Tag Archives: Earnings Surprises

Business

Target Shares Plunge on Earnings Miss and Weak Holiday Sales Forecast

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Target Corp.

TGT -13.14%

said consumers pulled back on their spending in recent weeks, sapping sales and profits in the latest quarter and putting a cloud over its holiday season.

Quarterly profits came in below Target’s forecasts and the company’s sales growth lagged behind larger rival

Walmart Inc.

WMT 0.72%

in the period. Target executives lowered their financial goals for the holiday quarter and said they are prepared to offer deep discounts in the coming months to clear out unwanted inventory and attract shoppers.

Target shares dropped 13% in Wednesday trading on the earnings, which came in well below Wall Street’s estimates. It is the second time this year the retailer has misjudged consumer demand—in the spring executives said they were surprised by shifts away from furniture and appliances.

Government data released Wednesday showed that retail spending, including purchases at restaurants, car dealers and gas stations, rose 1.3% in October from September. The data aren’t adjusted for inflation and the government earlier reported that consumer prices rose 7.7% in October from a year earlier.

Target executives said that sales worsened sharply in October and November with guests’ shopping behaviors increasingly affected by inflation, rising interest rates and economic uncertainty.

“Clearly it’s an environment where consumers have been stressed,” said Target Chief Executive

Brian Cornell

on a call with reporters. “We know they are spending more dollars on food and beverage and household essentials, and as they are shopping for discretionary categories they are looking for promotions.”

Target executives said consumers are waiting to purchase items until they spot a deal, buying smaller pack sizes and giving priority to family needs. Sales of food, beverage, beauty products and seasonal items were strong, they said.

Retailers are facing an uncertain holiday season with high food and gas prices pinching some households. Target, like many of its peers, has been discounting to try to clear out a glut of goods this summer. Target’s inventory rose 14.4% in the October quarter from a year ago, while its revenue rose 3.4%. Quarterly net income tumbled by half.

“We are committed to being clean at the end of the holiday season,” regarding excess inventory, said Target Chief Financial Officer

Michael Fiddelke,

on a call with analysts Wednesday. If consumer trends of recent weeks persist, “it will come with more markdowns to make sure we accomplish exactly that goal.”

Rival TJX Cos. reported mixed quarterly results on Wednesday, with lower sales and higher profit margins. The off-price retailer said its U.S. comparable-store sales declined 2% in the quarter, as gains in its Marshalls and T.J. Maxx apparel chains were offset by a drop in its HomeGoods chain.

TJX said it was comfortable with its inventory levels heading into the holidays and said it now expected U.S. comparable-store sales to be flat or up 1% from a year ago.

Walmart gets over half of its U.S. revenue from groceries, while Target’s business is more skewed toward discretionary categories such as home goods, apparel, electronics and beauty products. As consumers absorb higher prices, many are pulling back spending where they can.

Consumer spending has held up relatively well so far despite inflation, but experts say we’re approaching an inflection point. WSJ’s Sharon Terlep explains the role “elasticity” plays in a company’s decision on whether to raise prices. Photo illustration: Adele Morgan

For the most recent quarter, Target said comparable sales, those from stores and digital channels operating at least 12 months, rose 2.7% in the quarter ended Oct. 29 compared with the same period last year.

On Tuesday Walmart said U.S. comparable sales rose 8.2% in the quarter. Walmart executives said the retailer is attracting more higher-income shoppers as many shift spending away from discretionary categories to food and look for value.

Target said it is gaining market share in its five main categories, even as consumers pull back spending in some cases. Existing shoppers are buying more and visiting more frequently, said Christina Hennington, Target’s chief growth officer. Traffic to stores increased 1.4% in the most recent quarter.

This year Target expects a hit to its gross margin of around $600 million due to shrink, the industry term for theft and other product loss, said Mr. Fiddelke. “We’ve seen that trend has grown over the course of the year,” he said.

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Target, which surprised investors by slashing its forecasts twice in the spring, on Wednesday reduced its sales and profits expectations for its fiscal year, which ends in January.

“We expect the challenging environment to linger on beyond the holiday,” said Mr. Fiddelke.

The company now expects a low-single-digit percentage decline in comparable sales and an operating margin around 3% for the fourth quarter. In August Target said sales would grow in the low- to mid-single-digit percentage range for the full year and operating margin would be around 6% for the second half of the year.

Target executives said they would look to cut at least $2 billion in costs over three years. Executives said the company isn’t planning major layoffs or hiring freezes as part of the new cost-cutting program, but streamlining processes inside the company.

—Suzanne Kapner contributed to this article.

Write to Sarah Nassauer at sarah.nassauer@wsj.com

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Business

Ford stock drops more than 4% as supply costs to jump by $1 billion, parts shortages to leave more cars unfinished

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Ford Motor Co. shares dropped more than 4% in the extended session Monday after the company said inflation and parts shortages will leave it with more unfinished vehicles than it had expected, reminding Wall Street supply-chain snags are far from over for auto makers.

Ford
F,
+1.43%
said it expects to have between 40,000 and 45,000 vehicles in inventory at the end of the third quarter “lacking certain parts presently in short supply.”

The auto maker also said that based on its recent negotiations, payments to suppliers will run about $1 billion higher than expected for the quarter, thanks to inflation. The company reaffirmed its outlook for the year, however.

Ford’s warning “is evidence that auto parts shortages and supply-chain issues are still ongoing,” CFRA analyst Garrett Nelson told MarketWatch.

Many investors had started to believe “these problems were in the rearview mirror with inventories starting to recover from the record lows of the last year or so,” Nelson said.

The unfinished vehicles include high-demand, high-margin models of popular trucks and SUVs, Ford said. That will cause some shipments and revenue to shift to the fourth quarter.

“Ironically, Ford may have become a victim of its own success in that its recent U.S. sales growth has outperformed peers by a wide margin,” Nelson said. Its third-quarter production “apparently wasn’t able to keep pace with demand.”

Ford reiterated expectations of full-year 2022 adjusted earnings before interest and taxes of between $11.5 billion and $12.5 billion, despite the shortages and the higher payments to suppliers, it said.

