SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Technology Stocks : Semi Equipment Analysis
SOXX 330.08+0.9%3:59 PM EDT

 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Return to Sender who wrote (88731)7/26/2022 4:21:32 PM
From: Return to Sender2 Recommendations

Recommended By
kckip
Sr K

  Read Replies (1) of 89060
 
Market Snapshot

briefing.com


Industry Watch
Strong: Real Estate, Utilities, Health Care

Weak: Consumer Discretionary, Consumer Staples, Communication Services, Information Technology, Materials

Moving the Market
-- Walmart cuts earnings outlook as food and fuel inflation weigh on customers' discretionary spending activity

-- Downside leadership from mega caps stocks

-- Nervousness in front of earnings reports after today's close from Alphabet and Microsoft and the Fed's rate decision on Wednesday

-- Festering growth concerns following weak new home sales and consumer confidence data

Dow 31763.42 -228.50 (-0.71%)
Nasdaq 11562.54 -220.09 (-1.87%)
SP 500 3921.12 -45.79 (-1.15%)
10-yr Note



NYSE Adv 1193 Dec 1874 Vol 819 mln
Nasdaq Adv 1610 Dec 2659 Vol 4.2 bln


























Closing summary
26-Jul-22 16:30 ET

Dow -228.50 at 31763.42, Nasdaq -220.09 at 11562.54, S&P -45.79 at 3921.12
[BRIEFING.COM] The stock market opened on a softer note and headed lower from there. There were several relatively negative corporate headlines before the open, which only added to the nervous sentiment ahead of the FOMC decision tomorrow. The S&P 500 tested its 50-day moving average (3,919) around midday where it found support from buyers. That support soon wavered and the S&P 500 traded below that level for most of the afternoon before a late session rally left the index just a hair above its 50-day moving average.

Walmart's (WMT 121.98, -10.04, -7.6%) warning ahead of the open was the through-line for the price action in the indices today. The company cut its earnings outlook and said increasing levels of food and fuel inflation negatively affected customers' discretionary spending capacity. That led to a buildup in inventories on things like apparel. Walmart's CEO said this shift in spending will force the company to cut prices on general merchandise.

This warning created a ripple effect for other retailers. Target (TGT 151.81, -5.86, -3.6%) and Ross Stores (ROST 77.96, -4.67, -5.7%), among others, traded down today in solidarity. Adding more context, the SPDR S&P Retail ETF (XRT) closed behind the broader market, down 4.2%.

Other corporate headlines included Shopify (SHOP 31.55, -5.16, -14.1%) announcing it is going to reduce its workforce by approximately 10% by the end of the day. This comes ahead of the company's earnings report tomorrow morning. McDonald's (MCD 257.09, +6.71, +2.7%) reported better-than-expected earnings before the open but noted that "the operating environment across the competitive landscape remains challenging." This sent some restaurant names lower in solidarity.

In addition, Alphabet (GOOG 105.44, -2.77, -2.7%) and Microsoft (MSFT 251.90, -6.93, -2.7%) traded lower in front of their earnings reports after the close on concerns that their guidance would not live up to high expectations.

All this corporate news combined with existing rate-hike concerns ahead of the FOMC decision tomorrow at 2:00 p.m. ET. The worry is that inflation will remain sticky, so the Fed will remain aggressive.

On a related note, some weaker than expected new home sales and consumer confidence data exacerbated existing growth concerns and worries about the Fed's rate hikes leading to a possible recession. The 2-yr note yield ended the day unchanged at 3.04% while the 10-yr note yield fell three basis points to 2.79%.

The advance-decline line further illustrated the buyer trepidation today. Decliners led advancers by a roughly 8-to-5 margin at both the NYSE and the Nasdaq.

Energy futures settled mixed. WTI crude oil futures fell 1.9% to $94.92/bbl. Natural gas futures rose 1.4% to $8.75/mmbtu. Unleaded gasoline futures fell 1.1% to $3.08/gal.

