The Dow had a largely positive week, but for a significant decline on Thursday. The blue-chip index hit an intraday record high on Monday, before declining in the afternoon session.
The Dow achieved another intraday high on Tuesday, but had gained only marginally by the end of the session. Several new deals and upbeat results helped the blue-chip index register significant gains on Wednesday. However, the Dow lost heavily on Thursday, following international tensions and disappointing domestic data. Markets recovered on Friday, following upbeat earnings results and gains in bio-tech and Internet stocks. Friday’s gains also helped the Dow end the week modestly higher.
Components Moving the Index
General Electric Company (GE) reported strong second-quarter 2014 results with healthy year-over-year increase in revenues and earnings backed by solid industrial segment profit growth and margin expansion.
Operating earnings for the reported quarter improved to $3.9 billion or 39 cents a share from $3.7 billion or 36 cents a share in the year-ago quarter. The increase in year-over-year earnings was primarily attributable to top-line growth. Operating earnings for the reported quarter were in line with the Zacks Consensus Estimate.
On a GAAP basis, the company reported quarterly earnings (from continuing operations) of $3.6 billion or 35 cents per share compared with $3.3 billion or 31 cents in second-quarter 2013.
International Business Machines Corp. (IBM) reported non-GAAP earnings of $4.32 per share in the second quarter of 2014. Earnings per share (EPS) including acquisition and retirement related adjustments jumped 34.2% from the year-ago quarter and beat the Zacks Consensus Estimate by a penny.
The year-over-year growth in EPS was primarily driven by better-than-expected revenue results, margin expansion due to stringent cost cutting and aggressive share buyback.
Management also provided positive outlook for the second half of 2014.IBM forecasts fiscal 2014 operating earnings of at least $18.00 per share, an estimated 6.0% increase from $16.99 reported in 2013. Currently, the Zacks Consensus Estimate is pegged at $17.93 for 2014.
IBM expects the software and services segment to grow aggressively (mid single-digit) in the second half of 2014. Services segment profitability is expected to grow in mid single-digit range, while hardware profit is expected to stabilize over the rest of 2014.
Management expects EPS in single-digits and double-digits in the third and fourth quarters, respectively, driven by better performance across all the segments.
Microsoft Corp. (MSFT) announced it will eliminate up to 18,000 jobs over the next one year, as it takes steps to build leaner business processes and integrate Nokia Oyj´s handset unit. The restructuring will significantly trim its workforce as the company attempts to streamline the cost structure and thus boost the bottom line.
Microsoft will now lay off 14% of its current workforce, making this the biggest round of job cuts in its history. The last time Microsoft announced layoffs was in 2009, when 5% of its workforce was eliminated in order to deal with the recession. This time round, Microsoft will slash about 12,500 jobs from its Nokia business, which is nearly half of the workforce inherited through the Nokia acquisition in April.
Intel Corp. (INTC) posted earnings of 55 cents per share, better than the Zacks Consensus Estimate of 52 cents and management guidance. Profits were up 44% sequentially and 41% year over year on growing volumes, better mix and stronger margins. While the company continues to make progress in the mobile segment, its fortunes are still tied to the PC and data center segments, where market-driven factors and new products like the Xeon E7 family drove results.
The PC Client Group, which continues to account for the largest chunk of Intel’s business (62%), now also includes gateway and STB products. The adjusted revenues for the segment are up 9.1% sequentially and 6.2% year over year.
Data Center, which generated 25% of quarterly revenue, saw units and ASP up 9% and 11%, respectively from last year, with cloud, networking HPC and enterprise revenue each up more than 15%.
Johnson & Johnson (JNJ) reported second-quarter 2014 earnings (excluding special items) of $1.66 per share, well above the Zacks Consensus Estimate of $1.54 per share. This was 12.2% above the year-ago earnings of $1.48 per share.
Johnson & Johnson recorded growth on the back of strong pharma product sales with newly launched products like Olysio performing well.
Johnson & Johnson’s second quarter sales jumped 9.1% year-over-year to $19.5 billion, beating the Zacks Consensus Estimate of $18.9 billion. While operational factors favorably impacted sales by 9.4%, currency fluctuations had a negative impact of 0.3%.
Including one-time items, Johnson & Johnson reported second quarter earnings of $1.51 per share, well above the year-ago earnings of $1.33 per share.
UnitedHealth Group Inc. (UNH) reported second-quarter 2014 operating earnings of $1.42 per share, handily beating the Zacks Consensus Estimate of $1.25. This also compares favorably with the year-ago earnings of $1.40 per share. The earnings outperformance was driven by higher revenues but partly offset by a higher tax rate.
Total revenue of $32.6 billion increased 7.2% year over year. The revenue figure also surpassed the Zacks Consensus Estimate of $32.0 billion. Total operating cost came in at $30.0 billion, 7.2% higher year over year due to higher medical operating cost and an increased cost of product sold. Medical cost, which constitutes the major portion of operating cost, also increased 6% year over year to $23.5 billion.
JPMorgan Chase & Co. braved the tough industry backdrop and seasonal softness with its underlying strength and delivered a positive earnings surprise of 22.3% in the second quarter. The banking giant came out with earnings of $1.59 per share, beating the Zacks Consensus Estimate of $1.30. The number is marginally less than $1.60 earned in the year- ago quarter.
Results exclude an after-tax legal expense of 13 cents per share. Considering this one-time item, the company has earned $1.46 per share.
All business segments but for Consumer & Community Banking and Corporate and Investment Bank, witnessed year-over-year improvement in net income.
The Goldman Sachs Group, Inc.’s second-quarter 2014 earnings per share came in at $4.10, outpacing the Zacks Consensus Estimate of $3.07. Moreover, results were above the year-ago figure of $3.70.
Higher investment banking revenues and steady capital deployment activities were the positives for the quarter. However, increased expenses exhibited undisciplined expense management. Moreover, lower trading revenues reflected an unstable economic environment and market volatility.
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 gained over 0.3%.
|
Ticker |
Last 5 Day’s Performance |
6 Month Performance |
|
V |
+0.94% |
-5.06% |
|
IBM |
+1.59% |
+2.16% |
|
GS |
+2.50% |
-1.00% |
|
MMM |
-0.16% |
+5.72% |
|
BA |
-1.12% |
-9.90% |
|
CVX |
+1.34% |
+8.33% |
|
UTX |
-1.29% |
-1.23% |
|
XOM |
+0.49% |
+4.29% |
|
MCD |
-1.35% |
+4.11% |
|
CAT |
-0.10% |
+21.60% |
This Week’s Outlook
Stocks have had a largely positive week, but for Thursday’s losses. Upbeat earnings, new corporate deals and bullish economic data have contributed to gains. However, international tensions have cast a shadow over the markets. The impact of these external factors will possibly be felt in the days ahead.
Some important reports are lined up this week. These include data on housing, inflation, durable orders and jobless claims. Earnings have also been on the positive side, contributing to gains for stocks. If they continue to dominate proceedings, they may well outweigh international concerns and push indices upward.
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