Market Snapshot
briefing.com
| Dow | 33675.51 | +102.32 | (0.30%) | | Nasdaq | 13142.48 | -134.11 | (-1.01%) | | SP 500 | 4273.48 | -11.64 | (-0.27%) | | 10-yr Note | -30/32 | 3.78 |
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| | NYSE | Adv 1817 | Dec 1018 | Vol 1.0 bln | | Nasdaq | Adv 2393 | Dec 2024 | Vol 5.2 bln |
Industry Watch
| Strong: Energy, Utilities, Real Estate, Materials, Industrials |
| | Weak: Communication Services, Information Technology, Consumer Discretionary, Health Care, Consumer Staples |
Moving the Market
-- Broad advance paced by small cap stocks
-- Relative strength in regional bank stocks
-- Pro-cyclical vibe
-- Rising Treasury yields
-- Weakness in mega cap stocks
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Closing Summary
07-Jun-23 16:30 ET
Dow +91.74 at 33664.93, Nasdaq -171.32 at 13105.27, S&P -16.33 at 4268.79
[BRIEFING.COM] Today's trade shaped up to be fairly upbeat despite a mixed performance at the index level. Considering the scope of mega cap losses, the major indices held up well on higher than average trading volume. The Russell 2000 was a winning standout again, gaining 1.8%.
Amazon.com (AMZN 121.23, -5.38, -4.3%), Alphabet (GOOG 122.94, -4.97, -3.9%), Microsoft (MSFT 323.38, -10.30, -3.1%), and NVIDIA (NVDA 374.81, -11.68, -3.0%) all saw large declines today, falling prone to profit taking after a big run and to some valuation angst. Apple (AAPL 177.82, -1.39, -0.8%) also logged a loss for the session. The Vanguard Mega Cap Growth ETF (MGK) fell 1.7%.
Still, the broader market exhibited relative strength. The Invesco S&P 500 Equal Weight ETF (RSP) rose 0.7% as money flowed away from the mega cap space and into other areas with a bias toward economically-sensitive sectors. The market-cap weighted S&P 500, which ran into some resistance after hitting 4,299 in the early going, declined by a modest 0.4%.
The Russell 2000 was boosted by its energy and regional bank components. The SPDR S&P Regional Banking ETF (KRE) rose 3.3%. The S&P 500 energy sector (+2.7%) led its peers by a wide margin.
Other top performers included the cyclical materials (+1.2%) and industrials (+1.6%) sectors.
Lagging mega cap components weighed down the communication services (-1.9%), information technology (-1.6%), and consumer discretionary (-0.9%) sectors.
Rising market rates were another limiting factor for mega caps and other growth stocks. Treasuries saw an uptick in selling after the Bank of Canada surprised market participants with a 25 basis points rate hike to 4.75%; however, losses were pared late in the day as the mega cap stocks tracked toward their lows for the session. The 2-yr note yield rose two basis points to 4.55% and the 10-yr note yield rose nine basis points to 3.78%.
- Nasdaq Composite: +25.2% YTD
- S&P 500: +11.2% YTD
- Russell 2000: +7.2% YTD
- S&P Midcap 400: +5.7% YTD
- Dow Jones Industrial Average: +1.6% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index fell 1.4% with purchase applications declining 2.0% and refinancing applications falling 1.0%.
- The U.S. trade deficit widened to $74.6 billion in April (Briefing.com consensus -$75.3 billion) from an upwardly revised $60.6 billion (from -$64.2 billion) in March, which was recalculated with annual revisions to the goods and services series. The widening deficit in April was the result of exports being $9.2 billion less than March exports and imports being $4.8 billion more than March imports.
- The key takeaway from the report is the drop in exports, which reflects weakening demand abroad for U.S. goods.
- The weekly EIA Crude Oil Inventories showed a draw of 451,000 barrels after a build of 4.49 million barrels last week.
