US EARLY MORNING: US futures are lower; retail hit after Walmart cuts profit view; mega-cap earnings ahead

MARKETS NOW: APAC stocks took their cue from Wall Street, eventually trading mostly higher, albeit with mild gains following mixed trading conditions in the early hours until the China open. European bourses started with a note of caution ahead of officials holding an emergency summit on energy, while corporate updates have been mixed. US equity futures are lower, but off overnight lows. RTY -0.1%, ES -0.3%, NQ -0.3%, YM -0.4%. Treasury yields are lower by 2-6bps across the curve, with major spreads flatter. The Dollar Index is a little above unchanged. Crude futures are rallying supported by concerns over supply tightness; analysts expect weekly crude inventories will draw down.

RETAIL PRESSURED: News that Walmart was cutting its profit outlook as rising inflation hits its consumers has weighed on retail focussed shares, with others from AMZN to TGT pressured after the supermarket giant lowered guidance for the second time in ten weeks and ahead of its results due August 16th (separately, Amazon is hiking prices for its Prime service in Europe). The inflation theme is well-known, and the narrative has been shifting onto the impact that these soaring costs are having–and will have–on consumer behaviour (as well as corporate profit margins), and the knock-on impact it will have on growth. These themes will be conveniently tied together later this week, when the Fed announces a rate rise on Wednesday (75bps expected, to tackle high inflation; our preview can be accessed here) and the official first look at Q2 GDP data are released on Thursday (growth of 0.5% is expected, avoiding a “technical” recession). But this theme will also persist into Q3 and Q4 too, with some already flagging concerns about how consumers’ lower real spending power potentially threatens the crucial holiday sales period towards the end of the year (which will be reflected in results released early 2023). UBS this week said that US consumers currently appear willing to cut their rates of savings to support consumption, and this dynamic makes a ‘recession’ unlikely for now, but the situation is delicate: “if consumers stop being willing to cut savings before real wages stop falling, then a recession becomes more likely” UBS Global Wealth Management’s chief economist said, adding that “a high risk period is likely to be in September/October, when consumers return from their very expensive vacations, contemplate the expense of the Christmas season ahead, and may then decide to save a little more and spend a little less.”

DAY AHEAD: It’s a heavy day for US data, but all of the releases are second-tier in nature. Perhaps the most important of today’s releases will be the Conference Board’s gauge of consumer confidence for July, which is expected to slip a little. FHFA, CaseShiller house prices are due, though are not likely to have much impact given they are stale, while New Home Sales will likely emphasise known themes around the slowing pace of sales amid rising rates. The Richmond and Dallas Fed regional manufacturing reports are due, although last week’s grim Philly Fed has already largely lowered the tenor of expectations for the ISM’s July manufacturing data (released August 1st). After hours, the API will release its gauge of private inventories. European policymakers will be making a lot of comments on energy today as they hold an emergency meeting as Russia prepares to cut gas supply to Europe to 20% of capacity from Wednesday. The earnings slate is heavy, and we preview today’s main releases below. Elsewhere, focus will start shifting onto Wednesday’s FOMC meeting (our preview can be accessed here). Full Day Ahead here.

MAJOR EARNINGS AHEAD:

• 11:00BST/06:00EDT: United Parcel Service Inc (UPS) (preview)


• 11:55BST/06:55EDT: Coca-Cola Co (KO) (preview)


• 11:55BST/06:55EDT: Raytheon Technologies Corp (RTX) (preview)


• 12:00BST/07:00EDT: McDonald's Corp (MCD) (preview)


• 21:00BST/16:00EDT: Alphabet Inc (GOOGL) (preview)


• 21:00BST/16:00EDT: Microsoft Corp (MSFT) (preview)


• 21:00BST/16:00EDT: Texas Instruments Inc (TXN) (preview)


• 21:05BST/16:05EDT: Visa Inc (V) (preview)


• Full Daily US Earnings Estimates for July 26th can be accessed here.

CONSUMER STAPLES:

• 
  Walmart Inc. (WMT) - Tumbled 10% in after hours trading after it lowered its profit outlook for Q2 and FY23, and dragging on other retailers like Amazon (AMZN). WMT said its lower view was primarily due to pricing actions aimed to improve inventory levels. It was the supermarket chains second warning in ten weeks. WMT sees operating margin around 4.2% for Q2, and 3.8-3.9% for FY23. Expects a USD 1.8bln headwind in H2 '22. Operating income for the Q2 and FY is expected to decline 13 to 14% and 11 to 13%, respectively. Net sales include currency headwinds of roughly USD 1bln in Q2.


