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Key Consumer Sector Insights for July 24–28, 2017

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Nov. 20 2020, Updated 3:26 p.m. ET

Market and consumer sector’s performance last week

The second quarter earnings season started with a mixed performance. Most of the stocks in the consumer discretionary and consumer staples space were volatile last week due to quarterly results.

Major stocks like Amazon (AMZN), Starbucks (SBUX), Interpublic Group of Companies (IPG), Goodyear Tire & Rubber (GT), and Under Armour (UA) pulled down the consumer discretionary sector with their dismal results. However, companies like Tractor Supply (TSCO), Charter Communications (CHTR), and O’Reilly Automotive (ORLY) balanced it with their upbeat quarterly results.

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Tobacco stocks were the worst performers last week due to the FDA’s regulation announcement. The S&P 500 Index (SPY) (SPX-Index) finished the week ending July 28 with a 0.02% decline. Overall, the S&P 500 Consumer Discretionary Index (XLY) rose 0.30% and the S&P 500 Consumer Staples Index (XLP) rose 0.37% in the week ending July 28.

The Factset Earnings Insight report as of July 28 mentioned that 57% of the companies in the S&P 500 have reported actual results for 2Q17. The earnings growth rate for the S&P 500 Index stands at 9.1% for 2Q17.

Another event that kept the market awake last week was the Fed’s decision to hold interest rates steady at 1.00%–1.25%. The week ended with the US Department of Commerce providing an update on the economy’s health. The US Department of Commerce stated that the GDP grew at a 2.6% annual rate.

The SPDR S&P Retail ETF (XRT) topped the charts for the week ending July 28 with a gain of 2.3%. The Consumer Discretionary Select Sector SPDR Fund (XLY) and the Consumer Staples Select Sector SPDR ETF (XLP) also saw an increase of 0.29% and 0.47%, respectively.

As of July 28, the S&P 500 Consumer Discretionary Index (12.2%) surpassed the S&P 500 Index (10.4%) and the S&P 500 Consumer Staples Index (7.1%) on a YTD (year-to-date) basis.

Key updates last week

On July 25, Michael Kors (KORS) announced its agreement to acquire Jimmy Choo. The deal was approved by the companies’ board of directors. The deal is valued at $1.35 billion. It’s expected to close in 4Q17 assuming it meets customary closing conditions. The stock rose ~4% in the week ending July 28.

On July 26, along with its fiscal 2Q17 results, Hershey (HSY) announced a 6% increase in its quarterly dividend. The company’s board of directors approved a quarterly dividend of $0.656 on the common stock and $0.596 on the Class B common stock. The increased dividend will be paid on September 15, 2017, to stockholders of record on August 25, 2017

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On July 25, Philip Morris International (PMI) discussed its investment plan of $576 million (490 million euros) to transform its cigarette production factory in Otopeni, near Bucharest, Romania, into a high-tech facility. The high-tech facility is expected to be fully operational by 2020. It will be manufacturing HEETS—the tobacco units used with the electronic tobacco heating device IQOS. The facility will generate 300 additional jobs in the Romanian facility. Along with other tobacco companies, Philip Morris stock was also impacted by the FDA’s announcement. The stock fell ~1% for the week ending July 28.

On July 25, Walgreens Boots Alliance (WBA) announced its plan to relocate its Tempe pharmacy operations support center to Chandler, Arizona. The move would create nearly 500 jobs. The company mentioned that it expects the Chandler facility to be operational by this fall. Walgreens also announced that it signed a ten-year global agreement with Fareva to produce and supply its beauty brands and private label products. The agreement would include products for sale in the US. The agreement will likely be completed by the end of 2017—subject to regulatory approval. It will allow Walgreens to accelerate its global product strategy.

On July 28, Kellogg (K) announced a quarterly dividend of $0.54 per share on its common stock. The dividend reflects a 4% rise in its quarterly dividend. It will be paid on September 15, 2017, to shareowners of record at the close of business on September 1, 2017.

On July 28, Papa John’s (PZZA) announced a 12.5% increase in its quarterly dividend. The company’s board of directors approved a quarterly dividend rate of $0.23 per share. The increased dividend will be paid on August 18 to shareholders of record at the close of business on August 7.

