Daily Market Report | April 20, 2022
US FINANCIAL MARKET
U.S. Stocks Waver Ahead of Major Earnings – Wall Street Journal, 4/20/2022
- U.S. stocks were mixed as investors assessed the impact of higher inflation on corporate earnings and ahead of more results from major companies.
- The S&P 500 rose 0.2% in early afternoon Wednesday, a day after the broad-market index closed up 1.6%.
- The tech-focused Nasdaq Composite Index fell about 1%. The Dow Jones Industrial Average advanced 0.8%, or 290 points.
- Netflix’s report after hours on Tuesday disappointed, while Procter & Gamble reported the biggest jump in sales in two decades, leading investors to closely scrutinize performance in an environment with rising prices.
- Procter & Gamble rose 2.6% after it raised its full-year guidance and said demand for its pricier items held up.
- IBM climbed 7.7% after it reported stronger-than-expected revenue growth driven by its cloud business.
- Netflix shares plunged 37%, on course for its worst day in nearly a decade, after it said its subscriber base shrank by 200,000 in the last quarter and predicted the loss of another 2 million subscribers this quarter.
- Other streaming companies fell: Paramount dropped 6.9%, Warner Bros. lost 4.6%, Walt Disney slid 4.5% and Spotify fell 8.1%. The S&P 500’s communications services sector, of which Netflix is a component, was down 3.6%.
- In economic news, U.S. home prices reached a record $375,300 in March as mortgage-interest rates shot up and a shortage of homes for sale continued to thwart buyers.
- Overseas, the pan-continental Stoxx Europe 600 rose 0.8%.
- In Asia, major benchmarks were mixed. The Shanghai Composite Index declined 1.4% and Hong Kong’s Hang Seng Index slid 0.4%. Japan’s Nikkei 225 rose 0.9%.
Netflix shares crater 25% after company reports it lost subscribers for the first time in more than 10 years – CNBC, 4/20/2022
- Netflix on Tuesday reported a loss of 200,000 subscribers during the first quarter — its first decline in paid users in more than a decade — and warned of deepening trouble ahead.
- The company’s revenue increased nearly 10% to $7.87 billion, but fell short of analysts’ expectations of $7.93 billion.
- Netflix previously told shareholders it expected to add 2.5 million net subscribers during the first quarter. Analysts had predicted that number would be closer to 2.7 million. During the same period a year ago, Netflix added 3.98 million paid users.
- The company said that the suspension of its service in Russia and the winding-down of all Russian paid memberships resulted in a loss of 700,000 subscribers. Excluding that impact, the company said it would have seen 500,000 net additions during the most recent quarter.
- Net income during the quarter ended March 31 fell 6.4% to $1.6 billion, down from $1.7 billion the year prior.
- The company’s free cash flow amounted to $802 million during the quarter, up from $692 million a year earlier.
- Netflix is forecasting a global paid subscriber loss of 2 million for the second quarter. The last time Netflix lost subscribers was October 2011.
- The company estimates that in addition to its 222 million paying households, access is being shared with more than 100 million additional households through account sharing. It warned a global crackdown could be coming.
- Netflix said it is exploring offering a lower priced ad-supported version of the platform to boost its subscriber base.
- Netflix estimated that besides its almost 222 million paying households, the service is being shared with an additional 100 million homes including 30 million in the U.S. and Canada.
Anthem raises earnings forecast after lower medical costs drive profit beat – Reuters, 4/20/2022
- Health insurer Anthem raised its forecast for full-year adjusted earnings on Wednesday, as lower-than-expected medical costs due to the waning impact of the pandemic helped it beat Wall Street estimates for quarterly profit.
- In the first quarter, Anthem’s benefit expense ratio – an insurer’s spending on claims against the premiums it earns – was 86.1%, compared with expectations of 87.8%, according to five analysts polled by Refinitiv.
- Net income attributable to shareholders rose to $1.81 billion, or $7.39 per share, in the first quarter ended March 31 from $1.67 billion, or $6.71 per share, a year earlier.
- The company now expects adjusted net income of over $28.40 per share, compared with its prior forecast of more than $28.25 per share.
IBM Revenue Up 8% on Continued Momentum in Hybrid Cloud Business – Wall Street Journal, 4/20/2022
- International Business Machines reported a stronger-than-expected 8% revenue increase in the first quarter on continued momentum in its hybrid cloud platform, a key focus of the tech company’s transformation.
