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Amazon Is a Big Winner This Earnings Cycle. But Not Only One

Amazon Is a Big Winner This Earnings Cycle. But Not Only One

Monday, 30 October 2017 01:35 PM

For all the hand-wringing about how Amazon.com Inc.’s growth aspirations may hurt other companies, there’s plenty of evidence in third-quarter earnings results that the online retailer isn’t alone in benefiting from robust economic growth.

Amazon blew through forecasts Thursday, triggering a stock surge that made founder Jeff Bezos the world’s richest person. But the week held other winners too: Results from Microsoft Corp., General Motors Co. and United Parcel Service Inc. all helped elevate U.S. benchmark stock indexes to records. Despite some high-profile blowups, reports by European companies from Volkswagen AG to Atlas Copco AB to luxury-goods giant Kering SA pleased investors, as did China’s Kweichow Moutai Co., the most valuable distiller.

The U.S. just logged the best back-to-back quarters of GDP growth since 2014, confirming that Hurricanes Harvey and Irma caused less damage to the world’s largest economy than once thought. Earnings reflected global optimism, even with lingering concerns about Brexit and a Catalan Republic secession in Europe. Here’s what we’ve learned so far:

Corporate profits rising in major regions

With more than half of the Standard & Poor’s 500 stock index companies reporting, earnings have risen 8.4 percent and sales are up 6.3 percent. In Europe, profit growth for companies in the Stoxx 600 Index is coming in at a surprisingly strong 8 percent, JPMorgan Chase & Co. strategists said Friday. Among the roughly one-quarter of the companies in the MSCI AC Asia Pacific index that have reported, growth was even more brisk at 15 percent.

“The global economic acceleration, which kind of began in late 2016, is really
flowing through,” said Patrick Palfrey, an equity strategist with Credit Suisse. “This earnings season is shaping up to be quite strong.”

Amazon leads surge among tech companies

Amazon is showing investors it can run the newly acquired Whole Foods grocery chain, churn out gadgets, sell more products online and still manage expenses. The company trampled forecasts and its shares surged 13 percent Friday to close at a record $1,100.95.

Cloud computing is hot, for both Amazon and Microsoft. Sales at Microsoft rose 12 percent amid buoyant demand for Azure cloud services, used to store and run customers’ applications in Microsoft’s data centers.

Growth in online services, while great for tech firms, helps create both winners and losers elsewhere. Toymaker Mattel Inc.’s sales fell 13 percent due in great part to the bankruptcy of retailer Toys “R” Us Inc. -- done in by competition from Amazon. UPS, however, is poised to benefit as consumers shop online, saying Thursday it expects to ship a record 750 million packages over the holidays in a test of the investments it’s made to expand capacity.

The hurricanes landed only a glancing blow

The hurricanes that raked the U.S. in August and September left plenty of locally heavy devastation but so far have made mainly just ripples in earnings reports for companies other than property insurers like the Travelers Cos.

Drugmaker Amgen Inc. raised its profit forecast for 2017 even with a pretax expense of as much as 18 cents a share stemming damage to a Puerto Rican factory. In Europe, shares of French eyeglass-lens maker Essilor International SA and Ray-Ban owner Luxottica Group SpA jumped, even after the companies said the hurricanes held back their sales amid shop closures. General Motors and Ford Motor Co. both beat profit estimates, aided in part by a surge in demand in September as customers replaced storm-damaged vehicles.

China’s growth lifts earnings around the world

As goes China, so goes much of the industrial world. Caterpillar Inc. on Tuesday surged the most in six months. One reason: An improved outlook for construction in China is propelling the machinery maker toward its first annual sales gain since 2012. China even provided a bright spot in General Electric Co.’s dismal Oct. 20 report: Organic orders for health-care equipment rose 20 percent in China, compared with 4 percent in the U.S. and 8 percent in Europe.

Domestic demand helped buoy earnings at some of China’s biggest companies at the same time President Xi Jinping is firming up his status as the nation’s strongest leader in decades. Kweichow Moutai, the world’s most valuable distiller, more than doubled its profit on popularity of its premium liquors. Even in the saturated mobile-phone market, China Mobile Ltd. reported higher revenue and improvement in profit margins.

Energy companies post uneven results

Earnings in the oilfields have been a tale of two sectors. Producers are experiencing a rebound after a three-year market rout, beating estimates on higher crude prices and a crash diet of cost cuts. Service companies and equipment makers have been less successful, struggling to overcome purchasing cutbacks by drillers who turned frugal during the slump.

With crude now sitting comfortably above $53 a barrel, some 15 percent above a year ago, ConocoPhillips, Statoil ASA and Suncor kicked off earnings season for the world’s biggest oil companies with profits that easily beat estimates. Exxon Mobil Corp., the world’s biggest explorer, Total SA and Chevron Corp. also posted strong profits on Friday, though Exxon and Chevron shares fell after the companies reported disappointing production.

Some CEOs land in the hot seat

Just because corporate earnings are doing well globally doesn’t mean everyone is having an easy time. Deutsche Boerse AG Chief Executive Officer Carsten Kengeter resigned Friday amid growing shareholder pressure after he became embroiled in an insider-trading probe, and the company said it isn’t likely to meet its full-year earnings targets. United Continental Holdings Inc. shares are still down 11 percent since CEO Oscar Munoz and his team failed to satisfy investors about the 2018 outlook on their Oct. 18 earnings call.

In Japan, scandals linked to Kobe Steel Ltd.’s fake data and Nissan Motor Co.’s vehicle-inspection practices have cast a pall over the country’s manufacturing sector. Kobe Steel CEO Hiroya Kawasaki and Hiroto Saikawa, his counterpart at Nissan, both had to apologize in public as investigations continue. Kobe Steel on Monday withdrew its profit forecast and eliminated its interim dividend.

In European banking, CEOs John Cryan of Deutsche Bank AG and Jes Staley of Barclays Plc are under pressure after presiding over their sector’s biggest earnings disappointments. In both cases, the culprit was sustained, worse-than-feared weakness at their investment banks. Revenue from trading bonds and stocks plunged 30 percent at Deutsche Bank and 31 percent at Barclays.

Bond trading also proved a weak spot for Nomura Holdings Inc., which reported Monday that its net income dropped 15 percent in the three months to September, the first decline in five quarters. At HSBC Holdings Plc the mood was more buoyant, with the London-based bank announcing its third consecutive increase in quarterly revenue, helped by higher revenue from Asia.

Lending margins buoy U.S., China banking

Earnings from China Construction Bank Corp. on Thursday fueled optimism that interest margins and asset quality are improving, and its three largest rivals including Industrial & Commercial Bank of China Ltd. each climbed. They’re all due to post results Monday.

Most U.S. banks beat estimates for revenue and profit after three interest-rate hikes in the past year boosted lending margins. Cost-cutting initiatives helped offset declines in fixed-income trading, while the five biggest U.S. capital markets firms all posted higher-than-expected revenue from investment banking. In a sign of potential concern ahead, Bank of America Corp., Wells Fargo & Co. and some other major banks have increased consumer loan-loss provisions, as have other lenders such as Capital One Financial Corp. and Discover Financial Services.

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For all the hand-wringing about how Amazon.com Inc.'s growth aspirations may hurt other companies, there's plenty of evidence in third-quarter earnings results that the online retailer isn't alone in benefiting from robust economic growth.Amazon blew through forecasts...
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Monday, 30 October 2017 01:35 PM
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