Market Snapshot
| Dow | 42114.40 | -259.96 | (-0.61%) | | Nasdaq | 18518.60 | +103.12 | (0.56%) | | SP 500 | 5808.12 | -1.74 | (-0.03%) | | 10-yr Note | -2/32 | 4.239 |
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| | NYSE | Adv 997 | Dec 1711 | Vol 825 mln | | Nasdaq | Adv 2272 | Dec 1906 | Vol 6.1 bln |
Industry Watch
| Strong: Information Technology, Consumer Discretionary, Communication Services, Energy |
| | Weak: Financials, Utilities, Consumer Staples, Real Estate, Materials |
Moving the Market
-- Another jump in market rates coinciding with buying activity dissipating in stocks
-- Gains in mega caps providing support to index performance
-- Relative strength in chipmakers
| Closing Summary
25-Oct-24 16:35 ET
Dow -259.96 at 42114.40, Nasdaq +103.12 at 18518.60, S&P -1.74 at 5808.12
[BRIEFING.COM] Stocks started the final session of the week on solid footing. A drop in market rates fueled broad buying interest, supported by buy-the-dip trading after this week's losses. Initial moves had the major indices trading up and market breadth favoring advancers.
The vibe in the market shifted when Treasury yields moved higher, which has been a limiting factor for equities through the week. The 10-yr yield dipped below 4.20% earlier, but settled three basis points higher than yesterday at 4.23%. The 2-yr yield settled three basis points higher at 4.10%.
Decliners led advancers by a 2-to-1 margin at the NYSE and by a 4-to-3 margin at the Nasdaq. The equal-weighted S&P 500 settled 0.5% lower.
The market-cap weighted S&P 500 closed little changed from yesterday and the Nasdaq Composite settled 0.6% higher, boosted by strength in mega caps and semiconductor shares. The Vanguard Mega Cap Growth ETF (MGK) closed 0.5% higher and the PHLX Semiconductor Index (SOX) jumped 1.1%.
This price action propelled the communication services (+0.7%), information technology (+0.6%), and consumer discretionary (+0.5%) sectors to the top of the leaderboard today. The influential financial sector closed near the bottom of the lineup, 1.1% lower than yesterday.
- Nasdaq Composite: +23.4% YTD
- S&P 500: +21.8% YTD
- Dow Jones Industrial Average: +11.7% YTD
- S&P Midcap 400: +11.7% YTD
- Russell 2000: +8.9% YTD
Reviewing today's economic data:
- September Durable Orders -0.8% (Briefing.com consensus -0.9%); Prior was revised to -0.8% from 0.0%, September Durable Goods - ex transportation 0.4% (Briefing.com consensus -0.1%); Prior was revised to 0.6% from 0.5%
- The key takeaway from the report is that it had a split growth personality. A 0.5% increase in nondefense capital goods orders excluding aircraft conveyed a pickup in business spending, yet the 0.3% decline in shipments of nondefense capital goods orders excluding aircraft, which factors into GDP computations, declined 0.3% on the heels of a 0.1% decline in August and a 0.4% decline in July.
- October Univ. of Michigan Consumer Sentiment - Final 70.5 (Briefing.com consensus 68.9); Prior 68.9
- The key takeaway from the report is that consumer sentiment increased for the third consecutive month in spite of the election uncertainty.
Looking ahead, there is no US economic data of note on Monday.
Treasury yields settle sharply higher this week
25-Oct-24 15:35 ET
Dow -251.56 at 42122.80, Nasdaq +118.34 at 18533.82, S&P +2.25 at 5812.11
[BRIEFING.COM] The S&P 500 trades above its low of the day, just one point higher than yesterday's close.
The 10-yr yield settled three basis points higher today, and 16 basis points higher this week, at 4.23% and the 2-yr yield settled three basis points higher today, and 15 basis points higher this week, at 4.10%. This week's selling expanded the 2s10s spread by a basis points to 13 bps.