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On July 27, Starbucks (SBUX) announced its agreement to acquire the remaining 50% share of its East China Joint Venture from UPEC (Uni-President Enterprises Corporation) and PCSC (President Chain Store Corporation). The deal is an all-cash transaction of $1.3 billion. The company also stated that it would take up 100% ownership of ~1,300 of its stores in Shanghai, Jiangsu, and Zhejiang. Starbucks plans to operate 5,000 stores in mainland China by 2021. In a separate transaction, Starbucks will also be selling its 50% stake in its Taiwanese joint venture to UPEC and PCSC for ~$175 million. Currently, the Taiwan joint venture operates ~410 Starbucks stores. The company expects to close both of the transactions by early 2018.

Top gainers last week

On July 25, Walmart (WMT) communicated its plan of expanding its strategic cooperation with JD.com (JD). The expansion includes integrating their platforms, supply chains, and customer resources in China. The strategic partnership intends to enhance the popularity of US-made products in China. The cooperation will let shoppers in China buy goods directly from Walmart on the JD.com platform.

On July 26, Walmart also outlined its “Policy Roadmap to Renew U.S. Manufacturing.” It will deal with major barriers that keep companies from manufacturing more consumer goods in the US. Walmart stock rose 4.8% for the week ending July 28, 2017. Walmart stock has risen 15.4% YTD.

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On July 26, Scripps Networks Interactive (SNI) rose 3.2% after a news report by Reuters mentioned that Viacom is one of the company’s potential buyers. Sources reported that Viacom is extending an all-cash offer of $10.6 billion to own channels such as HGTV, the Travel Channel, and the Food Network. On July 19, Reuters reported that Discovery Communications was in talks with Scripps Networks for a potential merger that would create a $19 billion cable network. On July 27, a report by Bloomberg stated that Viacom has withdrawn from the race. Discovery Communications is the only potential bidder offering ~$90 per share, which makes the merger worth ~$12 billion. Scripps stock rose 10.4% last week and has risen ~22% YTD.

On July 27, Tractor Supply (TSCO) reported its fiscal 2Q17 results. Its sales and earnings grew on a YoY (year-over-year) basis. Net sales of $2.01 billion were 8.9% higher than the same quarter last year. Sales for the second quarter were also in line with estimates. Its EPS (earnings per share) rose 7.8% YoY to $1.25. However, its EPS missed estimates of $1.27 per share. Tractor Supply stock rose due to its earnings results rising 7.6% last week.

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O’Reilly Automotive reported its fiscal 2Q17 results on July 27. The company surpassed analysts’ earnings and revenue estimates. The company’s revenue for the quarter grew 5.2% YoY to $2.29 billion in fiscal 2Q17—slightly higher than analysts’ estimate of $2.28 billion. Its EPS (earnings per share) of $3.04 was 14.8% higher than the same quarter last year. Earnings also surpassed consensus analysts’ estimate of $2.89. After the results, Raymond James raised the target price for the stock to $225 from $215 with a “strong buy” rating. RBC also raised the price to $207 from $201. O’Reilly Automotive stock rose 6.3% last week.

On July 27, Charter Communications reported its earnings results for 2Q17. The EPS was ~$0.52—lower than analysts’ estimates and lower on a YoY basis. Its sales for 2Q17 were $10.36 billion—higher than $6.16 billion in 2Q16. Charter Communication’s sales slightly missed estimates. However, its stock rose 5.8% for the week ending July 28. A report in the Wall Street Journal stated that Sprint proposed a merger deal with Charter Communications. The deal would lead to the creation of a media and communications giant. Many brokerage firms also raised the target price for the stock. The stock has risen ~29% YTD.

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Top losers last week

On July 27, Altria Group (MO) reported its fiscal 2Q17 results. Its earnings and sales rose on a YoY basis. However, the company’s stock fell after the FDA announced its new regulation plan to lower nicotine levels in cigarettes. The lower levels would make the cigarettes non-addictive. Cigarette makers stock fell after the news. Altria’s shares fell 8.8% for the week. Reynolds American (RAI) shares fell 2.2% for the week ending July 28.

On July 25, Kimberly-Clark (KMB) reported its fiscal 2Q17 results. Its revenue and earnings fell on a YoY basis. The company’s revenue was also below consensus estimates, while its EPS was in line with the estimates. Kimberly-Clark also lowered its earnings guidance for 2017. The company projects fiscal 2017 EPS to be at the lower end of the target range of $6.20–$6.35. The results impacted the stock. Kimberly-Clark stock fell 2.3% for the week.

Constellation Brands (STZ) fell 2.0% for the week ending July 28. On July 24, Goldman Sachs downgraded the stock to “neutral” due to concerns arising about sluggish US beer volumes.

