US EARLY MORNING: Tech hit after disappointing updates from MSFT and GOOG; both provide a negative read-through for META earnings later today, analysts say

SNAPSHOT: US equity futures are lower, with the tech-heavy Nasdaq-100 leading the downside after disappointing earnings from Microsoft (MSFT) and Google (GOOG), while the outlook from Texas Instruments (TXN) missed the consensus expectations, and South Korean chipmaker SK Hynix also warned on chip demand. Amid the cautious risk-set up, Treasury yields are lower by 3-8bps, with much of the rally concentrated in the long-end. The Dollar Index is lower, perhaps has pricing for the Fed trajectory of rate hikes narrows a touch (heading into this week, money markets were pricing terminal above 5%, but that has fallen to around 4.89%); the AUD may also be contributing to the buck’s downside, after hotter than expected inflation data overnight saw traders begin pricing in a more hawkish course for the RBA. The GBP’s recovery also continues as new PM Sunak gets started; the focus now is whether the fiscal update, originally planned for Monday, still takes place (there are some reports suggesting it could be delayed). In China, the currency’s gains are said to have been supported by state bank buying. Meanwhile, crude futures are off by 40-60c after API data reportedly showed a larger than expected build in weekly crude stocks; products were mixed, with gasoline posting a larger than expected draw, although distillate stockpiles saw a surprise build.

BIG TECH HIT: Although index futures have come off lows, the tech-heavy Nasdaq-100 is still around 2% in the red, dragged lower by disappointing earnings updates from Alphabet (GOOG) and Microsoft (MSFT). The former topped top- and bottom-line estimates, although advertising revenues disappointed, exacerbating recent concerns around ad names, while execs are expecting larger headwinds from FX ahead. Microsoft, meanwhile, posted weak cloud revenues and noted both the slowdown in PC segments as well as in ads. Analysts have been cutting price targets of both names in wake of the earnings report. RBC said that while the near-term could prove challenging for MSFT, the challenges that it faces are likely not unique to it. On GOOG, RBC has lowered its price targets to below the street due to greater FX impact and slightly slower ad growth, only partially offset by higher Cloud estimates. The bank also says that there is an 'obviously negative' read through for Meta Platforms (META) earnings, which are due to be published after the closing bell today. Meanwhile, the world's second-largest memory chipmaker SK Hynix (HXSCL) warned of an "unprecedented deterioration" in memory chip demand, as well as deepening fears of global recession; an exec said it was hoping that the market will stabilise to some extent by H2 2023, but does not rule out the possibility of a longer downturn.

DAY AHEAD: It’s another busy day for earnings, with focus on TMO, ADP, BMY, GD, BA, META, F, NOW in the US (earnings expectations can be accessed here). Data-wise, the docket is a little thinner today, but there will be attention on US MBA mortgage applications data, given other housing metrics are now beginning to show some of the challenges within the sector (yesterday’s Case-Shiller and FHFA are the latest examples); New home sales data for September will also be eyed. US advanced goods trade balance are also due for release. On the central banks front, the BoC is expected to lift rates by 75bps later today (our preview can be accessed here); traders will also begin shifting focus to Thursday’s ECB meeting (our preview is here). Elsewhere, energy inventory data from the DoE will be released in the European afternoon. Our full Day Ahead schedule can be accessed here.

TECH:

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  Alphabet Inc (GOOGL) - Reported top and bottom-line misses, as well as softer ads revenue. Q3 EPS 1.06 (exp. 1.25), Revenue 69.1bln (exp. 70.61bln); Google advertising revenue 54.48bln (exp. 56.98mln); Google Cloud revenue USD 6.87bln (exp. 6.61bln); Operating income 17.14bln (exp. 19.71bln); Operating margin 25% (exp. 27.9%); Capital expenditure 7.28bln (exp. 7.65bln). Chief Business Officer said financial services advertisers, including crypto, pulled back on ads spending in the quarter. CEO said Q4 headcount will be significantly lower than Q3, will focus on moderating operating expense growth. Headcount additions in Q4 will slow to less than half of the additions in Q3. On FX impact, CFO expects even larger headwinds in Q4, and expects that strong performance last year will continue to weigh on ad revenue growth in Q4. Separately, the DoJ said Google had entered into a stipulated agreement to improve its legal process compliance programme; Google admitted to loss of data responsive to 2016 search warrant and agreed to programme enhancements, reporting obligations, and a first-of-its-kind independent compliance professional.


