Market Snapshot
briefing.com
| Dow | 31991.92 | +90.75 | (0.28%) | | Nasdaq | 11782.63 | -51.45 | (-0.43%) | | SP 500 | 3966.91 | +5.21 | (0.13%) | | 10-yr Note |
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| | NYSE | Adv 1838 | Dec 1240 | Vol 784 mln | | Nasdaq | Adv 2156 | Dec 2227 | Vol 4.1 bln |
Industry Watch
| Strong: Energy, Financials, Utilities, Health Care, Industrials |
| | Weak: Information Technology, Consumer Discretionary, Communication Services |
Moving the Market
-- Waiting game ahead of this week's earnings reports from 175 S&P companies that make up nearly 50% of the index's market cap
-- Downside leadership from mega cap stocks
-- Hesitation ahead of FOMC decision and economic data-heavy week
| Closing Summary
25-Jul-22 16:20 ET
Dow +90.75 at 31991.92, Nasdaq -51.45 at 11782.63, S&P +5.21 at 3966.91
[BRIEFING.COM] The market opened on a soft note today as market participants were playing a waiting game for the busy week ahead. The three main indices saw choppy action, albeit within a narrow range, in the first half of the session until finding downside momentum and declining through most of the afternoon. The market was able to rally in the last half hour of trading to close well above session lows.
There are several market-moving catalysts on the docket this week. 175 S&P 500 companies, which make up nearly 50% of the index's market cap, are set to report earnings this week. Key economic data includes the advanced Q2 GDP reading on Thursday, and the June Personal Income and Spending report on Friday. The Personal Spending and Income report will include the Fed's preferred inflation gauge, the PCE and core-PCE price indexes. Also, the FOMC decision will be announced Wednesday.
Market breadth showed a lack of conviction on either side of the tape today. At the close, advancers led decliners by a 3-to-2 margin at the NYSE while advancers were roughly in line with decliners at the Nasdaq.
With mixed buying interest today, it was the mega caps that drove the market lower. The Vanguard Mega Cap Growth ETF (MGK) closed down 0.6% versus a 0.1% gain in the S&P 500 and a 0.3% gain in the Invesco S&P 500 Equal Weight ETF (RSP).
This relative weakness in the mega caps showed up in the S&P 500 sector performance. Amazon.com (AMZN 121.14, -1.28, -1.1%), Meta Platforms (META 166.65, -2.62, -1.6%), and Apple (AAPL 152.95, -1.14, -0.7%) all contributed to the underperformance of their respective sectors, consumer discretionary (-0.9%), information technology (-0.6%), and communication services (-0.3%). These were the lone sectors to close in negative territory.
The best performing sector on the day, energy (+3.7%), was boosted by rising energy prices and the natural gas news from Europe. The Wall Street Journal reported that Gazprom is going to cut natural gas flows to Germany through the Nord Stream 1 pipeline to 20% capacity from 40% due to what it calls problems with a turbine.
The energy complex futures made noticeable upside moves today. WTI crude oil futures rose 2.2% to settle at $96.80/bbl. Natural gas futures rose 5.2% to $8.63/mmbtu. Unleaded gasoline futures rose 3.1% to $3.11/gal.
Treasury yields were on the rise today. The 2-yr note yield rose five basis points to 3.04% while the 10-yr note yield rose four basis points to 2.82%.
Ahead of tomorrow's open, earnings reports will be headlined by 3M (MMM), Albertsons (ACI), Coca-Cola (KO), Corning (GLW), General Electric (GE), General Motors (GM), Kimberly-Clark (KMB), McDonald's (MCD), Moody's (MCO), Polaris Industries (PII), PulteGroup (PHM), Raytheon Technologies (RTX), and UPS (UPS).
There was no U.S. economic data of note today.
Tuesday's agenda includes the following economic data:
- 9:00 ET: May FHFA Housing Price Index (prior 1.6%) and May S&P Case-Shiller Home Price Index (Briefing.com consensus 20.8%; prior 21.2%)
- 10:00 ET: July Consumer Confidence (Briefing.com consensus 96.4; prior 98.7) and June New Home Sales (Briefing.com consensus 670,000; prior 696,000)
- Dow Jones Industrial Average: -11.9% YTD
- S&P 400: -15.1% YTD
- S&P 500: -16.8% YTD
- Russell 2000: -19.0% YTD
- Nasdaq Composite: -24.7% YTD
Market lifts just off its lows ahead of the close
25-Jul-22 15:30 ET
Dow -4.81 at 31896.36, Nasdaq -101.93 at 11732.15, S&P -9.63 at 3952.07
[BRIEFING.COM] The market lifted just above its session lows in recent trading. The Dow is the best performer of the three main indices, currently trading flat.