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Interpublic Group of Companies stock fell after the company reported dismal fiscal 2Q17 results on July 25. Its revenue fell 1.7% to $1.9 billion—compared to the same quarter last year. Its revenue missed analysts’ estimates by 3.5%. The company’s EPS of $0.27 in 2Q17 also fell below consensus estimates of $0.34 and 18% YoY. As of July 28, the stock fell 15.3% last week and 7.7% YTD.

Mattel (MAT) shares fell 9.2% last week after it reported a loss of 0.14 per share in fiscal 2Q17. Its revenue rose 1.8% YoY to $974.5 million in the second quarter.

Despite a good fiscal 2Q17, Hasbro (HAS) shares fell 8.8% last week. The company reported its fiscal 2Q17 results on July 24. The revenue for the quarter rose 11.0% to $972.5 million—compared to $879.0 billion in 2Q16. Hasbro’s revenue was in line with consensus estimates. Its EPS of $0.53 grew 29.2% YoY.

Goodyear Tire & Rubber reported weaker-than-expected fiscal 2Q17 results on July 28. As a result, the stock fell 8.6% the same day. Its EPS of $0.70 was in line with estimates, but 39% lower on a YoY basis. Revenue of $3.7 billion fell slightly short of analysts’ expectations and fell 4.9% from the same quarter last year. The stock fell 8.2% for the week ending July 28.

On July 25, Deutsche Bank downgraded Under Armour (UAA) to a “sell” from a “hold.” The company will be reporting its fiscal 2Q17 results on August 1.

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Pre-earnings coverage for this week

Kellogg (K) plans to announce its results for fiscal 2Q17 on August 3, 2017. Analysts expect EPS growth of 1.1% to $0.92—compared to EPS of $0.91 in 2Q16. Kellogg’s revenues for the second quarter are projected to be ~$3.2 billion, which reflects a 3.3% fall on a YoY basis.

The Kraft Heinz Company (KHC) is scheduled to report its fiscal 2Q17 results on August 3, 2017, after the market closes. The company is expected to post EPS of $0.96 in fiscal 2Q17—an increase of ~13.0% compared to EPS of $0.85 in fiscal 2Q16. Kraft Heinz is projected to report revenues of $6.7 billion in fiscal 2Q17—a slight fall of 0.4% compared to fiscal 2Q16.

The Clorox Company (CLX) will announce its fiscal 4Q17 results on August 3, 2017. Analysts estimate that the company could post revenues of $1.6 billion in fiscal 4Q17—an increase of ~3.0% YoY. The company’s EPS is expected to rise ~15.0% to $1.49 in fiscal 4Q17 from its EPS of $1.30 in fiscal 4Q16.

Yum! Brands (YUM) will announce its fiscal 2Q17 results on August 3, 2017. Analysts expect the company’s earnings to fall ~19% to $0.61 per share. Its revenue is also expected to fall 53.0% to $1.41 billion from $3.0 billion in fiscal 2Q16.

Hanesbrands (HBI) will announce its fiscal 2Q17 results later on August 1, 2017. The company is expected to report revenue $1.64 billion—an increase of 11.7% YoY. Its EPS is estimated to rise ~4% YoY to $0.53 in fiscal 2Q17.

Sprouts Farmers Market (SFM) will be reporting its fiscal 2Q17 results on August 3, 2017. Its EPS of $0.25 is expected to be in line with the same quarter last year. Its revenue is expected to rise 12.8% YoY to $1.16 billion in fiscal 2Q17.

Herbalife (HLF) will report its fiscal 2Q17 results after the market closes on August 1. Its revenue for the second quarter is expected to fall 3% to $1.16 billion YoY. Its EPS is expected to fall 13.1% to $1.12—compared to $1.29 in fiscal 2Q16.

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Shake Shack (SHAK) will be announcing its fiscal 2Q17 results on August 3, 2017. Its revenue and earnings are expected to show a drastic improvement compared to fiscal 2Q16. Its revenue is expected to be ~$89.5 billion—compared to $54.1 billion in 2Q16. Its EPS is estimated to be $0.16—compared to its EPS of $0.14 in 2Q16.

Mondelez International (MDLZ) will announce its fiscal 2Q17 results on August 2, 2017. Its revenue for the second quarter is expected to fall 4.4% to $6.01 billion YoY. Its EPS is expected to rise 4.5% to $0.46—compared to $0.44 in fiscal 2Q16.

