Corporate earnings are still supporting global equity markets. For the week, the Dow and Nasdaq notched up their seventh straight week of gains, and the S&P 500 also ended with a small weekly gain.
The 10-year Treasury yield closed the week at 2.63%, while March WTI crude oil closed 0.2% higher at $52.72/bbl. Nice tailwind for overseas investors with AUD falling 2.3% to $0.7091.
U.S corporate earnings results
The U.S. corporate earnings season hits the mid-point this week, with around 234 companies in the S&P 500 so far reporting results. Collective earnings per share have grown by around 18% compared to the same period last year, just ahead of the 15.5% estimate for the entire reporting season, according to Refinitiv data.
71% of companies have additionally reported earnings that have beaten analysts' estimates, a figure that is firmly ahead of the long-term average of 64%.
Alphabet (NASDAQ: GOOGL)
Alphabet Q4 GAAP EPS of $12.77 beat by $1.91. Revenue of $39.28B (+21.5% Y/Y) ahead by $380M. Revenue breakdown: Google Properties, $27.02B (consensus: $26.75B); Google Network Members' Properties, $5.6B (consensus: $5.56B); Google Other, $6.5B (consensus: $6.43B); Other Bets, $154M (consensus: $187.4M).Traffic acquisition costs or TAC were $7.4B (consensus: $7.62B; up from $6.58B in Q3) or 23% of revenue, down a percentage point from last year's quarter. Google Properties paid clicks grew 86% Y/Y and cost per clicks fell 29%. Other key metrics: Operating income, $8.2B (consensus: $8.61B); Operating margin, 21% (consensus: 22.1%).
Disney (NYSE: DIS)
Walt Disney Q1 Non-GAAP EPS of $1.84 beat by $0.30; GAAP EPS of $1.86 beat by $0.34. Revenue of $15.3B (-0.3% Y/Y) ahead by $250M. Fiscal Q1 earnings topped expectations on top and bottom lines thanks to continued strength in media networks and theme parks. Revenues were essentially flat Y/Y as gains in those areas were offset by lower takes from the film studio and a slightly below flat result in the newly organised direct-to-consumer unit. Segment operating income, meanwhile, fell 8% and net income dropped 37%. Excluding some items affecting comparability, mainly prior-year tax benefits, EPS dropped just 3% Y/Y. Revenue by segment: Media Networks, $5.92B (up 7%); Parks, Experiences and Consumer Products, $6.82B (up 5%); Studio Entertainment, $1.82B (down 27%); Direct-to-Consumer and International, $918M (down 1%). Operating income by segment: Media Networks, $1.33B (up 7%); Parks, Experiences and Consumer Products, $2.15B (up 10%); Studio Entertainment, $309M (down 63%); Direct-to-Consumer and International, -$136M (down from a previous -$42M).
Microchip (NASDAQ: MCHP)
Microchip Technology: Q3 Non-GAAP EPS of $1.66 beat by $0.10; GAAP EPS of $0.20 misses by $0.33. Revenue of $1.42B (+42.8% Y/Y) beat by $20M. Q4 guidance includes in-line revenue from $1.251B to $1.403B (consensus: $1.39B) with downside EPS from $1.26 to $1.53 (consensus: $1.55). The company says it continues to be cautious for the March quarter largely due to the US-China trade tensions. MCHP notes that inventory remained stable in December after September's reduction. Key metrics: Microcontroller revenue, $748.4M (consensus: $751.6M); Analog & Interface revenue, $411.8M (consensus: $406.2M); Non-GAAP gross margin, 62.2% (consensus: 61.3%); Non-GAAP operating margin, 37.4% (consensus: 36.1%).
Viacom (NASDAQ: VIA)
Viacom Q1 Non-GAAP EPS of $1.12 beat by $0.09; GAAP EPS of $0.79 misses by $0.24. Revenue of $3.09B (+0.7% Y/Y) misses by $30M. Revenue breakdown: Media Networks, $2.5B (consensus: $2.51B); Filmed Entertainment, $621M (consensus: $638.4M); Consumer Products and Live Events, $99M (-12% Y/Y). In Media Networks, worldwide advertising dropped 6% in-line with consensus while affiliate grew 3% (consensus: 1.5%) as domestic strength offset international weakness. Operating income: Media Networks, $913M (consensus: $867.8M); Filmed Entertainment, -$90M (consensus: -$109M).
