Market Snapshot
briefing.com
| Dow | 35299.02 | +122.96 | (0.35%) | | Nasdaq | 13664.82 | -73.56 | (-0.54%) | | SP 500 | 4469.78 | -0.32 | (-0.01%) | | 10-yr Note | -26/32 | 4.17 |
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| | NYSE | Adv 1452 | Dec 1360 | Vol 751 mln | | Nasdaq | Adv 1899 | Dec 2437 | Vol 4.6 bln |
Industry Watch
| Strong: Energy, Utilities, Health Care, Financials |
| | Weak: Consumer Discretionary, Information Technology, Communication Services, Materials |
Moving the Market
-- Jump in Treasury yields in reaction to the hotter than expected July PPI report
-- Ongoing consolidation efforts following the jump in yields
-- Weakness in mega cap stocks weighing on index performance
-- Lack of participation on this mid-August Friday
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Closing Summary
11-Aug-23 16:30 ET
Dow +105.25 at 35281.31, Nasdaq -93.14 at 13645.24, S&P -4.78 at 4465.32
[BRIEFING.COM] The stock market closed out the first full week of August on a mixed note in a lightly traded session. Market rates jumped in response to a hotter than expected PPI report for July, which created an excuse for investors to continue consolidation efforts that started this month following the stellar start to the year.
Total PPI increased 0.3% month-over-month in July (Briefing.com consensus +0.2%) following a downwardly revised 0.0% (from 0.1%) for June. Excluding food and energy, the index for final demand was also up 0.3% month-over-month (Briefing.com consensus +0.2%) following a downwardly revised 0.1% decline (from +0.1%) for June.
On a year-over-year basis, the index for final demand was up 0.8%, versus 0.3% in June, and the index for final demand, excluding food and energy, was up 2.4%, unchanged from June.
The 2-yr note yield, at 4.80% just before the release, rose six basis points to 4.89%. The 10-yr note yield, at 4.08% just before the release, rose nine basis points to 4.17%.
Weak mega cap stocks acted as a drag on the major indices, leading the S&P 500 and Nasdaq to close with losses while the Dow Jones Industrial Average registered a gain. The Vanguard Mega Cap Growth ETF (MGK) fell 0.6% while the Invesco S&P 500 Equal Weight ETF (RSP) closed flat.
Apple (APPL 177.79, +0.06, +0.03%) eked out a slim gain, but weakness from the likes of Tesla (TSLA 242.65, -2.69, -1.1%), Meta Platforms (META 301.70, -4.04, -1.3%), and NVIDIA (NVDA 408.55, -15.33, -3.6%) kept the broader market in check.
The S&P 500 declined 0.1%; the Nasdaq Composite fell 0.7%; and the Dow Jones Industrial Average rose 0.3%. Market breadth also reflected mixed action under the index surface. Advancers led decliners by a slim margin at the NYSE while decliners led advancers by a 4-to-3 margin at the Nasdaq.
Only four of the 11 S&P 500 sectors closed with a loss. Information technology (-0.9%) was the worst performer by a decent margin while energy (+1.6%) led the pack.
- Nasdaq Composite: +30.4% YTD
- S&P 500: +16.3% YTD
- S&P Midcap 400: +9.5% YTD
- Russell 2000: +9.3% YTD
- Dow Jones Industrial Average: +6.3% YTD
Reviewing today's economic data:
- July PPI 0.3% (Briefing.com consensus 0.2%); Prior was revised to 0.0% from 0.1%; July Core PPI 0.3% (Briefing.com consensus 0.2%); Prior was revised to -0.1% from 0.1%
- The key takeaway from the report is that wholesale inflation has come down sharply from its peak in 2022, although with the recent increase in oil and gasoline prices, there will be some concern that further improvement is going to be delayed.
- August Univ. of Michigan Consumer Sentiment - Prelim 71.2 (Briefing.com consensus 70.9); Prior 71.6
- The key takeaway from the report is that it reflected little overall change in sentiment, due in part to largely steady inflation expectations, as year-ahead and five-year expectations decreased by ten basis points apiece.
There is no U.S. economic data of note on Monday.
Treasury yields rise
11-Aug-23 15:35 ET
Dow +121.21 at 35297.27, Nasdaq -72.12 at 13666.26, S&P +0.40 at 4470.50
[BRIEFING.COM] The market turned slightly higher recently.
