Market Snapshot
| Dow | 42196.52 | +39.55 | (0.09%) | | Nasdaq | 17925.13 | +14.79 | (0.08%) | | SP 500 | 5709.54 | +0.79 | (0.01%) | | 10-yr Note | -26/32 | 3.79 |
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| | NYSE | Adv 1264 | Dec 1438 | Vol 899 mln | | Nasdaq | Adv 1970 | Dec 2183 | Vol 5.5 bln |
Industry Watch
| Strong: Energy, Information Technology, Financials, Utilities |
| | Weak: Consumer Discretionary, Communication Services, Consumer Staples, Real Estate |
Moving the Market
-- Not a lot of conviction after Israel said it would retaliate against Iran, yet showing some resistance amid ongoing uncertainty about the conflict
-- Relative strength in semiconductor names providing a measure of support
-- Treasury yields slightly higher after ADP Employment Change report
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Closing Summary
02-Oct-24 16:25 ET
Dow +39.55 at 42196.52, Nasdaq +14.79 at 17925.13, S&P +0.79 at 5709.54
[BRIEFING.COM] The equity market held up well today. The S&P 500 (+0.01%), Nasdaq Composite (+0.1%), Russell 2000 (-0.1%) and Dow Jones Industrial Average (+0.1%) traded near prior closing levels through the entire session. The price action was encouraging due to lingering uncertainty around a potential escalation in the Middle East.
Israel said it would retaliate against Iran, but the market wasn't bothered by this today. Stocks also had a muted response to the ADP Employment Change Report for September, which didn't impact the market's thinking on soft landing scenario for the economy. Payroll growth was decent (143,000), wage inflation moderated, hiring was seen in both the goods and service-providing sectors, and across all geographic regions.
Relative strength in the semiconductor space provided some support to the stock market, leading the PHLX Semiconductor Index (SOX) to settle 1.5% higher. The price action also boosted the S&P 500 information technology sector (+0.6%), along with a gain in Apple (AAPL 226.78, +0.57, +0.3%).
The energy sector (+1.1%) also closed higher amid rising oil prices. WTI crude oil futures, which traded at $72.41/bbl earlier, settled 0.7% higher at $70.20/bbl.
The consumer discretionary sector was the worst performer, closing 0.8% lower due in part to a solid loss in NIKE (NKE 83.10, -6.03, -6.8%), which reported fiscal Q1 results and withdrew its FY25 guidance.
Humana (HUM 246.49, -32.96, -11.8%) was another losing standout after reporting that only 25% of its members are enrolled in 4-star plans and above, versus 94% in 2024.
- Nasdaq Composite: +19.4% YTD
- S&P 500: +19.7% YTD
- Dow Jones Industrial Average: +12.0% YTD
- S&P Midcap 400: +11.4% YTD
- Russell 2000: +8.3% YTD
Reviewing today's economic data:
- Weekly MBA Mortgage Applications -1.3%; Prior 11.0%
- September ADP Employment Change 143K (Briefing.com consensus 120K); Prior was revised to 103K from 99K
Looking ahead to Thursday, market participants receive the following data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 223,000; prior 218,000) and Continuing Claims (prior 1.834 mln)
- 9:45 ET: Final September S&P Global U.S. Services PMI (prior 55.7)
- 10:00 ET: August Factory Orders (Briefing.com consensus 0.1%; prior 5.0%) and September ISM Non-Manufacturing Index (Briefing.com consensus 51.6%; prior 51.5%)
- 10:30 ET: Weekly natural gas inventories (prior +47 bcf)
Stocks move sideways in front of the close
02-Oct-24 15:40 ET
Dow +55.91 at 42212.88, Nasdaq +41.84 at 17952.18, S&P +3.27 at 5712.02
[BRIEFING.COM] The three major indices trade near their best levels ahead of the close.
The 10-yr note yield rose four basis points today to 3.79% and the 2-yr yield settled two basis points higher at 3.64%.