Post-earnings coverage for last week

VF Corporation (VFC) posted its fiscal 2Q17 results on July 24. The company surpassed analysts’ earnings and revenue estimates. Its revenue for the quarter fell 3.3% YoY to $2.4 billion in fiscal 2Q17. However, its revenue was higher than analysts’ estimate of $2.3 billion. VF Corporation’s EPS of $0.29 was 17.0% lower than the same quarter last year. Its surpassed consensus analysts’ estimate of $0.28.

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On July 25, Domino’s Pizza (DPZ) announced its fiscal 2Q17 results. Its revenue rose 14.8% for the quarter to $628.6 million YoY driven mostly by higher same-store sales and store count growth in its domestic and international business. Increased supply chain revenues from higher volumes also led to the revenue growth. Domino’s Pizza’s revenue surpassed estimates by 2.3%. The same factors along with a lower effective tax rate also contributed to a 34.6% increase in its earnings for the second quarter. The EPS was ~$1.32—7.3% higher than analysts’ estimates.

SUPERVALU (SVU) reported its fiscal 1Q18 results on July 25. Its earnings missed analysts’ estimates by 18%. However, the company beat revenue estimates by 0.30%. Its revenue fell ~23% from the same quarter last year to $4.0 billion. Its earnings in the first quarter fell 52.6% to $0.09 per share—compared to $0.19 in the same quarter last year.

On July 25, McDonald’s (MCD) reported its fiscal 2Q17 results for the quarter ending on June 30, 2017. Its earnings of $1.73 per share were strong and beat analysts’ estimate of $1.62. Global comparable sales rose 6.6%, while comparable sales in the US rose 3.9% in the second quarter. Its earnings rose 19% YoY. Revenue surpassed estimates by 1.5%. However, McDonald’s revenue fell 3.4% YoY to $6.05 billion in 2Q17.

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General Motors (GM) reported its fiscal 2Q17 results on July 25. Its revenue in the second quarter fell 1.1% YoY to $37.0 billion. Its earnings showed a slight increase of 1.6% to $1.89 per share. During the earnings conference call, General Motors mentioned that its retail crossover sales in 2Q17 rose 24% YoY—the best quarter for crossover sales.

Kimberly-Clark reported its fiscal 2Q17 results on July 25, 2017. It revenue in the second quarter fell 0.74% YoY to $4.6 billion due to a 1% fall in organic sales. Lower sales and input cost inflation had a negative impact on the second quarter EPS by 2.6% to $1.49. Its revenue missed estimates by 0.2%, while its EPS was in line with the estimates.

Hershey reported solid fiscal 2Q17 results on July 26. Its net sales for the quarter rose 1.5% YoY to $1.7 billion and beat estimates by 0.50%. The company’s net sales growth was attributed to its North America segment. The segment’s performance was led by innovation and the barkTHINS brand acquisition. Its EPS for the quarter rose 28.2% YoY to $1.09. It also surpassed analysts’ estimates by 21.1%. The company lowered its fiscal 2017 net sales guidance to ~1%. It’s lower than the previous net sales growth guidance of 2%–3%. Hershey also reaffirmed its adjusted EPS guidance of $4.72–$4.81, which is a 7%–9% increase YoY.

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Coca-Cola (KO) reported its fiscal 2Q17 results on July 26. The company’s net sales were impacted -17% from the ongoing re-franchising of its bottling territories. Currency translation also had a -2% impact on the sales. Its sales fell 15.6% to $9.7 billion in 2Q17. However, its sales beat estimates by 0.5%. Coca-Cola’s EPS fell 1.7% to $0.59 in 2Q17, while its EPS surpassed estimates of $0.57.

On July 27, Dr Pepper Snapple Group (DPS) announced its fiscal 2Q17 results. The adjusted EPS of $1.25 in 2Q17 missed the consensus estimate of $1.28. Its EPS was in line with the same quarter last year. Sales for the second quarter were ~$1.8 billion and beat analysts’ estimate by 1.7%. Its sales rose 6.0% on a YoY basis in 2Q17.

On July 27, Altria Group (MO) reported its fiscal 2Q17 results. Its net sales for the quarter rose 3.8% YoY to $5.07 billion and beat estimates by 0.9%. The company’s EPS for the quarter grew 5.0 % YoY to $0.85. It missed analysts’ estimates by 1.2%.

On July 28, Starbucks (SBUX) announced its fiscal 3Q17 results for the quarter ending July 2, 2017. Its net sales for the quarter rose 8.1% YoY to $5.7 billion. The company’s net sales missed analysts’ estimates of $5.8 billion. Its EPS of $0.55 in 3Q17 were 12.2% higher than the same quarter last year and in line with analysts’ estimates.