Earnings reports tomorrow morning are headlined by Automatic Data (ADP), Boeing (BA), Bristol-Myers (BMY), General Dynamics (GD), Hilton (HLT), Humana (HUM), Kraft-Heinz (KHC), Norfolk Southern (NSC), Rockwell Automation (ROK), Sherwin-Williams (SHW), Shopify (SHOP), Spotify (SPOT), T-Mobile US (TMUS), and Waste Management (WM).

Tomorrow, market participants will receive the following economic data:

  • 7:00 ET: Weekly MBA Mortgage Index (prior -6.3%)
  • 8:30 ET: June Durable Orders (Briefing.com consensus -0.5%; prior 0.7%), Durable Orders ex-transportation (Briefing.com consensus 0.3%; prior 0.7%), June advance Retail Inventories (prior 1.1%), June advance Wholesale Inventories (prior 2.0%), and June advance goods trade deficit (prior -$104.0 bln)
  • 10:00 ET: June Pending Home Sales (Briefing.com consensus -1.5%; prior 0.7%)
  • 10:30 ET: Weekly crude oil inventories (prior -0.45 mln)
  • 14:00 ET: July FOMC Rate Decision (Briefing.com consensus 2.25-2.50%; prior 1.50-1.75%)
  • Dow Jones Industrial Average: -12.6% YTD
  • S&P 400: -15.7% YTD
  • S&P 500: -17.7% YTD
  • Russell 2000: -19.6% YTD
  • Nasdaq Composite: -26.1% YTD






Market lifts off its lows ahead the close
26-Jul-22 15:30 ET

Dow -239.37 at 31752.55, Nasdaq -234.92 at 11547.71, S&P -49.37 at 3917.54
[BRIEFING.COM] Heading into the close, the market is just off its lows with the S&P 500 briefly pushing back above its 50-day moving average (3,919).

Energy futures settled mixed. WTI crude oil futures fell 1.9% to $94.92/bbl. Natural gas futures rose 1.4% to $8.75/mmbtu. Unleaded gasoline futures fell 1.1% to $3.08/gal.

After the close, Alphabet (GOOG), Microsoft (MSFT), Chipotle Mexican Grill (CMG), Juniper Networks (JNPR), Mondelez Intl. (MDLZ), Skechers (SKX), Texas Instruments (TXN), and Visa (V) are all set to report earnings.

Earnings reports tomorrow morning are headlined by Automatic Data (ADP), Boeing (BA), Bristol-Myers (BMY), General Dynamics (GD), Hilton (HLT), Humana (HUM), Kraft-Heinz (KHC), Norfolk Southern (NSC), Rockwell Automation (ROK), Sherwin-Williams (SHW), Shopify (SHOP), Spotify (SPOT), T-Mobile US (TMUS), and Waste Management (WM).

Tomorrow, market participants will receive the following economic data:

  • 7:00 ET: Weekly MBA Mortgage Index (prior -6.3%)
  • 8:30 ET: June Durable Orders (Briefing.com consensus -0.5%; prior 0.7%), Durable Orders ex-transportation (Briefing.com consensus 0.3%; prior 0.7%), June advance Retail Inventories (prior 1.1%), June advance Wholesale Inventories (prior 2.0%), and June advance goods trade deficit (prior -$104.0 bln)
  • 10:00 ET: June Pending Home Sales (Briefing.com consensus -1.5%; prior 0.7%)
  • 10:30 ET: Weekly crude oil inventories (prior -0.45 mln)
  • 14:00 ET: July FOMC Rate Decision (Briefing.com consensus 2.25-2.50%; prior 1.50-1.75%)



Health care outperforms as market trends lower
26-Jul-22 15:00 ET

Dow -244.99 at 31746.93, Nasdaq -229.06 at 11553.57, S&P -50.13 at 3916.78
[BRIEFING.COM] The S&P 500 remains trading in a narrow range below its 50-day moving average (3,919). A retest of that level earlier was met with some buying interest, but that interest has since faded and the S&P 500 has faded back below that level as well.

As the market continues its decline, only three of the 11 S&P 500 sectors trade in the green. Health care (+0.7%) is the top performer with many components trading up, including Centene (CNC 93.68, +1.75, +1.9%) which reported better-than-expected earnings before the open. Humana (HUM 490.85, -0.94, -0.2%) shows a modest loss ahead of its earnings report tomorrow.

