Traders were hoping for some sort of decisive clue in this afternoon’s release of the minutes from the most recent Federal Open Market Committee meeting. But, it didn’t happen. Once again, Janet Yellen and her friends at the Federal Reserve said “maybe later, but not now,” telling investors little about the actual condition of the economy. By the time the closing bell rang, the S&P 500 only mustered a puny 0.11% gain to close at 2139.18, with traders still not sure what to do.
They sure knew what to do with Fortinet Inc (NASDAQ:FTNT), Humana Inc (NYSE:HUM) and Telefonaktiebolaget LM Ericsson (NASDAQ:ERIC) though. These three stocks were deep in the red in the wake of bad news, and there was noting Yellen could have said to prevent these pullbacks.
Telefonaktiebolaget LM Ericsson (ERIC)
Swedish telecom player Telefonaktiebolaget LM Ericsson — you know it better just as Ericsson — was absolutely hammered on Tuesday after the company issued a profit warning to ERIC shareholders.
The company didn’t offer a great number of details. It simply said its third quarter sales were down 14% compared to the third quarter’s of last year. Acting CEO Jan Frykhammar added, “current trends are expected to continue short-term,” and cautioned that gross margins shrank by 28%. That may not necessarily mean a swing to a loss, but net profit margins have been thin for several quarters now.
ERIC shareholders want more, and faster. Bloomberg reporter Kim McLaughlin commented:
“The company blindsided investors with an early morning profit warning the likes of which haven’t been seen since the burst of the dot com bubble 15 years ago… [former CEO] Hans Vestberg paid the price of not right-lining the company with the markets it’s now seeing… Frykhammar the interim chief executive has a lot of work to do. They promised to cut costs and just last week they announced a big round of cuts in Sweden…with 3,000 jobs to go.”
ERIC ended the day down a whopping 21%.
Humana Inc (HUM)
The government agency that oversees Medicare and Medicaid plans isn’t especially impressed by Humana. It downgraded its rating of the health insurer’s entry in the Medicare Advantage market, sending HUM shares 5.1% lower as a result.
The Centers for Medicare and Medicaid Services did the deed, lowering the number of stars assigned to the company’s 2018 Medicare plan based on several factors, including timeliness and quality of service. The number of Humana enrollees enrolled in one of its higher quality four or five star plans fell from 2.15 million to 1.17 million simply because many of those members’ plans lost at least one of the five possible stars the CMS assigns.
Not only does the lower rating make it difficult for Humana to attract new enrollees, it disqualifies the insurer from earnings performance-based bonuses from the government.
Fortinet Inc (FTNT)
Finally, like ERIC, Fortinet only had to warn shareholders that its third-quarter numbers would be disappointing to send FTNT shares down a hefty 10%.
Cybersecurity outfit Fortinet reported on Wednesday that it expects to post revenue of between $319 million and $324 million for Q3, turning that into a profit of something between 15 and 16 cents per share of FTNT. Analysts were collectively calling for sales of $322 million and earnings of 18 cents per share of FTNT.
CEO Ken Xie explained, “Our third quarter results were primarily impacted by the lengthening of deal cycles as enterprises are becoming more strategic with their purchasing decisions and buying with less urgency than last year.”
Even so, the revised sales and profit outlooks show significant improvement over year-ago figures.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.