US markets took a breather this week as investors take stock of latest corporate earnings. The S&P 500 booked a third straight day of declines on 3 August as longer-dated Treasury yields spiked in the wake of a downgrade by Fitch Ratings for US bonds.
Other major markets have also slipped over the week, with investors continuing to monitor US economic health data against a backdrop where the nation’s credit worthiness has become a key source of debate. On 1 August, Fitch cut its US rating to AA+ from AAA, becoming the second major rating agency to do so in the past dozen years.
Yet big tech earnings continue to provide optimism after latest quarterly results from Apple (AAPL:NASDAQ) and Amazon (AMZN:NASDAQ), the latter jumping nearly 9% in after-hours trading following much improved trading figures.
Amazon has been stuck with single-digit growth for five out of the last six quarters, but last quarter it shifted gears and sped back into the double-digit fast lane. A lot of the credit goes to its cloud segment, whose revenue revved up an impressive 12% as customers loosened their purse strings. But the e-commerce business wasn’t left in the dust either, with solid 10.5% growth.
Earnings reports calm down next week although some key announcements are due, not least from Warren Buffett’s Berkshire Hathaway (BRK.B:NYSE), Disney (DIS:NYSE) and Coca-Cola (KO:NYSE).
CATERPILLAR
It has been a good week for shareholders in construction and mining equipment maker Caterpillar (CAT:NYSE) with the shares gaining almost $30 or 11% to $288 after second-quarter earnings crushed expectations.
The Irving, Texas-based manufacturer of big yellow machinery posted earnings per share of $5.55 against Wall Street forecasts of $4.57 per share on revenue of $17.3 billion versus forecasts of $16.5 billion.
Construction equipment revenue climbed 19% thanks to a 50/50 mix of higher prices and increased volumes, while sales to the Energy and Transportation sectors jumped 27% thanks mostly to higher volumes and to a lesser degree price rises.
‘Our results reflect continued healthy demand as we achieved double-digit top-line growth and record adjusted profit per share while generating strong free cash flow’, commented chairman and chief executive Jim Umpleby.
The firm’s second-quarter operating margin jumped to 21.1% from 13.6% a year earlier, while cash-flow reached $7.4 billion even after paying dividends of $600 million and buying back $1.4 billion of stock.
If there was one fly in the ointment it was the admission that while third-quarter sales and margins would be ahead of last year they wouldn’t be quite as strong as the second quarter, but with US infrastructure investment booming thanks to the Inflation Reduction Act the firm is clearly in the sweet spot for now.
PAYPAL
It has been a disappointing two years for investors in digital payments firm and lockdown winner PayPal (PYPL:NASDAQ). The $71.6 billion company has seen its share price plunge from pandemic peaks amid worries over margin pressure, slowing e-commerce growth and competition from the likes of Apple, with rising interest rates also impacting sentiment towards tech stocks.
There was no respite for PayPal shareholders over the past week as the shares fell sharply, down 11.5% to $64.6 in the wake of second quarter results (2 Aug) that revealed weak transaction and adjusted operating margins, though revenues were at the high end of guidance.
PayPal’s adjusted operating margin of 21.4% for the quarter to June missed estimates of 22%, though total payment volume surged 11% to $376.5 billion as the California-based company reaped the benefits of resilient consumer spending. PayPal also posted a pretty upbeat outlook, with CEO Dan Schulman expressing ‘high confidence that our business is on the right path and we’re seeing clear signs that the investments we’ve made are paying off’.
AIRBNB
Airbnb CEO Brian Chesky might still be upbeat but the numbers tell a more sedate story. The online home rental marketplace said (3 Aug) nights and experiences booked in the second quarter increased by almost 11%, yet investors were not happy, marking the stock down modestly to leave Airbnb nursing a 6% decline over the week.
Airbnb said it had 115.1 million nights and experiences booked during the quarter, up almost 11%, but less than the 117.6 million StreetAccount consensus.
Airbnb has benefited from positive travel trends post pandemic and it is a company that is continually innovating but investors expect firmer and faster growth to justify the stock’s premium rating, on a forward PE of nearly 50.
Still, the shares have rallied 65% this year so far, so few investors will be complaining too loudly.
