Profits season tells the story of two economies
By Julia Horowitz, CNN Business
Another season of strong earnings is encouraging investors and pushing US stocks to record highs.
What’s happening: More than half of S&P 500 companies have published results. According to FactSet, 82% exceeded Wall Street earnings expectations. This helps produce a ‘greed’ reading on the CNN Corporate Fear and Greed Index.
“Analysts also expect earnings growth of over 20% for the fourth quarter and earnings growth of over 40% for the full year,” FactSet analyst John Butters said in a note published on Friday. “These above-average growth rates are due to a combination of higher profits for 2021 and an easier comparison with lower profits in 2020.”
But dig a little deeper into the results and a more complicated story emerges, according to David Bianco, investment director for the Americas at DWS Group. In some ways, the picture reflects the performance gap that opened up during the pandemic between digital companies and others.
“For Q3 earnings, you see disappointments on the physical side of the economy,” Bianco told me.
Banks and tech companies are largely unresponsive to supply chains and labor shortages. They are “exploding profits,” Bianco said.
Manufacturers, retailers and restaurants, meanwhile, tell investors they haven’t fully responded to the surge in demand, while assuring that next year will be better.
“These are really the intangible businesses versus the tangible businesses,” Bianco said.
Microsoft, for example, is capitalizing on the strength of its cloud business and the demand for workplace collaboration software. He said last week he earned $ 20.5 billion in his most recent quarter, up 48%.
General Motors, meanwhile, said revenue plunged almost 25% despite record car prices, as computer chip shortages affected production.
“We sell whatever we can sell,” GM CEO Mary Barra told analysts.
Companies that straddle the physical and digital economy, including Apple and Amazon, have indicated that they are getting beaten up by supply chain issues, too.
That said: As FactSet data shows, inflation and shipping issues don’t seem to hurt business profits. Margins have held up due to strong sales and investments in technology that improves efficiency – and, of course, because companies are hiking price if needed.
“For all the talk about inflation and supply chain shortages that hurt margins, [third quarter] the results so far tell a more nuanced and optimistic story, ”said Nicholas Colas, co-founder of DataTrek Research, in a note to clients on Monday.
Barclays CEO resigns after investigation into Epstein links
Barclays chief executive Jes Staley is stepping down immediately following an investigation by UK regulators into his relationship with disgraced financier Jeffrey Epstein.
Setback: The investigation by the Financial Conduct Authority and the Bank of England’s Prudential Regulation Authority was disclosed by Barclays in early 2020, reports my CNN Business colleague Mark Thompson. He focused on how Staley had characterized the relationship with his employer.
Barclays and Staley were briefed on the preliminary investigation findings on Friday evening.
“In view of these conclusions and of Mr. Staley’s intention to challenge them, the Council [of Barclays] and Mr Staley have agreed that he will step down as chief executive of the group and director of Barclays, ”the bank said in a statement on Monday.
“It should be noted that the investigation makes no finding that Mr. Staley saw or was aware of any of Mr. Epstein’s alleged crimes, which was the central issue underlying Barclays support for Mr. Staley after Mr. Epstein was arrested in the summer of 2019, ”the company added.
Staley had been running Barclays since late 2015. Prior to that, he worked for over 30 years at JPMorgan, where he headed its investment banking division. His relationship with Epstein – a convicted multimillionaire and pedophile who has been charged with sex trafficking by US federal prosecutors – dates back to 2000, when he became head of JPMorgan’s private bank.
“The relationship was maintained during my time at JPMorgan, but when I left Morgan it declined quite significantly,” Staley told reporters on a call in February 2020. Staley had told the board of Barclays administration that he had had no contact with Epstein since he had become CEO of Barclays. in December 2015.
Susannah Streeter, analyst at UK brokerage firm Hargreaves Lansdown, said “it appears regulators believe there was a glaring lack of transparency on this relationship.”
“It is understood that Mr Staley will challenge the findings, and the board clearly wishes to take Barclays away from what could be a long process,” she continued.
Investor perspective: Barclays shares fell 3.7% in London and were last trading down 1.5%. They have jumped 35% so far this year, part of a broader rally in bank stocks fueled by the economic recovery.
The box office is back. The actions of the cinemas are not… yet
After a long and painful lull during the pandemic, people are returning to the movies.
October was the top grossing month for the US box office this year, reports my CNN Business colleague Frank Pallotta. The theaters have brought over $ 600 million in ticket sales thanks to big firsts like “Venom: Let There Be Carnage”, “No Time to Die” and “Dune”.
There’s more: AMC Entertainment said October entry revenue was the highest since February 2020. Rival Cinemark also reported that October “was the company’s top-grossing box office performance month. in the age of Covid “.
“I am delighted that we have taken another step forward in the recovery of the industry, delivering our best monthly box office performance since reopening our theaters,” CEO Mark Zoradi said in a statement.
Movie theater stocks continue to lag behind the broader market. AMC Entertainment shares fell 7% last month, while Cinemark fell 2%. Big-screen cinema operator IMAX also took the plunge. The S&P 500, meanwhile, rose nearly 7%.
But the holiday season could give a boost – if the momentum continues. Upcoming releases include Marvel’s “Eternals”, “Ghostbusters: Afterlife” and “Spider-Man: No Way Home”.
“The big beginnings signal growth in the right direction, but cinematic sustainability needs to see improvement moving forward,” said Jeff Bock, senior analyst at entertainment research firm Exhibitor Relations.
Avis and Clorox publish their results after the US markets close.
Also today: October’s ISM Manufacturing Index arrives at 10 a.m. ET. Facebook whistleblower Frances Haugen speaks at the Web Summit at 1 p.m. ET.
Coming tomorrow: BP, ConocoPhillips, Ferrari, Pfizer, Under Armor, Activision Blizzard, Lyft and Zillow.
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