Market Snapshot
| Dow | 38703.27 | -1033.90 | (-2.60%) | | Nasdaq | 16200.09 | -576.08 | (-3.43%) | | SP 500 | 5186.33 | -160.23 | (-3.00%) | | 10-yr Note | 0/32 | 3.79 |
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| | NYSE | Adv 209 | Dec 2519 | Vol 1.3 bln | | Nasdaq | Adv 620 | Dec 3709 | Vol 6.8 bln |
Industry Watch
| Strong: -- |
| | Weak: Information Technology, Consumer Discretionary, Communication Services, Financials, Materials, Industrials |
Moving the Market
-- Carryover selling on US recession fears
-- Unwinding of the yen carry trade weighing on markets; Japan's Nikkei dropped 14%
-- Sharp move in Treasuries leading the 2/10 spread to briefly de-invert, but selling dissipated after a better-than-expected ISM Non-Manufacturing Index for July
-- S&P 500 flirting with correction territory (i.e. 10% decline from recent high)
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Closing Summary
05-Aug-24 16:30 ET
Dow -1033.90 at 38703.27, Nasdaq -576.08 at 16200.09, S&P -160.23 at 5186.33
[BRIEFING.COM] The global sell-off that began late last week on fears about US economic growth continued to start the new week. Japan's Nikkei slumped 12% overnight, contributing to a cautious feeling in the US market today. The price action in Japanese stocks was related to an unwinding of the yen carry trade following a rapid strengthening in the yen against the dollar.
The Dow Jones Industrial Average settled 2.6% lower, the S&P 500 sank 3.0%, and the Nasdaq Composite registered a 3.4% loss. Today's retreat had the S&P 500 flirting with correction territory and the index ultimately settled 9.3% below its high close on July 16.
Just about everything came along for the downside moves. Only 22 of the S&P 500 components closed higher than Friday and all 30 Dow components logged a decline. The 11 S&P 500 sectors closed with losses ranging from 1.7% (industrials) to 3.8% (information technology).
Losses in the mega cap and chipmaker spaces had an outsized impact on index performance. NVIDIA (NVDA 100.45, -6.82, -6.4%) was a standout from both spaces, registering a sizable loss due in part to news that a chip has been delayed, which might impact other big tech names, according to The Information.
The price action in Treasuries had the 2-yr yield briefly move below the 10-yr note yield for the first time in about 2 years. Buying dissipated, though, in response to a better-than-expected ISM Non-Manufacturing Index for July. The bond market settled little changed from Friday. The 10-yr note yield settled one basis point lower at 3.79% and the 2-yr note yield settled one basis point higher at 3.88%.
- S&P 500: +8.7% YTD
- Nasdaq Composite:+7.9% YTD
- S&P Midcap 400: +3.1% YTD
- Dow Jones Industrial Average: +2.7% YTD
- Russell 2000: +0.6% YTD
Reviewing today's economic data:
- July S&P Global US Services PMI - Final 55.0; Prior 56.0
- July ISM Non-Manufacturing Index 51.4% (Briefing.com consensus 51.3%); Prior 48.8%
- The key takeaway from the report is that overall activity in the largest sector of the U.S. economy rebounded strongly with Indices for Business Activity and Employment jumping back into expansionary territory after contracting in June.
Tuesday's economic data is limited to the June Trade Balance at 8:30 ET.
Stocks flow sideways ahead of the close
05-Aug-24 15:35 ET
Dow -1076.20 at 38660.86, Nasdaq -591.56 at 16184.61, S&P -162.56 at 5184.00
[BRIEFING.COM] The major indices are trailing sideways into the close with losses ranging from 2.7% to 3.6%.
The 10-yr note yield settled one basis point lower at 3.79% and the 2-yr note yield settled one basis point higher at 3.88%. This followed early price action that had the 2s10s spread emerge from inversion.
Tuesday's economic data is limited to the June Trade Balance at 8:30 ET.
