnings report from Apple (AAPL) that translated into a 4.7% gain for the market's most heavily-weighted stock, a needed rebound in the regional bank stocks, and an April employment report that kept soft-landing hopes alive were the catalysts for the comeback effort.
That effort has carried over today, although it is more reserved than it was on Friday. Currently, the S&P 500 futures are up six points and are trading 0.1% above fair value, the Nasdaq 100 futures are down 22 points and are trading 0.2% below fair value, and the Dow Jones Industrial Average futures are up 82 points and are trading 0.3% above fair value.
Strikingly, PacWest Bancorp (PACW) said it is going to cut its quarterly dividend to $0.01 per share from $0.25, yet its stock is up 33.5% in pre-market trading. That response is setting the tone so to speak for other bank stocks seeing that PACW is up sharply despite what is otherwise bad news for shareholders.
The SDPR S&P Regional Banking ETF (KRE) is up 2.7% in pre-market trading after rallying 6.3% on Friday.
The uplift here is providing some support for the broader market, whereas some softness in the mega-cap stocks is keeping things in check along with some hesitation in front of the 2:00 p.m. ET release of the Senior Laon Officer Opinion Survey (SLOOS).
The latter will be looked at closely for indications of credit tightening activity by banks that will weigh on economic growth. This important report will be followed later in the week by the April Consumer Price Index (CPI), which is set for release on Wednesday.
That CPI data will help drive expectations for the June FOMC meeting. On a related note, Chicago Fed President Goolsbee (FOMC voter) said late Friday that it is still way too premature to say the Fed will raises rates again in June, according to Reuters.
Treasury Secretary Yellen, meanwhile, said over the weekend that it would be "economic chaos" if the debt ceiling was not raised. President Biden will be meeting with House Speaker McCarthy and other Congressional leaders on Tuesday to discuss the debt ceiling.
Both sides thus far seem pretty entrenched with their positions: Republicans wanting an agreement on spending cuts before agreeing to a debt ceiling increase and Democrats wanting an agreement to raise the debt ceiling without any strings attached. Given that, the market is anxious to hear the tone and to read the body language of the respective leaders on the other side of that meeting.
The 1-month T-bill yield sits at 5.40% and the 3-month T-bill yield sits at 5.23%. The 2-yr note yield is up five basis points to 3.97% this morning and the 10-yr note yield is up five basis points to 3.49%.
There are a lot of moving parts in the mix for market participants to consider and the week is just getting started. Fittingly, it seems, the market is poised to start today on a mixed note.
-- Patrick J. O'Hare, Briefing.com
Zscaler soars after strong guidance, suggesting that cybersecurity spending is loosening up (ZS)
Zscaler (ZS), a cybersecurity company that offers its Zero Trust Exchange and Private Access products to protect against cyberattacks, is soaring higher after issuing upside Q3 revenue guidance and lifting its FY23 revenue guidance. In fact, the company's strong outlook is providing a boost to the cybersecurity space in general with peers CrowdStrike (CRWD) and Palo Alto Networks (PANW) standing out and exhibiting relative strength.
ZS and other cybersecurity companies have been contending with lengthening sales cycles and heightened scrutiny regarding IT spending from many of its customers. This cautious approach has weighed on both ZS's billings -- a key demand metric that indicates future revenue generation -- and the stock price. Prior to today's skyrocket move, ZS shares were down by more than 50% since last October.
- To illustrate the high value placed on billings, ZS sold off sharply on March 3 despite posting a beat-and-raise Q2 earnings report. The problem was that billings of $493.8 mln missed the mark as billings growth slowed to 34% from 37% in Q1 and 57% in Q4. ZS also barely nudged its FY23 billings guidance higher to $1.935-$1.945 bln from $1.930-$1.940 bln.
With that in mind, we believe the primary force behind today's move isn't necessarily the upside revenue guidance, but rather, is ZS's billings outlook since it's a measure of the current demand environment.
