European chip stocks tumble on Apple warning, while HSBC slumps on profit slide


European stocks came under pressure on Tuesday, with chip makers heading south after Apple warned it will miss its quarterly revenue target due to coronavirus fallout, while shares of HSBC slid as it announced a profit slump and suspension of buybacks.

The Stoxx Europe 600 index

SXXP, -0.43%

 fell 0.5% to 429.64, a day after marking a fresh record close of 431.98, a gain of 0.3%. The German DAX 30 index

DAX, -0.64%

 dropped 0.7%, while the French CAC 40 index

PX1, -0.41%

 fell 0.5% and the FTSE 100 index

UKX, -0.71%

 slipped 0.5%.

U.S. stock futures were under pressure, with S&P 500 futures

ES00, -0.39%

 down 0.5%, while tech-heavy Nasdaq-100 futures

NQ00, -0.77%

 sliding around 0.9%. The Nikkei 225

NIK, -1.40%

 dropped over 1%, while Korea’s KOSPI

180721, -1.48%

 tumbled 1.4%.

In a warning that came while Wall Street was closed for the Presidents Day holiday, Apple

AAPL, +0.02%

 said it was unlikely to meet its revenue target for the quarter ending in March, triggering a more than 3% drop in premarket trading of shares, and losses across global equities. Apple said production among its suppliers in China is ramping up slowly after an extended Lunar New Year break to stem the spread of the virus.

In the chipmaking space, shares of Dialog Semiconductor

DLG, -5.05%

and ASM International NV

ASM, -4.49%

 slid around 5% each, while AMS

AMS, -2.42%

 fell around 4%.

Investors are also waiting for the ZEW economic sentiment index out of Germany for February for economic sentiment in Germany and the eurozone due to the coronavirus outbreak. China reported 1,886 new coronavirus infections and 98 deaths as of Tuesday. However, the Chinese Centers for Disease Control and Prevention published a study Monday showing that 80% of those infected suffered only mild illnesses.

Banks were the biggest losing sector in Europe, led by shares of HSBC

HSBC, -0.71%

HSBA, -6.40%

 dropped over 5% after Europe’s biggest lender said it would cut 35,000 jobs and strip out $100 billion in assets in a move to scale back Europe and U.S. operations as 2019 profit slumped 53%. HSBC also said its dividend would be suspended for this year and 2021 due to the costs of its restructuring.

Italian stocks were bucking a weaker trend, with the FTSEMIB Italy index

I945, +0.44%

 rising 0.1% thanks to a 26% rise in shares of Unione di Banche Italiane SpA. UBI Banca

UBI, +21.77%

 received a surprise offer from larger peer Intesa Sanpaolo SpA on Monday night to buy the Italian lender. Intesa Sanpaolo

ISP, +1.71%

 shares rose 1.4%.



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This European company isn’t sugarcoating its coronavirus problem


Pernod Ricard, the maker of Jameson whiskey and Absolut vodka, cut its annual profit growth outlook for 2019-2020 on Thursday, as it said China’s coronavirus epidemic was likely to have a “severe” impact on its third-quarter performance.

The French spirits maker, which generates 10% of its global sales in China, said it couldn’t predict the “duration and extent of the impact,” but stressed it remained confident on overall strategy.

“In our view Pernod Ricard deserves credit for attempting to quantify the impact, which few other companies we follow have done,” said James Edwardes Jones, analyst at RBC Capital Markets.

He added: “We don’t believe that this should weigh heavily on the shares, albeit China is an important market for Pernod Ricard (we estimate 14% of sales and 20% of EBIT [earnings before interest and taxes]) if the lack of reaction for others in the sector is any guide.”

Shares in Pernod

RI, +3.80%

 closed up 3.8% on Thursday.

Pernod’s warning came as the European Union cautioned on Thursday that the coronavirus outbreak had emerged as a “new downside risk” for the eurozone’s growth prospects.

In its winter 2019 economic forecast, the European Commission said: “The longer it lasts, however, the higher the likelihood of knock-on effects on economic sentiment and global financing conditions.”

Paolo Gentiloni, European Commissioner for the Economy, added: “We still face significant policy uncertainty, which casts a shadow over manufacturing. As for the coronavirus, it is too soon to evaluate the extent of its negative economic impact.”

Pernod, the world’s second-biggest spirits group after the U.K.’s Diageo

DGE, -0.87%,

said operating profit from recurring operations would grow between 2% to 4% this year, down from the 5% to 7% it previously predicted, because of the impact of the coronavirus outbreak.

