Quarterly numbers of the week: July 24-28
Hold on tight because quarterly season is nearing its peak and the calendar is packed with big names to watch out for.
Big Tech’s quarterly season kicks off with earnings from Microsoft, Alphabet and Meta. The telecom industry has been in the spotlight lately and will continue to be so with results from Verizon and AT&T, as well as T-Mobile and Comcast. Payments giants Visa and Mastercard, oil giants Exxon Mobil and Chevron, travel stocks Southwest Airlines and Royal Caribbean, automakers General Motors and Ford, and apps Spotify and Snap are among the other topics of interest this week. Coca-Cola, McDonalds, Boeing and Intel are also among the companies that will file a report.
Big Tech Stocks: Preview Q2 Results
Big Tech has outperformed the broader market and has been the driving force behind the rally in US indices this year. It looks like they could be the hopefuls once again considering that Microsoft (Tuesday, July 25), Alphabet (Tuesday 25 July), Meta (Wednesday, July 26), Amazon and Apple will report earnings gains this season, while the broader S&P 500 will post its sharpest earnings decline in three years! Wall Street has incorrectly predicted that earnings have bottomed out in recent quarters, but now lighter comparative numbers are coming into play, making that less likely this time around. Aggressive cost cutting, including a spate of layoffs, is beginning to pay off, and many companies will grow revenue faster than cost for the first time in years.
None of the five companies have experienced a major valuation boost from artificial intelligence, which could be a major catalyst if they can monetize their efforts quickly enough, with Microsoft appearing to have an early lead. Still, the jump in valuations in 2023 means multiples are much higher today than they were at the start of the year. These will be put to the test this earnings season. It doesn’t take much to trigger a pullback, and it will take a significant jump in earnings or a significantly rosier outlook to keep the momentum going. Still, Big Tech has what it takes to continue to outperform, even as higher multiples will make gains more difficult in the second half of the year.
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Exxon Mobil (07/28), Chevron (07/28) and Shell (07/27): Preview of Q2 results
Oil giants’ profits peaked last year as the war in Ukraine pushed up oil prices, but the cost of a barrel has fallen from peaking just over a year ago. Refining profit margins have also followed this trend. The industry remains cash plentiful but may need to use up its bank balances to fund buybacks, even if this is unsustainable over the longer term. The pace of buybacks is likely to be maintained this quarter, but signs of a slowdown are not welcome.
At Exxon Mobil, adjusted earnings per share are expected to more than halve year over year to $2.00. We should also learn more about Denbury’s recent acquisition, which will help the company expand its lower-carbon projects and acquire the largest CO2 pipeline network in the US and 10 sequestration facilities.
At Chevron, adjusted earnings per share are also expected to halve to $2.91 in the quarter.
Shell’s adjusted earnings, its key metric, are expected to fall 36% year over year to $2.4 billion and EPS is expected to fall 45%. A key focus will be on the company’s clean energy ambitions and what it intends to do with its renewable energy business as it begins to shift its investments back into the oil and gas sector to close the valuation gap with its U.S. rivals.
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Verizon (06/25) and AT&T (06/26): Preview of Q2 results
US telecom stocks were rocked this month as investors worried about old, lead-lined cable networks damaging the environment and potentially exposing them to large liabilities. AT&T fell to its lowest level in three decades, while Verizon plunged to levels last seen in 2010, but both have since recovered. AT&T has already said less than 10% of its network will be affected, dismissing fears.
Barclays thinks the sell-off was overdone, which appears to have been the case as it benefits value investors. However, others see a significant risk. Bloomberg Intelligence has calculated that the industry faces a $43 billion bill to refurbish the cable and said court clarification could take up to five years, suggesting the backlog could remain for some time.
AT&T is expected to report a 7.6% year-over-year decline in adjusted earnings per share to $0.60 in the second quarter.
Verizon is expected to report an 11.1% decline in adjusted earnings per share to $1.16 year-over-year.
Visa (07/25) and Mastercard (07/27): Q2/Q3 preview of the results
Consumers’ determination to keep traveling regardless of the economic climate should continue to boost cross-border transactions and counteract the slowdown in US spending. Both Visa and Mastercard have retreated from their highs of late, with both trading at a premium to smaller peers and above their 5-year moving averages.
Visa’s third-quarter revenue is expected to increase 10.8% year over year to $8.1 billion, which would mark a new record, and adjusted earnings per share are expected to rise 6.7% to $2.11. Payment volume to grow by 7%
Mastercard is expected to see faster growth, with consensus pointing to a 12.2% increase in revenue to $6.2 billion and a 10.7% increase in adjusted earnings per share to $2.83. Payment volume could also be higher than its rival at more than 11%.
Intel stock (07/27): Preview of the Q2 results
Intel’s financial performance in 2023 was shocking. Between January and March, the company reported its first quarterly loss in seven years — the largest quarterly loss in the company’s history. That trend is likely to continue this quarter, when Intel is expected to report a 21.5% year-over-year revenue decline to $12.0 billion and an adjusted loss per share of $0.04.
Intel is in the midst of a turnaround, but it’s going to be a very long road. The plan is to rely more on foundries that can make advanced chips for other companies to compete with companies like TSMC, but the company doesn’t think it can catch up by 2026. In the meantime, however, the situation remains difficult. Demand for the chips used in computers remains poor as appetites for devices remain subdued after booming during the pandemic and sales of chips used in servers and data centers are also in free fall. Markets are currently expecting earnings to pick up again in Q3 and sales to pick up again from Q4 so the outlook will have a big impact on how markets take the update.
Intel stock is up 26% year-to-date as investors believed the company had bottomed out after its 2022 slump. That may be partly because Intel trades at 31.6 times forward earnings, which is a 12% premium to the industry average — all the more significant given that this is being boosted by NVIDIA’s high AI-driven valuation.
Next week, the spin-off company Mobileye will also present its results. Although it is an independent and separately public company, Intel is still a controlling shareholder and Mobileye contributes to the company’s profits. Mobileye has been a bright spot for Intel lately.
Snap stock (07/25): Preview of Q2 results
Snap is up over 46% since the beginning of 2023, and the stock hit a yearly high earlier in the month. We’ve already seen a setback since then, but the valuation could prove high and could be tested this week. Revenue is expected to decline 5.3% year over year to $1.05 billion. Snap is expected to have over 395 million daily active users on its platform by the end of June, up 14% from a year ago and up from the 383 million it had at the end of March. However, revenue per user remains under pressure due to weaker advertising conditions. Snap is primarily geared towards small and medium-sized businesses, which could become more vulnerable as a result of the increasingly difficult economic climate. Keep an eye on ad prices as there are some green shoots here, although a recovery is unlikely before the end of the year.
Snap is expected to report an adjusted EBITDA loss of $61.7 million, down from a $7 million profit a year earlier. That would be the first quarterly loss in almost two years! The company will also use cash. That’s worrying given the comps are easy after the pressure we put on financials in 2022. The outlook points to further losses and sales declines in the third quarter, with signs of a partial recovery in the final three months of the year.
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