Market Snapshot
| Dow | 38891.73 | +39.46 | (0.10%) | | Nasdaq | 16335.21 | -14.04 | (-0.09%) | | SP 500 | 5185.39 | +4.65 | (0.09%) | | 10-yr Note | +2/32 | 4.468 |
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| | NYSE | Adv 1632 | Dec 1156 | Vol 441 mln | | Nasdaq | Adv 2301 | Dec 1894 | Vol 4.1 bln |
Industry Watch
| Strong: Consumer Staples, Real Estate, Utilities, Materials, Health Care, Financials, Industrials |
| | Weak: Information Technology, Consumer Discretionary, Energy |
Moving the Market
-- Mixed responses to earnings news since yesterday's close
-- Losses in some mega cap names weighing on the broader market
-- Lower Treasury yields acting as support for equities
-- S&P 500 running into resistance at 5,200
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Treasuries settle mixed
07-May-24 15:35 ET
Dow +39.46 at 38891.73, Nasdaq -14.04 at 16335.21, S&P +4.65 at 5185.39
[BRIEFING.COM] The major indices exhibited mostly sideways action over the last half hour.
Consumer credit increased by $6.3 bln in March (Briefing.com consensus $15.3 bln) following an upwardly revised $15.0 bln (from $14.1 bln) in February.
The key takeaway from the report is that the pace of credit expansion slowed in March with little change seen in revolving credit.
Elsewhere, Treasuries settled in mixed fashion. The 2-yr note yield rose one basis point to 4.83% and the 10-yr note yield settled three basis points lower at 4.46%. This price action follows today's $58 billion 3-yr note sale, which was met with good demand.
Mega cap and semiconductor losses limit index performance
07-May-24 15:05 ET
Dow +10.15 at 38862.42, Nasdaq -24.44 at 16324.81, S&P +2.45 at 5183.19
[BRIEFING.COM] The major indices are trading just above session lows.
Losses in the mega cap and semiconductor spaces are having an outsized impact on index-level performance. The Vanguard Mega Cap Growth ETF (MGK) is down 0.2% and the PHLX Semiconductor Index (SOX) is down 0.4%.
Only two S&P 500 sectors trade lower despite the downside moves. The consumer discretionary sectors is down 0.7% and the information technology sector shows a 0.5% decline.
Fidelity Nat'l Info jumps in S&P 500 on earnings, Insulet gains on Wolfe upgrade
07-May-24 14:30 ET
Dow +11.22 at 38863.49, Nasdaq -31.65 at 16317.60, S&P +1.16 at 5181.90
[BRIEFING.COM] The S&P 500 (+0.02%) is narrowly in second place on Tuesday afternoon, now near session lows after continuing to fade in the last half hour.
Elsewhere, S&P 500 constituents Fidelity Nat'l Info (FIS 73.26, +2.81, +3.99%), Insulet (PODD 182.82, +6.42, +3.64%), and Equifax (EFX 237.88, +6.54, +2.83%) pepper the top of today's standings. FIS jumps on earnings, while PODD caught a premarket upgrade to Outperform out of Wolfe Research.
Meanwhile, Texas-based building materials firm Builders FirstSource (BLDR 165.39, -35.49, -17.67%) is lagging hard after Q1 results were better than expected but profits fell as higher expenses related to acquisitions and a shift in demand to lower-margin products applied pressure, while gross profit margins fell 190 basis points to 33.4%.
Gold narrowly lower on Tuesday
07-May-24 14:00 ET
Dow +12.76 at 38865.03, Nasdaq -9.55 at 16339.70, S&P +4.61 at 5185.35
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-0.06%) has gone green-to-red in the last half hour, while the other major averages manages to cling to even more modest gains than before.
Gold futures settled $7 lower (-0.3%) to $2,324.20/oz, modestly lower as stocks and the greenback firm up.
Meanwhile, the U.S. Dollar Index is up about +0.3% to $105.34.
Caterpillar, Visa gains aren't enough to lead DJIA past major peers on Tuesday
07-May-24 13:30 ET
Dow +84.23 at 38936.50, Nasdaq +39.78 at 16389.03, S&P +17.88 at 5198.62
[BRIEFING.COM] The Dow Jones Industrial Average (+0.22%) is in last place among the major averages, up 84 points on Tuesday afternoon.
A look inside the DJIA shows that Caterpillar (CAT 347.92, +5.82, +1.70%), Visa (V 276.78, +4.11, +1.51%), and Merck (MRK 129.02, +1.45, +1.14%) are outperforming.