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  Microsoft Corp (MSFT) - Slipped on weaker than expected cloud revenue and soft guidance, while also noting slowing PC and ad demand. Q1 EPS 2.35 (exp. 2.30), Revenue 50.1bln (exp. 49.61bln). Productivity and Business Processes revenue USD 16.47bln (exp. 16.11bln); Intelligent Cloud revenue USD 20.33bln (exp. 20.31bln); More Personal Computing revenue USD 13.33bln (exp. 13.08bln); Operating income USD 21.52bln (exp. 21.29bln); Capital expenditure USD 6.28bln (exp. 6.52bln). Exec said Q1 PC sales were worse than expected. CEO expects FY Commercial Business growth of 20% ex-currency, says Consumer Business is "managing through cyclical trends". Sees Q2 Intelligent Cloud Revenue between USD 21.25-21.55bln (exp. 22.01bln); More Personal Computing Revenue seen between USD 14.5-14.9bln (exp. 16.92bln); Productivity and Business Processes Revenue seen between USD 16.6-16.9bln (exp. 17.19bln). FY23 revenue to have a negative FX impact of 5%; Q1 revenue to be hit by 5% in the quarter. MSFT continues to expect double-digit growth to FY revenue. Sees weaker PC and ad demand to continue into Q2.


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  SK Hynix (HXSCL) - The world's second-largest memory chipmaker reported Q3 revenue KRW 10.98tln (exp. 11.1tln), Q3 Operating Profit KRW 1.66tln (exp. 1.87tln), Q3 Net Profit KRW 1.1tln (exp. 1.37tln), Q3 average DRAM and NAND selling prices -20%. Cuts FY23 investment spending by over 50% vs 2022 levels. Warns of an "unprecedented deterioration" in memory chip demand, as well as deepening fears of global recession. Exec said it was hoping that the market will stabilise to some extent by H2 2023, but does not rule out the possibility of a longer downturn.


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  Texas Instruments Inc (TXN) - Q3 EPS 2.47 (exp. 2.39), Revenue 5.24bln (exp. 5.13bln); Analog revenue 3.99bln (exp. 3.95bln); Embedded processing revenue 821mln (exp. 793.4mln); Other revenue 427mln (exp. 367.8mln); Capital expenditure 790mln (exp. 741.5mln). Sees Q4 revenue 4.40bln-4.80bln (exp. 4.93bln), and sees Q4 EPS 1.83-2.11 (exp. 2.23). Expects most of its end markets to decline, potentially with the exception of the automotive market; doesn't expect any meaningful impact on revenues from the new US chip rules.


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  Intel's (INTC) - Mobileye prices IPO at USD 21/shr, raises USD 861mln, according to Reuters' sources.


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  F5 Networks, Inc. (FFIV) - Q4 adj. EPS 2.62 (exp. 2.52), Q4 revenue USD 700mln (exp. 692mln). Sees Q1 adj. EPS between 2.25-2.37 (exp. 2.58), and sees Q1 revenue between 690-710mln (exp. 694.6mln). FY23 revenue growth seen between +9-11% (exp. 2.9bln); exec said that over the next year, business is likely to benefit from tailwinds as a result of improving component availability and to bear some weight from macroeconomic headwinds.


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  Juniper Networks (JNPR) - Prelim. Q3 adj. EPS 0.58 (exp. 0.50), prelim. Q3 revenue USD 1.415bln (exp. 1.35bln). Sees Q4 adj. EPS 0.64 +/- 0.05 (exp. 0.62), and sees Q4 revenue around 1.475bln (exp. 1.42bln).


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  Teradyne, Inc. (TER) - Q3 EPS 1.15 (exp. 1.04), Q3 revenue USD 827.1mln (exp. 801mln). Sees Q4 EPS between 0.62-0.86 (exp. 0.72), and sees Q4 revenue between USD 670-750mln (exp. 694mln). Exec said some supply line constraints eased through the quarter enabling greater than expected shipments to memory, automotive and industrial semiconductor test customers; the short-term outlook in semiconductor test remains mixed with automotive and industrial demand relatively strong while muted compute and mobility demand persists. In industrial automation, slowing manufacturing activity and FX headwinds continue to impact its FY growth outlook.

