EQUITIES 6 minutes to read

Earnings Watch: Can Daimler break the negative sentiment on autos?

Peter Garnry

Head of Equity Strategy

Summary:  The Q4 earnings season continues at high speed this week with around 340 companies reporting earnings out of the 2,000 companies we track during the period.


Almost half of the S&P 500 companies have so far reported Q4 earnings and the results have steadily improved over the weeks. Preliminary numbers suggest a slighter slowdown in earnings growth compared to what was expected. Even revenue numbers have improved over the past week for S&P 500 companies.

Moving to Europe, the initial picture was grim with negative earnings growth. However, as the earnings season progresses, STOXX 600 companies have delivered more upbeat numbers and the aggregate number is now showing positive earnings growth.

The energy sector has so far performed best in terms of earnings surprises, delivering an aggregate 22% earnings surprise for the first one third of the energy companies expected to report. Last Friday saw strong numbers from the two US energy giants ExxonMobil and Chevron with an upbeat outlook on the sector. At the other end of the spectrum we find consumer staples that typically do well relative to other sectors when the economy slows down, but the Q4 numbers have so far been disappointing and the sector has underperformed by the most post earnings releases.

Alphabet

Google’s parent company reports Q4 earnings today (after-market) with analysts expecting EPS $13.04 down 6% y/y and revenue of $31.3bn up 21% y/y. Alphabet continues to deliver +20% growth but we do expect the story to increasingly be about margin compression and investors seeking clarity of when new businesses will deliver meaningful growth to the overall business. There are high expectations for Waymo (self-driving automobile service) but these could prove to be too optimistic. In the short term investors are more excited about YouTube as Alphabet is just beginning to tap into this asset in terms of generating profits. 

Walt Disney

With Walt Disney having announced its intention to move into the video streaming industry, the company FY19 Q1 (Q4 calendar period) numbers are very highly anticipated and expected to come out on Tuesday (after-market). Analysts are expecting EPS €1.56 down 18% y/y and revenue of $15.1bn down 2% y/y. While Walt Disney has likely experienced a significant slowdown in the last quarter all eyes are on the Fox acquisition/integration (including selling Fox’s decision to tender its $15bn Sky shares and the DoJ’s requirement of Walt Disney to sell its 22 regional sports networks) and more news on the upcoming Disney Plus direct-to-consumer streaming product in the second-half. Especially Disney Plus plans are something that can move the shares over the earnings release as investors are seeing this product as the key to unlock high growth rates for the company’s content library globally.

Daimler

The global automobile industry has been in disarray during 2018 with declining global demand and especially in China and Europe. On top of that investment needs for self-driving technology and transition to EV technology have reduced profitability. Daimler has not escaped this and when the company reports Q4 numbers on Wednesday analysts are expecting EPS of €1.54 down 51% y/y and revenue of €45.8bn up 5% y/y. Investors will come into the earnings release with low expectations and a challenging year for Daimler with the Mercedes brand under pressure in all key markets on top of rising costs and uncertain environment due to the US-China trade conflict.

The table below shows the most important earnings this week.
Source: Saxo Bank

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