Market Snapshot
| Dow | 40539.73 | -49.41 | (-0.12%) | | Nasdaq | 17370.20 | +12.32 | (0.07%) | | SP 500 | 5463.54 | +4.44 | (0.08%) | | 10-yr Note | +1/32 | 4.18 |
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| | NYSE | Adv 1143 | Dec 1620 | Vol 852 mln | | Nasdaq | Adv 1477 | Dec 2783 | Vol 4.8 bln |
Industry Watch
| Strong: Consumer Discretionary, Communication Services, Utilities, Real Estate, Materials, Health Care |
| | Weak: Energy, Financials, Information Technology |
Moving the Market
-- Not a lot of conviction on either side of the tape
-- Buying activity in the mega cap space
-- Wait-and-see in front of busy week featuring: earnings reports from mega cap stocks through the week, the FOMC policy decision on Wednesday, and the July Employment Situation report on Friday
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Closing Summary
29-Jul-24 16:30 ET
Dow -49.41 at 40539.73, Nasdaq +12.32 at 17370.20, S&P +4.44 at 5463.54
[BRIEFING.COM] The three major indices settled little changed from prior closing levels. The S&P 500 (+0.1%) and Nasdaq Composite (+0.1%) eked out slim gains while the Dow Jones Industrial Average closed 0.1% lower and the Russell 2000 underperformed, dropping 1.1%.
The mixed showing was due to wait-and-see mentality in front of this week's influential events. About 35% of the S&P 500 components report earnings this week, including four of the five weightiest stocks in the index. Microsoft (MSFT 426.73, +1.46, +0.3%) reports results after Tuesday's close, Meta Platforms (META 465.71, +0.01, +0.0%) reports results after Wednesday's close, Amazon.com (AMZN 183.20, +0.70, +0.4%) and Apple (AAPL 218.24, +0.28, +0.1%) report results after Thursday's close.
Dow component McDonald's (MCD 261.42, +9.42, +3.7%) closed higher despite reporting disappointing quarterly results. Investors are hopeful of turnaround efforts driven by value-based menu pricing.
This price action contributed to the gain in the S&P 500 consumer discretionary sector (+1.4%), which also benefitted from gains in Amazon and Tesla (TSLA 232.10, +12.30, +5.6%). The communication services sector was the next best performer, jumping 0.9%.
The heavily-weighted information technology (-0.3%) and financials (-0.2%) sectors were top laggards.
This week also features the July FOMC Statement on Wednesday and the July Employment Situation report on Friday. Today's news was somewhat limited, but included the U.S. Treasury announcing that it expects to borrow $740 billion in Q3, $106 billion less than anticipated in April. Q4 borrowing is expected to reach $565 billion. The Treasury market didn't react much to the news, ultimately settling little changed from yesterday.
The 10-yr note yield declined two basis points to 4.18% and the 2-yr note yield settled unchanged at 4.39%.
- Nasdaq Composite:+15.7% YTD
- S&P 500: +14.5% YTD
- Russell 2000: +10.3% YTD
- S&P Midcap 400: +10.4% YTD
- Dow Jones Industrial Average: +7.6% YTD
There was no US economic data of note today.
Looking ahead, Tuesday's economic lineup features:
- 9:00 ET: May FHFA Housing Price Index (prior 0.2%) and May S&P Case-Shiller Home Price Index (Briefing.com consensus 6.8%; prior 7.2%)
- 10:00 ET: July Consumer Confidence (Briefing.com consensus 99.8; prior 100.4)
Treasuries settle little changed
29-Jul-24 15:35 ET
Dow +9.86 at 40599.00, Nasdaq +50.13 at 17408.01, S&P +14.60 at 5473.70
[BRIEFING.COM] The three major indices are trading in relatively narrow ranges heading into the close.
The 10-yr note yield declined two basis points to 4.18% and the 2-yr note yield settled unchanged at 4.39%. Also, the U.S. Treasury announced that it expects to borrow $740 billion in Q3, $106 billion less than anticipated in April. Q4 borrowing is expected to reach $565 billion.
