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Portfolio Update - 31 October 2022

📢 Portfolio Update 📢

  • 26 October | Boeing

  • Adjusted loss per share: $6.18 vs. expected earnings per share of 7 cents.

  • Revenue: $15.96 billion vs. $17.76 billion expected.

Boeing reported a $3.3 billion quarterly loss as problems in its defense unit countered strides in its commercial aircraft business.

The manufacturer generated nearly $3 billion in free cash flow in the three months ended Sept. 30, up from outflows of $507 million a year earlier. Boeing reiterated its forecast to achieve positive free cash flow for the year.

Boeing’s third quarter revenue rose 4% from last year to $15.96 billion, and its more than $3 billion quarterly loss widened compared with a $132 million loss a year earlier. Executives outlined a host of challenges through 2023, including labour and training hurdles and continued constraints on the company’s supply chain.

The trouble in the defense unit has piled up as Boeing is trying to revive its commercial unit is recovering from the Covid pandemic, boosted by a rebound in air travel.

Boeing’s commercial unit’s revenue rose 40% from a year ago to $6.26 billion. It delivered 112 planes in the third quarter, up from 85 a year earlier. Deliveries of its 787 Dreamliner resumed in August after a pause for much of the previous two years to address a series of manufacturing flaws.

Boeing has struggled to stabilize after two crashes of its 737 Max, one almost four years ago in Indonesia and another in Ethiopia five months later, a crisis that grounded the jets around the world.

The manufacturer is now trying to win federal regulator approval of new versions of that aircraft, the 737 Max 7 and 10, the smallest and largest in the family. But Boeing faces a year-end deadline to do so without adding additional alerting systems for pilots, under new legislation passed in the wake of the crashes.

  • 26 October | Meta

  • Earnings per share (EPS): $1.64 vs $1.89 expected

  • Revenue: $27.71 billion vs. $27.38 billion expected

  • Daily Active Users (DAUs): 1.98 billion vs 1.98 billion expected

  • Monthly Active Users (MAUs): 2.96 billion vs 2.94 billion expected

  • Average Revenue per User (ARPU): $9.41 vs. $9.83 expected

Meta is contending with a broad slowdown in online ad spending, challenges from Apple's iOS privacy update and increased competition from TikTok. Add it up, and Meta has posted consecutive quarters of revenue declines and is expected to post its third straight drop in the fourth quarter.

The company said revenue for the fourth quarter will be $30 billion to $32.5 billion. Analysts were expecting sales of $32.2 billion.

While revenue fell 4% in the third quarter, Meta's costs and expenses rose 19% year over year to $22.1 billion. Operating income declined 46% from the previous year to $5.66 billion.

Meta's operating margin, or the profits left after accounting for costs to run the business, sank to 20% from 36% a year earlier. Overall net income was down 52% to $4.4 billion in the third quarter.

Revenue in the Reality Labs unit, which houses the company's virtual reality headsets and its futuristic metaverse business, fell by almost half from a year earlier to $285 million. Its loss widened to $3.67 billion from $2.63 billion in the same quarter last year.

Reality Labs has lost $9.4 billion so far this year, and there's no end in immediate sight. Meta said that it had 197 million daily active users in the U.S. and Canada in the period, up from 196 million during the same quarter in 2020. Meta derives the bulk of its revenue from users in North America.

Meta's report is the latest sign of trouble in the online advertising market, which is getting hammered by factors including Apple's 2021 iOS privacy update and fears of an impending recession. Those concerns have caused companies to slash their marketing and ad campaigns.

  • 27 October | Amazon

  • Earnings: 28 cents per share

  • Revenue: $127.10 billion vs. $127.46 billion expected

  • Amazon Web Services: $20.5 billion vs. $21.1 billion expected

  • Advertising: $9.55 billion vs. $9.48 billion expected

Amazon said it expects to post fourth-quarter revenue between $140 billion and $148 billion, representing year-over-year growth of 2% to 8%. Analysts were expecting sales to come in at $155.15 billion.

Revenue grew 15% in the third quarter, marking a return to double-digit sales expansion, but it still fell short of Wall Street’s projections.

Like the rest of Big Tech, Amazon has had a rocky year so far as it confronts macroeconomic headwinds, soaring inflation and rising interest rates. Those challenges have coincided with a slowdown in Amazon’s core retail business, as consumers returned to shopping in stores.

“There is obviously a lot happening in the macroeconomic environment,” Jassy said in the press release. “And we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets.”

He added that the economic environment in Europe was worse in the quarter than in North America, because the “Ukraine war and the energy crisis issues have really compounded in that geography.”

Under CEO Andy Jassy, Amazon has responded to rising expenses by aggressively cutting costs across numerous divisions in recent months. It shed warehouse space, halted some experimental projects, shuttered its telehealth service and froze hiring for corporate roles in its retail business.

Amazon’s Prime Early Access Sale, held earlier this month, could help juice year-end sales. Data collected by third-party analysts signaled the event may have been lackluster, as shoppers feel the pressure of inflation. Jassy said in the release that customer response to the new discount event, and Prime Day, hosted in July, was “quite positive.”

Operating income at Amazon fell by almost half from a year earlier to $2.53 billion from $4.85 billion. Amazon Web Services accounted for all of the company’s profit, plus some, as the cloud unit generated operating income of $5.4 billion. Still, AWS posted the slowest revenue growth since 2014, when Amazon began breaking out results for the unit.

