Friday, July 25, 2014

Markets tumble on earnings reports

Dow sank 147, decliners over advancers better than 2-1 & NAZ fell 31.  The MLP index fell 2 to the 522s in what has been a sideways month & the REIT index slipped 1 to the 307s.  Junk bond funds rose & Treasuries rallied taking the yield on the 10 year Treasury near its 13 month low.  Oil fell to a 1-week low on speculation that increasing US fuel inventories will prompt refineries to reduce processing rates & gold was up on the turmoil in the MidEast.

AMJ (Alerian MLP Index tracking fund)

CLU14.NYM...Crude Oil Sep 14...101.18 Down ....0.89  (0.9%)

GCN14.CMX...Gold Jul 14.........1,297.50 Up ...6.90 (0.5%)

Orders for U.S. Capital Goods Rose in June After Revised Drop
Photo:   Bloomberg

Orders for US business equipment rose in Jun following a revised drop the prior month, indicating corp investment remains stop-and-go & could hold back economic growth.  Bookings for non-military capital goods excluding aircraft climbed 1.4% after a 1.2% decrease in May that was previously reported as a 0.7% gain, according to the Commerce Dept.  Demand for all durable goods, meant to last at least 3 years, increased 0.7%.  Companies are waiting to boost capacity until they believe demand is sustainable.  As an improving job market will probably prompt consumers to keep replacing older cars, appliances & computers, a sign manufacturers will remain busy & give growth a boost in H2.  Non-military capital goods excluding aircraft orders were projected to climb 0.5% & such bookings are considered a proxy for future business investment.  The forecast projected total durable goods orders would rise 0.5%.  The May reading was revised to show a 1% drop compared with a previously reported 0.9% decrease.  Shipments of non-military capital goods excluding aircraft, used in calculating GDP, dropped 1% in Jun after falling 0.1% the prior month.  The May reading had previously been reported as a 0.5% gain.  Other surveys have indicated manufacturing has improved in recent months.

Orders for U.S. Capital Goods Increase After Revised Drop

Amazon missed estimates for a 2nd straight qtr, sending the shares tumbling.  The retailer yesterday reported a Q2 loss of $126M, more than double what was predicted, even as sales climbed 23% to $19.3B.  Expenses jumped 24% to $19.4B.  AMZN remains one of the most highly valued companies, yet the business is losing some of its sheen as profits are dragged down by investments that it is making in cloud computing, warehouses & gadgets such as the new Fire smartphone.  While shareholders have been patient, they’re increasingly seeking signs that the long-term strategy will work.  Weighing on results is a price war in the cloud-computing market, where AMZN rents data storage & computing power to other companies.  Cloud competitors forced a cut in prices for the Amazon Web Services unit this year.  It’s part of the “other” category under North American sales in its financial statements, where revenue in Q2 declined 3% to $1.17B from the prior period.  “We had very substantial price reductions,” CFO Tom Szkutak said.  The loss in the latest period was the biggest since Q3-2012, when it had a $274M loss.  Looking ahead, AMZN projected sales of $19.7-$21.5B for Q3 & operating losses are projected to be $810-$410M.  AMZN is in an investment cycle, which benefits customers & will eventually end, said Szkutak, without specifying when that will be.  The stock plunged almost 40+ to the 317s.  If you would like to learn more about AMZN, click on this link:

Amazon Loss Widens as CEO Alarms Investors With Spending (AMZN)

Photo:   Bloomberg

Starbucks stock sank on concern that ingredient prices & a push to open more stores will weigh on profit growth.  The company said yesterday that it’s investing in new locations & technology, as well as spending money on the Fizzio soda line & a packaged-goods business.  It also faces climbing coffee prices & worker costs, including a new tuition-reimbursement program.  While SBUX expects long-term earnings growth of 15-20%, the numbers may come in at the low end of that range next year, CFO Scott Maw said .  The guidance raised alarm bells for investors  The muted outlook follows fiscal Q3 results that beat profit & revenue estimates, helped by increased sales of food at US cafes.  EPS climbed 67¢ from 55¢ a year earlier.  Analysts had predicted 66¢.  Revenue jumped 11% to $4.15B, also surpassing estimates.  SBUX has been testing new lunch sandwiches at US locations to attract more customers after the morning rush.  It’s also recently started selling Greek-yogurt smoothies & Fizzio sodas in some cafes & added bakery items & breakfast sandwiches.  The food expansion contributed to a 6% gain in same-store sales for the Americas region.  Analysts had estimated a 5.1%.  “Food is very, very strong” in the U.S., COO Troy Alstead said.  “We have undertaken in the last 18 months a whole transformation of our food program.”  The company forecast fiscal 2014 profit of as much as $2.67 a share, excluding some items & revenue will grow at least 10% in fiscal 2015, SBUX said.  The company has been expanding abroad & this month opened its first cafe in Columbia, a 3-story store made with local materials.  Its Asian unit is also opening more locations in Vietnam, Japan & China.  The stock sank 1.63.  If you would like to learn more about SBUX, click on this link:

Starbucks Shares Fall on Concern That Profit Growth Will Ebb

Starbucks (SBUX)

Earnings season is falling short of robust.  The confusion surrounded Gaza, Ukraine & much of the rest in the MidEast is unsettling for investors.  In addition, muddy economic data in the US calls into question reasoning to take stock averages to new record highs.  But Dow is just about 1% below its recent record high.

Dow Jones Industrials

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