- Specifically, ZS guided for Q3 calculated billings of $478-$482 mln, representing an acceleration of growth to 38-39%. The company also increased its FY23 billings outlook to $1.970-$1.974 bln, suggesting that cybersecurity spending has loosened up since the end of Q2.
- Even as macro-related headwinds put a dent in ZS's billings growth, the company was still having success winning larger, multi-year deals as enterprises looked to consolidate their cybersecurity technology into a single platform. Many of those enterprises are also prioritizing zero trust applications as hybrid work and public cloud adoption accelerates.
- In Q2, the number of customers with more than $1 mln in ARR grew by 51% to 380.
- If enterprises are indeed loosening up their IT budgets a bit, ZS should see the number of large customers grow at an even faster rate as they purchase more bundles of ZIA (internet access), ZPA (private access), and ZDX (digital experience).
As an expensive stock with a P/S north of 11x, ZS's slowing billings growth has been a major factor behind the stock's nosedive. Therefore, an improvement in ZS's billings growth rate is helping to justify that rich valuation today, while providing some hope that the IT spending environment is thawing.
Freshpet's initial gains fade as investors digest modest Q1 results (FRPT)
Freshpet (FRPT -5%) performed a 180, going from +6% (fresh 52-week highs) to slipping below its flatline during today's session after registering a Q1 earnings miss this morning. The premium refrigerated pet food supplier also posted revs in line with consensus and reiterated its FY23 revenue and adjusted EBITDA forecasts.
The initial pop may have been attributed to short covering, given around 16% of FRPT's float is shorted. Also, the stock ran roughly 54% higher since mid-March as of Friday's close, allowing investors to take profits off the table during the initial squeeze. With today's pullback, $70 remains key resistance, with FRPT struggling to close above this level since last June, turning off of it several times over that period.
- FRPT's net losses widened to $(0.52) from $(0.40) in the year-ago period in Q1, while revs expanded by 26.7% yr/yr to $167.5 mln. Nielsen measured consumption was up 29% in Q1, comprised of 14% volume growth and 15% price/mix growth. FRPT noted that since it will be lapping significant trade inventory refill from the year-ago period for the remainder of FY23, it will not receive as much benefit from pricing this year as it did in FY22.
- Encouragingly, despite sticky inflationary pressures, co-founder Scott Morris commented that FRPT has not experienced much adverse impact from unfavorable macroeconomic developments, only that its weaker non-frequent consumers have shifted out.
- FRPT's remarks remind us of General Mills' (GIS) comments regarding its Pet business in late March, noting that it sold more pet food during FebQ than in the prior quarter in terms of pounds and expects further acceleration during the back half of the year.
- Another positive was FRPT returning its fill rates above 90% for the entire quarter. However, this should not be too surprising, given that the company was shipping customers with a fill rate above 90% by the end of Q4. Nevertheless, the strong fill rate provided the confidence that FRPT's customers needed to invest in fridge placements; FRPT added 369 net new stores, upgraded 241 to larger fridges, and placed a second or third in 685 stores. FRPT stated it was well on track toward its goal of having 1.7 mln cubic feet of retail space by the end of FY23.
- Still, although volume growth is expected to accelerate, the lack of a relatively substantial pricing benefit keeps a lid on future sales, driving FRPT's reiterated FY23 revenue outlook of approximately $750 mln. Also, the company projected adjusted gross margins to come in slightly below its Q1 figure of 38.5% in Q2 due to it absorbing the full operating cost of its Ennis facility. Nevertheless, FRPT believes it is on track to fulfill its long-term 45% target.
FRPT's Q1 report was decent, containing a few notable bright spots. However, it is proving to not be the eye-catching report needed to power FRPT's shares past strong resistance at $70. Even though pet food has proven its resilience to macroeconomic pressures, consumers may opt for premium refrigerated pet food less frequently during stubborn inflation, instead buying cheaper but still relatively premium alternatives, such as GIS's Blue Buffalo brand.