Treasuries settled the session with losses. The 2-yr note yield rose six basis points to 4.89% and the 10-yr note yield rose nine basis points to 4.17%.
There is no U.S. economic data of note on Monday.
Energy complex futures rise
11-Aug-23 15:05 ET
Dow +122.96 at 35299.02, Nasdaq -73.56 at 13664.82, S&P -0.32 at 4469.78
[BRIEFING.COM] The major indices moved mostly sideways over the last half hour. Mega caps continue to weigh on index performance. The Vanguard Mega Cap Growth ETF (MGK) is down 0.4% while the S&P 500 trades flat.
Energy complex futures settled higher. WTI crude oil futures rose 0.6% to $83.20/bbl and natural gas futures rose to $2.77/mmbtu.
On a related note, the S&P 500 energy sector (+1.4%) remains top the leaderboard by a wide margin.
VFC outperforming after Director discloses purchase of 40K shares
11-Aug-23 14:30 ET
Dow +111.92 at 35287.98, Nasdaq -77.54 at 13660.84, S&P -1.74 at 4468.36
[BRIEFING.COM] The S&P 500 (-0.04%) is in second place on Friday afternoon, down now less than 2 points.
S&P 500 constituents Aptiv (APTV 98.16, -5.02, -4.87%), Bath & Body Works (BBWI 37.24, -1.74, -4.46%), and Teradyne (TER 101.73, -4.69, -4.41%) dot the bottom of the standings despite a dearth of corporate news.
Meanwhile, V.F. Corp (VFC 20.70, +0.72, +3.60%) is outperforming after Director R. Carucci disclosed purchase of 40K shares worth approx. $764K in a Form 4 out overnight.
Gold extends weekly, monthly losses on Friday
11-Aug-23 14:00 ET
Dow +13.16 at 35189.22, Nasdaq -102.05 at 13636.33, S&P -14.32 at 4455.78
[BRIEFING.COM] With about two hours to go on Friday the tech-heavy Nasdaq Composite (-0.74%) is the worst-performing major average.
Gold futures settled $2.30 lower (-0.1%) to $1,946.60/oz, down -1.49% on the week, pushing month-to-date losses to about -2.67%.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $102.83.
Rates jump, equity futures sink after July PPI report
The equity futures market had been moving in a relatively disinterested manner, mindful that it is... a Friday... in summer... in mid-August... when taking time off sounds like a good option, but it got moving again following the release of the July Producer Price Index at 8:30 a.m. ET.
Currently, the S&P 500 futures are down 18 points and are trading 0.4% below fair value, the Nasdaq 100 futures are down 105 points and are trading 0.7% below fair value, and the Dow Jones Industrial Average futures are down 89 points and are trading 0.3% below fair value.
Of course, what has been seen in the equity futures market ahead of the open this week hasn't been worth a whole lot in divining anything worthy beyond the opening trade. Yesterday was a good case in point.
The futures market had a bullish mindset before the Consumer Price Index and Initial Jobless Claims reports were released, and it got more bullish after those reports, which supported the idea that the Fed could stay on-hold at its September FOMC meeting. Sure enough, the market started on a solidly higher note, and then it quickly started to retrace those gains. The S&P 500, hitting 4,527 at its opening high, closed the session at 4,468, near its low for the day.
It was the essence of a consolidation mindset that has taken root in August after a huge, and nearly unabated, run for the stock market since late March. We'll see if that mindset continues today. It looks like it will at the open, with traders using a jump in market rates following the PPI report as the excuse to do some selling.
The Producer Price Index for July was hotter than expected at the headline level, but not really too hot after accounting for downward revisions for June.
The index for final demand increased 0.3% month-over-month in July (Briefing.com consensus +0.2%) following a downwardly revised 0.0% (from 0.1%) for June. Excluding food and energy, the index for final demand was also up 0.3% month-over-month (Briefing.com consensus +0.2%) following a downwardly revised 0.1% decline (from +0.1%) for June.
On a year-over-year basis, the index for final demand was up 0.8%, versus 0.3% in June, and the index for final demand, excluding food and energy, was up 2.4%, unchanged from June.
The key takeaway from the report is that wholesale inflation has come down sharply from its peak in 2022, although with the recent increase in oil and gasoline prices, there will be some concern that further improvement is going to be delayed.
The 2-yr note yield, at 4.80% just before the release, is up six basis points to 4.89%. The 10-yr note yield, at 4.08% just before the release, is up six basis points to 4.14%.