• 
  Unilever (UL) - Reported H1 revenue of EUR 29.6bln (exp. 29.1bln), Underlying Sales +8.8% (exp. +7.4%). Lifts FY sales guidance to above the 4.5-6.5% range. Quarterly dividend of EUR 0.4268/shr. Continues to expect improving margin in 2023 and 2024. EUR 750mln share buyback tranche completed on July 22nd.


• 
  Remy Cointreau (REMYY) - Q1 sales EUR 409mln (exp. 379mln). Confirms FY22/23 outlook/ Strong resumption in sales in China in June.

CONSUMER CYCLICAL:

• 
  Amazon.com, Inc. (AMZN) - Amazon will raise fees for its delivery and streaming service Prime in Europe by up to 43% a year as it moves to counter higher costs days before it reports quarterly financial results, Reuters reported. The price hike follows a similar announcement Amazon made for its US Prime service in February, reflects mounting pressure on new CEO Jassy to shore up profit as inflation rises and a downturn looms, the report added.


• 
  Alibaba Group Holding Limited (BABA) - Alibaba is pursuing a primary listing on the Hong Kong exchange, which is expected to occur before the end of 2022. Alibaba will become a dual primary listed company on HKEX and NYSE. The company currently has a secondary listing on the HKEX; having a primary listing in Hong Kong is a requirement for inclusion in the Stock Connect programme, which allows mainland Chinese investors to trade company shares, in turn helping increase liquidity.


• 
  Whirlpool Corporation (WHR) - Shares gained in after hours trade following the publication of Q2 results, where it cuts FY forecasts by less than analysts had feared. Q2 2022 EPS USD 5.97 (exp. 5.24), Q2 revenue USD 5.10bln (exp. 5.23bln). Exec said it was on track with its commitment to return over USD 1.5bln to shareholders this year. Cut FY view, sees FY ongoing EPS view USD seen between 22.00-24.00 (prev. 24.00-26.00, exp. 23.91), FY revenue view USD 20.7bln (exp. 21.8bln). Exec said long-term fundamentals of demand remain strong.


• 
  Packaging Corporation of America (PKG) - Q2 adj. EPS USD 3.23 (exp. 2.85), Q2 revenue USD 2.2bln (exp. 2.1bln). Exec said in its Packaging segment, pricing actions will continue to be implemented into Q3; in its Paper segment, it notified customers of an additional USD 60/ton price increase on all paper grades, effective September. It began Q3 with containerboard inventories below its target, plans to build inventory ahead of Q4 outage at its Jackson Mill. "With economic conditions continuing to be negatively impacted by broad-based inflation and aggressive interest rate increases, we see corrugated products growth as softening in the quarter but demand still firm as certain end markets work through their current supply of inventory." Exec added that "we expect continued inflation in most all of our operating and converting costs to be the primary driver of our third quarter results. Higher gas, purchased electricity, and chemical prices along with higher labor costs are expected to be the key areas during the quarter. Continued rail service challenges along with rail fuel surcharges that typically lag diesel fuel prices by 30-60 days should also result in higher freight and logistics expenses," and "scheduled outage costs will be higher due to the International Falls mill outage that was postponed from Q2 to Q3." Considering these items, it expects Q3 EPS at USD 2.80/shr (exp. 3.13).


• 
  Luxury Names - Hong Kong may have to downgrade its annual growth forecast in August for the second time in three months, according to SCMP citing the finance chief.


• 
  Lindt & Spruengli (LDSVF) - H1 net income CHF 138mln (exp. 121mln), EBIT CHF 185mln (exp. 162mln). Market share gains in all regions. For FY22, Lindt expects organic sales growth 8-10% (prev. 6-8%), based on assumption that geopolitical tensions do not further increase and existing supply chain bottlenecks improve slightly in H2.


• 
  Albany International Corp. (AIN) - Q2 adj. EPS USD 1.06 (exp. 0.83), Q2 revenue USD 261.4mln (exp. 240.2mln). Raised its FY22 adj. EPS outlook to USD 3.30-3.60 (prev. 2.80-3.30, exp. 3.29), and lifted its FY22 revenue view to USD 970-1.01bln (exp. 960.8mln, prev. 920-$960mln).

COMMUNICATIONS:

• 
  Meta Platforms, Inc. (META) - Meta is considering an acquisition of Canadian eye-tracking technology developer AdHawk Microsystems in the next few weeks, Bloomberg reported. The report said the potential takeover would further Meta’s ambitions in virtual and augmented reality.

