US EARLY MORNING: Solid AAPL earnings not enough to offset AMZN gloom; PCE inflation data ahead

SNAPSHOT: US index futures are trading with losses between 0.6% and 1.5%, with the tech-heavy Nasdaq-100 lagging; Amazon is down over 12% (it has a weighting around 7% in the Nasdaq-100); gains in Apple (weighted at just under 14% of the NDX) and Intel (weighted at around 1%) are not enough to offset the pressure in Amazon. Treasury yields are rising by 2-5bps, with the short-end bearing the brunt of the underperformance. US PCE data is due for release later today (the Q3 GDP report released Thursday provided some signs that PCE inflation may be cooling); that said, while the street looks for US core PCE to rise at a slightly slower rate in September (0.5% M/M expected after the 0.6% in August), the annual rate of core PCE is expected to tick up to 5.2% Y/Y from 4.9%, which may be enough to dash some of the nascent hopes that the Fed will pivot towards a smaller increment of rate hikes next week; currently, the market is expecting 75bps, with only very negligible pricing for a smaller 50bps move. On the inflation front, Germany will release its flash CPI metrics for October later today, and a hot print out of the North Rhine-Westphalia region has put jitters into fixed income markets, while French inflation metrics for October also surprised to the upside. The Dollar Index is firmer by around 0.4%, but this may be buoyed by USDJPY, after the BoJ emphasised that it was not considering a rate hike any time soon, despite the tenor of global central banks moving in a more hawkish direction.

MEGACAP EARNINGS: Apple (AAPL) trades with small gains in the premarket (+0.4%); sales and profits topped expectations, sales of iPhones and iPads were a little below the street's expectations (despite the former posting a record quarter), but Mac had a blowout quarter. Traders have been encouraged by the performance of the megacap, particularly given the disappointment after earnings reports from many of its peers, but analysts are keen to emphasise that AAPL is not representative of the wider trend among US corporates. Indeed, Amazon (AMZN) is over 12% in the red despite quarterly profits coming in above expectations; sales were soft and Q4 revenue guidance -- a proxy for holiday sales -- underwhelmed expectations. Meanwhile, Intel (INTC) has been another highlight, trading with gains of over 5% in the US premarket as profits and sales topped expectations, while its PC-chip sales were a touch better than feared; these factors are clearly offsetting the soft guidance. We recap on the main points below.

DAY AHEAD: Focus will centre around the US PCE inflation data for September and German flash inflation metrics for October. The final University of Michigan data for October are expected to see the main three indices unchanged, but there will be a lot of attention on the inflation expectations measures. Our full day ahead schedule can be accessed here. Today's US earnings docket includes CVX, XOM, NEE, ABBV; full expectations can be accessed here.

CONSUMER CYCLICAL:

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  Amazon.com Inc (AMZN) - Amazon’s quarterly profits topped expectations, though sales were a little soft, while Q4 revenue guidance - a proxy for holiday sales - underwhelmed expectations. Q3 EPS 0.28 (exp. 0.22), Revenue USD 127.1bln (exp. 127.5bln). Q3 revenue breakdown: AWS USD 20.54bln (exp. 21.191bln); Online stores: USD 53.49bln (exp. 54.525bln); Physical stores USD 4.69bln (exp. 4.731bln); Subscription services USD 8.90bln (exp. 9.156bln); Advertising revenue USD 9.55bln (exp. 9.48bln); Third-Party Seller Services USD 28.67bln (exp. 28.429bln); Operating income USD 2.53bln (exp. 3.11bln); Operating margin 2% (exp. 2.48%); Intl oper margin -8.9% (exp. -7.71%); Fulfilment expenses USD 20.58bln (exp. 21.58bln); Seller unit mix 58% (exp. 56.7%). Exec said Amazon was preparing for what could be a slower growth period, and it was being careful on hiring. Exec said it was seeing weakness in Europe relative to the US. CFO said the stronger dollar led to a USD 900mln headwind larger than it had anticipated, and while saw improvement in productivity in Q3, it was not as much as planned. Sees Q4 revenue between USD 140-148bln (exp. 155.150bln).


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  Mohawk Industries, Inc. (MHK) - Q3 adj. EPS 3.34 (exp. 3.35), Q3 revenue USD 2.92bln (exp. 3.0bln). Is taking restructuring actions. Exec said sales were weaker than anticipated, as the retail channel softened across all regions and product categories. The strengthening USD also negatively impacted sales, while operating income declined as lower volumes resulted in higher unabsorbed cost and material, energy and transportation inflation impacted its results. Sees Q4 adj. EPS between 1.40-1.50 (exp. 2.38).