That move has squashed buying interest for the time being along with growth concerns emanating from China after it reported much weaker than expected new yuan loan growth for July. A warning from Chinese property developer Country Garden Holdings that it anticipates losing nearly $8 billion in the first half of 2023 added to those growth concerns.
So, today's open for the stock market is slated to be a lower open. After that, it could get worse or better on a Friday.... in summer... in mid-August... when taking time off sounds like a good option.
-- Patrick J. O'Hare, Briefing.com
IonQ takes a quantum leap forward today on raised FY23 bookings guidance and upbeat color (IONQ)
Shares of quantum computer developer IonQ (IONQ +13%) are making another quantum leap forward today despite missing Q2 earnings estimates as investors praise raised FY23 bookings guidance and bullish commentary. After today's big move, IonQ has seen its stock explode by over 400% on the year.
Although many analysts agree that quantum computing is still years away from widespread commercialization, the technology presents a major step forward from classical computing in solving complex problems across many fields, from medicine and physics to supply chains and financials. While classical computers cap the capacity of AI and ML, quantum computers remove these limits.
Where does IonQ fit into the quantum computing space? IonQ sells access to several quantum computers while it continues researching the technology. Access is gained through prominent cloud providers Amazon Web Services (AMZN), Microsoft Azure (MSFT), and Google Cloud (GOOG) as quantum-computing-as-a-service (QCaaS). IonQ remains in the early stages of commercial growth, incurring significant operating losses.
However, the tide seems to have turned for IonQ this year.
- A major turning point for IonQ came in June when it partnered with QuantumBasel, a Swiss-based firm, to bring two of its upcoming systems to Europe. The partnership was significant since, as its first on-premise hardware project in the region, it allowed IonQ to retain some capacity on each system, allowing it to serve other prospects throughout the continent.
- This partnership provided meaningful momentum to IonQ, paving the way for its 111.5% sales growth in Q2 to $5.5 mln, well above its $4.1-4.5 mln forecast. The commercial milestone also brought IonQ's YTD bookings to $32 mln, putting it in striking distance of its goal of $100 mln in cumulative bookings during the first three years of its commercialization efforts.
- As a result, IonQ increased its FY23 bookings guidance to $49-56 mln from $38-42 mln. The company also hiked its FY23 revenue target, projecting $18.9-19.3 mln from $18.8-19.2 mln. CEO Peter Chapman stated that the company is seeing increased demand for its systems and is optimistic that it will sell several over the next 18 months.
As a firm still amid the early stages of commercialization, a healthy degree of caution is warranted, especially following IonQ's massive run this year, putting it into priced-to-perfection territory. With AI fueling substantial gains across much of the tech sector this year, the AI frenzy also likely drove up IonQ's share price, building in the risk of a considerable pullback if the AI boom starts to cool.
Nevertheless, IonQ is operating in a field that could dwarf AI in terms of demand and its effect on the global economy, making it a name worth keeping on the radar.
Spectrum Brands Q3 report suggest it may be turning a corner, sparking rally to 52-week highs (SPB)
Spectrum Brands (SPB), a home essentials company with a portfolio of products in the home and garden and pet care markets, is jumping to new 52-week highs following a better-than-feared Q3 earnings report that highlighted the company's focus on margins and profitability. Importantly, SPB also maintained its FY23 revenue guidance of a mid-single digit yr/yr decline, easing fears that the slowdown in consumer spending and ongoing inventory reduction efforts at its retail partners caused the sluggish demand to worsen.
- On that note, sales still declined by 10% to $735.5 mln, missing analysts' estimates by a fairly large margin. Each of the companies three operating segments experienced net sales decreases, but the Home & Personal Care (HPC) business suffered the worst decline by far as revenue plunged by 53% to $276.6 mln. Kitchen appliances were a notable weak spot, especially in North America, as the deceleration in consumer spending pressured sales.
- The other two segments -- Home & Garden (H&G) and Global Pet Care (GPC) -- held up better with net sales down 12% and 18%, respectively. In addition to retailers continuing to drawdown their inventory levels, unfavorable weather led to lower replenishment orders in the pest control category for H&G. Additionally, demand for cleaning product continues to sag in the aftermath of the pandemic.
Clearly, business isn't booming for SPB, but there are a couple factors that market participants are homing in on.
