Market Snapshot
| Dow | 38852.27 | +176.59 | (0.46%) | | Nasdaq | 16349.25 | +192.92 | (1.19%) | | SP 500 | 5180.74 | +52.95 | (1.03%) | | 10-yr Note | +24/32 | 4.49 |
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| | NYSE | Adv 2145 | Dec 636 | Vol 915 mln | | Nasdaq | Adv 2699 | Dec 1562 | Vol 4.4 bln |
Industry Watch
| Strong: Energy, Information Technology, Industrials, Materials, Financials, Communication Services, Consumer Discretionary |
| | Weak: Real Estate |
Moving the Market
-- Carryover momentum after Friday's rally
-- Mega caps and semiconductor shares boosting index gains
-- Broad based buying activity
-- S&P 500 back its 50-day moving average (5,130)
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Closing Summary
06-May-24 16:25 ET
Dow +176.59 at 38852.27, Nasdaq +192.92 at 16349.25, S&P +52.95 at 5180.74
[BRIEFING.COM] The stock market exhibited upside action today, extending Friday's rally. The S&P 500, which traded above its 50-day moving average (5,130) today after closing just below that level on Friday, gained 1.0% and settled at its best level since April 11. The Nasdaq Composite closed 1.2% higher, the Russell 2000 rose 1.2%, and the Dow Jones Industrial Average registered a 0.5% gain.
The major indices traded in relatively narrow ranges through most of the day until buying picked up with about 30 minutes left in the session, propelling the S&P 500 and Nasdaq Composite to fresh intraday highs. Upside moves were broad based, leading the equal-weighted S&P 500 to close 0.8% higher.
Gains in the mega cap and semiconductor space provided a boost to the broader market and drove a 1.4% gain in the Vanguard Mega Cap Growth ETF (MGK) and a 2.2% gain in the PHLX Semiconductor Index (SOX).
Meta Platforms (META 465.68, +13.72, +3.0%), NVIDIA (NVDA 921.40, +33.51, +3.8%), Microsoft (MSFT 413.54, +6.88, +1.7%), Amazon.com (AMZN 188.70, +2.49, +1.3%), and Eli Lilly (LLY 766.68, +31.71, +4.3%) were among the influential winners today. These names comprise nearly 20% of the S&P 500.
Some of the aforementioned names propelled their respective S&P 500 sectors to the top of the leaderboard today. The information technology (+1.5%) and communication services (+1.4%) sectors logged the largest gains. Five sectors gained at least 1.0% today and only one sector closed lower. The real estate sector (-0.02%) settled fractionally lower than Friday's settlement.
Calm action in Treasuries today contributed to the positive bias in the stock market. The 10-yr note yield settled one basis point lower at 4.49% and the 2-yr note yield settled one basis point higher at 4.82%.
There was no U.S. economic data of note today.
Looking ahead, the March Consumer Credit report will be released tomorrow at 3:00 p.m. ET.
- Nasdaq Composite: +8.9% YTD
- S&P 500:+8.6% YTD
- S&P Midcap 400: +6.8% YTD
- Dow Jones Industrial Average: +3.1% YTD
- Russell 2000: +1.7% YTD
Stocks hold steady near highs
06-May-24 15:35 ET
Dow +98.51 at 38774.19, Nasdaq +147.02 at 16303.35, S&P +39.65 at 5167.44
[BRIEFING.COM] The major indices are moving mostly sideways near session highs.
Shares of Boeing (BA 116.68, +3.02, +2.7%) are sinking after news that the FAA started a new investigation into Boeing after acknowledging the company missed some 787 inspections, according to The Wall Street Journal.
Walt Disney (DIS), UBS (UBS), GlobalFoundries (GFS), Crocs (CROX), and others report earnings in front of Tuesday's open.
The 10-yr note yield settled one basis point lower at 4.49% and the 2-yr note yield settled one basis point higher at 4.82%.