TECH:

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  Apple Inc (AAPL) - Q4 EPS 1.29 (exp. 1.27), Q4 revenue USD 90.15bln (exp. 88.90bln); Q4 iPhone sales USD 42.63bln (exp. 43.21bln), Q4 iPad sales USD 7.17bln (exp. 7.94bln), Q4 Mac sales USD 11.51bln (exp. 9.36bln), Q4 services sales USD 19.19bln (exp. 20.1bln). Geographically, Greater China revenue +6.2% Y/Y at USD 15.47bln (exp. 15.65bln). On digital advertising and gaming, exec said these were areas where Apple saw some softness. Exec said iPhone sales set a record for the quarter, exceeding its forecasts, where it saw an all-time record for the Mac, thanks to the introduction of the new generation MacBook Air and MacBook Pro. CFO said performance was better than it had anticipated, in spite of the fact FX was a significant negative; saw nearly 10ppt Y/Y negative impact from FX. Silicon constraints were not significant in Q4.


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  Intel Corp (INTC) - Intel topped expectations for profits and sales, with PC-chip sales slightly better than expected, but its guidance was disappointing. Q3 adj. EPS 0.59 (exp. 0.32), revenue USD 15.3bln (exp. 15.25bln). Data centre business grew slower than the market. Q4 revenue seen between USD 14-15bln (exp. 16.29bln), and it revised its FY revenue outlook to USD 63-64bln (prev. 65-68bln), reflecting continued macroeconomic headwinds. Is taking steps to ‘optimise’ its headcount in Q4, which includes USD 3bln cost reductions in 2023, growing to USD 8-10bln by 2025; CEO did not specify how many jobs would be cut.


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  Siltronic (SLTCY) - Q3 2022 revenue EUR 474mln (exp. 448mln), EBITDA EUR 170mln (exp. 92mln). FY22 sales view lifted to 26-30%, amid continued positive FX effects.


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  Monolithic Power Systems, Inc. (MPWR) - Q3 diluted EPS 3.53 (exp. 3.50), Q3 revenue USD 495.4mln (exp. 491.2mln). Sees Q4 revenue between USD 450-470mln (exp. 486.1mln).


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  First Solar, Inc. (FSLR) - Q3 EPS -0.46 (exp. -0.27), Q3 revenue USD 628.9mln (exp. 748.6mln); YTD net bookings 43.7 GWDC. Lowers FY22 EPS outlook to -0.65 to -0.35 (exp. -0.10, prev. range -25c to +25c), narrows its FY22 revenue outlook to USD $2.7bln (prev. USD 2.55-2.8bln), and sees FY capex between 0.8-1.0bln; FY22 shipment expected at 9.1GW-9.4GW. Announces USD 270M investment in R&D to advance thin film PV.


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  Deckers Outdoor Corporation (DECK) - Q3 EPS 3.80 (exp. 3.68), Q3 revenue USD 875.6mln (exp. 806mln). Reiterates FY23 EPS outlook of 17.50-18.35 (exp. 18.12), and its FY23 revenue outlook of between USD 3.45-3.50bln (exp. 3.51bln).

CONSUMER STAPLES:

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  Swedish Match (SWMAY) - Q3 revenue SEK 5.7bln (exp. 5.9bln), Q3 operating SEK 2.4bln (exp. 2.4bln), Q3 PBT SEK 1.7bln (exp. 1.8bn). Inflationary pressure on production and other costs contributed to a notable decline in Scandi smokefree business operating profit.


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  Danone (DANOY) - Q3 revenue EUR 7.33bln (exp. 7.00bln), LFL sales +9.5% Y/Y. Volume growth -1.4% Y/Y. Affirms its FY22 operating margin guidance, raises LFL sales revenue guidance to +7-8% (prev. +5-6%).

HEALTH CARE:

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  Bayer (BAYRY) - Bayer’s KERENDIA (finerenone) as part of a comprehensive treatment strategy for patients with chronic kidney disease (CKD) associated with type 2 diabetes.


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  Gilead Sciences Inc (GILD) - Q3 adj. EPS 1.90 (exp. 1.43), Q3 revenue 7.0bln (exp. 6.12bln); Q3 Veklury (Remdesivir) revenues USD 925mln (exp. 318mln). Raises guidance: FY EPS view 6.95-7.15 (exp. 6.54). Analysts noted that much of the guidance raised was premised on Veklury (now sees sales of USD 3.4bln vs 1bln prev.), while non-Veklury sales now seen between USD 22.5-22.8bln (prev. 22-22.5bln).


