Earnings Season Highlights

Major stock market indexes are trying to stage a come-back from yesterday’s rout. Currently, the Dow is down 42 points, the S&P 500 is up .1% and the Nasdaq is up 1%. Bonds are selling off, allowing interest yields to float upward. Long-term Treasuries are down about 1% whereas junk corporates are only about .2% lower.

I’ll relay some highlights from earnings season:

Microsoft (MSFT) shares are up 8% after the company reported better than expected first quarter results. Revenue rose 7% y/y, and cloud computing revenue rose 16%. Profit margins proved resilient despite the fact that both personal computing and Windows licensing business lines were weak as expected. Investors are flocking to this stock, seeing it as a provider of stable growth in a very uncertain world. Shares are up 24% so far this year.

Visa (V) also reported strong quarterly results, with 11% revenue growth and earnings up 17% from the year-ago quarter. The volume of processed transactions rose 12%. So growth accelerated a bit during the quarter and the “consumer is in good shape.” And yet the stock is flat this morning. This could be because management noted some deceleration here in April. In addition, expenses came in a little higher than expected. I get the sense investors view Visa as fairly valued, having risen 11% already this year.

Alphabet (GOOGL) reported first quarter results that were better than feared. The stock is up modestly today. The company’s advertising business is seen as economically sensitive and that has investors worried. But advertising was stable during the quarter, and cloud computing revenue improved. Additionally, investors were cheered by management’s pledge to spend $70bil on the stock buy-back program.

McDonald’s (MCD) fared far better than Wall Street analysts were anticipating. Same-store sales growth—for stores open more than one year—shot up nearly 13%. So demand remained strong despite significant price hikes. Somehow, consumers still equate McDonalds with value.
The reason for higher prices, of course, is that management is dealing with persistently high cost inflation. The CEO says inflation in the first quarter was over 10%, and that should decelerate to high-single-digits for full-year 2023.

And finally, JB Hunt (JBHT) reported weaker sales and profits during the first quarter. US factory output is slowing, as is demand for trucking services. Accordingly, the CEO said the US is experiencing a “freight recession.” United Parcel Service (UPS) also noted slowing package volumes and lower profit margins. The company is forecasting a 3% dip in sales this year. These observations are corroborated by recent Federal Reserve business activity surveys. The goods side of the economy is clearly deteriorating, while the services side seems more resilient.