Utilities (+0.7%) and real estate (+0.1%) are the other sectors with gains currently.


Fiserv outperforms following earnings/guidance
26-Jul-22 14:30 ET

Dow -198.15 at 31793.77, Nasdaq -224.55 at 11558.08, S&P -47.28 at 3919.63
[BRIEFING.COM] The benchmark S&P 500 (-1.19%) is still lodged in second place to this point on Tuesday.

S&P 500 constituents Fortinet (FTNT 55.45, -5.55, -9.10%), Carnival (CCL 8.57, -0.61, -6.64%), and PayPal (PYPL 76.96, -4.69, -5.74%) dot the bottom of today's action. FTNT, along with other cyber security/software stocks, underperforms on Tuesday, while PYPL was weaker generally owing in part to warnings from Walmart (WMT 121.38, -10.64, -8.06%) and Shopify (SHOP 31.26, -5.45, -14.85%) about consumer spending.

Meanwhile, Fiserv (FISV 102.97, +4.92, +5.02%) is up nicely today in light of this morning's Q2 beat and upbeat guidance.


Gold starts week with back-to-back losses
26-Jul-22 14:00 ET

Dow -144.85 at 31847.07, Nasdaq -211.24 at 11571.39, S&P -42.15 at 3924.76
[BRIEFING.COM] With about two hours to go the tech-heavy Nasdaq Composite (-1.79%) holds the worst losses among the major averages.

Gold futures settled $1.40 lower (-0.1%) to $1,717.70/oz, posting back-to-back losses to start the week, owing in part to today's solid advance in the dollar.

Meanwhile, the U.S. Dollar Index is up +0.7% to $107.19.


Walmart, Home Depot underperform in DJIA
26-Jul-22 13:30 ET

Dow -103.23 at 31888.69, Nasdaq -194.53 at 11588.10, S&P -36.96 at 3929.95
[BRIEFING.COM] The major averages are little changed in the last half hour, the Dow Jones Industrial Average (-0.32%) still clinging to the shallowest declines.

A look inside the DJIA shows that Walmart (WMT 122.41, -9.61, -7.28%), Home Depot (HD 297.78, -8.37, -2.73%), and American Express (AXP 150.03, -3.76, -2.44%) are underperforming.

Meanwhile, 3M (MMM 142.69, +8.57, +6.39%) is today's top performer.

The DJIA is up +2.63% w/w.

Elsewhere, at the top of the hour, the Treasury's $46 bln 5-year note auction drew a high yield of 2.860% on a bid-to-cover of 2.46.



General Electric flying higher as aerospace segment drives upside results (GE)
Updated: 26-Jul-22 14:05 ET


Bolstered by an impressive performance from its Aerospace segment, General Electric (GE) posted Q2 results that flew past EPS and revenue expectations. In fact, the 26% order growth for GE Aerospace led to the company's largest EPS beat in over five years and helped it to generate positive free cash flow of $200 mln.

Adding to the upbeat narrative, CEO Larry Culp commented that he expects significant improvements in cash flow and profits in 2023, when the company splits into three separate, publicly traded companies. If that prediction comes to fruition, then each of the company's segments should be in a position of strength when the breakup occurs, leaving the new GE (GE Aerospace) as a healthier pure-play aviation company. Recall that GE Aerospace will retain a 19.9% stake in the new healthcare company (GE HealthCare) after the spin-off.

The idea of a standalone aviation company is looking even more appealing today than it did when GE first announced its spin-off plans last November.

