Both the S&P 500 (^GSPC 0.20%) and the Dow Jones Industrial Average (^DJI 0.76%) managed to finish the trading day in the black – but just barely. The Dow and S&P 500 each closed higher by less than 0.1% despite spending almost all day in the negative.
Investors received good news on the housing front today: Home builder confidence just reached its highest point since 2005, according to the National Association of Home Builders' monthly survey. That marked the fifth straight month of steady but slow growth in this critical industry.
However, Wall Street seemed more interested in the flood of fresh earnings data for the quarter that just closed. Earnings releases drove the biggest stock moves today, as investment bank Morgan Stanley (MS 1.24%) and toy retailer Hasbro (HAS 0.96%) both slumped after their pre-market announcements.
Morgan Stanley's $1 billion miss
Morgan Stanley's stock slumped by 5% today after the investment bank posted surprisingly weak third-quarter results this morning. Earnings dove to $0.42 per share, compared to the $0.83 per share it booked in the prior-year period. Analysts had been projecting $0.62 per share in profit for the quarter that just closed.
The bank also came up well short on the top line: Adjusted revenue fell 16% to $7.33 billion, or 14% below the $8.54 billion Wall Street was expecting.
CEO James Gorman blamed stock market volatility for creating a "difficult environment" for the bank this quarter. Stock exchange swings in China, along with uncertainty over the timing of an interest rate hike by the U.S. Federal Reserve, combined to pinch Morgan Stanley's trading and fixed-income businesses. Revenue from those divisions shrank by 42% -- down to $583 million from last year's $1 billion haul. That result was "disappointing ... after a strong start to the year," Chief Financial Officer Jonathan Pruzan said in a conference call.
On the plus side, Morgan Stanley's wealth management division continued to perform well, booking a 3% profit gain despite slightly lower sales. As a result of those two trends, operating margin in that business improved to 23% from last year's 21%.
Still, the bank's overall return on equity fell to 3.9%, far below the 9% it managed last quarter, and even further from the 10% mark it achieved to begin the 2015 fiscal year.
Hasbro sinks despite strong earnings
Hasbro's stock was the single worst performer in the S&P 500, falling 8% on the day, despite the fact that the toys and games maker this morning posted strong third-quarter earnings results. Hasbro booked $1.53 per share in quarterly profit, topping projections by $0.06 per share. Meanwhile, revenue of $1.47 billion was flat against the prior year but matched Wall Street's expectations.
All of the important numbers moved in the right direction this quarter. Sales, after adjusting for currency exchange, rose 9% on particularly strong demand for merchandise from the Nerf and Star Wars brands. Hasbro clocked double-digit volume growth in each of its geographic regions. And operating margin rose by more than a full percentage point to reach 20.6% of sales. "Strong global consumer demand across Hasbro Franchise Brands and partner brands drove continued momentum in our business," CEO Brian Goldner said in a press release.
A Star Wars themed Nerf gun. Image source: Hasbro.
Yet investors might have been spooked by the revelation that Hasbro's retailing partners haven't yet committed to fully stocking their stores as we head into the critical holiday shopping quarter. Goldner said in a conference call that orders on several brands are running lower than last year.
That's simply because of retailers' aim to "have product that hits [their inventory] more closely aligned with the holiday season," he said. The supply chain change won't be a problem as long as the shipment orders come through as expected this quarter. But it does add uncertainty to Hasbro's results heading into its most important quarter of the year.
