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5:33 pm Weekly Wrap

Dow +183.54 at 18024.06, Nasdaq +63.97 at 5005.39, S&P +22.78 at 2108.29

The stock market ended a defensive week on an upbeat note. The S&P 500 gained 1.1% to narrow its weekly decline to 0.4% while the Nasdaq (+1.3%) outperformed slightly today, but lost 1.7% since last Friday.

The final session of the week was very quiet with the bulk of the action taking place at the open when the S&P 500 spiked above its 50-day moving average (2,090). The benchmark index spent the bulk of the day near its morning high, but punched through that level during afternoon action to complete a full retracement of Thursday's decline.

Nine of ten sectors posted gains with materials (+1.7%) ending the day and the week (+2.0%) ahead of the remaining sectors. Today, the growth-sensitive group received support from Monsanto (MON 118.42, +4.46) as the stock spiked 3.9% after Bloomberg reported the company has approached Syngenta (SYT 77.95, +10.91) about a potential takeover. Steelmakers also contributed to the sector's strength with Market Vectors Steel ETF (SLX 35.74, +0.49) climbing 1.4%.

Meanwhile, the other commodity-related sector-energy-spent the bulk of the session in the red, but turned positive during the afternoon. The sector added 0.3% today and finished the week with a 1.1% gain. Crude oil weighed on the sector in the early going, but the energy component narrowed its loss to 0.8% by the close to settle at $59.15/bbl. WTI crude recovered a portion of its decline after the latest Baker Hughes Rig Count showed that the pace of decline in active oil and gas rigs slowed to 27 from 31 observed last week.

However, crude oil could not return into the green as an uptick in the greenback weighed on the dollar-denominated commodity. To that point, the Dollar Index (95.15, +0.55) added 0.6% and registered its first advance in eight days after the previous seven sessions saw the index slide 3.6%.

Outside of energy, the financial sector (+0.8%) was the only other cyclical group that ended the day behind the broader market. Meanwhile, the top-weighted technology sector (+1.5%) outperformed even as LinkedIn (LNKD 205.21, -46.92) plunged 18.6% after its cautious guidance overshadowed a one-cent beat. However, LinkedIn's weakness was offset by most large cap names with the likes of Apple (AAPL 128.95, +3.80), Oracle (ORCL 44.37, +0.75), and Intel (INTC 33.42, +0.87) gaining between 1.7% and 3.0%.

Over on the countercyclical side, only the health care sector (+1.3%) finished the day ahead of the S&P 500 with help from biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 344.00, +10.34) spiked 3.1% after Gilead Sciences (GILD 105.03, +4.52) reported better than expected results.

Treasuries retreated throughout the day, sending the 10-yr yield higher by eight basis points to 2.11%.

Today's participation was below recent averages with roughly 720 million shares changing hands at the NYSE floor.

Economic data included Construction Spending, ISM Index, and Michigan Sentiment:

  • Construction spending declined 0.6% in March after increasing an upwardly revised 0.1% (from -0.1%) in February while the consensus expected an increase of 0.4%
    • Private construction spending increased 0.3% in March after declining 0.3% in February
    • Despite a rebound in the new housing starts, private residential construction declined 1.6% in March after increasing 0.2% in February
  • The ISM Manufacturing Index was unchanged and remained at 51.5 in April while the Consensus expected an increase to 51.9
    • Even though the overall index did not strengthen as the consensus expected, the key production and order readings showed improvement
      • The Production Index increased to 56.0 in April from 53.8 in March
      • The New Orders Index increased to 53.5 from 51.8
  • The University of Michigan Consumer Sentiment Index was unrevised in the final April reading after sentiment rose from 93.0 in March to 95.9 in April while the consensus expected a revision up to 96.0
    • Unlike the Conference Board's Consumer Confidence Index, which declined in April, relatively higher gasoline prices and volatility in the equity markets had no adverse effects on the Consumer Sentiment Index

Monday's data will be limited to the 10:00 ET release of the Factory Orders report for March ( consensus 2.1%).