Ford called for third-quarter adjusted EBIT of between $1.4 billion and $1.7 billion.

Shares of Ford ended the regular trading day up 1.4%. The company has embarked on a reorganization to pivot to electric vehicles, and last month confirmed layoffs in connection with its new structure.

Ford is slated to report third-quarter financial results on Oct. 26, when it said it expects to “provide more dimension about expectations for full-year performance.”

Analysts polled by FactSet expect the auto maker to report adjusted earnings of 51 cents a share, which would match the third-quarter 2021 adjusted EPS, on revenue of $38.8 billion.

The quarterly sales would compare with $35.7 billion in revenue in the year-ago period.

Shares of Ford slid 4.4% after hours, and have lost 28% so far this year, compared with losses of 18% for the S&P 500 index
SPX,
+0.69%.

The news comes a week after FedEx Corp.
FDX,
+1.17%
roiled markets and raised fears of an economic slowdown by withdrawing its outlook for the year and warning that the year was likely to become worse for the business.

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Business

Disney Reports Earnings Surge, Reduces Long-Term Forecast for Disney+ Subscribers

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Walt Disney Co.

DIS 3.98%

reported a better-than-expected 26% jump in revenue Wednesday, driven by record results at its theme parks division and the addition of more new subscribers than projected to its flagship streaming video platform Disney+.

Disney’s results highlight the complex dynamics of the competitive streaming landscape. The company lowered its forecast for future Disney+ growth, raised the prices on its streaming offerings, outlined plans for a new ad-supported tier of Disney+ and said nearly all of the streaming service’s growth is coming from overseas.

The company’s earnings this quarter reflect the difficulties it and rivals, such as

Netflix Inc.,

face in attracting new customers domestically, where streaming options abound and many households use one or more services. Plus, in an increasingly difficult economic environment, some households are rethinking spending on in-home entertainment, industry analysts have said.

Chief Executive

Bob Chapek

said he didn’t think the price changes would result in any meaningful loss of streaming customers. “We believe that we’ve got plenty of price value room left to go,” Mr. Chapek said.

On the company’s call with analysts, Chief Financial Officer

Christine McCarthy

ratcheted down its forecast for Disney+, saying it now expects a total range of 215 million to 245 million subscribers by September 2024, in part because it lost the right to air popular Indian cricket competitions.

A few months ago, Mr. Chapek said the company’s previous target of 230 million to 260 million, set by the company in December 2020, was “very achievable.”

In the three-month period ended July 2, Disney+ gained 14.4 million new subscribers, bringing its global total to 152.1 million subscribers. Analysts were expecting 10 million additions, according to

FactSet.

Wednesday’s report brings Disney’s total subscriber base to 221.1 million customers across all of its streaming offerings, including ESPN+ and Hulu, surpassing Netflix, its chief streaming rival, in total customers. Netflix last month reported it had 220.67 million subscribers.

Disney shares rose about 7% in after-hours trading to $120.11.

Overall for the third quarter, the world’s largest entertainment company reported profits of $1.41 billion, or 77 cents a share, up from $918 million, or 50 cents a share, in the year-ago period. Revenue increased to $21.5 billion, above the average analyst estimate of $20.99 billion on FactSet.

Since 1967, the Florida land housing Disney’s theme parks has been governed by the company, allowing it to manage Walt Disney World with little red tape. WSJ’s Robbie Whelan explains the special tax district that a Florida bill would eliminate. Photo: AP

Sales at the parks, experiences and products division—which includes Disneyland, Walt Disney World and four resorts in Europe and Asia and has historically been Disney’s most profitable segment—reached $7.4 billion for the quarter, a record, and was up 70% from a year earlier. The division posted profits of $2.2 billion for the quarter, up from $356 million a year ago.

“Demand has not abated” at the parks, Ms. McCarthy said. Since reopening in 2021 after pandemic-related closures, Disney’s theme parks haven’t been running at full capacity, but a new online reservations system and ride-reservation apps have helped the company better respond to demand and generate more revenue per visitor.

Over the past year, CEO Bob Chapek and other top Disney executives have signaled an increased focus on international markets for growing its streaming business.



Photo:

Laurent Viteur/Getty Images

Ms. McCarthy said that if economic conditions worsen, Disney could tweak the reservation system to allow more visitors in on certain days, but as of now, demand is outstripping available spots.

Disney’s direct-to-consumer segment, which includes video streaming, lost $1.1 billion in the third quarter, widening from a loss of $293 million a year earlier. Since Disney+ launched in late 2019, the segment has lost more than $7 billion. On Wednesday, Ms. McCarthy said Disney’s estimate for overall spending on content for fiscal 2022 had fallen slightly, from $32 billion to $30 billion.

Disney gave a launch date of Dec. 8 and outlined pricing information for its previously announced ad-supported tier of Disney+ in the U.S., a new product designed to expand the reach of the company’s streaming business.

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What is your outlook for Disney? Join the conversation below.

The price of the ad-free stand-alone Disney+ service will rise from its current level of $7.99 a month in the U.S. to $10.99 a month, or $109.99 a year. The new, basic Disney+ service with ads will cost $7.99 a month.

The premium Disney streaming bundle, which includes ad-free versions of Disney+ and Hulu, as well as a version of sports-focused ESPN+ with ads, will remain at its current price of $19.99 a month in the U.S., while a bundle that includes all three services, but with ads on Hulu, will rise in price by $1 a month, to $14.99.

Mr. Chapek defended the price increases, saying that when it was launched, Disney+ was among the most competitively-priced streaming offerings and that the company has added more and higher-quality content to the service.

“I think it’s easy to say that we’re the best value in streaming,” Mr. Chapek said Wednesday.

Over the past year, Mr. Chapek and other top Disney executives have signaled an increased focus on international markets for growing its streaming business. Disney is spending heavily to produce hundreds of local-language television shows in countries such as India, and over the summer, Disney+ launched in 53 new countries and territories, mainly concentrated in Eastern Europe, the Middle East and North Africa.