Meanwhile, Walt Disney (DIS 104.99, -11.48, -9.86%) is an outlier to the downside.
The DJIA is now up about +1.9% off last Thursday's close.
Kenvue delivers some pain relief to investors with EPS beat and cost-cutting initiative (KVUE)
Just over one year ago, Johnson & Johnson (JNJ) spun off its consumer health business in an IPO, which is now known as Kenvue (KVUE), and it's been a rough ride for both stocks since then. Today, however, KVUE shareholders are enjoying a nice rally after the company beat Q1 EPS expectations, reaffirmed its FY24 guidance, and announced a reduction of its workforce of approximately 4%. The job cuts are expected to result in annualized pre-tax gross savings of about $350 mln, most of which will be realized in FY26, enabling KVUE to reinvest the savings into its fifteen priority brands.
- Those fifteen priority brands are mainly concentrated in KVUE's Self-Care segment, account for roughly two-thirds of the company's growth, and include names like Tylenol, Benadryl, Motrin, and Zyrtec. In Q1, the Self Care segment generated net sales of $1.70 bln, up 3.5% yr/yr, entirely driven by favorable price/mix as volume decreased by 1.4%. In fact, volumes were down in each of KVUE's three segments (Self Care, Skin Health & Beauty, Essential Health), decreasing by 3.1% on a consolidated basis.
- Approximately two points of that volume decrease was related to retailer inventory buildups in the year-ago period and the effects of associated inventory drawdowns in this quarter. Unfortunately, the company expects these inventory reduction efforts to continue through 2Q24.
- The good news, though, is that supply chain improvements, some easing of cost inflation, and pricing are enabling KVUE to mitigate the negative effect of the volume contraction. These factors drove adjusted gross profit margin higher by 290 bps yr/yr to 60.2%.
- We also believe that investors were relieved to see KVUE reaffirm its FY24 EPS guidance of $1.10-$1.20, revenue guidance of $15.59-$15.90, and organic growth forecast of 2-4%. These guidance ranges were below analysts' expectations last quarter, so it would have been especially discouraging if KVUE had cut its guidance this time around.
By no means did KVUE knock it out of the park with its Q1 results and outlook, and the volume declines across each of its segments leaves much to be desired. Expectations remained muted to say the least, though, with shares down by 25% versus its IPO opening price, setting the stage for a rebound on a better-than-feared performance. KVUE delivered just that, while tacking on a cost-savings initiative, providing the stock with a much-needed boost.
Walt Disney not so magical today as soft Q3 outlook for streaming business hits shares (DIS)
Like a steep and unexpected drop on Magic Kingdom's Space Mountain, shares of Walt Disney (DIS) are falling sharply lower after climbing by more than 5% over the past few sessions as hopes ran high into this morning's Q2 earnings report. Fresh off its proxy battle victory over Nelson Peltz's Trian Group last month and one of its strongest earnings reports in recent history in Q1, sentiment surrounding DIS was about as bullish as it has been since Bob Iger returned as CEO in November 2022.
Therefore, even though DIS comfortably beat Q2 EPS expectations and raised its FY24 EPS guidance to $4.70 from $4.60, the lofty expectations opened the door for some disappointment, which came in the form of a soft Q3 outlook for the Entertainment DTC business and slowing demand for domestic theme parks.
Although these blemishes are taking center stage, there were some notable positives, too.
- In Q2, DIS achieved a key milestone as the DTC portion of its Entertainment segment generated a surprise profit of $47 mln compared to a loss of ($587) mln in the year-earlier period. Better-than-expected Disney+ Core subscriber additions of over 6 mln, combined with a 6% increase in Disney+ Core ARPU following another round of price increases, helped swing this business into the black.
- Importantly, DIS also reiterated that it expects full streaming profitability (including ESPN+) by Q4 of this year.
- Additionally, the Experiences segment, which is mostly comprised of the theme park business, saw revenue grow by 10% to $8.4 bln and operating income increase by 12% to $2.3 bln. Once again, DIS's international parks stood out as revenue surged by 29% to $1.5 bln, led by Hong Kong Disneyland with the park benefitting from higher attendance, guest spending, and additional days of operation compared to the year-earlier period.
- Walt Disney World and Disney Cruise Line were also up on a yr/yr basis, while Disneyland experienced lower results, mainly due to cost inflation.
- This good news, though, is being overshadowed by DIS's expectation for Entertainment DTC to generate a loss in Q3, primarily driven by the loss of Disney+ Hotstar ICC Cricket rights. As a result, the company said that it's not expecting to see subscriber growth in Q3, while reiterating that the path to long-term profitability is not linear.