After the close, the following companies are set to release earnings reports: F5 Networks (FFIV), NXP Semi (NXPI), Universal Health (UHS), and Whirlpool (WHR).
Ahead of tomorrow's open, earnings reports will be headlined by 3M (MMM), Albertsons (ACI), Coca-Cola (KO), Corning (GLW), General Electric (GE), General Motors (GM), Kimberly-Clark (KMB), McDonald's (MCD), Moody's (MCO), Polaris Industries (PII), PulteGroup (PHM), Raytheon Technologies (RTX), and UPS (UPS).
Tuesday's agenda includes the following economic data:
- 9:00 ET: May FHFA Housing Price Index (prior 1.6%) and May S&P Case-Shiller Home Price Index (Briefing.com consensus 20.8%; prior 21.2%)
- 10:00 ET: July Consumer Confidence (Briefing.com consensus 96.4; prior 98.7) and June New Home Sales (Briefing.com consensus 670,000; prior 696,000)
Buying interest under the market surface
25-Jul-22 15:00 ET
Dow -41.45 at 31859.72, Nasdaq -104.86 at 11729.22, S&P -13.07 at 3948.63
[BRIEFING.COM] The major indices continued downward to fresh session lows in the last half hour.
Despite the stock market sinking lower, there's still a fair amount of buying interest. Advancers lead decliners by an 11-to-10 margin at the NYSE while decliners lead advancers by the same margin at the Nasdaq.
As the market lost ground, more S&P 500 sectors entered negative territory. Information Technology (-1.0%), consumer discretionary (-1.2%), and communication services (-0.9%) have been mostly in negative territory today but they're now joined by real estate (-0.2%) and materials (-0.1%).
Separately, the energy complex futures made big upside moves today. WTI crude oil futures rose 2.2% to settle at $96.80/bbl. Natural gas futures rose 5.2% to $8.63/mmbtu. Unleaded gasoline futures rose 3.1% to $3.11/gal.
Newmont underperforms following earnings, SVB Financial outperforms following upgrade
25-Jul-22 14:30 ET
Dow -10.30 at 31890.87, Nasdaq -82.16 at 11751.92, S&P -6.77 at 3954.93
[BRIEFING.COM] The major averages have sunk to session lows across the board, the benchmark S&P 500 (-0.17%) still in second place.
S&P 500 constituents Newmont Goldcorp (NEM 44.67, -6.72, -13.08%), IDEXX Labs (IDXX 375.62, -17.89, -4.55%), and Hasbro (HAS 78.62, -2.51, -3.09%) pepper the bottom of the standings. NEM underperforms following earnings, IDXX was downgraded to Hold at Stifel this morning, while toy names HAS/Mattel (MAT 22.01, -0.44, -1.96%) underperform to open the week.
Meanwhile, California-based regional bank SVB Financial Group (SIVB 388.80, +27.44, +7.59%) is today's top performer following an upgrade out of Evercore ISI.
Gold modestly lower on Monday
25-Jul-22 14:00 ET
Dow +4.83 at 31906.00, Nasdaq -73.62 at 11760.46, S&P -4.63 at 3957.07
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (-0.62%) sits at the bottom of the major averages.
Gold futures settled $8.30 lower (-0.5%) to $1,719.10/oz, giving back some of last week's gains.
Meanwhile, the U.S. Dollar Index is down about -0.2% to $106.51.
Weber sells off on many rough patches, including its CEO's departure & weak Q3 sales guidance (WEBR)
Updated: 25-Jul-22 13:37 ET
Grill maker Weber (WEBR -14%) is getting cooked today on numerous rough patches, including CEO Chris Scherzinger's departure, downbeat Q3 (Jun) net sales guidance, dividend suspension, and the possibility of workforce reductions. The company's current Chief Technology Officer, Alan Matula, was appointed interim CEO.
- With inflation eroding consumers' purchasing power, not only are shoppers frequenting retailers less often, they are likely reducing the frequency at which they upgrade their grill. At the same time, the U.S. dollar, which recently reached parity with the Euro, is creating FX headwinds.
- WEBR expects these issues to linger into Q3 and Q4 (Sep), fueling its disappointing Q3 net sales outlook of $525-530 mln. The heightened volatility also led to management withdrawing its FY22 net sales and EBITDA outlook.
