Earnings Watch: Q4 numbers look good, outlook less certain
Head of Equity Strategy
Summary: This earnings season has seen some solid releases from major US names, but earnings beats cannot fully obscure the signs of a coming slowdown.
Most S&P 500 companies have so far beaten expectations on both revenue and earnings, adding further tailwind to the momentum in global equities.
In our previous Earnings Watch, we highlighted JPMorgan Chase, Netflix and TSMC earnings as the most important to watch. JPMorgan Chase delivered fine numbers and management were quite upbeat on outlook, going against the trend. Netflix Q4 results were in line with estimates but the outlook was below analyst estimates and a tad to the negative side.
Our view on Netflix is cautious given the outlook and the fact that liabilities continue to grow faster than revenue which is problematic as the life span of video streaming content is much shorter than music.
At TSMC, one of Apple’s largest suppliers, projections for Q1 revenue were sharply lower than estimated; in general, the previous double-digit growth rates may slip into negative territory in 2019 unless China and US strike a trade deal in combination with Chinese stimulus.
The world is waking up to the reality that our global economy is supported by extremely tight (just in time) and complex supply chains (thousands of cross-border suppliers).
The company reports Q4 earnings on Wednesday before markets open. Analysts are expecting EPS at €1.80, up 20% y/y, and revenue at €2.99bn, up 17% y/y. ASML is an interesting company because it is in the front end of the business cycle and thus adds value to macro analysis. Q4 numbers are likely to be good given strong demand for chip lithography equipment driven by TSMC, but as we already know, TSMC is slowing down so ASML’s outlook is likely to have changed to a cautious stance.
Reports FY'19 Q3 numbers on Wednesday at 06:15 GMT. Analysts expect EPS at JPY 114.34, up 23% y/y, and revenue of JPY 411bn, up 5% y/y. The CEO of Nidec, the world’s largest comprehensive motor application producer with revenue of $14bn per year, became the focus of financial markets last week when the company issued a profit warning amid US-China trade war concerns. In addition, the CEO said “I’ve been a manager for almost half a century, but this is the first time I’ve seen such a large single-month drop in orders for us”, which is not exactly comforting news for global investors. In essence, anecdotal evidence of an economic slowdown is piling up everywhere.
The company reports Q4 earnings on Wednesday at 21:15 GMT (after the close) with analysts expecting EPS at $0.31, down 20% y/y, and revenue of $37.9bn, down 2% y/y. We do not expect strong numbers from Ford Motor and analysts are likely to increase negative questions over the company’s European operations and the operating losses increasing in its Mobility division. Like so many other carmakers, Ford Motor is challenged by a massive transition to electric vehicles which as of today have a lower profit margin due to higher input costs per unit produced. Also, and again like many other carmakers, Ford Motor is spending billions in R&D on self-driving technology. The latter may prove to be wasted capital as the technology is arguably more difficult than previously thought.
The table below shows the most important earnings next week across our global universe of 2,000 stocks during the earnings season.
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.
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