Looking ahead, Tuesday's economic lineup features:
- 9:00 ET: May FHFA Housing Price Index (prior 0.2%) and May S&P Case-Shiller Home Price Index (Briefing.com consensus 6.8%; prior 7.2%)
- 10:00 ET: July Consumer Confidence (Briefing.com consensus 99.8; prior 100.4)
Russell 2000 underperforms
29-Jul-24 15:00 ET
Dow +4.47 at 40593.61, Nasdaq +31.94 at 17389.82, S&P +11.70 at 5470.80
[BRIEFING.COM] The major indices trade either slightly higher of slightly lower than prior closing levels. The Russell 2000 continues its underperformance, trading 1.3% lower.
The small cap index is still 9.0% higher in July while the Nasdaq Composite shows a 2.0% loss this month.
Elsewhere, losses in NVIDIA (NVDA 112.20, -0.86, -0.8%) and Broadcom (AVGO 150.64, -1.04, -0.7%) have weighed on the PHLX Semiconductor Index (SOX), which trades up 0.1%. This price action has also led the S&P 500 information technology sector (-0.1%) to trade lower.
ON Semi, Revvity ride earnings to top of S&P 500 on Monday
29-Jul-24 14:30 ET
Dow -12.08 at 40577.06, Nasdaq +20.70 at 17378.58, S&P +7.44 at 5466.54
[BRIEFING.COM] The S&P 500 (+0.14%) is narrowly in first place at this point on Monday, up about 7 points.
Elsewhere, S&P 500 constituents ON Semiconductor (ON 78.87, +8.70, +12.40%), Revvity (RVTY 123.50, +8.35, +7.25%), and Tesla (TSLA 231.48, +11.68, +5.31%) pepper the top of today's standings. ON and RVTY move higher on earnings, while TSLA gains after Morgan Stanley called the company a new Top Pick in US Autos, replacing Ford (F 10.98, -0.21, -1.88%).
Meanwhile, Enphase Energy (ENPH 113.37, -5.97, -5.00%) is today's top laggard despite a dearth of corporate news.
Gold ends lower to start the week
29-Jul-24 14:00 ET
Dow -8.82 at 40580.32, Nasdaq +55.25 at 17413.13, S&P +12.59 at 5471.69
[BRIEFING.COM] With about two hours to go on Monday the tech-heavy Nasdaq Composite (+0.32%) remains atop the standings, up about 55 points.
Gold futures settled $3.20 lower (-0.1%) to $2,377.80/oz, slipping off morning gains as the dollar and a bounce off lows in treasury yields applied some pressure.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $104.54.
Integra's quality control issues cutting into sales outlook and its stock price (IART)
Following this morning's Q2 earnings report, medical device company Integra LifeSciences (IART) is plunging lower, but the main cause for the steep sell off isn't due to its quarterly results. In fact, the company edged passed top and bottom-line estimates while revenue returned to positive growth at 9.7% following four consecutive quarters of yr/yr declines. Rather, the weakness is related to the company's downside Q3 guidance and its slashed outlook for FY24.
- After guiding for FY24 EPS of $3.01-$3.11 and revenue of $1.67-$1.69 bln last quarter, IART is now forecasting EPS of $2.41-$2.57 and revenue of $1.609-$1.629 bln. While demand is relatively healthy across the business -- revenue increased by 5.7% on an organic basis in the Tissue Technologies and by 0.9% in Codman Specialty Surgical -- IART is contending with operational and quality system issues.
- Last January, the company completed an initial analysis of its manufacturing facility in Boston and uncovered some gaps in its manufacturing quality compliance processes. Then, in March, a third-party auditor identified more issues, particularly relating to IART's water quality system, prompting the company to develop a compliance master plan to address quality system and GMP compliance learnings.
- As the company implements its compliance master plan, it will initiate temporary shipping holds on certain products that will mostly impact its Q3 results. The two products that will primarily be impacted are PriMatrix, a dermal repair scaffold used for trauma and burn wounds and other indications, and SurgiMend, an expandable collagen matrix for plastic and reconstructive surgery.