TECH:

• 
  NXP Semiconductors NV (NXPI) - Q2 2022 GAAP EPS USD 2.53 (exp. 3.35), Q2 revenue USD 3.31bln (exp. 3.27bln), Q2 Automotive sales USD 1.71bln (exp. 1.68bln), +36% Y/Y, Q2 Industrial & IoT 713mln (exp. 702mln), +25% Y/Y, Q2 Mobile revenue USD 388mln (exp. 387.3mln), +12% Y/Y, Q2 Communications Infrastructure & Other sales USD 498mln (exp. 492.9mln), +20% Y/Y. Q2 adj. gross margin 57.8% (exp. 57.6%), Q2 Inventory USD 1.46bln (exp. 1.38bln). Exec said customer demand within the Auto and Industrial & IoT end-markets continued to exceed its incrementally improving supply, even as it risk-adjusts its long term orders. Exec added that new design win commitments are remarkably strong. Sees Q3 revenue view at USD 3.425bln (exp. 3.33bln).


• 
  Cadence Design Systems Inc (CDNS) - Gained in after hours following top- and bottom-line beats, while guidance was also encouraging. Q2 EPS USD 1.08 (exp. 0.96), Q2 revenue USD 857.5mln (exp. 836.89mln). Q3 adj. EPS seen between 0.94-0.98 (exp. 0.90), Q3 revenue seen between USD 860-880mln (exp. 831.6mln), and Q3 adj. operating margin seen between 37-38% (exp. 37.1%). Sees FY revenue between USD 3.47-3.51bln (exp. 3.41bln), sees FY adj. EPS between 4.06-4.12 (prev. 3.89-3.97, exp. 3.92), and sees FY adj. operating margins between 39.3-40.3% (prev. 38.5-40%, exp. 39.3%).


• 
  Coinbase Global, Inc. (COIN) - Coinbase is facing a US probe into whether it improperly let Americans trade digital assets that should have been registered as securities, Bloomberg reported.


• 
  F5 Networks, Inc. (FFIV) - Surged by +14% in after-hours trade after reporting Q3 adj. EPS at USD 2.57 (exp. 2.23), Q3 revenue USD 674.5mln (exp. 667.49mln). Board authorised a USD 1bln share buyback. Exec said that demand for security across all customer verticals fuelled sales in Q3, resulting in +4% total revenue growth despite ongoing semiconductor shortages. FFIV raised its Q4 guidance, now sees Q4 revenue between USD 680-700mln (exp. 689.4mln), and sees adj. EPS between USD 2.45-2.57 (exp. 2.28).


• 
  Logitech International S.A. (LOGI) - Q1 EPS 0.74 (exp. 1.10), Q1 revenue USD 1.16bln (exp. 1.3bln). Exec said that while macroeconomic challenges affected its performance, continued growth in Video Collaboration, Keyboards & Combos and Pointing Devices as hybrid and return-to-work trends continue to take shape. Board lifted its buyback authorisation to USD 1.5bln, expanding its current USD 1bln, three-year share buyback facility. Logitech lowered its FY23 revenue growth outlook to -8% to -4% (prev. up 2-4%), which implied FY23 revenue at USD 5.04-5.26bln (exp. 5.5bln).


• 
  Dassault Systemes (DASTY) - Q2 (EUR): Net Income 347mln (exp. 326mln), Revenue 1.38bln (exp. 1.34bln), Operating Income 442mln (prev. 378mln). FY22: maintain total revenue growth objective, raise diluted EPS objective to EUR 1.08-1.10bln. (Newswires)


• 
  Citrix Systems, Inc. (CTXS) -  Bankers backing the buyout of Citrix are discussing new ways to sell chunks of the USD 15bln financing to soften potential losses, including splitting a huge USD 7bln loan between themselves, private-credit funds and other investors, Bloomberg reported.

INDUSTRIALS:

• 
  Crane Co. (CR) - Q2 EPS USD 1.90 (exp. 1.75), Q2 revenue USD 864mln (exp. 808.8mln). Reiterates its FY22 EPS outlook of USD 7.45-7.85 (exp. 7.37). Exec said momentum continued in the quarter, continues to see robust demand across its end markets, and supply chain challenges and inflationary pressures remain consistent with the outlook it provided in January.


• 
  Rolls-Royce (RYCEY) - Erginbilgic appointed as CEO, from January 2023 replacing East.


• 
  Nielsen Holdings plc (NLSN) - Independent proxy advisory firm ISS recommends Nielsen shareholders vote for the proposed transaction with a consortium of private investment funds.


