Mint Market Watch - 27 Oct 22
Twitter sealed, Musk fires CEO & CFO. US GDP - Up 2.6%; ECB lifts rates 75bps; Amazon shared pummeled. Apple sets record revenue but cautions of slow quarter ahead.
Musk-Twitter deal complete, CEO and CFO fired; US GDP up 2.6% last quarter; ECB raises interest rates by 75bps; Amazon shares plummet 20% on weak Q4 guidance;
US GDP increased at a 2.6% annualized rate in Q3 (2.4% E) ending two quarters of declining GDP.
SBI Cards reports thinner margins due to decline in revolver mix and higher CoF. Tata Chemicals profit jumps 300% to Rs. 628 Cr.
ECB raised interest rates by 75bps to 1.5%, highest since 2009. China’s industrial profits fall faster in Jan-Sep due to Covid curbs & real estate crisis. Intel announced $10B in cost reductions through 2025.
Apple beats earnings on record revenue & caution of slow next quarter. Apple reported adjusted EPS of 1.29 (1.26 E) on revenue of $90.1B ($88.76B E), up 8% YoY.
Key Headlines:
Shopify stock surges on earnings beat, narrowing loss
Caterpillar beats earnings with improving supply chains and higher sales
McDonald’s beats earnings in Q3 as sales remain resilient despite higher prices
Mastercard beats earnings with rising profits as consumer spending levels remain stable
Merck beats earnings expectations and raises full-year outlook as top drug sales beat forecast
Altria Group misses earnings expectations as high inflation weighs on spending by their customers
Credit Suisse reports $4B loss, announce massive strategy overhaul
Apple beats earnings on record revenue but warn that sales could slow next quarter
Amazon falls 13% on weak Q4 guidance and cloud revenue miss
Intel announced $10B in cost reductions through 2025, trim forecast for the year as PC demand softens. Intel shares rose 7% in after market trading.
Pinterest beat earnings, stock rises 10%
T-Mobile reports strong subscriber growth and the start of share buyback program
SBI Cards reports thinner margins due to decline in revolver mix and higher cost of funds
China’s industrial profits fall faster in Jan-September
US durable goods orders below expectations in September
US GDP grew by 2.6% last quarter ending 2-straight quarterly declines
ECB raises interest rates by 75bps, cuts bank subsidies
BoE deputy governor Sam Woods calls for maintaining financial stability in the UK. BoE deputy governor Sam Woods stated that turning London into the “Wild West” to attract more businesses after Brexit could be self-defeating. He stated that maintaining financial stability was key to competitiveness.
Elon Musk-Twitter deal complete, CEO and CFO fired.
Shopify stock surges on earnings beat, narrowing loss
Shopify reported adjusted EPS of -0.02 (-0.07 E) on revenue of $1.4B ($1.34B E), up 22% YoY. Gross merchandise volume, or the total value of merchandise sold on the platform, rose 11% to $46.2 billion in the third quarter.
Best known as a one-stop platform for online businesses, Shopify has moved to provide offline payments and other services after the pandemic-fueled surge in e-commerce ebbed. The company has added tools for businesses to connect with their shoppers online and build on the growth of influencers on social media. The purchase of e-commerce fulfillment company Deliverr has also helped expand its services.
Shopify forecast that its operating expense growth rate will “sequentially decelerate” in the current fourth quarter relative to the third quarter. Shopify expects GMV to outperform the broader US retail market during the holiday season.
Shopify shares surged 18% on the earnings and revenue beat. (CNBC, Reuters)
Caterpillar beats earnings with improving supply chains and higher sales
Caterpillar reported adjusted EPS of 3.95 (3.17 E) on revenue of $15B ($14.15B E), up 20% YoY. Caterpillar posted net income of $2.0141 billion, or $3.87 a share, for the quarter, up from $1.426 billion, or $2.60 a share last year. Operating profit was $2.4B up from $1.7B last year as pricing offset any headwinds from cost inflation.
Sales in North America rose 33% year over year. Growth in Europe and Asia was positive, but slower, coming in at 8% and 9%, respectively. Sales in China fell during the quarter. Caterpillar reported a favorable forex impact. Other Income grew $242M from $225M last year largely due to favorable impacts from foreign currency exchange.
