| | | Market Snapshot
| Dow | 42454.79 | -132.71 | (-0.31%) | | Nasdaq | 17899.01 | -372.84 | (-2.04%) | | SP 500 | 5712.20 | -64.45 | (-1.12%) | | 10-yr Note | -2/32 | 4.341 |
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| | NYSE | Adv 951 | Dec 1741 | Vol 980 mln | | Nasdaq | Adv 1353 | Dec 2965 | Vol 9.1 bln |
Industry Watch
| Strong: Consumer Staples, Energy, Utilities, Real Estate |
| | Weak: Technology, Consumer Discretionary, Communication Services, Health Care |
Moving the Market
-- Muted action at the index level due to lack of conviction from buyers or sellers
-- Uncertainty around US trade policy after President Trump said he doesn't want too many exceptions for reciprocal tariffs, but that he would probably be more lenient than reciprocal, according to Bloomberg
-- Digesting news that President Trump is expected to announce tariffs on auto imports
-- Losses in mega caps acting as limiting force
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Closing Summary
26-Mar-25 16:25 ET
Dow -132.71 at 42454.79, Nasdaq -372.84 at 17899.01, S&P -64.45 at 5712.20
[BRIEFING.COM] The equity market closed with losses in the major indices. The Dow Jones Industrial Average declined 0.3%, the S&P 500 dropped 1.1%, and the Nasdaq Composite fell 2.0%.
Today's price action led the S&P 500 back below its 200-day moving average (5,756) and led the Dow Jones Industrial Average, which turned positive on the year in yesterday's advance, back into the red for 2025.
There were some indications of buying interest in the early going, but losses in the mega cap space kept a cap on index performance. Selling increased in the space, and the broader equity market, following news that President Trump is expected to announce tariffs on auto imports.
Tesla (TSLA 272.06, -16.08, -5.6%) was an influential loser, giving up some ground after a solid recovery in response to a weak start to 2025. Shares are still 9.4% higher this week, yet show a 32.6% decline since the start of the year.
NVIDIA (NVDA 113.76, -6.93, -5.7%) and other chipmakers also registered outsized losses. Reports indicated that the U.S. placed more than 50 Chinese companies on a blacklist of export restrictions for advanced computing capabilities; meanwhile, FT reported that Chinese environmental regulations could hurt NVIDIA's sales in the country.
The PHLX Semiconductor Index (SOX) closed 3.3% lower than yesterday. The selling interest contributed to the underperformance of the S&P 500 information technology sector, which was the worst performers by a wide margin. The communication services (-2.0%) and consumer discretionary (-1.7%) sectors were the next worst performers.
The defensive-oriented consumer staples (+1.4%) and utilities (+0.7%) sectors were the top gainers, reflecting a more risk-off tone in today's trade.
Elsewhere, Treasuries settled with modest losses. The 10-yr yield settled three basis points higher at 4.34% and the 2-yr yield settled one basis point higher at 4.01%. On a related note, today's $70 billion 5-yr note auction met weaker demand than yesterday's 2-yr note offering, but the market reaction was limited.
- Dow Jones Industrial Average: -0.2% YTD
- S&P 500: -2.9% YTD
- S&P Midcap 400: -4.2% YTD
- Nasdaq Composite: -7.3% YTD
- Russell 2000: -7.0% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications Index -2.0%; Prior -6.2%
- February Durable Orders 0.9% (Briefing.com consensus -1.2%); Prior was revised to 3.3% from 3.1%, February Durable Goods - ex transportation 0.7% (Briefing.com consensus 0.1%); Prior was revised to 0.1% from 0.0%
- The key takeaway from the report is that durable goods orders were stronger than expected; however, that understanding was clouded by the added realization that there was a downturn in business spending, evidenced by the 0.3% decline in nondefense capital goods orders, excluding aircraft.
Looking ahead to Thursday, market participants receive the following data:
- 8:30 ET: Q4 GDP -- third estimate (Briefing.com consensus 2.3%; prior 2.3%), Q4 GDP Deflator -- third estimate (Briefing.com consensus 2.4%; prior 2.4%), Weekly Initial Claims (Briefing.com consensus 225,000; prior 223,000), Continuing Claims (prior 1.892 mln), advance February goods trade balance (prior -$153.3 bln), advance February Retail Inventories (prior -0.1%), and advance February Wholesale Inventories (prior 0.7%)
- 10:00 ET: February Pending Home Sales (Briefing.com consensus 2.9%; prior -4.6%)
- 10:30 ET: Weekly natural gas inventories (prior +9 bcf)
Losses building ahead of the close
26-Mar-25 15:35 ET
Dow -211.56 at 42375.94, Nasdaq -419.66 at 17852.20, S&P -76.29 at 5700.36
[BRIEFING.COM] Losses are mounting ahead of the closing bell. The S&P 500 is down about 75 points from yesterday.