BP (LONDON: BP)
BP Q4 Non-GAAP EPS of $1.04 beat by $0.20; GAAP EPS of $0.81 beat by $0.23. Revenue of $75.7B (+11.6% Y/Y) was ahead of consensus by a significant $1.3B. Q4 earnings easily topped analyst expectations amid a strong operating performance across all its business segments. BP says its Q4 replacement cost profit totalled $2.72B, vs. a replacement cost loss of $583M in the year-earlier quarter, with underlying replacement cost profit rising to $3.48B from $2.11B in Q4 2017. For the full year, BP’s replacement-cost profit totalled $9.9B vs. $2.8 billion in 2017 and return on average capital employed was 11.2% last year, up from 5.8% in 2017. Oil and gas production rose 8.2% Y/Y to 3.7M boe/day in 2018, its highest output since 2010, and the company says it expect production to increase in 2019 due to major projects. BP says it divested $3.5B worth of assets during 2018 and plans to complete more than $10B worth of divestments over the next two years. Gearing, the ratio between debt and BP’s market value, rose to 30.3% at the end of 2018 from 27.4% a year earlier.
Skyworks (NASDAQ: SWKS)
Skyworks Solutions Q1 Non-GAAP EPS of $1.83 was in-line; GAAP EPS of $1.60 beat by $0.01. Revenue of $972M (-7.4% Y/Y) in-line. F2Q19 (Mar-Q) guidance was lowered below consensus estimates on weaker smartphone demand but will be partially offset by continued strength in Y/Y growth in Broad Markets. Generally, analysts believe that Skyworks is making progress on its homegrown BAW technology that, along with accelerated content uplift in conjunction with 5G, will help the company return to Y/Y revenue growth in 2020. The board also approved a new $2B share repurchase program, which entirely replaces the $1B program announced in early 2018 that had about $129M remaining. The new program expires January 30, 2021.
Dassault Systemes SA (EURONEXT PARIS: DSY)
Dassault Systemes Q4 Non-GAAP EPS of €1.10; GAAP EPS of €0.78. Revenue of €1.05B (+15.0% Y/Y) DSY posted a 1%/3% beat on rev/EPS in C3Q18 as strength in services and favourable FX offset softer than expected new license rev. The firm maintained its CY18 constant currency rev growth guidance. In the earnings call, the company focused on 3D Experience software revenue (up 14% in C3Q18 after +22% in C1H18) and flagged the breadth of demand across regions / industries.
Fox (NASDAQ: FOXA)
Twenty-First Century Fox topped expectations with profits for its fiscal Q2, led by strong revenue gains in its TV segment and profit boosts from cable and its studio films. GAAP EPS of $5.80 was up from $0.99 a year ago and benefited to the tune of $5.62/share from selling the rest of the company's stake in Sky to Comcast. Segment OIBDA of $1.57B was up 9% Y/Y, driven by higher contributions from Cable and the film studio, on revenues that grew 5.7%. Foreign exchange had a negative impact of 7% on OIBDA growth. Revenue by segment: Cable Network Programming, $4.56B (up 3.6%); Television, $2.15B (up 18.9%); Filmed Entertainment, $2.16B (down 3.9%); other, corporate and eliminations, -$370M.OIBDA by segment: Cable Network Programming, $1.45B (up 6.5%); Television, -$22M (vs. prior $56M gain); Filmed entertainment, $193M (up 47.3%).
GM (NYSE: GM)
General Motors Q4 Non-GAAP EPS of $1.43 ahead by $0.19; GAAP EPS of $1.40 beat by $0.18. Revenue of $38.4B (+1.9% Y/Y) beat by $2.4B. The company reports EBIT-adj of $2.8B, driven higher by a $3.0B EBIT-adj tally for the North America business. International EBIT-adj was flat during the quarter and GM Cruise generated a small loss as anticipated. Auto operating cash flow during the quarter was $4.2B vs. $4.4B a year ago.
Capri Holdings (NYSE: CPRI)
Capri Holdings Q3 Non-GAAP EPS of $1.76 beat by $0.18; GAAP EPS of $1.33 missed by $0.22. Revenue of $1.44B (flat Y/Y) missed by $20M. Michael Kors retail revenue fell 1.0% to $838M, off a comparable sales decline of 2.4%. Michael Kors wholesale revenue declined 8.3% to $395M. Jimmy Choo chipped in with revenue of $162M and operating income of $16.4M. Capri's gross margin was down 70 bps to 60.8% of sales during the quarter vs. 61.3% consensus estimate. Looking ahead, Capri expects Q4 revenue of $1.33B vs. $1.37B consensus and EPS of $0.56 to $0.61 vs. $.78 consensus. FY19 revenue of $5.2B is seen vs. $5.13B consensus. FY20 revenue of $6.1B is anticipated vs. $6.1B consensus and FY20 EPS of $4.95 vs. $4.88 consensus.
Spotify (NYSE: SPOT)
Spotify generated Q4 GAAP EPS of €0.36 and revenue of €1.5B (+30.4% Y/Y) FY19 guidance has in-line revenue from €6.35-6.8B (consensus: €6.7B) with MAUs of 245M to 265M. Q4 MAUs totalled 207M (+29% Y/Y), beating the 203M consensus. Premium revenue narrowly missed estimates with a reported €1.32B compared to the €1.33B consensus. Subscribers totalled 96M (consensus: 95M) and ARPU came in at €4.89 (consensus €4.86). Ad-supported revenue beat with €175M in revenue (consensus: €169.5M) and 116M MAUs (consensus: $110.2M). Acquisitions: Spotify will purchase podcasting firms Gimlet Media and Anchor for undisclosed terms. A Recode report put the Gimlet price at $200M. SPOT plans to spend a total of $400M to $500M on acquisitions in 2019.
