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Market Snapshot
briefing.com
| Dow | 35460.79 | +395.26 | (1.13%) | | Nasdaq | 13959.08 | +49.45 | (0.36%) | | SP 500 | 4513.16 | +33.86 | (0.76%) | | 10-yr Note | -3/32 | 4.08 |
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| | NYSE | Adv 1854 | Dec 1071 | Vol 774 mln | | Nasdaq | Adv 2039 | Dec 2275 | Vol 4.90 bln |
Industry Watch
| Strong: Communication Services, Industrials, Financial, Health Care, Real Estate, Consumer Staples, Consumer Discretionary |
| | Weak: Utilities, Information Technology, Energy |
Moving the Market
--Buy-the-dip interest in blue chip stocks
--Fed Governor Bowman (FOMC voter) says she thinks additional rate hikes are likely to be needed
--Apple extending its losses
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Closing Stock Market Summary
07-Aug-23 16:20 ET
Dow +407.51 at 35473.04, Nasdaq +85.16 at 13994.79, S&P +40.41 at 4519.71
[BRIEFING.COM] There wasn't a lot of trading action today. Most of the work was done at the open. After that, the broader market fought to retain its gains, and add to them, on a day that was light on market-moving corporate news, light on economic data, and light on volume.
Today featured buy-the-dip activity that favored blue chip stocks and value plays, which, in some cases, were one in the same. The end result produced a day of healthy gains for the Dow Jones Industrial Average, which saw only three of its 30 components end in negative territory, and the S&P 500 closing above 4,500 and settling near its highs for the session.
Apple (AAPL 178.85, -3.14, -1.7%) was one of the four Dow laggards, extending its post-earnings report losses as investors grappled with valuation concerns and reports of weakness in the smartphone market. It was largely responsible for the underperformance of the S&P 500 information technology sector (+0.3%); however, strength in Microsoft (MSFT 330.11, +2.33, +0.7%), as well as in NVIDIA (NVDA 454.17, +7.37, +1.7%) and other semiconductor stocks, helped offset Apple's drag.
Similarly, further gains in Amazon.com (AMZN 142.22, +2.65, +1.9%), coupled with strength in online travel agencies and retail stocks, helped the consumer discretionary sector (+1.1%) overcome the weight of weakness in Tesla (TSLA 251.45, -2.41, -0.9%), which was clipped by the surprising news that its highly-regarded CFO, Zachary Kirkhorn, stepped down as of August 4. Tesla, however, rebounded after being down as much as 4.4%.
Six of the 11 S&P 500 sectors finished with a gain of at least 1.0%. Communications services (+1.9%) led the rankings on the back of strength in Alphabet (GOOG 131.94, +3.40, +2.7%) and Meta Platforms (META 316.56, +5.83, +1.9%) followed by financials (+1.4%), which rode the coattails of Berkshire Hathaway (BRK.B 362.49, +12.50, +3.6%) following its pleasing Q2 operating results.
The only economic release today was the June Consumer Credit Report, which showed a $17.9 billion increase in consumer credit (Briefing.com consensus $13.0 billion) that was driven entirely by an increase in nonrevolving credit. Revolving credit saw its first decline since April 2021.
This data did not affect the Treasury market much at all, which saw an imbalance throughout the day that saw shorter tenors tick higher and longer tenors give back some of their gains from Friday's rally as they digested Fed Governor Bowman's (FOMC voter) belief that additional rates hikes will likely be needed to get inflation back to the Fed's goal, and the assertion from New York Fed President Williams (FOMC voter) that the Fed could be close to its peak rate.
The 2-yr note yield settled the session down one basis point to 4.77% and the 10-yr note yield settled the day up two basis points to 4.08%.
- Nasdaq Composite: +33.7% YTD
- S&P 500: +17.7% YTD
- Russell 2000: +11.2% YTD
- S&P Midcap 400: +11.2% YTD
- Dow Jones Industrial Average: +7.0% YTD
Notable economic data on Tuesday includes the July NFIB Small Business Optimism Index (Briefing.com consensus 92.1; Prior 91.0) at 6:00 a.m. ET, the June Trade Balance Report (Briefing.com consensus -$65.1 billion; Prior -$69.0 billion) at 8:30 a.m. ET, and the June Wholesale Inventories Report (Briefing.com consensus -0.3%; Prior 0.0%) at 10:00 a.m. ET.