Treasuries settled with modest losses. The 10-yr yield settled three basis points higher at 4.34% and the 2-yr yield settled one basis point higher at 4.01%. On a related note, today's $70 bln 5-yr note auction met weaker demand than yesterday's 2-yr note offering, but the market reaction was limited.
Looking ahead to Thursday, market participants receive the following data:
- 8:30 ET: Q4 GDP -- third estimate (Briefing.com consensus 2.3%; prior 2.3%), Q4 GDP Deflator -- third estimate (Briefing.com consensus 2.4%; prior 2.4%), Weekly Initial Claims (Briefing.com consensus 225,000; prior 223,000), Continuing Claims (prior 1.892 mln), advance February goods trade balance (prior -$153.3 bln), advance February Retail Inventories (prior -0.1%), and advance February Wholesale Inventories (prior 0.7%)
- 10:00 ET: February Pending Home Sales (Briefing.com consensus 2.9%; prior -4.6%)
- 10:30 ET: Weekly natural gas inventories (prior +9 bcf)
Car makers move lower
26-Mar-25 15:05 ET
Dow -222.07 at 42365.43, Nasdaq -405.00 at 17866.86, S&P -75.35 at 5701.30
[BRIEFING.COM] The major indices remain near session lows.
The White House confirmed that President Trump will hold a press conference at 4:00 p.m. ET today where he will announce auto tariffs. Shares of Tesla (TSLA 270.15, -17.94, -6.4%), General Motors (GM 50.84, -1.74, -3.3%) and Stellantis (STLA 11.94, -0.46, -3.7%) moved lower after the confirmation.
Treasuries were little changed. The 10-yr yield is at 4.34%.
S&P 500 drops 1.12% as SMCI, MRNA, PWR lead declines; CTAS surges on earnings
26-Mar-25 14:30 ET
Dow -147.77 at 42439.73, Nasdaq -364.33 at 17907.53, S&P -64.52 at 5712.13
[BRIEFING.COM] The S&P 500 (-1.12%) is in second place on Wednesday afternoon, down about 65 points.
Briefly, S&P 500 constituents Super Micro Computer (SMCI 37.09, -3.55, -8.74%), Moderna (MRNA 31.50, -2.35, -6.94%), and Quanta Services (PWR 262.35, -13.90, -5.03%) pepper the bottom of the average. MRNA slips after reports the Trump administration plans to end support for child vaccines in developing countries, while PWR gives back some of its recent rebound as the S&P 500 industrials (-0.56%) sector posts a lower half loss.
Meanwhile, Cintas (CTAS 207.28, +13.82, +7.14%) is atop the standings following earnings/guidance.
Gold slips as stronger dollar, tariff concerns weigh on prices
26-Mar-25 14:00 ET
Dow -194.67 at 42392.83, Nasdaq -381.28 at 17890.58, S&P -70.67 at 5705.98
[BRIEFING.COM] With about two hours to go on Wednesday the tech-heavy Nasdaq Composite (-2.09%) is decidedly lower, down now about 380 points.
Gold futures settled $3.40 lower (-0.1%) at $3,022.50/oz, pressured both by a stronger greenback as well as continued concerns regarding President Trump's proposed reciprocal tariff plans.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $104.51.
Chewy exceeds Q4 estimates, projects upbeat Q1 numbers; Autoship remains an X factor (CHWY)
It has been a game of tug-of-war between buyers and sellers of online pet food and supplies retailer Chewy (CHWY +1%) today following its upbeat Q4 (Jan) report and Q1 (Apr) guidance. CHWY produced its fifth straight quarter of bottom-line upside on a rapid uptick in top-line growth during the quarter. The company anticipates sustaining this momentum, projecting Q1 earnings and revenue above consensus.
- A central highlight from Q4 was CHWY's 15.0% revenue growth yr/yr to $3.25 bln, well above its $3.18-3.20 bln forecast and representing nearly 10 pts of acceleration over the previous quarter and returning to double-digit growth for the first time since 2Q24 (Jul). The robust growth was underpinned by healthy active customer growth, a slight rebound in CHWY's hard goods merchandise category, and sustained Autoship customer loyalty across consumables and health & wellness categories.