- Consumer credit increased by $23.0 bln in April (Briefing.com consensus $21.0 bln) following a downwardly revised $22.9 bln (from $26.5 bln) in March.
- The key takeaway from the report is that the pace of credit expansion in April was driven by revolving credit, which is apt to stoke concerns that consumers, battling inflation, are relying more on the use of credit cards to maintain their spending activity.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 a.m. ET: Weekly initial (Briefing.com consensus 237,000; prior 232,000) and continuing (prior 1.795 million) jobless claims
- 10:00 a.m. ET: April Wholesale Inventories (Briefing.com consensus -0.2%; prior 0.0%)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior +110 bcf)
Key takeaway from April Consumer Credit report; Econ data releases on Thursday
07-Jun-23 15:30 ET
Dow +115.16 at 33688.35, Nasdaq -151.00 at 13125.59, S&P -13.05 at 4272.07
[BRIEFING.COM] Things are little changed at the index level over the last half hour.
Consumer credit increased by $23.0 bln in April (Briefing.com consensus $21.0 bln) following a downwardly revised $22.9 bln (from $26.5 bln) in March.
The key takeaway from the report is that the pace of credit expansion in April was driven by revolving credit, which is apt to stoke concerns that consumers, battling inflation, are relying more on the use of credit cards to maintain their spending activity.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 a.m. ET: Weekly initial (Briefing.com consensus 237,000; prior 232,000) and continuing (prior 1.795 million) jobless claims
- 10:00 a.m. ET: April Wholesale Inventories (Briefing.com consensus -0.2%; prior 0.0%)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior +110 bcf)
Consumer credit rises in April
07-Jun-23 15:05 ET
Dow +102.32 at 33675.51, Nasdaq -134.11 at 13142.48, S&P -11.64 at 4273.48
[BRIEFING.COM] The S&P 500 and Nasdaq are trailing along near their worst levels while the Dow Jones Industrial Average trades near its high of the day.
Energy complex futures settled the session higher. WTI crude oil futures rose 1.1% to $72.48/bbl and natural gas futures rose 3.6% to $2.34/mmbtu.
On a related note, the S&P 500 energy sector (+2.7%) has maintained its position atop the leaderboard today.
Selling has eased up for shorter tenor Treasuries. The 2-yr note yield is up two basis points to 4.55%, down from 4.61% a short time ago.
Consumer credit rose to $23.0 billion in April (Briefing.com consensus $21.0 billion) from a revised $22.9 billion (from $26.5 billion) in March.
Warner Bros. Discovery gains after head of CNN departs company
07-Jun-23 14:30 ET
Dow +95.31 at 33668.50, Nasdaq -132.20 at 13144.39, S&P -10.81 at 4274.31
[BRIEFING.COM] The S&P 500 (-0.25%) is in second place to this point on Wednesday afternoon, little changed over the prior half hour.
S&P 500 constituents Dexcom (DXCM 119.46, -5.92, -4.73%), Intuit (INTU 426.40, -22.09, -4.93%), and Ansys (ANSS 311.15, -14.44, -4.44%) pepper the bottom of the S&P despite a dearth of corporate news; all three names have posted decent rallies of late.
Meanwhile, media giant Warner Bros. Discovery (WBD 12.81, +0.71, +5.87%) is atop the standings after the company's CNN business announced CEO Chris Licht would leave the company immediately.
Gold falls amid rising yields
07-Jun-23 14:00 ET
Dow +79.20 at 33652.39, Nasdaq -143.20 at 13133.39, S&P -13.61 at 4271.51
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (-1.08%) is the worst-performing major average, down more than 140 points and firmly lower from the +0.64% advance fresh out of the open this morning.
Gold futures settled $23.10 lower (-1.2%) to $1,958.40/oz, pressured by rising bond yields.
Meanwhile, the U.S. Dollar Index is up just shy of +0.1% to $104.18.
