Portfolio Update - 19 August 2022

📢 Portfolio Update 📢


27 July | Boeing


Boeing reported an adjusted loss per share that was significantly wider than analysts had forecast. Revenue also came in well below expectations, falling 1.9% year-over-year (YOY). Boeing said that revenue performance benefited from higher 737 deliveries, but was offset by lower 787 deliveries, and changes on fixed-price development programs.


Boeing's commercial airplane deliveries rose 53.2% compared to the year-ago quarter.


Demand for commercial planes is much more sensitive to economic conditions, whereas demand for military aircraft depends on government policy decisions regarding military programs. It should be noted that the commercial airplane deliveries figure is a lagging indicator of demand since it is based on past rather than current orders for aircraft.

Demand for Boeing's commercial airplanes has been devastated in recent years by the pandemic's impact on the airline industry.


Furthermore, issues with some of the company's key aircraft, including the grounding of the 737 MAX and subsequent electrical issues, have also affected demand.


Despite decreases in revenue YOY and wider adjusted losses per share than expected, Boeing said that it was able to generate positive operating cash flow for the quarter. It expects to see positive free cash flow for all of FY 2022.


In an earnings call with analysts after results were released, Boeing Chief Executive Officer Dave Calhoun said the plane manufacturer is focusing on getting its Max 7 and Max 10 jet models certified by the Federal Aviation Administration (FAA) by the end of 2022.


These two models are the smallest and largest in the Max family. Calhoun also indicated that supply constraints at engine makers were affecting Boeing.



27 July | Airbus


Airbus reports Half-Year (H1) 2022 results

297(1) commercial aircraft delivered in H1 2022

Revenues € 24.8 billion; EBIT Adjusted € 2.6 billion

EBIT (reported) € 2.6 billion; EPS (reported) € 2.42

Free cash flow before M&A and customer financing € 2.0 billion

A320 Family monthly production rate target of 75 for 2025 unchanged; adjustment to 2022 and 2023 ramp-up trajectory

2022 guidance updated to around 700 commercial aircraft deliveries

2022 guidance maintained for EBIT Adjusted and FCF before M&A and customer financing

Airbus reported a marginal increase in consolidated revenue at €24.8 billion ($25.3 billion) and 2 percent decline in adjusted earnings of €2.6 billion ($2.65 billion) for the first half of 2022.


Airbus delivered 297 commercial aircraft during the period under review including 25 A220s, 230 A320 Family, 13 A330s and 29 A350s, according to a statement issued announcing the results. Guillaume Faury, Chief Executive Officer: "Airbus delivered a solid H1 2022 financial performance in a complex operating environment with the geopolitical and economic situation creating further uncertainties for the industry […] The supply chain challenges are leading us to adjust the A320 Family ramp-up steps in 2022 and 2023, and we now target a monthly rate of 65 in early 2024. Our aircraft delivery target for 2022 has been updated accordingly. The earnings and free cash flow guidance are maintained, underpinned by the H1 financials.”


Gross commercial aircraft orders increased to 442 (H12021: 165 aircraft) with net orders of 259 aircraft after cancellations (H12021: 38 aircraft). The order backlog amounted to 7,046 commercial aircraft on June 30, 2022, the statement added. Outlook "The company assumes no further disruptions to the world economy, air traffic, the company's internal operations, and its ability to deliver products and services." Airbus now targets to deliver around 700 commercial aircraft in 2022, maintains an adjusted earnings target of around €5.5 billion ($5.6 billion) and around €3.5 billion ($3.6 billion) free cash flow before M&A and customer financing, the statement said.


The liquidity position remains strong, standing at € 27.6 billion at the end of June 2022. In June, the Company bought back a portion of its bonds maturing between 2024 and 2028 for a total amount of € 1 billion to reduce the gross debt position, optimise the balance sheet and regain financial flexibility.


In July, liquidity was further improved through the upsizing of the undrawn Revolving Syndicated Credit Facility from € 6 billion to € 8 billion, while the tenor was increased to 5 years with 2 extension options of 1 year. The pricing of this facility benefitted from improved conditions in the loan market and continues to be linked to sustainability criteria.

Outlook

The Company now targets to deliver around 700 commercial aircraft in 2022.


The Company maintains its target of around € 5.5 billion of EBIT Adjusted and around € 3.5 billion of Free Cash Flow before M&A and Customer Financing in 2022.