Stocks move mostly sideways
06-May-24 15:00 ET
Dow +87.56 at 38763.24, Nasdaq +142.91 at 16299.24, S&P +39.48 at 5167.27
[BRIEFING.COM] The major indices are little changed over the last half hour.
Goodyear Tire (GT), Intl. Flavors (IFF), Microchip (MCHP), and others report earnings after the close.
Looking ahead, the March Consumer Credit report will be released tomorrow at 3:00 p.m. ET.
S&P 500 in second place on Monday afternoon
06-May-24 14:30 ET
Dow +174.29 at 38849.97, Nasdaq +147.81 at 16304.14, S&P +42.14 at 5169.93
[BRIEFING.COM] The S&P 500 (+0.82%) is at HoDs in recent trading, once more firmly in second place among the major averages.
Elsewhere, S&P 500 constituents American Airlines (AAL 14.68, +0.83, +5.99%), Globe Life (GL 82.01, +4.46, +5.75%), and Aptiv (APTV 85.18, +4.36, +5.39%) dot the top today's standings. AAL caught a target raise out of Bernstein, GL continues to rebound off the mid-April losses, while auto supplier APTV leads in the group despite a dearth of corporate news.
Meanwhile, Moderna (MRNA 121.46, -3.54, -2.83%) is near the bottom of the S&P, dragged lower by weakness in top iShares Biotech ETF (IBB 133.00, +0.04, +0.03%) constituent Amgen (AMGN 299.92, -11.37, -3.65%).
Gold higher to start the week
06-May-24 14:00 ET
Dow +128.49 at 38804.17, Nasdaq +129.10 at 16285.43, S&P +36.03 at 5163.82
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.80%) remains in the lead, probing session highs on gains of about 130 points.
Gold futures settled $22.60 higher (+1.0%) to $2,331.20/oz, rising in part due to a softer dollar and modestly lower yields.
Meanwhile, the U.S. Dollar Index is up less than +0.1% to $105.06.
Tyson Foods sinks after its reaffirmed FY24 sales forecast leaves investors hungry for more (TSN)
Tyson Foods (TSN -7%) is being swallowed up by sellers today disappointed by the global food processor's relatively light revenue in Q2 (Mar) and reaffirmed FY24 (Sep) revenue outlook of flat yr/yr growth. TSN has been striving to turn things around as the sticky inflationary environment has dragged down its quarterly performances over the past several quarters. The company closed chicken processing plants, shuttered a pork facility, and eliminated thousands of jobs. At the same time, TSN shifted its focus toward customer diversification, product mix, and margin-accretive channels.
While these efforts resulted in a brighter adjusted operating income (AOI) forecast for the year, TSN still operates in a volatile global economy. With shares running +15% higher to start the year as of Friday's close, TSN's guidance is leaving investors hungry for more today, fading much of the stock's gains this year.
- TSN registered another quarter of sluggish revenue growth, falling by 0.5% yr/yr to $13.07 bln. Conversely, adjusted EPS cleared analyst expectations by double-digits for the second straight quarter, underscoring strong margin expansion in Prepared Foods offsetting weakness across TSN's other businesses. As has become common for TSN lately, segment performance was mixed.
- In Beef, sales jumped 7% yr/yr to $4.95 bln on a 3% uptick in volume. However, this segment has continued to endure limited cattle supplies leading to spread compression with AOI falling yr/yr despite the revenue improvement, leading to negative 0.7% adjusted operating margins.
- On the flip side, in Chicken, sales fell by 8% to $4.07 bln, largely due to a 6% volume contraction, underscoring lower production from TSN's past facility closures as it aligns supply to customer demand. Despite the sales decrease, AOI bounced back into positive territory from the year-ago period, showcasing the benefits of management's recent cost-cutting actions.
- Pork sales inched 5% higher yr/yr to $1.49 bln on a 3% improvement in volume, reflecting a more plentiful hog supply compared to last year. Pricing similarly edged modestly higher on improving global demand. Like Chicken, AOI in Pork rebounded from negative $31 mln to post a profit in the quarter.
