Earnings Season Cometh

Earnings season, when public companies are required to report last quarter’s results and talk about business trends, is now in full swing.

JP Morgan (JPM) reported so-so third quarter results and the stock fell 2.5% yesterday. Total revenue rose 2% y/y and profits were up 28%. Both metrics outpaced Wall Street analysts’ consensus projections. The investment bank powered ahead as corporate mergers and IPOs surged. However, the traditional lending business was weak. Consumer loans fell 2% and commercial loans were off by 5%. The bank’s CFO said, “We expect it to take some time for revolving credit card balances to return to pre-pandemic levels given the amount of liquidity in the system.” In other words, massive government stimulus through the Covid era caused people to borrow less than they otherwise would have. Credit card balances are lower than normal. He said credit quality among consumers is strong. The bank reduced its expectation for credit card charge-offs to 2% from 2.5%.

Visa (V) says US card spending momentum sagged in August and September, probably as a result of the newest Covid Delta wave. To keep things in perspective, spending is still higher than year-ago levels, but Delta kept people closer to home temporarily. “We still expect spending to rebound in the fourth quarter as virus concerns begin to ease and consumers turn their attention towards holiday spending,”

UnitedHealth (UNH) reported excellent third quarter results with an 11% jump in revenue and profits 29% higher than year-ago levels. The stock is up more than 5% today. The insurer actually benefited from Covid Delta because elective procedure volume (and thus costs) dipped. But core business trends were strong, with 790,000 new members enrolled. Management raised full-year 2021 earnings guidance.

Dominoes Pizza (DPZ) reported mixed business trends during the quarter. Demand continues to be strong, led by 8.8% same-store sales growth overseas. But the company can’t find enough employees to staff its US restaurants, and domestic same-store sales actually declined by 1.9% during the quarter. The stock initially dipped with the announcement, but has recovered and is up more than 2% at the moment.

Microsoft (MSFT) announced it will shut down LinkedIn service in China. The communist central government makes it a practice to demand censorship of certain content and people (i.e. academics and journalists), to which Microsoft acquiesced. Over the summer, US media outlets highlighted this complicity, which reflected negatively on the software giant. So Microsoft will remove the LinkedIn brand and replace it with a new one: InJobs. This will allow the complicity in free speech suppression to continue, but in a more palatable form for the US media. According to the New York Post, this “marks the end of the last major American social network officially operating in China.” The idea that one must sell one’s corporate soul to the devil in order to exist in China is obviously very real.