- Revenue rose to $14.2 billion, from $13.19 billion a year earlier, beating analysts’ expected $13.78 billion, according to FactSet.
- The results were boosted by a 14% revenue increase from the hybrid cloud, which straddles public clouds, private clouds and as-a-service properties.
- Software revenue rose 12% in the latest period, which included revenue from its commercial relationship with Kyndryl.
- Consulting revenue rose 13%, while infrastructure revenue was again the laggard, with a 2% revenue decline in the March quarter.
- For the period ended March 31, IBM posted a profit of $733 million, or 81 cents a share, compared with $955 million, or $1.06 a share, a year earlier.
- Excluding impacts from items like acquisitions and the Kyndryl spinoff, operating profit was $1.40 a share in the latest period.
- Analysts recently polled by FactSet expected $1.39 a share.
Procter & Gamble Posts Biggest Sales Gain in Decades—and a Word of Caution – Wall Street Journal, 4/20/2022
- The maker of Tide detergent and Gillette razors on Wednesday posted its biggest quarterly sales gain in at least two decades as consumers, so far undeterred by inflation and the threat of a recession, paid more for household mainstays and gravitated toward higher-end options.
- P&G reported earnings per share of $1.33, up 6% from the same period a year earlier, while revenue climbed 7% to $19.4 billion.
- The Cincinnati consumer-products company said organic sales rose 10% for the quarter ended March 31, the biggest jump since P&G started tracking the metric 20 years ago.
- In the latest quarter, the company’s healthcare segment, which houses brands such as Crest toothpaste and Vicks cold medicine, saw organic sales rise 16% as the company raised prices, consumers switched to premium products and a more severe cough, cold and flu season drove up demand for over-the-counter medications.
- The two divisions that make home-care and laundry products and baby and feminine-care products each notched 10% gains.
- Pricing overall rose 5%, while sales volumes increased 3%. The only drag was foreign exchange, which lowered revenue by 3%.
- P&G on Wednesday raised its organic-sales growth forecast to a range of 6% to 7%, up from its earlier forecast of 4%-to-5% growth for the fiscal year ending June 30.
- It predicted core earnings per share will rise about 3%, the low end of its forecast of 3%-to-6% growth.
Baker Hughes earnings miss profit outlook, sending shares down – Reuters, 4/20/2022
- U.S. oilfield services and equipment firm Baker Hughes on Wednesday disclosed first-quarter earnings that missed analysts’ forecasts, sending its shares down about 10%, on mixed results across its equipment and services units.
- Orders in its Turbomachinery and Process Solutions business doubled from a year ago to $3 billion, but margins were pressured by supply chain issues and geopolitical events, Chief Executive Officer Lorenzo Simonelli said.
- Pre-tax margins in its oilfield services and oilfield equipment units declined sequentially, and margins in its equipment segment also fell year over year. Simonelli told investors he was “disappointed” with the overall level of profitability in that unit.
- Baker’s chemical production unit was among the hardest hit by supply chain issues, resulting in a roughly 170-basis-point drag on oilfield services margins, the company said on a conference call.
- Adjusted net income rose to $145 million, or 15 cents per share, in the three months ended March 31, up from $91 million, or 12 cents per share, a year ago. Wall Street analysts had anticipated earnings of 20 cents per share, according to Refinitiv IBES.
- It anticipates weaker revenues in its Russia-related businesses this year, particularly in its oilfield services unit, the company said. Russia accounted for about 4% of its total company revenues in the first quarter.
Abbott cuts sales growth forecast on baby formula recall – Reuters, 4/20/2022
- Abbott Laboratories on Wednesday lowered its full-year sales growth forecast, citing the voluntary recall of some infant formula products, including Similac, even as COVID-19 testing demand helped the company beat quarterly estimates.
- The company reported $3.3 billion in COVID-19 test sales in the quarter, adding that it now expects to record nearly $4.5 billion in 2022, most of which it expects to log in the first half.
- Its previous estimate was $2.5 billion.
- Abbott recalled certain powdered formulas made at its Michigan facility during the quarter after they were linked to infant illnesses. As a result, sales at its nutrition unit declined 7% in the quarter.
- Abbott said it still expects 2022 adjusted profit per share to be at least $4.70. Analysts on average expected profit of $4.83.
Nasdaq profit tops estimates on robust demand for software products – Reuters, 4/20/2022
- Nasdaq topped Wall Street estimates for first-quarter profit on Wednesday, driven by robust demand for its investment- and market technology-related products that offset a lull in initial public offerings.