Pricing for a Disney+ subscription in many of these new markets runs below the $7.99 a month that American customers pay. Still, Disney+’s average monthly revenue per paid subscriber—a key metric in streaming businesses—stood at $6.27 in North America, compared with $6.29 internationally, excluding Asia’s more inexpensive Disney+ Hotstar service.

Disney+ Hotstar, the service used by Disney’s 58.4 million subscribers in India, produces just $1.20 a month per user. Some analysts and former Disney executives predict that losing cricket streaming rights will result in millions of canceled accounts over the next year.

The flagging growth of North American Disney+ subscriptions is likely the result of a glut of content being released by in movie theaters and on a proliferation of streaming services, as well as fatigue the Star Wars and Marvel superhero movie franchises, said Francisco Olivera, a Disney shareholder who manages a small family fund based in Puerto Rico that has about 15% of its holdings in Disney stock.

The addition of an ad-supported tier, higher prices and possible further integration of the Hulu service in the future, could help reduce subscriber churn and make it easier to achieve profitability, he said.

“It’s a healthier market right now with the parks recovering, so they’re really flexing their muscles on pricing,” Mr. Olivera said.

—Sarah Krouse contributed to this article.

Write to Robbie Whelan at Robbie.Whelan@wsj.com

Corrections & Amplifications
Disney+ launched in 53 new countries and territories over the summer. An earlier version of this article incorrectly said it launched in 54. (Corrected on Aug. 10)

Write to Robbie Whelan at robbie.whelan@wsj.com

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Business

Avaya’s Collapsing Debt Deal Hits Clients of Goldman, JPMorgan

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The two banks sold new loans and bonds for Avaya, a cloud-communications company, in late June. Investors included Brigade Capital Management LP and Symphony Asset Management LLC, people familiar with the matter said.

A few weeks later, Avaya announced that it would miss by more than 60% its previous forecasts for adjusted earnings in the third quarter, which ended June 30. It gave no explanation. The company also said that it would miss revenue targets and announced it was removing its chief executive officer.

Prices of the newly issued debt plummeted, hitting investors who lent Avaya the money with paper losses exceeding $100 million, according to analyst commentary and data from MarketAxess and Advantage Data Inc.

Avaya said Tuesday that it “has determined that there is substantial doubt about the Company’s ability to continue as a going concern.” It also said that the audit committee of the board of directors had opened an internal investigation “to review the circumstances surrounding” the most recent quarter. The committee is also investigating a whistleblower letter, but it didn’t give details.

Avaya also tapped law firm Kirkland & Ellis LLP and turnaround adviser AlixPartners LLP as it considers its options, The Wall Street Journal reported Tuesday.

New CEO

Alan Masarek

held an abbreviated conference call Tuesday to discuss third-quarter earnings and declined to take questions from Wall Street analysts. Mr. Masarek attributed Avaya’s poor performance in part to clients signing up for smaller and shorter software subscription contracts than expected, potentially out of fear about the company’s debt load.

“I understand very clearly that there is disappointment, there’s worry, there’s concern out there across effectively all Avaya stakeholders,” Mr. Masarek said. “I’m going to thank you in advance for your patience… Give us some time to demonstrate a better future.”

Avaya’s 6.125% bond due 2028 fell as low as 48.50 cents on the dollar after the presentation, down from a close of 56.25 cents on Monday, according to data from MarketAxess.

Some analysts were already skeptical of Avaya’s financial forecasts.

“Why [are] your projections always faltering when you report quarterly results? Why can’t you have a stable outlook?” asked

Hamed Khorsand,

an analyst at BWS Financial, after the company’s last quarterly earnings report in May. Avaya undershot that quarter’s adjusted-earnings targets by about 10%.

Avaya’s former CEO Jim Chirico, applauding at the company’s stock listing in 2018, was removed last month.



Photo:

Richard Drew/Associated Press

Then-CEO

Jim Chirico

attributed the fumble to Avaya’s adoption of a new sales strategy that forced the company to recognize revenue more slowly. “We believe we’re over that hurdle,” he said at the time.

Avaya emerged as a telecommunications-equipment supplier to corporations in 2000, when it spun out of Lucent Technologies. Private-equity firms TPG and Silver Lake Partners bought the company in 2007, but it struggled to transition from selling hardware to selling software, and with servicing debt from the buyout. The company filed for bankruptcy protection a decade later before reorganizing. Mr. Chirico took the helm in 2017 and shifted to developing cloud-based software for enterprises.

“Avaya squandered a lot of money and time and has little to show for it,” independent enterprise communications analyst Dave Michels wrote in a recent report. “Many of us have wondered why the board didn’t act sooner—years sooner.”

A spokeswoman for Avaya declined to comment on analysts’ critiques.

The financial crunch hit this spring when Avaya’s cash reserves shrank to $324 million—down from almost $600 million a year earlier, according to company filings. The company tried to raise new debt to refinance a $350 million convertible bond that was coming due in 2023, according to company filings.

Goldman initially proposed a $500 million loan with a 12.6% yield but found few buyers, according to data provider LevFin Insights. The bank ultimately placed a $350 million secured loan yielding 15.5% with investors. Lenders included Symphony, which has invested in Avaya since before its bankruptcy, the people familiar with the matter said.

Avaya approached JPMorgan in late June to raise additional funds, according to one of the people. The bank placed a $250 million secured convertible bond. Investors included Brigade, the people said.

During the marketing process, Avaya executives told lenders that the company was on track to hit its earnings guidance, some of the people familiar with the matter said.

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Should companies return capital raised shortly before large earnings misses? Why or why not? Join the conversation below.

The company had set Ebitda guidance of about $145 million for the quarter ended June 30 but cut that to between $50 million and $55 million on July 28. (Ebitda refers to earnings before interest, taxes, depreciation and amortization.) Avaya reported $54 million of Ebitda for the quarter on Tuesday, a figure that barely covers the quarterly interest expenses it disclosed in recent earnings reports.

“It is a surprising outcome for a company that priced $600 million of fresh capital…just four weeks ago,” said

Lance Vitanza,

a stock analyst at Cowen Inc. “It may be too late to accomplish much without radically restructuring Avaya’s balance sheet.”

