US FINANCIAL MARKET

Stocks Open Higher Ahead of Tech Earnings – Wall Street Journal, 5/26/2022

• U.S. stocks ticked up ahead of earnings from large technology companies and after minutes from the Federal Reserve reduced some investors’ concerns about aggressive measures to tame inflation.
• Minutes released on Wednesday by the Fed showed that policy makers were in agreement for half-percentage point increases in June and July, in line with previous communication.
• The yield on the benchmark 10-year Treasury note was flat from Wednesday at 2.746%.
• A second reading of U.S. gross domestic product in the first quarter came in worse than the first with a contraction at an annual rate of 1.5%.
• Jobless claims were 210,000, a decrease from the previous week and lower than economists had expected, presenting a mixed economic picture.
• In individual stocks, Nvidia declined 3% despite posting record revenues as its sales outlook for the current quarter came in below Wall Street’s estimates.
• Retailer Williams-Sonoma jumped 9% after posting profit that beat analysts’ expectations.
• Macy’s surged 13% after raising full-year earnings guidance.
• Shares of VMware added 0.3% after Broadcom confirmed that it will acquire the cloud computing firm for $61 billion in cash and stock.
• Overseas, the pan-continental Stoxx Europe 600 ticked up 0.3%.
• The Shanghai Composite Index added 0.5% while Hong Kong’s Hang Seng fell 0.3%.
• Japan’s Nikkei 225 also declined 0.3%.

Macy’s Lifts Profit Outlook as Special Occasions Boost Sales – Bloomberg, 5/26/2022

• Earnings are now seen in the range of $4.53 to $4.95 a share this year, excluding some items, up from a prior forecast of $4.13 to $4.52, the department-store chain said Thursday as it reported first-quarter results.
• Analysts were looking for $4.36, on average.
• Higher pricing, lower promotions and changing shopping habits boosted margins in the three months ended April 30 and helped Macy’s blow past earnings estimates in the quarter.
• The upbeat forecast provides some relief to investors after retail giants Walmart and Target cut their outlooks last week, sparking a selloff in consumer stocks.
• Adjusted earnings per share were $1.08 in the quarter, beating the 83-cent average estimate of analysts surveyed by Bloomberg.
• Same-store sales on an owned-plus-licensed basis rose 12.4%, trailing the 13.3% average analyst estimate, though Bloomingdale’s and Bluemercury posted gains above 25% on that metric.
• The company reaffirmed its forecast for fiscal-year sales of $24.5 billion to $24.7 billion.

U.S. dollar stores raise sales forecasts as consumers turn frugal – Reuters, 5/26/2022

• Shares of Dollar Tree and Dollar General rebounded from a slide that wiped off nearly a fifth of their value last week after huge profit declines at bigger rivals Walmart and Target.
• Dollar Tree increased its sales forecast for the year on Thursday benefiting from more Americans turning to discount stores as record high inflation depletes their spending power.
• The discount store chain forecast fiscal 2022 net sales to be in the range of $27.76 billion to $28.14 billion, compared with its prior forecast of $27.22 billion to $27.85 billion.
• Analysts on average expect $27.95 billion, according to IBES data from Refinitiv.
• The Family Dollar parent also increased its earnings per share forecast to between $7.80 and $8.20 from its prior range of $7.60 to $8, as it books margin gains from raising product prices by 25% to $1.25 at Dollar Tree.
• Dollar General only reaffirmed its forecast for fiscal 2022 per-share earnings, as sales from consumables with low gross margins including paper, food and cleaning products were rising.
• The discounter forecast a 3% to 3.5% increase in fiscal 2022 same-store sales, compared with its prior outlook of a 2.5% rise.
• Analysts were expecting growth of 2.3%, according to Refinitiv IBES.

Splunk stock rallies as cloud revenue surges 66% from a year ago – MarketWatch, 5/25/2022

• Splunk rallied in after-hours trading Wednesday as the cloud-based enterprise software company reported results that topped Wall Street estimates and hiked its full-year outlook.
• Splunk reported a first-quarter loss of $304.3 million, or $1.90 a share, compared with a loss of $471 million, or $2.89 a share, in the year-ago period.
• The company reported an adjusted loss, which excludes stock-based compensation expenses and other items, of 32 cents a share, compared with 91 cents a share in the year-ago period.
• Revenue rose to $674.1 million from $502.1 million in the year-ago quarter, as cloud revenue surged 66% to $323 million.
• Analysts surveyed by FactSet had forecast a loss of 74 cents a share on revenue of $631 million.
• Splunk expects second-quarter revenue between $735 million and $755 million, while analysts had forecast revenue of $738.8 million.
• The company expects revenue of $3.3 billion to $3.35 billion, up from a previous forecast of $3.25 billion and $3.3 billion for fiscal 2023. Analysts expect fiscal-2023 revenue of $3.3 billion.

