Quotes at time of story, top stories today:
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Dow -16.31 at 16408.54, Nasdaq +9.29 at 4095.52, S&P +2.54 at 1864.85
The stock market ended the holiday-shortened week on a mixed note as the Dow Jones Industrial Average shed 0.1%, while the S&P 500 added 0.1% with seven sectors posting gains.
Equity indices faced an uphill climb from the opening bell after disappointing quarterly results from Google
(GOOG 536.10, -20.44) and IBM
(IBM 190.04, -6.36) weighed on the early sentiment. Google reported earnings $0.15 below the Capital IQ consensus estimate on revenue of $15.42 billion (expected $15.52), while IBM revealed in-line earnings on revenue that was roughly $500 million below expectations.
The results from the two pressured the technology sector (-0.3%), which was down as much as 1.0% during early action. The sector was able to shed the bulk of its losses thanks to strength among chipmakers and other high-beta components. Chipmakers rallied throughout the session after upbeat earnings from SanDisk (SNDK 82.99, +7.14) and Taiwan Semiconductor (TSM 20.71, +0.56) underpinned the space. The broader PHLX Semiconductor Index, meanwhile, jumped 1.9%.
Even though Google and IBM pressured the market early on, equity indices were able to rebound with help from several other major listings that reported above-consensus results. General Electric (GE 26.56, +0.44), Goldman Sachs (GS 157.44, +0.22), Morgan Stanley (MS 30.76, +0.87), and PepsiCo (PEP 85.55, +0.78) all beat their estimates.
Also of note, the biotech space remained volatile with the iShares Nasdaq Biotechnology ETF (IBB 222.16, -0.57) spending some time on each side of its flat line. Furthermore, the ETF ended just above its 200-day moving average (220.19) after spending the past week near that key level.
Although the Nasdaq and S&P 500 posted modest gains, the Dow Jones (-0.1%) was unable to catch up to its peers as losses in several large components like IBM, American Express (AXP 86.22, -1.18), and UnitedHealth (UNH 75.78, -2.41) acted as a wet blanket on the price-weighted index.
Treasuries retreated steadily throughout the session, causing the benchmark 10-yr yield to add nine basis points to 2.72%. The slide took place amid reports from Geneva indicating representatives from the European Union, United States, Ukraine, and Russia have reached an agreement on steps aimed at de-escalating the crisis in Ukraine. The agreement was announced by Russia's Foreign Minister Sergei Lavrov, who also said Ukraine needs 'decentralization' and 'more regional powers.'
Trading volume was above average thanks to a boost in activity resulting from options expiration. As a result more than 800 million shares changed hands at the New York Stock Exchange.
Today's data was limited to two releases:
- The initial claims level increased to 304,000 for the week ending April 12 from an upwardly revised 302,000 for the week ending April 5. The Briefing.com consensus expected the initial claims level to increase to 312,000. The Department of Labor stated that there were no special factors impacting the claims data. However, we remain skeptical of that. Over the past few years, the DOL has had extreme difficulties managing the seasonal adjustment factors around the Easter holiday. With Easter falling on a later date this year, we suspect that the claims are underreporting actual layoff levels. We expect some volatility in the next few weeks before the initial claims level settles back in the 320,000 -- 330,000 range by the beginning of May.
- The Philadelphia Fed's Business Outlook increased to 16.6 in April from 9.0 in March. The Briefing.com consensus expected the index to fall to 8.6. There was a general strengthening across the board. Shipments spiked to 22.7 in April from 5.7 in March. Most of the gain was the result of a significant strengthening in new orders demand, 14.8 from 5.7. The gains in shipments, however, may not be sustainable. Unfilled orders softened as the related index fell to 2.0 in April from 2.6 in March. Without a steady supply of backlogs, weaker new orders will pull down shipments growth. The employment index increased to 6.9 in April from 1.7 in March.
Monday's data will be limited to the Leading Indicators report for March, which will be released at 10:00 ET.