The newly issued loans were quoted around 65 cents on the dollar Tuesday, down from 87 cents in late July, according to Advantage Data. The new convertible bond is likely to trade at similar prices in the near future, Mr. Vitanza said.

Losses have been heavier for owners of Avaya stock, which fell to as low as 82 cents last week from around $2.50 in early July and about $10 at the start of May. Avaya shares fell 46% Tuesday to 61 cents.

Alexander Gladstone and Andrew Scurria contributed to this article.

Write to Matt Wirz at matthieu.wirz@wsj.com

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Business

Stocks End Higher, Lifted by Retailer Results

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U.S. stocks rose Thursday, with the Dow Jones Industrial Average notching a fifth consecutive day higher, after strong results from retailers lifted sentiment across the market.

The blue chips added 1.6%, while the S&P 500 advanced 2%. The tech-heavy Nasdaq Composite climbed 2.7%, helped by gains in shares of

Apple,

Microsoft,

Amazon.com

and

Tesla.

The outlook for stocks turned cheerier Thursday when several retailers delivered strong results.

Macy’s

reported robust sales growth and lifted its earnings guidance, while discount chains

Dollar General

DG 13.71%

and

Dollar Tree

DLTR 21.87%

beat Wall Street’s earnings expectations.

Last week, results from retailers including Walmart, Target and Kohl’s raised concerns that rising costs are eroding profits while inflation prompts some consumers to rethink their budgets.

“After having a real challenging time with retail last week, you’re starting to see some other signs that not everybody in retail is doing poorly,” said

Wayne Wicker,

chief investment officer at MissionSquare Retirement. “It probably provides a little more confidence that the consumer continues to be reasonably strong.” 

Equity investors have endured a particularly volatile period lately. At the end of last week the S&P 500 fell far enough that it was on track to close at least 20% below its January peak. The benchmark then reversed course to avoid closing in bear market territory.

Despite the advances by major indexes this week, many investors expect markets to remain unsettled for some time to come.

“I think we’re going to still go through some more volatility ahead,” said

Leslie Thompson,

chief investment officer at Spectrum Wealth Management.

Investors have been considering how the Federal Reserve’s plans to tighten monetary policy to combat inflation could weigh on economic growth and the performance of financial markets.

Fed meeting minutes released Wednesday showed that policy makers were in agreement for half-percentage point increases in June and July, in line with previous communication. Major stock indexes closed higher after the release. 

“To some extent, markets have been reassured that the Fed isn’t going to tighten more aggressively than what is expected,” said

Luc Filip,

head of investments at SYZ Private Banking.

Traders worked on the floor of the New York Stock Exchange on Tuesday.



Photo:

justin lane/Shutterstock

Money managers are closely watching fresh data as they gauge the health of the economy. On Thursday a second reading of first-quarter U.S. gross domestic product came in worse than the first with a contraction at an annual rate of 1.5%.

“Economic data has come in weaker than expected lately. We do see this tightening in the economy. How severe the growth slowdown is what markets are thinking about now,” said

Shaniel Ramjee,

a multiasset fund manager at Pictet Asset Management.

Initial jobless claims fell last week and hovered near historic lows, suggesting a mixed economic picture. 

Earnings reports continued to drive moves in individual stocks. Analysts have been scrutinizing results for indications that inflation has begun to weigh on profits.

“We are focusing on earnings and profitability. A lot of stable companies are reporting lower guidance,” Mr. Ramjee said. “Even the tech sector is not immune to margin pressure, especially from input costs like wages.” 

Nvidia

shares rose more than 5% after the chip maker posted record revenue, though its sales outlook for the current quarter came in below Wall Street’s estimates.

Shares of

Williams-Sonoma

jumped 13% after the retailer posted profits that beat analysts’ expectations. Macy’s shares climbed 19% after it raised full-year earnings guidance.

Dollar Tree shares advanced nearly 22% and Dollar General shares rose nearly 14% after the discount retail chains reported profits higher than expectations.

Shares of

VMware

added 3.4% after

Broadcom

confirmed that it will acquire the cloud computing firm for $61 billion in cash and stock. Broadcom shares rose 3%.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note rose to 2.756%, from 2.746% Wednesday. Yields rise as bond prices fall.

Global oil benchmark Brent crude added 3% to trade at $117.40 a barrel.

Overseas, the pan-continental Stoxx Europe 600 rose 0.8%. In Asia, major benchmarks were mixed. The Shanghai Composite Index added 0.5% while Hong Kong’s Hang Seng fell 0.3%. Japan’s Nikkei 225 also declined 0.3%. 

South Korea’s central bank raised a key policy rate to 1.75% on Thursday and signaled it would tighten policy further to keep fighting against high inflation. 

Write to Karen Langley at karen.langley@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com

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Business

‘So bad, it’s good.’ This beleaguered stock market has one big asset on its side, say strategists.

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A rough month for stocks is drawing to a close, and many investors likely won’t be sad to see the back of it. And the last day of April trade is looking weak as Apple and Amazon failed to raise the bar on a mixed season for tech earnings.

Our call of the day comes from Keith Lerner, chief market strategist at Truist Advisory Services, who said “depressed” investor sentiment is the reason he hasn’t shifted to a full negative stance on stocks right now.

“Indeed with markets, it’s not about good or bad — it’s all about better or worse relative to expectations. When expectations are low, a little bit of good news can go a long way. That’s why markets tend to bottom when fear and uncertainty are at an extreme,” said Lerner in a recent note to clients.

He downgraded his equity stance to neutral in April after two years of a positive stance, noting that while the range of potential outcomes is wide, risk/reward is less positive.

He pointed to the latest survey from the American Association of Individual Investors (AAII), which showed the percentage of investors with a negative/bearish outlook surging to 59.4%. That was the highest since early March 2009, just a few weeks short of a major stock bottom following the 2008-09 financial crisis decline.

“To be fair, investors were correctly negative in January 2008 in the early stages of that market downturn,” he said.