Looking ahead, there is no US economic data of note on Monday.
Mega caps and chipmakers lead in the final hour
25-Oct-24 15:10 ET
Dow -185.37 at 42188.99, Nasdaq +135.32 at 18550.80, S&P +8.47 at 5818.33
[BRIEFING.COM] Small and mid cap stocks are underperforming larger cap stocks, leading the Russell 2000 to trade 0.2% lower and the S&P Mid Cap 400 to trade 0.5% lower.
The Dow Jones Industrial Average also trades below its prior close while ongoing strength in the mega cap and semiconductor spaces has kept the S&P 500 and Nasdaq Composite in positive territory for the day.
The Nasdaq Composite is the only major index that is higher than last Friday's close. The DJIA is 2.5% lower and the S&P 500 is 0.8% lower than Friday.
S&P 500 slips to lows; HCA, Universal Health among top post-earnings laggards
25-Oct-24 14:30 ET
Dow -238.77 at 42135.59, Nasdaq +119.55 at 18535.03, S&P +1.77 at 5811.63
[BRIEFING.COM] The S&P 500 (+0.03%) is narrowly higher, trading place between gains and losses a few times over the last half hour.
Elsewhere, S&P 500 constituents HCA (HCA 357.99, -40.91, -10.26%), Universal Health (UHS 203.64, -21.02, -9.36%), and T-Mobile US (TMUS 226.10, -7.46, -3.19%) pepper the bottom of the standings. HCA and UHS fall following earnings, while TMUS caught a Raymond James downgrade to Market Perform citing valuation concerns amid surging stock price.
Meanwhile, Tapestry (TPR 50.12, +5.65, +12.71%) is outperforming after a ruling in New York put a stop to the company's proposed acquisition of Capri Holdings (CPRI 21.44, -20.16, -48.46%).
Gold adds slightly to weekly gains on Friday
25-Oct-24 14:00 ET
Dow -242.84 at 42131.52, Nasdaq +136.56 at 18552.04, S&P +6.12 at 5815.98
[BRIEFING.COM] The Nasdaq Composite (+0.74%) is up about 136 points this afternoon, seesawing lower then higher over the last half hour.
Gold futures settled $5.70 higher (+0.2%) to $2,754.60/oz, higher by about +0.9% on the week, rallying off overnight declines as haven demand increases closer to the U.S. elections.
Meanwhile, the U.S. Dollar Index is up about +0.2% to $104.23.
Boston Beer Co brews up an earnings beat, but growth slowing across the portfolio (SAM)
Thanks to another uptick in gross margin and an active share repurchase program, Boston Beer Co (SAM) poured out better-than-expected earnings in 3Q24, but from a growth perspective, the alcoholic beverage maker's results and outlook fell flat. Once again, Truly Hard Seltzer was a notable laggard in Q3, underperforming a category that experienced an 11% volume decline in measured channels this quarter. Market share losses, combined with a challenging consumer spending environment, have upended SAM's hard seltzer business, which is pacing towards a low-20% yr/yr drop in sales this year.
To reflect the persistently weak hard seltzer category trends, macroeconomic headwinds, and gross margin improvements, SAM narrowed its FY24 EPS guidance to $8-$10 from its prior guidance of $7-$11. The midpoint of this new guidance range, though, is below analysts' expectations, which isn't helping the stock's cause today.
- Slowing growth and the lack of an identifiable near-term growth catalyst is the root issue that's weighing on SAM. Depletions, a key demand metric that measures the number of cases sold to retailers by distributors, declined by 3% in Q3. The company also lowered its FY24 depletions guidance again, forecasting a low-single-digit decline. Rewinding to last quarter, SAM cut its outlook to down low-single-digits to zero, from down low-single-digits to up low-single-digits.