- First, the company's adjusted EPS increased by 39% yr/yr as adjusted EBITDA margin expanded by 360 bps yr/yr, despite the decrease in net sales. The enhanced profitability is a function of pricing actions taken earlier in the year to combat inflation, and cost-cutting measures, including from last August's 17% workforce reduction.
- Perhaps more importantly, though, market participants are anticipating SPB's financial performance to improve further following the closing of its sale of the Hardware and Home Improvement segment. That deal, which was initially blocked by the Department of Justice, generated $4.3 bln in cash proceeds after it closed the sale to ASSA ABLOY on June 20. With those proceeds, SPB paid off its entire debt balance, strengthening its balance sheet as it pivots to becoming a faster growing, higher margin, pure play Global Pet Care and Home & Garden company.
The main takeaway is that while SPB is still facing some significant headwinds, which the company expects will persist into Q4, the outlook is gradually brightening for the more streamlined company.
Flowers Foods rises on moderating consumer trade down and higher-price acceptance in Q2 (FLO)
Flower Foods (FLO +2%), the parent company of many popular breads and cakes, including Nature's Own, Wonder, and Tastykake, is rising today on decent headline Q2 numbers. Since a dismal Q1 report in mid-May, when FLO trimmed its FY23 targets after a slow start to the year mired by lower-than-expected retail sales, shares of FLO have been in decline, tumbling roughly 13% as of yesterday's close.
However, there were encouraging developments in Q2, underscoring a potential trough. As a result, investors are cautiously optimistic that FLO may be amid a turnaround.
- Instead of in-line earnings and a sales miss like last quarter, FLO put together an earnings beat in Q2, the first time since 3Q22 on 8.8% sales growth yr/yr to $1.23 bln, squeaking past analyst forecasts.
- CEO Ryals McMullian commented that FLO's Branded Retail business still saw consumer trade down to private labels but that the trend was moderating, boosting its top line. Meanwhile, in FLO's Other segment, price increases, which the company raised earlier than its competition, mitigated sticky inflationary pressures, more than offsetting cost increases, assisting adjusted EBITDA margins, which saw a 20 bp bump yr/yr to 10.8%.
- The story of FLO hiking its prices well before the inflationary cycle has been well-documented. Although this move initially took a chunk out of top and bottom line figures, it may be partly contributing to easing consumer pushback. During Q2, Mr. McMullian remarked that the company saw early indications that consumers acclimated to higher prices, reverting to past purchasing behavior.
- To take advantage of the shift, FLO is hunkering down on R&D to keep bringing new products to market, such as Dave's Killer Bread Snack Bars, which remains on track for a nationwide launch in 2024.
- The solid performance in Q2 provided the confidence needed to lift the low end of FLO's FY23 guidance. The company is targeting EPS of $1.18-1.25, up $0.03 at the low end, and revs of $5.095-5.141 bln, up $9 mln.
Bread may not be very exciting; the hay-day of Wonder Bread is well in the past, as is the popularity of store-bought dessert cakes. Furthermore, FLO still has work to do; margins remain somewhat stagnant and may stay this way if the company accelerates its R&D budget. FLO is also amid some restructuring, exiting lower-margin businesses, which will adversely affect volumes in the short run.
However, that does not mean that future growth has completely tailed off. The Dave's Killer Bread brand is a top choice amongst health-conscious consumers for its variety of organic options, a category where FLO is carving out a solid presence. Also, by offering bread at different prices, FLO can navigate multiple economic environments. Additionally, even though private labels may begin to pick up more momentum if inflationary pressures remain stubborn, several consumer staple giants from General Mills (GIS) to Conagra (CAG) have noted that trade-down is not meaningfully affecting sales, a reflection of the stickiness certain brands established during the pandemic.
Savers Value Village looks like a good deal following first earnings report since IPO (SVV)
Savers Value Village (SVV), the largest for-profit thrift store operator in the U.S. and Canada, reported its first earnings report since launching its highly successful IPO on June 29 and the results overall were quite impressive.
- The company exceeded top and bottom-line expectations while posting solid comparable sales growth of 5.5%, illustrating that its low prices with an average cost of item less than $5 are resonating well with consumers in this inflationary environment. Encouragingly, CEO Mark Walsh stated during the earnings call that SVV saw steady and consistent demand throughout the quarter.
- SVV believes that this trend toward thrifting and the rising growth in the reuse economy has plenty of runway ahead of it, leading to an increasing total addressable market. This is reflected in the company's FY23 guidance, which calls for comparable store sales growth of 5.0% and adjusted EBITDA growth of 6% to $320 mln.