- Net revenue was up 5% at $892 million.
- Revenues from the New York-based company’s market services segment eased 6% to $315 million from a record quarter last year, while the company’s solutions segment, which also includes anti-financial crime and environmental, social, and governance advisory products, rose 15% to $576 million.
- Nasdaq hosted 70 IPOs in the quarter, including the biggest market debut this year of private equity firm TPG, but that was down from 275 stock market flotations a year earlier.
- Excluding one-time items, Nasdaq earned $1.97 per share, above analysts’ average estimate of $1.95 per share, according to IBES data from Refinitiv.
Oil Edges Higher as U.S. Crude Stockpiles Fall Most Since 2021 – Bloomberg, 4/20/2022
- Oil resumed climbing after a sharp drop in U.S. crude inventories compounded supply concerns amid an accelerating decline in Russian production.
- West Texas Intermediate jumped back to $103 a barrel on Wednesday after briefly pairing gains earlier in the session.
- U.S. crude stockpiles fell 8.02 million barrels, the biggest draw since January 2021, according to an Energy Information Administration report.
- Earlier it was reported that Russia’s crude and condensate production from April 1 to 19 fell 8.2% from the March average.
- In China’s leading commercial hub of Shanghai, carmakers to supermarkets are now starting to resume their operations as the city seeks to recover from the economic toll of an unprecedented lockdown.
Grubhub Owner Just Eat Considers Sale After Orders Fall – Wall Street Journal, 4/20/2022
- Online food ordering company Just Eat Takeaway.com is considering selling its U.S. unit Grubhub after reporting a decline in orders following a boom in sales during Covid-19 lockdowns.
- The company said it was exploring the introduction of a strategic partner or the partial or full sale of the U.S.-based food delivery service. Just Eat completed its acquisition of Grubhub last year, a deal valued at $7.3 billion.
- Just Eat saw a 5% decline in orders in North America, currently its largest market, and a 1% decline in orders across the globe in the first quarter of 2022, according to a trading update.
- The company said it had about 90 million orders in North America and 264 million orders overall in this year’s first quarter.
- Grubhub is Just Eat’s only subsidiary based in the U.S., according to its website.
US ECONOMY & POLITICS
Sales of U.S. Previously Owned Homes Fall to Lowest Since 2020 – Bloomberg, 4/20/2022
- Sales of previously owned U.S. homes fell in March to the lowest since June 2020 as historically low inventory paired with rising mortgage rates curbed purchases.
- Contract closings decreased 2.7% in March from the prior month to an annualized 5.77 million, figures from the National Association of Realtors showed Wednesday.
- The NAR data showed that the number of homes for sale increased from a month earlier, which is typical for this time of year, but were still 9.5% lower than a year earlier.
- At the current pace it would take two months to sell all the homes on the market.
- The median selling price rose 15% from a year earlier, to a record $375,300 in March.
- Cash sales represented 28% of all transactions in March, the most since 2014. Investors, who typically buy in cash and are therefore less sensitive to mortgage rates, made up 18% of the market.
Daly Says Fed Should Hike Rates Expeditiously to Neutral by Year-End – Bloomberg, 4/20/2022
- U.S. central bankers should move expeditiously and raise interest rates to neutral — the level which neither speeds up or slows down the economy — by the end of the year, Federal Reserve Bank of San Francisco President Mary Daly said.
- “I see an expeditious march to neutral by the end of the year as a prudent path,” Daly said Wednesday in a speech in Las Vegas, noting that most forecasters see that level lying around 2.5%. “Moving purposefully to a more neutral stance that does not stimulate the economy is the top priority.”
- Daly’s comments echo those of several other policy makers, who have similarly called for the central bank to raise rates expeditiously to get to neutral, which officials estimated at 2.4% when they updated forecasts last month.
Biden Aims to Expand Access to Student-Loan Debt Forgiveness for Millions of People – Wall Street Journal, 4/20/2022
- The Biden administration said it plans to make it easier for lower-income student-loan borrowers to get debt forgiveness through an existing program that has enrolled millions of people, but provided few with relief.
- The changes would apply to an income-based program for repaying student loans, allowing around 3.6 million people—nearly 10% of all student-loan borrowers—to receive at least three years of credit toward eventual debt forgiveness.
