The high-flying S&P 500 paused for breath this week, edging 1.3% lower after disappointing US quarterly growth added to concerns over elevated inflation and tight monetary policy and soft guidance from customer relationship management company Salesforce (CRM:NYSE) weighed on technology stocks.
While the tech-heavy Nasdaq Composite also finished the week in the red, the index actually notched up a record high north of 17,000 earlier in the week, helped by the ongoing rise of chip designer Nvidia (NVDA:NASDAQ), which is closing in on Apple (AAPL:NASDAQ) as the world’s second most valuable company following recent forecast-thumping earnings (22 May).
A busy week for retail reporting also witnessed some big moves, shares in Foot Locker (FL:NYSE) stomping 14% higher after the sneaker seller affirmed its guidance for 2024 with its turnaround plan showing positive signs.
Dick’s Sporting Goods (DKS:NYSE) jumped 21% after reporting better than expected first quarter sales and profit growth and raising its full year outlook, while Abercrombie & Fitch (ANF:NYSE) strutted 25% higher after the apparel retailer delivered a forecast-beating 22% rise in first quarter sales growth.
SALESFORCE
Stocks getting it in the neck on soft guidance has been one of the running themes this earnings season but few companies have come a cropper quite like customer relationship management colossus Salesforce.
The multi-billion dollar software firm has been a sector star for years, outstripping the Nasdaq and the S&P 500 on an annualised basis for 10 years, but it has also primed investors to see AI (artificial intelligence) as a big growth lever to pull, and so far, that’s not happening.
‘Despite Data Cloud’s promise, an uninspiring growth narrative and decelerating margin expansion have investors pumping the breaks on the global leader in application software’, Third Bridge analyst Charlie Miner said. That’s an understatement. Salesforce shares plunged nearly 16% on the firm’s first forecast miss in 18 years.
Founder and chief executive Marc Benioff talked up massive cash flows, and well he might - free cash flow rose 43% to $6.1 billion, funding aggressive share buybacks and a first ever dividend (announced last quarter). But investors are not best at delayed gratification and want their promised AI candy now, not tomorrow, which could make the next few months a little tricky and the stock a tad volatile.
AMERICAN AIRLINES
Investors in American Airlines (AAL:NASDAQ) had a rough week as the shares nosedived 13% on Wednesday, their worst one-day performance since the pandemic, following a surprise warning over revenue and earnings and the resignation of chief commercial officer Vasu Raja.
After posting record first-quarter revenue of $12.6 billion and ‘running the best operation in its history’, according to chief executive Robert Isom, the Texas-based carrier’s second-quarter outlook was significantly below market expectations despite analysts predicting a record summer for air travel.
Unit revenue is expected to fall up to 6% instead of 3% as previously guided, while adjusted EPS (earnings per share) are seen between $1 and $1.15 against $1.15 to $1.45 previously.
Isom said the firm would slash its capacity growth in the second half of 2024 and make changes to Raja’s strategy of driving direct sales rather than using third-party sites and travel agents, an approach which has backfired badly handing market share to rivals United (UAL:NASDAQ) and Delta (DAL:NYSE).
CONOCOPHILLIPS/MARATHON OIL
US oil major ConocoPhillips (COP:NYSE) shocked the market with its deal for smaller rival Marathon Oil (MRO:NYSE). The $22.5 billion all-share deal came out of the blue, although it is in line with a trend towards major consolidation in the North American energy sector.
Marathon shares inevitably shot higher towards the takeout price but Conoco’s stock declined, perhaps reflecting some question marks over the quality of Marathon’s assets and the risk the transaction could face regulatory hurdles and take up management’s time.
Under the agreement Marathon shareholders will receive 0.255 Conoco shares for each Marathon share they own, a 14.7% premium to the target's undisturbed price. Marathon’s management have been running the business very efficiently and the company generates lots of cash flow. So, once this is added to the Conoco portfolio, it will provide useful funds it can invest elsewhere. The deal is expected to complete in the fourth quarter of 2024.
