With recession fears bubbling away in the background this was always going to be a crucial week in terms of earnings, and on the whole companies haven’t disappointed. From consumer and industrials to tech stocks, results have generally been better than hoped.
Heavy equipment maker Caterpillar (CAT:NYSE) posted its best quarterly earnings in two years, crushing estimates and allowing it to pay $600 million of dividends and buy back $400 million of shares.
For all the positive news, however, and even with a 2% rally overnight, the S&P500 index is still only flat over the last five days at 4,135 points.
Nagging away at investors is the worry there could be more bank failures, after shares in First Republic (FRC:NYSE), which were trading at $120 at the start of March, collapsed to just $0.05 on news the firm had suffered $100 billion of deposit outflows despite a federally-backed $30 billion rescue earlier this month.
BIG TECH QUARTERLY BEATS
Alphabet (GOOG:NASDAQ), Microsoft (MSFT:NASDAQ) and Meta Platforms (META:NASDAQ) stormed back into investor good books over the past week, and no prizes for guessing that AI excitement is what got everyone talking.
‘While AI is primarily driving conversation rather than being a financial driver at the moment, it will at some point likely replace the Cloud narrative that has driven Microsoft now for several years,’ said Megabuyte analyst Lee Prout.
Consulting firm Gartner estimates that companies will funnel over half of their IT spending into cloud technology come 2025, and that chunk could be even higher if AI really takes off. Facebook-owner Meta has even toned down its metaverse narrative as it too explores AI potential.
No wonder Google is feeling pressure from the popularity of AI-based chatbot ChatGPT, launched late last year by Microsoft-backed OpenAI. The company quickly launched its own AI chatbot, Bard, opening a new AI front for mega tech firms to battle over.
For now, investors are pleased by the swinging axe to costs, promising better returns in the short-term as big tech firms assess their own AI opportunities, sending share prices rallying hard. Meta’s 12% jump was third best performance in the S&P 500.
COCA-COLA & PEPSICO
Coca-Cola (KO:NYSE) bested sales and earnings expectations for the first quarter through March as demand remained resilient despite several price hikes.
Net sales increased 5% to $10.98 billion, slightly higher than Wall Street estimates, while EPS (earnings per share) climbed 12.5% year-on-year to $0.68, around 6% higher than consensus.
Stripping out acquisitions and divestitures sales were up 12% driven largely by price increases. Unit case volumes which are a better measure of growth excluding price and foreign exchange effects grew 3% in the quarter.
The company reaffirmed full year guidance of 7% to 8% sales growth and 4% to 5% earnings growth.
It’s great rival PepsiCo (PEP:NASDAQ) also topped Street estimates and raised guidance, sending the shares to new all-time highs of $190.
Organic sales jumped 14.3% year-on-year to $17.85 billion beating estimates of $17.22 billion and EPS came in 8% ahead of estimates at $1.50. Volumes increased 1% in beverages, but overall volumes shrank 2% while prices were up 16%. The company now expects full year 2023 sales growth of 8%, up from 6% and EPS to increase 9% from 8% previously.
MCDONALD’S/CHIPOTLE MEXICAN GRILL
There were strong results for two US fast food franchises this past week to suggest the right offering at the right price point can still resonate with consumer who are feeling the pinch.
First, McDonald’s (MCD:NYSE) beat analysts’ expectations on 25 April after successfully shrugging off a challenging economic environment and rising costs. The ‘Golden Arches’ company reported EPS of $2.63 for the first quarter of 2023.
Analysts were forecasting EPS of $2.33 versus $2.28 a year ago. The fast-food giant’s revenue has been boosted by higher menu prices in the US and more customer traffic.
Restaurant chain Chipotle Mexican Grill (CMG:NYSE) saw strong share price gains as it too beat expectations. The company said total revenue increased 17.2% to $2.4 billion and comparable restaurant sales increased by 10.9% for the three months ending 31 March 2023.
EPS was $10.50, an 84.2% increase compared to $5.70 in the prior year.
