Major benchmarks drifted lower in light trading volume Tuesday as investors looked forward to the release of Federal Reserve meeting minutes. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) posted modest losses. Most sectors closed lower.
Today's stock market
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Home Depot is optimistic about the U.S. consumer
Home Depot reported mixed results for the second quarter and lowered its sales guidance for the year, but investors remained optimistic that the company's growth momentum will continue, bidding the shares up 4.4%. Net sales increased 1.2% to $30.83 billion, which missed analysts' estimate of $30.98 billion. But 3.9% growth in earnings per share to $3.17 beat the analyst consensus of $3.08.
Comparable sales were up 3%, an acceleration from last quarter's 2.5% growth, but still well behind the 5% growth for the full year that the company had forecast. Sales were hurt by declining lumber prices, a development that Home Depot said it expects will continue. The home improvement retailer lowered its guidance for full-year comparable sales from 5% to 4%, mostly because of lumber prices, but also due to of economic uncertainties arising from the latest round of tariffs. EPS guidance was maintained at 3.1% growth despite the lower sales expectations.
Home Depot expressed confidence in its revised sales forecast on the conference call, saying that the U.S. consumer is healthy and that comparable-sales growth accelerated during the quarter, and was up 4.6% in July.
Elanco angles for an acquisition
Elanco Animal Health, which spun off from Eli Lilly in 2018, announced it has entered into an agreement to buy the animal health business of Bayer AG in a cash-and-stock deal worth $7.6 billion. Shares of Elanco dropped 8.6% on the news and those of Bayer slipped 0.5%.
The acquisition would strengthen Elanco's position in the companion animal market, doubling its size to become almost half its total business, and make the company the second-largest animal health company. Elanco expects the combined organization to deliver mid-single-digit revenue growth, improved margins, and double-digit adjusted EBITDA growth. Bayer is raising cash as it faces lawsuits over Roundup weed killer.
The acquisition would help Elanco address its reliance on its food animal business, which faces headwinds from consumer demand for "clean" proteins and has been delivering slow growth. Investors were likely reacting to the price tag on the deal, but greater exposure to the expanding market for products for the care of pets should boost the company's growth in the long term.