Week in Review: Backing Off Record Highs

The stock market began the week with a pullback from record levels, but not before setting fresh intraday record highs during the opening minutes of action. The S&P 500 (-0.4%) registered its first decline in four sessions while the Nasdaq Composite (-0.6%) underperformed. Equity indices displayed modest gains in the early going to follow a relatively quiet weekend. It is worth noting that China's Shanghai Composite soared 3.0% after MNI reported the People's Bank of China is looking into purchasing local government bonds. As for U.S. stocks, the S&P 500 held an eight-point gain at the start with cyclical sectors underpinning the early strength; however, biotechnology lagged from the early going and pressured the health care sector (-1.8%) to the bottom of the leaderboard. For its part, the iShares Nasdaq Biotechnology ETF (IBB 348.55, -15.15) lost 4.2% and contributed to the underperformance of the Nasdaq.

Equity indices ended the Tuesday session on a mixed note with the Dow (+0.4%) and S&P 500 (+0.3%) registering modest gains while the Nasdaq (-0.1%) settled in the red. Stocks spent the bulk of the trading day near their flat lines, save for a morning retreat, which was retraced in short order. The brief pullback occurred after a disappointing Consumer Confidence report and unfolded amid reports from Al Arabiya indicating that a U.S. cargo vessel was seized by Iran. The U.S. Navy promptly refuted the report with subsequent stories revealing that the cargo ship came from the Marshall Islands, which are under U.S. protectorate. Furthermore, the ship was released a couple hours after the initial stoppage. Although the major averages returned to their flat lines in short order, extending the rebound proved challenging even though nine sectors finished in the green. The top-weighted technology sector (+0.2%) was limited to a modest gain with its largest component-Apple (AAPL 130.56, -2.09)-falling 1.6% despite beating earnings and revenue estimates; however, the stock entered the session with a 6.3% gain since April 17, suggesting a strong report was already priced in.

The market ended the midweek session on a modestly lower note. The S&P 500 shed 0.4% while the Nasdaq Composite (-0.6%) underperformed throughout the session. Equity indices struggled in the early going after the advance reading of Q1 GDP (0.2%; consensus 1.0%) missed expectations. However, that disappointment was partially offset by the FOMC directive, which did not stir concerns of a rate hike taking place in the near term. Instead, the FOMC reiterated that the current policy stance will remain appropriate until there is reasonable confidence among members that inflation will move back toward the 2.0% objective. Seven sectors registered losses while energy (+0.7%) outperformed throughout the session thanks to a 2.6% gain in crude oil, which settled at $58.52/bbl. The energy component was boosted by a storage report that showed a smaller than expected inventory build while dollar weakness also factored into the move higher.

The major averages ended April on a lower note, but managed to escape with monthly gains. The S&P 500 lost 1.0% and narrowed its April advance to 0.9% while the Nasdaq Composite (-1.6%) underperformed today and ended the month (+0.8%) just behind the benchmark index. Equity indices faced selling pressure from the get-go with the largest sector-technology (-1.6%)-leading the daylong retreat. The influential group faced broad-based weakness with its top component-Apple (AAPL 125.15, -3.49)-sliding 2.7% after the Wall Street Journal reported that some watch components provided by AAC Technologies (AACAY 53.31, -2.79) may be defective. That being said, other sector members also struggled with Yelp (YELP 39.36, -11.92) cratering in reaction to its quarterly report. Shares of YELP tumbled 23.2% in reaction to disappointing earnings/revenue and cautious revenue guidance for Q2.

IndexStarted WeekEnded WeekChange% ChangeYTD %
DJIA18080.14    18024.06    -56.08    -0.3    1.1
Nasdaq5092.08    5005.39    -86.69    -1.7    5.7
S&P 5002117.69    2108.29    -9.40    -0.4    2.4
Russell 20001267.54    1228.11    -39.43    -3.1    1.9

12:03 pm Shares of Newell Rubbermaid trade higher following reports mixed Q1

Newell Rubbermaid (NWL 39.70, +1.57) is trading 4.1% higher this afternoon following the company's first quarter results. In Q1, NWL reported earnings per share (EPS) of $0.36 per share, which was better than expected, on revenues of $1.26 billion.

For those who are not familiar, NWL is the maker of Paper Mate, Sharpie, Lenox, Graco, and Baby Jogger. As of the Q1 report, NWL does about 72.6% of its business in the United States. The company reports earnings among five major segments: Writing, Home Solutions, Tools, Commercial Products, and Baby & Parenting.

