Stocks opened slightly lower Thursday, but fell further in afternoon trading due to concerns about more tariffs on China. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) both closed down about half a percentage point.
Today's stock market
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The materials sector led the market down, with the SPDR S&P Metals and Mining ETF (NYSEMKT:XME) dropping 1.9%. Emerging market stocks were hit by trade worries; Vanguard FTSE Emerging Markets ETF (NYSEMKT:VWO) sank 2.7%.
Campbell Soup is still in hot water with investors
Campbell Soup reported fiscal fourth-quarter results that generally met the market's low expectations, announced an intention to divest some businesses, and gave a disappointing outlook for the next 12 months. Campbell stock closed down 2.1%.
Net sales were $2.22 billion, compared with expectations for $2.24 billion, up 33% due to acquisitions but down 3% organically. Adjusted earnings per share fell 52% to $0.25, $0.01 above the analyst consensus. The company's guidance for fiscal 2019 EPS is a range of $2.45 to $2.53 excluding the effect of divestitures, well below the $2.69 Wall Street has been expecting.
Campbell announced decisions that have come from its board-led strategic review, saying that it will focus on Campbell Snacks and Campbell Meals and Beverages in North America and seek to divest its struggling Campbell Fresh unit and Campbell International. It will also embark on a major cost-cutting effort to take out $945 million in expenses.
The immediate question in investors' minds is why the company is intending to divest businesses that amount to 24% of the company's annual sales rather than selling the company as a whole, a prospect that sent the stock soaring in June. It's possible that the company couldn't find a buyer, but neither has Campbell announced a buyer for the divestitures, and with the search for a new CEO still in progress, the whole issue may get reconsidered later anyway.
Interim CEO Keith McLoughlin started the conference call saying, "It was a tough end to a difficult year," but it's the uncertainty about upcoming years that could pressure the stock now.
Family Dollar chain weighs on Dollar Tree profit
Discount retailer Dollar Tree reported second-quarter results that were generally in line with expectations, but concerns about its Family Dollar chain sent shares tumbling 15.5%. Net sales grew 4.6% to $5.53 billion, which was what analysts were expecting, and earnings per share increased 16.2% to $1.15, $0.01 below the analyst consensus.
Overall, same-store sales rose 1.8% in constant currency terms, with the Family Dollar stores up 3.7% and same-store sales flat at Family Dollar. Overall gross margin decreased 70 basis points to 30.1%, but the Family Dollar banner saw a 150-basis-point decline.
Operating profit results from the two chains highlighted even greater disparity, with operating income at Dollar Tree growing 3% to $297.7 million, but dropping 35% to $84.8 million at Family Dollar, resulting in an overall decline of 8.8%. Without a decrease in income tax expense, Dollar Tree would have had a year-over-year decline in earnings.
Guidance for Q3 EPS is $1.11 to $1.18, which, at the midpoint, is below the $1.16 Wall Street has been expecting. The company is investing in renovating Family Dollar stores in order to revive growth, but shareholders may need to see more results before regaining enthusiasm for the stock.