Market Snapshot
| Dow | 38798.99 | -87.18 | (-0.22%) | | Nasdaq | 17133.13 | -39.99 | (-0.23%) | | SP 500 | 5346.99 | -5.97 | (-0.11%) | | 10-yr Note | -33/32 | 4.43 |
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| | NYSE | Adv 731 | Dec 2012 | Vol 837 mln | | Nasdaq | Adv 1199 | Dec 3052 | Vol 4.8 bln |
Industry Watch
| Strong: Financials, Information Technology, Health Care, Industrials |
| | Weak: Materials, Utilities, Consumer Staples, Communication Services |
Moving the Market
-- Reacting to the May Employment Situation Report, which didn't go the market's way in relation to inflation
-- Sharp move higher in market rates in response to the data
-- Consolidation activity after recent all-time highs
| Closing Summary
07-Jun-24 16:25 ET
Dow -87.18 at 38798.99, Nasdaq -39.99 at 17133.13, S&P -5.97 at 5346.99
[BRIEFING.COM] There wasn't a lot of conviction on either side of the tape in the final session of the week. There was an underlying negative bias driving today's movement despite the gains in the major indices through most of the session.
Market breadth favored decliners by a nearly 3-to-1 margin at the NYSE and by an 8-to-3 margin at the Nasdaq.
The downside bias was in response to a sharp jump in market rates. The 10-yr note yield settled 15 basis points higher today, and eight basis points lower this week, to 4.43%. The 2-yr note yield jumped 15 basis points today, which leaves it two basis points lower on the week, to 4.87%.
The price action in Treasuries followed the May Employment Situation Report, which showed higher than expected payroll and earnings growth.
Stocks held up well despite the report and the jump in market rates thanks to ongoing resilience to selling efforts. The equal-weighted S&P 500 closed 0.3% lower and the market-cap weighted S&P 500 fell 0.1%.
Four of the S&P 500 sectors closed higher led by financials (+0.4%) and information technology (+0.2%). The utilities (-1.1%) and materials (-1.0%) sectors logged the largest declines.
In other news, GameStop (GME 29.31, -17.29, -36.0%) shares plunged in response to a disappointing fiscal Q1 earnings report but mainly in response to the company filing to sell up to 75 million shares of Class A common stock. Selling increased after "Roaring Kitty" livestreamed on YouTube today.
- Nasdaq Composite: +14.1% YTD
- S&P 500:+12.1% YTD
- S&P Midcap 400: +5.0% YTD
- Dow Jones Industrial Average: +2.9% YTD
- Russell 2000: UNCH YTD
Reviewing today's economic data:
- May Nonfarm Payrolls 272K (Briefing.com consensus 185K); Prior was revised to 165K from 175K, May Nonfarm Private Payrolls 229K (Briefing.com consensus 168K); Prior was revised to 158K from 167K, May Avg. Hourly Earnings 0.4% (Briefing.com consensus 0.3%); Prior 0.2%, May Unemployment Rate 4.0% (Briefing.com consensus 3.9%); Prior 3.9%, May Average Workweek 34.3 (Briefing.com consensus 34.3); Prior 34.3
- The key takeaway from the report is embedded in the Treasury market's knee-jerk selloff in the wake of the report: the Fed's inflation concerns won't be placated by this release.
- April Wholesale Inventories 0.1% (Briefing.com consensus 0.2%); Prior was revised to -0.5% from -0.4%
Looking ahead, there is no US economic data of note on Monday.
Stocks move slightly lower
07-Jun-24 15:30 ET
Dow -5.56 at 38880.61, Nasdaq -27.52 at 17145.60, S&P +1.17 at 5354.13
[BRIEFING.COM] The market moved slightly lower in recent trading.
Consumer credit increased by $6.4 bln in April (Briefing.com consensus $11.0 bln) following a downwardly revised -$1.1 bln (from $6.3 bln) in March.
