Deere, Lowe’s Deliver a Bearish End to Earnings Season

Deere, Lowe's Deliver a Bearish End to Earnings Season

Earnings season ended on a weak note as major companies like Deere (DE) and Lowe’s (LOW) suffered historic drops.

LOW struggled with higher costs and managerial confusion. Traditional merchandise faced weak pricing at the same time new executives tried to reinvent product lines. Meanwhile, money kept streaming out the door as the home-improvement chain invested to grow online.

Optimists highlighted LOW’s strong comparable sales as a sign of customer demand. However, analysts and investors were terrified by the margin pressures. That resulted in the stock’s biggest one-day drop since 2001.

DE’s numbers were also bleak, causing its sharpest selloff in over three years. Falling grain prices were already hurting agricultural demand. That trend was only aggravated by President Trump’s trade war against China. The tractor maker missed across the board and lowered guidance. To make things worse, DE added that tariffs may squeeze profits.

Lowe's (LOW) chart with 50- and 200-day moving averages.
Lowe’s (LOW) chart with 50- and 200-day moving averages.

Kohl’s (KSS) and Nordstrom (JWN) were two other high-profile decliners. Both department-store operators are groping for relevance in a digital economy. KSS had its biggest selloff in over a year on weak sales of traditional merchandise. Management also cut guidance and warned about potential cost pressures from President Trump’s tariffs.

JWN has been doing more to grow online (including a loyalty program), but it still wasn’t enough to offset weakness in legacy brick-and-mortar locations. Its Rack off-price stores were a particular concern.

Target Hits the Mark

But then Target (TGT) enjoyed its biggest rally in over a year because it succeeded where others failed: online shopping, new merchandise, same-day deliveries. Comparable sales shot past expectations and the impact of Chinese tariffs are already baked into its cost structure.

“You’re seeing the emergence of winners who have been investing in their business, that are adapting to this new omnichannel environment,” CEO Brian Cornell boasted on the conference call.

Best Buy (BBY) is another old-fashioned retailer that doesn’t want to be a dinosaur in the new ecosystem. Its strategy for the digital age? Focus on services like the “Geek squad” — especially as Americans turn their houses into smart homes. BBY initially rallied on its strong results and guidance, but then slid along with the rest of the market.

L Brands (LB) surged thanks to gains at its Bath & Body Works chain. Earnings, revenue and comps all beat estimates as the company shifts attention away from the ailing Victoria’s Secret brand. Is there life after lingerie?

AutoZone (AZO) and Advance Auto Parts (AAP) beat estimates as well. Their car-focused niche has persevered better than most retail segments

Technology Stocks Hammered

Several lesser-known technology stocks crashed on poor results. NetApp (NTAP), a provider of data-center technology, missed across the board due to execution troubles and cold-footed customers. Weak revenue and guidance slammed Chinese Internet stocks Baidu (BIDU) and Weibo (WB).

Pinterest (PINS) also dropped in its first quarterly report after going public. Revenue and user growth were solid, but its loss was much wider than feared because of soaring costs.

Nvidia (LOW) chart with 50- and 200-day moving averages.
Nvidia (LOW) chart with 50- and 200-day moving averages.

Two semiconductor names came in above consensus, only to be met with shrugs. Nvidia (NVDA), for instance, reported better-than-expected profit and sales while cautioning about data-center demand. Applied Materials (AMAT) briefly rallied on strong results but then gave back all its gains.

Retailers Home Depot (HD) and TJX (TJX) did little after beating estimates.

Homebuilder Toll (TOL) dropped after warning of tepid demand for its luxury residences. It was the second housing name in the last month to warn of cost pressures, after D.R. Horton (DHI).

Two other gainers are worth mentioning. Medical device maker Medtronic (MDT) popped about 2 percent after beating profit estimates for at least the fifth straight quarter. Sea (SE), a Singapore-based esports company that went public in late 2017, exploded to new all-time highs on strong revenue and bullish comments by management.

In conclusion, earnings season ended on a weak note as retailers struggled and cost pressures rose.

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