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Stocks Pare Losses in Late Trading; Data in Focus

Jeremy Glaser

U.S. Market
Stocks pared early losses but were still mostly lower today after disappointing economic data.

Consumer spending rose only 0.2% in May from the previous month. Economists had expected a 0.4% rise in expenditures. The increase was driven by higher levels of inflation. The price index for personal consumer expenditures was up 0.2% from the previous month and is up 1.8% year-over-year. Excluding food and energy prices, the price index was up 1.5% year-over-year. Personal income was up 0.4% month-over-month.

Initial unemployment claims fell by a slightly smaller-than-expected 2,000 to 312,000 last week. The less volatile four-week moving average was up 2,000 claims to 314,250. Claims remain at lows not consistently seen since before the recession.

At market close the Dow and S&P 500 were each down 0.1% while the Nasdaq was flat.

Stocks on the Move
Bed Bath & Beyond (BBBY) delivered first-quarter results that fell short of guidance on revenue and same-store sales metrics. Despite this, we don't think the management team's outlook is terribly disappointing, as the full-year forecast for top-line growth (4%) and same-store sales (3%) is unchanged, implying faster growth in forward quarters. What was more disconcerting was the implied level of discounting that persisted in the quarter, lending to our concerns that Bed Bath could be losing market share to low-price competitors as consumers continue to seek out best-priced options. The stock slid over 7% on the report.

Philip Morris (PM) on Thursday lowered earnings per share guidance for fiscal 2014 to a range of $4.87-$4.97 from $5.09-$5.19, essentially reversing the increase to guidance when first-quarter results were announced in February. Even excluding currency, EPS growth guidance for the year of 2% is already well below the 8%-10% growth that management believes it can achieve in the long run. Given that regulation is tightening and e-cigarettes could be a potential disruption to the industry, we would not be surprised if the most recent announcement makes investors jittery, but we believe the current problems are cyclical rather than structural in nature. Shares were down over 2.6% on the announcement.

Shares of McCormick (MKC) were down over 1% after the firm reported quarterly results. Underlying sales approximated the level a year ago, with pronounced softness in the Americas consumer business (where organic sales slipped nearly 4%) offset by more robust performance in the international industrial business (where sales popped 11.7% in EMEA and 10.4% in Asia Pacific). Gross margins increased 60 basis points to 39.9%, but operating margins ticked up just 20 basis points to 11.8%.