COMMUNICATIONS:

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  Spotify Technology SA (SPOT) - Q3 EPS -0.99 (exp. -0.82), Revenue 3.04bln (exp. 3.02bln), MAUs 456mln (exp. 451mln), premium subscribers 195mln (exp. 194mln). Q4 Revenue view USD 3.2bln (exp. 3.21bln), Q4 MAU view 479mln (exp. 471mln), Q4 premium subs view 202mln (exp. 202.8mln), Q4 Op. loss view 300mln (exp. loss of 171mln). Exec said that a US price hike was something the company would like to do.


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  WPP (WPP LN) - Q3 revenue +10.3% to 3.57bln (exp. 3.6bln), up 2.7% LFL. LFL revenue pass-through costs growth raised to 6.5-7.0% (prev. 6-7%). CEO says they are entering Q4 with confidence.  Now sees headline operating margins up 30-50bps (prev. saw up around 50bps).

FINANCIALS:

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  Visa Inc (V) - Q4 Adj. EPS 1.93 (exp. 1.86), Revenue 7.8bln (exp. 7.56bln). Raises dividend 20% to USD 0.45/shr, announces USD 12bln buyback programme. Cross border volume +36% in the quarter on constant currency basis (exp. 35.8%). Payments volume at constant currency +10% (exp. 11.1%). Total processed transactions +12% to 50.9bln. Saw a continuation of many of the spending trends throughout 2022. Exec said strong USD was a stiff headwind.


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  Barclays (BCS) - Q3 profits were up on a boost from fixed income. Q3 PBT GBP 1.5bln (exp. 1.85bln), Q3 Income GBP 6.0bln (exp 5.8bln), EPS 0.094 (exp. 0.076), CET1 13.8% (exp. 13.5%), CIB Revenue 2.82bln (exp. 2.98bln).


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  Deutsche Bank (DB) - Registered the ninth straight quarter of profits, backed by higher interest rates. Q3 net EUR 1.115bln (exp. 835mln); FICC sales & trading revenue EUR 2.2bln (exp. 1.9bln). Sees upside to FY revenue guidance.


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  Santander (SAN) - Profits came in above expectations despite provisions and costs. - Q3 2022 (EUR): Net Income 2.42bln (exp. 2.2bln). Revenue 13.5bln (exp. 13.0bln). Co. is on track to achieve its profitability and capital targets for the year. NII EUR 10.1bln (prev. 9.55bln Q/Q).


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  Standard Chartered (SCBFY) - Profits topped expectations in Q3. Q3 adj. Pretax USD 1.42bln (exp. 1.13bln), Operating Income USD 4.32bln (prev. 3.77bln); Credit impairment charges increased by USD 120mln in the quarter. CET1 Ratio 13.7%; entire USD 500mln share buyback is deducted from CET1 in the period, reducing ratio by 20bps. Q3 NIM +8bps Q/Q to 1.43%. Continues to remain alert to a volatile and challenging external environment including pressures in China Commercial Real Estate Sector.


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  UniCredit (UNCRY) - Raises profit targets after Q3 metrics came in above expectations. Q3 2022 (EUR): Revenue 4.83bln (exp. 4.5bln), Net Interest 2.48bln (exp. 2.45bln), CET1 15.4% (exp. 15.3%). FY22 Net Profit seen above 4.8bln. (Newswires)


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  Chubb Limited (CB) - Q3 core EPS USD 3.17 (exp. 2.51).


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  Ameriprise Financial, Inc. (AMP) - Q3 adj. EPS ex-unlocking USD 6.43 (exp. 5.85). Q3 total client net flows were up significantly to more than USD 11bln, growth in cash business and Bank drove higher spread income in Wealth Management that more than offset equity market depreciation.


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  Assurant, Inc. (AIZ) - Announced Q3 prelim. EPS of 2.81 (exp. 1.90). CEO said preliminary Q3 results below its expectations in Global Lifestyle, reflecting the challenging global macroeconomic environment. FX remained a headwind in the quarter, and the combination of lower programme volumes and higher claims costs in select regions reduced profitability. Still expects FY Global Lifestyle to generate high single-digit growth.

MATERIALS:

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  Axalta Coating Systems Ltd. (AXTA) - Q3 adj. EPS 0.39 (exp. 0.39), Q3 revenue USD 1.24bln (exp. 1.2bln), Q3 volume +8.8%. Exec said that demand growth in Q3 was robust, but slower regional economic activity was evident in EMEA and Chinese Industrial markets, where sales softened considerably beginning in Q2, and continued through Q3, driven by slower than anticipated post-COVID-19 lockdown recovery in China and EMEA macroeconomic and energy headwinds. Said that currently, the slowdown seems to be fairly concentrated within Industrial. Said it has layered in the broader geographic weakness into its Q4 outlook, which also reflects substantial FX headwinds and minimal change in the sequential cost environment. Sees Q4 adj. EPS between 0.31-0.39 (exp. 0.42), and sees Q4 revenue growth of 6-8% (exp. 1.2bln).


