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Dow 30 Stock Roundup: Pfizer, Merck, Exxon Beat on Earnings, Chevron Posts Loss

The Dow declined over the week following disappointing domestic and foreign economic data and a decline in oil prices. The index increased on Monday following gains in consumer discretionary, consumer staples and financials stocks. The index declined on Tuesday following lower-than-expected manufacturing data from China and disappointing economic data from Europe. The index moved lower on Wednesday following continuing decline in energy stocks and mixed economic data. The index gained marginally on Thursday as gains led by a rally in oil prices were offset by discouraging economic data and lackluster earnings reports. The Dow has lost 0.3% over the first four trading days of the week.

Last Week’s Performance

The index decreased 0.3% last Friday following dismal earnings results, which had a negative impact on biotech stocks. Shares of Gilead Sciences, Inc. GILD fell 9.1% after reporting first quarter earnings per share (EPS) of $2.98, missing the Zacks Consensus Estimate of $3.03.

Also, continuing decline in shares of tech giants weighed on the tech sector. Moreover, lower-than-expected earnings results from tech giants continued to weigh on the sector.

Personal consumption expenditure price index (PCE) rose 0.1% in March, lower than February’s increase of 0.2%. Core PCE increased 0.1%, in line with the consensus estimate. However, this was lower than February’s increase of 0.2%.

For the week, the index declined 1.3% following losses in tech and healthcare stocks. Apple Inc.’s AAPL lackluster quarterly performance weighed on key U.S. indexes. However, gain in oil prices had a positive impact on investor sentiment. This was the Dow’s highest weekly decline since Feb 12

The index advanced 0.3% over April marking its first three-month winning stretch since Jan 2014. Energy stocks were the biggest gainer during the month, while tech stocks were biggest laggards. Meanwhile, mixed first quarter earnings results also had a negative impact on the markets.

Oil prices posted monthly gains due to a weaker dollar, fall in the U.S rig count, rise in gasoline consumption and worldwide outages. However, disappointing earnings results dragged tech stocks downward for the month.

Further, the minutes on Federal Reserve’s March two-day policy meeting indicated that the Fed officials shared diverse views regarding rate hike chances which also raised concerns over the rate hike course.

The Dow This Week

The index increased 0.7% on Monday following gains in consumer discretionary, consumer staples and financials stocks. Rise in shares of Wynn Resorts Ltd. WYNN and Amazon.com, Inc AMZN boosted consumer discretionary sector. Meanwhile, gains in Sysco Corporation’s SYY shares helped the consumer staples sector to finish in the green.

Gains in Berkshire Hathaway Inc. BRK.B had a positive impact on broader financial sector. However, Apple dropped 0.1% and posted an eight consecutive trading day decline for the first time since July 28, 1998. Separately, U.S. dollar index declined following lower-than-expected factory activity and construction spending data which raised worries over slow economic expansion.

The ISM manufacturing index decreased from 51.8% in March to 50.8% in April, lower than the consensus estimate of 51.3%. Also, construction spending increased 0.3% from February to a seasonally adjusted annual rate of $1,137.5 billion in March.

The index declined 0.8% on Tuesday following lower-than-expected manufacturing data from China and disappointing economic data from Europe. Markit and Caixin Media jointly reported that China’s manufacturing PMI fell from 49.7 in March to 49.4 in April. Further, the official manufacturing PMI fell from 50.2 in March to 50.1 in April.

Moreover, the European Commission reduced its economic growth forecast for both the eurozone and the European Union (EU).  Disappointing economic news from China and Europe raised global growth worries and weighed on Fed rate hike chances, which in turn resulted in a sell-off in financial stocks.

Additionally, oil prices declined following China’s growth worries, concerns over global crude supply glut and stronger dollar. Iraq reported an increase in crude supply from southern fields. Moreover, crude production from OPEC members like Saudi Arabia and Iran also increased.