- Prepared Foods, TSN's retail business, which includes its familiar Jimmy Dean, Hillshire Farm, and Ball Park brands, registered flat sales growth yr/yr at $2.40 bln. Management remarked that consumers' focus on value continued to hide retail volumes in Q2. TSN remains committed to further diversifying its product portfolio and enhancing margins in Prepared Foods.
- For the remainder of the year, TSN continued to project flat revenue growth yr/yr, a disappointing development given how the second half of each fiscal year tends to be seasonally stronger than the first half. However, it hiked its AOI guidance to $1.4-1.8 bln from $1.0-1.5 bln.
While TSN's Q2 numbers displayed meaningful changes from where it stood this time last year, there is still a long road to recovery. Nevertheless, management's recent strategic turnaround initiatives are having a positive impact. Also, even though inflation refuses to budge much, at-home channels stand to be the benefactor of constantly rising food prices, lifting TSN in the process.
Spirit Airlines struggling to fly past competitive pressures and aircraft groundings (SAVE)
Although air travel demand remains quite healthy and resilient, competitive pressures and manufacturing issues with Pratt & Whitney's Geared Turbofan (GTF) engines are preventing Spirit Airlines (SAVE) from taking off. The ultra low-cost carrier reported a net loss of $(1.46) in 1Q24 -- its fourth loss in the past five quarters -- and revenue fell by 6.2% yr/yr to $1.26 bln. Making matters worse, SAVE's Q2 revenue guidance of $1.32-$1.34 bln missed expectations, signaling a drop of nearly 7%.
- The company's weak results and outlook stand in stark contrast to the major airlines, which continued to capitalize on the bullish industry trends in Q1. Specifically, strong corporate and international travel demand is enabling Delta Air Lines (DAL), United Airlines (UAL), and American Airlines (AAL) to increase capacity, putting pressure on smaller carriers like SAVE that have less ability to absorb higher fuel and labor costs.
- More industry capacity typically forces prices lower, which was the case for SAVE in Q1. Total revenue per ASM (TRASM) decreased by 8.2% and total revenue per passenger flight was down 8.1% to $117.03.
- While available seat miles (ASMs) were up 2.1%, SAVE's ability to increase capacity was limited by the grounding of dozens of its aircraft due to manufacturing problems with its GTF-powered fleet. To help remedy the situation, International Aero Engines (IAE), an affiliate of Pratt & Whitney, has agreed to provide SAVE with a monthly credit through the end of 2024. SAVE estimates that the agreement will have an impact of $150-$200 mln on its liquidity.
- Following the merger termination with JetBlue Airways (JBLU) in March, strengthening the balance sheet and liquidity position has become paramount for SAVE. The proposed deal with JBLU was largely viewed as a lifeline for SAVE, which has approximately $1.1 bln in senior secured notes that are due next year. In 2026, SAVE has another $500 mln of convertible bonds that will be maturing, and, as of December 31, 2023, the company only had about $1.0 bln in cash on the books.
- Securing that agreement with IAE was a step in the right direction, but SAVE also recently reached an agreement with European aircraft maker Airbus (EADSY) to delay aircraft deliveries that were originally scheduled for 2Q25 through the end of 2026. The company has pushed those deliveries, which total 99 new aircraft, to the 2030-2031 timeframe.
- In addition to cost-cutting actions, including the decision to furlough 260 pilots, the IAE agreement and delivery deferrals are expected to improve SAVE's cash levels by $450-$550 mln in 2024. In the coming months, SAVE will roll out phase two of its standalone business plan, which could include reworking the terms of its debt that's coming due in 2025 and 2026.
These are positive steps, but the big picture concern is that the major airlines are squeezing SAVE and other low-cost carriers like Frontier Group (ULCC), making it very difficult for them to generate healthy margins and profits.
TreeHouse Foods trades sharply lower following rare EPS miss but 2H shaping up better (THS)
TreeHouse Foods (THS -11%) is trading sharply lower today following its Q1 results. This huge supplier of private label food and beverages reported a mixed quarter with a larger than expected loss and with adjusted EBITDA at the lower end of guidance. THS posted strong upside revenue but its Q2 revenue guidance was a bit of a letdown. The range was in-line but the mid-point was lower than analyst expectations. THS reaffirmed its FY24 outlook.