Setting up for tomorrow
07-Aug-23 15:30 ET
Dow +370.67 at 35436.20, Nasdaq +54.24 at 13963.87, S&P +31.45 at 4510.75
[BRIEFING.COM] Today feels like a summer day, which is to say the trading action has had a grinding quality to it. Granted the gains are decent, yet they were largely acquired at the start of trading, and since then it has been a yawner of sorts.
Perhaps tomorrow will bring something different. It might not, but at least it will bring more economic data and earnings news.
The economic calendar will include the July NFIB Small Business Optimism Index (Prior 91.0), the June Trade Balance Report (Prior -$69.0 billion), and the June Wholesale Inventories Report (Prior 0.0%).
With respect to earnings results, Lucid Group (LCID), Palantir Technologies (PLTR), Paramount Global (PARA), Skyworks (SWKS), Duke Energy (DUK), Eli Lilly (LLY), Fox Corporation (FOXA), Global Foundries (GFS), Li Auto (LI), Sealed Air (SEE), Under Armour (UAA), and UPS (UPS) will provide some of the more widely discussed reports.
Blue chips carrying the rebound load
07-Aug-23 15:00 ET
Dow +395.26 at 35460.79, Nasdaq +49.45 at 13959.08, S&P +33.86 at 4513.16
[BRIEFING.COM] The Dow, Nasdaq, and S&P 500 are all trading in the upper reaches of their best levels today, underpinned by solid blue chip leadership and buy-the-dip tendencies.
Market internals, however, don't necessarily paint a picture of a demonstrably strong day. Decliners actually lead advancers by an 11-to-10 margin at the Nasdaq while advancers lead decliners at the NYSE by a roughly 9-to-5 margin.
Today's strength, though, is concentrated in stocks that have the right amount of pull even if Apple (AAPL 178.59, -3.40, -1.9%), the largest of them all, is not among them.
There are only four Dow components trading lower today and Apple is the only one down more than 1.0%.
Just in, the June Consumer Credit Report showed consumer credit increasing by $17.9 billion (Briefing.com consensus $13.0 billion) versus an upwardly revised $9.4 billion (from $7.3 billion) in May.
Monster jumps in S&P 500 on Piper upgrade, Moderna continues to flounder
07-Aug-23 14:30 ET
Dow +359.46 at 35424.99, Nasdaq +32.31 at 13941.94, S&P +28.80 at 4508.10
[BRIEFING.COM] The S&P 500 (+0.64%) is firmly in second place on Monday afternoon.
S&P 500 constituents Monster Beverage (MNST 58.13, +3.01, +5.48%), Booking Holdings (BKNG 3,218.00, +154.874, +5.05%), and United Rentals (URI 489.81, +24.00, +5.15%) dot the top of today's standings. MNST caught a Piper Sandler upgrade to Overweight this morning, BKNG's tgt was raised at JMP Securities and Argus, while URI is helped by general strength in industrials ahead of tomorrow's ex-dividend date.
Meanwhile, Massachusetts-based biotech firm Moderna (MRNA 100.76, -7.43, -6.87%) is at the bottom of the S&P, continuing recent losses which have been mirrored in the overall biotech industry (IBB down -4.0% since the July 21 highs).
Gold lower amid higher yields
07-Aug-23 13:55 ET
Dow +398.73 at 35464.26, Nasdaq +44.82 at 13954.45, S&P +33.70 at 4513.00
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.32%) is the shallowest gainer.
Gold futures settled $6.10 lower (-0.3%) to $1,970.00/oz, pressured in part by rising yields.
Meanwhile, the U.S. Dollar Index is up about +0.1% to $102.13.
Market working to find its footing
There was a nice bid in the stock market on Friday following Amazon.com's (AMZN) earnings report and the July employment report, and then that bid fell by the wayside in afternoon action, having been supplanted by a sell program that threw the broader market for a loop and solidified a losing week for the major indices.
Today, a rebound effort is afoot, yet the stock market isn't necessarily putting its best foot forward as buyers are moving with some reserve still.
Currently, the S&P 500 futures are up 13 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 70 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 72 points and are trading 0.2% above fair value.
There is a little reflexive, buy-the-dip action in play, although an air of interest rate angst is also hanging over the stock market to keep things in check.
The 2-yr note yield is up four basis points to 4.82% and the 10-yr note yield is up two basis points to 4.08%.
Fed Governor Bowman (FOMC voter) has stirred up some of the angst, saying in a speech that she thinks additional rate hikes are likely to be needed to get inflation to the Fed's goal. New York Fed President Williams (FOMC voter), meanwhile, said he thinks the Fed is close to its peak rate, but that there is some uncertainty as to how long the Fed will need to stay at a restrictive level.