Week in Review: Stocks Rebound From Recent Pressure
The major averages finished the Monday session on a modestly higher note, but they ended below their best levels of the day after volatility during the last two hours of action forced the indices to test their flat lines. The S&P 500 rose 0.8%, while the Nasdaq added 0.6% after being up as much as 1.3%. The stock market began the session on an upbeat note, casting aside renewed concerns about the situation in Ukraine, where the country's army was called in over the weekend to deal with pro-Russian separatists in several cities in the Southeast. Instead, the market rallied in the morning after Citigroup's (C 48.22, +0.04) above-consensus quarterly results, combined with a better-than-expected March Retail Sales report, invited buyers into the mix. In all likelihood, the early advance was assisted by some short-covering as many areas that displayed weakness in recent sessions, showed relative strength.
On Tuesday, equities ended on a modestly higher note, but not before heavy selling pressure sent the Nasdaq Composite (+0.3%) for a test of its 200-day moving average. The S&P 500, meanwhile, added 0.7% with all ten sectors posting gains. Stocks climbed at the open with the advance built on the relative strength of biotechnology and other momentum names. Despite the solid early gains in those areas, the market began fading from its high as multiple reports pointed to an escalation of tensions in Ukraine. Specifically, a skirmish reportedly took place at the Kramatorsk airbase, but there were inconsistencies with regard to the number of injured. Some reports put the number of casualties between four and 11, while others said there were no casualties. After these reports made the rounds, Ukraine's acting President Oleksandr Turchynov was quoted by Interfax as saying the airfield has been retaken from pro-Russian militants.
The stock market ended the Wednesday session on an upbeat note with the Nasdaq (+1.3%) ending in the lead. The S&P 500 settled higher by 1.1% with all ten sectors posting gains. The benchmark index spent the entire trading day in the green, rallying to new highs during the last hour of action. The tech-heavy Nasdaq, meanwhile, briefly dipped into the red during morning action, but was able to recover swiftly. Stocks began the trading day with modest gains after the overnight session featured the release of China's Q1 GDP. Although the report could be classified as better-than-feared, it did not necessarily produce a clear-cut signal as the year-over-year reading of 7.4% beat estimates (7.3%), while the quarter-over-quarter growth of 1.4% was just below expectations (1.5%).
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Claims Remain Near 300,000 for a Second Consecutive Week
The initial claims level increased to 304,000 for the week ending April 12 from an upwardly revised 302,000 for the week ending April 5. The Briefing.com consensus expected the initial claims level to increase to 312,000. The Department of Labor stated that there were no special factors impacting the claims data. However, we remain skeptical of that. Over the past few years, the DOL has had extreme difficulties managing the seasonal adjustment factors around the Easter holiday.
With Easter being later-than-normal this year, we suspect that the claims are underreporting actual layoff levels. We expect some volatility in the next few weeks before the initial claims level settles back in the 320,000 -- 330,000 range by the beginning of May. The continuing claims level fell to 2.739 mln for the week ending April 5 from a downwardly revised 2.750 mln (from 2.776 mln) for the week ending March 29. The consensus expected the continuing claims level to increase to 2.800 mln.
Chipotle shares soar 3% following higher than expected earnings
Chipotle (CMG $565.00 +12.60) reported first quarter earnings of $2.64 per share, which is below estimates revenues rose 24.4% year/year to $904.2 million which is above estimates.
- The growth in revenue was from a 13.4% increase in comparable restaurant sales (consensus +9%) and new restaurants not in the comparable base. Comparable restaurant sales growth was driven primarily by increased traffic and to a lesser extent by an increase in average check and the benefit of one additional trading day in the quarter as compared to the first quarter of 2013.
- Food costs were 34.5% of revenue, an increase of 150 basis points driven by higher commodity costs. Higher commodity costs were primarily driven by inflationary pressures in beef, avocados, and cheese prices.
