Earnings Season Key Takeaways

As of July 26, we have seen 220 of the 500 stocks included within the S&P 500 having already reported their CQ2 earnings. So far 77% of them have posted better-than-expected (Earnings Per Share) EPS, while in the previous quarter 75% of the companies have beaten consensus estimates and an overall EPS surprise of 13.8%.

In total 42.3% of companies have shown double-digit or higher year-on-year percentage growth. Sectors-wise Real Estates, Financials and Healthcare lead the way with 22.7%, 8.4% and 4.9% EPS growth, respectively.

Amazon has been one of the big names that reported this week. The American e-commerce company posted disappointing earnings for Q2 2019. Total Revenue came in line with expectation. The US, while AWS edged $140m below consensus at $8.51bn. Total Revenue in North America beat the market consensus at $37.3bn. Operating income-wise, the company expanded its operational efficiency by 3.4% YoY to $3.08bn and in line with mid-point guidance at $2.6bn-$3.6bn, while missing consensus at $3.7bn. Amazon expects Q3 revenue of $66bn to $70bn and operating income of $2.1bn-$3.1bn vs consensus at $4.4bn. Gross Margin expanded 60bps, while EBIT (Earnings Before Income and Tax) margin contracting by 70bps.

British American Tobacco reported a solid beat on EPS for its H1 2019. The cigarettes maker is the second biggest player in the market and they are on track to deliver high single-digit adjusted earnings growth for the full year. The profit boost from vaping sales which more-than-offset the expected decline in traditional cigarettes volume. Adjusted operating profit for the period rallied by 5.9% at constant rates to £5.2bn, while revenue rose 4.6% to £12bn. The stock is currently up 6% and offers one of the highest dividends yields at 7%.

Apple confirmed its intention to acquire the Intel smartphone modem business for $1bn, as a long-term strategy to own the core tech that directly goes into their products. The iPhone decline softened from 17% to 12%, while Apple Pay and App Store posted triple-digit growth. App Store revenue growth was up sequentially, and third-party subscription edged up 40%. Wearables revenue also behaved well as rose by 50% YoY with Apple Watch and AirPods hitting new sales records. The stock rallied 4% post Q2 earnings call.

BMW AG announced the implementation of a restructuring program which implies cost-cutting in order to save profits and enhance their electric vehicles investments. Global trade tensions and stringent emissions regulations have been squeezing the autos sector for a while and the German automakers are not immune. BMW quarterly EBIT tumbled 20% YoY to €2.2bn as CAPEX increased by 39% pushed by higher investments especially in battery-powered but also conventional vehicles.

Siemens reported numbers concerned the markets during its latest earnings conference call. The German conglomerate posted a fall in profit of 6% to €1.14bn, mainly due to its digital industries and power & gas businesses. The industrial group confirmed its full-year guidance outlook despite the multiple headwinds, as orders came out strong (8% growth) and revenue jumped by 4%. Renewable energy and mobility business continue to be their strong points. With the markets factoring all of this in the stock is down 4.5%.

Next week our macro spotlight will be on?

Monday:

• Market Service PMI - UK
• ISM Non-Manufacturing PMI – US
• All Car Sales – US
• Caixin Service PMI – China
• Consumer Confidence – Switzerland
• Market Service PMI – Italy
• Market Service PMI - France

Tuesday:

• UK Retail Sales
• German Industrial Orders

Wednesday:

• Ivey PMI – Canada
• German Industrial Output

Thursday:

• RICS Housing Survey - UK
• Trade Balance - China
• New House

Friday:

• Japan GDP
• China CPI
• Manufacturing Output – UK
• UK GDP
• Unemployment Rate – Canada
• Building Permits – Canada
• German/Italian Trade Balance
• French Industrial Output

 Chart of the Week

 

Fact of the Week

Royal Dutch Shell Q2 profit plummeted to a 30-month low due to deflating oil and natural gas prices along with tightening refining margins. Shell joins Total and Equinor in reporting more-than-expected weak results for the quarter.

 

Quote of the Week

"If the US and China reach a trade deal they may not need to cut more -- and they likely wouldn't have cut if not for trade tension."

Jerome Powell, Fed Chairman, on US-China trade war and any potential future cut