The key takeaway from the report is that the pace of credit expansion was driven entirely by nonrevolving credit, suggesting the higher interest rates on revolving credit are slowing overall demand for credit has context menu
Stocks climb following afternoon air pocket
07-Jun-24 15:05 ET
Dow +43.22 at 38929.39, Nasdaq -21.80 at 17151.32, S&P +4.88 at 5357.84
[BRIEFING.COM] Stocks continue to climb after hitting an air pocket recently. The market-cap weighted S&P 500 is slightly higher than its prior closing level and the equal-weighted S&P 500 is down 0.2%.
Consumer credit increased by $6.4 billion in April (Briefing.com consensus $11.0 billion) following a revised $1.1 billion decrease (from +$6.3 billion) in March.
Treasury yields are little changed after the report. The 10-yr note yield is up 14 basis points to 4.43%.
Solventum, United Rentals outperform in S&P 500 on Friday
07-Jun-24 14:30 ET
Dow +18.17 at 38904.34, Nasdaq -31.53 at 17141.59, S&P +2.17 at 5355.13
[BRIEFING.COM] The S&P 500 (+0.04%) is now narrowly higher after dipping into the red in the last half hour.
Elsewhere, S&P 500 constituents Las Vegas Sands (LVS 45.17, +1.51, +3.46%), Solventum Corporation (SOLV 56.45, +1.40, +2.54%), and United Rentals (URI 642.68, +12.16, +1.93%) pepper the top of the standings. SOLV is higher after saying its neutral toward TRC Capital's mini-tender offer, while JP Morgan initiated coverage on URI this morning with a bullish recommendation.
Meanwhile, Enphase Energy (ENPH 123.07, -9.23, -6.98%) slides into the weekend despite a dearth of corporate news.
Gold bumped from podium on Friday as jobs data, China news pressure
07-Jun-24 14:05 ET
Dow +76.63 at 38962.80, Nasdaq +36.21 at 17209.33, S&P +15.17 at 5368.13
[BRIEFING.COM] The tech-heavy Nasdaq Composite (+0.21%) is now in second place on Friday afternoon, moving mostly sideways over the prior half hour and now up about 36 points.
Gold futures settled $65.90 lower (-2.8%) to $2,325.00/oz, Friday's session erasing weekly gains to end about -0.9% lower since last Friday; the yellow metal was pressured today amid a stronger than expected jobs report and reports that China didn't purchase bullion in May for the first time in 18 months.
Meanwhile, the U.S. Dollar Index is up about +0.8% to $104.91.
Semtech plunges the day after 52-week highs as an unexpected CEO shakeup spooks investors (SMTC)
Semtech (SMTC -17%) went from 52-week highs following decent top and bottom-line upside in Q1 (Apr) and in-line Q2 (Jul) guidance yesterday to two-month lows today after an unexpected CEO shakeup. SMTC announced that its former CEO, Paul Pickle, departed the company due to differences between him and the Board on how the company should operate. SMTC appointed Hong Hou, a member of the Board for just under a year, as its new CEO.
The differences between Mr. Pickle, who led SMTC's turnaround over the past year, and the Board being so substantial that it led to his immediate departure is what has investors so nervous today. SMTC may have just delivered a solid quarterly report, underscored by robust demand within its infrastructure end market. SMTC, being a designer of advanced chip components used across data centers and high-end consumer electronics, also benefits from a secular AI tailwind. However, there were already some cracks beneath the surface in Q1. While the market brushed these aside, today's CEO news magnifies these issues.
- SMTC's industrial net sales slipped by 5% qtr/qtr to $115.6 mln (over half its Q1 revs). While this was consistent with management's expectations, it still reversed a slightly positive sequential bump from the previous quarter. It also underscores a lingering headwind that has plagued SMTC, particularly in IoT systems, which fell by 57% yr/yr and 26% sequentially. The good news is that the company anticipates flat to slightly positive sequential industrials growth in Q2 and a more robust recovery during the second half of the year.
- While an expected 2H25 (Jan) recovery is encouraging, SMTC still has considerable ground to make up for a return to positive revenue growth. The company's 12.9% sales contraction yr/yr in Q1 marked the first yr/yr decline since 4Q23. Conditions are not looking much better for Q2; SMTC projected revs of $207-217 mln, translating to an 11.1% drop yr/yr at the midpoint.