In economic news, Autodata reported that domestic vehicle sales in April came in at 13.8 million, which was more than the consensus estimate of 13.5 million and March’s reading of 13.3 million.

The index lost 0.6% on Wednesday following continuing decline in energy stocks and mixed economic data. The U.S. Energy Information Administration (EIA) reported yesterday that the U.S. commercial crude oil inventories rose 2.8 million barrels to 543.4 million for the week ended April 29. It was nearly 1 million barrels higher than analysts’ expectations.

Further, this was more than the increase of 1.3 million barrels reported by the American Petroleum Institute (API) a day earlier. Moreover, total motor gasoline inventories rose by 0.5 million barrels last week. Rise in crude oil and gasoline inventories had a negative impact on oil prices.

A report from Automatic Data Processing, Inc. revealed that private sector employers added 153,000 jobs in April, lower than analysts’ expectations of 193,000. However, the ISM Services Index increased from 54.5% in March to 55.7% in April. Trade deficit fell to the lowest settlement in more than a year after imports slumped to its lowest level in last five years. New orders for manufactured goods increased 1.1% in March.

The index gained marginally on Thursday as gains led by a rally in oil prices were offset by discouraging economic data and lackluster earnings reports. Oil prices increased after a wildfire hit Fort McMurray, the oil city of Canada, which in turn affected crude production.

Following this fire, Canada lost 690,000 bpd of its total oil production of 2.2 million barrels per day (bpd). Moreover, International Energy Agency (IEA) reported that recent unrest in Libya has curbed the country’s oil production by 1 million bpd, higher than IEA’s previous forecast of 750,000 bpd.

Initial claims increased 17,000 to 274,000 for the week ending Apr 30, reaching its highest level in the last five weeks. Initial claims were more than the consensus estimate of 262,500. It was also the biggest increase in more than a year.

Components Moving the Index

Chevron Corp. CVX reported a first quarter loss per share of 39 cents, wider than the Zacks Consensus Estimate of a loss of 18 cents. Last year, Chevron earned $1.37 per share during the period. Quarterly revenue fell 32% year over year to $23,553 million but was able to beat the Zacks Consensus Estimate of $23,547 million on stable production.

At 2,666 thousand oil-equivalent barrels per day (MBOE/d), Chevron’s total production of crude oil and natural gas remained essentially unchanged from the year-earlier level. The U.S. output came in at 701 MBOE/d, while the company’s international operations (accounting for 74% of the total) produced 1,965 MBOE/d.

Chevron’s downstream segment achieved earnings of $735 million, almost 50% lower than the profit of $1,423 million last year. The results were dragged down by lower margins on refined product sales.

ExxonMobil Corporation XOM posted first-quarter 2016 earnings of 43 cents per share that beat the Zacks Consensus Estimate of 31 cents. The bottom line, however, deteriorated from $1.17 per share in the year-ago quarter.

Total revenue in the quarter decreased to $48,707 million from $67,618 million in the year-ago quarter. The top line, however, was ahead of the Zacks Consensus Estimate of $48,137 million.

The upstream segment incurred a loss of $76 million in the reported quarter, a sharp decline from earnings of $2.9 billion in the first quarter of 2015. Lower liquids and gas realizations hurt earnings by $2.6 billion. The effect of sales mix lowered earnings by $100 million.

The downstream segment recorded profits of $906 million, down $761 million from the first quarter of 2015. Weaker margins affected earnings by $860 million. Volume and mix effects increased earnings by $10 million.

The chemical unit contributed approximately $1.4 billion which was $373 million higher than the first quarter of 2015.

Pfizer Inc.’s PFE first quarter earnings per share of 67 cents were well above the Zacks Consensus Estimate of 55 cents. Revenues of $13 billion breezed past the Zacks Consensus Estimate of $11.9 billion.

The company recorded earnings growth of 32% and revenue growth of 20% from the year-ago period. While currency movement cut Pfizer’s first quarter revenues by 7% ($729 million), operational growth was 26% ($2.9 billion). International revenues declined 1% to $6.4 billion. Meanwhile, U.S. revenues grew 49% to $6.6 billion.

