| | | Market Snapshot
| Dow | 40743.13 | +203.40 | (0.50%) | | Nasdaq | 17147.42 | -222.78 | (-1.28%) | | SP 500 | 5436.44 | -27.10 | (-0.50%) | | 10-yr Note | +3/32 | 4.14 |
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| | NYSE | Adv 1689 | Dec 1020 | Vol 903 mln | | Nasdaq | Adv 1899 | Dec 2306 | Vol 5.6 bln |
Industry Watch
| Strong: Financials, Energy, Industrials, Real Estate, Utilities |
| | Weak: Consumer Staples, Information Technology, Consumer Discretionary, Materials |
Moving the Market
-- Big move lower in NVIDIA (NVDA) shares in front of AMD (AMD) earnings this afternoon
-- Mixed responses to earnings news; MRK, PG slide on results, but FFIV, PYPL jump in response
-- Slight pullback in market rates providing some support
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Closing Summary
30-Jul-24 16:25 ET
Dow +203.40 at 40743.13, Nasdaq -222.78 at 17147.42, S&P -27.10 at 5436.44
[BRIEFING.COM] The stock market has a mixed showing today in front of influential earnings news after the close. The Dow Jones Industrial Average (+0.5%) and Russell 2000 (+0.6%) closed with gains while the S&P 500 (-0.5%) and Nasdaq Composite (-1.3%) settled lower, clipped by losses in growth stocks, mega cap names, and semiconductor-related shares.
The Russell 3000 Growth Index logged a 1.1% decline, the Vanguard Mega Cap Growth ETF (MGK) fell 1.3%, and the PHLX Semiconductor Index (SOX) registered a 3.9% loss. NVIDIA (NVDA 103.73, -7.86, -7.0%) was among the top laggard from the spaces.
Dow components Merck (MRK 115.25, -12.53, -9.8%) and Procter & Gamble (PG 161.70, -8.23, -4.8%) were also among the influential losers after reporting earnings.
Meanwhile, F5 Networks (FFIV 200.66, +23.07, +13.0%), Stanley Black & Decker (SWK 106.05, +9.62, +10.0%), and PayPal (PYPL 64.00, +5.06, +8.6%) were top performing S&P 500 components after their quarterly reports.
Market breadth favored advancers by a 3-to-2 margin at the NYSE, but decliners had a 4-to-3 lead over advancers at the Nasdaq.
The performance of the S&P 500 sectors also reflected mixed action. The heavily-weighted information technology sector had the weakest showing, dropping 2.2%, while the financial sector jumped 1.2%.
The equity and bond markets didn't react much to this morning's better-than-expected consumer confidence index for July. The 10-yr note yield declined four basis points to 4.14% and the 2-yr note yield declined three basis points to 4.36%. This price action was in front of tomorrow's release of the latest FOMC Statement, which is expected to set the stage for a rate cut in September.
- Nasdaq Composite:+14.2% YTD
- S&P 500: +14.0% YTD
- Russell 2000: +10.7% YTD
- S&P Midcap 400: +10.7% YTD
- Dow Jones Industrial Average: +8.1% YTD
Reviewing today's economic data:
- May FHFA Housing Price Index 0.0%; Prior was revised to 0.3% from 0.2%
- May S&P Case-Shiller Home Price Indez 6.8% (Briefing.com consensus 6.8%); Prior was revised to 7.3% from 7.2%
- July Consumer Confidence 100.3 (Briefing.com consensus 99.8); Prior was revised to 97.8 from 100.4
- The key takeaway from the report is that consumers are starting to take notice of slowing labor market conditions, yet their overall assessment of the current labor market situation is still quite strong.
