A mixed week for US earnings was matched by a mixed week on Wall Street as stocks, except notably small caps, recorded modest losses.
Resilient results from the big US banks suggested the Federal Reserve has some scope to push up rates a little further without risking the stability of the financial system. Though the US regional banks are arguably the larger concern at this point.
Telecoms firm AT&T (T:NYSE) endured a double-digit fall in its share price as its first quarter results got a negative reaction from investors. Of particular concern was free cash flow which, at $1 billion, was half what had been pencilled in by analysts.
This suggests there may be cuts to the company's prized dividend. Airline United Continental (UAL:NASDAQ) gained altitude on a bullish outlook despite a patchy first quarter update.
Below the top tier of stocks school bus maker Lion Electric (LEV:NYSE) motored around 30% higher after unveiling a factory in Quebec which is set to produce lithium-ion batteries for medium and heavy-duty vehicles.
TESLA
Tesla's (TSLA:NASDAQ) price-cutting tactic has slashed the EV maker's margins, but Elon Musk seems willing to pay the price for ultimate domination.
Trimmed price might have shifted volumes in the first-quarter - sales rose 24% - but as predicted, those discounts savaged profits margins. A host of profitability measures dropped to their lowest in years, well below the record highs of last year. Gross margins of 19.3% fell below the 22.4% anticipated by analysts, dipping even lower than the 20% line in the sand some had drawn.
In fairness, industry-leading margins do give the firm a lot of room to work with: Tesla's operating profit margin sat at 11.4% last quarter, casting a Cybertruck-sized shadow over the 6.6% and 4% of rivals General Motors (GM:NYSE) and Ford (F:NYSE) in 2022.
What is apparent is that Musk is so sure that lower profit in the short run will be outweighed by heftier market share in the future that he's set to double down on this strategy. Investors are not so sure, leaving Tesla needing repairs to a 10% dent in the share price.
JOHNSON & JOHNSON
Shares in US healthcare bellwether Johnson & Johnson (JNJ:NYSE) fell 3% this week despite first quarter earnings and sales beating Wall Street estimates.
The Listerine and Tylenol maker delivered earnings per share (EPS) of $2.88 on sales of $24.75 billion besting analysts' forecasts of $2.50 per share and $23.67 billion.
The strong start to the year prompted the company to increase full-year EPS guidance by around 1% at the mid-point of the range to between $10.60 to $10.70 on sales roughly 1% above prior guidance.
CEO Joseph Wolk commented: ‘First-quarter growth was much stronger than even fourth-quarter growth for all three business units, and our positions kind of change to responsibly optimistic at this point.’
The company said it has made progress in relation to long-running legal allegations that its baby powder and other products caused cancer after proposing to pay claimants around $9 billion.
On Thursday a US Bankruptcy judge put most of the litigation cases against J&J on halt while the company attempts to reach a permanent settlement.
CDW
Tech investors were on the back foot this week after IT solutions provider CDW (CDW:NASDAQ) warned first-quarter sales would miss estimates and lowered its forecast for overall IT spending in the US this year from ‘flat’ to a high-single-digit decline.
The firm blamed ‘intensifying economic pressure’ for its disappointing sales performance as customers spent more cautiously.
‘Volume declines were most acute with our largest commercial customers and across transactional products. Solutions were more resilient, but performance also came in below our expectations’, admitted chair and chief executive Christine A. Leahy.
The announcement sent CDW shares down 10% while shares in rival Extreme Networks (EXTR:NASDAQ) fell as much as 15% after analysts cut their earnings forecasts on the back of the shift in tech spending.
Given the 16% rally in the Nasdaq this year - the best performance by any index globally - and the large contribution tech stocks are expected to make towards US earnings in general, investors were unsurprisingly taking stock.
