Mid-Morning Look

Thursday, May 30, 2024

U.S. stocks slide following a sharp decline in technology/software stocks post earnings, though most other S&P sectors moving higher. Large cap tech doing most of the damage (XLK -1.8% XLC -0.7%), while NYSE breadth more than 3:1 advancers leading decliners despite major averages trading lower, as markets seeing rotation into other sectors. U.S. Treasury yields slid (10-yr back to 4.56% after highs above 4.63% Wednesday) after data showed the U.S economy grew more slowly than previously estimated in the first quarter as consumer spending was revised lower, suggesting the Federal Reserve is firmly on track to cut interest rates this year. U.S. yields hit four-week peaks across the board on Wednesday after weaker-than-expected auctions of Treasuries in the last two sessions, raising concerns about demand for government debt. The Dow Jones industrials -1% at 38,000 (lowest levels since January), and more than a 2,000-point roll from last week’s record highs at 40,077. Weakness in Dow component Salesforce (CRM) -20% doing most of the damage today after quarterly sales miss and disappointing guidance. The two sectors dominating headlines/earnings this morning are software (as mentioned the CRM) and retail. Retail earnings recap shows BBY winner as EPS, comps beat, but mixed comments on consumer; BIRK and FL shares jump in footwear sector, follows recent better results from DECK; discount/off price better results with BURL +19% while DG modest gains as Q1 profit and sales rise above expectations, full-year outlook kept intact; luxury retail sees CPRI soft results across board; AEO slips in apparel as reported a sales miss but EPS beat and biggest disappointment in department stores with KSS -25% after comps, sales guidance all miss. All eyes on the PCE core inflation data tomorrow, and some big earnings tonight.

• Weekly Jobless Claims climbed to 219,000 in latest week from216,000 and vs. consensus 218,000; the 4-week moving average climbed to 222,500 from 220,000 prior week; continued claims climbed to 1.791M from 1.787M prior week and the U.S. insured unemployment rate unchanged at 1.2%.
• U.S. Advance goods trade deficit jumped to (-$99.4B) in April, much bigger than expected, after widening to (-$92.3B from -$91.5B) in March. This is the widest since the May 2022 figure of (-$102.6B). Exports were up 0.5% to $169.9B after dropping -2.9% prior and Imports surged 3.1% to $269.3B after falling -1.7% in March. Advance wholesale inventories increased 0.2% to $896.3 B in April after slipping -0.4% to $894.8B.
• Pending Home sales index fell (-7.7%) in April to 72.3 from an upwardly revised 78.3 reading in March, the largest since February 2021 and the index level was the lowest since the record-low reading of 71.8 in April of 2020. The index is meant to be predictive of completed home sales transactions one to two months later.

• In Cruise lines: Reuters reported cruise operators CCL, RCL, NCLH are offering summer discounts looking to fill empty cabins. The cruise liners are lowering summer prices in part because more vessels are headed for already popular Caribbean and Alaskan destinations – and as they reroute ships away from Red Sea destinations due to the ongoing conflict between Israel and Hamas. In the Caribbean and Bermuda, Royal Caribbean’s seven-day itinerary prices in June are down 21% year-over-year as of May. Similar Norwegian and Carnival itineraries are down 12% and 11% respectively, according to TripAdvisor’s Cruise Critic.
• In Aerospace & Defense: BA outgoing CEO Dave Calhoun and other company officials will detail the plane maker’s quality, training, and other improvements during meetings with U.S. aviation regulators on Thursday, according to sources with knowledge of the matter, Reuters reported. PLTR received a $480M firm-fixed-price contract for the Maven Smart System prototype, an artificial intelligence tool that assists in combat using image and video analysis. FTAI agreed to purchase a unit of LMT Canada for $170M. OSIS receives $42M Airport Security Systems Contract.

