Despite spending most of the trading session in positive territory, stocks sold off in the afternoon to end slightly lower today. The S&P 500 (SNPINDEX:^GSPC) lost 0.1% while the Dow Jones Industrial Average (DJINDICES:^DJI) slipped 0.2%.
Third quarter earnings reports generated a few big moves by individual stocks. Video game retailer, GameStop (NYSE:GME), lost almost one-fifth of its market capitalization before rallying and meat giant Tyson Foods' (NYSE:TSN) stock posted a double-digit gain.
GameStop rewards the shorts
GameStop shares ended down 4% today -- although at one point they were down by as much as 19%. The stock traded hands at nearly 10 times its average daily volume.
Investors reacted negatively to a third-quarter earnings announcement that didn't live up to management's August forecast. Comparable-store sales growth fell by 1%, compared to an 8% gain the second quarter and GameStop's own goal of between 1% and 4% Q3 growth. Executives blamed weak demand for next-generation consoles and video games, in addition to expansion growing pains. "Our third quarter results were at the low end of our guidance range due to lower than expected new software and hardware sales and delays in Technology Brands store openings," CEO Paul Raines said.
On the positive side, GameStop's profitability improved: Gross profit margin jumped to 33% of sales from 30% last year. The retailer also made progress in its diversification initiatives. Growth in businesses that aren't tied to the video game industry was strong: Tech brands revenue jumped 63% higher and now accounts for 14% of profit – up from 8% a year ago.
The company affirmed its full year earnings outlook while lowering its sales growth target slightly. A 20% haircut might seem like a gross overreaction to such a small forecast change. But GameStop's stock is the most-heavily shorted stock in the S&P 500, with almost half of its float sold short heading into this release. Bears seemed to get what they wanted in early trading, and the stock clawed back most of its losses as short-sellers covered their negative bets.
Tyson Foods gets more profitable
Tyson Foods was the S&P 500's best performer today, gaining 10% to reach a new all-time high today. The meat producer revealed a few encouraging data points for shareholders in the fiscal fourth-quarter results, including spiking earnings and profitability, and a strong outlook for growth over the next four quarters .
Tyson's Q4 net income surged (up 90%) as sales gains in chicken, pork, and prepared foods outweighed weakness in the beef business. The company also benefited from having the Hillshire Brands portfolio under the same roof (Tyson bought Hillshire last year for $9 billion).
Management highlighted the fact that the business achieved strong financial gains in a mixed sales environment. Operating margin, for example, soared to 5.8% of sales from 4.8% even as beef, pork, and chicken prices fell. Tyson's operating cash flow improved to a $2.6 billion annual pace, up from $1.2 billion last year.
Numbers like those show "that our house of brands gives us the ability to produce record sales and earnings in less than optimum conditions, all while successfully merging two large companies," CEO Donnie Smith said in a press release.
Meanwhile, executives projected another record year ahead: Earnings should grow by double digits, they said, to as much as $3.65 per share.
Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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