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Stocks Flat as Earnings Season Kicks Into High Gear

U.S. Market
Stocks were little changed today as earnings season kicked into high gear.

Initial unemployment claims rose by 2,000 to 304,000 last week. The less volatile four-week moving average fell to 312,000. Claims remain at levels last seen before the start of the financial crisis.

At market close the Dow was off 0.1%, the Nasdaq and S&P 500 were each up 0.2%.

Stocks on the Move
Wide-moat General Electric (GE) carried momentum from 2013 into the first quarter of 2014 with industrial organic revenue growing 8% versus the prior year. In addition, industrial operating margins grew 50 basis points, ahead of the 40-basis-point pace the company guided to during the business outlook meeting. Strong performance in oil and gas, where year-over-year revenue grew 7%, as well as the power and water segment, where year-over-year revenue rose 14%, drove industrial revenue growth in the quarter, although health care and transportation businesses were a drag on revenue and profit growth. Shares were up 1.7% at market close.

PepsiCo’s (PEP) first-quarter results highlighted the company’s strong snack portfolio and pricing power in the beverage arena. Frito-Lay North America enjoyed 4% organic revenue growth, led by mid-single-digit gains in U.S. salty snacks and price increases across the portfolio. Similarly, Pepsi Americas Beverages‘ positive price actions and growth in non-carbonated drinks helped to offset further volume declines in North American soda and difficult performance in Mexico. Shares were up less than 1% on the report.

Google's (GOOGL) first-quarter results showed another solid quarter of revenue growth, but aggressive investment in data center capacity led to a decline in free cash flows. Overall company revenue grew 19% versus 2012, buoyed by advertising placed on Google properties, particularly Google Search and YouTube. From a free cash flow perspective, the company continues to invest heavily in data center capacity, and free cash flows declined 16% to $2 billion. While we believe these investments are prudent in protecting its competitive advantages in search and advertising markets, we believe the returns on capital in new businesses such as hardware (Nest) and cloud computing will ultimately be lower than the legacy business. Google shares were down 3.6% at market close.

IBM (IBM) again posted mixed results for its first quarter, and while the firm continues to invest in high-potential areas, growth has been uneven at best, and some investors were likely disappointed in the print. Shares fell 3.3% on the report. First-quarter revenue slipped to $22.5 billion, down 4% year over year, (off 1% excluding divestitures), and while there were some bright spots across software this quarter (including middleware), services wasn't particularly clean, and systems and technology were a drag on the top line.