Updated: 11-21-2017

Quotes at time of story, top stories today: 11:55AM | 10:29AM | 10:08AM | 09:31AM | 09:30AM | 09:20AM

11:55AM ET
Signet Jewelers falls after missing estimates and lowering guidance

Signet Jewelers (SIG) is down 27% at a three-month low after the company missed third quarter estimates and lowered earnings guidance for the year.

Same store sales fell 5.0%, including an estimated 120 basis point negative impact due to weather-related incidents and systems and process disruptions associated with outsourcing of the credit portfolio. Signet missed same store sales estimates by ~200 basis points.

Signet reported a third quarter loss per share of $0.20, including ($0.25) per share in net transaction costs related to the first phase of strategic credit outsourcing and the R2Net acquisition, and ($0.10) due to weather-related incidents and credit outsourcing disruptions.

"Signet had a challenging third quarter. In addition to an anticipated sequential slowdown in our same store sales, unfavorable weather-related incidents, along with unexpected disruptions during the transition of our credit services, further negatively impacted results."

On October 23, 2017, Signet completed the first phase of strategic outsourcing of its credit portfolio to Alliance Data Systems and Genesis Financial Solutions. As part of the first phase, Alliance Data acquired the prime credit quality portion of Signet's existing credit portfolio and became the primary provider of credit to Signet's customers, while the credit servicing functions of the non-prime book has been outsourced to Genesis.

Signet is experiencing greater than anticipated disruptions related to the complex credit transition process. Signet and its credit partners are working with great urgency to resolve these issues, and while the critical majority of the systems-related issues have been identified and restored, the Company expects the financial impact to carry forward into the fourth quarter given the significant changes to the credit-related processes.

As a result, Signet now expects Fiscal 2018 SSS to be down a mid single-digit percentage and EPS to be in the range of $6.10 and $6.50. Prior guidance called for EPS of $7.16-7.56 with SSS down low to mid single-digits.

Signet guided for fourth quarter same store sales to be down low- to mid-single digits. Estimates were looking for a flat comp in the fourth quarter versus a 4.5% decline last year.

The Company is in advanced discussions with interested funding partners related to the second phase of its credit outsourcing, which is expected to be completed in the first half of calendar year 2018.

Shares of SIG are attempting to find support near the $55 level this session. The stock trades at less than 9x earnings estimates.

10:29AM ET
Looking Ahead - November 22, 2017 - Durable Goods Orders Report

The Thanksgiving holiday is near, yet there will be a good bit of economic reporting to take care of Wednesday, including the release of the Durable Goods Orders report for October which will have some bearing on the fourth quarter GDP outlook. 

Durable Goods Orders Report for October (Wednesday, November 22, at 8:30 a.m. ET)
  • Why it's important
    • It sheds light on business activity for U.S. manufacturers
    • It enables economists and investors to develop a sense of business spending levels
      • The relevant line item in the report is new orders for nondefense capital goods, excluding aircraft
    • Durable orders can be volatile due to aircraft orders.  Accordingly, the underlying impression of manufacturing activity flows out of the level of new durable goods orders, excluding transportation.
    • This report will factor into fourth quarter GDP computations
      • The relevant line item in the report pertaining to the GDP outlook is shipments of nondefense capital goods, excluding aircraft
    • Durable goods orders will be a focal point for the Federal Reserve in its assessment of business investment activity

  • A closer look
    • According to the Briefing.com consensus estimate, total orders for October are expected to be up 0.4%.  Excluding transportation, they are expected to be up 0.5%.
      • Total orders increased 2.2% in September.  Excluding transportation, durable goods orders increased 0.7%
      • Nondefense capital goods orders excluding aircraft -- a proxy for business spending -- were up 1.3% for the third straight month in September.  Shipments of those goods were up 0.7%. 
  •  

       

  • What's in play?

    • Industrial Select Sector SPDR ETF (XLI)
    • iShares U.S. Industrials ETF (IYJ)
    • Industrials/Producer Durables AlphaDEX Fund (FXR)
    • Vanguard Industrials ETF (VIS)
    • Boeing (BA)
    • Treasuries
    • S&P futures
    • Fed funds futures

10:08AM ET
Palo Alto Networks jumps on OctQ earnings/guidance

Palo Alto Networks (PANW) is trading sharply higher today (+8%) after reporting earnings last night. In case you're not familiar, PANW is seen by many as the sort of the gold standard for cybersecurity. PANW sees itself as the market disruptor.

Its platform allows its enterprise customers to secure their businesses by safely enabling applications running on their networks and by preventing breaches that stem from targeted cyberattacks. Its platform uses an innovative traffic classification engine that identifies network traffic by application, user, and content and provides consistent security across the network, endpoint, and cloud.

Its platform enables customers to maintain the visibility and control needed to protect their valued data and critical control systems while pursuing technology initiatives, like cloud and mobility, that grow their business. PANW believes its platform offers superior performance compared to legacy approaches by simplifying their security operations and infrastructure and eliminating the need for multiple, stand-alone security appliances and software products.