Dealers increased inventories by $700 million during the third quarter of 2022, compared with a decrease of $300 million during the third quarter of 2021.
Caterpillar expects higher sales in due to higher infrastructure spending and higher commodity prices. Caterpillar shares rose 7% on the news. (Marketwatch, Marketwatch, Barrons)
McDonald’s beats earnings in Q3 as sales remain resilient despite higher prices
McDonald’s reported adjusted EPS of 2.68 (2.59 E) on revenue of $5.87B ($5.72B E), down 5% YoY. Same-restaurant sales rose 9.5% (5.8% E). Excluding the impact of foreign currency, revenue rose 2% in the quarter.
U.S. same-restaurant sales rose 6.1%, buoyed by "strategic menu price increases" and positive guest counts. Internationally, same-restaurant sales grew 8.5% in markets where they operate their own restaurants. In international developmental licensed markets same-store sales grew 16.7% fueled by strong growth in Japan and Brazil which was partly offset by negative same-restaurant sales in China amid COVID lockdowns.
Notably McDonald’s has not seen shrinking traffic after raising prices, unlike other fast-food chains. McDonald’s is also pulling in more higher-income customers, who are opting for fast food over dining at a full-service restaurant. Still, CFO Ian Borden stated that inflationary pressures and interest rate hikes are putting “significant pressure” on consumers and the restaurant industry. The company said it would use its “financial strength” to provide support to franchisees that may need it as they did during the period of Covid-19 shutdowns
Inflation also impacted the company’s margins, Chief Financial Officer Ian Borden said, particularly commodity and wage inflation. Even so, year-to-date adjusted operating margin has grown and is now in the mid 40s. The company declared a quarterly cash dividend of $1.52 a share earlier this month, up 10% from $1.38. The annualized dividend will be $6.08 a share. (Marketwatch, CNBC, Barrons)
Mastercard beats earnings with rising profits as consumer spending levels remain stable
Mastercard reported adjusted EPS of 2.68 (2.57 E) on revenue of $5.8B ($5.65B E), up 23% YoY on constant currency basis. Gross dollar volume increased 11% to $2.1 trillion.
The company also stated that its customers had issued 3 billion Mastercard and Maestro branded cards. Mastercard saw a 9% rise in switched transactions. Cross-border volume jumped by 44%.
CEO Michael Miebach stated that consumer spending remained resilient and cross-border travel continues to recover. Earlier, bank earnings showed that spending on credit cards increased 10.6% from a year ago providing support for resilience amid recession worries. (Barrons, Marketwatch)
Merck beats earnings expectations and raises full-year outlook as top drug sales beat forecast
Merck reported adjusted EPS of 1.85 (1.75 E) on revenue of $15B ($14.07B E), up 13% YoY. Gross margin contracted to 73.7% from 73.8%.
Keytruda sales jumped 20% to $5.43 billion, topping expectations of $5.41 billion; of Gardasil sales increased 15% to $2.29 billion, above expectations of $2.07 billion. Januvia/Janumet sales fell 15% to $1.13 billion but beat expectations of $1.07 billion. Animal Health sales fell 3% to $1.4 billion.
Earlier this month, Merck and Moderna (MRNA) agreed to develop a specifically structed cancer vaccine, known as mRNA-4157, to be developed alongside Merck's blockbuster Keytruda treatment. Merck will pay Moderna $250 million as part of the option agreement, which will be based on that drugmaker's messenger RNA-based technology.
For 2022, Merck raised its guidance ranges for adjusted EPS to $7.32 to $7.37 from $7.25 to $7.35 and for sales to $58.5 billion to $59.0 billion from $57.5 billion to $58.5 billion. They also announced that Robert Davis will succeed Ken Frazier as CEO when he retires on November 30th. (Marketwatch, The Street)
Altria Group misses earnings expectations as high inflation weighs on spending by their customers
Altria reported adjusted EPS of 1.28 (1.3 E) on revenue of $6.55B ($5.6B E), down 3.5% YoY. Net of excise taxes, revenue was $5.4 billion ($5.59B E). Total cigarette shipments fell 9.2% to 21.85 billion sticks, as Marlboro shipments fell 8.8% to 19.48 billion sticks. Oral tobacco shipments increased 1.3%.