Tracking for a subdued start
It is another morning where the trading in the equity futures market is tentative. Currently, the S&P 500 futures are up three points and are trading 0.1% above fair value, the Nasdaq 100 futures are up four points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are up three points and are trading in-line with fair value.
Some of the market's restraint is predicated on a belief that the mega-cap stocks are due for a pullback and will exert some overriding pressure on the major indices just as they have exerted overriding aid to this point.
The latter point notwithstanding, the mega-cap stocks showed some resolve to selling interest in yesterday's trade, which lent a small measure of support to a market that was favoring cyclical/value plays. The strength seen in the broader market enabled the S&P 500 to log its highest closing level (4,283.85) since last August, although it continues to hold below 4,300.
It will take a close above 4,305.20 to take out the highest closing level since last August, so market participants' eyes are trained on levels just as much as they are trained on the price action of individual stocks.
There is a good bit of price action this morning in smaller stocks like Dave & Buster's Entertainment (PLAY), Couchbase (BASE), United Natural Foods (UNFI), Casey's General Stores (CASY), and Yext (YEXT) following their earnings reports, but big moves in a handful of small stocks don't move the market like big moves (or even small moves) in a handful of mega-cap stocks do.
On a related note, some pre-market strength in Tesla (TSLA), which is up 3.1%, NVIDIA (NVDA), which is up 0.4%, and Alphabet (GOOG), which is up 0.1%, has helped offset modest losses in other mega-cap stocks and has helped hold the line so to speak for the equity futures market.
Some trade data, though, has also helped hold the line on a guarded view of global economic growth prospects. China led things off overnight with a weaker-than-expected 7.5% year-over-year decline in May exports and the U.S. followed suit with a trade balance report for April that also showed a drop in exports.
Specifically, the U.S. trade deficit widened to $74.6 billion in April (Briefing.com consensus -$75.3 billion) from an upwardly revised $60.6 billion (from -$64.2 billion) in March, which was recalculated with annual revisions to the goods and services series.
The widening deficit in April was the result of exports being $9.2 billion less than March exports and imports being $4.8 billion more than March imports.
The key takeaway from the report is the drop in exports, which reflects weakening demand abroad for U.S. goods.
Equity futures took the trade news in stride, which is to say it did little in its wake, which is also to say that one shouldn't expect a big wake as the market gets going today without much of a motor to speed things along.
-- Patrick J. O'Hare, Briefing.com
United Natural Foods sinks to 52-week lows as struggles continued in AprQ (UNFI)
United Natural Foods' (UNFI -17%) struggles continue today after the food distributor and retail grocer missed earnings expectations in Q3 (Apr) and lowered its FY23 earnings outlook yet again. Shares are up significantly from intra-day lows, signaling a potential bottom carving out on the daily timeframe. Still, the stock is down considerably from yesterday's levels and trades roughly 40% lower on the year.
What went wrong in Q3? Profitability remained adversely impacted by greater-than-expected declines in gross margins, spurred by lower inflationary benefits, namely reduced procurement gains, as UNFI no longer benefited from purchasing products before supplier price hikes. Meanwhile, the macroeconomic landscape remains unfavorable, with adjusted food-at-home prices barely budging month/month in April. Given that UNFI's largest customer is Whole Foods Market (AMZN), which offers relatively higher-priced products, consumers may be trading down to less expensive big-box grocers, such as Walmart (WMT), which enjoyed further market share gains in grocery during AprQ.
- The challenging economic environment was illuminated in UNFI's headline results, delivering EPS of $0.54, a 51% drop yr/yr, and UNFI's lightest quarter since 2Q20, on sales of $7.51 bln, a 4% gain.
- CEO J. Alexander Douglas, who took over after Michael Stigers resigned on May 31, commented that volumes lagged due to some mass merchants capturing additional market share gains, which drove weaker-than-expected sales in the quarter. If inflation refuses to budge going forward, these mass merchants, like WMT, stand to benefit.