GOOG shares drop in DOJ news
05-Aug-24 15:05 ET
Dow -1072.70 at 38664.36, Nasdaq -636.59 at 16139.58, S&P -169.70 at 5176.86
[BRIEFING.COM] The major indices moved slightly lower over the last half hour.
Shares of Alphabet (GOOG 161.07, -7.33, -4.4%), which were already trading below their prior close, moved lower in response to news that it lost a DOJ antitrust suit over search, according to Bloomberg.
Elsewhere, WTI crude oil futures settled 0.7% lower at $73.08/bbl after trading below $72.00/bbl earlier.
Tyson bucks broader trend lower after Q3 beat
05-Aug-24 14:30 ET
Dow -900.52 at 38836.54, Nasdaq -552.14 at 16224.03, S&P -148.28 at 5198.28
[BRIEFING.COM] The S&P 500 (-2.77%) is in second place on Monday afternoon, down about 150 points.
Elsewhere, S&P 500 constituents Walgreens Boots Alliance (WBA 10.77, -0.71, -6.18%), Bath & Body Works (BBWI 31.29, -1.91, -5.75%), and MarketAxess (MKTX 223.49, -11.14, -4.75%) pepper the bottom of the average. WBA and BBWI slide despite a dearth of corporate news, while MKTX reported July trading volumes this morning; MKTX management said, "We are not pleased with the progression of U.S. credit market share in July, but we are encouraged by the prospect for potential increases in market volatility in the coming months."
Meanwhile, Tyson Foods (TSN 63.31, +2.08, +3.40%) is near the top of today's standings following this morning's Q3 beat.
Market losses extend to gold on Monday
05-Aug-24 14:00 ET
Dow -940.86 at 38796.20, Nasdaq -491.78 at 16284.39, S&P -139.80 at 5206.76
[BRIEFING.COM] With about two hours to go on Monday, the tech-heavy Nasdaq Composite (-2.93%) is today's top lagging major average.
Gold futures settled $25.40 lower (-1.0%) to $2,444.40/oz, as precious metals haven't been spared from the broader clobbering in the market to start the week.
Meanwhile, the U.S. Dollar Index is down about -0.4% to $102.84.
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Sonic Automotive speeding higher on better-than-feared results, led by its EchoPark segment (SAH)
New and used car retailer Sonic Automotive (SAH) is driving sharply higher after reporting mixed Q2 results that included a few extraordinary items, such as a $0.64/share hit to its GAAP earnings resulting from the CDK software outage in June. Charges related to storm and hail damage and a real estate impairment charge further impaired the results, but on an adjusted basis, SAH generated adjusted EPS of $1.47, beating expectations, with record adjusted EBITDA of $7.2 mln in its EchoPark segment.
- The EchoPark segment, which operates through an eCommerce channel and focuses on the 1-4 year old pre-owned vehicle market, reported a 14% decrease in revenue to $517.3 mln. However, on a same store basis, EchoPark retail unit sales volumes jumped by 23% in Q2, while revenue and gross profit increased by 10% and 81%, respectively.
- In 1Q23, the company began reducing its store footprint, allowing it to spread out inventory more effectively across the platform. This, in turn, drove higher unit sales volume, better variable gross profit per unit (GPU), and the second consecutive quarter of positive adjusted EBITDA for EchoPark.
In the Franchised Dealership segment, the news isn't quite as upbeat.
- Same store revenue dipped by 3% and same store gross profit fell by 9%. During the earnings call, SAH stated that new vehicle inventory levels are continuing to rise due to a slower sales rate in the last twelve days of the quarter. The company ended Q2 with a 59-day supply of inventory compared to 50 days of inventory at the end of Q1.
- Furthermore, as new vehicle prices continue to slide amid a high-interest rate environment that's creating affordability issues, SAH expects GPU to continue to decline in 2024, exiting Q4 in the low $3,000 range. For some context, GPU dove by 29% in Q2 to $3,590.
