3 Things to Watch in the Stock Market This Week – Motley Fool

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Stocks had a quiet week last week, with the Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) each moving by less than 0.25%. That left both indexes near all-time highs and up more than 8% so far on the year.

^DJI Chart

^DJI data by YCharts.

Earnings season is winding down, but investors can still expect volatility around a few individual stocks that are announcing quarterly numbers over the next few trading days. The most anticipated reports set to be released will be coming from Nike (NYSE:NKE), McCormick (NYSE:MKC), and Constellation Brands (NYSE:STZ).

Nike’s new outlook

Nike will announce its results on Thursday. The sports-apparel titan is trailing the market again this year after finishing dead last among the 30 members of the Dow in 2016. Investors haven’t been excited to see growth in the core U.S. market slump to a 4% rate over the past nine months from 10% in the prior-year period. Nike’s profitability is also down thanks to surging competition from online-based rivals.

Management was encouraged by an 8% inventory decline at retailers last quarter that ideally will contribute to improving gross margins this week. With that drop, Nike’s selling partners now have better synchronized their inventories to match the current sluggish customer traffic trends.

The stock’s short-term performance could depend on the outlook that executives issue for the new fiscal year ahead. Nike will be balancing the desire for profit growth against the need to invest in improving its innovation pace and e-commerce infrastructure. As for sales gains, it’s likely that the company sees more struggles ahead for the U.S. market, offset by healthy growth internationally.

McCormick’s profit margin

Spice and flavorings giant McCormick announces its earnings numbers before the market opens on Thursday. The company’s latest results marked a solid start to its fiscal 2017, with sales up 4% after accounting for currency swings. Yes, growth was muted in the U.S. food segment, but the company’s deep portfolio of brands drove gains in geographies like South America and Asia that more than made up for that sluggishness. Increased prices also helped push operating income higher by a healthy 8.2%.

Ground cinnamon spice.

Image source: McCormick.

CEO Lawrence Kurzius and his executive team are forecasting full-year sales gains of between 5% and 7%, which implies accelerating growth in the coming quarters. Operating income also should improve by as much as 11%, to $641 million. The long-term outlook is bright for this Dividend Aristocrat, given that its profitability is at a five-year high and it enjoys a leading position in a global spice industry that’s projected to grow at a 5% annual rate over the next five years.

Constellation Brands’ beer volume

Investors have pushed Constellation Brands’ stock to new highs this year as they celebrate its market-thumping sales growth — most recently evidenced by a 10% spike in beer volume that helped the alcoholic beverage giant log 12% higher revenue over the past year. The company is benefiting from its premium industry positioning, too, as increased prices generated a big improvement in operating margin.

Corona beer bottles.

Image source: Constellation Brands.

The beer portfolio, anchored by the high-end Corona, Modelo, and Pacifico franchises, made all the difference. “Our beer business continues to be a powerhouse for growth,” said CEO Rob Sands in a press release in early April.

Sands and his team are targeting sales growth in the range of 9% and 11% in fiscal 2018, and this week’s results will provide an important test of that aggressive forecast. Constellation Brands’ most recent profit estimate, meanwhile, calls for earnings of $7.85 per share at the midpoint of guidance, which would represent a heady 15% pop over last year’s result.

Demitrios Kalogeropoulos owns shares of Nike. The Motley Fool owns shares of and recommends Nike. The Motley Fool recommends McCormick. The Motley Fool has a disclosure policy.

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