The percentage of bullish investors is currently 16%, also close to a record low, leaving the bull/bear spread at -43%, a level that has been surpassed twice in the past 35 years — in the fall of 1990 and that March 2009 period, said Lerner.


Truist Advisory Services

A similar theme was heard from Thomas Lee, founder of Fundstrat Global Advisors, who told clients that the AAII sentiment survey was a “major bottom signal,” based on history. “So bad, it’s good,” he said.

Lee provided this chart showing when such a weak reading marked a stock bottom:

One footnote from Lee is that the AAII survey tends to sample older investors, and not the Reddit crowd.

Read: Boomers are leaving the stock market. Here’s what happens next.

Lerner adds other proof of investor negativity, such as the $45 billion flowing out of equity funds over the past two weeks. “This is an extreme that we have also seen during times of heightened uncertainty and volatility,” Lerner said.

For example: the post-Lehman Brothers bankruptcy, the U.S. debt downgrade, COVID-19 pandemic lows and two months before the 2020 U.S. presidential election. While the Lehman Brothers signal was “premature,” strong price returns followed the other periods, he said.

In short, Lerner said Truist follows the “weight-of-the-evidence approach,” which is telling it that depressed investor views and a “low hurdle for positive surprises” are the stock market’s biggest assets going.

The buzz

The Federal Reserve’s favored inflation gauge — the core personal consumer expenditure price index — rose a sharp 0.9%i, and employment costs also rose. The followed by the University of Michigan consumer sentiment index is still to come, and next week we’ll get a Fed meeting.

Amazon
AMZN,
-11.95%
is down 8% after its first loss in seven years. Apple
AAPL,
+1.34%
is down over 2% after the tech giant topped earnings and set a revenue record, but warned of billions in added costs from supply-chain woes.

Tesla
TSLA,
+6.32%
stock is higher after CEO Elon Musk tweeted that there were no more sales planned for now, after he sold nearly $4 billion worth.

Earnings from Chevron
CVX,
-0.94%,
Exxon
XOM,
+0.23%
have left those shares softer, while Honeywell
HON,
+4.98%
is up on results, while AbbVie
ABBV,
-10.36%,
Bristol-Myers Squibb
BMY,
-2.30%
and Colgate-Palmolive
CL,
-5.43%
are also all down on results.

Opinion: Big Tech is no longer winning as big, but these two stocks still seem safe

Elsewhere, Intel
INTC,
-5.25%
is down after results, while investors are cheering Roku
ROKU,
+9.57%
earnings. Also sinking are shares of Robinhood
HOOD,
+4.66%,
which missed forecasts and said fewer people were trading on its app.

And Digital World Acquisition Corp.
DWAC,
+8.07%,
the special-purpose acquisition company buying the company behind former President Donald Trump’s Truth Social, is surging after Trump resurfaced with a message on the platform.

Ukraine’s leader has accused Russia of trying to humiliate the UN by firing missles on Kyiv during a visit by Secretary-General António Guterres. And efforts to get trapped civilians out of embattled Mariupol continue.

China’s government has vowed more support for its economy, as the country battles COVID-19 outbreaks.

The Labor Department is worried Fidelity’s plan to allow Bitcoin into 401(k) plans is risky for retirees.

The markets

Stocks
DJIA,
-0.05%

SPX,
-0.47%

COMP,
-0.12%
are lower, with bond yields
TMUBMUSD10Y,
2.865%

TMUBMUSD02Y,
2.702%
higher and crude-oil prices
CL00,
+0.94%
up. Gold is climbing , while the dollar
DXY,
-0.37%
has cooled after Thursday’s massive rally, notably against the yen
USDJPY,
-0.57%,
which continues to drop. The Russian central bank cut interest rates to 14% and the ruble
USDRUB,
-2.12%
is rebounding.

Bitcoin
BTCUSD,
-1.67%
and other cryptos are modestly off.

The chart

Naomi Poole and a team of strategists at Morgan Stanley have rolled out a new Market Sentiment Indicator (MSI) to offer “tactical guidance on ‘risky assets.’” It aggregates survey, positioning, volatility and momentum data to gauge market stress and sentiment.

The MSCI All-Country World Index (you can track that via the exchange-traded fund iShares MSCI ACWI
ACWI,
+0.25%
) is used as a proxy for risk asset performance.

“Our analysis suggests that improving/deteriorating sentiment is a more powerful signal for forward returns than just extreme levels,” said Poole and the team. Using the level and direction of stress, the MSI is currently neutral and not giving off buy signals yet, they said.

The tickers

These were the top-traded tickers on MarketWatch as of 6 a.m. Eastern Time:

TSLA,
+6.32% 		Tesla
AAPL,
+1.34% 		Apple
AMZN,
-11.95% 		Amazon
GME,
+0.76% 		GameStop
AMC,
+2.49% 		AMC Entertainment
NIO,
+7.12% 		NIO
FB,
+2.85% 		Meta Platforms
BABA,
+11.86% 		Alibaba
NVDA,
+1.61% 		Nvidia
TWTR,
+0.72% 		Twitter
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A southern Italian town may hold the secrets to longevity. And it’s all down to food.

Pet duck helps solve a murder mystery.

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Business

Facebook earnings beat sends Meta stock soaring, but sales hit slowest growth in a decade

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Meta Platforms Inc. is the latest tech giant to feel an economic pinch, as Facebook’s parent company reported its slowest sales growth in a decade Wednesday and issued lukewarm revenue guidance.

“The revenue headwinds” will likely lead to a slowdown in investments, Meta Chief Executive Mark Zuckerberg said in a webcast presentation with analysts late Wednesday.

Nonetheless, Meta’s stock 
FB,
-3.32%
jumped more than 18% in after-hours trading Wednesday, after the company formerly known as Facebook disclosed first-quarter earnings of $7.47 billion, or $2.72 a share, down from $9.5 billion, or $3.30 a share last year, on sales of $27.9 billion, up 7% from $26.2 billion a year ago.

Earnings beat the average forecast for profit of $2.56 a share, but sales fell short of the consensus of $28.3 billion, according to analysts polled by FactSet.

