Earnings Season Drawing to a Close

Stocks opened modestly lower this morning (Dow -190 points; SPX -.3%). Once again, there are no signs of panic, but August is typically a sleepy month. And traders’ current obsession—what Fed Chair Powell will say in his Jackson Hole speech—won’t play out until Friday. We’re more focused on the bond market, which continues to sell off. The iShares Long Term Treasury Bond fund (TLT) is down 10% over the last couple of months. Everyone know that bond interest yields are rising again, and that could be because it’s looking more and more like the Fed won’t cut interest rates anytime soon. But can the economy continue to support high rates? Bankrate’s average 30-year fixed mortgage rate is up around 7.6%.

Dick’s Sporting Goods (DKS) reported disappointing second quarter results and the stock is down over 20% this morning. Total sales rose 4% from year-ago levels, roughly in line with analysts’ expectations. But management reported an alarming decline in profits due primarily to theft. Retail shoplifting has exploded in recent years, with some cities and states compounding the problem by essentially refusing to prosecute shoplifters. Target recently said theft has doubled compared to pre-Covid levels, and it expects to lose $500mil this year to theft. Wal-Mart announced it will close half of its Chicago stores because losses have doubled over the past five years. Whole Foods announced it will close a store in San Francisco due to employee safety concerns. I’ve run across many more such examples this year.

Palo Alto Networks (PANW) reported an unexpected surge in profits last quarter. More importantly, management boosted its outlook for new business in the coming year, with expected “billings” growth of 19-20%. This outlook contrasts with competitors Fortinet and Check Point, which expect business activity to slow somewhat. Analysts surmise that Palo Alto is gaining market share, and that’s really what pushed the stock up 14% yesterday.

Medtronic (MDT) reported solid quarterly results and the stock is up 3% this morning. The company finally halted a string of rather weak quarters, posting 4% revenue growth and 6% earnings-per-share growth. A new insulin pump launch went well, and cardiovascular device sales shot up over 6%. Management also upgraded its outlook for the year citing “much improved underlying fundamentals in our markets and supply chain.” The stock has suffered over the past couple of years due to lower elective surgery volume during and after the pandemic. And now investors have run away from device manufacturers in favor of companies that sell weight-loss drugs. But it looks as though MDT is at an inflection point, with demand rising and improving management execution.