In Q1, NWL reported EPS of $0.36, a 2.9% increase over the prior year's period. Revenues for the quarter were up 4.1% over the prior year's period to $1.26 billion, and came in mostly in-line with what was expected.

North American geographical segment sales were by far the best performer in the quarter, as the United States portion of net sales increased 12.7% in the period to $917.2 million. Canadian, EMEA, Latin America and Asia Pacific geographical segments all saw year-over-year declines in regards to net sales contributions.

In the Writing segment, net sales fell 1.8% to $341.8 million driven by negative foreign exchange impacts of 10.8%. Core sales increased 9.0% reflecting growth in North America and Latin America. Home Solutions net sales were up 15.2% in the quarter to $364.5 million, with core sales up 0.9% as there was strong growth in Rubbermaid Food Storage and Dcor.

In Tools, net sales were $180.4 million in the quarter, a 3.9% decline over last year's period, due to a negative 7.1% impact from foreign exchange. Core sales grew 3.2% in Tools as EMEA, North America, and Latin America saw robust growth. The Commercial Products segment also grew in the period, up 1.4% to $185.2 million on core sales which also increased 9.0% as pricing in North America and Asia was strong.

Finally, the Baby & Parenting segment also saw net sales increase, ending the period up 7.1% to $192.1 million. Core sales were also up 0.8%, which was slightly impacted by the Graco recall and helped by the stabilization of the Japanese business.

In sum, it appears that the strength in the company's largest geographical segment, coupled with strong operating segment revenues is driving the stock higher today. Shares currently trade higher, and outperform the broader market, which is also higher today (S&P 500 2095.93, +10.42).

11:36 am Harman Intl (HAR)

Harman Intl (HAR) has been under pressure the past couple of days since reporting Q3 (Mar) results that came up short of expectations. You probably know the Harman brand as a premier audio company. However, the company is much more than that. It has three business segments: infotainment, lifestyle and professional. Harman today is a $6 billion technology company. If you look two years ago, HAR had revenues of about $4.3 bln, so the company has enjoyed a very strong growth period over the past two years. And that growth has come primarily from organic growth across all three of its divisions.

The infotainment segment gets the most attention from investors. More and more cars are going to be connected online over the next 3-5 years. HAR has seen strong growth in infotainment as it has launched a number of new platforms across different car models and OEMs. Take rates on the part of consumers are steadily climbing. The company has noted that last year's take rates were 20-21%. By FY16, HAR sees that going to 26-27% and that could expand to somewhere in the 50% range within five years.

What was once a feature only for luxury cars, infotainment systems are becoming more mainstream in mid- and even economy-priced vehicles. HAR is a direct play on this because, unlike its competitors which tend to do a lot of different things, HAR is keenly focused on infotainment. In fact, it's the #1 global market share leader. Infotainment growth is expected to remain strong the next few years as 1) lower priced cars increasingly adopt this technology, 2) HAR is penetrating emerging markets like China and India and 3) new technologies are always emerging especially in the area of car safety.

Its second largest division is its lifestyle division. About 60% of segment revenue comes from the car through Harman's car audio business and the other 40% comes from its consumer business which includes things like headphones, portable wireless devices, home theater systems etc. HAR is seeing very strong growth in car audio for the same reasons that it's seeing strength in infotainment, namely higher take rates. As the car becomes more connected, the overall system works better if you have a solid sound system in your car.

Finally, the professional division. This is HAR's smallest segment (should cross the $1 billion mark this year for the first time) but it's actually the company's highest margin and most profitable division. It caters to commercial customers (hotels, night clubs, churches and stadiums) by providing an end-to-end audio system (microphones, headphones, amplifiers, speakers and mixing stations). HAR has expanded that portfolio with recent acquisitions. In February 2013, HAR added LED lighting through the acquisition of Martin Professional, and most recently in June 2014, HAR added enterprise control and automation and video switching through its acquisition of AMX which starts to bring smart connectivity themes to its professional division.