- Autoship is a vital component of CHWY's quarterly performance as it creates a dependable recurring revenue stream. Often, customers are slower to switch to a competing pet food supplier when they already have an active Autoship setup on Chewy.com. In Q4, Autoship represented 80.6% of total sales, with revenue growth of 21% yr/yr, which outpaced overall top-line growth.
- Also helping push revenue demonstrably above estimates in Q4 was active customer growth, ending FY25 with 20.5 mln active customers, CHWY's first year of yr/yr growth since FY23. Management attributes the long-awaited recovery to its ongoing efforts to bolster and refresh its assortment, enhance mobile app experiences, and refine its marketing strategy. CEO Sumit Singh believes that CHWY reached an inflection point regarding active customer growth, anticipating further gains in 2025.
- Turning to profitability, CHWY's adjusted EPS of $0.28 marked its best quarter since the beginning of FY25, fortified by adjusted EBITDA margins tagging the high end of CHWY's guidance of 4.6-4.8%. The company's sponsored ads business, where it allows brands to advertise on Chewy.com, is a major factor in its healthy margins. For the year, this business reached around 1% of net sales, roughly 2 pts away from CHWY's reiterated long-term goal.
- CHWY does not anticipate its momentum to cease over the next few months, targeting Q1 adjusted EPS of $0.30-0.35 and revs of $3.06-3.09 bln. Management noted that its sales growth will likely be driven by further active customer growth, expecting low-single-digit gains yr/yr, and minimal price inflation. On profitability, CHWY mentioned that margins will likely follow a similar cadence as last year, with modest sequential declines throughout FY25 due to seasonality and investment timing.
While today's price action is muted, CHWY's Q4 report was plenty loud, delivering several highlights as it benefits from the relative price inelasticity of pet food. Demand for hard goods will likely remain somewhat retrained over the next several months as consumers battle compounded inflationary effects. However, CHWY's consistently sound performances showcase that it can still realize meaningful growth despite economic headwinds as it reels in impressive gains from its Autoship program. At the same time, CHWY is improving its margin profile, which should only accelerate once broader demand conditions turn.
Cintas applauded for its beat-and-raise in Q3; remains confident in mitigating tariffs (CTAS)
Investors are applauding a solid beat-and-raise from work equipment and uniform supplier Cintas (CTAS +6%) in Q3 (Feb) today, pushing the stock past early March highs and levels traded before a sizeable gap-down in December following mediocre Q2 (Nov) results. The letdown last quarter was CTAS's trimmed FY25 (May) organic growth guidance, lowering the high end by 40 bps to +7.7%. While CTAS kept this part of its FY25 organic growth forecast unchanged today, it did bump up the lower bound to +7.4% from +7.0%, sufficient to alleviate fears over a less digestible worst-case scenario and trigger a moderate rally today.
- Given its footprint as a supplier of numerous items, from work uniforms to cleaning supplies and fire extinguishers, to businesses of all sizes, CTAS's quarterly results often paint a decent picture the the economic health of U.S. companies. Encouragingly, there were no surprises on CTAS's top and bottom lines, exceeding earnings for five years running while delivering revenue a hair above analyst forecasts, a typical trend for the company.
- Earnings expanded by 17.7% yr/yr to $1.13 (CTAS conducted a 4:1 stock split last year) supported by a 120 bp jump in gross margins yr/yr to 50.6%.CTAS has put on a show of consistency regarding its margin profile, steadily setting new quarterly records as it benefits from robust volumes, operating leverage, and ongoing operational efficiencies. Impressively, CTAS has been able to grow its margins despite an unfavorable trend of price increases coming down as inflationary pressures ease.
- Revenue marched 8.4% higher yr/yr in Q3 to $2.61 bln, lifted by a 7.7% improvement in CTAS's core uniform rental and facility services division and an 11.0% jump in other revenue (consisting of fire protection services and uniform direct sales). Echoing its comments from last quarter and consistent with remarks from peer Aramark (ARMK) earlier this month, CTAS continued to enjoy solid demand during Q3, underpinning the necessity of the company's services. Nearly every business requires something that CTAS offers, from exit lighting to bathroom supplies.