It should probably come as little surprise at this juncture to hear some competing views out of the Fed; nonetheless, the market is anxious to hear the Fed publicly coalesce around the idea that it is done, and that has yet to happen.
The July Consumer Price Index, which will be released before Thursday's open, will factor into the Fed's decision-making process. If nothing else, it will provide a talking point throughout this week along with the last rush of earnings reporting for the June quarter.
-- Patrick J. O'Hare, Briefing.com
TreeHouse Foods falls despite hiking its FY23 sales forecast as it mostly stemmed from M&A (THS)
Despite decent earnings results, including solid revenue upside and raised FY23 guidance, TreeHouse Foods (THS -3%) is in a rut today. Partly contributing to today's head-shaking response was the reason behind the private-label food and beverage supplier's raised FY23 outlook. THS added 1.5 pts to its previous forecast, predicting revenue growth of +7.5-9.5% yr/yr in FY23. However, CFO Patrick O'Donnell mentioned that most of the company's increased revenue guidance stems from the positive contribution of its previously announced acquisition of Farmer Brothers' coffee facility.
- Meanwhile, other figures from Q2 were not overly impressive. Adjusted EPS of $0.42 was consistent with analyst expectations. Meanwhile, revenue growth of 4.1% yr/yr to $843.6 mln marked a meaningful deceleration from the +15.8% jump last quarter, although it exceeded the high-end of THS's $810-840 mln prediction.
- Pricing drove most of THS's top-line growth in Q2, expanding by 11.2% compared to the year-ago period, which did reflect the company's efforts to recoup inflationary costs. However, the higher prices weighed on the end-consumer, illuminated by volume and mix ticking 7.2% lower.
- Still, it should be noted that consumption is down across the board, negatively affecting national and private brands. Several consumer packaged goods firms have discussed these developments lately, such as Conagra (CAG), which stated last month that consumers are hunkering down, reducing their basket sizes in response to sticky inflation.
- Another highlight from Q2 is THS stabilizing its supply chain network, returning service levels to its target of 98% across most categories. Furthermore, because of its labor and machinery investments, which increased its total cost profile in the quarter, THS expects its throughput to provide material benefits in the second half of the year.
Overall, investors are looking at THS's Q2 report as somewhat stale, especially given the current favorable dynamics in the marketplace, including a shift toward snacking and sustained growth of private-label groceries in light of inflationary pressures. THS remains optimistic that these two trends, in particular, will provide lasting tailwinds. However, investors may be growing impatient with these positive developments' lack of meaningful benefits on THS's quarterly performance.
Still, we think patience is required as THS remains amid fairly large shifts, such as offloading its meal prep and ready-to-eat cereal businesses over the past year, focusing on the higher-margin snacks and beverages categories. Even though inflation is cooling, prices are still not budging significantly. If this does not change relatively soon, consumers will likely have to begin considering private labels more frequently going forward.
ADTRAN plunges lower as customer inventory issues continue to plague sales (ADTN)
A rough year for ADTRAN (ADTN) took a major turn for the worse today after the communications networking equipment company reported Q2 results that included its third consecutive top-line miss. More troubling, though, is that ADTN doesn't anticipate business conditions improving -- at least not in the near term -- as illustrated by its weak downside Q3 revenue guidance that badly missed analysts' estimates.
- In the wake of this gloomy earnings report, shares of ADTN are now down by more than 60% for the year, trading at their lowest levels since the pandemic hit the U.S. in March of 2020.
- To put ADTN's current struggles into perspective, the company's revenue outlook for Q2 was already quite soft. When ADTN reported Q1 results on May 9, it also issued downside Q2 revenue guidance of $325-$335 mln. Ultimately, the company's Q2 revenue of $327.4 mln came in below the midpoint of that guidance range.
- While ADTN's earnings call isn't until tomorrow morning at 10:30 a.m. E.T, the company did indicate in the earnings press release that it continued to be impacted by customers optimizing their inventory.
- During last quarter's earnings call, the company stated that its Subscriber Solutions segment was impacted by "increased scrutiny of inventory levels with our customers" driven by a reduction of lead times in the market and macroeconomic uncertainty.
- Additionally, the company is still contending with supply chain issues, hindering its ability to fulfill all of its backlog of orders.
- Notably, its much larger rival, Cisco (CSCO), has experienced significant improvements in its supply chain over the past several quarters.