- Restaurant level operating margin was 25.9% in the quarter, a decrease of 40 basis points from the prior year period. The decrease was driven by higher food costs, partially offset by favorable sales leverage in labor and occupancy costs.
Co raises FY14 comp guidance
to high single digit growth, excluding any menu price increase, from low to mid single digits; 180 -- 195 new restaurant openings.
"Our Board of Directors has also approved the investment of up to an additional $100 million, exclusive of commissions, to repurchase shares of our common stock. This repurchase authorization, in addition to up to $77 million available as of March 31st for repurchases under previously announced repurchase authorizations, may be modified, suspended, or discontinued at any time."
Pepsi shares rise 1% following beat on earnings
- PepsiCo (PEP $85.84 +1.07) reported first quarter earnings of $0.83 per share, which is higher than expected, while revenues rose 0.3% year/year to $12.62 billion which is higher than expected. Organic revenue grew 4.0 percent and reported net revenue was even versus the prior-year quarter.
- Structural changes negatively impacted reported net revenue performance by nearly half a percentage point and foreign exchange translation had a 3-percentage-point unfavorable impact in the quarter. Organic revenue grew 5 percent for global snacks and 3 percent for global beverages in the quarter. On a reported basis, revenue grew 1 percent for global snacks and declined 1 percent for global beverages, reflecting unfavorable foreign exchange translation and structural changes.
- Each operating segment had organic revenue growth in the quarter.
- The company reaffirms guidance: Consistent with its previous guidance for 2014, the company expects 7% core constant currency EPS growth versus its fiscal 2013 core EPS of $4.37.Based on the current foreign exchange market consensus, the company currently expects foreign exchange translation to have an unfavorable impact of approximately 4 percentage points on full year core EPS growth in 2014.
American Express shares fall 1% following miss on revenues
American Express (AXP $86.90 -0.50) reported first quarter earnings of $1.33 per share, which is higher than expected, while revenues rose 4.0% year/year to $8.2 billion which is worse than expected. Consolidated expenses totaled $5.5 billion, down 1 percent from $5.6 billion a year ago. The decrease reflected a 4 percent decline in operating expenses, partially offset by higher rewards costs. Adjusted for foreign currency translations, consolidated total expenses were unchanged from a year ago. The effective tax rate for the quarter was 35 percent, up from 33 percent from a year ago. The company's return on average equity (ROE) was 28.3 percent, up from 23.2 percent a year ago.
IBM shares fall 4% following in line earnings
- IBM (IBM $188.45 -7.95) reported first quarter earnings of $2.54 per share, which is line with estimates, while revenues fell 3.9% year/year to $22.48 billion which his line with estimates. Non-GAAP gross margin +90 bps tp 47.6%. Revenue: $22.5 billion, down 4%; down 1% adjusting for currency, excluding divested customer care outsourcing business: Software, Services and Global Financing each grew, adjusting for currency; Software up 2% as reported and adjusting for currency.
- Services down 2%; up 2% adjusting for currency and excluding divested customer care outsourcing business. Global Financing up 3%, up 6% adjusting for currency. Systems and Technology down 23% as reported and adjusting for currency; Services backlog of $138 billion, up 1% adjusting for currency and excluding divested customer care outsourcing business; Business analytics revenue up 5%, up 6 percent adjusting for currency; Cloud revenue up more than 50%: For cloud delivered as a service, first-quarter annual run rate of $2.3 billion doubled year to year. The company reaffirm guidance for the fiscal year 2014 with EPS of least $18.00, excluding non-recurring items which his higher than expected. Geographic Regions. The Americas' first-quarter revenues were $9.6 billion, a decrease of 4% (down 2%, adjusting for currency) from the 2013 period.
- Revenues from Europe/Middle East/Africa were $7.6 billion, up 4% (up 1%, adjusting for currency). Asia-Pacific revenues decreased 12% (down 6%, adjusting for currency) to $5.0 billion. OEM revenues were $355 million, down 17% compared with the 2013 first quarter. Growth Markets Revenues from the company's growth markets decreased 11% (down 5%, adjusting for currency). Revenues in the BRIC countries - Brazil, Russia, India and China - decreased 11% (down 6%, adjusting for currency).