- Last quarter, WEBR guided to FY22 revs of $1.65-1.80 bln, already coming up well short of analysts' expectations. Likewise, WEBR's FY22 EBITDA forecast of $140-180 mln represented a 48% drop at the midpoint yr/yr.
- Other hurdles WEBR is facing include "substantial" freight cost increases. The disrupted supply chain environment was a primary factor in a 42% drop in adjusted EBITDA yr/yr in Q2 (Mar).
- During the company's Q2 earnings call in mid-May, it expected pricing actions implemented last year, which were fully accepted, would help gross margins improve over the next "several quarters." However, it looks like WEBR has reached a tipping point where higher prices are starting to deter possible buyers.
- To improve its financials, WEBR is exploring several financial transformation initiatives, such as workforce reductions, tightening global inventory levels, and reducing certain expenses. Although these strategies could produce a favorable result, they are not doing much to help the current sell-off.
- Another step WEBR is taking to improve its outlook is suspending its quarterly dividend, which produced an annual yield of around 2.7%.
Clearly, WEBR has a lot on its plate. Its shares are suffering as a result, now down over 50% from the company's August 2021 IPO price of $14. Competing grill maker Trager (COOK), which sells wood-fired grills, signaled that the grilling industry was struggling with its planned workforce reductions announced last week. WEBR and COOK have a relatively high short interest of 52% and 12%, respectively, illustrating the market's negative sentiment toward grill makers. With the high short interest combined with souring macroeconomic conditions, we think WEBR is best avoided until it begins to make inroads on its many current challenges.
Dorman Products surprises investors with pretty large downside EPS guidance (DORM)
Updated: 25-Jul-22 11:25 ET
Dorman Products (DORM -7%) is trading lower today after reporting Q2 results last night. It also announced a $600 mln share repurchase plan, but the guidance is spooking investors and catching them off guard.
- This major supplier of automotive aftermarket parts actually reported decent Q2 results with just a slight EPS miss, but big revenue upside. The main problem was a pretty significant cut in FY22 EPS guidance to $5.00-5.20 from $5.35-5.55. This reduction was much larger than the Q2 miss, so it is a guide down for 2H22. Revenue guidance was reaffirmed at $1.60-1.64 bln.
- Demand was not an issue as it remained strong throughout the quarter and DORM expects demand will continue to be strong through the balance of the year. Also, DORM is pretty excited about some recent new product launches, which are contributing to its strong sales. Most notable is its OE FIX product line which expands DORM's complex electronics portfolio, including new transmission control modules and fuel pump driver modules.
- The problem is more on the cost side, including rising supply chain costs, wage pressures and commodity inflation. This led to some margin pressure with adjusted gross margin falling to 34.0% from 35.5% a year ago. Granted, that was partly caused by DORM's recent acquisition of Dayton Parts. However, it is clear DORM is getting squeezed on the cost side. The company has been raising prices to offset these higher costs but it has not been enough to maintain margins.
Overall, we think this pretty severe downside guidance is catching investors by surprise. DORM has been seen as sort of an oasis in the automotive desert. As many automotive supply chain stocks have falling, DORM has been rising nicely. The idea is that, as new vehicle production is hampered by chip shortages, consumers are likely to drive their current vehicles longer and that means more aftermarket part sales. That dynamic is being borne out as sales/demand remains robust. It is just that the cost side is rising more quickly than people were expecting. It seems to have accelerated in Q2 and the guidance indicates it will get worse in 2H22.
RPM Inc's MayQ earnings miss disappoints following PPG Industries' Q2 beat last week (RPM)
Updated: 25-Jul-22 11:08 ET
RPM Inc (RPM -1%) shares are trying to remain green today despite the company posting a minor bottom-line miss in Q4 (May). Although RPM provided upbeat Q1 (Aug) guidance, predicting revenue growth in the mid-teens yr/yr, surpassing analyst expectations, while forecasting operating profit to improve +20-25% yr/yr, its earnings miss did not stack up against competing specialty coatings supplier PPG Industries (PPG).
PPG posted solid earnings upside in Q2 (Jun) last week as its pricing power allowed it to fully offset inflationary pressures. This pricing power, combined with productivity enhancements, translated to continued operating margin improvement in Q3. Also, even though PPG guided Q3 earnings below consensus, this was primarily due to negative FX impacts.
- RPM also commands meaningful pricing power, highlighted by three out of four of its businesses growing adjusted operating profit double-digits yr/yr.