28 July | Meta


Here’s how the company did:

Earnings: $2.46 per share vs. $2.59 per share expected, according to analysts

Revenue: $28.82 billion vs. $28.94 billion expected, according to analysts

Daily Active Users (DAUs): 1.97 billion vs 1.96 billion expected, according to analysts

Monthly Active Users (MAUs): 2.93 vs 2.94 billion expected, according to analysts

Average Revenue per User (ARPU): $9.82 vs. $9.83 expected, according to analysts

Meta known as Facebook for its popular social networking site and brand, has faced a rapid deceleration in growth in its core social networking business in recent quarters.


Coupled with intense regulatory scrutiny, this has prompted Facebook to adopt new strategies designed aimed at boosting engagement.


The company recently announced plans to let users create up to five profiles for each Facebook account in an effort to boost sharing and posting. Meta also is launching new monetizing features on Facebook and Instagram that will enable creators to make direct revenue and display non-fungible tokens (NFTs)

Investors will look closely at how these trends are affecting Meta's performance when the company reports earnings on July 27, 2022 for Q2 FY 2022.4 Analysts predict the company will post a sharp decline in adjusted earnings per share (EPS), and the first decline in revenue year-over-year (YOY) in at least three years.


Investors will also be focusing on a key Meta metric: monthly active people (MAP), which measures the size of the company's user base across its entire family of products. Although the company has recently shifted its focus to the metaverse, it is primarily a social networking company that operates multiple platforms. Meta's social media platforms and brands include Facebook, Instagram, Messenger, and WhatsApp. For Q2 FY 2022, analysts expect MAP to grow at the slowest pace in at least three and a half years.

Meta posted strong adjusted EPS growth during the pandemic in 2020 and 2021 as people sheltered at home and sharply boosted their use of social media. In FY 2020, adjusted EPS growth accelerated from 13.2% YOY in Q2 to 46.0% for Q4. In FY 2021, adjusted EPS nearly doubled in Q2 compared to the same quarter a year earlier. But growth has sharply decelerated since then. Adjusted EPS growth slowed to 33.0% in Q3 FY 2021 and to 3.5% in Q4. In Q1 FY 2022, the company posted its first quarterly adjusted EPS decline, falling 11.2%, since the third quarter of FY 2029. In Q2, analysts expect adjusted EPS to drop 23.6% YOY.


Meta has posted robust revenue growth in recent years. Revenue rose 26.6% in FY 2019, 21.6% in FY 2020 and accelerated to 37.2% in FY 2021. In the last three quarters, revenue growth has slowed significantly, rising by only 6.6% YOY in Q1 FY 2022. Now analysts expect revenue to decline in Q2, which would be the first decline in at least three and a half years.



28 July | Amazon


Here’s how the company did:

EPS: Loss of 20 cents

Revenue: $121.23 billion vs. $119.09 billion expected, according to analysts

Here’s how other key Amazon segments did during the quarter:

Amazon Web Services: $19.7 billion vs. $19.56 billion expected, according to analysts

Advertising: $8.76 billion vs. $8.65 billion expected, according to analysts

Revenue growth of 7% in the second quarter.

Amazon said it expects to post third-quarter revenue between $125 billion and $130 billion, representing growth of 13% to 17%. Analysts were expecting sales of $126.4 billion, according to analysts.


Amazon has been contending with higher costs, as pandemic-driven expansion left the company with too many workers and too much warehouse capacity.


“Despite continued inflationary pressures in fuel, energy, and transportation costs, we’re making progress on the more controllable costs we referenced last quarter, particularly improving the productivity of our fulfillment network,” CEO Andy Jassy said in a statement.

Amazon has reduced its headcount by 99,000 people to 1.52 million employees as of the end of the second quarter after almost doubling in size during the pandemic.


Technology companies have been announcing layoffs, hiring freezes and rescinding job offers in the midst of economic uncertainty. On a call with reporters, CFO Brian Olsavsky said Amazon will continue to hire engineers for units like Amazon Web Services and advertising, but will be cautious about hiring in other areas.


Amazon’s core e-commerce business continues to suffer as online sales are no longer flourishing like they were at the height of the Covid-19 shutdown. The company’s online stores segment declined 4% year over year. Physical store sales continued to rebound from the year-ago period, growing 12%.

Sales at Amazon Web Services jumped 33% from a year earlier to $19.74 billion, above the $19.56 billion projected by analysts.


