Whole Foods Tumbles; Facebook's Earnings Beat, But Disappoints Investors

Whole Foods Market Inc WFM, the organic foods retailer, reported earnings after Wednesday’s close; the grocery chain reported disappointing Q3 earnings of 43 cents per share on sales of $3.623 billion (~8 percent increase year-over-year). Wall Street expected the grocery giant to report earnings of 45 cents per share, a 4.65 percent premium over what was reported, alongside revenues of $3.697 billion, a 2.04 percent premium over what Whole Foods actually had in sales. Same store sales, on a constant currency basis, were lifted by 1.3 percent while analysts expected a 2.9 percent increase.

In addition to the discouraging numbers, Whole Foods issued unsatisfying guidance for Q4; it projects earnings in the range of 34-35 cents per share with a revenue increase of 7 percent from last year’s Q4. Analysts were projecting Q4 with earnings of 38 cents per share with a sales increase of 10 percent from last year.

The food retailer also specified that the decline in sales growth (for established stores) was partially due to the allegations that it “overcharged” customers in New York in the month of June; New York City officials discovered that the company mislabeled the weights of “freshly packaged foods like vegetable platters and chicken tenders, leading to overcharges of under $1 to nearly $15 an item,” according to the Wall Street Journal. Customers were angered, and Whole Foods was portrayed to be an overpriced grocer, which was exactly what the company has been trying to battle in recent years.

In addition to the bad news, regional president of Whole Foods, Derba Laura A had sold a total of 5,194 shares of the company worth $212,798 on June 3rd at the price of $40.97 per share.

Shares of the natural foods retailer tumbled 12 percent in Thursday’s pre-market sessions, and Wall Street analysts had something to share:
Morgan Stanley: Downgraded Whole Foods from Overweight to Equal Weight rating and a price target decrease from $56 to $37.
Canaccord Genuity: Downgraded the stock from Buy to Hold, lowered its price target from $51 down to $38.
Wedbush: Downgraded the stock from Outperform to Neutral, but maintains its price target of $40.
Sterne Agee: Downgraded the stock from Buy to Neutral

SUMMARY: Bearish; 4 Downgrades; New price target range from $37-$40.

Moving onto another major earnings report, Facebook Inc FB reported earnings after Wednesday’s rally; It had earnings of 50 cents per share on sales of $4.042 billion. Analysts expected the social network giant to report earnings of 47 cents per share on revenues of $3.994 billion. Shares of Facebook declined nearly 3.5 percent on Thursday’s pre-market session, but why?

The social media company reported that spending soared a whopping 82 percent in Q2 as it hiked hiring employees, marketing, and new data centers. Founder and CEO, Mark Zuckerberg, clearly mentioned to investors that he plans to continually invest in new products and features; he concluded that Facebook’s biggest days are ahead.

These comments did not stop investors from pulling out of the stock as they fear spending will continue to soar, even though the tech giant entertains 1.49 billion users. The total number of users who log onto Facebook’s site daily rose to 968 million in the month of June while analysts expected 970.5 million.

Wall Street analysts shared their thoughts on the mixed earnings report:
Barclays Capital: Maintains an Overweight rating and increased its price target from $98 to $105.
Credit Suisse: Maintains Outperform rating, increased price target from $106 to $110.

SUMMARY: Bullish; 2 Maintain Ratings: 1 Overweight, 1 Outperform. New price target range of $105-$110.