Looking ahead to Thursday, market participants receive the following data:
- 8:30 ET: Weekly Initial Claims (Briefing.com consensus 223,000; prior 218,000) and Continuing Claims (prior 1.834 mln)
- 9:45 ET: Final September S&P Global U.S. Services PMI (prior 55.7)
- 10:00 ET: August Factory Orders (Briefing.com consensus 0.1%; prior 5.0%) and September ISM Non-Manufacturing Index (Briefing.com consensus 51.6%; prior 51.5%)
- 10:30 ET: Weekly natural gas inventories (prior +47 bcf)
LEVI, STZ trade down in front of earnings
02-Oct-24 15:10 ET
Dow +54.10 at 42211.07, Nasdaq +34.71 at 17945.05, S&P +2.41 at 5711.16
[BRIEFING.COM] The market moved mostly sideways at the index level over the last half hour. The S&P 500 is up about five points, or 0.1%.
Levi Strauss (LEVI 21.07, -0.61, -2.8%) trades down ahead of its earnings report this afternoon and Constellation Brands (STZ 255.46, -2.21, -0.9%) trades lower in front of it earnings report tomorrow morning.
Separately, growth stocks have outperformed value stocks today. The Russell 3000 Growth Index shows a 0.2% gain.
Caesars higher after new repurchase news; Global Payments dips once more in S&P 500
02-Oct-24 14:30 ET
Dow +18.03 at 42175.00, Nasdaq +38.16 at 17948.50, S&P -0.03 at 5708.72
[BRIEFING.COM] The S&P 500 (flat) is narrowly lower in recent trading.
Elsewhere, S&P 500 constituents Caesars Entertainment (CZR 42.99, +2.19, +5.37%), Monolithic Power (MPWR 926.36, +34.55, +3.87%), and Palantir Technologies (PLTR 37.58, +1.12, +3.07%) dot the top of the standings. CZR approved a new repurchase program, MPWR caught a tgt raise out of Truist this morning and benefits from general strength in chip stocks, and Peter Thiel sold more than $450 mln in PLTR stock pursuant to a 10b5-1 plan and the company announced a partnership with Edgescale AI to launch 'Live Edge' AI solution for industrial operations.
Meanwhile, Global Payments (GPN 96.71, -3.71, -3.69%) is lagging, extending losses which began after last week's guidance from its Investor Conference.
Gold lower on Tuesday
02-Oct-24 14:00 ET
Dow +32.78 at 42189.75, Nasdaq +38.79 at 17949.13, S&P +2.27 at 5711.02
[BRIEFING.COM] After a brief stint in the red the major averages have all turned higher in the last half hour, the Nasdaq Composite (+0.22%) now up 39 points.
Gold futures settled $20.60 lower (-0.8%) to $2,669.70/oz.
Meanwhile, the U.S. Dollar Index is up +0.4% to $101.60.
RPM Inc painted in a positive light as investors focus on the several uplifting trends in Q1 (RPM)
RPM Inc (RPM +6%), a specialty coating, sealants, and building materials supplier, is being painted in a positive light today despite missing Q1 (Aug) revenue estimates and projecting downbeat Q2 (Nov) revenue growth. The operating environment remains challenging. Inflation has been sticky, commercial construction has been sluggish, DIY activity has softened, and large construction projects are experiencing delays.
Against this dismal backdrop, investors were likely not wagering on exceptional revenue growth in Q1. Similarly, while short of consensus, RPM's flat revenue growth outlook for Q2 is not alarming. In fact, flat growth would mark a decent improvement over the 2.1% decline RPM endured in Q1 to $1.97 bln. Meanwhile, RPM continues to expect a back-half weighted year, reiterating its FY25 revenue growth forecast of low-single-digits despite the shortfalls in the year's first half.