- On a side note, prominent national grocer Kroger (KR), which reports AprQ results on June 15, may also be capturing market share due to sticky inflationary pressures.
- Given the profitability challenges in Q3, UNFI revised its FY23 EPS outlook lower for the second time since reiterating its initial forecast in early December. The company expects earnings of $1.80-2.30, a considerable drop from its original $4.85-5.15 estimate. On a lighter note, UNFI did reaffirm its FY23 revenue forecast of $30.1-30.5 bln.
UNFI is focused on turning around its lackluster performance, taking immediate cost mitigation actions to improve profitability over the near term, which management anticipates will result in over $100 mln of annualized benefits. At the same time, Mr. Douglas remarked that UNFI's high-margin service business continued to grow in the quarter, while private labels remain a key differentiator for its customers to more effectively compete in a high-priced environment. Also, recall that UNFI announced initiatives to improve its supply chain in March, such as rolling out new AI-powered robotics and software automation systems at one of its distribution centers.
These silver linings are promising and possibly contributed to today's quick bounce off of session lows. Nevertheless, we continue to believe it is best to employ a wait-and-see attitude toward UNFI. Although consumers must purchase groceries regardless of cost, UNFI's exposure to higher-priced retailers could continue to weigh on its bottom line. As such, UNFI may not see much upside until more meaningful deflationary action takes hold.
Yext rockets higher after beat-and-raise report highlights AI-based opportunities (YEXT)
The positive impact of a restructuring plan, combined with growing momentum for its AI-powered marketing and customer experience tools, fueled a beat-and-raise earnings report for Yext (YEXT) that's catapulting shares to new 52-week highs. After years of unprofitability, the company has now registered three consecutive quarters of positive earnings with Q1 EPS of $0.09 representing a record high.
During the earnings call, CEO Michael Walrath labeled last year as a "turning point" for YEXT and the company's improved results bear that out.
- A key facet of the company's turnaround has been its strategy to transition a portion of its lower-margin services business to its systems integrator and partner ecosystem, resulting in an 8% reduction in its workforce. While this decision created a modest headwind to retention and bookings in Q1, it also had a major positive impact on gross margin, operating expenses, and profits.
- Non-GAAP gross margin expanded by 280 bps yr/yr to 79.2%, exceeding the company's expectations, while operating expenses declined by about 17% yr/yr to $69 mln. Although revenue grew by less than 1% in Q1, YEXT achieved record Q1 adjusted EBITDA of $14.4 mln compared to $(3.0) mln in the year-ago quarter.
Investors are also homing in on YEXT's prospects for stronger top-line growth due to its growing AI-based opportunities. Relatedly, the company raised its FY24 revenue guidance to $404-$407 mln from $402-$406 mln, even as the company described the demand environment as cost-conscious.
- As the provider of a cloud-based platform that enables companies to interact with their customers online through its Answers Platform, YEXT is ideally positioned to capitalize on the emergence of generative AI technology.
- Last night, Mr. Walrath noted that the company launched a beta version of Yext Chat in February due to strong demand from its customers for chat capabilities. He added that chat will soon be included in its general Answers Platform release.
- Beyond chat, the company is excited about its recently launched studio and content generation features, stating that these products have sparked significant interest from customers around generative AI.
- Studio is a visual editor that allows users to create, edit, and publish customized websites without writing code.
- Content generation uses large language models to automatically generate and suggest business-specific content that's on-brand and consistent with a company's writing styles and patterns.
The main takeaway is that YEXT is connecting on two powerful themes -- cost reductions and generative AI -- creating a ton of buzz around the name today. While the stock may be getting ahead of itself today with a 40% surge, there's also some substance behind the move due to the company's improving profitability.