• 
  GSK (GSK) - EMA validates MAA for cabotegravir LA for PrEP. (Newswires)


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  Sanofi (SNY) - Q3 sales EUR 12.48bln (exp. 12.06bln), net income EUR 3.6bln (exp. 3.3bln), operating income +26% at EUR 4.5bln. FY22 EPS guidance revised up.


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  Vertex Pharmaceuticals Inc (VRTX) - Q3 Adj. EPS 4.01 (exp. 3.64), Q3 revenue USD 2.33bln (exp. 2.23bln); sees FY product revenues between USD 8.8-8.9bln (prev. 8.6-8.8bln, exp. 8.77bln).


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  DexCom, Inc. (DXCM) - Q3 adj. EPS 0.28 (exp. 0.24), Q3 revenue USD 769.6mln (exp. 750.9mln). Narrows FY22 revenue outlook to USD 2.88-2.91bln (exp. 2.9bln, prev. range 2.86-2.91bln).


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  Edwards Lifesciences Corp (EW) - Q3 Adj. EPS 0.61 (exp. 0.62), Q3 revenue USD 1.32bln (exp. 1.33bln); expects Q4 sales to be similar to Q3 as the weaker Euro impacts sales.


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  Bio-Rad Laboratories, Inc. (BIO) - EPS 2.60 (exp. 2.78), Q3 revenue USD 680.8mln (exp. 680mln). Sales of its COVID-related products continued to taper off, as expected; exec said that while customer demand for its core products remained strong, its ability to meet it was affected by the ongoing supply chain constraints which moderated instrument placements. Continues to see FY22 adj. revenue growth (FXN) at high end of a 1-2% range, with COVID-related revenue now expected to be about USD 105mln vs the previous estimate of approximately USD 93mln.

INDUSTRIALS:

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  Airbus (EADSY) - Q3 Adj. EBIT EUR 836mln (exp. 920.5mln), Q3 revenue EUR 13.3bln (prev. 10.5bln Y/Y). Raises FY adj. FCF guidance to about EUR 4.5bln (prev. about EUR 3.5bln). Affirms FY22 EBIT and Commercial Aircraft delivery guidance. CEO notes the supply chain remains fragile; situation is bad but has stopped getting worse; sees very positive signs of growing demand in wide-body jets.


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  L3harris Technologies Inc (LHX) - Q3 EPS 3.26 (exp. 3.39), Revenue 4.25bln (exp. 4.41bln). Exec said that despite its progress and rising demand, the current backdrop remains a challenge and has contributed to a reduction in its financial guidance for the year. Cuts its FY EPS view to 4.25-4.43bln (exp. 13.41), and FY Revenue view to USD 16.8bln (exp. 17.34bln).


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  Volkswagen (VWAGY) - Q3 2022 revenue EUR 70.7bln (exp. 69bln), operating EUR 4.3bln, +65% Y/Y. Quarter was impacted by a non-cash impairment loss of EUR 1.9bln, regarding write down of ARGO AI investment. Confirms main points of outlook provided in July, deliveries to customers from Volkswagen group now expected in-line Y/Y. Expects semiconductor supply to improve further in Q4.


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  Mercedes-Benz (MBG) - Will recall 11.4k cars amid issues that do not allow cars to start.


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  Honda Motor Co Ltd (HMC) - Honda is to cut production at its Suzuka and Saitama plants by around 20% and 40% respectively in October; expects normal operations at both plants by November.


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  Safran (SAFRY) - Q3 revenue EUR 4.85bln (exp. 4.7bln). To repurchase up to 9.4mln of its own shares, representing 2.2% of its capital. FY22 revenue and FCF guidance lifted.

FINANCIALS:

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  NatWest (NWG) - Q3 revenue GBP 3.2bln (exp. 3.2bln), CET1 14.3% (exp. 15.6%), Operating GBP 1.1bln, NIM 2.99%. Notes of an impairment charge of GBP 247mln. No longer expect costs to be broadly stable given increased inflationary pressures. Expects NIM to be above 2.80% for FY22 in the go-forward group.


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  Capital One Financial Corporation (COF) - Q3 EPS 4.20 (exp. 5.04), Q3 revenue USD 8.8bln (exp. 8.6bln), Q3 net interest margin 6.80% (+26bps). Made a provision of USD 1.66bln in the quarter, more than the 1.2bln the street was expecting; execs said this was due to a modestly worse economic outlook.


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  Hartford Financial Services Group, Inc. (HIG) - Q3 core EPS 1.44 (exp. 1.24), Q3 revenue USD 5.58bln (exp. 5.5bln). Raises quarterly dividend +10% to 0.425/shr.