- The program, referred to as income-driven repayment plans, permits borrowers to pay a certain percentage of their income on loans for 20 to 25 years and have the rest of their balances forgiven.
- Borrowers and members of both parties in Congress have criticized the program as broken. A 2021 study of government data found that just 32 borrowers out of eight million enrolled in the program successfully had their debt forgiven after decades of payments. The program has existed since 1992.
Julian Assange’s Extradition to U.S. Approved by U.K. Court, Referred to Government – Wall Street Journal, 4/20/2022
- A London court on Wednesday said WikiLeaks co-founder Julian Assange’s extradition to the U.S. to face spying charges could proceed once the government approves it, but the prospect that he could appeal means the long-running legal saga could still be many months from resolution.
- Mr. Assange, 50 years old, is wanted in the U.S. on 18 counts of conspiring to disclose classified information and conspiring to hack a military computer.
- The alleged offenses relate to the publication in 2010 and 2011 by WikiLeaks of a huge trove of classified material that painted a bleak picture of the American campaigns in Iraq and Afghanistan, and their aftermath.
- Mr. Assange, who has been held at the U.K.’s high-security Belmarsh prison since 2019, has repeatedly defended his work and the wider WikiLeaks project as public-interest journalism that exposed wrongdoing by the U.S. and other governments.
EUROPE & WORLD
Canada CPI Accelerates to 6.7% in March – Wall Street Journal, 4/20/2022
- Canada’s annual inflation rate accelerated in March, exceeding market expectations to reach a fresh three-decade high and prompting analysts to suggest another big interest-rate rise could be in the offing in June.
- Canada’s consumer-price index advanced 6.7% on a year-over-year basis in March, Statistics Canada said Wednesday, versus a 5.7% rise in the previous month. Market expectations were for inflation to reach 6.1% in March, according to economists at TD Securities.
- The March inflation rate was the highest since January of 1991, when annual prices advanced 6.9%.
- On a month-over-month basis, CPI rose 1.4% in March, also the largest advance since January 1991.
- On a seasonally adjusted monthly basis, CPI was up 0.9% in March.
- Meanwhile, the average of the Bank of Canada’s preferred measures for underlying core inflation in March rose to 3.8%, up from 3.5% in the previous month.
ASML Q1 earnings beat forecasts slightly, bookings seen strong – Reuters, 4/20/2022
- ASML Holding, a key supplier to computer chip makers, reported on Wednesday first-quarter sales of 3.5 billion euros ($3.8 billion) and net income of 695 million euros, slightly ahead of expectations.
- Net bookings in the quarter were 7 billion euros.
- Not included in first quarter sales were equipment worth about 2 billion euros that customers asked to have shipped immediately, before it was fully tested.
- Those deliveries cannot yet be booked as sales, but ASML expects to recognize that revenue over the coming quarters.
- The company forecast second quarter sales of 5.1-5.3 billion euros and left a forecast for full year sales growth of 20% unchanged.
- Dassen said full year gross margins might be closer to 52%, rather than the 53% the company forecast in January, in part due to rising labor, transport, energy and cost increases.
Heineken buoyed by higher beer sales and prices – Reuters, 4/20/2022
- Dutch brewer Heineken stuck to its 2022 profit margin forecast on Wednesday after a sharp jump in first-quarter beer sales and prices cheered investors despite added uncertainty from the conflict in Ukraine.
- Driven by a steady loosening of coronavirus restrictions, particularly in Europe, Heineken’s beer volumes rose by 5.2% on a like-for-like basis from the same period last year, beating the 3.5% average forecast in a company-compiled poll.
- The increase in Europe was 11.5%, with beer sales in bars and restaurants almost tripling.
- Overall, the world’s second-largest brewer also raised the average income per litre by 18.3% through direct price increases, consumers trading up to more expensive beers and a shift in sales from supermarkets to bars, resulting in a 24.9% boost to revenue.
Factmonster – TODAY in HISTORY
- The first detective story, Edgar Allen Poe’s Murders in the Rue Morgue was published. (1841)
- Marie and Pierre Curie isolated radium. (1902)
- The U.S. Supreme Court upheld the practice of busing for racial desegregation. (1971)
- 14 students (including killers) and 1 teacher killed, 23 others wounded at Columbine High School in Littleton, Colo., in the nation’s deadliest school shooting. (1999)
- Danica Patrick won the Indy Japan 300, becoming the first woman to win an IndyCar race. (2008)
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