- Revenue fell 3.9% yr/yr to $820.7 mln, but the result was above the high end of the $780-810 prior guidance. The sales decrease was primarily driven by unfavorable volume/mix due to planned distribution exits in its coffee and in-store bakery categories, as well as the restart of one of its broth facilities, which contributed to approximately half of the volume decline. Another headwind was pricing, which was modestly unfavorable as a result of targeted commodity-driven pricing adjustments.
- A headwind in the quarter was the work required to restart its broth business. The downtime impacted Q1 profitability. THS upgraded its equipment, refined and improved its processes and trained its workforce with the expectation that production will continue to increase in the coming months. THS believes this restart should result in expanded margins and provide a meaningful lift to profitability in 2H24.
- Also, THS sounds pretty excited about its sales pipeline and what it see as a significant opportunity to drive organic growth. The size of this pipeline has grown by over 20% during the last quarter as its commercial teams continue to pursue new customer partnerships. THS has secured numerous opportunities since the start of the year, including wins in cookies, refrigerated dough, pickles and pretzels to name a few. These will drive growth in 2H24.
- TreeHouse feels it remains attractively positioned at the intersection of two long-term consumer trends: the growth of private brand groceries in North America and the consumer's shift towards snacking. THS explained that private brands have consistently gained share over the last two decades but they still have significant runway for growth. In Q1, THS saw a continued strength of private brand volume compared to national brands. Also, price gaps between national brands and private brands remain elevated, which is helping to drive market share for private label.
Overall, investors are disappointed in TreeHouse's Q1 results and guidance. TreeHouse reported its first EPS miss since 3Q21. It sounds like the broth facility restart impacted profitability more than expected. Also, Q2 may be a bit difficult as well given the lackluster top line guidance. The silver lining is that 2H is shaping up nicely as THS expects sales improvement due to new distribution wins that largely begin in Q3. Also, broth should recover by peak season and some cost savings initiatives will start to kick in by Q3-Q4.
With the consumer feeling the pinch, private label groceries would seem like a good place to be for investors. However, some near term operational issues and some topline headwinds from category exits are blunting the near term impact. Given its private label positioning, we think the name is worth keeping on the radar once its business stabilizes, which sounds like more of a 2H event.
Freshpet still the pick of the litter as Q1 results reflect sustained premium pet food demand (FRPT)
Freshpet (FRPT +8%) remains the pick of the litter today, recording another impressive quarterly earnings report despite operating in an environment that has proved challenging for many of its competitors. The fresh pet food maker recorded a surprise profit in Q1 on accelerating sales growth, underpinning sustained premium pet food demand and keeping it on track to achieve its previous FY24 revenue guidance as well as its long-term financial goals.
- FRPT entered Q1 with positive momentum at its back, registering 30% sales growth yr/yr on a 25% jump in volume last quarter. The company did not just sustain this momentum but built on it, delivering 34% revenue growth on a 31% improvement in volume in Q1. The healthy mix of sales and volume growth underscores FRPT's brand loyalty as it continues to pass higher costs onto the consumer without experiencing a volume disruption.
- This dynamic has also helped FRPT maintain profitability, delivering its second consecutive quarter of positive EPS with $0.37 in Q1. Adjusted gross margins surged 680 bps yr/yr and 420 bps sequentially to 45.3%, exceeding the company's long-term (2027) target of 45%.
- FRPT's fridge network, which spans over 27,000 retail locations, is a significant component of keeping and improving brand loyalty. During Q1, FRPT installed 617 additional fridges through upgrades, pre-established stores, or new locations. Unlike during the pandemic, which created lengthy delays in reigniting revenue growth, FRPT's fill rates ended the quarter in the high 90s.
