Weekly Earnings Outlook

As earnings season winds down, investors can keep an eye on earnings releases from notable companies like Alexander Forbes, Telkom, and Oracle this week.

Update 20 June

Federal Reserve Holds Rates Amid Inflation Focus

In a notable development, the US Federal Reserve halted its streak of rate hikes and shifted its attention to gradually curbing inflation back to the targeted level. Alexander Forbes witnessed impressive growth, primarily propelled by their retirement consulting and healthcare businesses. While, Adobe celebrated a record-breaking revenue milestone and solid demand for its diverse offerings, solidifying its position as a frontrunner in generative AI.

As anticipated, the US Federal Reserve kept its target rate steady at 5% to 5.25%. This decision marks the first break after a sequence of ten successive rate hikes, which pushed up borrowing costs in the US to their highest point since September 2007.

During a press conference on Wednesday, Federal Reserve Chair Jerome Powell emphasized that their current focus is determining the necessary extent of additional policy tightening to gradually bring inflation back to the targeted 2% level. He clarified that the pace and magnitude of the rate increases are different factors, considering the progress already made. It could be reasonable for interest rates to rise, albeit at a more moderate pace.

Regarding future rate hikes, Powell clarified that no decisions have been made. However, the Fed is monitoring specific data indicators reflecting improved economic conditions, including growth significantly below the trend, a loosening labor market, and the gradual improvement of the supply chains for goods.

Alexander Forbes Group Holdings Ltd (JSE: AFH)

Alexander Forbes delivered a robust financial performance in line with management guidance. Headline earnings per share (HEPS) from total operations recorded an impressive 44% year-on-year growth, reaching 47.7 cents, while HEPS from continuing operations rose by 22% to 45.5 cents. Operating income saw an 8% increase, amounting to R3.5 billion. This growth was driven by the retirement consulting and healthcare businesses and contributions from acquisitions, accounting for 2% of the change. The investments and individual consulting segments performed well, aligning with the growth in average assets.

The retirement consulting segment experienced a substantial 15% year-on-year growth, fueled by both organic and acquisitive growth, including the impact of the EBS International acquisition in July 2022. Excluding EBS, the segment achieved 8% growth year-on-year, attributed to new business wins from the previous year and sustained wins in the current year. Assets under management (AUM) increased 7% year-on-year, reaching R116 billion, driven by positive cash inflows.

The company declared a total dividend of 42 cents per share, representing a significant 31% year-on-year increase, providing additional value to shareholders.

Adobe Inc (NSDQ: ADBE)

According to Adobe’s chair and CEO, Shantanu Narayen, the company achieved remarkable results in the second quarter, showcasing strong demand across its Creative Cloud, Document Cloud, and Experience Cloud offerings. Narayen emphasized Adobe’s pioneering innovation, positioning the company to lead the new era of generative AI.

Regarding financial performance, Adobe reported a record revenue of $4.82 billion in the second quarter of fiscal year 2023. This represents a notable 10 percent year-over-year or 13 percent growth in constant currency. GAAP net income amounted to $1.30 billion, while non-GAAP net income reached $1.79 billion. Adobe demonstrated robust cash flows from operations, totaling $2.14 billion during the quarter.

Furthermore, Adobe engaged in share repurchases, buying back approximately 2.7 million shares during the quarter, reflecting their confidence in the company’s performance and prospects.

Sources: Bloomberg, Forbes, The MoneyWeb, Barron’s

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