  • GE Aerospace was the clear standout in Q2 as revenue jumped by 27% yr/yr to $6.1 bln. The robust recovery in air travel is fueling strong demand for GE's engines, aircraft parts, and aircraft maintenance and repair services. In addition to pricing actions to offset inflationary pressures, the upswing in commercial services revenue pushed the segment margin higher by 1,510 bps yr/yr to 18.7%.
    • There's no slowdown in sight, either, as GE is still forecasting growth of more than 20% and operating profit of $3.8-$4.3 bln.
  • Meanwhile, GE Healthcare continues to contend with supply chain issues, which were exacerbated in Q2 due to the COVID-related lockdowns in China. Furthermore, the segment lapped a difficult yr/yr comparison from 2Q21 when orders grew by 11% organically. Consequently, orders were down by 1% and revenue grew by only 1% to $4.5 bln.
    • For the remainder of FY22, the outlook is mixed with GE nudging its revenue growth forecast higher, guiding for a mid-single-digit increase, compared to its prior guidance of low-to-mid-single-digit growth. However, due to inflationary pressures, GE now anticipates segment profit of $3.0 bln, slightly below its original expectation.
  • Renewable Energy continues to be a laggard as orders for wind turbines remain soft, partly due to uncertainty regarding future tax credits for wind generation. Simultaneously, raw materials inflation is impacting manufacturing costs, driving segment margin lower by 1,110 bps yr/yr to (13.5)%. After initially expecting a rebound in 2H22, GE no longer believes that the Renewable Energy unit will see a step-up in orders this year.
Despite comfortably exceeding Q2 estimates, Culp stated that the company is still trending toward the lower end of its FY22 outlook, which called for EPS of $2.80-$3.50 and organic revenue growth in the high-single-digit range. Moreover, he noted that about $1.0 bln in free cash flow is likely to be pushed out due to weak renewable energy orders and supply chain disruptions. Given this muted outlook, it may seem surprising that GE is reacting as positively as it is today, but we believe investors are mostly focusing on the Aerospace segment, which will solely comprise of GE's business next year.




Whirlpool finds a pool of buyers today on better-than-feared Q2 results (WHR)
Updated: 26-Jul-22 13:34 ET


Household appliance manufacturer Whirlpool (WHR +2%) looks clean today despite dealing with numerous adversities in Q2, including cost inflation, currency headwinds, and cooling demand. The challenges culminated in a top-line miss and trimmed FY22 guidance. However, despite all the woes in Q2, WHR's results were better than many feared, leading to a pool of buyers today.

  • WHR's adjusted EPS decline of 10.5% yr/yr to $5.94 was one such number that was far better than many expected, including analysts, as WHR extended its double-digit earnings streak to 11 consecutive quarters.
  • Operating margins still fell yr/yr in Q2, compressing by 240 bps to 9.0%. However, the situation would have been significantly worse if not for WHR's success in implementing cost-based price actions globally, which lifted margins by 675 bps.
  • In North America, WHR's largest region by revs, operating margins fell 420 bps yr/yr to 14.1%. However, on a two-year stack, margins actually improved by 170 bps despite considerably higher cost inflation since that period.
  • The challenging environment forced WHR to reduce its FY22 outlook, expecting adjusted EPS of $22.00-24.00, down from $24.00-26.00, and revs of $20.7 bln, implying a 6% drop yr/yr, down from prior guidance of positive +2-3% growth. However, the company's long-term goals remain intact, including organic net sales growth of +5-6%, which was raised from roughly +3% in October.
Although these string of highlights are keeping shares of WHR above water today, multiple creatures are lurking underneath. For one, inflationary pressures grew stronger, denting margins by 750 bps in Q2. On the flip side, WHR noted that it anticipates inflation to peak in Q2 and Q3, so the company may be at the tail end of this forceful headwind. Demand is also cooling off considerably, decelerating quicker than WHR expected in Q2, leading to revs falling 4.3% yr/yr to $5.1 bln. Again, WHR was optimistic, expecting the fundamental strength of consumer demand trends to remain in place, backing this up by stating that cooking appliance usage is over two times higher than before the pandemic.

WHR also remains confident that long-term demand will be robust, supported by broader home nesting trends, an undersupplied housing market, and a strong replacement cycle fueled by a rise in remote work. The company is also aggressively buying back stock, reducing its share count by over 10% in the past four quarters. WHR is also expected to conclude its strategic review of its struggling EMEA business by the end of Q3 on its path toward transforming itself into a high-growth, high-margin business. Nevertheless, it is important to note that persistent short-run macroeconomic challenges could negatively affect WHR's upbeat long-term goals.