- An unwavering demand for premium pet food has also produced a long-lasting tailwind. FRPT stated that nearly half of its customer base uses its product as the main component of their pet's meal, up roughly 7 pts yr/yr. Furthermore, one of the silver linings from online pet retailer Chewy's (CHWY) relatively sluggish JanQ report last month was that demand among its premium businesses remained robust. Likewise, General Mills (GIS) remarked last month that wet pet food helped counter weaknesses within its dry pet food line in FebQ.
- Looking ahead, FRPT kept its FY24 revenue outlook of at least $950 mln unchanged. Similarly, the company continues targeting penetrating 20 mln households by 2027, alongside increasing retail availability. Management commented that while it was pleased with its Q1 results, it was not satisfied, stating that its current level of performance must be maintained before revising its longer-term projections.
After FRPT's Q4 report, we mentioned that the company remained in a firm position to continue pouncing on a steady tailwind within the premium pet food market. FRPT's Q1 report showcased that this trend has not budged. One of the consistent developments touched on by others in the pet food industry has been that after moving into a more premium pet food bracket, pet owners would rather sacrifice spending on other discretionary items before they lessen their spending on quality food for their animals. This has benefited FRPT enormously over the past year, and by continuing to progress on its margins and profitability goals, the company remains well-positioned for further upside.
Cloudflare's concerning comments over heightened near-term uncertainty sinks its stock today (NET)
Cloudflare (NET -18%) plunges today after warning that a turbulent macroeconomic backdrop is clouding its near-term view, forcing it to maintain a heightened level of caution. The cybersecurity firm's comments were somewhat unchanged from last quarter, operating its business prudently despite encouraging underlying trends, such as additional large customer wins and improving average deal sizes.
So why are shares sinking today?
- NET spent more time discussing short-term uncertainty in Q1, making it the overarching theme of the quarter. CEO Matthew Prince stated that numerous signals are pointing to heightened near-term uncertainty, from increasing tensions in the Middle East to "no end in sight" surrounding the war in Ukraine and instability brewing in Asia. While Mr. Prince remarked that there are no clear indicators that these situations will worsen, he acknowledged that recent history says macroeconomic factors can materially hurt short-term sales trends.
- Making matters worse were disappointing Q1 results from peer Fortinet (FTNT). While headline numbers were decent, investors were alarmed by a slowdown in total billings in the quarter, falling 6% yr/yr compared to an +8% jump in the previous quarter. Even though FTNT kept its FY24 billings number unchanged, by ending Q1 toward the low end of its previous forecast, investors are fearful that billings may not recover as quickly as the company expects.
- Additionally, the market expressed excitement over the prospect of relatively soft demand within the cybersecurity space -- IT departments continuing to scrutinize their budgets -- reaching a bottom following upbeat results last quarter. Shares of NET spiked at the time, reaching one-year highs; FTNT also gapped higher. However, Q1 results from NET and FTNT signaled that a bottom could be extended.
NET is still amid promising underlying developments. The company sustained its upward momentum with large customers, with total revenue contribution from this cohort ticking 5 pts higher yr/yr to 57%. This helped push NET above its revenue forecast in Q1, delivering 30.5% growth yr/yr to $378.6 mln. Meanwhile, NET demonstrated one of its key competitive advantages in margin efficiency, keeping its gross margins above its long-term target of 75-77% and expanding operating margins by 450 bps yr/yr to 11.2%. As a result, NET registered adjusted EPS of $0.16, nicely higher than its $0.13 forecast. Furthermore, NET kept its FY24 revenue outlook unchanged at $1.648-1.652 bln while pushing its adjusted EPS outlook two pennies higher to $0.60-0.61.
However, given the level of enthusiasm after NET's Q4 results in February, its concerning comments in Q1 were more than enough to shake investors today, causing its shares to sink to 2024 lows. The company remains in a sturdy position to reignite growth, evidenced by its ability to sign massive deals despite a volatile economic landscape. Nevertheless, without more confidence from management that near-term variables will not be as potentially harmful as conveyed today, shares could get stuck trading sideways.
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