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  BASF (BASFY) - Said its European operations need to be cut to size 'permanently'. Reports Q3 revenue of EUR 21.95bln (prev. 19.67bln Y/Y), Q3 adj. EBITDA EUR 2.26bln (prev. 2.73bln), Q3 EPS 1.77 (prev. 1.56). Affirms FY22 revenue and adj. EBITDA guidance. Cost saving programme to safeguard medium and long-term competitiveness within Germany and Europe.


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  Chemours Company (CC) - Q3 adj. EPS 1.24 (exp. 1.07), Q3 revenue USD 1.8bln (exp. 1.7bln). Reiterates FY22 adj. EBITDA outlook, and FY22 free cash flow view.


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  Rio Tinto (RIO) - In a letter to Turquoise Hill shareholders, reaffirms its long-term commitment to Oyu Tolgoi.


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  Fresnillo (FNLPF) - Q3 update notes gold production of 159k/oz, flat Y/Y; Silver production +7.4% Y/Y.

ENERGY:

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  Inventories - API is said to have reported US crude stocks build of +4.5mln in the week (exp. +1.0mln), Cushing +0.7mln, Gasoline -2.3mln (exp. -0.8mln), Distillate +0.6mln (exp. -1.1mln)


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  Energy Transfer LP (ET) - Boosts quarterly dividend +15% to 0.265/shr.


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  Iberdrola (IBDRY) - Nine-month sales EUR 37.9bln (exp. 28bln), EBITDA EUR 9.53bln, +17% Y/Y; Net Profit 3.1bln, +29% Y/Y.

CONSUMER CYCLICAL:

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  Chipotle Mexican Grill Inc (CMG) - Q3 Adj. EPS 9.51 (exp. 9.21), Revenue 2.2bln (exp. 2.23bln), Q3 comp restaurant sales +7%, sees Q4 comp sales rising between 5-9% (exp. +8.1%), FY22 comp restaurant sales growth seen in mid-high single digits. Q3 Operating Margin 15.1% (exp. 15.4%), Q3 Restaurant level operating margin 25.3% (exp. 25.2%).


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  Mattel (MAT) - Q3 EPS 0.82 (exp. 0.74), Q3 revenue USD 1.76bln (exp. 1.78bln). Lowers FY22 EPS outlook to USD 1.32-1.42 (exp. 1.49, prev. outlook 1.42-1.48), and reiterates its FY22 revenue growth outlook. Mattel is re-evaluating its outlook for FY23, but still expects both top- and bottom-line growth. Said price increases were not producing any meaningful impact on demand. Q4 advertising and promotional activity was higher Y/Y. Expects a more challenging macro-economic environment and increased volatility in Q4.


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  Puma (PUMSY) - Q3 sales EUR 2.35bln (exp. 2.3bln), EBIT 258mln (exp. 252mln), Net Profit 146mln (exp. 162mln). Confident in FY outlook, confirms full-year operating profit forecast.


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  Skechers USA, Inc. (SKX) - Q3 EPS 0.55 (exp. 0.70), Q3 revenue USD 1.88bln (exp. 1.79bln), wholesale sales +26.2%, direct-to-consumer sales +11.9%. Sees Q4 EPS between 0.30-0.40 (exp. 0.51), and sees Q4 revenue between USD 1.725-1.775bln (exp. 1.79bln).


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  Boyd Gaming Corporation (BYD) - Q3 adj. EPS 1.48 (exp. 1.32), Q3 revenue USD 877.3mln (exp. 855.3mln).


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  Wyndham Hotels & Resorts, Inc. (WH) - Q3 EPS 1.13 (exp. 1.04), Q3 revenue USD 407mln (exp. 379mln), Q3 Global RevPAR +12% Y/Y in constant currency. Lifts FY22 adj. EPS outlook to 3.84-3.89 (exp. 3.61, prev. range 3.51-3.63), narrows FY22 global RevPAR growth view to +14-16% Y/Y (prev. range 12-16%).

CONSUMER STAPLES:

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  Mondelez (MDLZ) - Announces an additional USD 600mln investment in Cocoa Life programme through 2030, for a total USD 1bln investment since the start of the programme.