3M makes three major announcements with health care spin-off plan taking center stage (MMM)
Updated: 26-Jul-22 11:43 ET


3M (MMM) reported lackluster Q2 results and lowered its FY22 outlook due to macroeconomic factors and foreign exchange headwinds, but the sting from that news is being softened by other major developments. Specifically, MMM also announced that its planning to spin-off its Health Care segment, resulting in a more streamlined company that can better prioritize its investments in growth initiatives. This strategy to pare down operations has gained favor with investors recently since it's viewed as a means of unlocking shareholder value through stronger earnings growth. Most notably, fellow industrial conglomerate General Electric (GE) is on track to separate into three independent companies in early 2023.

If that wasn't enough for investors to digest, MMM also disclosed that it's placing its Aearo Technologies subsidiary into bankruptcy proceedings. Aearo Technologies, which manufactures the Combat Arms Earplugs, is facing lawsuits from more than 100,000 military veterans over hearing damage that's purportedly caused by defective earplugs. Rather than fight the thousands of claims in a long, drawn-out process in court, MMM is committing $1 bln into a trust to pay out settlements, and $240 mln to pay for related case expenses. While taking a $1.2 bln ($1.66/share) pretax charge is by no means good news, we believe that MMM's decision to quickly resolve this issue and remove an overhang on the stock is prudent.

Litigation expenses were a main theme surrounding MMM's messy Q2 results. In addition to a $0.17/share charge from "significant litigation", MMM took a $0.51/share hit from payments stemming from litigation regarding its use of PFAS chemicals at its Belgium plant. However, even when excluding all of these extraordinary items, MMM's quarterly results were unimpressive.

  • Total organic sales growth was a paltry 1% as China's COVID-related lockdowns and slowing respirator demand clipped about four percentage points off the growth rate. Last quarter, organic sales increased by 2%.
    • Unsurprisingly, the Transportation & Electronics segment was a notable laggard with total sales down by 3.7%. Like many U.S. automakers, this business has significant exposure to supply chain disruptions across Asia.
    • The Safety & Industrial segment, which manufacturers MMM's disposable respirators, experienced a 3.4% drop in revenue.
  • Adjusted EBITDA margin contracted by 240 bps yr/yr to 26.3% as rising raw material costs took a toll once again. The margin erosion and tepid sales growth led to a 10% yr/yr decline in adjusted EPS to $2.48.
  • With nearly half of its sales derived from international markets, MMM is really feeling the impact of a stronger dollar.
    • Ahead of MMM's earnings report, we were hopeful that the recent easing of commodity prices would provide a boost to its outlook.
    • Unfortunately, that is not the case as foreign exchanged and macro-related headwinds caused MMM to lower its lower its FY22 EPS guidance to $10.30-$10.80 from $10.75-$11.25, and its organic sales growth forecast to 1.5-3.5% from 2.0-5.0%.
There's plenty of news to sift through today, but the main takeaway is that MMM's plan to spin-off its health care business has investors feeling more bullish about its future growth prospects. The health care segment was the lone business to post positive sales growth in Q2 (+0.6%), so it may seem counterproductive to divest a standout performer. However, MMM will retain a 19.9% stake in the new health care company after the spin-off, allowing it to participate in its growth. Overall, we believe that MMM was badly in need of a shake-up as the stock has languished over the past few years. This move to spin-off the health care unit may help to turn the tide.




Coca-Cola's strong brands overcome considerable inflationary and currency headwinds in Q2 (KO)
Updated: 26-Jul-22 11:07 ET


Coca-Cola (KO +1%) looks spritely today following its upbeat Q2 earnings results. After rival PepsiCo (PEP) posted beats on its top and bottom lines in Q2 earlier this month while also raising its organic revenue growth forecast, investors were expecting KO to follow suit. Therefore, by delivering earnings and revenue upside in Q2 while increasing its organic revenue growth forecast, KO is being rewarded today.