Carlyle Group (NASDAQ: CG)
Carlyle Q4 GAAP EPS of -$0.15 was above consensus by $0.48. Revenue of $151.7M (-84.8% Y/Y) missed by $85.05M. Q4 GAAP loss per common unit of 15 cents compares with earnings per unit of 11 cents in Q3 and 53 cents in the year-ago quarter. Total assets under management was $216.5B, up 2% from Q3 and up 11% from a year ago; fee-earning assets under management was $159.6B, up 8% Q/Q and up 28% Y/Y. Q4 total revenue of $151.7M includes an investment loss (including performance allocations) of $314.9M. This compares with total revenue of $679.1M in Q3 and $1.01B in Q4 2017; Fund management fees of $377.4M rose from $328.8M in Q3 and $279.3M in Q4 2017. Carlyle also raised $7.1B of new capital in Q4.
Lions Gate (NYSE: LGF.A)
Lions Gate Entertainment Q3 Non-GAAP EPS of $0.35 missed by $0.02; Revenue of $933.2M (-18.1% Y/Y) missed by $76.8M. Starz, however, ended the quarter up 1.1M subscribers to 25.1M domestic subs overall. New subs continue to be driven by its partnership with Amazon, as well as the Hulu launch in late October. Revenue by segment: Media Networks, $366.8M (up 3.8%); Motion Picture, $362.6M (down 32.7%); Television Production, $216.5M (down 18.7%). While the reported numbers are a bit ordinary, analysts are encouraged by the potential for better performance from Motion Pictures under new management and a bigger F20 slate, a TV Production business that has good momentum with a strong pipeline including a recent pilot order from NBCU, and ongoing healthy OTT growth at Starz. Lionsgate remains one of the last independent studios in an industry which has undergone notable consolation.
Tapestry (NYSE: TPR)
Tapestry Q2 Non-GAAP EPS of $1.07 missed by $0.04; GAAP EPS of $0.88 missed by $0.22. Revenue of $1.8B (+0.6% Y/Y) was under consensus by some $60M. Operating income during FQ2 came in at $402M vs. a $427M consensus as Tapestry's management pointed to an increasingly volatile macroeconomic and geopolitical backdrop. The company guides for FY19 revenue growth at a low to mid- single-digit pace and FY19 EPS of $2.55 to $2.60 vs. $2.78 consensus.
Twitter (NYSE: TWTR)
Twitter Q4 Non-GAAP EPS of $0.31 beat by $0.06; GAAP EPS of $0.33 beat by $0.18. Revenue of $909M (+24.3% Y/Y) was ahead by $42.28M. Q1 guidance has revenue of $715M to $775M (consensus: $766.1M), with operating income of $5M to $35M. FY19 capex is expected to total $550M to $600M. Q4 MAUs totalled 321M (bit below consensus of 323.8M) with 255M International and 66M U.S. users. After this quarter, Twitter will only provide monetisable DAU data. Average DAUs were 126M (+9% Y/Y) with 99M from International and 27M from the United States. Revenue breakdown: Ad, $791M (consensus: $756.8M); Data Licensing, $118M (consensus: $108M).
Zayo (NYSE: ZAYO)
Zayo Q2 GAAP EPS of $0.13 was essentially in-line. Revenue of $639.1M (-2.1% Y/Y) missed by a scant $2.92M. However, Zayo did boost profits $8.1M sequentially, and more than doubled them Y/Y. Net income hit $30.2M despite revenues that dipped 2%, on substantially lower depreciation and amortisation. Operating income rose to $144.7M from $103.2M. EBITDA came to $321.2M. Revenue breakout: Communications Infrastructure, $542.4M; Allstream, $96.7M. Profit breakout: Communications Infrastructure, $36.1M; Allstream, -$5.9M. Adjusted unlevered free cash flow was $132.3M; at year-end, the company had $176.4M in cash and $231.8M available in revolving credit. Company also commented that the proposed spin- off of “Enterprise Co” announced in Q$ 2018 was now on hold.
The week ahead
The calendar is normal including some catching up from the shutdown. Main features are inflation data, both wholesale and retail, although little change is expected.
Chart of the week
China’s share of global GDP has surged from ~3% to 17% over the past two decades. China has also helped lift other emerging market economies - their share of global activity rising from 16% in 2000 to 23% in 2017, JPM calculated. The US lost some ground but the rise of emerging markets has largely been at the expense of other developed markets like Japan.
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