- There were also several promising developments during the quarter. For starters, RPM delivered its third straight quarter of earnings upside, expanding its bottom line by 12.2% yr/yr to $1.84 despite the pressure on its top line. This outperformance showcased RPM's MAP 2025 initiatives, which center on streamlining its SG&A structure, pivoting to growing end markets, and investing in targeted growth opportunities. The benefits rolled in nicely to start FY25, resulting in a Q1 record for adjusted operating margins.
- RPM's Construction Products Group (CPG) and Performance Coatings Group (PCG) were the leaders in Q1. CPG was the only segment to deliver positive yr/yr sales growth at 1.4%, led by roofing and wall systems. PCG fell by 1.8%, which still outpaced RPM's overall sales contraction, aided by a focus on maintenance and restoration projects. Helping both segments has been RPM's smart move to shift from distribution centers and EV manufacturing to the now lucrative data center market.
- RPM's fluidity in adapting to the most lucrative markets over time is a testament to management's focus on constantly extracting the most out of its current environment.
- Conversely, Specialty Products Group (SPG) and Consumer Group trailed in Q1, registering 3.5% and 6.1% drops in revenue yr/yr, respectively. The overarching issue is that these two segments are heavily exposed to residential end markets, where demand remains lackluster. Management mentioned that it was encouraged by declining interest rates but cautioned that it was too early to determine when this would translate into increased housing turnover.
- Also worth pointing out are the strikes at East Coast ports. At this time, RPM was unsure whether it would encounter a material impact from the strikes. However, it is worth keeping an eye on.
- Still, RPM reiterated its guidance because of the bright spots within its other segments. CPG is expected to remain resilient, supported by the demand for roofing and wall systems. Meanwhile, PCG growth is steadily improving, reflecting the positive impact of more effective sales management systems.
RPM's Q1 report may have contained some weaknesses. However, investors had already anticipated this ahead of time, making the silver linings from the quarter that much brighter and ultimately fueling all-time highs in the stock today.
NIKE gets sacked as gloomy Q1 report shows that comeback effort just became more daunting (NKE)
In NIKE's (NKE) pursuit of a comeback, the scoreboard is looking even more daunting today after the company's weak earnings report showed that it fumbled the ball once again in 1Q25. While NKE cleared EPS estimates for the fifth consecutive quarter, thanks to its cost-cutting efforts and a 120-bps yr/yr improvement in gross margin, sales fell by 10.4% to $11.59 bln, missing expectations and representing its worst sales decline since the pandemic-impacted quarter of 4Q20.
Furthermore, the company punted on providing an updated outlook for FY25, citing the upcoming CEO transition on October 14 as the reason why, suggesting that its prior guidance of a mid-single-digit sales decline is looking out of reach. Indeed, if NKE's downside Q2 revenue guidance for a decline of 8-10% is accurate, then an improbably strong 2H25 would be needed to attain that mid-single-digit decline this fiscal year.
- Unfortunately, the weakness wasn't limited to a single area within the business. Most notably, the core North America market took a turn for the worse as revenue decreased by 11% compared to last quarter's more modest 1% dip. The downturn points to even greater share losses to competitors such as Deckers' (DECK) HOKA and On Holdings (ONON), both of which are expected to report double-digit sales growth in their next earnings reports.
- A cornerstone of outgoing CEO John Donahoe's strategy was to build up NKE's direct-to-consumer (DTC) business, which played out perfectly in 2H20 and CY21 as the pandemic drove consumers to its digital channels. However, as the world began to normalize in 2022 and thereafter, NKE was slow to readjust and lost its footing on the product innovation side. Consequently, the robust growth seen 3-4 years ago has vanished, as illustrated by the 13% drop in NIKE Direct revenue this quarter.
- The situation isn't much better on the wholesale side with revenue falling by 8% to $6.4 bln. A byproduct of NKE's strategy to focus on the DTC business was that an opening was created for competitors to grab the shelf space that NKE vacated with new products. One of the main reasons why shares of NKE rallied after announcing the CEO transition on September 19 is the belief that newly appointed CEO Elliot Hill, who previously served as the company's President of Consumer and Marketplace, can rebuild its retailer partnerships.