- June JOLTS - Job Openings 8.184 mln; Prior was revised to 8.230 mln from 8.140 mln
Looking ahead, Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -2.2%)
- 8:15 ET: July ADP Employment Change (Briefing.com consensus 160,000; prior 152,000)
- 8:30 ET: Q2 Employment Cost Index (Briefing.com consensus 1.0%; prior 1.2%)
- 10:00 ET: June Pending Home Sales (Briefing.com consensus 1.5%; prior -2.1%)
- 10:30 ET: Weekly crude oil inventories (prior (-3.74 mln)
- 14:00 ET: July FOMC Rate Decision (Briefing.com consensus 5.25-5.50%; prior 5.25-5.50%)
Treasuries settle with gains; Wednesday's economic calendar
30-Jul-24 15:25 ET
Dow +145.88 at 40685.61, Nasdaq -221.65 at 17148.55, S&P -29.79 at 5433.75
[BRIEFING.COM] The major indices moved mostly sideways in recent action. The S&P 500 sports a 0.6% decline and the Nasdaq Composite trades 1.3% lower.
Treasuries settled the session with gains. The 10-yr note yield declined four basis points to 4.14% and the 2-yr note yield declined three basis points to 4.36%.
Looking ahead, Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior -2.2%)
- 8:15 ET: July ADP Employment Change (Briefing.com consensus 160,000; prior 152,000)
- 8:30 ET: Q2 Employment Cost Index (Briefing.com consensus 1.0%; prior 1.2%)
- 10:00 ET: June Pending Home Sales (Briefing.com consensus 1.5%; prior -2.1%)
- 10:30 ET: Weekly crude oil inventories (prior (-3.74 mln)
- 14:00 ET: July FOMC Rate Decision (Briefing.com consensus 5.25-5.50%; prior 5.25-5.50%)
Corning, Ecolab among earnings laggards in S&P 500
30-Jul-24 14:25 ET
Dow +187.92 at 40727.65, Nasdaq -188.06 at 17182.14, S&P -25.02 at 5438.52
[BRIEFING.COM] The S&P 500 (-0.46%) is in second place on Tuesday afternoon, slightly higher off lows of the session which saw the average down more than -1.1%.
Elsewhere, S&P 500 constituents Corning (GLW 39.22, -3.46, -8.11%), Ecolab (ECL 229.27, -18.65, -7.52%), and Xylem (XYL 134.32, -7.21, -5.09%) dot the bottom of the average, all following earnings.
Meanwhile, Gartner (IT 503.02, +32.18, +6.83%) is near the top of the standings, making new all-time highs, after this morning's Q2 earnings beat.
Gold higher as front months rolls, dollar & yields slip
30-Jul-24 14:00 ET
Dow +108.83 at 40648.56, Nasdaq -242.72 at 17127.48, S&P -33.53 at 5430.01
[BRIEFING.COM] With about two hours to go on Tuesday the tech-heavy Nasdaq Composite (-1.40%) is firmly lower, down about 240 points.
Gold futures settled $26.40 higher (+1.1%) to $2,451.90/oz, notably higher amid a roll on the front month contract, as both the dollar and yields display relative weakness.
Meanwhile, the U.S. Dollar Index is down about -0.1% to $104.51.
Goldman, Travelers aid DJIA's Tuesday rebound
30-Jul-24 13:30 ET
Dow +63.39 at 40603.12, Nasdaq -281.47 at 17088.73, S&P -43.31 at 5420.23
[BRIEFING.COM] The Dow Jones Industrial Average (+0.16%) remains in positive territory.
A look inside the DJIA shows that Goldman Sachs (GS 505.92, +13.20, +2.68%), Travelers (TRV 219.22, +5.29, +2.47%), and UnitedHealth (UNH 578.08, +11.33, +2.00%) are holding solid gains.
Meanwhile, Merck (MRK 116.36, -11.42, -8.94%) is underperforming.
With just one session left in July, the DJIA holds gains of about +3.8% on the month.
PayPal befriended by many today following a solid beat-and-raise in Q2 (PYPL)
PayPal (PYPL +8%) is starting to find many pals in the market following its impressive beat-and-raise in Q2. The payment processing giant exceeded top and bottom-line estimates, projected Q3 EPS above consensus, which fueled its increased FY24 EPS outlook, and raised its repurchase program guidance by $1.0 bln. This performance reflects early success from PYPL's transformation, prioritizing high-quality, profitable growth. While the investments connected to this transformation still have a way to go and are expected to result in lower volume and revenue growth as PYPL moves through the back half of 2024, the numbers these actions have produced thus far are encouraging.
