Stocks slumped in a broad sell-off on Friday. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) both lost close to 1%, but still closed up for the week.
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Banks stocks were basically the only bright spot, with the SPDR S&P Regional Banking ETF (NYSEMKT: KRE) gaining 0.9% on rising long-term interest rates. Consumer stocks underperformed; the Consumer Staples Select Sector SPDR ETF (NYSEMKT: XLP) lost 1.7%.
As for individual stocks, General Electric Company (NYSE: GE) announced first-quarter earnings, giving shares some new life, but Skechers (NYSE: SKX) got crushed after issuing disappointing guidance.
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GE on track with restructuring efforts
General Electric released much-anticipated first-quarter results, and investors approved, sending shares up 3.9%. Revenue was up 6.6% to $28.7 billion, above the analyst consensus of $27.5 billion. The company lost $0.14 per share on a GAAP basis, but adjusting for restructuring costs and other one-time charges such as a $1.5 billion charge related to its discontinued mortgage unit, EPS grew 14% to $0.16, well above Wall Street expectations of $0.12.
The power unit continues to be ground zero for GE's problems, with orders down 29% and revenue falling 9%. Oil and gas also declined, with organic revenue falling 14%. The bright spots were the company's largest segment, aviation, which grew orders by 13% and revenue by 7%, and healthcare, which had a 6% increase in organic revenue.
CEO John Flannery emphasized the progress GE is making in its restructuring effort. The company took out $800 million in costs in the first quarter and is on track to take out a total of over $2 billion for the full year. Plans for $20 billion in divestitures are on track. But probably most significant was that the company reaffirmed its guidance for full-year adjusted EPS of $1.00 to $1.07, while analysts had been expecting $0.96.
The lack of negative surprises was itself a positive, and investors seem ready to give the company the benefit of the doubt for another quarter.
Guidance trips up Skechers
Shares of Sketchers plummeted 27% after the shoe seller reported earnings that met expectations, but issued disappointing guidance for next quarter. Sales increased 16.5% to $1.25 billion, exceeding the $1.2 billion analysts were expecting and the company's earlier guidance. Earnings per share were up 25% to $0.75, matching the analyst consensus.
International sales continued to grow rapidly. The international wholesale business increased 17.9% and comparable-store sales outside the U.S. grew 17.6%. Domestic wholesale was up 8.5% and same-store sales in the U.S. increased 7%. Gross margin increased 230 basis points from the period a year earlier.
Those results would seem to be at least satisfactory, but where the company got analysts concerned was with guidance for Q2. Skechers expects sales in the range of $1.12 billion to $1.145 billion, which at the midpoint represents 10.4% growth. Analysts had been expecting $1.16 billion. EPS guidance is $0.38 to $0.43, compared with $0.38 earned last year, and way below the $0.54 Wall Street was looking for.
On the conference call, management said that Q2 comparisons will be tougher because Easter was later last year and shipments fell into Q2. Also, this year, some shipments to key international distributors are expected to shift from Q2 into the second half. Skechers thinks it is all about timing shifts and that the low expectations for the next quarter doesn't affect its outlook for the full year.
That didn't wash with investors, though, and they headed for the exits today.
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