Stocks were set to turn in strong gains after the Federal Reserve released minutes from its January meeting, but major benchmarks retreated in the last hours of the session. The Dow Jones Industrial Average (DJINDICES:^DJI) moved above 25,000 but ultimately closed at 24,797.78. The S&P 500 (SNPINDEX:^GSPC) gave up about half a percentage point.
Today's stock market
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Interest-rate-sensitive real estate shares tumbled, with the Vanguard REIT ETF (NYSEMKT:VNQ) losing 2%. Energy producers were also hit hard today; the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEMKT:XOP) dropped 2.4%.
Advance Auto Parts beats earnings expectations
Retailer Advance Auto Parts announced fourth-quarter sales and earnings that beat estimates, and shares jumped 8.2%. Revenue declined 2.2% to $2.04 billion and adjusted earnings per share fell to $0.77 compared with $1.00 a year earlier. However, analysts were expecting the company to earn only $0.63 per share on sales of $2.02 billion.
Comparable-store sales fell 2.6% and gross margin dropped 69 basis points, due primarily to increased supply chain costs. The company generated free cash flow of $171 million, far above earlier guidance of $60 million.
"Through the strong dedication of our entire team, we continued to close the performance gap versus the industry and our laser focus on working capital enabled a 56% increase in free cash flow in a difficult sales environment," said CEO Tom Greco in the press release. "As we enter the second year of our transformation plan, we still have a lot that we want to accomplish."
This was the second quarter in a row Advance Auto Parts has announced declining results that still beat estimates and revved up the stock. Management set a low bar for 2018 with sales guidance of $9.1 billion to $9.4 billion, compared with the analyst consensus of $9.5 billion.
Devon shares drilled on profit miss
Oil exploration and production company Devon Energy reported disappointing profit on lower-than-expected production levels in the fourth quarter, and the stock fell 11.8%. Revenue was up 42% to $3.98 billion, and well ahead of analyst expectations of $3.52 billion in sales. But core earnings per share came in at $0.38, missing the consensus estimate of $0.63.
Devon produced an average of 548,000 oil-equivalent barrels (BOE) per day in Q4. Guidance from last quarter was for production to be between 551,000 and and 571,000. The company said that the shortfall was caused by timing issue with well tie-ins in the STACK shale play in Oklahoma and steam constraints in the Jackfish complex in Canada, both temporary issues.
Looking forward, Devon expects full-year production to increase to a range of 552,000 BOE per day to 576,000 BOE per day, compared with 543,000 in 2017. But the company pointed out that its strategy is not based on growing production rapidly. "With our disciplined multi-year plan, Devon will accelerate value creation through the pursuit of capital-efficient cash-flow growth and portfolio simplification, not top-line production growth," said CEO Dave Hager in the press release.
Devon expects to generate $2.5 billion in cumulative cash flow through 2020, and exited the quarter with $2.7 billion in cash on hand. Fourth quarter free cash flow was a negative $81 million, so the company has a way to go to meet its goals. But the market was ignoring the longer term today, and seemed to be more focused on short-term production.