On July 27, Amazon.com (AMZN) reported its fiscal 2Q17 results for the quarter ending on June 30, 2017. Its earnings of $0.40 per share fell drastically in the second quarter—behind analysts’ estimate of $1.42. Amazon’s adjusted EPS fell 77.5% YoY. Revenue surpassed estimates by 2.1%. Its revenue for the quarter rose 25.0% YoY to $38.0 billion in 2Q17.

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Procter & Gamble (PG) reported its fiscal 4Q17 results on July 27. Its net sales of $16.1 billion for the fourth quarter were in line with the same quarter last year and surpassed estimates by 0.50%. The company’s EPS of $0.85 in 4Q17 was 9.0% higher than analysts’ estimates and 7.6% higher on a YoY basis.

On July 25, 2017, Chipotle Mexican Grill (CMG) reported its fiscal 2Q17 results for the quarter ending on June 30, 2017. Its net sales rose 17% to $1.17 billion due to an 8.1% increase in comparable restaurant sales and new restaurant openings. Its EPS was ~$2.32—compared to $0.87 in 2Q16. Chipotle’s revenue missed estimates by 1.5%, while its EPS beat analysts’ estimates by 6.4%.

Ford Motor Company (F) announced fiscal 2Q17 results on July 26. Automotive revenue for the quarter rose 0.49% on a YoY basis to $37.1 billion and surpassed estimates of $37.1 billion. Its adjusted EPS of $0.56 in 2Q17 was 30.2% higher than analysts’ estimates and 7.7% higher YoY.

On July 26, Whole Foods Market (WFM) released its fiscal 3Q17 results for the quarter ending on July 2, 2017. Its net sales for the third quarter rose 0.60% to $3.7 billion YoY. Its sales also beat analysts’ estimates by 0.03%. Whole Foods Market’s EPS of $0.36 was 2.7% lower than the same quarter last year. Earnings surpassed expectations by 9.1% for the third quarter.

On July 28, Columbia Sportswear (COLM) announced its fiscal 2Q17 results. It reported a net loss of 0.17 per share in fiscal 2Q17—compared to a net loss of $0.12 per share in 2Q16. Its revenue for the second quarter rose 3% to $398.9 million—compared to $388.8 million in 2Q16. Its revenue beat analysts’ estimates by 1.1%.

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On July 27, Dunkin’ Brands (DNKN) reported its fiscal 2Q17 results for the quarter ending on July 1, 2017. Its net sales for the quarter rose 1.0% YoY to $218.5 million and missed estimates of $221 million. The company’s EPS of $0.64 in 2Q17 was 3.2% higher than analysts’ estimates and 12.3% higher YoY.

Analysts’ rating changes last week

On July 27, Jefferies downgraded Sprouts Farmers Market to a “hold” from a “buy.” It cut the target price to $26 from $25. Out of the analysts surveyed, 48% of the analysts rated the stock as a “buy,” 52% rated it as a “hold,” and no analysts rated it as a “sell.”

On July 25, Stifel downgraded Lululemon Athletic (LULU) stock to a “hold” from a “buy.” It raised the target price to $66 from $60. Out of the analysts surveyed, 43% of the analysts rated the stock as a “buy,” 49% rated it as a “hold,” and 9% rated it as a “sell.”

On July 25, Deutsche Bank downgraded Under Armour to a “sell” from a “hold.” Out of the analysts surveyed, 21% of the analysts rated the stock as a “buy,” 58% rated it as a “hold,” and 21% rated it as a “sell.”

On July 28, Jefferies upgraded J.M. Smucker (SJM) stock to a “buy” from a “hold.” It raised the target price to $140 from $130. Out of the analysts surveyed, 32% of the analysts rated the stock as a “buy,” 53% rated it as a “hold,” and 16% rated it as a “sell.”

On July 28, Jefferies upgraded McCormick & Company (MKC) to a “buy” from a “hold.” It raised the target price to $110 from $95. Out of the analysts surveyed, 15% of the analysts rated the stock as a “buy,” 77% rated it as a “hold,” and 8% rated it as a “sell.”

On July 28, Susquehanna upgraded VF Corporation to “positive” from “neutral.” It raised the target price to $70 from $53. Around 32% of the analysts surveyed rated the stock as a “buy,” 64% rated it as a “hold,” and 5% rated it as a “sell.”

Key dates this week

The following chart shows the key dates for the week of July 31–August 4, 2017.

For more information, visit Market Realist’s Consumer Discretionary and Consumer Staples pages.

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