Meta issued a second-quarter revenue forecast of $28 billion to $30 billion, while analysts were forecasting $30.7 billion. Facebook executives have cited inflation, supply-chain issues, the war in Ukraine, European economic headwinds, increased competition from services such as TikTok and changes Apple Inc. 
AAPL,
-0.15%
made to its mobile operating system that make it more difficult for apps to track consumers in ads.

For more: Meta CFO cries ‘wolf’ again with bleak Facebook outlook — but he may be right this time

In a white paper published by Apple on Tuesday, Kinshuk Jerath, a professor of business in the marketing division at Columbia Business School, concluded it would be speculative to claim billions of advertising dollars moved from companies like Meta to Apple because of Apple’s move.

“This outlook reflects a continuation of the trends impacting revenue growth in the first quarter, including softness in the back half of the first quarter that coincided with the war in Ukraine,” Meta Chief Financial Officer David Wehner said in a statement announcing the results. “Our guidance assumes foreign currency will be approximately a 3% headwind to year-over-year growth in the second quarter, based on current exchange rates.”

In the webcast presentation, Zuckerberg acknowledged the impact of TikTok and Apple, but said Meta was confident in its Reels short-form videos and artificial intelligence to address each company, respectively. He added that the company’s push into metaverse will also boost revenue, especially in advertising.

The mixed results arrive on the heels of lighter-than-expected sales and earnings from Google parent Alphabet Inc
GOOGL,
-3.67%

GOOG,
-3.75%
on Tuesday, deepening concerns that companies dependent on advertising may face a rough patch with a war raging in Ukraine and inflation burning through the pocketbooks of consumers. Snap Inc.
SNAP,
-5.58%
warned of a “challenging operating environment” when it reported results last week, though Pinterest Inc.
PINS,
-2.86%
shares also soared after earnings on Wednesday.

Daily active users, or DAUs, a crucial metric for Meta’s growth globally, increased 4% to 1.96 billion, topping analyst expectations of 1.95 billion. The uptick largely allayed investors, who have openly fret over decreased user engagement on Facebook’s platforms.

“The growth in (DAUs) is a good sign for Facebook, especially coming off of Q4 2021 when it experienced its first-ever decline in DAUs. But it’s also clear that Facebook is still struggling to bring in new users, and it’s becoming increasingly difficult for Instagram to pick up the slack,” said Evelyn Mitchell, an analyst at Insider Intelligence. “Most of the growth in both [monthly active users] and DAUs in Q1 came from the rest of the world, not the US and Canada, which monetizes at a better rate.”

Read more: These 21 large-cap stocks have now crashed at least 50%

Meta’s stock has been among the worst in tech this year, plummeting 48% so far, while the broader S&P 500 index
SPX,
+0.21%
has dipped 12% in 2022.

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Business

Dow drops nearly 600 points, Nasdaq slumps ahead of megacap tech earnings

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U.S. stocks were trading sharply lower Tuesday afternoon, failing to build on the previous session’s bounce, as investors sift through a raft of company results and await earnings reports due after the bell from tech giants including Microsoft Corp. and Google parent Alphabet Inc.

How are stock indexes performing?
  • The Dow Jones Industrial Average
    DJIA,
    -2.14%
    dropped 589 points, or 1.7%, to 33, 460.
  • The S&P 500
    SPX,
    -2.47%
    fell 83 points, or about 2%, to 4,212.
  • The Nasdaq Composite
    COMP,
    -3.51%
    lost 375 points, or 2.9%, to trade at about 12,630.

Monday saw the biggest intraday reversal since February for the Dow, which rose 238 points, or 0.7%, erasing a loss of nearly 500 points. The S&P 500 rose 0.6%, and the Nasdaq Composite gained 1.3%.

Also read: U.S. stocks ended a Manic Monday in the green — but intraday bounces like this aren’t bullish

What’s driving markets?

Stocks were sinking Tuesday afternoon, with all three major benchmarks down after Monday’s rally.

“Investors are not necessarily secure” in the strength of the market, with “fragility” on display since the beginning of the year, said Aoifinn Devitt, chief investment officer at Moneta, in a phone interview Tuesday. “There is this fear of slowing growth.” 

The CBOE Volatility Index
VIX,
+14.62%
jumped about 15% to around 31 Tuesday afternoon, according to FactSet data. That compares with a 200-day moving average of around 21.

Consumer discretionary
SP500.25,
-4.08%,
information technology
SP500.45,
-2.79%
and communication services
SP500.50,
-2.00%
were the hardest hit sectors of the S&P 500 in early afternoon trading Tuesday, according to FactSet data. Tech and communications services had posted the strongest performance for the S&P 500 in Monday’s stock market rally.

“Now we have this giveback today,” said Devitt. “Markets are trying to figure out a level.”

The S&P 500 is trading not far off its closing low this year of 4,170.70 on March 8, according to Dow Jones Market Data. The Nasdaq was trading near its 2022 low of 12,581.22, hit March 14.

U.S. stocks were falling as investors wade further into the busiest week of the U.S. company-earnings reporting season, digesting results from a number of corporate heavyweights released before the opening bell. They’re also looking ahead to results from megacap tech companies Microsoft Corp.
MSFT,
-3.23%
and Google parent Alphabet Inc.
GOOG,
-2.58%
after the closing bell.

Tech giants are “big movers in the market,” said Paul Nolte, a portfolio manager at Kingsview Investment Management, by phone Tuesday. Both the S&P 500 and Nasdaq are “dramatically impacted by tech.” 

Formerly high-flying Netflix
NFLX,
-4.49%
shares have dropped more than 40% since announcing last week that it had lost 200,000 subscribers in the first quarter.

While around 80% of companies so far reporting earnings for the quarter have beaten profit expectations, including General Electric Co., United Parcel Service Inc. and Pepsico Inc., disappointing earnings forecasts are weighing on shares.

Read: First major Wall Street bank to call for a recession now sees clear outside risk it could be `more severe’

In U.S. economic data, orders at U.S. factories for durable goods rose 0.8% in March and business investment rebounded after the first decline in a year, signaling the economy is still growing at a steady pace. The rise in durable-goods orders matched the consensus expectation produced by a survey of economists by The Wall Street Journal.

