Stocks held steady on Wednesday. Following a 1%-plus decline in major indexes yesterday, the Dow Jones Industrial Average (^DJI 0.81%) posted just a minor dip while the broader S&P 500 (^GSPC 0.90%) added less than 0.25%.
Today's stock market
|
Index |
Percentage Change |
Point Change |
|---|---|---|
|
Dow |
(0.03%) |
(6.71) |
|
S&P 500 |
0.19% |
4.43 |
Data source: Yahoo! Finance.
Financial stocks added to their losses in the prior session by underperforming as a group. The popular Financial Select Sector SPDR ETF (XLF 1.69%) only ticked moderately lower, though, by 0.2%.
As for individual stocks, Sears (SHLDQ) and FedEx (FDX -0.47%) attracted plenty of investor attention following major operating news.
Image source: Getty Images.
Sears contemplates bankruptcy
Sears shares dropped 12% following word from the management team that the retailer might not have access to enough liquidity to survive as a business over the coming 12 months. At its most recent quarterly check-in, the company posted double-digit comparable-store decline at its Sears stores, an 8% comps drop at Kmart, and a slight drop in gross profitability. That helped generate a net loss for the full year that required Sears to fund its operating expenses through a combination of new debt and the sale of business assets.
The brutal math behind those trends raises "substantial doubt" that the business won't fold at some point in the next year, executives explained in a 10-K filing before the market opened. "[W]e cannot predict, with certainty, the outcome of our actions to generate liquidity," Sears warned investors, "including the availability of additional debt financing, or whether such actions would generate the expected liquidity as currently planned."
Sears' cash-raising plans include potentially liquidating its home services and auto center businesses, in addition to selling or licensing out its Kenmore and DieHard brands. Yet its debts are quickly mounting. Borrowings passed $4.1 billion as of the end of January, up from about $3 billion a year ago. Creditors are extracting harsher terms for the debt, too, as Sears' weighted-average annual interest rate is up to 7.2% -- up from 6.6% last year. These could add up to fatal numbers for a company whose annual operating loss recently doubled to $2.2 billion.
FedEx lowers spending plans
Shares of Package delivery specialist FedEx rose 2% following the release of the company's fiscal third-quarter earnings release. The results included a decline in adjusted earnings as increased fuel costs, the impact of one fewer operating day in the period, and spending on network expansion more than offset gains from improving delivery yields. Yet overall, executives were pleased with the performance. "Even with our highest volumes ever, we achieved record service levels," CEO Frederick Smith said in a press release.
Image source: Getty Images.
Revenue rose over 3% in the express business, FedEx's biggest division. But operating margin dropped to 8.2% from 9.1%, and so the segment only contributed $555 million of income compared to $595 million last year. The same trend played out in the ground division, where revenue improved by 6% as operating margin dropped to 11% of sales from 12.6%.
Looking ahead, FedEx is optimistic that its newly acquired TNT Express segment will soon begin contributing to profit growth. Higher shipping rates should also help push margins up. In encouraging news for shareholders, meanwhile, the company lowered its capital spending plan for the ground division, which could could pave the way for solid earnings growth given that the network expansion costs have been a huge drag on profits lately.