- Despite these headwinds, SAH still reaffirmed its limited guidance for FY24. Specifically, the company expects improved results in the EchoPark segment, including returning to positive adjusted EBITDA for the full year, to partially offset lower franchise dealership segment earnings.
- It's also worth noting that the CDK outage negatively impacted the company's adjusted results due to the limited functionality of CDK's lead generation platform and inventory management applications, but SAH's access to these systems has been restored.
The main takeaway is that while the business is far from firing on all cylinders, SAH delivered better-than-feared results, bolstered by accelerating momentum for its EchoPark segment.
Tyson Foods cooking up nice gains in a rough market after posting top and bottom-line beat (TSN)
Tyson Foods (TSN), one of the world's largest producers of beef, chicken, and pork, once again easily exceeded EPS estimates in Q3, but the improvement on the top-line is perhaps the more encouraging development. After declining on a yr/yr basis in three of the past four quarters, sales edged higher by 1.6% to $13.35 bln, beating quarterly expectations for the first time since 4Q22. The stronger sales performance was driven by TSN's Beef and Pork businesses, which generated growth of 5.6% and 10.6%, respectively, as the eat-at-home trend gains steam while people rein in discretionary spending.
- Increasing volumes across TSN's businesses put this rising eat-at-home trend under the spotlight. Beef led the way with a 4.4% jump in volume, followed by a 2% improvement in Prepared Foods and a 1.2% increase in Pork.
- While Chicken was the laggard again with volume lower by 0.4%, this marked a significant improvement from last quarter's 6.0% decline. In recent years, the company has lowered production and closed some chicken processing plants to better align supply with demand.
- In addition to its reduced cost structure, lower grain and chicken feed costs have provided a boost to margins and profits. Although Chicken sales fell by 3.2% to $4.08 bln, operating income improved to $244 mln from a loss of ($314) mln in the year-earlier period.
- In contrast, Beef's operating income slipped into negative territory, coming in at ($69) mln compared to $66 mln a year ago, despite the solid sales growth. The Beef business has contended with limited cattle supplies, leading to spread compression.
- Meanwhile, Prepared Foods, which includes the Jimmy Dean, Hillshire Farm, and Ball Park brands, delivered steady results with net sales inching higher by 2.1% and operating income essentially flat yr/yr at $203 mln.
Overall, TSN's results took a step in the right direction after several quarters of mixed performances. The company took a conservative approach with its FY24 revenue guidance, sticking with its forecast for relatively flat sales this year, but we believe it has a good chance of outperforming that outlook as people begin to cook more meals at home. Should the demand picture brighten even further, then TSN's upwardly revised FY24 adjusted operating income guidance of $1.6-$1.8 bln (up from $1.4-$1.8) could also prove to be too modest.
TreeHouse Foods heads lower despite large EPS beat; there are some positives heading into 2H24 (THS)
TreeHouse Foods (THS -4%) is trading lower today despite reporting upside Q2 results. This huge supplier of private label food and beverages beat handily on EPS, its largest beat since 1Q23 and it was a nice bounce back following a miss in Q1. Adjusted EBITDA fell 7.5% yr/yr to $70.6 mln, but that was well above prior guidance of $55-65 mln. THS also guided Q3 revs in-line and reaffirmed FY24 revs.
- Revenue fell 1.9% yr/yr to $788.5 mln, but that was slightly better than expected. The decline was primarily due to targeted commodity-driven pricing adjustments. Also, THS was dealing with unfavorable volume/mix related to planned distribution exits primarily in its coffee and in-store bakery categories, as well as the restoration of one of its broth facilities.
- Despite the sales decline, THS says it's attractively positioned at an intersection of two powerful long term consumer trends: the growth of private brand groceries and the consumers' shift towards snacking. Further, many grocery retailers also see significant runway for growth in private brands and are making investments.