 A survey of consumer confidence dipped in April to 107.3 from 107.6, but Americans signaled they are optimistic enough about the economy to keep buying big-ticket items such as news cars and appliances.

The S&P CoreLogic Case-Shiller 20-city house price index posted a 20.2% year-over-year gain in February, up markedly from 18.9% the previous month, but U.S. new-home sales decreased 8.6% to an annual rate of 763,000 in March, the government said Tuesday. 

The Federal Reserve’s policy meeting next week is meanwhile weighing on investors, who are anticipating the central bank may announce a large rate hike, potentially of 50 basis points, in an effort to tame hot inflation, according to Nolte.

“The Fed will raise rates until something breaks, and that will be the economy,” he said. “Concerns may be rising for the potential for a recession.”

Which companies are in focus?
  • Twitter Inc.
    TWTR,
    -3.28%
    shares fell about 2.7% Tuesday to around $50 after its board agreed Monday to accept Tesla chief Elon Musk’s $54.20 a share bid for the social-media platform.
  • 3M Co.
    MMM,
    -3.00%
    shares dropped 2.8% after the maker of post-it notes and industrial equipment posted better-than-expected first-quarter earnings.
  • Shares of PepsiCo Inc.
    PEP,
    -0.06%
    rose 0.3% after delivering earnings and revenue that exceeded Wall Street forecasts.
  • United Parcel Service Inc.
    UPS,
    -3.02%
    shares fell 2.6% after the package-delivery giant reported first-quarter profit and revenue that beat expectations.
  • General Electric Co.
    GE,
    -10.91%
    shares plunged 10.6% after the industrial conglomerate reported first-quarter adjusted profit and revenue that beat expectations, but missed on free cash flow and provided a somewhat downbeat outlook.
  • Shares of JetBlue Airways Corp.
    JBLU,
    -10.60%
    plummeted 10.1% after the air carrier reported a narrower-than-expected loss and revenue that more than doubled to match forecasts, but said it planned to reduce capacity growth further to help restore operational reliability. United Airlines Holdings Inc.
    UAL,
    -4.22%
    said Tuesday it is launching the biggest transatlantic expansion in its history with 30 new or resumed flights coming from mid-April through early June. United Airline shares fell 3.5%.
How are other assets are faring?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    2.774%
    fell about 5 basis points to around 2.77%. Yields and debt prices move opposite each other.
  • The ICE U.S. Dollar Index
    DXY,
    +0.56%,
    a measure of the currency against a basket of six major rivals, rose 0.5%.
  • Bitcoin
    BTCUSD,
    -4.79%
    fell 4.6% to trade around $38,314.
  • Oil futures
    CL.1,
    +3.01%
    climbed, with West Texas Intermediate crude for June
    CLM22,
    +3.01%
    delivery rising 2.8% to trade around $101.37 a barrel.
  • In gold futures
    GC00,
    +0.11%,
    gold for June delivery
    GCM22,
    +0.11%
    rose 0.1% to trade at $1,898.10 an ounce.
  • In European equities, the Stoxx Europe 600
    SXXP,
    -0.90%
    closed 0.9% lower, while London’s FTSE 100
    UKX,
    +0.08%
    gained 0.1%.
  • In Asia, the Shanghai Composite
    SHCOMP,
    -1.44%
    fell 1.4%, while the Hang Seng Index
    HSI,
    +0.33%
    rose 0.3% in Hong Kong and Japan’s Nikkei 225
    NIK,
    +0.41%
    gained 0.4%.

—Steve Goldstein contributed to this report.

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Business

Disappointing Meta, PayPal Earnings Send Shudders Through Stock Market

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Facebook’s parent company shed more than $230 billion in market value Thursday, a one-day loss that would be the biggest ever for a U.S. company and increase the pressure on a stock market long powered by technology shares.

The setbacks reflect the increased scrutiny companies are under as major U.S. stock indexes remain near record highs and the Federal Reserve is preparing to raise interest rates for the first time since 2018. Rising rates tend to reduce the multiples that investors are willing to pay for a share of company profits, a trend that stands to mean pain for stocks that are already trading at lofty valuations.

That has put heightened pressure on the companies to show their financial results justify their price tags. In recent days, several have fallen short, raising concerns among investors that further declines in major indexes could lie ahead.

“The level of forgiveness has gone down,” said

Daniel Genter,

chief executive and chief investment officer at RNC Genter Capital Management. “When boards come to their shareholders to confess their sins, they’re just not going to be pardoned with one Hail Mary.”

Some strategists say the recent slide in shares of speculative tech companies should serve to remind investors that a robust market rally relies on advances by a variety of stocks. And they warn they expect more big stock swings ahead at any hint of slowing growth.

“The market can’t just be driven by a small number of megacap companies or tech companies,” said

Yung-Yu Ma,

chief investment strategist at BMO Wealth Management. “There should start to be more of a recognition that it’s not going to be technology that leads us out of this pullback.”

Earnings season had been overshadowed until recent days as investors fretted over the Fed’s plans to raise rates. They sold stocks across sectors, helping to send the S&P 500 down 5.3% in January, its worst monthly performance since the March 2020 slump.

The market briefly stabilized this week—with all three major stock indexes rising for four consecutive sessions—before tumbling again Thursday. The S&P 500 dropped 2%, while the tech-heavy Nasdaq Composite fell 3.1%.

All eyes have now turned to

Amazon.com Inc.,

which reports after the closing bell. The e-commerce company warned in late 2021 of a challenging end of the year as it confronted global supply-chain problems.

Amazon shares dropped more than 7% ahead of the report, while shares of speculative tech stocks like

Snap Inc.

and

Pinterest Inc.

also tumbled. Snap fell 24%, while Pinterest declined 10%.

The giant stock moves show how serious investors have become about demanding that companies deliver on their promises for growth after a steep and swift climb in share prices.