- SMTC is placing significant weight on its data center end market to make up for the shortfall. During Q1, infrastructure net sales surged by 44% yr/yr and 42% sequentially to $56 mln, aided by impressive data center growth and a more than doubling of hyperscale data center revenue, reflecting powerful AI trends. Former CEO Paul Pickle commented that AI is a trailblazer, facilitating the accelerated adoption of leading-edge technologies. However, at just 10% of total revs, data center demand must explode to begin having a more meaningful impact on SMTC's quarterly performance.
Former CEO Paul Pickle stepped in during the summer of 2023 after shares gave back roughly 75% from all-time highs in late 2021. Mr. Pickle and his team cut costs, stabilized cash flows, and reignited growth. The Board, now having issues with where the company goes next after bouncing back significantly during Paul's tenure, is leaving a bad taste in investors' mouths today. Debt levels and cash flows also need to improve (GAAP OpEx spiked last quarter following a goodwill impairment in two segments due to demand headwinds). Without clarity on where SMTC goes next, shares may remain under considerable selling pressure.
Braze blazing a trail higher as strength in enterprise business fuels solid earnings report (BRZE)
After primary competitor Sprinklr (CXM) issued downside Q2 EPS and revenue guidance on Wednesday, expectations were ratcheted even lower for marketing and customer engagement platform provider Braze (BRZE). Over the past week, shares of BRZE had tumbled lower by over 10%, reflecting concerns that the same choppy enterprise software spending environment that weighed on CXM's outlook would result in a disappointing Q1 earnings report for BRZE. However, the company turned in a better-than-expected performance, beating Q1 EPS and revenue expectations, while also guiding Q2 and FY25 revenue slightly above expectations.
- BRZE achieved these solid results despite operating in a macroeconomic environment that remains uncertain. In fact, during the earnings call, CEO Bill Magnuson acknowledged that the company hasn't seen any meaningful improvement in the demand environment and that it continues to see cautious buying behavior and long decision-making cycles.
- Impressively, the company still generated strong revenue growth of 33%, driven by a combination of new customers, upsells, and renewals. Total customers increased by 13% yr/yr to 2,102, while dollar-based net retention for the trailing 12-months ended April 30, 2024 was 117%, reflecting strong customer retention and increased spending.
There are a couple factors that are helping BRZE to navigate through the macro-related pressures.
- First, the company is having success winning new deals against legacy marketing providers. Similar to how CrowdStrike (CRWD) is benefitting from enterprises consolidating their cybersecurity tools onto CRWD's Falcon Platform, BRZE is benefitting from companies combining and centralizing their customer engagement and marketing capabilities by utilizing BRZE's singular platform.
- This trend is illustrated by the strength in BRZE's enterprise business. In Q1, customers with $500,000 or more in ARR grew by 29% yr/yr to 212.
- Second, the industry continues to experience vendor consolidation, leading to market share gains for BRZE. Those market share gains are also being driven by the launch of new AI features and functionalities, such as AI Copywriting Assistant, which has been adopted by hundreds of BRZE's customers.
- AI Copywriting Assistant is powered by ChatGPT, and it enables marketers to quickly create new copy and messaging by providing just a few details about what the user is writing about.
The main takeaway is that BRZE is executing well and appears to be gaining market share in a difficult software spending climate. BRZE is winning on the enterprise side and securing consolidation and replacement deals as corporations look to achieve a higher ROI from their marketing and customer engagement investments.
Vail Resorts' ongoing stock correction snowballs after another top and bottom-line miss in Q3 (MTN)
Investors remain ice cold toward Vail Resorts (MTN -13%) after the ski resort operator missed top and bottom-line estimates in Q3 (Apr), a recurring theme lately as the company has yet to deliver earnings or revenue upside for five consecutive quarters. MTN also slashed its FY24 (Jul) financial targets, projecting net income and comparable EBITDA well below its previous forecasts. As a result, shares are sliding downhill rapidly today, adding further pressure to a stock already down nearly 25% over the past year.