Pfizer now expects to earn $2.38–$2.48 per share on revenues of $51 billion–$53 billion. The company had previously guided toward earnings of $2.20–$2.30 per share on revenues of $49–$51 billion in 2016. The Zacks Consensus Estimate for earnings and revenues are currently $2.29 per share and $51.3 billion, respectively.

Merck & Co. MRK reported first quarter 2016 earnings of 89 cents per share, surpassing the Zacks Consensus Estimate of 85 cents and increasing 4.7% from the year-ago period. Revenues for the quarter declined 1.2% to $9.3 billion, missing the Zacks Consensus Estimate of $9.5 billion. Currency movement negatively impacted revenues by 4%.

Merck’s Pharmaceutical segment posted revenues of $8.1 billion, down 2%. Currency movement negatively impacted revenues by 4%. Reduced operations in Venezuela also impacted sales. Merck’s animal health segment posted revenues of $829 million, unchanged from the year-ago quarter.

Merck narrowed and raised its 2016 earnings guidance to $3.65–$3.77 per share. Revenues are now expected in the range of $39.0 billion to $40.2 billion. The Zacks Consensus Estimate for earnings and revenues is currently $3.71 per share and $40.1 billion, respectively.

The Goldman Sachs Group, Inc.’s GS $272 million mortgage settlement received approval of the U.S. District Judge, Loretta Preska in Manhattan on Monday. The settlement puts an end to a prolonged legal battle stemming from the financial crisis.

According to the released court order, the settlement is “in all respects, fair, reasonable and adequate and in the best interest of the settlement class members.” Goldman, however, did not admit any wrongdoing.

Notably, last year Goldman agreed to settle the concerned lawsuit that accused it of misrepresenting facts pertaining to nearly $6 billion of residential mortgage-backed securities (“RMBS”).

Performance of the Top 10 Dow Companies

The table given below shows the price movements of the 10 largest components of the Dow, which is a price weighted index, over the last five days and during the last six months. Over the last five trading days, the Dow has declined by 0.7%.

Ticker

Last 5 Day’s Performance

6-Month Performance

MMM

+0.5%

+5.3%

GS

-3.3%

-19.9%

IBM

-0.5%

+4.9%

HD

+1%

+6.9%

BA

-2%

-10.7%

UNH

-0.3%

+15.2%

MCD

+1.6%

+14.1%

TRV

+2.7%

-2.1%

JNJ

+0%

+10.8%

AAPL

-0.8%

-23%

Next Week’s Outlook

The Dow suffered losses this week, weighed down by weak economic data from abroad and the familiar specter of falling crude prices. Economic indicators on the domestic front were mixed in nature, leading to questions about the path of Fed rate hikes this year once again. A data dependent Fed will continue to watch economic indicators in order to gauge when it would be prudent to raise rates.

In such a scenario, domestic economic indicators assume even greater importance. Prominent among these is today’s employment data, which is particularly significant given the disappointing reading from the ADP report. The direction of crude prices will also continue to determine market direction to a significant extent.    

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WYNN RESRTS LTD (WYNN): Free Stock Analysis Report
 
AMAZON.COM INC (AMZN): Free Stock Analysis Report
 
PFIZER INC (PFE): Free Stock Analysis Report
 
MERCK & CO INC (MRK): Free Stock Analysis Report
 
APPLE INC (AAPL): Free Stock Analysis Report
 
GOLDMAN SACHS (GS): Free Stock Analysis Report
 
SYSCO CORP (SYY): Free Stock Analysis Report
 
BERKSHIRE HTH-B (BRK.B): Free Stock Analysis Report
 
GILEAD SCIENCES (GILD): Free Stock Analysis Report
 
CHEVRON CORP (CVX): Free Stock Analysis Report
 
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
 
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