Meta, PayPal and Spotify entered 2022 at rich valuations. While the S&P 500 ended December trading at 21.5 times its projected earnings over the next 12 months, Meta was trading at 23.6 times, PayPal at 36 times and Spotify at 543.9 times, according to FactSet. Spotify isn’t an index constituent.

By Wednesday, Meta’s multiple had pulled back to 22.6 times forward earnings, while PayPal traded at 27.2 times, and Spotify at 287.6 times.

“Those stocks were really priced way beyond perfection,” Mr. Genter said. “People are saying, well, guess what, perfection is not here.”

The Facebook parent company surprised investors late Wednesday with a deeper-than-expected decline in profit and a downbeat outlook. The company said it expects revenue growth to slow and shared that it lost about one million daily users globally. Shares declined 27%, on course for their worst daily performance since they started trading in 2012.

The company’s challenges include a new ad-privacy policy from Apple Inc. that Meta expects to cost it more than $10 billion in lost sales for 2022. The requirement that apps ask users whether they want to be tracked limited the ability to gather data used to target digital ads, driving advertisers to change their spending.

Meta’s $234 billion drop in market value is set to exceed the record that Apple Inc. set in September 2020 when the iPhone-maker lost about $182 billion in a single day, according to Dow Jones Market Data.

PayPal lowered its profit outlook for 2022 and abandoned a target it set last year of roughly doubling its active user base. Executives said business this year will be pressured by forces including inflation, supply-chain problems, the Omicron variant and the runoff in government stimulus. Shares slumped 25% Wednesday in their worst selloff on record and continued sliding Thursday.

PayPal Holdings lowered its profit outlook.



Photo:

Justin Sullivan/Getty Images

And Spotify, which is embroiled in a controversy over

Joe Rogan’s

podcast, said it added users but declined to give annual guidance, pulling shares down 16% on Thursday.

Earnings results out of the tech segment haven’t been all bad. Google parent

Alphabet Inc.

reported robust sales growth and unveiled plans for a stock split this week, helping the company add more than $135 billion in market value Wednesday.

Alphabet has outperformed the other stocks in the popular FAANG trade lately. Its shares are about flat this year, while Meta, Amazon and

Netflix Inc.

are down by double-digit percentages.

Apple Inc.

is off modestly.

Broadly, the corporate earnings season has surpassed expectations. With results in from about half the constituents of the S&P 500, analysts estimate that profits from index constituents rose 26% in the holiday quarter from a year earlier, according to FactSet. That is up from forecasts for 21% growth at the end of September.

Money managers, though, say they have been particularly focused on what company executives have to say about their expectations for the coming months in the wake of higher rates and the continuing Covid-19 pandemic.

“Not too many of them are painting a rosy picture because of the uncertainty,” said

Robert Schein,

chief investment officer at Blanke Schein Wealth Management.

How the Biggest Companies Are Performing

Write to Karen Langley at karen.langley@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

U.S. Stocks Finish Sharply Higher, Ending Losing Streak

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U.S. stocks climbed Tuesday, resuming the seesaw action that has become markets’ signature since the emergence of the Omicron Covid-19 variant. 

The S&P 500 advanced 1.8%, the Nasdaq Composite rose 2.4% and the Dow Jones Industrial Average gained about 560 points, or 1.6%. All three indexes fell in the three previous trading sessions, pushed down by concerns over new Covid-19 lockdowns.

Investors have a mix of concerns heading into the end of the year. The rise in Omicron cases could prolong the global supply-chain disruptions that have added to inflation. However, there are also signs that vaccine boosters offer protection against Omicron. The Biden administration said Tuesday that it is preparing to distribute 500 million free at-home Covid-19 testing kits to Americans to tackle rising cases.

Meanwhile, some investors are hoping that a version of Democrats’ $2 trillion spending package can still be passed. Senate Majority Leader Chuck Schumer said Democrats would take up the legislation early next year, despite opposition from Sen. Joe Manchin.

Some traders were likely closing out positions before the end of the year, locking in gains.  Omicron has whipsawed stocks since Thanksgiving, but the S&P 500 is still up more than 20% this year.

“The market is just rebounding after profit-taking in these last number of days because it’s been such a strong year,” said Linda Duessel, senior equity strategist at Federated Hermes. “We’re running out of time here but there is still a chance for that Santa Claus rally, which we’ve been cheering for.”

Investors said markets are having difficulty interpreting the long-term threat posed by the Omicron variant, signaling that some volatility could extend into next year.

“Everybody is trying to put decimal point accuracy on forecasts right now; that’s kind of a fool’s game,” said

Richard Bernstein,

chief executive at Richard Bernstein Advisors.

General Mills

shares fell 4% after the food company reported a quarterly profit that missed expectations.

Micron Technology

shares gained more than 10% after the memory-chip company posted strong results and provided better-than-expected forecasts.

Rite Aid

shares climbed 21% after the drugstore chain said that its plans to close stores will boost earnings.

Nike

shares rose 6.2% after the sneaker maker posted earnings and sales that topped analysts’ expectations, despite persistent supply-chain challenges.

Some investors worry that a rise in Omicron cases could stall economic growth.



Photo:

Spencer Platt/Getty Images

Investors are also eyeing what themes are going to drive the markets next year. Value stocks, such as financials, energy, utilities, materials and industrials, tend to do well when interest rates go higher. However, investors will need to keep adjusting their outlook as the pandemic progresses.

“With the equity markets, it’s kind of like a biathlon,” said Larry Adam, chief investment officer at Raymond James. “We’ve been skiing very rapidly and then in the second part of the biathlon, you have target practice, where you have to be much more precise and focused with sector, individual stock and industry calls.”

The yield on the benchmark 10-year Treasury note ticked up to 1.487% Tuesday from 1.418% Monday. Yields and prices move inversely.

Front-month Brent crude futures, the benchmark in global oil markets, rose $2.46, or 3.4% to $73.98 a barrel.

Overseas, the Stoxx Europe 600 rose 1.4%. Asian indexes closed with gains. Japan’s Nikkei 225 added 2.1% and China’s Shanghai Composite gained 0.9%. South Korea’s Kospi added 0.4%. 

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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