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Durable Goods Weaker Than Expected
TYC PVH PNR
The tone of today’s trading action will likely be negative given the less-than-inspiring Durable Goods reading this morning. A weak bond auction in Spain and soft GDP report in the UK will likely remind investors of Europe, though the worst of Europe-centric fears have receded to the background. Importantly, it is perhaps fair for stocks to take a wait-and-see approach ahead of next week’s important set of economic data.
But the major news of the day is the weaker-than-expected February Durable Goods Orders report this morning. While the report showed improvement from January, which was modestly revised higher, it nevertheless came short of expectations.
‘Headline’ Durable Goods Orders increased 2.2% in February, compared to the 3.6% drop in January and December’s 3.2% gain. ‘Core’ Durable Goods Orders, officially called non-defense capital goods orders ex-aircraft, were up a weaker-than-expected 1.2% after the 3.7% decline in January and December’s 3.8% gain. The ‘core’ reading strips out defense and aircraft orders given their inherent ‘lumpiness’ on a month-to-month basis, and is a good proxy for capital expenditure trends in the economy.
The monthly Durable Goods reading has a pronounced seasonal quirk, where the reading in the first month of the quarter typically shows a decline, then gets reversed the following month. The positive February reading following the January decline is a continuation of this trend.
However, the lack of sufficient momentum in the rebound that the market was looking for is modestly disappointing. The new orders components of regional manufacturing surveys have been fairly robust, but we will have to wait for Monday’s March manufacturing ISM report to get the industrial sector’s pulse.
In corporate news, Tyco International ( TYC - Analyst Report) announced a deal to combine its pipes and valves unit with Pentair ( PNR - Analyst Report) in a roughly $4.5 billion transaction. The combined company is expected to keep the Pentair name. Please recall that Tyco is in the process of splitting itself up into three independent companies focused on its three main business lines: home security, pipes and valves, and fire protection. Tyco expects to complete the separation process later this year.
In other news, Family Dollar Stores came ahead of EPS expectations on in-line revenue, but saw a sharp jump in store inventories, likely clouding the outlook for the current quarter. PVH Corp. ( PVH - Analyst Report) , the apparel maker, posted better-than-expected results but guided lower for the current quarter.