Earnings Watch: The defining week for Q1 earnings Earnings Watch: The defining week for Q1 earnings Earnings Watch: The defining week for Q1 earnings

Earnings Watch: The defining week for Q1 earnings

Peter Garnry

Chief Investment Strategist

Summary:  The Q1 earnings season shifts gear this week with many very important earnings releases on tap with most notably earnings from the four technology giants Alphabet, Microsoft, Meta, and Amazon alone representing a whopping 13.8% of the S&P 500 Index. This week will also deliver important earnings from ABBm Visa, McDonald's, UPS, NextEra Energy, GE, Boeing, DSV, BASF, Atlas Copco, Mastercard, Intel, and Caterpillar. We take a look at the earnings the week but also how the earnings reported so far have failed to lift earnings estimates for the rest of the year.

Philips shares rally 11% on improving outlook

Two big news of out of Europe this morning. The first one is that LVMH is the first European company to hit a market value of $500bn. The other great news is that Netherlands-based Philips is finally coming out with some good news to investors. The Dutch technology company is reporting Q1 revenue of €4.2bn vs est. €4bn and adjusted EBITA of €359mn vs est. €212mn while saying that restructuring is on track. The strong earnings result is easing the concerns over legal settlement costs related to the company’s recall of its sleep apnea device called Dreamstation. Shares are up 11% compared to Friday’s close.

Philips share price | Source: Saxo

Coca-Cola shares up in pre-market trading

Coca-Cola is reporting Q1 earnings before the market open with adjusted organic revenue growth of 12% vs est. 9.6% and comparable EPS of $0.68 vs est. $0.65 as the soft drinks and snacks company continues to be able to pass on costs to consumers. The company is also reporting good expected growth for Q2 and the fiscal year despite ongoing currency headwinds. Shares are up 1% in pre-market trading.

Coca-Cola share price | Source: Saxo

Giant technology earnings from Alphabet, Microsoft, Meta, and Amazon

The Q1 earnings season has not done much to change the negative sentiment around earnings estimates for the remaining quarters of the year. Analysts continue to lower their estimates compared to two months ago and the recent earnings releases have not changed that direction.

If we take a look at market cap then the four technology giants, Alphabet, Microsoft, Meta, and Amazon reporting earnings this week represent combined 13.8% index weight in the S&P 500 Index. This makes this earnings week the defining moment for the Q1 earnings season. The main menu is already tomorrow with Alphabet (Google) and Microsoft reporting after the close as the two companies are locked into a fierce battle over new AI systems as they may unlock great commercial value for the companies. Alphabet is expected to report EBITDA of $26.4bn up from $24.8bn a year ago and significantly up from Q4 as layoffs should begin to lift expectations. The key risk for Alphabet is the slowing revenue growth in Q3 and Q4 and whether it extended into Q1 because that could jeopardize the EBITDA expectation. Microsoft saw a sharp reduction in its revenue growth in Q4 to just 2% y/y but in Q1 analysts expect it to climb again to 4% y/y with flat earnings compared to a year ago. In both cases of Alphabet and Microsoft there will be a lot of focus on their comments related to the arms race in AI systems and whether it will impact cost trajectories going forward.

Meta was under severe pressure in 2022 as revenue growth turned negative due to both y/y comparison effects from a strong 2021 as the economy slowed down, but also as Apple’s privacy changes continue to haunt Meta on online advertising prices. To make things worse it was also the year when the company changed its name from Facebook to Meta and bet the company’s future on the Metaverse which has turned out to be a complete disaster. Revenue growth was -5% y/y in Q4, but analysts expect revenue growth to have improved to just -1% y/y in Q1, but importantly analysts expect EBITDA of $12.1bn vs $11.1bn a year ago as massive layoffs should begin to have a positive impact on operating income. Amazon is another company that had a tough 2022 as overinvestment during the pandemic had led to too much fulfilment centre capacity and too many employees. The retailing and cloud infrastructure giant is expected to report Q1 revenue growth of 7% y/y and EBITDA of $18.9bn up from $14.8bn as cost cutting is expected to improve earnings. If the operating income results from these four technology giants can come in as expected then maybe earnings estimates will begin to tick higher.

Other key earnings this week from Visa, UPS, and Caterpillar

The list below shows all the most important earnings releases this week. Besides the earnings mentioned above some other key earnings to watch this week are ABB, Visa, McDonald’s, UPS, NextEra Energy, GE, Boeing, DSV, BASF, Atlas Copco, Mastercard, Intel, Caterpillar, and Mondelez. These companies will provide additional colour across industrial demand, consumer payment flows, logistics, consumer discretionary appetite for restaurant trips, and construction demand out of China. We will cover the most important earnings throughout the week.

  • Monday: Canadian National Railway, NIDEC, Philips, Coca-Cola, Cadence Design Systems

  • Tuesday: Kweichow Moutai, ASM International, Banco Santander, Novartis, UBS Group, ABB, Kuehne + Nagel, Microsoft, Alphabet, Visa, PepsiCo, McDonald’s, Danaher, UPS, Texas Instruments, NextEra Energy, GE, 3M, Chipotle Mexican Grill, ADM, Biogen, Illumina, Spotify

  • Wednesday: Teck Resources, Novozymes, Kone, Dassault Systemes, Deutsche Boerse, Ping An Insurance, FANUC, Canon, GSK, Universal Music Group, Iberdrola, Assa Abloy, SEB, Svenska Handelsbanken, Meta, Thermo Fisher Scientific, Boeing, ServiceNow, eBay

  • Thursday: DSV, TotalEnergies, Sanofi, STMicroelectronics, BASF, Deutsche Bank, China Life Insurance, Sinopec, BYD, Keyence, Hitachi, AstraZeneca, Barclays, DNB Bank, BBVA, Repsol, Atlas Copco, Nordea Bank, Amazon, Eli Lilly, Mastercard, Merck, AbbVie, Linde, Honeywell, Amgen, Intel, Caterpillar, Mondelez, Valero Energy, L3Harris Technologies, Newmont, Rockwell Automation, First Solar, Cloudflare, Pinterest, Snap

  • Friday: Imperial Oil, Danske Bank, Neste, Mercedes-Benz, PetroChina, China Shenhua Energy, Eni, Sony, Norsk Hydro, Yara International, Hexagon, Exxon Mobil, Chevron, Colgate-Palmolive

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