- Tariffs remain top-of-mind for investors given the recent stock market shakiness. However, CTAS reiterated its thoughts from last quarter, noting that it remains too early to tell what impacts tariffs will have. However, like ARMK, CTAS sources less than 10% of its products and is in a favorable position to negotiate from that standpoint.
- Foreign exchange is clearly acting as more of a headwind than tariffs. For FY25, CTAS sliced $15 mln off the top of its FY25 net sales outlook to reflect FX headwinds, changing it to $10.280-10.305 bln from $10.255-10.320 bln. Conversely, highlighting ongoing efficiencies and volume growth, CTAS raised its FY25 EPS outlook to $4.36-4.40 from $4.28-4.34.
Fears over a recession have kept CTAS trading mostly sideways over the past several weeks leading up to Q3 results. By raising its FY25 guidance, including bumping up the lower bound of its FY25 organic growth outlook, investors are breathing a heavy sigh of relief. We continue to like CTAS given its formidable presence and diversified revenue stream, selling products commanding relatively low price elasticity.
Dollar Tree higher on sale of Family Dollar, new CEO to focus on turning around core brand (DLTR)
Dollar Tree (DLTR +9%) is trading sharply higher following its Q4 (Jan) earnings report this morning. However, the bigger news is that DLTR reached a deal to sell its Family Dollar segment to Brigade Capital and Macellum Capital for just north of $1 bln. DLTR previously announced a review of strategic alternatives for its FD segment. The transaction is expected to close later in Q2.
- As we said in our preview, we might get news about a sale and that turned out to be true. We suspect management saw the ending of the fiscal year as a good time to announce a deal, so it heads into the new year with this issue resolved and behind it. Its FD segment has been struggling and this deal now allows DLTR's new CEO to focus on turning around the Dollar Tree segment.
- Specifically, Dollar Tree wants to return to its roots while still competing and innovating. It says its merchants consistently provide shoppers with an ever-changing assortment and that no other retailer can reproduce the immediacy and thrill of that signature Dollar Tree treasure hunt. It also wants to run stores that are clean, bright and inviting.
- In terms of the rationale, the company said that Dollar Tree and Family Dollar are two different businesses with limited synergies, and each is at a very different stage of its journey. Separating them will enable each banner to focus exclusively on what each banner needs. Also, separating them allows investors to assign proper multiples for each business. We suspect that DLTR may get rewarded with a higher multiple when not dragged down by Family Dollar.
- Turning to the Q4 results, they are a bit difficult to analyze because Family Dollar is now considered discontinued operations. As such, DLTR's results are not comparable to consensus estimates. With that said, Q4 revenue increased 0.7% to $5.0 bln. Same-store comps increased +2.0%, in-line with prior guidance of low-single-digit comp growth for the Dollar Tree segment. Looking ahead to Q1 (Apr), the company expects sales from continuing operations to be $4.5-4.6 bln, based on comp growth of +3-5%, which is a nice acceleration from Q4 comps.
Overall, we think it is a good thing for the stock to have the Family Dollar sale finalized, so investors can now focus exclusively on Dollar Tree going forward. We think DLTR will eventually be rewarded with a higher multiple. Also, the sale provides a clean slate for new CEO Michael Creedon, Jr., who took the helm in December 2024. The Dollar Tree segment has been the better performing segment, but it still needs improvement. The Q1 comp guidance of +3-5% was quite promising. However, even after the FD sale, DLTR is still navigating a tough macro environment, especially for its lower income core customer. Plus, DLTR sources a lot of merchandise from overseas, so dealing with tariffs will be tricky.
Paychex grows Q3 profits with tech-driven efficiencies; Paycor deal expected to boost growth (PAYX)
Payroll and human capital management (HCM) company Paychex (PAYX) delivered solid 3Q25 results that were mostly in-line with expectations while reaffirming FY25 EPS and revenue guidance. Near-record revenue retention and improved profitability through automation and technology investments were key aspects underlying the steady performance. The company's healthy earnings, which grew by 8% yr/yr to $1.49, also come on the heels of strong earnings reports from competitors Workday (WDAY) on February 25 and Automatic Data (ADP) on January 29, providing more evidence that the U.S. employment situation remains resilient in the face of numerous macroeconomic challenges.