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  Reckitt Benckiser Group PLC (RBGLY) - Quarterly sales boosted by price hikes, with LFL revenue +7.4%. Q3 revenue GBP 3.7bln (prev. 3.3bln). Said it was firmly on track for medium-term goals.


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  Heineken (HEINY) - Q3 revenue EUR 9.45bln (exp. 8bln), Total Beer volume 66.8MHL, or +8.9% which is a little less than analysts were looking for; Heineken volume growth of 11.3%. FY22 guidance maintained.

INDUSTRIALS:

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  Canadian National Railway Company (CNI) - Q3 adj. EPS CAD 2.13 (vs 2.37 Y/Y), Q3 revenue CAD 4.51bln (vs CAD 3.59bln Y/Y). Lifts FY22 adjusted EPS outlook to +25% (prev. range 15-20%).


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  Dassault Systemes (DASTY) - Q3 revenue EUR 1.37bln (exp. 1.5bln), Operating Income EUR 433mln, EPS 0.16. Reaffirms FY revenue guidance of 9-10% to a higher absolute range of 5.61-5.65bln (prev. 5.48-5.53bln).


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  LG Energy Solution (373220 KS) - Tesla supplier LG Energy Solution swung to a profit in Q3 on the back of strong electric vehicle battery demand and favourable foreign exchange rates, Reuters reports. LGES also sells EV batteries to General Motors (GM), Ford (F) and Volkswagen (VWAGY).


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  Mercedes Benz Group (MGB) - Triples pre-pandemic Q3 cars earnings, raises outlook for cars division. Q3 revenue EUR 37.7bln (exp. 37.7bln), adj. Return on Sales (ROS) +14.5% Y/Y, Vans +12.7% Y/Y. Raises expected FY ROS to 13-15% (prev. 12-14%), Vans expected ROS upgraded to 9-11% (prev. 8-10%.), EBIT expected significantly above Y/Y (prev. slightly above).


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  Stellantis (STLA) - CEO said uncertainty in regulation gives an advantage to Chinese competitors already at almost 100% battery electric production.


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  Michelin (MGDDY) - Nine-month revenue EUR 20.7bln (prev. 17.2bln). Cuts FY22 FCF guidance to EUR 0.7bln (prev. above EUR 1.2bln). Cuts FY22 speciality activity segment to +3-7% (prev. +4-8%). Affirms FY22 segment operating income guidance.


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  Idex Corp. (IEX) - Q3 adj. EPS 2.14 (exp. 1.99), Q3 revenue USD 824mln (exp. 780.6mln). Lifts FY22 adj. EPS outlook to USD 8.04-8.09 (exp. 7.92, prev. range 7.88-7.98), and lifts FY22 revenue growth outlook to roughly 12% (prev. 10%); Q4 adj. EPS seen between 1.92-1.97 (exp. 1.93), and Q4 revenue growth seen around 9%.

REAL ESTATE:

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  CoStar Group, Inc. (CSGP) - Q3 adj. EPS 0.25 (exp. 0.24), Q3 revenue USD 557mln (exp. 555.5mln). Lifts FY22 adj. EPS outlook to USD 1.25-1.26 (exp. 1.11, prev. range 1.09-1.13), and lifts FY22 revenue outlook to USD 2.175-2.18bln (exp. 2.2bln, prev. range 2.165-2.18bln).


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  Equity Residential (EQR) - Q3 normalised FFO/shr 0.92 (exp. 0.91); sees FY normalised FFO/shr between USD 3.52-3.54 (exp. 3.52). Exec said demand remains solid, with slightly more price sensitivity in San Francisco and Seattle than we expected.

HEALTHCARE:

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  AstraZeneca (AZN) - Capivasertib Phase III trial met the primary endpoints.


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  Bristol-Myers Squibb Co (BMY) - Q3 adj. EPS 1.99 (exp. 1.83), Q3 revenue 11.22bln (exp. 11.14bln). Q3 Eliquis sales +10% Y/Y at USD 2.66bln, Q3 Opdivo sales +7% Y/Y at USD 2.05bln. Backs FY22 EPS outlook of 7.44-7.74 (exp. 7.51), and its FY22 revenue view at USD 46bln (exp. 46bln).


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  Universal Health Services, Inc. (UHS) - Q3 adj. EPS 2.54 (exp. 3.43), Q3 revenue USD 3.34bln (exp. 3.3bln).

26 Oct 2022 - 09:15- Research Sheet- Source: Newswires