The upbeat results could also help improve the mood around Jassy, who replaced Jeff Bezos as CEO a little over a year ago. Jassy’s first year on the job has been marred by challenges, including an ongoing labor battle, the market downturn, growing regulatory pressure and an exodus of top talent.


He’s also under pressure to show he can return Amazon’s core retail business to the growth investors have become accustomed to seeing, a difficult task given the macro pressures the company faces, such as soaring inflation and slowing consumer discretionary spending.



28 July | Apple


Here are the key numbers compared to what analysts’ expectations:

EPS: $1.20 vs. $1.16 estimated, down 8% year-over-year

Revenue: $83 billion vs. $82.81 billion estimated, up 2% year-over-year

iPhone revenue: $40.67 billion vs. $38.33 billion estimated, up 3% year-over-year

Services revenue: $19.60 billion vs. $19.70 billion estimated, up 12% year-over-year

Other Products revenue: $8.08 billion vs. $8.86 billion estimated, down 8% year-over-year

Mac revenue: $7.38 billion vs. $8.70 billion estimated, down 10% year-over-year

iPad revenue: $7.22 billion vs. $6.94 billion estimated, down 2% year-over-year

Gross margin: 43.26% vs. 42.61% estimated

Apple’s revenue rose 2% during the quarter, compared to 36% growth during the same period last year and over 8% growth in the March quarter. Cook said the results were better than expected and CFO Luca Maestri said it was a “challenging operating environment.”


Chipmakers and other computer vendors have signaled that there is slowing demand for smartphones and PCs around the world as consumers grapple with recession fears and decades-high inflation. Apple’s soft growth may suggest that the consumer electronics industry — including leaders like Apple — is headed for a period of slow or no growth.

“We do see inflation in our cost structure,” Cook said. “We see it in things like logistics and wages and certain silicon components and we’re still hiring, but we’re doing it on a deliberate basis.”


Apple’s iPhone sales exceeded Wall Street expectations, suggesting that demand for iPhone 13 models remains strong even in the second half of the product’s annual release cycle. Apple typically releases new iPhones in September and sales fall as customers anticipate new models.


Services grew over 12% during the quarter, although that is a decline from the 17% growth it posted in the second quarter, and down from the 27% growth it reported during the same time period last year. Cook said Apple has 860 million current paid subscriptions, which includes anyone who subscribes to an app sold on the Apple App Store in addition to products such as Apple Music and iCloud.


Apple’s business in Greater China, which includes Taiwan and Hong Kong, declined 1% on an annual basis to $14.6 billion. Cook said that result was despite major Covid restrictions that hurt demand.


Apple’s gross margin exceeded the company’s own forecast from April. Apple reported 43.26% in gross margin, over the 42% to 43% range the company suggested earlier this year.

Apple said it spent over $28 billion on share buybacks and dividends during the quarter.



29 July | Hermes


Sales at Hermes rose sharply in the second quarter, lifted by fast growth in Europe and the United States, and rebounding quicker than rivals in China after lockdowns eased in June.

Luxury retailers were hit hard by curbs on movement from mid-March in key Chinese cities such as Shanghai and Beijing, with most reporting an over 30% drop in quarterly sales in the country - a crucial market for the industry.


French leather goods company Hermes, which is also known for its silk scarves with equestrian prints, was more upbeat, saying that sales had grown in percentage terms by double digits in June and continued to perform well this month. The return of U.S. tourists to Europe also helped lift sales, the group said.


Overall revenues in the three months to June came to 2.7 billion euros ($2.76 billion), a higher-than-expected 19.5% rise at constant exchange rates, which strips out currency fluctuations.


Hermes also beat market forecasts by raising operating margins to a record 42% in the first half of the year, the highest level in the industry and a considerable achievement given that Hermes has in recent months raised prices less than competitors such as LVMH and Chanel.


The group does not plan to further raise prices this year beyond an average of 4% already implemented to offset rising costs of raw materials and precious metals.


Hermes, traditionally regarded as particularly resistant to downturns, has long been one of the steadiest performers in the luxury goods industry, in part due to its careful management of production and stocks, which have helped maintain its aura of exclusivity.


"This set of results confirms that Hermes is likely going to be the most resilient luxury goods player in a recession, and an appropriate hiding place for those seeking cover," said Luca Solca, luxury analyst at Bernstein.



Thank you


Have a nice weekend! 👍🏻👍🏻

GSerdan