- During the quarter, total payment volume (TPV) jumped by 11% yr/yr, supporting a 9% increase in currency-neutral revenue growth to $7.88 bln. Transaction margin dollars, i.e., PYPL's payment processing profitability, expanded by 8%, marking the company's best performance since 2021. This healthy development led to PYPL's double-digit earnings beat, reversing a rare miss last quarter.
- PYPL has plenty to juggle, from improving its branded checkout, bolstering its small and medium-sized business (SMB) offerings, and enticing more users to its Venmo platform. However, the company noticed early wins across these focus areas during the quarter.
- Management mentioned that branded checkout grew profitability in Q2 after ramping several tech innovations to its checkout flows. For instance, PYPL launched a redesigned payment page, which drove a conversion lift of 75-110 bps.
- PayPal Complete Payments Platform, or PPCP, a service PYPL launched last year to bring its Braintree business, which caters toward larger organizations to SMBs, has been progressing nicely. SMB volume on PPCP maintained its positive trend in Q2, resulting in a 40% climb thus far through 1H24.
- Venmo's TPV climbed by 8% yr/yr, with monthly active users inching 5% higher to nearly 62 mln. Digging deeper, Venmo Debit Card and Pay With Venmo grew monthly actives by around 30%.
- Competition has been a thorn in PYPL's side for some time as big tech firms like Alphabet (GOOG) and Apple (AAPL) bolster their payment offerings. However, PYPL commented that despite the multiple entrants into its market, it has not seen any degradation in its share over the past four years. Management added that payment buttons, whether they move from PayPal to Apple Pay, are not material to its business.
With momentum behind it, PYPL anticipates solid numbers next quarter, targeting EPS growth in the high single digits and revenue growth in the mid-single digits. Additionally, PYPL hiked its FY24 earnings forecast, projecting low to mid-teens growth yr/yr. Thus far, PYPL's transition year is advancing rather well. CEO Alex Chriss, who has been steering the ship since just September, has made the right moves to reinvigorate PYPL. While turbulence during a transition year is expected, especially since it coincides with a relatively weak macroeconomic environment, hindering online spending and overall transactions across merchants, PYPL's progress thus far, despite the economic backdrop, is inspiring and could be the start of a much more meaningful comeback.
F5 Networks surges to year-to-date highs after delivering surprise beat-and-raise report (FFIV)
Coming off a disappointing Q2 earnings report in late April in which it issued downside EPS and revenue guidance for Q3, F5 Networks (FFIV) delivered a surprising beat-and-raise performance last night, fueling a strong rally in the stock. FFIV and its competitors, such as Cisco (CSCO) and Juniper Networks (JNPR), have been contending with a stubbornly cautious spending environment, but during last night's earnings call, CEO Francois Locoh-Donou stated that the company started to see some areas of strengthening demand after a prolonged period of budget scrutiny.
- This was evidenced by an improvement in deal close rates and an upswing in new business wins during Q3, which led to strong bookings growth and greater visibility. In particular, the company's software segment is driving the positive momentum with revenue edging higher by 3% yr/yr to $179 mln.
- Subscription renewals were solid, too, and FFIV saw healthy expansion in multiyear agreements, providing it with the confidence to raise its FY24 guidance. Specifically, FFIV is now projecting EPS growth of approximately 12% compared to its prior outlook of 7-9% with revenue coming in near the high end of its prior expectations at $2.8 bln.
- The improving spending backdrop is also seen in FFIV's hardware business. After plunging by 32% last quarter, systems revenue declined by a 16% in Q3.
- While the brighter business climate played a key role in the impressive performance, FFIV also believes that a few company-specific attributes are working in its favor. For instance, the company says that customers are able to consolidate their API security tools onto its single, integrated platform, providing efficiency, simplicity, and lower costs. Additionally, its security platform extends across public clouds, to the edge, and to customers' on-premise systems, providing greater flexibility than the competition.