- What continues causing MTN problems? Demand and weather refuse to turn in MTN's favor. During the 2023/2024 North American and European ski season, total visits fell by 7.7% yr/yr, underscoring an ongoing correction toward normalization following record visitation during the previous year's ski season.
- Demand has been impacted by high interest rates and inflation, which reduces vacation frequency and spurs trade-down activity, opting for fewer travel days, less expensive lodging, etc. Competitors, such as Marriott Vacations Worldwide (VAC), have endured similar headwinds, albeit to a lesser degree.
- For instance, Hyatt Hotels (H) noted that the pace for its all-inclusive resorts across the Americas edged 4% higher yr/yr in MarQ. Meanwhile, travel platforms, like Booking Holdings (BKNG) and Airbnb (ABNB), may be amid normalizing demand dynamics but are still delivering solid quarterly results, supported by healthy travel demand.
- Again, macroeconomic troubles are causing the dichotomy between MTN's lackluster results lately and other travel sites' relatively uplifting numbers. Inflation and elevated interest rates spur more value-seeking behavior and budget scrutiny, prompting travelers to choose between multiple lower-priced vacations or one higher-priced vacation. It does not help that MTN's ticket prices encompass a narrower range than many competing vacation platforms.
- Meanwhile, MTN is beholden to weather patterns. During the 2023/2024 North American ski season, snowfall was approximately 28% lower than the previous season, especially across the Eastern U.S. resorts. Still, even when weather conditions began improving, ticket visitation failed to return to typical behavior, creating a smaller audience as the primary source of new pass holders in the spring.
- On a more uplifting note, despite MTN's challenges during Q3, it still grew resort net revs and EBITDA to record levels, supported by its advanced commitment strategy and sustained growth in ancillary spending across its ski school, dining, and rental business. Furthermore, MTN started noticing improving results during March and April, with visitation across Western North American resorts particularly benefiting.
MTN's Q3 report was dismal. Weather and macroeconomic headwinds continue to create seemingly insurmountable hurdles. Nonetheless, MTN is beginning to look attractive after such a lengthy correction. The company operates several ski resorts worldwide, deriving revenue from passes, dining, and rentals. Its global positioning provides demographic and seasonal diversification. While the current ski season has proven to be a flop, like other outdoor lifestyles, skiing was bolstered by the pandemic, creating a higher foundation from which MTN can build, setting it up for success over a longer timeframe.
DocuSign heads lower following small EPS beat and a lackluster near term billings outlook (DOCU)
DocuSign (DOCU -6%) is trading lower following its Q1 (Apr) report last night. The e-signature/contract creation giant beat on EPS, but it was its smallest EPS upside in the past seven quarters. Revenue rose 7.3% yr/yr to $709.6 mln, which was slightly better than analyst expectations. It also guided to in-line revenue for Q2 (Jul) and the full year. DOCU also announced a $1 bln increase to its share repurchase authorization.
- In terms of the key operating metrics, billings is a closely watched number and DocuSign performed pretty well in this regard. Billings in Q1 grew 5% yr/yr to $709.5 mln, well above the $685-695 mln prior guidance. DOCU says the billings outperformance was driven primarily by higher early renewals as well as stronger retention rates. However, the +5% growth was notably slower growth than the +13% reported in Q4 (Jan).
- In terms of billings guidance, DOCU expects Q2 to come in at $715-725 mln. DOCU expects Q2 will have the lowest yr/yr billings growth rate in FY25, primarily because it is lapping last year's strong on-time renewal performance and the timing impacts of various customer contracts. DOCU also explained that billings are heavily impacted by the timing of customer renewals, which can create meaningful variability.
- Non-GAAP operating margin was a bright spot at 28.5% vs 26.6% a year ago and above 27-28% prior guidance. It was good to see DOCU guide for 27-28% in Q2 and it reaffirmed full year margin guidance.
