Stocks opened sharply lower Friday thanks to a round of negative earnings reactions. The main indexes managed to erase these losses by the close as several mega caps bounced.
The Dow Jones Industrial Average, S&P 500 Index and Nasdaq Composite all started the day down roughly 1%. By the time the closing bell rang, though, the Dow (+0.08% at 41,985), S&P 500 (+0.08% at 5,667) and Nasdaq (+0.5% at 17,784) were all in positive territory.
Solid gains for a number of Magnificent 7 stocks, including Meta Platforms (META, +1.8%) and Tesla (TSLA, +5.3%) helped spark the reversal off of earlier lows.
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Nike sinks on dismal guidance
But several noteworthy companies on the earnings calendar kept selling pressure on the main indexes, including Nike (NKE), which plunged 5.5% after its results – making it the worst Dow Jones stock on Friday.
While Nike beat top- and bottom-line expectations for its fiscal third quarter, it said it anticipates fiscal fourth-quarter revenue to fall at the “low end” of a “mid-teens range” and for gross margin to decline by 4 to 5 percentage points – far worse than Wall Street was calling for.
In addition to its restructuring efforts, the company is “navigating through several external factors that create uncertainty,” said Nike Chief Financial Officer Matt Friend in the earnings call. These include “geopolitical dynamics, new tariffs, volatile foreign exchange rates, and tax regulations, as well as the impact of this uncertainty and other macro factors on consumer confidence.”
He added that the company’s guidance is a “best assessment” based on these factors and the data they currently have available.
While Nike’s “long-term outlook remains bright,” Argus Research analyst John Staszak (Hold) is concerned about the company’s “still high inventory,” which will likely need to be cleared with price cuts.
He also sees rising costs, forex headwinds and slowing sales in China as near-term issues that could negatively impact Nike’s results.
FedEx downgraded to Sell after earnings
FedEx (FDX) was another notable earnings decliner, plunging 6.5% after the logistics giant – and economic bellwether – reported its fiscal third-quarter results. The company’s $22.2 billion in revenue for the three-month period was more than analysts expected, but its earnings of $4.51 per share fell short.
More concerning was the company’s third straight downward revision to its fiscal 2025 outlook. The company now expects sales to be flat to slightly down and earnings to arrive between $18 to $18.60 per share. FedEx had previously anticipated flat sales and earnings of $19 to $20 per share.
The company cited “continued weakness and uncertainty in the U.S. industrial economy,” which is clouding the demand outlook.
Wall Street was quick to weigh in on FedEx’s results, with Loop Capital analyst Rick Paterson downgrading the industrial stock to Sell from Hold.
“With economists ratcheting up U.S. recession risk, be aware that FedEx is a really bad recession stock because thin Express margins amplify the earnings hit whenever there’s pressure on the top line,” Paterson said. “It’s not one you want to own if things go south.”
Margin concerns weigh on Micron stock
Rounding out today’s troubling earnings reports was memory chipmaker Micron Technology (MU), which sank 8.0% after its results.
Micron reported fiscal second-quarter earnings and revenue that topped Wall Street’s forecasts thanks in part to sales of high-bandwidth memory chips that surpassed the $1 billion mark.
The company also gave better-than-expected guidance for its fiscal third quarter.
So why was MU one of the worst S&P 500 stocks today?
The company’s “gross margin commentary was a bit of a fly in the ointment with MU soft guiding fiscal Q4 margins up only ‘somewhat,’ suggesting downside” to some forecasts, says UBS Global Research analyst Timothy Arcuri (Buy).
Arcuri thinks this is largely due to Micron’s NAND business “where MU is putting more bits into consumer markets with lower prices and margins to move NAND bits off the balance sheet.”
The analyst says things could normalize by fiscal year 20206 if the pricing recovery holds.
