Earnings Watch and FedEx’s shocking earnings uncertainty Earnings Watch and FedEx’s shocking earnings uncertainty Earnings Watch and FedEx’s shocking earnings uncertainty

Earnings Watch and FedEx’s shocking earnings uncertainty

Equities 8 minutes to read
PG
Peter Garnry

Head of Equity Strategy

Summary:  The earnings calendar is still light as we wait for the Q3 earnings season to start in mid-October. But next week we will get interesting earnings from US homebuilder Lennar and cruise line operator Carnival which both are experiencing headwinds from rising interest rates and the cost-of-living crisis impacting the consumer. We also take a look at the shocking news that FedEx is withdrawing its fiscal year guidance after a bad Q1 and finally we discuss the good and bad about Adobe's USD 20bn acquisition of its competitor Figma.


Waiting for Q3 earnings

The Q2 earnings rebound on the back of cost cutting and inflation combined with the recent rebound in equities made investors forget about the underlying structural headwinds for equities. Wage pressures and the inability to pass on the full rise in input costs will force companies to reduce their profit margins in the quarters to come. Lower operating margins with no change in revenue expectations and a US 10-year yield likely to be 1%-point higher by early Q2 next year will force equities.

The Q3 earnings season is just around corner starting in mid-October and here investors will get a feel of the pressure the corporate sector is experiencing. In the meantime, off calendar earnings will continue to roll in and the list below shows the most important earnings releases next week. In one of our recent equity notes we wrote that the cost-of-living crisis will severely impact consumer discretionary companies and as the most exciting earnings to watch next week are the US homebuilder Lennar and cruise line operator Carnival as both companies’ outlook is sensitive to higher interest rates and less disposable income.

  • Monday: AutoZone
  • Tuesday: Haleon
  • Wednesday: Lennar, Trip.com, General Mills
  • Thursday: Costco Wholesale, Accenture, FactSet Research Systems, Darden Restaurants
  • Friday: Carnival

FedEx shares down

The big story today is FedEx reporting preliminary FY23 Q1 results (ending 31 August) showing adjusted EPS at $3.44 vs est. $5.10 as logistic company is pressure on freight rates combined with rising input costs highlighting our margin squeeze hypothesis above. But one thing is a bad quarter, the real worry for investors is that FedEx is withdrawing its FY23 guidance suggesting the company has zero visibility of the next nine months, or that their internal forecast is so bad that they fear it would severely tank the share price. In any case, the announcement has spooked investors sending FedEx shares down 20% in pre-market trading.

Our Saxo logistics theme basket is the fifth best performing basket this year down only 8.8% and we have repeatedly said that the logistics theme is a strong long-term theme. Based on our assumption of accelerating deglobalization supply chains will likely become more fragmented across more logistical hubs and countries and as such FedEx’s guidance withdrawal for the current fiscal year is not something that makes us change our long-term view.

FedEx share price | Source: Saxo Group

Quick take on Adobe acquisition of Figma

Yesterday’s big story was Adobe’s earnings release which revealed the acquisition of one of its competitors Figma for $20bn in a cash and stock deal valuing Figma at 100x the current recurring revenue. The acquisition is seen by many as overly expensive and the share price tumbled 16% to lowest levels since early 2020. Adobe’s management has naturally the best insights into the industry and must clearly have felt that Figma could severely impact Adobe’s cloud offering in the future. Acquiring Figma in a combined cash and stock deal is a good move by Adobe as it reduces the risk tied to the deal and while many argue that Adobe has overpaid many forget that Meta’s acquisition of WhatsApp also turned out to be crucial despite WhatsApp has never generated any meaningful revenue. The point is that when you have a near monopoly the most important thing is to subdue all new competitors just as Intel did in the early days of the semiconductor boom. Time will tell whether this was a bad move by Adobe, but for now the market is punishing Adobe for its move.

Adobe share price | Source: Saxo Group
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.