Nike, FedEx, and Accenture Reaffirm Our Guidance Concerns
Here's how the latest earnings and conference call comments affect out our plan for the Pro Portfolio — and two holdings in particular.
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Stocks are once again under pressure Friday, this time stemming from cautionary guidance from FedEx FDX and Nike NKE. In last Friday’s Weekly Roundup, we discussed why we thought guidance this week from those two companies would likely be indicative of June-quarter guidance in the coming weeks.
FedEx discussed the continued weakness it is seeing in the industrial economy and, regarding its lower than previously expected EPS outlook for the year, said it is being impacted by “ongoing challenges in the global industrial economy, inflationary pressures, and the uncertainty surrounding global trade policies.” No real surprise, in our view, and we doubt very much that FedEx will be the only company sharing that.
Turning to Nike, the conference call comments that stood out to us were the revenue decline in North America but also in EMEA and notably China, which fell 15%. Not helping is the promotional environment, but in our travels we’d note we are not seeing Nike anywhere. It’s all On, Hoka, and Adidas. Nike’s guidance that calls for revenue to be down mid-teens and gross margins to fall ~400 basis points tells us the turnaround story has yet to take hold. But like other retail-facing companies, it too is contending with the impact of tariffs, the dollar, and, as it called out on its earnings call, “uncertainty and other macro factors on consumer confidence.”
Those comments reaffirm our decision to downgrade Mastercard MA shares to a Four rating Thursday and begin the unwinding process from TheStreet Pro Portfolio.
'Accentuating' the Negative
Also weighing on the market Friday are comments made last night from Accenture ACN CEO Julie Sweet who warned about the potential impact of Trump administration spending cut plans. On the earnings call, Sweet said:
"The new administration has a clear goal to run the federal government more efficiently. During this process, many new procurement actions have slowed, which is negatively impacting our sales and revenue. In addition, recently, the General Service Administration has instructed all federal agencies to review their contracts with the top 10 highest paid consulting firms contracting with the U.S. government, which includes Accenture Federal Services.
"The GSA's guidance would determinate contracts that are not deemed mission critical by the federal — by the relevant federal agencies. While we continue to believe our work for federal clients is mission critical, we anticipate ongoing uncertainty as the government's priorities evolve and these assessments unfold."
Those and other comments from Sweet and team were a sobering reminder of what the market has been waiting for — the other shoe to drop from DOGE and other Trump cost-cutting measures. They also explain why we are seeing other government contracting heavy stocks such as CACI International CACI, Science Applications SAIC, Booze Allen BAH, and Gartner IT.
It also explains added pressure on the portfolio’s shares of ServiceNow NOW, but our view is ServiceNow is being lumped into the wrong bucket. Much like fellow holdings Elastic ESTC and Palantir PLTR, ServiceNow is benefiting from the drive for greater productivity and AI adoption in the government but also the private sector.
We last picked up some NOW shares earlier this month near $839, which effectively rounded out the portfolio’s position size. Members who are underweight should see NOW's current share price as a nice place to nibble on additional shares but recognize as well the next few weeks could be turbulent as more companies issue their June-quarter guidance. We could also be in for a wave of negative earnings pre-announcements next week and the week after.
We will continue to tread carefully with the portfolio and should we see an opportunity to raise more cash by unwinding our MA position further, we’ll look to do so. Near-term we’ll also continue to remain owners of the inverse ETF positions in the portfolio.
At the time of publictaion, TheStreet pro Portfolio was long MA, ESTC, PLTR and NOW.