Altria announced a strategic partnership with Japan Tobacco on its expanded heated tobacco portfolio. They also inked a $2.7B deal with Philip Morris to hand over US rights for its IQOS heated tobacco products.
Altria also announced that they had terminated non-compete obligations with JUUL which means they could start up their own new vaping products brand.
The company narrowed its earnings outlook for the year. It expects to deliver adjusted earnings from f $4.81 to $4.89 versus the previously reported $4.79 to $4.93 for the full year. (Barrons, Marketwatch)
Credit Suisse reports $4B loss, announce massive strategy overhaul
Credit Suisse posted a net loss of CHF 4B (CHF 413M E) compared to a CHF 434M profit a year earlier. Revenue dropped 30% to CHF 3.8B (CHF 3.9B E). It ended the quarter with a common equity Tier 1 ratio–a key measure of balance-sheet strength–of 12.6%, compared with 14.4% in the year-earlier period.
The net loss was mostly due to a CHF 3.7B impairment charge on deferred tax assets related to the restructuring.
Credit Suisse announced a major strategy overhaul. The new strategy features a CHF4 billion capital raise, which includes a CHF1.5 billion investment by Saudi National Bank for a shareholding of up to 9.9%. Credit Suisse also plans around 9,000 job cuts by the end of 2025 and the sale of its securitized-products business to an investor group led by Apollo Global Management Inc. The cost of the strategy, which includes a "radical restructure" of its investment bank, is expected to be CHF2.9 billion up to 2024. The transformation plan will also see Credit Suisse split off its investment bank into an independent business called CS First Boston.
Credit Suisse aims to reduce the cost base by 15%, or around CHF2.5 billion, to around CHF14.5 billion in 2025. They are also targeting a Tier 1 ratio of 13.5% by 2025.
Credit Suisse shares declined 18% after the earnings announcement. (CNBC, Barrons, Marketwatch)
Apple beats earnings on record revenue but warn that sales could slow next quarter
Apple reported adjusted EPS of 1.29 (1.26 E) on revenue of $90.1B ($88.76B E), up 8% YoY. iPhone revenue was reported at $42.36B ($43.21B E, +9.67% YoY), Mac revenue was $11.51B ($9.36B E, +25.3% YoY), iPad revenue was $7.17B ($7.94B E, +13% YoY), other products revenue was $9.65B ($9.17B E, +9.85% YoY), while services revenue was $19.19B ($20.1B E, +4.98% YoY). Apple’s revenue was hurt by the strong dollar as it would have grown by double digits if not for the strong dollar. Forex headwinds were over 600bps for the quarter.
The average selling prices of the iPhone rose to $954 in the company’s June quarter, up from $783 in the 2019 September quarter, according to Consumer Intelligence Research Partners. Consumer demand remained strong as CEO Tim Cook stated that they were yet to see data that macroeconomic headwinds were hurting iPhone sales.
The Mac category benefited from the launch of the MacBook Air with Apple’s custom M2 chip, as well as easing supply constraints that allowed Apple to meet a prior demand backlog. However, CFO Luca Maestri stated that they expect that Mac revenue will decline substantially YoY in the December quarter from the 8% in September quarter. This is due to higher base levels from last year. The services growth was lower than the 12% reported last quarter as yearly services growth has also started to slow. Apple said it had 900M total subscriptions.
The company is supply-constrained on the iPhone 14 Pro and iPhone 14 Pro Max models, Cook said, adding that it is difficult for the company to “determine the accurate mix” of its phones until it is able to fulfill all of its demand. Demand was strong and better than anticipated which was a challenge for the company which had earlier scaled back production goals.