- FFIV also benefited from some tax favorability in Q3, as well as its continued focus on operating discipline. On that note, its non-GAAP operating margin ticked higher by 20 bps yr/yr to 33.4%, helping to drive EPS higher by 4.7% to $3.36.
The main takeaway is that FFIV crushed participants' muted expectations on a combination of improving spending trends and company-specific factors, sending shares to new year-to-date highs earlier in the session.
Sanmina heads lower following earnings miss; however, communications segment improving (SANM)
Sanmina (SANM -4%) is heading lower following its Q3 (Jun) earnings report last night. This EMS provider missed analyst expectations on EPS and revenue. However, its results were within prior guidance ranges. Sanmina also guided Q4 (Sep) EPS and revs below analyst expectations. Q3 revenue fell 16.6% year/year to $1.84 bln, but was up slightly sequentially. This marked Sanmina's first quarter of sequential revenue growth in six quarters.
- Industrial, medical, aerospace/defense and automotive represented 64% of revenue. That was down 3.6% sequentially. However, its communication segment, which includes cloud infrastructure, represented 36% of revenue. Communication revenue was up 8.3% sequentially.
- Getting a bit more granular, its medical segment driven by digital health and medical devices. Sanmina notes that it has a strong base of medical customers with positive long term trends, driven by new opportunities in the pipeline. In automotive, Sanmina is focused on EVs, car connectivity, ADAS, electrical chargers etc. In industrial and energy, Sanmina says it has a solid customer base with new projects in the pipeline.
- The Communications segment is improving because Sanmina is beginning to see customer inventory absorption improve. Sanmina expects this market to continue to move in the right direction, driven by high performance cloud, IP routing switches, and some optical packaging systems. Also, Sanmina is starting to see pickup from some existing customers as they are working their inventory down. Sanmina would like to see inventory worked down even more quickly, but at least it's going in the right direction.
- Non-GAAP operating margin declined to 5.3% from 5.7% a year ago and 5.4% in Q2 (Mar). It was at the low end of its prior outlook and was driven by gross margin coming in just below the midpoint of its prior outlook. However, it was in-line with its 5-6% short term target range. EMS is a low margin business, so even small declines in this metric can have an impact on EPS, so we watch this metric cosely.
Overall, Sanmina has been going through some difficult times with revenue declining yr/yr for four consecutive quarters. Also, the Q4 guidance was a letdown for investors. Probably the highlight was the sequential improvement in its Communications segment and the inventory absorption finally taking hold there. However, Sanmina continues to see softness in Automotive and Industrial. Finally, the stock had started to move higher in recent weeks heading into this report. That tells us sentiment was running high that Sanmina was turning a corner. Unfortunately, today's results were a bit disappointing.
Procter & Gamble drops despite posting positive volume growth in Q4; market to remain volatile (PG)
Proctor & Gamble (PG -6%) returned to positive volume growth for the first time in nearly two years in Q4 (Jun), even as prices continued to swell. However, foreign exchange headwinds engulfed the volume and price growth, resulting in roughly flat yr/yr revenue growth in the quarter, which moderately underperformed analyst expectations. Given how shares of the consumer staples giant closed at an all-time high yesterday, this blemish is weighing on the stock today.
Meanwhile, PG's initial FY25 guidance was relatively tame, projecting numbers consistent with analyst forecasts, including adjusted EPS of $6.91-7.05 and revenue growth of +2-4%. A notable standout was PG's organic sales growth projection of +3-5%. For several years before FY24, PG delivered organic sales growth of around +6-7%. Investors may have anticipated the underwhelming +4% organic growth in FY24 to be a one-off year following the numerous obstacles, like FX impacts and sticky inflation. However, PG's FY25 guidance reflects a possibly more lasting shift among consumers toward value-seeking, reducing their overall basket size in the process.