- Positives were few and far between, but one bright spot was the disclosure that sales of NKE's newer products grew by double-digits in Q1, providing an encouraging data point that its early innovation efforts are starting to pay off. Relatedly, CFO Matthew Friend commented that he's seeing indications of a slight second half improvement in revenue trends versus the first half.
The main takeaway is that NKE's disappointing earnings report provided a painful reality check that it has a long way to go to reach the goal line in its comeback attempt. While we do believe that Mr. Hill is a solid choice to quarterback this comeback, investors should anticipate a methodical and time-consuming approach that could take several quarters to play out.
Lamb Weston fries up a nice gain, reaffirming revs was encouraging sign (LW)
Lamb Weston (LW+5%) is heading higher following its Q1 (Aug) earnings report last night. This Idaho-based supplier of frozen potato products to restaurants and retailers beat slightly on EPS and revenue. However, it lowered FY25 EPS guidance pretty substantially to $4.15-4.35 from $4.35-4.85 even as it reaffirmed revenue at $6.60-6.80 bln. It's also now targeting the low-end of adjusted EBITDA prior guidance. The company also announced a restructuring plan.
- Revenue in Q1 declined 0.7% yr/yr to $1.65 bln, driven by a 3% volume decline. LW cited customer share losses, soft restaurant traffic trends, the carryover effect of its decision to exit certain lower-priced and lower-margin business in Europe, and the impact of a previously announced voluntary product withdrawal initiated in late FY24. The volume decline was partially offset by growth in key international markets.
- LW has said that the operating environment changed rapidly during FY24, as global restaurant traffic and frozen potato demand softened. In fact, the downward traffic trends accelerated during the back half of FY24 and into early FY25. This has led to an increase in available industry capacity in North America and Europe. LW said on its last call that this industry supply/demand imbalance will persist through much, if not all, of FY25.
- The silver lining is that QSR hamburger chains have increased promotional activities in recent months to drive restaurant traffic, which should also drive sales of French fries. We suspect LW's decent Q1 results following two big misses in Q3-Q4 were partially achieved by promotion-driven increased traffic in Q1.
- In terms of the restructuring plan, LW announced the permanent closure of its manufacturing facility in Connell, WA. In addition, LW is temporarily curtailing certain production lines and schedules across its manufacturing network in North America. LW also announced a 4% headcount reduction and the elimination of certain unfilled job positions. LW is also lowering its FY25 cap-ex outlook to $750 mln from $850 mln to save money.
It has been a rough few months for Lamb Weston. The stock enjoyed a huge move from early 2022 to mid-2023, but has been under pressure for much of the past year, including some gap down quarters in Q3-Q4 as demand has slowed and consumers eat out less frequently. However, recent promotional activity at some hamburger chains hopefully will spark volume improvements. The stock is holding up today despite the big guide down. We think investors are pleased to see even a modest EPS beat after two huge EPS misses in Q3-Q4. Also, LW reaffirmed FY25 revs, which was an encouraging sign, and the restructuring plan will help rein in costs.
Conagra is chewed out over a rare top and bottom-line miss in Q1 sparked by a plant disruption (CAG)
Consumer packaged goods titan Conagra (CAG -9%), famous for many brands from Slim Jim to Vlasic, is being chewed out today over a rare earnings miss on a wider yr/yr sales decline than expected in Q1 (Aug). CAG did warn last quarter that FY25 would be a transition year, keeping expectations in check as consumers adapt to higher prices. However, CAG has not missed top and bottom-line estimates since 3Q20 (Feb), which was during the early stages of the pandemic, making today's headline numbers so shocking.
- What happened? CAG endured a manufacturing disruption, requiring it to pause production at its Hebrew National hotdog plant. With Q1 containing prime grilling months, this setback could not have happened at a worse time. While CAG was able to fully restart operations, the pause resulted in material damage, including Hebrew National posting a 47% drop in sales yr/yr. The company estimates that this disturbance clipped 60 bps off consolidated volumes and 90 bps off total organic sales.