- DOCU has struggled in recent quarters, impacted by spending optimizing and IT budget scrutiny. However, DOCU says its core business showed ongoing signs of stabilization in Q1. This was evident in its dollar net retention rate improving to 99% in Q1 from 98% in Q4. This is the first sequential improvement in several years. DOCU expects these recent stabilization trends will continue in Q2. Also, usage trends once again showed modest improvement.
- In late May, DOCU launched Docusign IAM (Intelligent Agreement Management), which it describes as a landmark moment in the company's transformation. The Docusign IAM platform is a significant departure from its past approach of only offering standalone products. This platform combines current products, including eSignature and CLM with new platform services, including Docusign Maestro, its new agreement workflow builder which automates the creation of agreements without using code.
Overall, we think the small EPS beat and billings results/guidance are weighing on shares today. Despite the explanations on billings, we think the slower yr/yr growth in Q1 relative to Q4 and the comments about Q2 billings being the slowest growth for the year is making investors nervous. There were also positives, namely its core business stabilizing and margins were a bright spot. We also like the $1 bln buyback increase, which is quite significant for a company with a $10.2 bln market cap. However, is seems investors did not like the Q1 report overall.
J.M. Smucker is jamming today following decent FY25 guidance; Hostess adding solid benefits (SJM)
J.M Smucker (SJM +4%) is jamming today as investors cheer the consumer-packaged goods giant's wider Q4 (Apr) earnings beat compared to last quarter and decent FY25 guidance. While SJM did fall modestly short of revenue expectations in the quarter, given how badly the stock has been knocked down this year, falling nearly 20% from 2024 highs, investors are looking beyond this minor blemish. Instead, the market is expressing enthusiasm over the year ahead after SJM projected positive volume despite anticipated price hikes, and healthy sales growth.
- Beginning with SJM's main blemish from Q4, its total revenue contracted 1.3% yr/yr to $2.21 bln, ending the year with $8.18 bln, just short of its $8.22 bln forecast. Much of the decline was due to the divestiture of many of its pet food brands. When removing the impacts of acquisitions (including SJM's Hostess purchase) and divestitures, net sales climbed 3% higher in the quarter.
- Speaking of its $5.6 bln Hostess Brands acquisition from September, SJM anticipates the brand will add around 9 pts to its FY25 net sales growth. This is an uplifting development given how strongly investors rebuked the purchase, pushing shares markedly lower and kicking off a more than 20% correction over the span of a few weeks.
- The main drag on SJM's adjusted top line was its Retail Coffee business, its largest segment, comprising 30% of Q4 sales. Growth in this business slipped by 4%, weighed down equally by falling prices and volume, a troublesome combination. Manamagent mentioned that much of the softness it is seeing surrounds its coffee and peanut butter products (meaningful components of its overall business). Unfortunately, SJM does not expect much improvement in the year ahead, keeping a lid on its adjusted net sales growth projection.
- SJM anticipates FY25 revs to inch only around 1.5-2.5% higher yr/yr when excluding the positive impact of Hostess, which lifted the company's growth outlook to +9.5-10.5%. SJM's earnings outlook for FY25 was also somewhat on the lighter side, targeting EPS of $9.80-10.20, the midpoint of which missed analyst expectations. SJM's investments in its Uncrustables brand clipped $0.35 off its forecast, while recapture of the Hostess dilution should help offset this headwind.
- Still, SJM anticipates positive volume growth in the year ahead, sustaining positive momentum within its Pet Foods and International businesses. The company also expects its gross margins to hold around 38%.
SJM delivered a decent quarter filled with several encouraging works in the pipe. However, given how depressed its stock has been over the past year, today's reaction may make SJM's Q4 report appear more uplifting than it was beneath the surface. The company's product suite may not command as much brand power as some of its counterparts, such as General Mills (GIS) and Hershey's (HSY), as its primary products encompass peanut butter, coffee, and pre-made PB&J sandwiches. While Hostess adds variety to its portfolio, SJM may still find itself stuck in a bit of a rut over the near term, especially if inflationary pressures persist.
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