- Following the initial quality control review in January, IART planned to restart production of PriMatrix and SurgiMend at its Boston facility, but on July 15, the company announced that it will restart manufacturing at its Braintree, MA site. However, that facility won't be operational until 1H26.
- On the positive side, IART saw strong demand for CereLink, a neuro-monitoring product, following a global relaunch in Q1. Also, its $275 mln acquisition of Acclarent which was completed in April is progressing well and is contributing materially to the top-line. Acclarent, a developer of ENT instruments, contributed $30 mln in revenue in Q1, about $5 mln more than IART anticipated.
The bottom line, though, is that IART is working through some major quality control issues, and it may take several quarters before those are ironed out. Consequently, the company won't be operating at full strength in the near-term, but the longer-term benefits of implementing the compliance master plan should enable it to more fully meet demand.
Philips jumps to its best levels since 2022 on improving underlying demand in Q2 (PHG)
Philips (PHG +13%) soars to its best levels since 2022 despite missing top and bottom-line estimates as investors focus on improving demand and reiterated guidance. The medical and personal health device manufacturer was coming off a quarter headlined by two major developments: resolving its U.S. litigation over certain Respironics products and reiterating its FY24 outlook. With the litigation behind it, PHG was able to divert all its attention to overcoming persistent macroeconomic challenges. While several headwinds clipped Q2 numbers, PHG is confident that underlying demand is improving, keeping it on track toward its FY24 and FY25 goals.
- PHG sustained its comparable sales growth in Q2 at +2.0%, similar to the +2.4% posted in Q1, driven by growth across each segment. Diagnosis & Treatment, primarily comprised of diagnostic imaging and ultrasound products, registered the best growth at 4%. Meanwhile, Connected Care, which includes the Respironics banner, and Personal Health ticked 2% higher. PHG's results came on improving profitability, recording a 100 bp jump in its adjusted EBITDA margins yr/yr to 11.1%.
- Encouragingly, comparable order intake growth increased by +9.0% yr/yr, a considerable turnaround from the -3.8% posted last quarter. Orders and order book account for around 40% of PHG's revs, making it a critical component of its quarterly revenue. The remaining portion of its sales stems from recurring revenue streams, such as services and consumables.
- North America remained a positive standout; management commented that this region has continued to be the strongest market globally. Conversely, China remained a laggard in Q2, registering another yr/yr drop in orders. However, China may be improving. PHG does not expect ongoing anti-corruption measures, which have impacted approval cycles, to not hurt structural demand. Additionally, the company anticipates China will gradually contribute to order growth over the coming quarters.
- Meanwhile, considering the broader business, PHG is optimistic that its portfolio is positioned to capitalize on current tailwinds, including global hospital staffing shortages. Management warned that the recovery in China was hard to predict. However, the company anticipates that its strength will persist across North America and other international markets. As such, despite the top and bottom-line misses in Q2, PHG was confident in hitting its FY24 financial goals, including comparable sales growth of +3-5% and adjusted EBITDA margins of 11.0-11.5%.
As the first quarter since the cloud of U.S. litigation cleared, PHG's Q2 results positively reflected its ability to lean on its geographic diversity and competitive strengths, delivering healthy numbers despite global uncertainty. There are still lingering issues, namely China, where consumer spending has remained weak and may take an extended period to recover. However, the resilience of North America is encouraging, as it allows PHG to stay on track toward its longer-term financial targets and possibly keep buyers in control.
Inspire Medical Systems provides an inspiring outlook, driving shares sharply higher (INSP)
Inspire Medical Systems (INSP), a provider of the only FDA-approved neurostimulation technology for the treatment of obstructive sleep apnea (OSA), is jumping higher after issuing upside Q2 revenue guidance and lifting its FY24 revenue forecast. The improved outlook comes on the heels of an impressive beat-and-raise Q1 earnings report in early May, indicating that momentum has continued as patient demand remains very strong.