- On the demand side, a more budget-conscious consumer, combined with the "treasure-hunting" shopping experience at SVV's stores, is driving healthy sales. Additionally, the company has introduced a couple key initiatives that are expanding its dominant market position in a retail space that has generally lacked innovation.
- For example, SVV has installed self-checkout kiosks in all its stores, while also improving its store layout and signage, enabling it to focus more on merchandising and customer services. At the same time, the company has expanded the use of its green drop mobile donation locations, strengthening its supply of goods.
- Finally, the company is leaning on data analytics to vertically integrate the supply processing, retail, and wholesale components of its business. The end result is that SVV is operating more efficiently, as reflected in its steady yr/yr adjusted EBITDA margin of 23.5% and its profitability.
- Looking ahead, new store openings will play a main role in SVV's growth strategy. Currently, the company operates about 320 stores, but it has identified approximately 2,200 potential new locations for stores across the U.S and Canada. For 2023, SVV is targeting 12 new store openings, with that number rising to 20 or more openings from 2024-2026.
The bottom line is that SVV's dominant position in the thrift store market positions it well to capitalize on the growing interest in thrifting as consumers look to cut costs and practice environmentally friendly habits.
Tapestry bags a huge acquisition with purchase of Capri Holdings, but plenty of risks involved (TPR)
Luxury handbag maker Tapestry (TPR), which owns the Coach and Kate Spade brands, did some serious shopping of its own today, acquiring Capri Holdings (CPRI) for $57/share in cash. Like the high-end handbags that TPR sells, the price tag for CPRI was no bargain, representing a 64% premium to yesterday's closing price. In total, TRP is paying $8.5 bln for CPRI and its well-known fashion brands of Michael Kors, Versace, and Jimmy Choo.
- There seems to be some sticker shock regarding that price as reflected in the negative reaction and steep selloff in TPR shares. On an adjusted EBITDA basis, the $8.5 bln valuation represents a seemingly reasonable multiple of 9x based on the past twelve months. However, when looking at CPRI's recent financial performance, the huge premium that TPR is paying becomes harder for investors to swallow.
- On May 31, CPRI reported Q4 results that edged past analysts' muted EPS and revenue estimates, but it guided Q1 EPS well below expectations while its revenue outlook also fell just short of projections.
- Discouragingly, each of CPRI's three brands saw revenue decline on a yr/yr basis as sluggish discretionary spending in the U.S. pressured sales across department stores.
- The disappointing earnings report followed an even uglier Q3 report in February in which CPRI badly missed earnings expectations and issued downside guidance for Q4 and FY24.
- Since that gloomy Q3 earnings report, shares of CPRI had tanked by nearly 50% and were hovering around multi-year low levels before this morning's buyout offer.
- Adding to the angst, TPR will be taking on more debt to finance the deal, while also adding CPRI's long-term debt balance of $3.6 bln to its balance sheet. In this high interest rate environment, the prospect of tacking on a lot more debt isn't particularly appealing, especially given the uneasiness regarding the economy.
- TPR did state that its priority moving forward will be debt reduction, targeting a leverage ratio of below 2.5x debt/EBITDA within 24 months of closing, but it will suspend its share repurchase activity to do so.
- That's a concern because TPR has been very active with its share repurchases, spending $500 mln to repurchase 13.1 mln shares of common stock during the first nine months of FY23.
- From TPR's perspective, the addition of CPRI will turn the company into a handbag powerhouse, while making it more competitive in an EMEA market that's currently dominated by Gucci parent Kering and Tiffany owner LVMH.
- The key to this deal, though, may be China where TPR derives about 15% of its revenue compared to roughly 5% for CPRI. Unlike CPRI, TPR has been posting solid results this year, mainly due to its higher exposure to China and the stronger-than-expected recovery in sales there after the PRC government lifted its COVID-19 restrictions.
- With an established retail and distribution channel in place in China, TPR can leverage its position there to drive higher sales for CPRI.
Overall, we can appreciate the rationale for making this blockbuster deal as it expands TPR's global reach and adds more than $12 bln in annual sales. However, even though the transaction is expected to be immediately accretive, market participants can be forgiven for feeling apprehensive about the lofty price tag, the significant increase in debt, and the risks involved with integrating a major acquisition amid an uncertain macroeconomic environment.
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