- The loss was even worse in the Refrigerated and Frozen segment, which saw an estimated 150 bps sliced off volumes and 210 bps removed from organic net sales.
- As a result, earnings and sales took a hit, contracting by 19.7% and 3.8% yr/yr, respectively. Organic net sales, which excludes FX impacts, divested businesses, and M&A, declined by 3.5%. Volumes slid by 1.6% yr/yr, marking CAG's 14th consecutive quarter of volume compression.
- There were still bright spots. Even when including the Hebrew National impact, volumes improved sequentially from the 1.8% decline delivered over the past two quarters. Also, CAG delivered yr/yr volume growth across its frozen and snacks categories, two investment focus areas. Management added that staples volumes should continue to improve as it exits Q1 as the impact of last year's price increase wanes. It is also worth pointing out that approximately 71% of CAG's portfolio held or gained volume share in Q1.
In an environment ripe with inflationary pressures and a strained end consumer, out-of-plan setbacks are the last thing CAG needs. However, the good news is that CAG anticipates Q1 to be an aberration, noting that most of the impact of the plant disruption would be isolated to Q1. As such, management reiterated its FY25 guidance, including adjusted EPS of $2.60-2.65 and organic sales growth of negative 1.5% to flat yr/yr.
Nevertheless, investors are concerned that following the plant disruption, the lingering macroeconomic headwinds could prove too intense for CAG to make up the shortfall in its remaining quarters this year, sparking significant profit-taking today. CAG was up over +16% from July lows heading into its Q1 report today.
ZEEKR Intelligent Technology driving higher as EV deliveries remained strong in September (ZK)
The EV market in China is fiercely competitive and has been embroiled in an escalating price war for many months, but demand has been strong amid a challenging macroeconomic backdrop, as illustrated by this morning's batch of September sales reports. One of the clear standout performances in September came from ZEEKR Intelligent Technology (ZK), the Chinese premium EV maker that went public on May 10 of this year.
Following a 46% yr/yr increase in August, ZK's deliveries soared by 77% in September to 21,333 vehicles, pushing the company's cumulative deliveries to 339,506. Meanwhile, NIO (NIO), which also manufactures higher end EVs, such as the EL7 SUV, saw deliveries jump by 35% in September, while BYD Company (BYDDY) achieved a new milestone as quarterly deliveries surpassed the one million mark.
- In addition to the aggressive price cuts from EV makers, the roll out of more government subsidies has provided a jolt to demand. This past July, the PRC government doubled the trade-in subsidy for passenger cars to a maximum of 20,000 yuan.
- Furthermore, consumers have had more options to choose from as auto dealers build inventories ahead of the busy September and October months, and as EV makers continue to launch new, more affordable models to compete with Tesla (TSLA).
- On that note, XPeng (XPEV), which registered a 39% increase in deliveries for September, released its Mona M03 model this week with a base price that's under $17,000. This was preceded by NIO launching its own lower-priced brand called Onvo in May, which has a crossover vehicle called Onvo L60 that's priced about $4,000 less than TSLA's Model Y -- currently, the best-selling EV in China. In September, NIO delivered 832 L60 vehicles.
- ZK, however, is driving in the opposite direction, adding a new luxury vehicle to its lineup. On August 30, the company launched its mid-to-large SUV, the ZEEKR 7X, with deliveries beginning at the end of September. Next month, we should get a feel for how strong the market reception is when the company issues its October deliveries report.
The main takeaway is that, unlike the U.S., the EV market in China is gaining momentum as prices come down, as new models are launched, and as the government ramps up its subsidy program. Higher tariffs on Chinese EVs in the EU represent another potential speedbump, but up-and-coming EV makers such as ZK, NIO, and XPEV have so far defied the odds, emerging as legitimate competitive threats to TSLA and BYD.
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