  • 27 October | Apple

  • EPS $1.29 vs. $1.27 est.

  • Revenue. $90.15 billion vs. $88.90 billion estimated, up 8.1% year-over-year

  • iPhone revenue: $42.63 billion vs. $43.21 billion estimated, up 9.67% year-over-year

  • Mac revenue: $11.51 billion vs. $9.36 billion estimated, up 25.39% year-over-year

  • iPad revenue: $7.17 billion vs. $7.94 billion estimated, down 13.06% year-over-year

  • Other Products revenue: $9.65 billion vs. $9.17 billion estimated, up 9.85% year-over-year

  • Services revenue: $19.19 billion vs. $20.10 billion estimated, up 4.98% year-over-year

  • Gross margin: 42.3% vs. 42.1% estimated

Apple increased revenue by 8% during the quarter, and Apple CEO Tim Cook told that it would’ve grown “double-digits” if not for the strong dollar. Total sales in Apple’s fiscal 2022 were up 8% to $394.3 billion.

Although Apple’s iPhone business increased sales by over 9% on an annual basis, it came up short versus analyst expectations. Apple’s September quarter had 8 days of iPhone 14 sales, and analysts are closely looking for details about if Apple customers are trading up for more expensive models or if the new devices are poised to sustain higher sales through Apple’s fiscal 2023.

Cook indicated that Apple’s performance in phone sales was strong despite signs that other smartphone companies are struggling with a recent decrease in demand and said the company grew “switchers,” or people who bought an Apple phone after having an Android device. He added that the company’s high-end phones, the iPhone 14 Pro, were supply constrained.

Apple’s services business reported just under 5% growth during the quarter, a significant slowdown for the investor-favorite and profitable business line versus last quarter, which was 12%.

For the fiscal year, Apple services grew just over 14% to $78.13 billion, a slower rate of growth than 2021′s 16% annual increase, and much slower than 2020′s 27% services growth.

The business includes several different lines, including Apple’s online services like Apple Music and Apple TV+, revenue from the App Store, hardware warranties, and search deals with companies like Google. Apple said it had 900 million total subscriptions, which includes subscriptions to apps through Apple’s App Store.

Investors generally like Apple’s move into services because the products are more profitable than Apple’s hardware and often bring in recurring revenue.

There were a few bright spots in Apple’s report. Mac sales were up over 25% to $11.51 billion, even as data points from parts suppliers, chipmakers, and competing PC firms were pointing during the quarter to a significant slowdown in laptop and desktop sales after two boom years during the pandemic.

Apple’s Other Products category, which includes Apple Watch and AirPods, also saw an annual increase and beat Wall Street expectations. Some analysts believed that Apple’s wearables were most likely to be hurt if recessionary fears slowed discretionary spending. That business increased nearly 10% year-over-year to $9.65 billion.

  • 28 October | Airbus

Airbus SE plans to ramp up production over the course of next year, despite persistent supply-chain disruption.

The company confirmed plans to lift production of its A320 aircraft to 65 a month by early 2024 from about 50 a month at the end of this year, one of the fastest increases in the company’s history. The move comes as demand for Airbus’s family of A320 narrow-body aircraft outstrips that for Boeing’s rival 737 MAX but also as both plane makers grapple with continuing supply-chain issues.

Airbus has been gaining market share over Boeing since the grounding of the 737 MAX, with the split between the two most popular narrow-body programs at 61-39 in favor of the A320neo as at the end of September, according to an analysis of both companies’ backlogs by research firm Agency Partners.

Airbus reported a 65% rise in third-quarter net income to 667 million euros, equivalent to about $665 million, boosted in part by higher deliveries and more orders for its A320neo family of jets, including its newest and biggest variant, the A321.

Still, Airbus’s plans to increase aircraft production aren’t without challenges. Supply chains are still reeling from the historic downscaling at the start of the Covid-19 pandemic, when airlines were pushing to defer and cancel orders. The company had initially hoped to increase production even quicker, but in July deferred plans to hit its 65-a-month goal by about six months because of the constraints.

Suppliers have been scrambling to recover their operations, leading to delivery delays at both Airbus and Boeing. Airbus said that one of its biggest bottlenecks—the supply of engines from General Electric Co. and Raytheon Technologies Corp.’s Pratt & Whitney—had improved, with those companies now meeting their commitments. That has enabled Airbus to reduce the number of so-called glider aircraft sitting at its factories and waiting for engines to be delivered to fewer than 10, down from close to 30 in the middle of the year.

However, Airbus expects significant supply-chain challenges to persist well into next year because of labor shortages and strains on the supply of raw materials.

“We have a lot of parts arriving late,” Airbus CEO Mr. Faury said on a call with reporters. “It will take at least until the middle of next year, or maybe probably now a bit more, to stabilize.”

Overall, Airbus on Friday stuck to its target of delivering 700 commercial aircraft this year despite delays from its suppliers. As of the end of September, Airbus had delivered 437 jets to customers, leaving it with 263 to hand over in the final three months of the year. The company in July lowered its delivery target from 720 in the face of supply-chain challenges. Airbus also said that it is looking at increasing production rates of its wide-body aircraft as demand for international travel recovers and airlines look at ordering bigger planes used on longer routes.

📅 Earnings Reports for the following update 📅

03 November | Block

08 November | Walt Disney

Thank you


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