It has been a very mixed week for US stocks as the big tech names which had led indices to fresh records in 2024 were on the retreat.
The catalyst for the sell-off was concern about AI and, notably, Alphabet's (GOOG:NASDAQ) plans to spend heavily in this area without much indication of when this investment might pay off.
Notably, outside of tech it was a happier picture for Wall Street with the Russell 2000 small- and mid-cap index performing solidly and the Dow Jones Industrial Average (with more limited exposure to technology) also holding up.
A notable loser this week was Ford (F:NYSE) which stalled badly after its latest earnings were dented by an unexpected spike in costs associated with fixing faulty vehicles under warranty.
On the other side of the coin, biotech, life sciences and diagnostic specialist Danaher (DHR:NYSE) enjoyed a material advance. Second-quarter results came in ahead of expectations thanks to strong demand for its genetic testing services. You can read more about the business here.
TESLA
A company should never be judged on a single quarterly result, but they have a habit of changing the mood music playing around a stock. There is plenty of talk about Tesla (TSLA (TSLA:NASDAQ) robotaxis, humanoid robots and autonomous driving, which provides an exciting narrative for investors but doesn’t get over the fact that these are tomorrow’s opportunities, not today’s.
The stark reality is that Tesla’s second quarter profits and margins are falling sharply, not what investors want to hear. Tesla’s Q2 results (overnight 23 Jul) paint a challenging picture for the electric vehicles giant. Automotive revenues fell 6%, driven by reduced pricing and a 5% decline in volumes of the Model S and Y.
This has put significant pressure on operating margins, which dropped 333 basis points to 6.3%, falling short of the expected 7.6%.Tesla and its innovative leader Elon Musk always seem to be desperate to work on the next initiative rather than making sure the existing business is running smoothly. That raises the risk it is juggling too many things at once and not focusing on the bread and butter, instead preferring to look for another new toy to play with.
The company has many thousands of long-run fans, happy to bide their time and play a long game, but there are also plenty of Tesla traders out there, and it is the latter who are reasserting their influence. Having briefly got back over $250 for the first time since January, the 12% plunge in the wake of Q2 numbers has undone much of that positively.
MATTEL
Shares in Barbie and Hot Wheels maker Mattel (MAT:NASDAQ) raced ahead this week gaining $3 or nearly 17% to $18.93 after the firm posted second-quarter profit which topped analysts’ estimates and reaffirmed its full-year guidance.
Earnings per share of $0.19 were roughly 12% ahead of Wall Street forecasts as the toy industry performed better than expected in the first half.
On the conference call with analysts, Mattel chairman and chief executive Ynon Kreiz said the firm had achieved ‘significant’ gross margin expansion in the first two quarters while doubling its free cash flow.
While the toy business overall is expected to decline modestly this year, Kreiz predicted Mattel would grow sales in the second half and claimed the firm was looking forward to ‘a good holiday season with new product innovation, increased retail support, more marketing and promotions and new content’.
‘We expect to outpace the industry and gain market share this year, and grow sales and earnings in 2025,’ Kreiz concluded.
COCA-COLA
Coca-Cola’s (KO:NYSE) shares bubbled up to test fresh all-time highs north of $65 after the beverages behemoth served up forecast-beating second quarter earnings (23 July) and upped its full-year outlook.
The soft drinks giant’s second quarter earnings of 84 cents came in ahead of the 81 cents Wall Street was looking for, while revenue rose 3% to $12.4 billion, breezing past the $11.8 billion analysts expected with organic revenue growth running at an impressive 15%.
For 2024, Atlanta-based Coca-Cola now expects organic sales growth in the 9% to 10% range, up from management’s previous guidance of 8% to 9% organic growth. Coca-Cola also upped its earnings growth outlook from 4% to 5% to a 5% to 6% range. While unit case volume grew globally in Q2, it fell slightly in North America, chiming with rival PepsiCo’s recent complaint (11 July) of an increasingly value-conscious US consumer that is pushing back on price increases.
Coca-Cola CEO James Quincey blamed weak sales in away-from-home channels for North America’s declining unit case volume. Coca-Cola will be hoping for a sales boost this summer through its long-term relationship with the Olympic Games.
