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Dow Jones News: Raytheon Beats Estimates; Costco's Sales Slump Bodes Poorly for Walmart

By Timothy Green - May 7, 2020 at 12:31PM

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Raytheon Technologies beat estimates in its inaugural report, and Costco's April sales numbers may be a preview of what's in store for Walmart.

Another 3 million Americans filed for unemployment benefits for the week ended May 2, bringing the seven-week total to roughly 33.5 million. That news wasn't enough to stop the Dow Jones Industrial Average (^DJI 1.02%) from rallying on Thursday. The Dow was up about 1.36% at 11:20 a.m. EDT.

Raytheon Technologies (RTX 0.43%) contributed to the Dow's gain after the industrial giant reported first-quarter results that came in well ahead of analyst expectations. Meanwhile, shares of Walmart (WMT 0.59%) trod water after fellow retailer Costco (COST -0.43%) reported its first comparable sales decline in a decade.

Raytheon Technologies beats estimates

Raytheon Technologies, the aerospace and defense company formed by the merger of United Technologies and Raytheon earlier this year, easily beat analyst estimates with its first-quarter results. Since the merger and the spinoff of Otis and Carrier were completed after the end of the first quarter, the company's numbers are for premerger United Technologies.

A plane.

Image source: Getty Images.

Total revenue was $18.2 billion, down 1% year over year and $1.17 billion higher than the average analyst estimate. Organic sales were flat. Otis and Carrier contributed about $6.9 billion of revenue during the quarter. Both companies were separated a few days after the first quarter ended, so their contributions will be essentially zero in future quarters.

What will be included going forward is revenue from the old Raytheon, which the company reported separately for the first quarter. Raytheon revenue was up 6.5% to $7.2 billion, and it reported a record backlog of $51.3 billion.

Non-GAAP (adjusted) earnings per share came in at $1.78, down 7% year over year but $0.73 higher than analysts had been expecting. The company lost money on a GAAP basis due to charges related to the separation of Otis and Carrier.

In response to the pandemic, Raytheon has taken actions to conserve cash and reduce costs. Following the separations of Otis and Carrier, the company had $8.5 billion in cash and a net debt position of $25 billion. Raytheon declined to provide an outlook due to uncertainty surrounding the pandemic.

Shares of Raytheon were up 0.8% Thursday morning. The stock, which traded as United Technologies prior to the merger, is down about 38% from its 52-week high.

Costco's sales slump bad news for Walmart

Big-box retailers selling groceries and other household products have benefited from the panic-buying behavior of consumers over the past couple of months. That includes Walmart, which is expected to report impressive sales for the first quarter. An analyst at Credit Suisse expects the retailer to post 9.3% comparable sales growth for the first three months of the year.

The boom in demand may already be over, though, if recent sales numbers from Costco are any indication. While the warehouse club reported a 9.6% rise in comparable sales in March as its customers stocked up on essentials, it reported a 4.7% slump for April. That's the first monthly decline for Costco since the financial crisis.

Walmart is likely experiencing a similar trend. The frantic rush to buy supplies in the early days of the pandemic may be giving way to a reluctance to visit stores at all due to virus fears. The silver lining is that Walmart's online business is likely setting records, but that may not be enough to offset slumping store traffic.

Given its intense focus on low prices, Walmart should fare well during the pandemic-fueled recession, at least relative to other retailers. The company is scheduled to report its first-quarter results on May 19 before the market opens. The stock was roughly flat Thursday morning.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$129.34 (0.59%) $0.76
Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
RTX
$93.82 (0.43%) $0.40
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$537.50 (-0.43%) $-2.32
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,649.07 (1.02%) $339.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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