Turning to the MarQ results, non-GAAP EPS rose 9% YoY to $1.22, which was below expectations. Revenue rose 4.3% year/year to $1.46 bln, which was also lower than expected. Despite the overall numbers coming up short, HAR says it delivered another solid quarter of growth, particularly in its automotive businesses, despite unprecedented foreign exchange headwinds. Of note, HAR won new awards for embedded infotainment and car audio systems from OEMs, including BMW and Daimler. Year-to-date, HAR has $5.7 billion of new automotive awards. On the negative side, its professional business was hit harder due to a strong US dollar and a softening in some emerging and European markets. In sum, investors have come to expect very strong results from HAR and they simply did not deliver in MarQ.

10:13 am Olympic Steel Surges Following Nice Top And Bottom Line Beat, Now Up 23%

Olympic Steel (ZEUS 13.49 +2.54) is trading sharply higher this morning following its earnings results.

The company surprised by reporting first quarter earnings of $0.10 per share, easily topping a loss that was expected to be seen.

On the top line, revenues fell 0.3% year/year to $345.9 million, however, this also easily topped expectations.

The company said, "We responded quickly to sharp declines in metal pricing by implementing a multi-pronged profit improvement program early in 2015. As a result, operating expenses were reduced by $2.6 million in the quarter and we further strengthened our balance sheet by reducing inventory and debt."

9:58 am Habit Restaurants (HABT)

Habit Restaurants (HABT 35.92, +2.80, +8.5%) is soaring higher shortly after the open this morning after reporting Q1 earnings of $0.09 per share, excluding non-recurring items, $0.03 better than estimate of $0.06. Revenues for the quarter rose 44.4% year/year to $54.6 million vs the $54.14 million consensus.

In case you're not familiar, HABT aims to bring the quality of a full-service restaurant to a casual environment while offering its products at a value customers generally expect from traditional fast-food restaurants. The company has grown from 26 locations at the end of 2009 to 99 locations as of Oct 20, 2014. While HABT's original locations were based solely in California, the company now has locations spread across 10 markets in four different states including New Jersey, its first east coast restaurant.

HABT's menu consists of typical American entrees like burgers & sandwiches, salads, sides, etc. Burgers are the company's most popular entree, bringing in more than half of entree revenue, sandwiches and salads rank 2nd and 3rd, respectively. Additionally, its versatile menu has brought customers in for both lunch and dinner with revenues split between the two. HABT has taken an exhibition approach to their kitchen, displaying their open flamed grill and preparation right behind the point of sale location.

The co's locations have generated 43 consecutive quarters positive comparable sales growth. While this is due primarily to increased customer traffic, it can also be attributed to 39.4% AUV growth since 2009. HABT's low cost in comparison to other fast casual restaurants has also been a catalyst for growth. The co's check average is $7.56, below the general fast casual average of $8-12.

Taking a closer look at recent results, Company-wide comparable restaurant sales increased 12.6% on a comparable 13-week basis. Additionally, the Company opened four restaurants during the first quarter of 2015 and now has 113 company-owned locations and one licensed location.

In regards to guidance, HABt expects FY15 total revenue between $221 to $225 million and comparable restaurant sales growth of 4.0% to 4.5%.

9:56 am sss

Oil and gas giant Chevron (CVX 109.75 -1.34) is trading lower following quarterly results The company reported first quarter earnings of $1.37 per share, easily topping expectations.

On the top line, revenues fell 35.1% year/year to $34.56 billion, which came up just a little short of expectations.

Foreign currency effects increased earnings in the 2015 quarter by $580 million, compared with a decrease of $79 million a year earlier.

First quarter earnings declined from a year ago due to sharply lower oil prices, which reduced revenue and earnings in our upstream business. Downstream operations were strong, benefitting from lower feedstock costs and improved refinery reliability.

U.S. upstream operations incurred a loss of $460 million in the first quarter 2015 compared to earnings of $912 mln from a year earlier, largely due to sharply lower crude oil realizations.

Higher depreciation expenses, in part due to impairments, and lower natural gas realizations, were largely offset by higher crude oil production and lower operating expenses. The company's average sales price per barrel of crude oil and natural gas liquids was $43 in the first quarter 2015, down from $91 a year ago.

The average sales price of natural gas was $2.27 per thousand cubic feet, compared with $4.77 in last year's first quarter. Net oil-equivalent production of 699,000 barrels per day in the first quarter 2015 was up 59,000 barrels per day, or 9%, from a year earlier.