Sales from Greater China in the September quarter were $15.5 billion, up 6% from the previous year, compared with the $15.1 billion analysts expected. (CNBC, WSJ, Marketwatch)
Amazon falls 13% on weak Q4 guidance and cloud revenue miss
Amazon reported adjusted EPS of 0.28 (0.22 E) on revenue of $127.1B ($127.76B E), up 15% YoY. Revenue was impact by $5B due to the strong dollar. North American sales were up 20%; international sales were down 5%, but up 12% adjusted for foreign exchange rates. AWS sales of $20.54 billion grew 27.5% from the year before, the lowest growth rate dating back to the beginning of 2014, and lower than analysts’ average estimate of $21.2 billion. Amazon reported its first quarterly profit in 2022 of $2.87B.
Advertising revenue was $9.5 billion, up 25%, about in line with expectations, and 30% higher on a currency adjusted basis. Subscriber services revenue was $8.9 billion, up 9%, or 14% adjusted for currency, below the forecast of $9.1 billion. Revenue from Amazon’s online stores was $53.5 billion, up 7%, or 13% adjusted for currency, and below the Wall Street consensus of $54.3 billion. Revenue from third-party seller services was $28.7 billion, up 18%, or 23% adjusted for currency, ahead of analysts’ forecast for $27.9 billion.
Amazon expects fourth quarter revenue between $140-148B representing yearly growth of 2-8%. Analysts were expecting sales to reach $155.15B in Q4. The company sees operating income for the quarter ranging from zero to $4 billion. Additionally, Amazon will have to contend with higher base levels from last year due to a $12B profit last year on its Rivian investment which is now down almost 50%.
Amazon has responded to rising expenses by aggressively cutting costs across numerous divisions in recent months. It shed warehouse space, halted some experimental projects, shuttered its telehealth service and froze hiring for corporate roles in its retail business. Still, they expect currency related headwinds to continue in the next quarter.
Amazon shares fell 13% in after market trading. (CNBC, Barrons, Marketwatch)
Intel announced $10B in cost reductions through 2025, trim forecast for the year as PC demand softens
Intel reported adjusted EPS of 0.59 (0.34 E) on revenue of $15.3B ($15.43 E), down 15% YoY. The company’s net income, at $1.02 billion, was down from $6.82 billion in the year-ago quarter. Gross margins dropped to 45.9% from 58.3% in the year-ago period.
Intel is struggling with falling demand for computers. Worldwide shipments of PCs fell 15% in Q3.
Intel announced an expense reduction plan that will cut costs by $3 billion next year, a total that will grow to $8 billion to $10 billion in annualized expense reductions by the end of 2025. Intel booked $664 million in restructuring charges in the last quarter. The cost reduction measures will include a “meaningful number” of layoffs. They also plan to cut overhead, reduce sales and marketing expenses, and lower spending with 3rd party contractors.
Client-computing sales fell 17% to $8.1 billion from a year ago, while data-center and AI group sales dropped 27% to $4.2 billion, “network and edge” sales rose 14% to $2.3 billion, and Mobileye sales rose 38% to $450 million. During the quarter Intel said MediaTek would rely on Intel Foundry Services for chip manufacturing, and the company broke ground on a production facility in a planned investment in Ohio exceeding $20 billion.
Management trimmed the forecast for the full fiscal year. The company now sees $1.95 in adjusted earnings per share and $63 billion to $64 billion in revenue, compared with $2.30 in adjusted earnings per share and $65 billion and $68 billion in revenue three months ago. That implies a decline in revenue of almost 20%. This is also lower than analyst estimates of $65.26B in revenye and $2.15 in adjusted EPS.
Intel shares rose 7% in after market trading. (CNBC, Marketwatch, Barrons)
Pinterest beat earnings, stock rises 10%
Pinterest reported adjusted EPS of 0.11 (0.06 E) on revenue of $685M ($665M E), up 8% YoY. Average revenue per user grew 11% to $1.56 globally, and 15% to $6.13 in the U.S. and Canada. Monthly active users were mostly flat at 445 million globally while U.S. and Canada monthly active users declined 2% to 95 million.
Pinterest’s executive team highlighted stability among customers, particularly in large retail and consumer packaged goods (CPG) marketing. Pinterest also said fourth-quarter revenue will “grow mid-single digits on a year-over-year percentage basis.”
