Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
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A quick take on Netflix and Peloton, Siemens Gamesa’s inflation scare
Peter Garnry
Chief Investment Strategist
Summary: Netflix disappointed investors yesterday with a fiscal outlook for operating margin that was 3-4%-points below consensus and the punishment was harsh with the stock down 20% in extended trading. It highlights how important it is for companies to meet profit expectations now that interest rates are on the rise. Peloton, another pandemic darling, came out yesterday with the announcement that it is delaying a factory opening and considering laying off employees in a sign that demand is coming off. Finally we take a look at Siemens Gamesa which is getting hit hard by inflation and logistical issues, and highlights the most important earnings releases next week including Microsoft, Tesla, and Apple.
Pandemic darlings under pressure
Netflix and Peloton were among the big losers in yesterday’s session. They were the pandemic darlings, but reopening headwinds have hit both companies on top line growth. Netflix shares were down 20% in extended trading on Q4 earnings on a weak outlook. Q4 EPS was $1.33 vs est. $0.81 and revenue in line with estimates, but the outlook was disappointing with net subscriber additions in Q1 guided at 2.5mn vs est. 6.3mn and EPS of $2.86 vs est. $3.37. But the most disappointing against consensus was the fiscal year operating margin target of 19-20% vs 23% expected. The market reaction is a replay of DocuSign in December where investors are punishing companies that cannot meet operating margin expectations. The narrative will short-term focus on lack of subscriber growth so Netflix should begin focusing less on user metrics and more on free cash flows going forward.
Peloton was a pandemic darling as people favoured their tread bikes to exercise during the lockdown in the US. But as society has reopened sales growth has stalled and yesterday’s preliminary Q2 figures (ending 31 Dec), showed revenue in line with estimates but is delaying an opening of a $400mn factory which was expected to meet demand and the delay and management talks about layoffs can only be viewed as signs that demand is coming off rapidly.
Siemens Gamesa shows how real inflation is
The world’s largest manufacturer of offshore wind turbines published FY22 Q1 (ending 31 Dec) earlier this morning which was grim reading for investors. Underlying operating profit was negative €309mn and the fiscal year guidance is now -4% to +1% on underlying EBIT margin which significantly below where consensus was looking for €206mn in EBIT which is an EBIT margin of a little more than 2%. The problems for the industry has persisted for more than a year which includes difficulties sourcing components, factory delays due to Covid-19, logistics nightmare, and generally rising input costs such as rising steel prices. Wind turbine manufacturers are raising prices to offset rising input costs but it has the negative consequence of reducing order intake creating a double whammy for investors. While the green transformation will continue to ensure high long-term growth for this industry the narrative is clearly negative in the short-term.
Earnings season shifts gear next week
Next week 177 companies report earnings out the around 2,500 companies we track during the earnings season. The list below shows the most important earnings releases measured against interesting themes to watch and those that can either move the overall market or an industry. The three most important earnings releases are from Microsoft (Tuesday), Tesla (Wednesday), and Apple (Thursday).
Monday: IBM, Philips, Halliburton
Tuesday: Coloplast, Atlas Copco, Ericsson, Microsoft, Johnson & Johnson, NextEra Energy, Texas Instruments, American Express, General Electric, 3M, Moderna,
Wednesday: Christian Dior, Nidec, FANUC, Lonza Group, Tesla, Abbott Laboratories, Intel, Boeing, Freeport-McMoRan, Southern Copper
Thursday: LVMH, STMicroelectronics, Sartorius, SAP, Deutsche Bank, Unicredit, Diageo, Apple, Visa, Mastercard, McDonald’s
Friday: Volvo, H&M, Givaudan , Chevron, Caterpillar, Colgate-Palmolive
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