- Adding to the disappointment, DIS also forecasted Q3 operating income to come in roughly flat on a yr/yr basis for Experiences. During the earnings call, DIS stated that it's starting to see some evidence that travel demand is moderating from peak post-COVID levels.
Overall, it's hard to call a "beat and raise" quarterly report a disappointment, but the bar was set high heading into the print and the stock is still hyper-sensitive to fluctuations within the streaming business. Despite today's selloff, there's still plenty to look forward to for DIS shareholders, including its recently announced sports joint venture with Fox and Warner Bros. Discovery (WBD) and the launch of an ESPN streaming platform in 2025.
Palantir Technologies sinks as upbeat Q1 results fail to meet lofty expectations (PLTR)
Palantir Technologies (PLTR -14%) is failing to uncover any gains today even after topping revenue estimates in Q1, projecting Q2 revs above consensus, and raising its FY24 sales forecast. The AI-powered analytics software developer, whose roots began as a CIA-funded startup, was coming off an impressive Q4 performance that sent its shares toward 2021 levels. As investors piled in, pushing PLTR over +50% higher on the year, they were clamoring for another exceptional report in Q1. Facing this elevated bar, PLTR's results, albeit solid on the surface, proved rather dull today.
There were also a few cracks beneath the surface, especially surrounding overseas trends. For example, U.S. commercial revs surged by 40% yr/yr compared to a mild 16% improvement in international commercial revenue. CEO Alex Karp, one to never sugarcoat situations, put it bluntly, stating that PLTR has headwinds in Europe. He added that the region is heading toward 0% GDP growth over the next few years, which will be a problem for the company. Meanwhile, even though PLTR raised its FY24 revenue guidance, projecting $2.677-2.689 bln compared to $2.652-2.668 bln, it was merely by the size of its Q1 upside, signaling that some prudence was warranted given macroeconomic uncertainty.
Still, despite today's response, PLTR delivered several highlights from Q1, illuminating that it remains amid the early stages of a potentially long-lasting AI-induced tailwind.
- PLTR registered EPS consistent with analyst forecasts and delivered its sixth consecutive quarter of GAAP profitability in Q1. Meanwhile, consolidated revenue growth accelerated to 20.8% yr/yr to $643.3 mln in Q1 driven by PLTR's core Artificial Intelligence Platform (AIP). Global commercial sales climbed by 27% yr/yr to $299 mln while government revs lagged, improving by 16% to $335 mln.
- It is worth noting that government sales growth did accelerate from the +11% registered in Q4, consistent with PLTR's expectation of a further ramp in AI spending as it moves toward the back half of the year.
- U.S. commercial demand remained robust in Q1. PLTR added 69% more customers yr/yr, a nice uptick from the +55% jump last quarter to 262. Management expects to sustain this upward momentum for the remainder of the year, hiking its U.S. commercial revenue outlook to at least $661 mln, $21 mln higher than its previous forecast.
- An underlying factor in PLTR's ability to continue attracting more businesses to its platform lies in its Bootcamps, where organizations can visualize what PLTR's software can do and how it can increase productivity. PLTR cited one example of how these training sessions can increase AIP adoption, noting that a leading utility company signed a seven-figure deal in less than a week after finishing a Bootcamp. These sessions are already leading to substantial deal cycle compression.
Overall, lofty market expectations were sufficient to sink PLTR today despite the company's solid Q1 performance. Concerns emanating from Europe also added to today's pullback, especially given CEO Alex Karp's comments that the region will pose a problem. Nevertheless, Q1 results did not underpin a structural divergence from the company's uplifting prospects surrounding AI. As such, today's quick drop offers a decent longer-term entry point.
Datadog heads lower despite Q1 beat; perhaps investors wanted a more upbeat 2024 outlook (DDOG)
Datadog (DDOG -9%) is heading lower following its Q1 results this morning. The company, which provides a monitoring and security platform for cloud applications, beat nicely on EPS and revenue. It also guided modestly above expectations for Q2 and raised FY24 EPS and revenue guidance. DDOG ended the quarter with about 28,000 customers, up from about 25,500 last year. year. It attracted some larger customers as about 3,340 customers have an ARR of $100K+, up from about 2,910 last year.
- At a recent investor conference, Datadog conceded that 2023 was a very difficult year in the market and a difficult year for customers. Many were really rethinking their spending, but DDOG says it was able to maintain an extremely high gross retention for customers. In Q1, DDOG saw usage growth from existing customers that was higher than in Q4. Churn continues to be low with gross revenue retention stable in the mid to high 90s.
