Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Kicking the day off with slightly depressing news, consumer sentiment failed to reach expectations with a reading of 77.5, versus estimates of 78 and August's reading of 82.1. Adding to that, political budget bickering continues as the Oct. 1 government shutdown looms ever larger. It's no surprise the market isn't thrilled today, and the Dow Jones Industrial Average (^DJI 0.29%) has dropped 0.54% as of 2:45 p.m. EDT, as investors are just waiting for the weekend to arrive. Despite the down day in the Dow, one big winner has emerged.
Nike (NKE -0.21%) has been a Goliath in the footwear and apparel business for decades, and it looks it today, up 5% after reporting earnings yesterday. Nike reported that revenue and net income increased by 8% to $7 billion and by 33% to $780 million, respectively. Margins also improved 120 basis points to 44.9% as raw materials fell in price and consumers purchased higher-margin items. That equated to diluted earnings per share of $0.86, which was a 37% increase and well ahead of estimates. Another important factor is that Nike's future orders -- i.e., deliveries already scheduled between September 2013 and January 2014 -- are up 8% compared to last year, which is a great sign for investors.
This was Nike's first report as a newly added Dow component, and it met expectations. Like most Dow components, it's a huge company that nails one important challenge: returning value to shareholders.
Nike information provided by YCharts.com.
As shares outstanding decline and dividends increase, they form a lovely "X" on the graph that hits the sweet spot, rewarding investors with increasing value per share over time. In the past, Nike's success has surged using elite athletes such as Michael Jordan and Tiger Woods, but its iconic Nike "swoosh" brand image will serve the company well for decades to come.
Boeing's (BA 0.11%) stock has been flying high lately, testing all-time highs. Today, though, it's doing its part to drag the Dow down, trading 1% lower. Boeing's 787 Dreamliner is touted as one of the most innovative planes because it saves 20% on fuel and emissions than similar planes – a huge win for airlines. Reuters reported that Polish national airline LOT has given Boeing until the end of this year to settle regarding compensation for its faults with the 787 Dreamliner.
"We are holding negotiations because Boeing is our very important partner and we are ready to take any steps possible within the bounds of the law to defend the interests of the company," said LOT chief Sebastian Mikosz, according to Reuters.
Unfortunately, the Dreamliner has been causing everyone headaches, which isn't unusual for newly designed airplanes. As the glitches are fixed and Boeing ramps up production, the plane should result in a big and profitable win for Boeing and investors.
Outside the Dow, Ford (F 0.70%) and General Motors (GM 0.59%) are taking a breather, down 1% and 0.9%, respectively. It's been a great year for both companies, and they trade near 52-week highs for good reason. Vehicle sales volume and transaction prices are improving, while production costs are declining. This makes for a very profitable cycle for automakers that looks to continue as pent-up demand remains strong; the average age of vehicles remain at a record high 11.4 years.
Graph by Author. Information Credit: Automotive News DataCenter.
Major automakers will post their September sales next week, and it will be interesting to see if the industry can sustain a seasonally adjusted annual rate near 16 million. One factor weighs against that outcome.
"Labor Day sales clearly pulled ahead from September volume and resulted in a lackluster month," said Jesse Toprak, senior analyst for TrueCar.com, which expects U.S. vehicle sales to be down 4.4% to 1.13 million unit sales for the top eight auto companies, according to International Business Times. "Nevertheless, the fundamental drivers for the market demand are strong and we should have no problems reaching 15.7 million unit sales this year."