Casey's General runs out of gas after missing top and bottom line estimates in AprQ (CASY)
Casey's General (CASY -4%) could use a fill-up as its shares gap down today following the convenience store chain's earnings and revenue misses in Q4 (Apr), marking the first quarter CASY missed on its top and bottom lines since 4Q18. CASY's FY23 inside same-store sales growth of +6.5% did match the midpoint of its +6-7% forecast, but this was somewhat clouded by projecting FY24 inside comp growth to decelerate to +3-5%. Adding fuel to the fire, CASY also predicted flat same-store fuel gallons sold yr/yr at the midpoint of its FY24 guidance, possibly translating to two consecutive years of zero growth following fuel comps of -0.8% in FY23.
- Fuel is CASY's primary business, comprising around two-thirds of total revenue each quarter and roughly one-third of consolidated gross profits, causing its light FY24 forecast to weigh on shares today. Also not helping was flat fuel comps in Q4, a significant difference from the +1.5% posted in the year-ago period. On a full-year basis, CASY's -0.8% fuel comps paled compared to the +4.4% growth delivered in FY22.
- Still, to be fair, CASY is operating in a challenging environment, where the industry in its specific geography (i.e., the Midwest) is experiencing fuel gallons down 4-6%. Against this backdrop, CASY's FY23 figure and FY24 outlook stack up relatively well and should result in market share capture.
- Management also reiterated that fuel margins should gradually expand over time from mid $0.30/gal as cost pressures ease.
- Meanwhile, inside sales remains a significant component of CASY's overall business, comprising approximately 70% of all transactions, making its +6.5% inside comp growth in Q4 a positive standout. Furthermore, even though CASY expects inside comps to decelerate in FY24, the company still anticipates positive growth. At the same time, FY24 inside margins are projected to improve modestly to 40-41% from 39.9% in FY23.
- Inside margins could improve further if inflationary pressures ease as commodity costs, specifically cheese, which was up nearly 16% yr/yr in Q4, make up a sizeable chunk of CASY's total costs.
- CASY's focus on store efficiency also produced meaningful benefits in the quarter. Same-store employee expenses were up just 1% yr/yr in Q4, benefiting from a 1% reduction in same-store labor hours. This was a direct result of CASY simplifying operations allowing its employees to work more efficiently.
- CASY also hiked its quarterly dividend by 13% to $0.43 per share and has $400 mln remaining under its repurchase authorization.
CASY delivered several highlights in Q4. However, they were not bright enough to outshine the discouraging headline results and lingering concerns as CASY enters FY24. Inflationary pressures remain sticky, keeping commodity costs and inside prices elevated, which could weigh on inside margins. At the same time, although lower average gasoline prices help the consumer potentially spend more inside, it keeps a lid on fuel margins.
Campbell Soup lower on earnings; lapping a retailer inventory rebuild impacted results (CPB)
Campbell Soup (CPB -5%) is under pressure following its Q3 (Apr) earnings report this morning. The food giant reported EPS upside, but the size of the beat was only half what we saw in Q2 (Jan) and much smaller than the Q1 (Oct) beat. Also, revenue was just in-line, following modest beats the last two quarters.
- The FY23 guidance was ok with CPB reaffirming its outlook for revs (+8.5-10.0%), adjusted EBIT and adjusted EPS ($2.95-3.00). CPB did says FY23 EPS was tracking toward the higher end of the range, so that was good. With just one quarter left in the fiscal year, this is basically Q4 (Jul) guidance.
- Its Meals & Beverages (soup, Swanson, Prego, Pace, V8) segment was the laggard with sales down 2% yr/yr to $1.11 bln, primarily due to declines in US soup, partially offset by gains in foodservice. The segment was hurt because it was lapping a retailer inventory rebuild in the year ago period, especially in US soup which had a sales decline of 11%. Also, as competitors improved their soup supply, CPB has been seeing some increased promotional activity.