• 
  Hexcel Corporation (HXL) - Q2 adj. EPS 0.33 (exp. 0.30), Q2 revenue USD 393mln (exp. 391.5mln). Reiterated its FY22 adj. EPS outlook at USD 1.00-1.24 (exp. 1.24), and its FY22 revenue view between USD 1.5-1.63bln (exp. 1.59bln).


• 
  Kaiser Aluminum Corporation (KALU) - Q2 adj. EPS -0.03 (exp. 0.67), Q2 revenue USD 954.2mln (exp. 910.3mln). Exec said that although its Warrick rolling mill's supply chain issues remain challenging, it continues to address these issues. Notwithstanding these near-term challenges, it said that longer-term strategy remained unchanged, and it was well positioned for continued long-term growth. "The fundamentals of our aerospace, packaging, automotive and general engineering end markets are solid and as we continue to execute on our strategic initiatives, we will continue to deliver long-term value to all of our stakeholders," Exec said.

ENERGY:

• 
  Shell plc (SHEL) - Shell affiliate BG International Limited will develop the Jackdaw gas field in the UK North Sea, following regulatory approval earlier this year. The project is expected to come online in the mid-2020s, and at peak production rates, could represent over 6% of projected UK North Sea gas production in the middle of this decade, with operational emissions of less than 1% of the whole UK basin. Jackdaw is part of Shell UK's broader intent to invest GBP 20-25bln in the UK energy in the next decade.


• 
  Siemens Energy (SMNEY) - Co. said turbine transportation may start immediately; Gazprom is aware of this and Germany provided Siemens Energy with all necessary documents last week but they still need customs documents for import to Russia to be provided by Gazprom. (Newswires)


• 
  Transocean Ltd. (RIG) - Quarterly Fleet Status report noted a total backlog of approximately USD 6.2bln (prev. 6.1bln).


• 
  Liberty Oilfield Services Inc. (LBRT) - Q2 EPS 0.55 (exp. 0.19), Q2 revenue USD 943mln (exp. 875.2mln). Sees Q3 revenue rising 10% sequentially. Exec said that while the global economic recovery outlook has softened on reverberating impacts from higher inflation, rising interest rates and the Russian invasion of Ukraine, oil and gas markets remain constructive. "Eight years of underinvestment in upstream oil and gas production, exacerbated by inept global policy initiatives aimed at incentivizing an energy transition, has created a mismatch of supply and demand," adding that "today, historically low global oil and gas inventories, limited OPEC spare production capacity and a dearth of refining capacity are colliding with increased energy demand."


• 
  Hess Midstream Partners LP (HESM) - Lifted quarterly dividend +1.2% to 55.6c/shr.

FINANCIALS:

• 
  UBS (UBS) - Reported Q2 net income USD 2.11bln (exp. 2.44bln), adj. profit before tax USD 2.61bln (prev. 2.6bln Y/Y). The bank is to continue its buyback programme as planned, expects to repurchase circa USD 5bln shares in 2022. Investment Bank revenue USD 410mln (exp. 511mln), Asset management pretax. USD 959mln (exp. 1.08bln), Q2 asset management outflows stood at USD 12bln, primarily from equities. CEO says heading into H2, the operating environment remains uncertain.


• 
  Everest Re Group, Ltd. (RE) - Lifted its FY22 adj. FFO/shr view to between USD 8.38-8.44 (prev. view 8.33-8.43, exp. 8.40), and lifted its FY22 same property net operating income outlook to 6.0-8.0% (prev. 5.9-7.9%).


• 
  AGNC Investment Corp. (AGNC) - Q2 tangible net book value per share USD 11.43, -12.3% Q/Q. Exec said financial markets remained under significant pressure in the Q2 as the Federal Reserve indicated a more aggressive path of monetary policy tightening, adding that the expectation of materially higher short-term rates drove significant interest rate volatility and increased the probability of a recession. Exec said that the challenging monetary policy and macro-economic environment led to broad-based financial market weakness during the second quarter, and that agency MBS was not an exception, as the spread between Agency MBS and swap and Treasury rates widened meaningfully in April and again in June.

REAL ESTATE:

• 
  Prologis, Inc. (PLD) - CEO told CNBC that he feels good about the business, increase in e-commerce was driving logistics demand, the goods economy was taking a backseat to the services side, adding that companies need to carry more inventory to meet customers' needs.


• 
  Sun Communities, Inc. (SUI) - Q2 core FFO/shr USD 2.02 (exp. 2.01), Q2 revenue USD 814.3mln (exp. 715.5mln). Lifts its FY22 core FFO/shr outlook to USD 7.22-7.32 (exp. 7.31, vs prev. guidance of 7.20-7.32).

26 Jul 2022 - 09:31- Research Sheet- Source: Newsquawk