- For example, THS notes that Walmart recently launched bettergoods, the largest food and beverage private brand in roughly 20 years. Walmart is TreeHouse's largest customer by far at 22.4% of 2023 sales. Other brands making significant investments include Kirkland (Costco) and Simple Truth (Kroger). Also, Aldi continues its store base expansion across the US, with an assortment that is focused almost exclusively on private brands.
- Looking ahead, THS says it made significant progress converting a set of pipeline opportunities in 1H24, which should add to volume growth in 2H24. This includes wins in cookies, refrigerated dough, pretzels and pickles. THS has also been bolstering its supply chain through manufacturing efficiencies, procurement savings and improving the efficiency of its distribution network.
- A headwind in Q1 was THS having to restart its broth business. The downtime impacted Q1 profitability but THS now says it is running the broth production lines and shipping product from this facility today. THS has since upgraded its equipment and improved its processes. This is important because THS will soon be heading into broth season as the weather turns colder. THS believes this restart should expand margins and provide a meaningful lift to profitability in 2H24.
Overall, the stock is holding up fairly well. The results were demonstrably better than Q1, which were partly impacted by the broth production issues. However, it is good to see broth coming back online. The large EPS beat tells us perhaps analysts were expecting that to be more of an issue. We suspect the weakness in the stock is largely from overall market weakness.
Bigger picture, consumers have been seeking out value to deal with inflation, which is good news for private label companies like TreeHouse. The company has been hampered by some operational issues, but they seem to be getting fixed. Also, many grocery retailers are making investments in private label. THS had some wins in 1H24 which should help volumes in 2H24.
Booking Holdings booking sharply lower as slowing travel demand weighs on outlook (BKNG)
Online travel company Booking Holdings (BKNG) is traveling south today despite reporting upside Q2 results with EPS and revenue increasing by 11% and 7%, respectively. The company's beat on the top and bottom lines, though, are being overshadowed by a muted Q3 outlook as the "travel market continues to normalize", in the words of CEO Glenn Fogel. That disappointing outlook is also dragging shares of competitors such as Expedia Group (EXPE), Airbnb (ABNB), and Tripadvisor (TRIP) sharply lower.
- This normalization in travel demand has been in the headlines throughout this earnings season in the wake of disappointing earnings reports from most airlines, including Delta Air Lines (DAL), American Airlines (AAL), and Southwest Airlines (LUV). A combination of slowing domestic leisure travel demand and falling ticket prices due to an oversupply of seats following an industry-wide effort to ramp up capacity has weighed on airlines' results. Now, that supply and demand imbalance is creating a headwind for BKNG.
- During the earnings call, Mr. Fogel noted that decreasing flight prices are cutting into the company's bookings estimates. On that note, BKNG guided for Q3 bookings growth of 2-4%, down from Q2's growth of 4% and well below analysts' expectations.
- Meanwhile, a more cost-conscious consumer is starting to rethink their travel plans as reflected in a booking window that continues to shrink. The bookings window measures the number of days between a booking and the actual arrival to the customer's destination. When the bookings window is longer, it not only indicates that consumers are feeling more confident about their own finances, but it also provides better visibility and stronger occupancy rates for travel companies.
- This shrinking bookings window, which BKNG expects to expand less than in Q3 than it did in Q2, also caused the company to issue soft Q3 room night growth guidance of 3-5%, missing analysts' estimates. This metric has been on a steady decline, going from +14.9% in 3Q23, to +9.2% in 4Q23, to +8.5% last quarter, and finally to +7.1% in Q2.
- The good news is, BNKG continues to keep a tight lid on expenses, helping to drive margins and earnings higher, despite the more challenging environment. For the quarter, operating expenses increased by just 5.6% to $4.0 bln.
The main takeaway is that BKNG's soft Q3 outlook is the latest data point indicating a slowdown in the global travel market. BKNG is the leader in the online travel space, so the company should still perform better than most, but generating solid growth is becoming a much more difficult task. |