Google shares fall nearly 3% following miss on earnings
- Google (GOOG $541.00 -15.64) reported first quarter earnings of $6.27 per share, which is worse than expected, while revenues rose 19.1% year/year to $15.42 billion which is line with estimate. Sites Revenues- Generated revenues of $10.47 billion, or 68% of total revenues, in the first quarter of 2014. This represents a 21% increase over first quarter of 2013 sites revenues of $8.64 billion. Network Revenue- Partner sites generated revenues of $3.40 billion, or 22% of total revenues, in the first quarter of 2014. This represents a 4% increase over first quarter of 2013 network revenues of $3.26 billion. Other Revenues- Were $1.55 billion, or 10% of total revenues, in the first quarter of 2014.
- This represents a 48% increase over first quarter of 2013 other revenues of $1.05 billion. International Revenues- Revenues from outside of the United States totaled $8.76 billion, representing 57% of total revenues in the first quarter of 2014, compared to 56% in the fourth quarter of 2013 and 55% in the first quarter of 2013. Paid Clicks- Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 26% over the first quarter of 2013 and decreased approximately 1% over the fourth quarter of 2013.
- Cost-Per-Click- Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 9% over the first quarter of 2013 and remained constant from the fourth quarter of 2013. TAC- Traffic acquisition costs, the portion of revenues shared with Google's partners, increased to $3.23 billion in the first quarter of 2014, compared to $2.96 billion in the first quarter of 2013. TAC as a percentage of advertising revenues was 23% in the first quarter of 2014, compared to 25% in the first quarter of 2013. Operating Expenses- Operating expenses, other than cost of revenues, were $5.34 billion in the first quarter of 2014, or 35% of revenues, compared to $4.07 billion in the first quarter of 2013, or 31% of revenues. Depreciation and loss on disposal of property and equipment and amortization expenses were $1.09 billion for the first quarter of 2014, of which $1.06 billion was related to Google, compared to $899 million in the first quarter of 2013. Of the $1.09 billion, $116 million was related to amortization of Motorola intangibles, which Google will retain subsequent to the disposal of Motorola Mobile.
- Cash Flow and Capital Expenditures Net cash provided by operating activities in the first quarter of 2014 totaled $4.39 billion, compared to $3.63 billion in the first quarter of 2013. In the first quarter of 2014, capital expenditures were $2.35 billion, the majority of which was for production equipment, data-center construction, and real estate purchases. Free cash flow, an alternative non-GAAP measure of liquidity, is defined as net cash provided by operating activities less capital expenditures. In the first quarter of 2014, free cash flow was $2.05 billion "We expect to continue to make significant capital expenditures." Cash As of March 31, 2014, cash, cash equivalents, and marketable securities were $59.38 billion, which excludes cash classified as held for sale, compared to $58.72 billion as of December 31, 2013.
SanDisk shares soar 6% following beat on earnings
- SanDisk (SNDK $80.20 +4.35) reported first quarter earnings of $1.44 per share, excluding non-recurring items, which is higher than expected, while revenues rose 12.8% year/year to $1.51 billion which is higher than expected.
- SanDisk reports Q1 non-GAAP gross margin of 51.2% vs guidance of 47-49%, compared to 40.5% in Q1 of prior year.
- "We delivered record first quarter results, driven by 61 percent growth in our SSD revenue and strong retail performance...We are excited by the momentum we are building in our business as we continue to execute on our growth initiatives."
- The company sees Q2 revenues of $1.55-1.625 billion with reaffirmed fiscal year 2014 $6.4-6.8 billion which his line with estimates.
- The company sees FY14 non-GAAP gross margin of 47-49% (raised from 45-48%), reflecting continued strengthening of product mix. Co sees same range for gross margin in Q2.