- However, as was the case for PPG, a strengthening U.S. dollar continues to pose a challenge. FX impacts primarily contributed to a 14.2% decline in operating profit yr/yr in the company's second-largest segment: Consumer Group (~34% of Q4 revs).
- Outside this weak point, which fueled earnings growth of just 10.9% yr/yr to $1.42, missing expectations, RPM's results were strong. Revs still grew nicely in the quarter, jumping 13.7% yr/yr to $1.98 bln. Every segment reported record quarterly sales. Also, even though operating profit was dinged in the Consumer Group business, organic sales still grew 10.0% yr/yr.
- Meanwhile, on an organic basis, RPM's largest segment, Construction Products Group (~38% of revs), led the charge, climbing 19.9% yr/yr. Specific end markets exhibiting strength were roofing systems, insulated concrete forms, and repair products for concrete.
- Performance Coatings Group and Specialty Products Group grew 17.4% and 12.2% yr/yr, respectively. End markets that stood out positively included flooring systems and food coatings.
- Additional commentary regarding RPM's guidance was mostly bullish. The company expects accelerated demand from Q4 to carry into FY23. Price hikes will also continue throughout FY23 to help offset significant cost increases, which are expected to persist going forward. Furthermore, RPM added that even though it notices a recessionary undercurrent in the economy, its products are critical in extending the useful life of an organization's assets, which is vital during a recession as it saves money in the long run.
RPM's MayQ results were mostly positive. Adverse FX impacts should be expected by companies with operations overseas by now. Therefore, we think investors are disappointed mainly due to the earnings miss, especially after PPG posted upside last week. Nevertheless, reasonably upbeat earnings reports from RPM and PPG are good signs for the specialty coatings industry overall, boding well for Axalta Coating Systems (AXTA) and Sherwin-Williams (SHW), which report Q2 earnings on July 26 and July 27, respectively.
Squarespace rounds into shape with an earnings beat, but soft outlook boxes out gains (SQSP)
Updated: 25-Jul-22 10:54 ET
Squarespace (SQSP), a website design and e-commerce platform provider, easily surpassed Q2 EPS expectations after badly missing earnings estimates in each of the past two quarters. That good news, though, is being overshadowed by SQSP's slowing growth and soft guidance for Q3 and FY22.
When the company went public in May 2021, the digital transformation that emerged during the pandemic was still a powerful force that fueled robust top-line growth for many internet-related companies -- including SQSP. In 2Q21, which was the company's first earnings report as a public company, total revenue and total annual run rate revenue (ARRR) increased by 31% and 28%, respectively. Similar to e-commerce powerhouse Shopify (SHOP), SQSP benefited from a flood of entrepreneurs and small businesses looking to bolster their online and digital capabilities.
Given the favorable environment, it's easy to understand why investors were initially bullish on SQSP's IPO. However, after reaching post-IPO highs in late June of 2021, SQSP has completely unraveled, losing nearly 70% of its value. A normalization of consumer shopping behaviors slowed its momentum, and the stock became an easy target when growth stocks fell deeply out of favor late last year. Now, macroeconomic headwinds are battering the company, and its larger rival Wix.com (WIX), which is slated to report its earnings on August 10.
This downturn in business conditions is evident in a few key metrics.
- Revenue growth decelerated to just 8.5% in Q2, continuing its recent downward slide. After reaching 31% in 2Q21, revenue growth trailed off to 24% in 3Q21, 20% in 4Q21, and 16% last quarter. Similarly, ARRR slowed to 8% this quarter from 15% last quarter and 18% in Q4.
- With macroeconomic concerns on the rise, SQSP is having difficulty on-boarding new users. Unique subscriptions were up by a modest 6% in Q2 to 4.2 mln, representing a slowdown from last quarter's 10% growth.
- SQSP's revenue guidance for Q3 missed expectations and the company also cut its FY22 revenue guidance below analysts' estimates. The weak outlook is partly due to FX headwinds, but a more sluggish demand picture is mostly to blame. On that note, the midpoint of its Q3 revenue guidance equates to growth of only 7.5%.
On the positive side, SQSP is still generating plenty of cash. In fact, cash flow from operations increased significantly to $36.4 mln from $8.7 mln in the year-earlier period. The main takeaway, though, is that growth is still slowing, and it seems unlikely that a meaningful re-acceleration is in the cards any time soon. A very competitive landscape that includes WIX, Global-E Online (GLBE), and Similarweb (SMWB), only adds to SQSP's challenges.
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