- On the Snacks side (Pepperidge Farm, Goldfish crackers, Snyder's, Lance), revenue grew a robust 12% yr/yr to $1.12 bln, driven by sales of its 8 power brands, which were up 16%. Growth was driven by increases in cookies and crackers, primarily Goldfish crackers and Lance sandwich crackers, and in salty snacks. Sales benefited from favorable net price realization, partially offset by modest volume / mix declines.
- Another positive is that CPB says it's fully back to pre-COVID service levels in the mid to high 90s, which is currently best-in-class. As such, CPB does not expect further significant inventory-driven volatility as retailers have returned to targeted inventory levels, taking advantage of these improvements in service levels. Basically, retailers back to ordering based on demand and not over-ordering for fear of not getting enough inventory.
Overall, this was not a great quarter for CPB given the smaller than normal EPS and revenue beat. CPB is going through a rough patch as it laps a retailer inventory build last year but that should straighten out in time. The poor performance and competitive dynamics in Campbell's namesake soup category is also making investors nervous. However, we are a bit surprised to see the stock down this much given its 8% decline from its May 8 highs. We figured some bad news had been priced in.
Longer term, the underlying trend of people cooking more at home seems to be pretty durable. We had concerns that consumers would revert to eating out more but it seems saving money by eating at home remains a key trend right now. Finally, it's worth noting that, with today's stock price drop, CPB's dividend yield has crossed the 3% level, with a current yield of 3.1%.
G-III looking stylish today after topping Q1 estimates and announcing new licensing agreement (GIII)
G-III (GIII), which designs and markets apparel under many well-known brands such as DKNY, Donna Karan, Calvin Klein, and Tommy Hilfiger, easily surpassed Q1 earnings and revenue expectations, ending a three-quarter losing streak against analysts' EPS estimates. Revenue still declined by nearly 12% on a yr/yr basis, but significant improvements in GIII's inventory levels and gross margin were key difference makers in its turnaround quarter.
- Although inventory was higher by about 15% compared to last year, almost half of that increase is due to GIII's acquisition of Karl Lagerfeld from June of 2022. On a sequential basis, inventory levels were down by $80 mln as the company works to reduce its exposure to lower-margin licensed brands within the wholesale channel.
- GIII's licensing agreements with PVH (PVH) pertaining to the Calvin Klein and Tommy Hilfiger brands have staggered expirations in the 2025-2027 timeframe, creating a massive void in GIII's future revenue base. With these two brands accounting for approximately half of GIII's sales, the looming expirations of these licensing agreements have created a major overhang on the stock.
- However, the company took a big step in its efforts to replace that lost revenue, announcing this morning that it secured a new 25-year licensing agreement with Xcel Brands to design and produce all categories of men's and women's products for the Halston Brand.
- Primary sold in higher end department stores like Saks Fifth Avenue, Neiman Marcus, and Bloomingdale's, Halston is a luxury fashion brand that should fit in well with GIII's "power brands" such as DKNY and Karl Lagerfeld.
- The first deliveries of Halston products to top-tier department stores are expected this fall.
As GIII right-sizes its inventory position and looks to gradually replace Calvin Klein and Tommy Hilfiger with high-end brands, its margin profile should continue to improve.
- On that note, gross margin expanded to 41.2% from 35.7% in the year-earlier quarter partly due to the inclusion of the Karl Lagerfeld business which operates at a higher gross margin percentage than the rest of GIII's wholesale segment. Additionally, freight costs have moderated compared to last year, providing an extra boost to margins.
- One blemish is that the company's Q2 EPS forecast badly missed expectations, even as its revenue outlook topped estimates. The primary issue is related to the acquired Karl Lagerfeld business, which is causing a deleveraging of SG&A costs due to elevated warehousing costs associated with higher inventory levels.
- This seems to be a short-lived headwind to EPS, though, since the company also raised its FY24 EPS guidance sharply higher and well above estimates.
The main takeaway is that GIII eased concerns over its high inventory situation and its licensing expirations with PVH in the coming years in a very meaningful way, launching the stock higher.
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