Production increased due to project ramp-ups in the Gulf of Mexico, the Permian Basin in Texas and New Mexico, and the Marcellus Shale in western Pennsylvania.

8:30 am LinkedIn (LNKD)

Shares of Linkedin (LNKD 201.20, -50.93, -20%), the world's largest professional social network, have fallen sharply from yesterday's close after the company reported Q1 earnings results. Although LNKD beat EPS estimates and reported quarterly revenues in-line with consensus, it guided Q2 and FY15 EPS and revenue below estimates, which is the primary the catalyst behind the pre-market sell-off.

Taking a closer look at the results, revenue for the first quarter was $638 million, an increase of 35% year/year (y/y). By segment: Revenue from Talent Solutions products totaled $396 million, an increase of 36% y/y, revenue from Marketing Solutions products totaled $119 million, an increase of 38% y/y, and revenue from Premium Subscriptions products totaled $122 million, an increase of 28% y/y. Furthermore, revenue was well diversified geographically, with international markets accounting for 39% of total revenue.

LNKD also provided a few quarterly highlights it sees as key drivers of future growth. In Q1, the number of unique visiting members accessing LinkedIn via mobile devices surpassing 50%, and the LinkedIn Job Search app was launched for Android during the quarter. LNKD also saw continued adoption of its professional publishing platform, which eclipsed 100,000 member-generated long-form posts for the first time. Lastly, the company also announced the pending acquisition of during the quarter, which it sees as an opportunity to combine an extensive library of skills-based video content with the hundreds of millions of members and millions of jobs on LinkedIn.

Looking ahead, LNKD issued guidance for Q2, forecasting EPS of ~$0.28, which may not be comparable to the $0.74 estimate. Q2 revenues are expected to be $670-675 million, much lower than the $718.16 million estimate. For FY15, LNKD lowers EPS guidance to ~$1.90 from ~$2.95, which may not be comparable to $3.05 estimate. The company also lowered FY15 revenues to ~$2.90 billion from $2.93-2.95 billion, which was already below the $2.98 billion consensus.

During its conference call, LNKD added color to its guidance, noting that it believes, in the short-term, the integration of the new acquisition will impact both's existing enterprise revenue as well as Talent Solutions. LNKD plans to pilot different approaches to cross-selling products, which it expects will have a $15 million additional revenue impact. And longer-term, we expect's contribution to normalize in the back half of 2016 as we re-build the deferred revenue base and work through the one-time transitional costs.

7:57 am CVS Health Rides Pharmacy Services to Record First Quarter

Paced by growth in its pharmacy services segment, CVS Health (CVS 99.29) reported better than expected first quarter revenues and earnings.

Specifically, the company achieved an 11.1% increase in revenues to $36.33 billion and a 12.2% improvement in adjusted earnings per share (EPS) to $1.14.  

The top-line was driven by an 18.2% increase in revenues for the pharmacy services segment to $23.9 billion, which stemmed primarily from growth in specialty pharmacy and pharmacy network claims.  The gross margin rate for the segment slipped 30 basis points to 4.3%.

Revenues for the retail pharmacy segment were up a more modest 2.9% to $17.0 billion while the gross margin rate also dipped 30 basis points to 31.2%.  Same-store sales, meanwhile, rose 1.2%, led by a 4.2% gain in pharmacy same-store sales.  It was noted that recent generic introductions and the implementation of Specialty Connect negatively impacted pharmacy same-store sales by approximately 280 and 190 basis points, respectively.

Front store same-store sales were down 6.1% with the company's removal of tobacco products factoring strongly in the decline.  CVS said front store same-store sales would have been approximately 800 basis points higher if tobacco and associated basket sales were excluded.

Looking at the second quarter, the company expects adjusted EPS to be between $1.17 and $1.20.  The high end of that guidance range is below analysts' average expectation.  For the full-year, though, CVS bumped up the low end of its target range, saying it now sees adjusted EPS of $5.08 to $5.19 versus its prior guidance of $5.05 to $5.19.

Free cash flow for the year is still expected to be between $5.9 billion and $6.2 billion.

Shares of CVS are up 3.1% year-to-date and have surged 35.9% over the last 52 weeks.

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