As we enter the tail end of first-quarter earnings season, clear winners and losers have emerged.
Many well-known blue-chip companies that were expected to knock the cover off the ball with their prints ended up striking out. In turn, this badly hurting their share prices in the process and drawing the ire of shareholders. The poor results come at a difficult time. The stock market is seeking direction and adjusting to the reality of higher for longer interest rates and the potential for zero rate cuts this year.
Management teams have put their best spin possible on their company’s financial performance. They have sought to provide context for earnings and outlooks that disappointed. However, analysts and investors don’t seem to be very tolerant right now. As is almost always the case, the immediate reaction to earnings prints has been extreme. In fact, many stocks fell 10% or more in a single day after a bad reading.
So let’s now explore seven blue-chip stocks that investors may want to sell in May before conditions worsen.
British Petroleum (BP)
Energy giant British Petroleum (NYSE:BP) is down after reporting a 40% decline in its Q1 profit. BP showed a net profit of $2.7 billion, down from $3 billion in Q4 of 2023. That was below Wall Street estimates of $2.9 billion. The profit translated to earnings per share (EPS) of 97 cents, which missed expectations of $1.02. Revenue totaled $48.88 billion, which missed consensus forecasts of $56.87 billion.
The London-based company said the results were due entirely to lower oil and gas realizations that led to weak fuel margins. Despite the poor showing, BP executives said they remain on track to deliver $2 billion in cost savings by 2026. Also, the company announced a new stock buyback program of $3.5 billion for the year’s first half. While the cost cuts and share repurchases are encouraging, investors seem to be having none of it. The BP stock went down 4% after the print. In the last 12 months, the share price is up 2%.
Walt Disney Co. (DIS)
In its worst showing in nearly a year, Walt Disney Co.’s (NYSE:DIS) stock fell 10% after reporting mixed financial results which showed weak forward guidance. The soft outlook overshadowed news that the Mouse House is nearly profitable on its streaming services, reversing years of losses. Disney reported EPS of $1.21 for what was its fiscal second quarter, ahead of expectations that called for $1.10. Revenue in the period amounted to $22.08 billion, which was slightly below the $22.11 billion estimated on Wall Street.
Yet, despite mixed results, Disney said that its operating income rose 17% as its Disney+ and Hulu streaming services turned a profit in the quarter for the first time. When combined with ESPN+, the streaming businesses lost $18 million. However, that was much better than a loss of $659 million posted a year ago. Disney+ subscribers grew by more than six million in the quarter to 117.6 million global customers. Also, the parks and experiences division saw revenue rise 7% to $5.96 billion.
While Disney projects all streaming services will reach profitability by the current fiscal year’s, the company warned of more losses in its entertainment direct-to-consumer unit. And this certainly didn’t impress analysts or investors.
Tyson Foods (TSN)
Biggest U.S. meat company Tyson Foods’ (NYSE:TSN) stock is struggling after sales reported mixed financial results as it undertakes strict cost control measures. TSN reported EPS of 62 cents, which was well ahead of the 39 cents consensus expectation of analysts. Revenue in the company’s fiscal Q2 came in at $13.07 billion, below the consensus estimate of $13.15 billion on Wall Street. The latest results come as Tyson Foods closes some of its chicken processing plants to reduce costs.
Further, Tyson has closed six chicken plants in four states since the start of 2023, laid off corporate employees and announced plans to close a pork plant. The moves come as the company tries to turn around its chicken unit after struggling with excess supply. Tyson is grappling with slowing demand from price-conscious consumers who have been cutting back on their meat purchases in recent months. With inflation proving sticky and interest rates expected to remain higher for longer, the consumer pullback is likely to continue.
TSN stock is today trading 26% lower than its price from five years ago.
Verizon (VZ)
Verizon Communications (NYSE:VZ) latest earnings print was a case of “not as bad as feared.” Analysts were cheering news that the telecommunications firm only lost 68,000 monthly bill-paying wireless phone subscribers during Q1. In fact, that was less than the 100,000 the company was expected to lose in the quarter.
Although the subscriber losses have slowed from a peak of 127,000 wireless subscribers who ditched Verizon in Q1 of 2023, the reality is that the company continues to lose customers at a steady clip.
Another bad sign is that Verizon’s free cash flow at the end of Q1 stood at $2.7 billion, well below the $3.6 billion analysts’ forecast. The company plans to attract and retain customers through flexible plans and discounts on streaming bundles for services such as Netflix (NASDAQ:NFLX). But how far Verizon can get on discounted services remains to be seen. The strategy hasn’t helped VZ stock, which is down 30% over the last five years.
Hershey (HSY)
Chocolate giant Hershey (NYSE:HSY) is by no means out of the woods. Cocoa prices, the active ingredient in chocolate, still trades above $8,000 per ton. While the price of cocoa has fallen from a record high above $10,000 per ton, it remains more expensive than most industrial and precious metals. Prices spiked because the cocoa harvest in Africa has been wiped out by severe weather and disease. Unfortunately, it shows no signs of easing anytime soon.
Hershey has managed to report better-than-expected financial results, despite the price of cocoa reaching all-time highs, by passing on the added cost to consumers. But how long will it be before cash-strapped consumers start buying fewer Kit Kat chocolate bars and Milk Duds candy? Hershey is already calling for flat earnings in 2024 and for sales to grow only about 2%. That tepid outlook could worsen in coming months if cocoa prices spike or the consumer rolls over. HSY stock has declined nearly 30% in the past 12 months.
United Airlines (UAL)
After clawing its way back after the Covid-19 pandemic, United Airlines (NASDAQ:UAL) swung to a financial loss in this year’s first quarter as it struggles with order delays from troubled aircraft manufacturer Boeing Co. (NYSE:BA). The carrier reported a Q1 loss per share of 15 cents. But that was actually better than a loss of 57 cents expected by Wall Street. Revenue in the quarter totaled $12.54 billion versus $12.45 billion that was the consensus forecast of analysts.
Management said that the quarterly earnings were negatively impacted by growth challenges caused by delayed aircraft deliveries from Boeing. The commercial aircraft manufacturer has been forced by regulators to slow its production of commercial aircraft after encountering several safety problems. United said that it now expects to receive 61 narrow-body planes from Boeing this year, down from an initial order of 101. United said it would have reported a Q1 profit of $200 million if not for the problems at Boeing.
Finally, UAL stock is trading 38% below where it was five years ago, before the pandemic.
Palantir Technologies (PLTR)
Also, Palantir Technologies (NYSE:PLTR) issued disappointing guidance, torpedoing its stock in the process. PLTR stock fell 15% after the data analytics company announced a weaker-than-expected outlook that left analysts wanting. Palantir reported EPS of 8 cents, matching Wall Street expectations. Revenue in Q1 amounted to $634 million versus estimates of $625 million. Sales were up 21% from a year earlier. Sadly, the guidance overwhelmed the results.
Also, management said that they expect current Q2 revenue of $649 million to $653 million versus $653 million that was the consensus expectation among analysts. For all of this year, Palantir anticipates revenue of $2.68 billion to $2.69 billion, weaker than consensus estimates of $2.71 billion. Management said they ran 660 “boot camps” with prospective customers during Q1. This strategy allowed consumers to get hands-on time with the company’s data analytics technology. That seemed to mean little to investors who weren’t in a forgiving mood after PLTR stock had risen 225% over the last 12 months.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
5G, Airline, Communications, Consumer Discretionary, Consumer Staples, Energy, Food, Media, Natural Gas, Oil, Software, Streaming, Technology, Travel