The French spirits maker reported a net profit of €1.03 billion ($1.12 billion), up 1% from a year earlier, while profit from recurring operations was €1.78 billion, up 4.3% on an organic basis. Sales reached €5.47 billion in the six months to Dec. 31, a 5.6% gain on the year earlier, and 2.7% higher on an organic basis.

The company came under pressure to boost its margins and improve its corporate governance in December 2018, after U.S. activist investor Elliot Management built a 2.5% stake in the company.



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Nvidia stock rallies more than 6% as data-center sales, outlook beat Street


Nvidia Corp. shares rallied in the extended session Thursday after the chip maker’s data-center sales and outlook topped Wall Street estimates while returning to revenue growth.

Nvidia

NVDA, -0.65%

 shares rose more than 6% after hours, following a 0.7% decline in the regular session to close at $270.78.

The company reported fourth-quarter net income of $950 million, or $1.53 a share, compared with $567 million, or 92 cents a share, in the year-ago period. Adjusted earnings were $1.89 a share.

Revenue rose to $3.11 billion for its first gain in four quarters, compared with $2.21 billion in the year-ago quarter.

Analysts surveyed by FactSet had forecast earnings of $1.67 a share on revenue of $2.96 billion.

Read: For chip companies, stocks soared as sales slumped in 2019 — what does that mean for 2020?

“Adoption of Nvidia accelerated computing drove excellent results, with record data-center revenue,” said Jensen Huang, Nvidia founder and chief executive, in a statement.

Nvidia reported a 56% gain in gaming sales from a year ago to $1.49 billion, while analysts had forecast $1.52 billion, and a 43% surge in data-center sales of $968 million, compared with the Wall Street consensus of $825.8 million.

“Nvidia had an incredible quarter with record revenue in many places,” said Patrick Moorhead, principal analyst at Moor Insights & Strategy. “Key drivers were PC gaming, driven by RTX and SUPER lines; data-center, driven by cloud giants with machine learning; and even growth in professional visualization.”

The company expects revenue of $2.94 billion to $3.06 billion for the first quarter, while analysts had forecast revenue of $2.85 billion. Nvidia said its revenue outlook accounts for a $100 million reduction from original estimates due to expected headwinds from the COVID-19 coronavirus.

Read: Nvidia earnings: A return to revenue growth expected after a tough year

Over the past 12 months, Nvidia shares have gained 77%. In comparison, the S&P 500 index

SPX, -0.16%

has gained 23%, the tech-heavy Nasdaq Composite Index

COMP, -0.14%

has grown 31%, and the PHLX Semiconductor Index

SOX, +0.08%

has increased 46% in that time.

Of the 39 analysts who cover Nvidia, 28 have buy or overweight ratings, nine have hold ratings and two have sell or underweight ratings, with an average price target of $262.41.



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Cisco stock falls as results slightly exceed estimates


Cisco Systems Inc.’s stock dipped 3% in extended trading Wednesday after the company reported second-quarter profits and revenue that slightly edged Wall Street’s estimates but offered weak guidance.

The computer-networking giant said it racked up net income of $2.9 billion, or 68 cents per share, compared with expectations of $3.2 billion, or 66 cents per share, based on analysts polled by FactSet.

Cisco

CSCO, +1.63%

  said revenue declined 4% year-over-year to $12.01 billion. Analysts polled by FactSet had expected $11.97 billion.

Cisco also declared a quarterly dividend of 36 cents per common share, up 3% over the previous quarter.

“We executed well this quarter by delivering strong margins and EPS growth while driving more software and subscriptions,” Cisco Chief Financial Officer Kelly Kramer said in a statement. As they had in the previous quarter, company executives referred to longer decision-buying cycles amid a general slowdown in tech spending.

As macroeconomic issues like Brexit and trade with China settle, “uncertainty will dissipate and some of our customers will pick up again,” Cisco Chief Executive Chuck Robbins said in a conference call with analysts after earnings were announced.

See also: Cisco confirms fears of a ‘broad-based’ slowdown in tech spending

The San Jose, Calif.-based company offered current revenue guidance that will decline 1.5% to 3.5% from a year ago ($13 billion), and earnings of 62 cents to 67 cents per share (vs. 69 cents a year ago). Analysts polled by FactSet expect third-quarter revenue of $12.6 billion and EPS of 71 cents per share in the current quarter.

Cisco shares are up 5.1% over the past 12 months. The broader S&P 500 index

SPX, +0.65%

  is up 22.8% over the past year.



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Aurora Cannabis earnings: Here comes a billion-dollar loss


When Aurora Cannabis Inc. announced last week that co-founder and Chief Executive Terry Booth would retire, it also revealed another loss to come: A quarterly deficit of roughly a billion dollars.

