Major benchmarks tumbled Tuesday after a report showed U.S. factory activity declined in September for the second straight month. The Institute for Supply Management’s manufacturing index fell to its lowest level since June 2009. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) both lost more than 1%. All sectors declined, but industrials were hurt the most.
As for individual stocks, Charles Schwab (NYSE:SCHW) announced a bold pricing move, and McCormick (NYSE:MKC) posted a strong earnings report.
Schwab cuts commissions to zero
Charles Schwab shook up the brokerage world today by announcing it will permanently eliminate all commissions on trades of stocks and ETFs listed on U.S. exchanges and base commissions on options trades. Shares of Schwab fell 9.7% on the news, while those of some of the company’s competitors dropped even more.
The brokerage giant made the announcement in conjunction with the release of founder Charles Schwab’s latest book. CFO Peter Crawford said, “It’s the right thing to do for clients, removing one of the last remaining barriers to making investing accessible to everyone and continuing our tradition of challenging the status quo on behalf of individual investors. Additionally, it’s the right move from a competitive standpoint.”
Schwab estimates the change, effective Oct. 7, will reduce quarterly revenue by $90 million to $100 million, or about 3% to 4% (or possibly less). In the first six months of 2019, the company reported revenue of $5.4 billion, up 11% from the first half of 2018.
Schwab makes most of its money from interest on customer accounts and asset management fees, making the move affordable for the company but disruptive to competitors that rely more on commission income.
Investors savor McCormick’s latest quarter
Flavorings maker McCormick reported higher-than-expected profit in its fiscal third quarter and raised earnings guidance for the year, and investors reacted by bidding shares up 6.8%. Net sales rose 1% to $1.33 billion, a hair below the $1.34 billion analyst consensus. Earnings per share came in at $1.43, or $1.46 on an adjusted basis, 14% above last year and beating expectations for $1.29.
Sales in the flavor solutions segment, which is focused on food manufacturers and restaurants, decreased 2%, but consumer sales grew 3%, driven by growth in the Americas and Asia-Pacific. Cost savings and a favorable product mix provided a big boost to profits. Gross margin improved a full percentage point and adjusted operating margin expanded 1.6 percentage points compared to the period a year earlier.
McCormick said on the conference call that it sees underlying strength in American consumers continuing, and raised guidance for full-year adjusted EPS to $5.30 to $5.35, as compared to earlier guidance of $5.20 to $5.30. The company earned $4.97 per share in 2018.