  • Revs grew 11.9% yr/yr to $11.3 bln, with non-GAAP EPS growth of 4% yr/yr to $0.70, both topping analyst estimates. As the U.S. dollar strengthens against other currencies, KO's earnings growth was impressive given its overseas footprint (~66% of FY21 revs). KO noted that its earnings were impacted by 9 pts of currency headwinds, coming in 5 pts higher than the company forecasted last quarter.
  • As was the case last quarter, brand loyalty played a meaningful role for KO in Q2, highlighted by improving volumes despite increased consumer prices. In fact, unlike PEP, which saw a 1% volume decline yr/yr in its North American Beverage segment, KO boasted a 2% increase in unit case volume growth in North America, along with even more prominent growth across its other markets.
  • These robust numbers helped keep non-GAAP operating margins from contracting further, dipping just 100 bps yr/yr to 31.7%. KO's margin decline was also mainly due to its BODYARMOR acquisition and currency headwinds.
  • With a much larger away-from-home channel than PEP (~50% versus ~20%) combined with a more extensive international presence (~66% versus ~40%), KO has had to endure a slower recovery from the pandemic than its primary competitor. As such, it is encouraging to see away-from-home channels in most markets experience continual improvements in Q2, which was also a factor in KO's 12% positive impact from consolidated price/mix.
    • Furthermore, everywhere outside of Latin America saw organic revs jump by double-digits yr/yr, with Europe, the Middle East, and Africa (EMEA) leaping 21%.
  • KO's FY22 earnings guidance of $2.43-2.46 was another positive standout as it translated to +5-6% growth yr/yr despite considerable inflationary costs and currency headwinds. KO estimates currency headwinds to impact non-GAAP earnings growth by 9 pts.
    • KO also upped its FY22 organic revenue growth outlook to +12-13% yr/yr from +7-8%.
Overall, KO's Q2 numbers demonstrate its resilience to significant inflationary and currency headwinds. Although KO trades at a relatively pricey 25x forward earnings, its consistently solid quarterly results speak volumes about its ability to produce healthy numbers even in a challenging environment. Its strong brands, which consumers worldwide are willing to purchase despite turbulent economic times, are a further testament to the defensive nature of KO.




Walmart drags down retailers with profit warning; makes us nervous for AMZN report on Thursday (WMT)
Updated: 26-Jul-22 10:42 ET


Walmart (WMT -9%) is sharply lower today and is dragging down a bunch of retailers after the company lowered its profit outlook for Q2 and the full year.

  • The irony is that WMT is raising its US comp (ex-fuel) guidance for Q2 (Jul) to be around +6%, up from prior guidance of +4-5%. Also, guidance for total sales for both periods is above analyst expectations. However, a lot of that is due to food inflation rising double digits. A silver lining is that customers are switching to Walmart to save money during this inflationary period, which is leading to market share gains in groceries.
  • The main reason why WMT lowered EPS guidance is due to margin compression. WMT expects higher sales, but it also expects a heavier mix of food and consumables, which hurts gross margin. What's happening is that higher food prices are hurting consumers' ability to spend on general merchandise. As a result, inventory is getting a bit bloated and WMT is planning more markdowns to move product, particularly apparel. WMT expects Q2 operating margin of just 4.2% and 3.8-3.9% for FY23.
  • So, what does this mean? First off, it is not entirely surprising. Recall that Target (TGT) similarly guided margins lower last month and Ross Stores (ROST) provided very weak guidance for Q2. Also, Walmart does not miss on earnings very often, but they did miss badly in Q1, so it is not a huge leap to expect a guide down in Q2. On the other hand, this EPS guidance is pretty significantly below analyst expectations.
  • More broadly, this guidance is a red flag for retailers generally. Just as supply chains had started to improve, the consumer gets hit with rising inflation. This has caused a reduction in discretionary spending, which is leading to bloated inventories and retailers are forced to mark down prices. And if the world's largest retailer is feeling the pain, you can be sure most others are as well.
Looking ahead, we would be cautious as we get into earnings season for retailers next month. Most retailers have a July 31 quarter end, so with the quarter wrapping up, we expect there will be more guide-downs in the next week or two. We would be particularly concerned for retailers who cater to lower income consumers and have higher exposure to non-food discretionary categories, especially apparel. Names like BURL, TJX, ROST stand out. Also, this report makes us nervous about AMZN's Q2 report on Thursday.
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext