Weekly Earnings Preview

This week several noteworthy companies including Tiger Brands, Sportsmans Warehouse and Salesforce are sharing sneak peeks of their upcoming earnings.

Update 5 June 2023

Surmounting Obstacles and Unleashing Potential

Three compelling narratives have emerged, highlighting the delicate balance between financial constraints and market resilience.

The US debt ceiling, also called the debt limit, represents the maximum sum of money that the US government is legally permitted to borrow to fulfill its financial responsibilities. This limit is established by Congress through statutory regulations, setting a cap on the total amount of debt that the US Treasury can issue. Its purpose is to serve as a legal barrier, preventing the government from borrowing beyond a specific threshold.

Periodically, the US approaches this debt ceiling, prompting politicians to negotiate to raise the borrowing limit. It has become common for politicians to deliberately delay increasing the debt ceiling, using it to exert pressure on opponents across various related and unrelated issues. The current situation follows this pattern.

Recently, the Senate passed legislation to suspend the US debt ceiling and impose restrictions on government spending until the 2024 election. Failure to reach a consensus on the debt ceiling could have resulted in a potential default scenario. While such a situation has never occurred, its consequences would be severe, causing significant economic damage.

If a default were to occur, the government would face the inability to pay the salaries of federal and military employees, and Social Security payments, which millions of retirees rely on, would cease. Companies and charities that depend on government funding would also face dire circumstances.

Tiger Brands Ltd (JSE: TBS)

The business encountered challenging circumstances caused by power outages (load-shedding). At the same time, consumer behavior was influenced by high inflation and reduced disposable income, resulting in shifts in product demand and sales volumes. The company’s financial performance suffered from decreased insurance reimbursements and increased financing expenses.

Nevertheless, the company achieved a 16% year-on-year increase in revenue, reaching R19.4 billion. This growth was primarily attributed to a 17% price inflation, although sales volumes experienced a 1% decline. The company announced an interim dividend of 320 ZAR cents per share, maintaining the same level as the previous year.

Profitability came under pressure as substantial price hikes failed to fully compensate for rising input costs, including higher prices for soft commodities, general inflation, and the adverse effects of power outages (causing an estimated 1.5% impact on gross profit). The disappointing financial performance reflected a decrease in operating income, falling short of the management’s projected “solid operating income growth” outlined in the four-month trading update for the first half of FY23. During the earnings call, management highlighted the poor management of price and volume dynamics in the Groceries sector, particularly within the Rice business.

Hewlett Packard Enterprise Co (NYSE: HPE)

HPE made noteworthy strides in its financial performance, achieving a solid 3.9% revenue increase to reach an impressive $7 billion. Although this figure fell slightly below the company’s forecast range of $7.1 billion to $7.5 billion, the earnings per share exceeded expectations at an impressive $0.52.

Within HPE’s diverse business segments, the high-performance computing and artificial intelligence division emerged as a standout, boasting a remarkable revenue of $840 million. During the same period, there was a notable 18% surge in revenue, showcasing substantial growth in comparison to the previous year. However, the computer business encountered hurdles, resulting in an 8% decline in revenue to $2.8 billion. Additionally, storage revenue experienced a slight decline of 3%, reaching $1.0 billion when compared to the corresponding quarter of the previous year. However, HPE’s intelligent edge business showcased exceptional growth, with revenue skyrocketing by a remarkable 50% to reach $1.3 billion compared to the prior-year period.

Despite the hurdles, HPE’s CEO, Antonio Neri, expressed unwavering optimism. He emphasized the company’s strategic shift towards a higher-margin portfolio mix and highlighted the robust demand for its artificial intelligence (AI) offerings. With an optimistic perspective and a dedicated emphasis on seizing future growth prospects, HPE stands ready to achieve sustained success.

Sources: BBC News, Reuters, HPE, Yahoo Finance

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