- SAM's struggles with turning around Truly Hard Seltzer are the most obvious, but it's not the only challenge its facing. For instance, growth is slowing for Twisted Tea (+8% in Q3), the company's star performer that has helped to soften the blow from Truly's downturn. With an 85% market share in the category, growth is naturally going to decelerate, but the problem for SAM is that there's not a clear replacement in the product portfolio to mitigate the impact from the slowing growth.
- In the core beer business, there's not much to raise a glass too, either, as sales were down by mid-to-high single digits. SAM is enthusiastic about its new Sam Adams American Light beer, stating that it has seen positive consumer acceptance in its early markets of New England, Florida, and Texas. The company is planning for a full national rollout of American Light in early 2025.
- However, the key to turning the business around still rests with the struggling Truly Hard Seltzer business. The company acknowledged that it had too many line extensions with Truly, so part of its strategy moving forward is to be more strategic with the flavors and styles it adds. In particular, SAM is seeing a bifurcation in flavor preferences, with bolder flavors underperforming lighter flavors. Therefore, the company will optimize the product portfolio to skew towards lighter flavors.
Overall, it's a mixed bag for SAM as the company is in a bit of a rut in terms of top-line growth but is doing well to keep margins churning higher through price increases, supply chain optimization initiatives, and brewery optimization efforts. However, until the Truly Hard Seltzer business stabilizes and turns around in a meaningful way, SAM will be hard pressed to significantly improve its growth profile.
Skechers steps around China weakness to post upside Q3 results, but lower prices clip margins (SKX)
After Skechers (SKX) warned on September 19 that sales trends in China were deteriorating more than anticipated due to severe consumer discretionary spending pressures, expectations surrounding its 3Q24 earnings report took a couple steps lower. While those concerns around China did indeed come to fruition as sales in the country fell by 5.7%, SKX saw broad-based strength across the rest of its markets in both the wholesale and DTC businesses. That strength more than offset the China-based headwinds, resulting in a Q3 top and bottom-line beat with revenue growth accelerating to 16.0% from 7.3% last quarter.
- A key to SKX's success has been its steady stream of new innovations and products that are typically priced below competitors such as adidas (ADDYY) and NIKE (NKE). A few examples include its hands-free slip-ins, Skechers Arch Fit, and Skechers Air-cooled memory form. Bolstered by this comfort technology, SKX -- and competitor Deckers (DECK), which also posted upside results last night -- are gaining market share on NKE while that company navigates through a CEO transition.
- Similar to last quarter, the international business was the standout with sales up by 16%, despite the weakness in China. In Europe, where SKX had been contending with significant supply chain disruptions, the company's mitigation strategies to address those issues paid dividends, enabling it to meet the robust demand. Overall, the EMEA region achieved growth of 30% with double-digit growth seen across all countries.
- There was improvement on the domestic side as well. Recall that last quarter SKX stated that it saw lower foot traffic at its brick-and-mortar stores in the U.S. Encouragingly, SKX noted during last night's earnings call that it observed a gradual improvement in store traffic, which supported stable retail sales. Meanwhile, its eCommerce channel continued to churn out solid growth, leading to domestic DTC sales growth of 3.7% on top of last year's 14% increase.
- SKX's share gains are most evident in the impressive growth for its wholesale business. Due to increased capacity, or share of shelf space, at SKX's wholesale customers, wholesale revenue jumped by 20.6%. Better yet, the company expects that wholesale will deliver strong results during Q4, which of course includes the vital holiday season shopping period.
- The one main blemish is that SKX's Q4 EPS guidance of $0.70-$0.75 did fall a bit short of expectations. In Q3, gross margin dipped by 80 bps yr/yr to 52.1% due to lower average selling prices, indicating that SKX has become more promotional in order to fuel sales growth.
The main takeaway is that, with the exception of China, business is healthy for SKX and that its new product innovations are resonating with consumers. It's clear that the company is filling the innovation void seen at NKE, but it's also relying on lower prices to drive sales, which is reflected in its downside EPS guidance.