- ADTN's customer base is also less diverse than CSCO's with one service provider customer accounting for over 10% of total revenue.
- These factors may help explain why CSCO isn't trading lower in sympathy with ADTN. Calix (CALX), on the other hand, is sharply lower today, even though it already reported upside Q2 results on July 19.
From a longer-term perspective, ADTN has remained bullish on its prospects throughout this downturn. CEO Tom Stanton reiterated in today's earnings press release that the company is in the early stages of an "unprecedented investment cycle" and that the company is well positioned to be one of the largest beneficiaries. That investment cycle, though, which centers around the buildout of fiber networks to handle the explosion of data traveling through communications networks, has so far left ADTN behind.
Gogo is go-going sharply lower today following guidance cut as Gogo faces multiple headwinds (GOGO)
Gogo (GOGO -16%) is go-going sharply lower today following its Q2 earnings report this morning. This provider of in-flight Wi-Fi services for private jets beat on EPS with in-line revenue. However, the company lowered FY23 revenue guidance to $410-420 mln from $440-455 mln. It also lowered its long term outlook to +15-17% from +17%.
- Gogo concedes it faced some headwinds in Q2, but it believes many are temporary in nature. In terms of demand, Gogo saw a little rebound in demand as measured by flight counts. Gogo equipped aircraft flew 5% fewer flights yr/yr but the gap relative to 2Q22 narrowed each month from -7% in April to -4% in May and -3% in June. A gap that small could be explained by the number of aircraft currently caught in maintenance traps at dealers.
- More importantly, Gogo continues to see strong growth relative to pre-pandemic results. Flight counts in Q2 were up 30% from 2Q19, indicating that Gogo has reached a new sustainable plateau of flight demand. Meanwhile, usage per flight hour surged 20% yr/yr and up 67% vs 2019, indicating that demand for Wi-Fi continues to grow. Gogo also achieved strong new activations. The AVANCE platform now accounts for more than 50% of its installed base.
- In terms of headwinds, Gogo was awarded a $334 mln grant in 2022 from the FCC to reimburse it for expenses associated with accelerating the removal of Chinese telecom technology from its 3G and 4G networks. Because more qualified grants than originally planned were granted, all grants were cut back to 39% of the original reward. At this point, Gogo is waiting to see if Congress will fully fund the program, which is expected this autumn.
- Another issue in Q2 was that Gogo was hurt by higher suspensions and deactivations, which it believes are a temporary issue. Gogo says the primary driver appears to be a logjam for engine maintenance. Many aircraft have been flown hard the last few years and cannot fly passengers again until they get a major check, which usually involves taking the entire engine apart.
- In normal times, when dealers remove engines, they often install temporary replacement engines so that the customer can continue flying. Gogo is hearing reports that there are literally no replacement engines available, which is leading to aircraft sitting in terminals with no engines. With planes stuck on the ground, customers stop paying for internet service. But these planes will come back online.
Overall, this was a rough quarter for Gogo, especially its guidance. It is facing several headwinds, including the FCC grant reduction and a logjam in airplane maintenance. And recall that, in late July, Gogo announced a delay in its Gogo 5G system launch, which is now expected in mid-2024. We think this is a bit too much to handle for investors right now. They seem to want to wait until these issues get resolved.
Campbell Soup looks to spice up its growth prospects with acquisition of Sovos Brands (CPB)
Campbell Soup (CPB) is making a stir in the M&A market this morning, announcing its intention to acquire premium pasta sauce maker Sovos Brands (SOVO) for $23/share in an all-cash deal. Coming off a disappointing 3Q23 earnings report in which it barely beat EPS estimates as revenue growth slowed to the lowest level in five quarters, CPB is looking for the right recipe to jumpstart its financial performance and its ailing stock. So far in 2023, shares of CPB have skidded lower by about 20%.
- The company believes that SOVO has the ingredients to heat up its cooling growth, but it won't come cheaply. At $23/share, CPB is paying a premium of 27% versus last Friday's closing price, while the total deal value of $2.7 bln represents a 14.6x adjusted EBITDA multiple. For the sake of comparison, CPB's adjusted EBITDA is about 11.4x.
- On the other hand, SOVO, which is a fairly recent IPO, going public in September 2021, is generating strong growth and is comfortably profitable. In FY22, SOVO's revenue jumped by 22% yr/yr to $878.4 mln, while adjusted EPS came in at $0.60.