- Revenue in the Management Solutions segment, which houses its payroll processing and HCM businesses and accounts for approximately 75% of its total revenue, increased by 5% yr/yr to $1.10 bln. While PAYX experienced lower revenue in ancillary services due to the expiration of the Employee Retention Tax Credit Program, that headwind was more than offset by client growth in the HCM and HR outsourcing businesses. Additionally, enhanced digital capabilities, such as AI and machine learning for automated payroll processing and self-service mobile and cloud platforms, improved PAYX's offerings.
- Growth was a little stronger in the Professional Employer Organization (PEO) and Insurance Solutions segment with revenue up 6% yr/yr to $365.4 mln. The growth was driven by a combination of higher average PEO worksite employees and growth in PEO insurance revenues. Rising demand for HR outsourcing, particularly among SMBs, remains a bullish trend for this segment. Due to complex regulatory requirements, an increasing number of SMBs are seeking outsourced HR, compliance, and payroll services.
- PAYX's investments in automation and technology are paying off, as illustrated by the 180-bps expansion in adjusted operating margin to 46.9%. A couple examples of PAYX's advancements include the use of automated customer onboarding to streamline enrollments, and the implementation of cloud-based infrastructure to reduce IT maintenance and operational costs.
- The positive reaction in the stock is also likely tied to PAYX's updated commentary and financial projections for its recent acquisition of Paycor (PYCR). The acquisition is now expected to close in April so PAYX will see contributions imminently. Strategically, the addition of PYCR will expand the company's cross-selling opportunities and distribution channels, while improving its AI capabilities. What's catching investors' attention, though, is the disclosure that the acquisition will contribute 10-12% revenue growth in 4Q25 and will be accretive to EPS starting in FY26.
PAYX delivered solid results, driven by strong client retention, increased product adoption, and margin expansion from continued investments in automation and digital solutions. The upcoming closing of the PYCR acquisition is expected to enhance long-term revenue synergies and drive over $80.0 mln in cost savings in year one, providing the stock with a meaningful growth catalyst.
UniFirst sells off; marks lows on the year after Cintas (CTAS) ends acquisition discussions (UNF)
While Cintas (CTAS) endures modest losses today, UniFirst (UNF -14%) is selling off to its worst levels of the year after CTAS terminated discussions with UNF surrounding its January proposal to acquire the firm for $275.00 a share, a 46% premium to UNF's 90-day average price. Shortly after CTAS, a prominent business equipment supplier, announced its proposal to purchase UNF, a similar uniform rental firm, UNF rejected the unsolicited offer.
However, many investors were confident that a deal would ultimately be made, keeping shares of UNF over 30% higher from its closing price immediately before the proposal. Nevertheless, as time passed and few details emerged, doubt started to creep in, causing UNF to steadily slide lower in the following weeks, only to sink toward levels from before the January proposal today after CTAS terminated the M&A discussions.
- Why are investors fleeing UNF today? The potential deal with CTAS offered considerable appreciation; $275 represented an 8% premium from UNF's record closing highs reached in 2021 and a 63% premium to levels closed prior to the January proposal.
- It also seems more likely that the two parties will not be reconvening for any future discussions. While CTAS has offered to acquire UNF in the past, proposing a $255/share buyout in 2022, the current deal was met with fierce rejection from the start. In November 2024, CTAS first delivered its updated proposal to UNF's Board, increasing its initial $255 offer to $275 despite UNF refusing to meet. UNF's cold reception led to CTAS publicly publishing its intent to acquire the firm, hoping enough pressure could be placed on UNF to finally accept the terms.
- Nevertheless, even after these actions, UNF's Board unanimously rejected the offer almost immediately. Frankly, it is surprising that investors kept shares trading at elevated levels despite UNF's clear unwillingness to budge from going it alone.
Where does UNF go from here? Financials are in good shape; UNF has no long-term debt, which provides it with ample flexibility to tackle its operational goals. Speaking of which, UNF commented in January that it was encouraged by the pipeline of large account opportunities it was working on. However, some incremental weaknesses have cropped up compared to this time last year. During Q1 (Nov), net wearer levels for UNF's existing customers contracted yr/yr. Still, UNF showcased the progress it has been making regarding margins, driving decent improvements in operating income and adjusted EBITDA during Q2 despite posting a sluggish +1.9% bump in consolidated revenue yr/yr.
Overall, the proposed deal between CTAS and UNF falling through is unfortunate news for both companies, albeit to a lesser extent for CTAS. UNF is confident in extracting more value as an independent company than being absorbed by CTAS. However, in the current climate, which remains subject to economic and competitive pressures, it could take time before UNF reaches levels near CTAS's proposed price.
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