Western Digital kicks off FY25 on a strong note, stock nicely higher on upside results (WDC)
Western Digital (WDC +10%) is heading sharply higher after reporting nice EPS upside with its Q1 (Sep) report last night. Revenue jumped 48.9% yr/yr to $4.095 bln, which was generally in-line, maybe a bit light. But it was within prior guidance of $4.00-4.20 bln. WDC provided in-line EPS and revenue guidance for Q2 (Dec). As a quick housekeeping matter, WDC previously announced it is separating its flash and HDD businesses. WDC continues to expect that to happen by the end of CY24.
- Flash revenue grew 21% yr/yr and 7% sequentially to $1.88 bln, its highest level in nine quarters. Sequential revenue growth was driven by a continued recovery in data center. This was fueled by strong demand for its enterprise SSD applications, which grew 76% sequentially, reaching its highest revenue level since 4QFY22. WDC said the cloud tailwind was offset by ongoing weakness in consumer and in client, with PC OEMs working down inventory and pushing out the refresh purchase cycle.
- Looking ahead to DecQ for flash, WDC expects the continued ramp of its new enterprise SSD offerings to supplement seasonal strength in its consumer end market. Within client, WDC expects PC OEM demand to stabilize. WDC expects a recovery in its consumer and client end markets as it moves through calendar year 2025. Furthermore, WDC is seeing high demand for its enterprise SSD product offering and expects it will serve as the primary driver for revenue growth for the full fiscal year.
- Turning to HDD, revenue grew 85% yr/yr and 10% sequentially to $2.21 bln. WDC achieved record revenue in data center. What stood out was WDC saying it's operating in an environment where demand for its products exceeds supply. To address this, WDC is working with customers to improve visibility into their future needs. WDC is see increasing adoption of its UltraSMR technology.
- Looking ahead to DecQ for HDD, WDC expects continued momentum in data center to drive growth across its nearline portfolio. Adoption of its UltraSMR product line is expanding, particularly among cloud customers. WDC says the HDD business continues to undergo a positive structural transformation. WDC's approach to commercializing its product line, especially UltraSMR, has enabled the company to drive record revenue in the midst of AI's emergence.
Overall, investors clearly like how Western Digital is kicking off its new fiscal year. After trading sharply lower following its JunQ report/guidance in July, this report was notably better. Its industry has been in a downturn, but seems to be making a comeback. Data center has been strong and WDC mentioned improvement in CY25 for its consumer and client markets. The next big thing for WDC is the upcoming split of its flash and HDD units in the next couple of months.
Southwest Air descending despite upside Q3 results and proxy fight resolution (LUV)
Echoing a similar message as Delta Air Lines (DAL) and United Airlines (UAL), which reported Q3 earnings on October 10 and October 15, respectively, Southwest Airlines (LUV) credited industry-wide capacity moderation and improving travel demand for its better-than-expected Q3 results. The upside quarterly results are only half the story for LUV, though. After four contentious months in which activist investment firm Elliott Investment Management engaged in a proxy fight with LUV and called for the dismissal of CEO Bob Jordan and Chairman Gary Kelly, both sides came to a formal agreement.
As part of the settlement, Mr. Jordan will retain his CEO position, but Mr. Gary will depart from the Board of Directors. Additionally, Elliott's influence will increase considerably as six of its recommendations for the Board of Directors were approved, including David Cush, the former CEO of Virgin America, and Pierre Breber, the former CEO of Chevron (CVX).
The agreement removes an overhang and uncertainty, and it also should help to accelerate LUV's turnaround efforts. However, shares of LUV are still flying sharply lower despite the positive news.
- We believe the weakness is partly attributable to the fact that the stock had already rallied by 30% since early August. In the wake of UAL's strong results last week, investors were anticipating a solid report from LUV. The company's guidance, though, may also been causing an issue.
