Weekly Earnings Outlook

Update 21 August

During the second quarter of 2023, the US earnings season displayed a rollercoaster of results, characterized by a sequence of peaks and valleys that unraveled with fluidity—the season commenced with an impressive surge, especially among financial services companies, which managed to comfortably surpass estimates, setting a positive tone for the reporting period.

When analyzing the overall picture, it becomes evident that revenue growth managed to outshine initial expectations. This a remarkable feat, as the aggregate revenue growth stood at 0.4%, outperforming the initial projection of -0.3%. However, the narrative shifts slightly when it comes to earnings growth. While the numbers were by no means bleak, they did fall somewhat short of the anticipated mark. Earnings growth registered at -8.3%, a tad softer than the projected -7.0%.

Within the S&P 500, 15% of the entities involved fell short of expectations. An intriguing twist accompanied this outcome, as the cumulative surprise managed to land on the positive side, boasting an impressive 7.5%. This fact alone highlights the underlying complexity of this earnings season, showcasing a divergence between individual performances and overall market sentiment.

Surging ahead with distinction, the consumer discretionary sector once again stole the limelight as the star performer. This sector managed to post outstanding figures, boasting a remarkable 14.4% growth in revenue and an awe-inspiring 52% surge in earnings growth. This staggering performance highlights the consumer’s resilience and determination to drive economic growth.

Conversely, the energy sector displayed relative weakness, grappling with a substantial contraction in earnings by 51.4%. Though this figure might raise eyebrows, it still managed to fare slightly better than the market initially braced itself for. This reveals a certain degree of adaptability within the energy sector, despite the challenges it has been facing.

Walmart Inc (NYSE: WMT)

Walmart released its’ Q2 earnings reporting remarkable revenue growth of 5.7%. The numbers paint a compelling picture of the company’s ongoing success and ability to adapt to changing consumer trends.

In line with the modern shift towards digital commerce, Walmart has made significant strides in eCommerce, marking a 24% global increase.

The highlight of the results is Walmart’s performance in its physical stores. The data showcases a 6.30% rise in same-store sales, surpassing the optimistic Bloomberg estimate of 4.04%. This achievement is mirrored in the foot traffic statistics, which have risen by 2.8%. In tandem with this, the average transaction value has also experienced an uptick of 3.4%. These figures are even more significant when viewed against the backdrop of a 2.3% rise in online sales, demonstrating the company’s prowess in maintaining a solid physical presence while simultaneously nurturing its digital channels.

During the earnings call, Walmart’s CEO, Doug McMillon, offered insightful observations about the company’s clientele. He emphasized the resilience of their customers and members, highlighting their quest for value and the trust they place in Walmart to fulfill their needs. McMillon noted that the company has witnessed an increasing frequency of visits from various income groups, all seeking economical solutions for their daily essentials. This trend, in turn, provides Walmart with an opportunity to convert these visits into purchases across a broader range of product categories, including those deemed more discretionary.

MTN Group (JSE: MTN)

In the first half of this year, telecommunications powerhouse MTN delivered promising financial results. MTN reported a 7.1% increase in headline earnings per share (HEPS). However, this growth was tinged with the impact of significant forex losses incurred within the Nigerian segment of the company. Undoubtedly, H1 2023 showcased MTN’s strength, as evidenced by a substantial 13.5% rise in EBITDA. Yet, a closer examination reveals that the EBITDA margin, when considered in constant currency terms and adjusted for one-off items, experienced a slight contraction of 0.5 percentage points, settling at 44.0%. This margin narrowing was attributed to the influence of elevated inflation, which placed pressure on operational expenses.

Amidst this dynamic environment, MTN unveiled a strategic alliance that promises exciting opportunities for its flourishing fintech endeavors.

The company and Mastercard, a worldwide pioneer in payment technology, formalized their collaboration through the signing of a memorandum of understanding (MOU). In this landmark agreement, Mastercard will acquire a minority stake in MTN’s Fintech business. The transaction is set to conclude at an impressive valuation of approximately $5.2 billion, which equates to roughly 40% of MTN’s market capitalization. This landmark deal encompasses the equity transaction and strategic commercial agreements designed to bolster the expansion of payments and remittance services.

Sources: Bloomberg, MTN Group Limited, Walmart, YahooFinance

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