Nvidia Stock Falls on Light Guidance, CFO Says Company Will Slow Hiring – CNBC, 5/25/2022

• Nvidia beat analyst expectations for sales and earnings, but the stock dropped more than 10% in extended trading at one point after the chipmaker gave a light forecast for the current quarter.
• Reported EPS was $1.36 adjusted, versus $1.29 expected.
• Revenue of $8.29 billion versus $8.11 billion expected.
• The company’s operating expenses increased 35% year-over-year to $1.6 billion on a non-GAAP basis.
• Nvidia said its revenue in the current quarter would be $500 million lower than it would have been if not for the Russian war in Ukraine and Covid lockdowns in China.
• Its total sales were up 46% year-over-year, and its core businesses of data center and gaming sales both grew during the quarter.
• Nvidia’s data center business, which sells chips for cloud computing companies and enterprises, grew 83% annually to $3.75 billion, surpassing the company’s core gaming business, which sells graphics cards for playing advanced 3D games, which grew 31% annually to $3.62 billion.
• Nvidia said its board has authorized an additional $15 billion in share buybacks through the end of next year.
• It spent $2.1 billion on share buybacks and dividends in the first quarter.

Broadcom’s $61 Billion VMware Buy Is a Bet on Unsexy Software – Wall Street Journal, 5/26/2022

• The deal to buy VMware, announced Thursday after The Wall Street Journal reported on details of the talks earlier in the week, would push Broadcom deeper into a software world populated by incumbents such as International Business Machines and Oracle as well as independent companies that specialize in niche applications.
• The buy would nearly triple the size of Broadcom’s software division and account for nearly 49% of the company’s revenue.
• Under the deal, one of the year’s biggest takeovers, VMware shareholders would elect to receive either $142.50 in cash or 0.252 Broadcom shares for each VMware share.
• Based on Broadcom’s closing price Wednesday, the deal offers a total per-share value of $138.23, a 44% premium to VMware’s close on May 20, the last trading day before media reports of the deal.
• Broadcom also will assume $8 billion of VMware’s debt.
• The companies expect the deal to close during Broadcom’s next fiscal year, which runs from November to October.
• Following the close, Broadcom shareholders will own approximately 88% of the company and current VMware shareholders will own 12%.

Southwest, JetBlue give upbeat revenue outlooks despite inflation worries – Reuters, 5/26/2022

• U.S. airlines have been buoyed, and in some cases surprised, by how quickly travel snapped back from the depths of the COVID-19 pandemic, leaving them struggling to add capacity in part due to staff shortages.
• As such, they have been able to raise ticket prices that have diminished the impact of higher fuel prices due to the war in Ukraine and elevated labor costs.
• Southwest said it now expects current-quarter operating revenue to rise 12% to 15% versus pre-pandemic levels. It had earlier forecast an 8% to 12% rise.
• JetBlue, which is locked in a takeover battle with Frontier Group for rival Spirit Airlines, said it expects revenue “at or above high-end of previous guidance” of an 11% to 16% rise.
• Southwest, however, said it expects available seat miles, or capacity, for the quarter to fall about 7% versus pre-pandemic levels.
• JetBlue said it expects capacity to be up 2% to 3%, up from its prior expectation of a flat to 3% rise, though the carrier flagged industry-wide weather and air traffic control-related disruptions.

Delta to Trim Some Summer Flights to Improve Operations – Reuters, 5/26/2022

• The U.S. airline said in a statement that from July 1 through Aug 7 it will cut about 100 daily departures, primarily in U.S. and Latin America markets.
• Ahead of what could be a record holiday travel weekend, Delta said in an email to employees seen by Reuters it will also work to “relieve pressure by proactively thinning the schedule over Memorial Day and through the balance of June.”
• Delta forecasts it will carry approximately 2.5 million passengers this Memorial Day weekend – a 25% increase over 2021 levels.
• The Atlanta-based airline said the service reduction for July to early August equates to approximately a 2% reduction in departures.
• It will reduce domestic planned aircraft hours in the July schedule by several percentage points “to create more buffer in the system and improve operational reliability.” Delta does not plan to exit any markets.