Aurora

ACB, -1.28%

ACB, -1.44%

 is scheduled to report fiscal second-quarter results Thursday morning, and it is expected to reveal a loss of about C$1 billion ($750 million) thanks to goodwill and asset-impairment charges that it disclosed amid a big shakeup for the Canadian cannabis company. Aurora said it planned write-downs of C$740 million to C$775 million in goodwill as well as C$190 million to C$225 million worth of intangible property, plant and equipment charges.

As MarketWatch has previously reported, Aurora — and other Canadian weed companies — made a batch of acquisitions in the heyday of pot-stock mania, buying assets at values that now appear to be inflated. Aurora was the king of such deals, accruing about $2.4 billion in goodwill on its balance sheet, a large portion of which was from its acquisition of Medreleaf.

For more: The $4 billion time bomb ticking away inside the biggest marijuana companies

In a conference call last Thursday, Chief Financial Officer Glen Ibbott said that the impairment charges were related to operations in South America and Denmark and that its core Canadian assets weren’t affected by the write-downs. Beyond the non-cash impairment charges, Aurora also said that it was expecting to record a C$12 million write-off for future product returns and price reductions related to products that were sold in prior quarters, mostly in the first half of calendar 2019.

Aurora also announced a 500-person layoff, capital expenditure reductions to roughly C$100 million and restructuring of its debt. Executive Chairman Michael Singer will take the helm as interim CEO until a permanent replacement can be found.

In Thursday’s earnings conference call, investors should expect to hear executives discuss how the company plans to forge ahead in spite of financing challenges and management turmoil, as well as get more details on the company’s plans and forecast for the remainder of the fiscal year.

What to expect

Earnings: The FactSet consensus calls for losses of C$0.08 a share, versus a loss of C$0.25 a share in the year-ago period. Aurora said it expects its cash costs per gram of dried pot will remain below C$1.

Revenue: Analysts polled by FactSet expect Aurora to report fiscal second-quarter revenue of C$61.7 million, versus C$54.2 million a year ago. But the company’s second-quarter sales are expected to decline sequentially from first-quarter revenue of C$75.2 million. The vast majority of the company’s sales are from Canadian recreational and medical cannabis.

Aurora said Thursday it expects net cannabis revenue of $C50 million and C$54 million for the fiscal second quarter and cannabis revenues of C$62 million to C$66 million. Singer said that the company expected little or no sequential sales growth in the fiscal third quarter.

Stock movement: U.S.-traded shares of Aurora lost a little more than half their value in the past three months, while the S&P 500 index

SPX, +0.17%

 notched a gain of 8.6%. In the past three months, the ETFMG Alternative Harvest ETF

MJ, +1.33%

, which tracks a basket of pot stocks, fell 19.4% as the Cannabis ETF

THCX, +1.66%

 fell 26%.

What analysts are saying

Analysts haven’t had much nice to say following the announcement last week. Stifel analyst W. Andrew Carter wrote in a Feb. 7 note that, “We believe Aurora’s status as a going concern is now in question, and we believe that even if the company navigates through the challenging environment, there will be limited value for the equity holders.”

Carter, who has a sell rating on Aurora with a C$1 target price, wrote that Aurora won’t be able to keep pace with the “demands of a dynamic market” and that the company’s outlook leaves “little room for error.”

See also: Analyst says ‘it would be fair for investors not to believe’ Aurora Cannabis

Jefferies analyst Owen Bennett wrote in a note to clients last week that Terry Booth stepping down was “not a major surprise” because he faced criticism over his “lack of publicity” and that the company needed a “leadership profile” geared toward execution versus entrepreneurship and promotion. Bennett said that the new CEO is expected to have significant CPG (consumer packaged goods) experience in line with the two new board members also announced Thursday.

Jefferies has a C$1.90 price target on the name and rates the stock a hold.

In a January note to clients, MKM Partners analyst Bill Kirk wrote that Aurora’s executives had a 50% chance of getting their predictions correct. Aurora was right all of the time when making negative predictions, but only 46.2% of the time when making positive forecasts, according to an analysis.

See also: Marijuana companies are bad at forecasting, analyst says

“Aurora management, led by Terry Booth and Cam Battley, offered some of the most optimistic and ultimately incorrect predictions,” Kirk wrote in a second note just after Aurora’s announcement last week. “We believe this optimism, particularly around growth and profitability created an organization with a bloated cost structure and a capital structure with burdensome convertibles and a heavily diluted equity base.”

Kirk rates the name a sell with a C$2 target price.

Of the 19 sell-side analysts who cover Aurora, four have the equivalent of a buy, 11 rate the stock a hold and four have the equivalent of a sell on the name. The average price target is $2.08, which represents a 33% gain from Monday’s close of $1.56.



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