- For Q2, INSP is guiding for revenue of $195.9 mln, equating to estimated yr/yr growth of about 30%, while its updated FY24 revenue outlook of $788-$798 mln (from $775-$785 mln), calls for an increase of approximately 27% at the midpoint. The company didn't provide many details regarding the specific drivers for the guidance increase in this morning's press release, but commentary from the Q1 earnings call helps shed some light on what's fueling its robust growth.
- First, from a broader standpoint, INSP's Inspire implant, which delivers electrical stimulation that causes a slight forward movement of the back of the tongue, helping to maintain an open airway, has some distinct advantages over the standard of care option for OSA.
- CPAP, or continuous positive airway pressure, is currently the leading therapy for OSA, but it involves wearing a facial mask that connects to a hose and pump next to the bed.
- Many patients find this to be uncomfortable, leading to low compliance, leaving the patient at risk of developing OSA-related health issues, such as high blood pressure, heart failure, stroke, or coronary heart disease.
- Consequently, this low compliance is leading to growing awareness and adoption for the minimally-invasive Inspire System. Due to the increased market penetration, INSP launched 66 new implant centers in the U.S. last quarter.
- Meanwhile, in Europe, the company experienced a rebound in Q1 after receiving derogation late in Q4, allowing it to continue to grow adoption of Inspire therapy. The derogation authorization allowed INSP to ship silicon-based leads in countries including Germany, Switzerland, Netherlands, and Belgium. Outside the U.S., revenue surged by 141% in Q1 to $8.2 mln.
- As a result of the growing adoption and higher volumes, INSP is achieving greater manufacturing efficiencies. In turn, gross margin expanded by 50 bps yr/yr in Q1 to 84.9%. Combined with the strong top-line growth, the healthy margins are pushing ISNP towards profitability. In fact, the company expects to be profitable for the full year, forecasting EPS of $0.10-$0.20 for FY24.
The main takeaway is that momentum continues to build for the Inspire System as it takes share away from cumbersome CPAP systems. Looking ahead, the future looks bright, especially as it prepares for a soft launch of its upgraded Inspire V system later this year.
McDonald's higher despite Q2 miss and negative comps; investors like renewed focus on value (MCD)
McDonald's (MCD +4%) is trading higher despite a pretty rough quarter. The company missed on adjusted EPS and has now reported back-to-back EPS misses for the first time since Q1-Q2 of 2020, at the start of the pandemic. Revenue ticked lower 0.1% yr/yr to $6.49 bln, which was below analyst expectations. This was MCD's first yr/yr top line revenue decrease since 4Q22.
- The company was candid on the call. MCD had cautioned since last year of a more discriminating consumer particularly among lower income households. As this year has progressed, those pressures have deepened and broadened. Consumers are much more discretionary. People are eating at home more often.
- The QSR sector has meaningfully slowed in the majority of MCD's markets and industry traffic has declined in major markets like the US, Australia, Canada, and Germany. Also, several markets continue to be negatively impacted by the war in the Middle East. Overall, MCD expects customers will continue to feel the pinch of the economy and a higher cost of living for at least the next several quarters in this very competitive landscape.
- Global comp sales came in at -1.0%, down from +1.9% in Q1 and +3.4% in Q4 while US comps were -0.7%, down from +2.5% in Q1 and +4.3% in Q4. The US comp decline was driven by negative comparable guest counts, partly offset by average check growth due to strategic menu price increases. In fairness, MCD was lapping robust +10.3% US comps in Q2 of last year, but it was still pretty shocking to see negative US comps.
- Outside of the US, International Operated Markets (IOM) comps fell -1.1%, impacted by negative comps across a number of markets, driven by France. On the call, MCD noted weakness with lower income households, but also singled out larger cohorts, including families in Europe eating at home more. International Developmental Licensed (IDL) comps were also lower at -1.3%, hurt by war and negative comps in China more than offset positive comps in Latin America and Japan.