Six Flags thrills investors with upside results as new pricing strategy pays dividends (SIX)
Theme park operator Six Flags (SIX) is thrilling investors today after delivering upside quarterly results that featured record Q1 revenue and its second highest adjusted EBITDA for Q1. One of the seasonally slowest quarters for SIX, Q1 EPS came in at ($0.84) on revenue growth of 3% to $142.2 mln with both figures topping expectations. The better-than-expected results snapped a three quarter losing streak against analysts' EPS and revenue expectations, but it's really SIX's other key metrics that demonstrate its progress in its transformation.
At the center of SIX's transformation is a new pricing strategy that deemphasizes ticket discounting -- a model the company has leaned on for many years -- while creating a premium guest experience that supports higher prices.
- When CEO Selim Bassoul took the reins in November 2021, he inherited a company that was struggling to generate consistent financial results, oftentimes disappointing investors and analysts alike.
- The pandemic-impacted periods of FY20 and 1H21 in which revenue plummeted are outliers, but SIX's performance prior to the pandemic was underwhelming. For instance, in the seasonally strong Q3 period, the company badly missed top and bottom-line estimates in both 2019 and 2018.
- Looking specifically at 3Q19, while SIX enjoyed record attendance during September, guest spending per capita decreased by 1%, causing total revenue to be essentially flat on a yr/yr basis.
- Rather than trying to set more attendance records, Mr. Bassoul is taking a different approach that focuses on new attractions and its ability to charge higher prices as the guest experience is elevated.
The three consecutive downside earnings reports prior to 1Q23 show that the transition hasn't been easy. However, it now appears that SIX's turnaround plan is starting to take hold.
- The most telling data point is that total guest spending per capita increased by 7% to $80.88, which is on top of a 34% jump in the year-earlier period. By revenue stream, admissions spending per capita was up 10%, while in-park spending edged higher by 3%.
- Meanwhile, attendance slipped by 5% to 1.6 mln with severe weather in Texas and California creating an added headwind. The fact that SIX still generated record Q1 revenue despite the drop in attendance offers solid evidence that the company's new pricing strategy is working as intended.
Unfortunately, SIX doesn't provide specific financial guidance so we don't have a clear view of how it sees the seasonally strong Q2 shaping up. A potential worsening of economic conditions is a bit worrisome, especially as SIX pulls back on ticket discounts. The good news is that the consumer spending trend towards entertainment and experiences is still in full swing, which should bode well for the summer season.
TreeHouse Foods strong Q1 upside offset by weak Q2 guidance (THS)
TreeHouse Foods (THS) is trading roughly flat today despite reporting strong upside for its Q1 results this morning. While THS reaffirmed FY23 guidance for revenue and EBITDA, the company offered Q2 guidance that was below expectations. This huge supplier of private label food and beverages has been undergoing changes. Most notably, in October 2022, THS sold a significant portion of its Meal Preparation business, including pasta, dressing, preserves etc. That sale to Investindustrial brought in a hefty $950 mln. The deal allowed THS to focus on its more lucrative and higher growth/margin snack and beverage businesses, and it strengthened the balance sheet with $500 mln in debt reduction.
- Adjusted EPS from cont ops in Q1 surged to $0.68 from a $(0.16) loss last year while revenue rose a healthy 15.8% yr/yr to $895 mln. Both were well ahead of analyst expectations. What stood out the most was gross margin jumping to 17.0% from 12.8% a year ago. A big driver of this was THS raising prices to recover commodity and freight inflation as well as favorable category mix.
- Unfortunately, the revenue guidance for Q2 at $810-840 mln was a good bit below analyst expectations. But some context is needed. Historically, Q2 is TreeHouse's seasonally lowest volume quarter. In addition, improvement in the supply chain in Q1 allowed the company to increase production and fulfill certain customer orders that were originally planned for shipment in Q2. This explains both the Q2 shortfall and likely the Q1 outperformance. So maybe the Q1 upside is a little less impressive.
- Given that explanation, the Q2 weak guidance does not concern us as much, especially with management reaffirming full year guidance. The bigger takeaway here is that the company is off to a strong start in 2023. We like the new TreeHouse and its greater focus on faster growing, higher margin private label snacking and beverage categories.