• BBY +10%; mixed Q1 results as EPS of $1.20 tops the $1.008 estimate citing its membership program and cost-saving efforts, though Q1 enterprise comp sales fell a greater -6.1%, vs. est. -4.99% amid weakness in sales of appliances, home theater, gaming and mobile phones, and forecasts Q2 comp sales about -3%, vs. est. -2.56%.
• BHVN +8%; above $36, and well-off yesterday lows of $26.80 after protein-degrader drug fell short of investor expectations in early-study test – some analysts out defending today (Piper said earlier sees as unfounded concerns).
• BIRK +9%; as the footwear retailer Q2 revenue of 481.2M euros tops expectations of 466.1M; raises FY revenue forecast to $1.77B-1.78B euros vs. prior view 1.74B-1.76B euros on the back of benefits from full-price selling and strong demand for its sandals; raises FY adj EBITDA 535M-545M euros from prior 520M-530M euros.
• BURL +17%; shares jump as Q1 sales rose 11% y/y to $2.35B just above ests $2.34B and EPS of $1.42 topped $1.05 estimate while boosted its FY24 adj EPS view to $7.35-$7.75 from prior outlook of $7.00-$7.60 per share.
• FL +26%; Q1 results better as EPS $0.22 tops $0.12 estimate though sales fell -2.8% y/y to $1.87B vs. est. $1.89B, but comp sales improved to -1.8% from -9.1% y/y and vs. est. -1.9% (affirms year EPS, rev, comp sales views).
• HPQ +13%; shares jump on earnings Q2 adj EPS $0.82 vs est. $0.81 on revs $12.8B vs est. $12.599B and said Sales of HP’s personal systems segment rose 3% to $8.4B from a year ago.
• PYPL +3%; was upgraded to Buy at Mizuho and raised tgt to $90 from $68 saying their proprietary analysis of PYPL’s newly introduced Fastlane product shows potential for $1.0-1.5B transaction margin dollar lift (5-10% upside) over the medium-term.
• SRPT +6%; will replace SWAV, which is being acquired by JNJ in the S&P MidCap 400 index.

• AEO -4%; reported a sales miss but EPS beat, driven by better Gross Margin, sales came in slightly below Street (but in-line with guidance, and guided Q2 sales/EBIT in line and FY guide was reiterated (comes after big ANF beat yesterday).
• BRKR -6%; shares dropped after the announced pricing of 6M share offering at $68, 6.3% discount to stock’s last close.
• CRM -20%; shares tumble and weigh on software after results/guidance; posted calculated current bookings that grew just 2.4% compared to 7.3% for consensus, and billings grew 3.3% compared to expectations of 10% while lowered the total revenue guide to the lower end of the range by lowering subscription revenue guidance.
• HRL -7%; shares dropped after Q2 EPS $0.34 missed est. $0.36 and Q2 revs fell -3% y/y to $2.89B also below consensus est. $2.97B as -7% declines in both retail and international sales offset 6% growth in foodservice sales; raised its guidance range for adjusted EPS to $1.55-$1.65 from $1.51-$1.65 but maintained sales outlook.
• KSS -25%; shares tumbled after results with Q1 comp sales -4.4%, missing the est. -1.74%, as overall sales dropped -5.3% y/y to $3.18B missing the $3.34B estimate; forecasts FY operating margin 3%-3.5%, below prior view 3.6%-4.1% and guides EPS $1.25-$1.85, down from prior forecast $2.10-$2.70.
• MAXN -41%; shares get crushed after guiding Q2 revenue $160M-$200M, well below the consensus est. $217.2M following a Q1 loss of $14.8M, down from profit of $53.6M y/y and revs fell -41% y/y to $187.5M; CEO noted the co has been facing a very difficult market environment since Q3.
• NTNX -17%; shares decline after Q3 results beat, but Q4 guidance was below consensus (sees Q4 revenue $530M-$540M, below consensus $546.1M) and a narrowed FY forecast, citing downtick in new and expansion business.
• PATH -34%; shares tumbled as CEO steps down, posted Q1 revenue slightly ahead of consensus (a 0.6% beat), but management significantly lowered its FY25 revenue growth guidance from 19% to 8%, citing pressures on multi-year deals due to macro challenges and execution issues; guides FY revs $1.405-1.41B vs est. $1.557B and lower Q3 revs.