PANW's Next-Generation Security Platform consists of three major elements: its Next-Generation Firewall, its Advanced Endpoint Protection, and its Threat Intelligence Cloud. PANW combines proprietary hardware and software architecture, PAN-OS operating system, Traps, and Threat Intelligence Cloud to provide a comprehensive security platform. Its firewall integrates application visibility and control and is comprised of three identification technologies: App-ID, User-ID, and Content-ID. These allow customers to enable the secure use of applications while managing the inherent risks of doing so.

Its end-customers are predominantly medium to large enterprises, service providers, and government entities. Its customers operate in a variety of industries, including education, energy, financial services, government entities, healthcare, Internet and media, manufacturing, public sector, and telecom. Typical deployment scenarios include the enterprise perimeter, the enterprise data center, and the distributed enterprise perimeter. Its deployments typically involve at least one pair of PANW products along with one or more of subscriptions, depending on size, security needs and requirements, and network complexity.

PANW primarily sells its products through channel partners and resellers. But it also sells its VM-Series virtual firewalls directly to end-customers through Amazon's AWS Marketplace and Microsoft's Azure Marketplace under a usage-based licensing model.

Turning to the Q1 (Oct) earnings report, non-GAAP EPS rose 35% YoY to $0.74, well above prior guidance of $0.67-0.69. Revenue rose 27.0% year/year to $505.5 mln, which also was a good bit above prior guidance of $482-492 mln. In terms of guidance for Q2 (Jan), PANW sees non-GAAP EPS of $0.78-0.80 and revenue of $518-528 mln. This guidance is better than market expectations.

PANW added more than 2,500 new customers in OctQ, bringing the total number of customers it serves to more than 45,000. The company says it continues to drive disruptive evolutions in a large and growing market by delivering highly automated and orchestrated security capabilities that increase prevention rates and simplify consumption models. In addition, the company named Kathy Bonanno as CFO. She has held senior finance positions at Palo Alto Networks since 2014.

In sum, this was another impressive quarter for PANW. The company has now reported six EPS beats in a row and the last three have been quite sizable beats. The stock got hammered on a weak earnings report/guidance in late February but each of the next three earnings reports have resulted in gap-ups. It seems that investors are quite pleased with the OctQ results.

09:31AM ET
Campbell Soup Slides After Missing Expectations

Campbell Soup (CPB 46.01, -3.92) sports a pre-market loss of 7.9% in response to disappointing results and lowered earnings guidance.

The food processing company reported below-consensus first quarter earnings of $0.92 per share on a 1.9% year-over-year decline in revenue to $2.16 billion, which was also a bit shy of expectations.

In addition to missing expectations, Campbell Soup lowered its outlook for the fiscal year, expecting below-consensus earnings between $2.95 and $3.02 per share, down from previous guidance for earnings between $3.04 and $3.11 per share. Revenue is expected to decline as much as 2.0%, coming in between $7.73 billion and $7.89 billion, which is on the light side of market expectations.

The company's earnings guidance cut was owed in part to a disappointing gross margin performance in the first quarter, as gross margin declined to 36.5% from 38.7% one year ago. Cost inflation and higher supply chain costs and an unfavorable mix were partly offset by improved productivity and benefits from cost savings initiatives.

First quarter sales were reduced by a 2.0% drop in organic sales due to lower volume. Looking at the segment breakdown, Americas Simple Meals and Beverages sales declined 5.0% to $1.22 billion. Lower sales of soup and V8 beverages were partly offset by gains in Prego pasta sauces. U.S. soup sales fell 9.0% with condensed soups, broth, and ready-to-serve soups driving the decline. Inability to reach an agreement with a key customer on a promotional approach for soup in fiscal 2018 weighed on results. Segment operating earnings fell 14.0% to $328 million due to lower sales volume and lower gross margin percentage.

Global Biscuits and Snacks sales increased 3.0% to $709 million, partly due to currency translations. Excluding currency translations, segment sales grew 2.0% thanks to gains in Pepperidge Farm snacks. Segment operating earnings grew 4.0% to $120 million thanks to higher sales volume.

Campbell Fresh sales were little changed at $234 million. Gains in carrot ingredients, Garden Fresh Gourmet, and Bolthouse Farms salad dressings were offset by declines in carrots. The segment recorded an operating loss of $6 million after reporting earnings of $1 million one year ago. Higher carrot costs weighed on operating earnings.

09:30AM ET
Crackdown on Microlending in China Clobbering a Few Recent Consumer Finance IPOs
Shares of China-based Qudian (QD), PPDAI (PPDF), and Jianpu Technology (JT) are taking a beating this morning, currently indicated to open lower by about 30%, 16%, and 10%, respectively. There are a couple issues at play that are hammering these stocks. First and foremost, last week reports began circulating that Chinese regulators are taking aim at the microlending industry there due to the sky-high interest rates charges on these loans. This morning, these reports are picking up steam as the probability of action increases.