MATERIALS:

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  Glencore (GLNCY) - Expects H2 profits will be hit by weather conditions and supply chain issues. Will stick with Rusal aluminium, reports suggest. Is disappointed with Australia’s NSW independent planning commission’s decision to refuse the application for continued mining at Glendell. YTD copper production -14% Y/Y at 770k/T; Zinc 699k/T, -18% Y/Y; Coal 81.9mln/T, +7% Y/Y. FY22 production guidance has been reduced for some commodities. Currently expects a significantly reduced but still above average H2 contribution from marketing.


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  Holcim (HCMLY) - Q3 sales CHF 8bln, +16%; EBIT CHF 1.5bln. New CHF 2bln buyback. FY22 guidance upgraded, net sales growth to at least +12%. CEO says they are confident in finishing the year around record levels, no signs of a N. America slowdown. Good M&A in the pipeline.


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  Eastman Chemical Company (EMN) - Q3 adj. EPS 2.05 (exp. 2.00), Q3 revenue USD 2.71bln (exp. 2.6bln). Lowers FY22 EPS outlook to 8.05-8.35 (exp. 8.75, prev. range 9.50-10.00), and sees Q4 EPS between 1.10-1.40 (exp. 1.82). Exec said it remained focused on implementing significant price increases to offset higher raw material, energy, distribution, and other costs, which were at a higher level in Q3 than at any other time during this inflationary period. Exec said it had reached a definitive agreement with PepsiCo for its third planned molecular recycling facility. Ahead, it said that challenges to the global economy have increased, including softening end-market demand, accelerated inventory destocking, and the strong USD, and it expects continued high energy, raw material, and distribution costs will limit spread improvement in its specialty businesses.

ENERGY:

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  Equinor (EQNR) - Q3 adj. net USD 6.72bln (exp. 6.44bln). Operating Adj. earnings before tax USD 24.3bln (co. exp. 23.53bln). Sees Organic Capex around USD 8.5bln in 2022. Will initiate its fourth tranche (USD 1.83bln) of its USD 6bln share buyback programme. Raises extraordinary cash dividend to USD 0.70 from USD 0.50. Sees 2022 production growth at around 1% (prev. around 2% above 2021 levels).

COMMUNICATIONS:

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  T-Mobile US Inc (TMUS) - Mixed results, but it posted solid subscriber metrics. Q3 EPS 0.40 (exp. 0.04), Q3 revenue USD 19.48bln (exp. 19.99bln); Q3 total net customers +1.73mln (exp. +1.5mln), Q3 postpaid net customers +1.63mln (exp. +1.5mln), Q3 postpaid phone net customers +854,000 (exp. +714,499); Q3 prepaid net customers +105,000 (exp. +68,893). For the FY, sees postpaid net customers between +6.20 to +6.40mln (exp.+6.3mln), adj. EBITDA seen between USD 26.2-26.4bln (prev. 26-26.3bln, exp. 26.91bln), FCF seen between USD 7.40-7.60bln (prev. 7.30-7.60bln, exp. 7.55bln), CapEx seen between 13.7-13.9bln (prev. 13.5-13.7bln, exp. 13.6bln).


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  Ubisoft (UBSFY) - H1 sales EUR 699.5mln (prev. 718.2mln Y/Y); IFRS operating loss EUR 215.3mln (prev. 25.9mln profit Y/Y); IFRS 15 sales EUR 731.2mln (prev. 751.3mln Y/Y). Stronger than expected Q2 back catalogue driven by Tom Clancy’s Rainbow Six Seige and Assassin’s Creed. Q3 net bookings expected to come in at approx. 830mln.


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  Universal Music Group (UNVGY) - Q3 revenue EUR 2.6bln (exp. 2.5bln), Q3 adj. EBITDA 539mln (exp. 514mln).


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  Pinterest (PINS) - Q3 adj. EPS 0.11 (exp. 0.6), Q3 revenue 0.684bln (exp. 0.669bln), Q3 MAUs 445mln (exp. 440mln); sees Q4 revenue growth of around 5%.


• 
  Arch Capital Group (ACGL), Twitter (TWTR) - Arch Capital Group is poised to replace Twitter (TWTR) in the S&P 500, according to Bloomberg. Twitter will be delisted on Friday as Elon Musk closes his buyout of the social media company; Musk intends to take TWTR public again within 5 years.

EUROPE:

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  EU Stocks - France and Germany want to negotiate with Washington regarding ‘unfair competition’, but stand ready to hit back if necessary, according to Politico.


• 
  UK Stocks - UK PM Sunak reportedly explores tax rises and spending cuts of up to GBP 50bln, according to FT.

28 Oct 2022 - 09:23- Research Sheet- Source: Newsquawk