The major benchmarks made big swings between losses and gains on Wednesday. The Dow Jones Industrial Average (^DJI 0.17%) closed at a record high, but the S&P 500 (^GSPC -0.21%) posted a loss.

Today's stock market

Index Percentage Change Point Change
Dow 0.16% 41.31
S&P 500 (0.06%) (1.59)

Data source: Yahoo! Finance.

Technology stocks retreated from recent gains; the iShares PHLX Semiconductor ETF (SOXX 0.76%) slumped 2.3%. Gold surged for a second day, with the SPDR Gold Shares ETF (GLD 0.12%) rising 1.2%.

As for individual stocks, United Continental Holdings (UAL 1.12%) fell on concerns about the airline's long-term plans, and W.W. Grainger (GWW 0.13%) took off thanks to strong profits.

Front of New York Stock Exchange.

Image source: Getty Images.

Investors reject United's expansion plans

Shares of United Continental got clipped 11.4% today after the company reported better-than-expected earnings but gave a strategy update that concerned investors. Revenue increased 4.3% to $9.4 billion with adjusted earnings per share of $1.40, compared with the analyst consensus of $1.34 per share. Consolidated passenger revenue per available seat mile (PRASM) was up 0.2% after the airline had guided to a decline of 1% to 3% three months ago.

Looking forward, United guided to an increase in PRASM for Q1 of 0%-2%, and a pre-tax margin of 0%, compared with 2.3% in the period a year earlier. Fuel cost is expected to be $2.11, compared with an average cost of $1.91 in Q4. For the full year, the company expects to earn between $6.50 and $8.50 per share, which compares favorably with analyst estimates of $7.00. United also gave a profit outlook out to 2020, saying EPS will be $11 to $13 per share, implying a 25% compound annual growth rate from 2018 to 2020. 

That aggressive forecast for earnings growth raised a lot of skepticism from analysts. In the strategy update, CEO Oscar Munoz and the other United executives explained that the company will be attempting to improve productivity at its hubs by increasing capacity 4% to 6% annually from 2018 through 2020 with more flights and bigger planes. Analysts questioned whether increasing capacity faster than market growth was going to make it even more challenging to reverse the trend of declining margins, given the likely competitive response to the implied market share gains. Investors clearly didn't buy the answers, sending the stock into a tailspin.

Grainger reports strong profits

W.W. Grainger, a distributor of maintenance, repair, and operating supplies to businesses, wowed investors with strong fourth-quarter profits and raised guidance for 2018, sending shares soaring 18.5%. Sales were up 6.6% to $2.63 billion and adjusted earnings per share jumped 20% to $2.94. Analysts were expecting only $2.20 in EPS on sales of $2.57 billion. EPS guidance for 2018 was raised from $10.60-$11.80 to a new range of $12.95-$14.15.

Grainger is closing branches to reduce costs and adjusting pricing to improve competitiveness. The pricing initiative paid off in the fourth quarter, with an 11% increase in sales volume more than offsetting a net 3% decrease in prices. The company lowered prices in the U.S. but was able to raise them in Canada. Volume growth and operating margin in the U.S. were above expectations. 

"Overall we were pleased with the year," said Chairman and CEO DG Macpherson in the press release. "We made progress by removing the pricing barrier and improving service for customers while improving our cost structure.  This continued in the fourth quarter with strong performance, as customers responded positively to our actions."

Shares of industrial supply companies like Grainger have been hurt by concerns over pricing pressure from the likes of Amazon. But today's report seems to indicate that Dividend Aristocrat Grainger is navigating the deflationary pricing environment adeptly.