- While LUV's Q4 RASM guidance of +3.5-5.5% looks good, reflecting healthy holiday-season demand, the company's cost guidance is disappointing. Specifically, LUV anticipates Q4 CASM-X to increase in the range of 11-13%, driven by ongoing cost pressures, especially related to new labor contracts. Furthermore, an expected 4% reduction in capacity will also pressure CASM-X.
- In Q3, CASM-X came in at +11.6%. For the sake of comparison, UAL reported that CASM-ex increased by 6.5% in Q3, while DAL reported a 5.7% increase in non-fuel CASM. One of Elliott's gripes against LUV has been that the airline wasn't operating efficiently, so we anticipate that further actions to control costs will be on the horizon.
- Removing unprofitable flights and reducing capacity is another lever LUV is pulling to improve profitability. On that note, ASMs increased by 2.4% in Q3, but LUV is planning for a 4% cut in capacity in Q4, which should support higher ticket prices.
- Rounding out the busy news morning for LUV, the company also announced a $250 mln accelerated share repurchase program under its $2.5 bln share repurchase authorization. Buying back stock should help to offset the impact on EPS from the higher costs.
Overall, LUV delivered a solid earnings report, but its performance is still lagging that of UAL's and DAL's. There's plenty of room for improvement, especially on the cost side, but with Elliott now on board, we suspect that operational changes will be coming sooner-than-later, potentially providing a boost to LUV's profits.
UPS delivered good result despite recent FedEx miss; first top line growth in 2 yrs (UPS)
UPS (UPS +5%) delivered for investors today as the package delivery giant rebounded from a big miss in Q2 to report nice EPS upside in Q3. Following a huge miss from FedEx (FDX) last month, many investors had concerns coming into this quarter. They were pleasantly surprised. However, it was not all clear sailing as UPS lowered its FY24 revenue outlook to $91.1 bln.
- Revenue rose 5.4% yr/yr to $22.2 bln, a bit better than expected. Importantly, this marked UPS's first yr/yr revenue growth since 3Q22 with all three business segments delivering revenue growth. In its US Domestic segment, its performance was driven by strong volume growth, the highest growth rate in more than three years, and excellent cost management, which resulted in a yr/yr decrease in cost per piece of 4.1%. US average daily volume, or ADV, increased 6.5% yr/yr.
- In terms of product mix in Q3, Ground ADV increased 8.9%, while total air ADV was down 6.3%. UPS continues to see customers shifting down from air to ground and some ground volume is shifting down to SurePost. Within ground, SurePost volume levels rose slightly vs Q2. While SurePost volume comes at a lower revenue per piece, UPS said its algorithm improvements allowed it to redirect more SurePost packages into its own network, driving delivery density.
- On its last earnings call, UPS said that Q2 would not only be the bottom, but a turning point for its performance. UPS said it would return to revenue and profit growth in Q3 and UPS did just that. Nevertheless, UPS conceded that it faced a macro environment in Q3 that was slightly worse than expected. In the US, online sales slowed and manufacturing activity was lower than anticipated. This slowdown in manufacturing was also true outside of the US.
- Looking ahead to the all-important holiday season in Q4, UPS noted that this year's holiday season has only 17 shipping days between Black Friday and Christmas Eve. There has not been such a compressed peak since 2019. To prepare, UPS has been collaborating with customers on daily volume expectations and the timing of their promotions. While UPS customers are still expecting a good holiday selling season, recently, shippers have tempered their volume expectations.
Given all the doom and gloom from UPS's Q2 EPS miss and the big miss we saw from FedEx last month, investors are quite excited and likely surprised to see such a good quarter from UPS today. What really stood out were the comments about strong volume growth in the US Domestic segment, the highest growth rate in more than three years. With that said, UPS seemed a bit cautious on Q4 as some shippers have tempered their volume expectations in Q4 given the compressed peak season this year.
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