Before diving into this further, it's helpful to have a better understanding these businesses. We'll primarily focus on QD since it is getting hit the hardest and it is the market leader. PPDAI (PPDF) and Jianpu Technology (JT) are virtually the same as QD anyways, offering loans to consumers mainly through their online platforms.

Based in Beijing, QD is the largest online provider of small cash credit products in China. Putting this into context, the company facilitated RMB38.2 billion in transactions to seven million active borrowers through the first six months of 2017.

The company provides small credit to unserved or underserved consumers, who are often young and mobile-active, but with limited access to traditional financial products due to a lack of traditional credit data. The company believes its big data analytics capability allows an alternate way of estimating the creditworthiness of its customers. The company's system allows for an immediate approval of applications and delivery of funds in digital form and merchandise credit products.

QD receives financing income from cash credit products and financing income & sales commission fees from merchandise credit products. Loans provided to customers typically have short durations, which allows the company to quickly establish a credit profile for its borrowers. During the first half of 2017, an average active borrower accessed credit six times and borrowers with outstanding credit had utilized roughly 51.3% of their limits.

Given QD's operations, it is easy to see why a major crackdown on microlending would be a significant cause for concern. Circling back to this morning's news, it has been reported that some of these micro-lenders are charging upwards of 1,000% on these loans. Furthermore, there are concerns that these companies are preying on students and individuals with little or no regular income. These consumers, not surprisingly, are typically repeat customers with over a third of them applying for micro-loans on two to five occasions.

Given the meteoric interest rates and repeat business, it's easy to see why micro-lenders would be popping up all across the China. As noted above, there have been three such IPOs in just the past month. While charging such a high rate, these companies can easily absorb a higher default rate. But, according to QD, it's delinquency rate for 1Q17 was less than 0.5%. That said, it is possible that some consumers are simply taking out additional loans in order to pay off interest rates on existing loans. A scenario that would not end well for QD, PPDF, or JT.

As news of this crackdown hits the wires, there are also reports of class action suits being filed against Qudian (QD), which is not surprising given the stock has tanked by 40% since November 13. As these lawsuits pile up, QD's reputation might further be tainted.

To conclude, a substantial crackdown in micro-lending undoubtedly would be a blow to these three stocks. Put another way, this steep downward reaction in these stocks does seem justified.

09:20AM ET
Lowe's Is Full of Positive Third Quarter Surprises, but Stock Drops

Lowe's (LOW 79.37, -2.10, -2.6%) reported its third quarter results this morning and showed that there is plenty of business to go around for the home improvement retailers.  The company also provided its investors with a lot of good news.

Sales for the quarter increased 6.5% to $16.8 billion, exceeding analysts' average expectation; comparable sales, paced by a 5.1% gain in the U.S. business, increased 5.7%, exceeding analysts' average expectation; and diluted earnings per share increased 19.3% to $1.05, exceeding analysts' average expectation.

It is clear to see, then, that Lowe's was full of positive surprises.  What might be less clear is why its stock is trading 2.6% lower after the otherwise solid report.

There are two explanations that resonate:

  1. Shares of LOW had jumped 5.1% since competitor Home Depot (HD 170.45) reported some encouraging results of its own before the open on November 14, implying that the good news from Lowe's had already been priced in; and
  2. The comparable sales results from Lowe's were comparatively weaker versus Home Depot, which reported a 7.9% increase in third quarter comparable sales off a larger comp base, paced by a 7.7% increase in the U.S. business

That's how it works sometimes in the investment world.  A company's results might be good in an absolute sense, but if they are not as strong as their competitor's results, the stock can get penalized.

Lowe's in its own right is doing fine, capitalizing on hurricane-related activity in the third quarter and an overall trend of increased consumer spending on home improvement projects as limited inventory and high prices, which have boosted home equity levels, have compelled many existing home owners to stay put and renovate their homes.

Lowe's did a commendable job of curtailing SG&A expenses in the third quarter, which showed up in an expansion of its operating margin rate from 5.97% to 9.23%. Still, that trailed Home Depot's third quarter operating margin of 14.7%, which was up 40 basis points from the year-ago period.

Looking at fiscal 2017, Lowe's reiterated that it expects total sales to increase approximately 5%, comparable sales to increase approximately 3.5%, and diluted earnings per share to be between $4.20 and $4.30.

The affirmation is reassuring, but once again, it paled in comparison to Home Depot, which said it expects total sales for fiscal 2017 to be up approximately 6.3%, comparable sales to increase approximately 6.5%, and diluted earnings per share to be $7.36, up approximately 14% from its prior guidance.

Shares of LOW were up 14.5% for the year as of Monday's close.  That's a solid return and an enviable one for a lot of other retail stocks, yet it is comparatively weak to the 27.1% increase seen in HD shares.

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