Parsing and Digesting Earnings Soup
A sea of earnings reports brings fresh updates for investor tapestries and our models
With modest fresh economic data on the horizon for today, just the June Existing Home Sales report, and no Fed speakers on deck, investors will be picking through quarterly earnings reports from the likes of NXP Semiconductor (NXPI), General Motors (GM), UPS (UPS), Coca-Cola (KO), Polaris Industries (PII), and Lockheed Martin (LMT). The aim will be fourfold - shareholders of reporting companies will want an update on their company’s prospects. Investors will parse the comments ahead of companies in which they own report their quarterly results and listen to manage comments about various sectors and drivers of the economy. They will also take stock of the growing number of earnings reports for S&P 500 basket companies to determine if market expectations. Lastly, in the sea of company updates they will look to better distinguish areas of strength from weakness, or at least areas which seem to be slowing down.
For example, UPS missed June quarter expectations with revenue falling 1.1% YoY to $21.82 billion, below the $22.17 billion consensus. The company’s earnings press release was sparse when it came to details on the quarter, which means we should expect some tough questions during the company’s earnings call. ATV and recreational vehicle Polaris Industries, offered far more color on its June quarter miss and reduced outlook for 2024 - “The second quarter proved challenging as our industry continued to contend with elevated interest rates, inflation, and an increasingly cautious dealer and consumer... Reducing dealer inventory is a central priority, both through intentional retail driving efforts and adjusting our production forecasts to further cut back on dealer shipments.”
The read through on Polaris’s comments are consumer demand for its products is tepid at best, more likely weak. Because ATVs and related recreational vehicles are primarily discretionary items, it’s fair to say these results support a more cautious and selective consumer. We see that benefitting our Cash Strapped Consumer strategy. Meanwhile, Quest Diagnostics (DGX), delivered a beat and raise June quarter, due in part to greater testing demand tied to our Aging of the Population strategy. Quest tossed out its efforts in automation and AI in its press release, potentially providing AI use cases the market is increasingly looking for.
As it relates to our EV Transition model, the following comment from GM CEO Mary Barra in the June quarter Letter to Shareholders caught our attention: “As excited as we are about our EVs and our early success, we are committed to disciplined volume growth, which is the key to earning positive variable profits from our portfolio in the fourth quarter, which remains our goal.” The GM earnings call will likely be peppered with questions about the company’s EV targets, especially following the one we share below from Volkswagen’s (VWAGY) Porshe about its 2030 EV target.
While GM bested Wall Street figures for the June quarter, chip company NXP Semiconductor (NXPI) saw revenue for its automotive segment fall both sequentially and year over year. That will likely lead to questions for GM, but also Ford Motor (F) and Stellantis (STLA) about inventory levels and expected production in 2H 2024. On the bright side for NXP, its Industrial & IoT revenue climbed 7% QoQ while its Communications Infrastructure segment rose 10% on that basis and its Mobile business jumped 21% YoY. All positives for our Digital Infrastructure strategy.
And that’s just today. With the June quarter earnings season heating up as we move through the week, and again next week, there will be a plethora of insights to help you update your investment “mosaic”, “tapestry” or whatever you might call it. Rest assured, that’s what we’ll be doing for our strategies discussed in more detail below.
Model Musings
Artificial Intelligence, Cybersecurity
“Cybersecurity researchers have uncovered security shortcomings in SAP AI Core cloud-based platform for creating and deploying predictive artificial intelligence (AI) workflows that could be exploited to get hold of access tokens and customer data.” Read more here
Artificial Intelligence, Digital Lifestyle
“Samsung is focusing on AI as the future of mobile devices – we’ve already seen the software with the recent Galaxy AI features, but the hardware “may turn out to be radically different from Samsung’s existing phones,” according to TM Roh, the President of Samsung’s Mobile Experience unit (MX).” Read more here
Cash Strapped Consumer
“Burger chain McDonald's (MCD.N), opens new tab $5 value meal offer will be extended to August at most U.S. locations after about 93% of its restaurants voted in favor of the plan, according to a memo seen by Reuters… The $5 meal has helped bring back traffic into McDonald's restaurants, the memo noted, after higher fast-food prices had driven budget-conscious customers to limit eating out and switch to cheaper home-cooked meals.” Read more here
“In an effort to court customers in a competitive market, online brands and retailers have increased the amount of promo codes they offer. That’s according to new data from AI-powered promo code platform SimplyCodes, which examined nearly 400,000 retailers on the platform from January to June 2024. They found that, on average, retailers issued nine unique codes — an increase of 31% compared to the same period in 2023.” Read more here
Cybersecurity
“The largest trial court in the United States, the Superior Court of Los Angeles County, closed all 36 courthouse locations on Monday to restore systems affected by a Friday ransomware attack. The attack, which has not yet been claimed by a ransomware operation, affected the entire network of the Los Angeles Superior Court. This includes external systems like the MyJuryDuty Portal and its website and internal systems like the case management systems.” Read more here
“Threat actors are exploiting the massive business disruption from CrowdStrike's glitchy update on Friday to target companies with data wipers and remote access tools. As businesses are looking for assistance to fix affected Windows hosts, researchers and government agencies have spotted an increase in phishing emails trying to take advantage of the situation.” Read more here
