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Midday Market Update

Stocks Mostly Higher After Earnings

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U.S. Market    
Stocks were mostly higher today after some better-than-expected third-quarter earnings reports. 

There were no major economic data releases today. Shutdown delayed data is expected to begin to flow out of Washington starting next week.

At midday the Dow was off 0.1% while the S&P 500 and Nasdaq were up 0.3% and 0.8% respectively.

Stocks on the Move
Shares of  Google (GOOG) surged over 12% this morning after the firm announced third-quarter earnings. Quarterly revenue from Google sites (advertising revenue from Google-owned properties such as and YouTube) grew 20% on an ex-TAC (excluding traffic acquisition costs) basis versus 2012, while the online ad network (for ads placed on third-party websites) grew only 1%. Supporting this growth, paid clicks grew 26% versus 2012 while costs per click declined 8%. While we believe ad pricing reflects a heavier mix of mobile advertising, the strong growth in paid clicks is equally important to our investment thesis. In terms of profitability, Motorola continues to be a drag on overall results. The handset division posted a $317 million operating loss as it continues to struggle.

 General Electric (GE) delivered  third-quarter earnings of $0.36 per share, though after adjusting for restructuring charges taken in the quarter, the company reported $0.40 per share, roughly 8% better than the same quarter of the prior year. GE grew industrial revenue 2% year over year, with 19% order growth supporting longer-term revenue opportunities. The company’s recent theme of simplifying internal operations to improve profitability has begun to bear fruit in the margin line with third-quarter industrial margins of 15.4%, a 120-basis-point improvement over the prior year. Shares were up 3.3% at midday.

 Baker Hughes (BHI), like peer  Schlumberger (SLB), delivered a  strong third quarter. North American revenue, at $2.9 billion, finally broke above late 2011 levels, and operating margins improved 240 basis points sequentially to 10.3%. The company still has a long way to go to reach late 2011 levels of 22% or even early 2012 levels of 13%-14%. Latin America remained disappointing, with a second straight quarterly loss because of bad debt write-offs and severance costs. Shares shot up 7.7% on the report.

 Chipotle’s (CMG) solid third-quarter results  validate the power of its brand. Comparable sales accelerated to 6.2%, almost entirely driven by traffic gains, which was particularly impressive at a time when most domestic restaurants are seeing fewer consumer visits. Restaurant margins fell 60 basis points to 26.8% and operating margins contracted 20 basis points to 16.6% because of higher food costs, but we expect this trend to reverse throughout 2014. Shares soared 13% higher at midday. 

Foreign Markets
European markets rose today. In late trading, the FTSE 100 was up 0.7%, the Paris CAC was 1.1% higher while Germany’s DAX gained 0.6%.

Asian markets were mixed. The Shanghai Composite and Hang Seng were up 0.2% and 1.1% respectively while the Nikkei 225 was down 0.2%.

Jeremy Glaser does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.