- In fact, this usage growth in Q1 was similar to what the company experienced in Q2 and Q3 of 2022. DDOG noted that was a period when it started to see a normalization of usage following accelerated growth in 2021. DDOG saw particularly strong usage growth with its largest customers, who spend multiple millions of dollars. Overall, DDOG saw healthy growth across its product lines. As usual, newer products grew at a faster rate but from a smaller base.
- DDOG also explained that, while some customers are continuing to be cost-conscious, the company is seeing optimization activity reduce in intensity. For example, the optimizing cohort DDOG identified several quarters ago did grow sequentially again this quarter. DDOG also sees that customers are adopting more products and increasing their products and increasing usage. DDOG says this shows that they are moving forward with their cloud migration and digital transformation plans.
- Looking ahead, DDOG sees no change in a multi-year trend towards digital transformation and cloud migration. It is seeing improved usage growth with less impact from optimization than in the last few quarters although some customers remain cost-focused. As a side note, Briefing.com notes that we view "optimization" as another way of saying customers are either reducing spend or perhaps reallocating spend to optimize current budgets.
Overall, DataDog's Q1 report and guidance looks pretty good all around. We also liked its comments about usage rates improving. However, investors apparently are finding fault here. Perhaps they wanted to see more robust guidance. Also, DDOG did guide to sequentially lower operating margin in Q2 as it ramps up hiring and holds its DASH User Conference. We also think maybe investors wanted a more bullish outlook for 2024 after coming out of a difficult 2023. Following robust results from Azure and AWS, maybe investors wanted to see more out of DataDog.
Tyson Foods sinks after its reaffirmed FY24 sales forecast leaves investors hungry for more (TSN)
Tyson Foods (TSN -7%) is being swallowed up by sellers today disappointed by the global food processor's relatively light revenue in Q2 (Mar) and reaffirmed FY24 (Sep) revenue outlook of flat yr/yr growth. TSN has been striving to turn things around as the sticky inflationary environment has dragged down its quarterly performances over the past several quarters. The company closed chicken processing plants, shuttered a pork facility, and eliminated thousands of jobs. At the same time, TSN shifted its focus toward customer diversification, product mix, and margin-accretive channels.
While these efforts resulted in a brighter adjusted operating income (AOI) forecast for the year, TSN still operates in a volatile global economy. With shares running +15% higher to start the year as of Friday's close, TSN's guidance is leaving investors hungry for more today, fading much of the stock's gains this year.
- TSN registered another quarter of sluggish revenue growth, falling by 0.5% yr/yr to $13.07 bln. Conversely, adjusted EPS cleared analyst expectations by double-digits for the second straight quarter, underscoring strong margin expansion in Prepared Foods offsetting weakness across TSN's other businesses. As has become common for TSN lately, segment performance was mixed.
- In Beef, sales jumped 7% yr/yr to $4.95 bln on a 3% uptick in volume. However, this segment has continued to endure limited cattle supplies leading to spread compression with AOI falling yr/yr despite the revenue improvement, leading to negative 0.7% adjusted operating margins.
- On the flip side, in Chicken, sales fell by 8% to $4.07 bln, largely due to a 6% volume contraction, underscoring lower production from TSN's past facility closures as it aligns supply to customer demand. Despite the sales decrease, AOI bounced back into positive territory from the year-ago period, showcasing the benefits of management's recent cost-cutting actions.
- Pork sales inched 5% higher yr/yr to $1.49 bln on a 3% improvement in volume, reflecting a more plentiful hog supply compared to last year. Pricing similarly edged modestly higher on improving global demand. Like Chicken, AOI in Pork rebounded from negative $31 mln to post a profit in the quarter.
- Prepared Foods, TSN's retail business, which includes its familiar Jimmy Dean, Hillshire Farm, and Ball Park brands, registered flat sales growth yr/yr at $2.40 bln. Management remarked that consumers' focus on value continued to hide retail volumes in Q2. TSN remains committed to further diversifying its product portfolio and enhancing margins in Prepared Foods.
- For the remainder of the year, TSN continued to project flat revenue growth yr/yr, a disappointing development given how the second half of each fiscal year tends to be seasonally stronger than the first half. However, it hiked its AOI guidance to $1.4-1.8 bln from $1.0-1.5 bln.
While TSN's Q2 numbers displayed meaningful changes from where it stood this time last year, there is still a long road to recovery. Nevertheless, management's recent strategic turnaround initiatives are having a positive impact. Also, even though inflation refuses to budge much, at-home channels stand to be the benefactor of constantly rising food prices, lifting TSN in the process.
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