“In its latest State of Application Security Report, Cloudflare paints a sobering picture of the internet's threat landscape in 2024. How sobering? Try 6.8% of internet traffic is malicious, up a percentage point from last year's study.” Read more here
Digital Infrastructure
“A faulty software update caused technological havoc worldwide on Friday, grounding flights, knocking down some financial companies and news outlets, and disrupting hospitals, small businesses and government offices. The breadth of the outages highlighted the fragility of a digitized world dependent on just a few providers for key computing services.” Read more here
EV Transition
“Porsche AG is abandoning its electric vehicle sales ambitions over lower-than-expected momentum for plug-in models in Europe and China. While EVs could account for more than 80% of Porsche’s new-vehicle sales in 2030, it’s no longer the company’s concrete goal, the Volkswagen AG-controlled automaker said Monday.” Read more here
“Ford Pro, Ford Motor Company's commercial division, has launched the Ford Pro Smart Charging Bundle in California. This initiative offers complimentary Ford Pro Level 2 EV chargers to businesses subscribed to Ford Pro Charging software. The bundle includes advanced energy management features to automate demand response to grid events, reporting, and manage Low Carbon Fuel Standard carbon credits. The program aims to simplify the adoption of electric vehicles for businesses, improve operations, and reduce EV charging costs.” Read more here
Safety & Security
"Stunned and alarmed by the Russian invasion of Ukraine, European members of NATO have been making significant increases to their defense budgets. In 2024, an estimated 23 NATO members will spend at least 2% of gross domestic product (GDP) on defense. Poland, on the front line with Belarus and Ukraine, is estimated to spend 4% of GDP this year and has called for NATO to raise its defense-spending minimum target to 3%." Read more here
Space Economy
"The global Earth Observation (EO) satellite market is forecast undergo substantial growth over the coming decade, with the number of EO satellites in orbit expected to almost triple as the manufacturing market grows by 40 per cent and the value of the launch market increases by 55 per cent. The latest Earth Observation Satellite Systems report from Novaspace predicts 5,401 EO satellites will be launched between 2024 and 2033. This is up from 1,864 launched over the previous decade and marking a 190 per cent increase." Read more here
The Strategies Behind Our Thematic Models
Aging of the Population - Capturing the demographic wave of the aging population and the changing demands it brings with it.
Artificial Intelligence – Software, chips, and related companies that facilitate the collection and analysis of large data sets and autonomous generation of solutions given non-machine language prompts.
Cash Strapped Consumer - Companies poised to benefit as consumers stretch the disposable spending dollars they do have.CHIPs Act – Capturing the reshoring of the US semiconductor industry and the $52.7 billion poised to be spent on semiconductor manufacturing.
Cloud Computing – Companies that provide hardware and services that enhance the cloud computing experience for users, such as co-location, security, and edge computing.
Core Holdings – Companies that reflect economic activity and are large enough to not get pushed around by day-to-day market trends. Low-beta, large-cap names able to better withstand economic turmoil.
Cybersecurity - Companies that focus on protecting against the penetration of digital networks and the theft, ransom, corruption or destruction of data.
Digital Infrastructure & Connectivity -The buildout and upgrading of our Networks, Data Storage Facilities, and Equipment.
Digital Lifestyle - The companies behind our increasingly connected lives.
Data Privacy & Digital Identity - Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
EPS Diplomats - Profitable large capitalization companies proven to produce above-average EPS growth and provide investors with the benefit of multiple expansion.
EV Transition - Capturing the transition to EVs and related infrastructure from combustion engine vehicles.
Guilty Pleasure – Companies that produce/provide food and drink products that consumers tend to enjoy regardless of the economic environment and potential long-term health hazards associated with excessive consumption.
Homebuilding & Materials – Ranging from homebuilders to key building product companies that serve the housing market, this model looks to capture the rising demand for housing, one that should benefit as the Fed returns monetary policy to more normalized levels.
Luxury Buying Boom - Tapping into aspirational buying and affluent buyers amid rising global wealth.
Market Hedge Model – This basket of daily reset swap-based broad market inverse ETFs protects in the face of market pullbacks, overbought market technicals, and other drivers of market volatility.
Nuclear Energy & Uranium – Companies that either build and maintain nuclear power plants or are involved in the production of uranium.
Precision Ag & Agri Science – Companies that look to address shrinking arable land by helping maximize crop yields utilizing technology, science, or both.
Rebuilding America - Turning the focused spending on rebuilding US infrastructure into revenue and profits.
Safety & Security – Targeted exposure to companies that provide goods and services primarily to the Defense and security sectors of the economy.
Space Economy – Companies that focus on the launch and operation of satellite networks.
The Strategies Behind Our Dividend Income Models
Monthly Dividend Model – Pretty much what the name says – this model invests in companies that pay monthly dividends to shareholders.
ETF Dividend Model – High-yielding ETFs that provide a range of exposures from domestic equities, international equities, emerging market equities, MLPS, and REITs.
ETF Enhanced Dividend Model – A group of high-yielding ETFs that utilize options to enhance yield through collecting option income.
Don’t be a stranger
Thanks for reading and if you have a suggestion for an article or book we should read, or a stream we should catch, email us at info@tematicaresearch.com. The same email works if you want to know more about our thematic and targeted exposure models listed below.