- In Q4, PG reported adjusted EPS of $1.40, edging past analyst estimates and snapping its string of double-digit beats. Top-line growth was virtually flat at $20.53 bln as FX impacts clipped 2 pts off net sales growth.
- Volumes expanded by 1% yr/yr, led by Grooming, Health Care, and Fabric & Home Care, all of which registered a 2% bump. Conversely, Beauty and Baby, Feminine & Family Care each endured a 1% volume decline. Geographically, nearly all markets outside China and the Middle East delivered solid volume growth, including a 4% jump in North America. PG continues to expect the recovery in China to be sluggish, with headwinds in the Middle East persisting.
- Still, despite the relative strength of many of PG's markets, the company expects the environment to remain volatile. Commodity costs and FX headwinds alone are estimated to trim $0.20, or 3 pts of growth, off PG's FY25 EPS guidance. Although, these headwinds mark a minor improvement over FY24. PG is not sitting idle, stating that it will double down on its productivity initiatives, including 'Supply Chain 3.0', to offset the macroeconomic issues standing in its way.
The market was waiting for PG's volumes to turn positive, especially given the favorable yr/yr comparisons over the past few quarters. While this finally materialized in Q4, it was accompanied by a few unpleasant surprises, including a mild revenue miss and disappointing organic growth guidance. Following highs for PG shares, these weak points were magnified, producing a sell-the-news reaction today.
That said, there is still plenty to like from PG. Its brands command exceptional loyalty, especially given their respective categories, which tend to see less trade-down as quality often trumps savings. At the same time, commodity cost headwinds are gradually easing, providing some breathing room regarding margins. PG also returns an attractive dollar amount to investors through a respectable 2.4% dividend yield and a repurchase plan translating to around 1% of its market cap. Therefore, major pullbacks present decent buying opportunities.
Integra's quality control issues cutting into sales outlook and its stock price (IART)
Following this morning's Q2 earnings report, medical device company Integra LifeSciences (IART) is plunging lower, but the main cause for the steep sell off isn't due to its quarterly results. In fact, the company edged passed top and bottom-line estimates while revenue returned to positive growth at 9.7% following four consecutive quarters of yr/yr declines. Rather, the weakness is related to the company's downside Q3 guidance and its slashed outlook for FY24.
- After guiding for FY24 EPS of $3.01-$3.11 and revenue of $1.67-$1.69 bln last quarter, IART is now forecasting EPS of $2.41-$2.57 and revenue of $1.609-$1.629 bln. While demand is relatively healthy across the business -- revenue increased by 5.7% on an organic basis in the Tissue Technologies and by 0.9% in Codman Specialty Surgical -- IART is contending with operational and quality system issues.
- Last January, the company completed an initial analysis of its manufacturing facility in Boston and uncovered some gaps in its manufacturing quality compliance processes. Then, in March, a third-party auditor identified more issues, particularly relating to IART's water quality system, prompting the company to develop a compliance master plan to address quality system and GMP compliance learnings.
- As the company implements its compliance master plan, it will initiate temporary shipping holds on certain products that will mostly impact its Q3 results. The two products that will primarily be impacted are PriMatrix, a dermal repair scaffold used for trauma and burn wounds and other indications, and SurgiMend, an expandable collagen matrix for plastic and reconstructive surgery.
- Following the initial quality control review in January, IART planned to restart production of PriMatrix and SurgiMend at its Boston facility, but on July 15, the company announced that it will restart manufacturing at its Braintree, MA site. However, that facility won't be operational until 1H26.
- On the positive side, IART saw strong demand for CereLink, a neuro-monitoring product, following a global relaunch in Q1. Also, its $275 mln acquisition of Acclarent which was completed in April is progressing well and is contributing materially to the top-line. Acclarent, a developer of ENT instruments, contributed $30 mln in revenue in Q1, about $5 mln more than IART anticipated.
The bottom line, though, is that IART is working through some major quality control issues, and it may take several quarters before those are ironed out. Consequently, the company won't be operating at full strength in the near-term, but the longer-term benefits of implementing the compliance master plan should enable it to more fully meet demand.
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