- In addition to Rao's pasta sauce, SOVO's brands include Micael Angelo's frozen meals and noosa yogurt. However, the Rao's brand is the crown jewel of this acquisition, accounting for nearly 70% of SOVO's total revenue with organic net sales growth of about 35% in FY22.
- From a strategic standpoint, the acquisition is a good fit in our view as the premium Rao's pasta sauce brand should nicely complement CPB's lower-priced Prego brand. Using its scale and vast distribution network, CPB believes it can increase the geographic footprint and household penetration of the Rao's brand.
- With sales declining by 2% last quarter, CPB's Meals and Beverages segment (Prego, soup, Swanson, etc.) could certainly use a spark. The company's flagship soup category in particular has struggled recently as U.S. food retailers return to more normalized ordering patterns. The addition of SOVO will place more emphasis on the sauce category -- a business that CPB is aiming to grow to over $1.0 bln.
- Integration expenses and other related costs will likely create an earnings headwind for CPB this year, but the company is anticipating the transaction to be accretive to adjusted EPS in year two.
- The main issue we see is that CPB is raising more debt to finance this deal. Given that the cost of debt has increased so much due to rising interest rates, the prospect of adding to CPB's current long term debt balance of $4.5 bln may not be sitting well with some investors.
Overall, though, we like this deal as we believe CPB's size and resources can help the Rao's brand more fully capitalize on its strong growth potential.
Tyson Foods gets clipped after closing four more facilities as challenges persisted in JunQ (TSN)
Shares of Tyson Foods (TSN -7%) are getting clipped after the food processor posted underwhelming headline Q3 (Jun) results and announced the closure of four of its chicken facilities across the U.S. Tyson Foods was steadily rebounding in May after taking out pandemic lows on a closing basis shortly after posting its first net loss in over a decade last quarter. Although many alarms sounded during Q2 (Mar), as Tyson Foods encountered a "highly unusual situation," where all of its core segments -- Beef, Pork, and Chicken -- were amid challenges simultaneously, investors were somewhat encouraged by some optimistic remarks. Namely, Tyson's Chicken segment (one-third of annual sales), which saw two facility closures last quarter, had already seen operational improvements and market recovery.
Therefore, although management kept the door of additional closures open last quarter, stating that it is always looking at its overall footprint, Tyson Foods' announcement is weighing heavily on the stock. CEO Donnie King commented that the decision will lower costs, improve capacity and utilization, and strengthen the company's long-term foundation.
- Turning to JunQ numbers, Tyson Foods posted its fifth-straight adjusted EPS miss as adjusted operating margins tumbled by 600 bps yr/yr to 1.4%, and its first quarter of declining yr/yr revs since 1Q20 (Dec), with total sales slipping 2.6% to $13.14 bln, also missing analyst estimates.
- Averages prices across Pork (10% of sales) and Chicken dropped by 16.4% and 5.5% yr/yr, respectively, while Beef (38% of sales) prices ticked 5.2% higher. Unfortunately for Tyson Foods, the drop in Pork and Chicken prices did not translate to meaningful volume gains, with Chicken volumes edging just 2.8% higher yr/yr, while Pork volumes actually slipped by 1.8%. At the same time, consumers were highly sensitive to the minor jump in Beef prices, causing volumes to move 5.3% lower in the quarter.
- As a result, Beef revenue was flat, while Pork fell by over 18%, underscoring the lingering excessive supply issues in the pork industry, and Chicken inched down by 4%. Likewise, in Prepared Foods (18% of sales), which Tyson has repeatedly emphasized is a key growth pillar, sales endured a 3% drop. However, the company was encouraged by 160 bps of adjusted operating margin expansion in the segment to 9.2% as the business continued to gain pound and dollar share in retail.
- Despite the lackluster JunQ results, Tyson Foods kept its FY23 revenue outlook of $53-54 bln unchanged. Furthermore, the company anticipates adjusted operating margins toward the higher end of its (1)%-1% forecast. In the long term, Tyson remains committed to enhancing efficiency, including scrutinizing its cost structure to drive margin improvement.
Bottom line, the unfavorable themes from MarQ seeped into JunQ, causing Tyson Foods to endure challenging conditions for longer than expected and triggering another quarter of disappointing performance. On the bright side, adjusted operating income did improve by over $100 mln sequentially purely due to internal actions, including the previous two plant closures. Considering this, its additional four closures should spur margin improvement. Nonetheless, as we noted last quarter, it is better to remain on the sidelines until market conditions turn around more meaningfully.
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