Pinterest shares rose 10% in after-market trading. (Barrons, Marketwatch)
T-Mobile reports strong subscriber growth and the start of share buyback program
T-Mobile reported adjusted EPS of 0.4 (0.39 E) on revenue of $19.48B ($20.02B E), down 1% YoY. T-mobile’s core EBITDA came in 11% higher YoY. T-Mobile added 1.6M postpaid customers including 854k phones, this was higher than analyst estimates of 1.5M and 725k respectively.
T-Mobile management on Thursday increased its 2022 guidance for core adjusted EBITDA, to between $26.2 billion and $26.4 billion, from $26.0 billion to $26.3 billion previously. Management now expects to add between 6.2 million and 6.4 million postpaid customers, 150,000 more than before at the midpoint.
T-Mobile US announced a $14 billion share repurchase program in early September, with as much as $3 billion planned for 2022. The company spent $669 million on buybacks in the quarter, repurchasing some 4.9 million shares. Buybacks accelerated after the quarter ended, and T-Mobile spent another $815 million on nearly 6 million shares between Oct. 1 and Oct. 20. That brings its total buybacks to 10.9 million for about $1.5 billion in just six weeks.
Since its acquisition of Sprint closed in 2020, T-Mobile has jumped to a lead in the 5G wireless era. The costly integration phase of the combination is nearly finished. (Barrons)
Tata Chemicals profit jumps 300% to Rs. 628 Cr.
Tata Chemicals reported a 300% increase in consolidated net profit to Rs 628 Cr. ($76M). The net income rose 39.62 per cent to Rs 4,299 crore during the quarter against Rs. 3,079 Cr. last year.
Expenses increased to Rs. 3,623 Cr. from Rs. 2,805 Cr. last year. They reported that their soda ash price continues to remain robust across geographies.
Tata Chemicals EPS has increased to Rs. 24.65 in September 2022 from Rs. 8.68 in September 2021. (TOI, Moneycontrol)
SBI Cards reports thinner margins due to decline in revolver mix and higher cost of funds
SBI Cards reported total income in the second quarter of the current fiscal 28% higher at Rs 3,453 crore compared to Rs 2,695 crore a year ago. They reported a 52% jump in net profit to Rs 526 crore.
Margins fell by 90 basis points QoQ to 12.3% due to decline in revolver mix and higher cost of funds. Total operating cost increased by 33% to Rs 1,834 crore from Rs 1,383 crore in Q2FY22.
Revolver mix stood at 24% compared to 26% in Q1FY23. Revolver is the term used for card holders who roll over part of the bill to the next month, instead of paying off the balance in full. (Moneycontrol)
China’s industrial profits fall faster in Jan-September
Profits at China’s industrial firms declined -2.3% YoY in Jan-September due to COVID-19 curbs and a property crisis that continues to weigh on factory activity. Profits had declined -2.1% in the Jan-August period. The recovery in profits faces challenges as some industrial firms with high costs and declining profits have difficulties in production and operation.
For January-September, profits at state-owned companies rose 3.8% YoY while foreign, Hong Kong, Macau and Taiwan-invested enterprises and private firms both reported profit declines, down 9.3% and 8.1%, respectively. However, for upstream companies, the mining sector reported high profits, with a cumulative year-on-year increase of 76.0%, while profits in the manufacturing sector fell 13.2%. (Reuters)
US durable goods orders below expectations in September
US durable goods orders rose by 0.4% (0.6% E) in September to $274.72B following a 0.2% increase in August. Excluding a jump in orders for transportation equipment, durable goods orders fell by 0.5 percent in September, these ex-transportation orders were expected to increase by 0.2%.
Orders for transportation equipment jumped by 2.1% on the month to reach $95.45bn, led by a 21.9% leap in the volatile civilian aircraft category and a 2.2% rise in those for motor vehicles and parts. core capital goods orders - which exclude defence and civilian aircraft - dropped by 0.7% over the month (0.2% E). (Nasdaq, Sharecast)
US GDP grew by 2.6% last quarter ending 2-straight quarterly declines
US GDP increased at a 2.6% annualized rate in Q3 (2.4% E). This ends two straight quarters of declining GDP which had raised recession concerns. GDP had contracted by a 0.6% pace in the second quarter and 1.6% in the first quarter. The third quarter report included mixed signals on the economy's performance.