- A big theme on the call was MCD saying it needs to focus more on value offerings. While consumers still recognize MCD as the value leader vs key competitors, MCD conceded that its value leadership gap has recently shrunk and it's working to fix that.
- Specifically, MCD has seen a lot of enthusiasm for its $5 value meal deal, which has produced sales above expectations. It has been most popular with lower income consumers and the $5 deal has improved sentiment towards the McDonald's brand in terms of value and affordability. To date, 93% of MCD restaurants in the US have committed to extending the $5 offer even further into the summer. Other ways to provide value is a steady stream of offers on the mobile app.
Overall, we are a bit surprised to see shares trade higher following what was a historically weak quarter for MCD. We cannot remember the last time MCD missed on the top and bottom lines and reported negative comps at all segments. We think the stock is higher because a lot of negativity was priced in already. Shares have fallen 17% since mid-January. Also, we think investors are pleased to hear MCD focus more on value. This Q2 result seems to have shaken MCD up and has lit a fire under them to focus more on value. A knock on MCD has been that it was slow to match competitors on value as its prices have gotten expensive. Investors seem to be reacting positively to MCD's renewed focus on value.
ON Semiconductor was on target with its Q3 guidance; signals a possible long-awaited bottom (ON)
At first glance, On Semiconductor's (ON +13%) Q2 performance may seem relatively muted. The power and signal management chip maker delivered a modest earnings beat on revs consistent with analyst forecasts while projecting Q3 figures in-line with consensus. However, alarms were sounded leading into ON's Q2 report, especially from STMicroelectronics (STM), which lowered its FY24 outlook primarily due to stubborn challenges within the industrial and automotive end markets, the two sectors that comprise over three-quarters of ON's annual revs. Meanwhile, Texas Instruments (TXN), which did project quarterly numbers marking sequential growth, cautioned that pockets of weakness remain across these two end markets.
Against this backdrop, ON's Q2 results and Q3 guidance were a sigh of relief, helping spur considerable buying demand today.
- Mirroring its peers, ON's segments in Q2 still endured yr/yr and sequential declines. Adjusted earnings contracted by 25% yr/yr and 11% sequentially to $0.96, and revs dipped by 17% yr/yr -- its fasted drop in over five years -- and 7% sequentially to $1.74 bln.
- Given the scope of its silicon carbide business -- the compound used across the EV space -- it is unsurprising that ON continued to encounter turbulence in the quarter as automotive demand remains suppressed in the face of high interest rates and sticky inflation. This shows up in ON's largest PSG segment (roughly half of total revs), which moved 4% lower from last quarter. ON's smallest segment, ISG, fared the worst, tumbling by 13% sequentially. ISG comprises image sensors used in personal electronics, a market plagued by sluggish spending trends.
- However, softness was expected in the quarter, putting most eyes on ON's Q3 guidance. Unlike TXN, which firmly projected sequential bumps in earnings and revs next quarter, ON's Q3 outlook still incorporated the potential for further declines, targeting adjusted EPS of $0.91-1.03 and revs of $1.70-1.80 bln. Still, it was much better than the market feared, especially since the high end of each forecast represents a sequential lift, possibly marking the beginning of a long-awaited recovery in the industrial and automotive markets.
- Management remarked that parts of the industrial sector, such as energy infrastructure, should recover during the back half of the year. Geographically, ON is observing signs of recovery across Asia-Pacific, namely, China, a crucial market for ON. Meanwhile, ON is bullish on the data center and AI market, where it can leverage its silicon carbide portfolio to address the power consumption needs this industry will require.
ON has done enough for two consecutive quarters to gradually entice buyers back into its stock. Investors have been waiting on a broader recovery within the industrial and automotive markets, especially after ON's alarming 4Q23 guidance in late October, triggered by prominent European customers, such as Volkswagen Group, cutting orders as they work through excess inventories. With ON's Q3 guidance building in the potential to finally register sequential growth, investors are more confident that demand has troughed and ON is now on a path toward a significant recovery.
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