Longer term, we like the direction CEO Steve Oakland is taking the company. The meal prep sale follows the sale of its ready-to-eat cereal business to Post Holdings for $85 mln last year. Focusing on more lucrative and higher margin categories like snacks and beverages makes a lot of sense. That was evident with the significant margin expansion reported in Q1.
Finally, the stock chart looks pretty encouraging. After a multi-month consolidative trading pattern in the $45-50 area, the stock has been steadily moving above that range over the past month. We think investors like the new direction for TreeHouse, including its recent post-sale earning reports. Also, it's attractive as one of the few pure play private label food stocks on the market. TreeHouse's heavy exposure in private label is a good place to be as consumers feel the inflation pinch.
Tyson Foods hits 52-week lows as higher costs and lower sales prices drag down Q2 results (TSN)
Following its sizeable earnings and sales misses in Q2 (Mar) and clipped FY23 revenue and adjusted operating margin targets, Tyson Foods (TSN -14%) is amid substantial selling pressure today, flirting with March 2020 lows. The world's second-largest food processor was already facing uneasiness heading into Q2 after reducing its FY23 margin outlook across its Beef, Pork, and Chicken segments last quarter. We saw the trimmed forecasts as a troubling sign for the industry, which was soon after upheld by rival Hormel Foods' (HRL) lackluster JanQ report.
However, TSN was reasonably optimistic during its early February Q1 (Dec) earnings call. It predicted it was either moving close to the bottom or already at the cycle's trough within its largest Beef segment (~35% of Q2 revs). The company also expressed how its light operating margin targets were conservative estimates, building in some uncertainty surrounding macroeconomic conditions. As a result, its lackluster MarQ report was all the more alarming.
- TSN's adjusted operating margins contracted by 840 bps yr/yr in Q2 to 0.5%, driving its adjusted EPS of $(0.04), its first net loss since 2009. Revs squeaked out a 0.1% gain yr/yr to $13.13 bln but still fell meaningfully short of analyst estimates.
- What happened? The disinflationary forces that weighed on margins last quarter carried into Q2, with commodity prices for most fresh chicken cuts markedly lower than in the year-ago period. Coinciding with these lower selling prices were higher input costs. Thirdly, the avian flu kept critical export markets closed.
- Primarily dragging down TSN's earnings were its Beef and Chicken segments, which comprised 69% of Q2 revs. Beef sales dropped 8.3% yr/yr, with prices down 5.4% due to reduced domestic demand and soft export markets, which clashed with increased cattle costs, causing operating margins to slip by 12.5 pts yr/yr to 0.2%. Chicken sales did grow 8.4% yr/yr on a 6.4% uptick in volumes due to higher internal production. However, these positive developments did not cushion against the sour combination of lower selling prices and higher input costs, driving operating margins to sink to (3.7)% from 5.0% in the year-ago period.
- TSN's Pork segment (~11% of sales) endured similar unfavorable conditions, with sales dipping 9.2% lower yr/yr despite a 1.1% jump in volumes due to a 10.3% decline in average sales price.
- The road ahead remains challenging. TSN trimmed its FY23 (Sep) revenue forecast to $53-54 bln from $55-57 bln. Outside of Prepared Foods (left unchanged), TSN lowered its FY23 adjusted operating margins across the board, building in the possibility of negative margins this year. The company projected Beef margins of (1)% to 1%, Pork margins of (2)% to 0%, and Chicken margins of (1)% to 1%.
Bottom line, TSN's Q2 report signaled a worsening of conditions relative to its rather conservative outlook last quarter, spurring an intense sell-off today. Although today's prices seem like a solid buying opportunity, as we witnessed this quarter, being at the bottom of economic cycles across specific markets is not guaranteed. As such, we think waiting until next quarter to see if conditions finally improve is the better play. Lastly, TSN's results raise some red flags ahead of HRL's AprQ report next month.
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