Consumer inflation remained close to a four-decade high as broad price pressures persisted. Still, key segments of the economy have remained resilient. The job market cooled some but stayed strong with robust payroll gains and low unemployment.
The increase was largely driven by a shrinking trade deficit and may fail to capture the emerging weak spots. Consumer spending remained largely stable, growing 1.4% compared to 2% in the prior quarter.
Business fixed investment fell at a 4.9% clip. Spending on equipment, a good sign of future growth prospects, surged at a 10.8% pace, but investment in structures and new housing sank as soaring mortgage rates choked off home sales.
The growth in inventories slowed by $48.2 billion and subtracted 0.7 percentage points from headline GDP. Government spending rose at a 2.4% annual clip in the third quarter, partly reflecting funds directed to help Ukraine in its fight against Russia. The rate of inflation rose at an annual 4.2% annual rate, down sharply from 7.3% in the prior quarter. The decline mostly stemmed from a sharp drop in gasoline prices. (Marketwatch)
ECB raises interest rates by 75bps, cuts bank subsidies
The European Central Bank raised interest rates by 75bps to 1.5%, the highest since 2009. ECB also took the first step toward shrinking its 8.8 trillion-euro balance sheet, a move that is likely to raise borrowing costs further and may act as a sort of disguised rate hike.
In a move which may be fought by commercial banks, it curbed the subsidy it provides to such lenders through 2.1 trillion euros worth of ultra-cheap three-year loans called Targeted Longer-Term Refinancing Operations, or TLTROs. The move will boost borrowing costs over the remaining lifetime of the facility, providing lenders an incentive to repay them early.
Banks will now have to pay a rate equaling the deposit rate or the ECB's main refinancing rate from Nov. 23, depending on their lending performance. Both are above current market rates, which should encourage banks to repay the ECB.
ECB president Lagarde argued that the ECB may have to "go beyond" normalisation, a comment suggesting that rates may go to a level that starts restrictive economic activity.
She acknowledged that the risk of an economic contraction was on the rise due to soaring energy prices and higher rates, but said it was up to governments to support their most vulnerable citizens through the crisis.
Lagarde stated that economic activity slowed significantly in the third quarter of the year and we expect a further weakening in the remainder of this year and beginning of next year. She also warned of higher unemployment in the future.
The euro dropped a touch on the ECB's rate announcement, while bond yields dropped sharply and bank shares rose, reinforcing views that markets had been pricing in a more hawkish decision. (Reuters, Euronews)
BoE deputy governor Sam Woods calls for maintaining financial stability in the UK
BoE deputy governor Sam Woods stated that turning London into the “Wild West” to attract more businesses after Brexit could be self-defeating. He stated that maintaining financial stability was key to competitiveness. "The UK's reputation for robust, independent and open regulation is a hard-won asset, and it is a vital part of what makes the City an unparalleled global success story," Woods said.
He also said, "Any attempt to become a global financial centre by competitively de-regulating would be self-defeating by its nature: major international financial institutions want a safe harbour, not a Wild West."
Britain's parliament is approving a new financial services bill giving regulators an extra objective to aid the City's global competitiveness after losing some market share and staff to the European Union since Brexit. (Reuters)
Elon Musk-Twitter deal complete, CEO and CFO fired
Elon Musk completed his takeover of Twitter, after which he fired the company’s CEO, CFO, Legal and Policy Head, and the General Counsel. Musk first agreed to buy Twitter in April for $44 billion, then threatened to walk away from the deal, before reversing course again this month and committing to see through the acquisition.
Musk previously said he would pay for the acquisition mostly with cash, some contributed by co-investors, and $13 billion in debt. Musk also stated that he plans to take Twitter public within 3-5 years after the closing of the deal, although it remains unclear how he plans on revamping the business model.
Discussing his hopes for Twitter on Thursday, Musk sent a tweet to advertisers saying that while he wants the social media giant to become a 'digital town square' it 'obviously cannot become a free-for-all hellscape, where anything can be said with no consequences.' (WSJ)
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