With the third quarter’s earnings finishing, our analysts take a look at the data from the latest earnings cycle and identify more interesting observations across markets and sectors.
Throughout the earnings calendar, we process an enormous amount of data before publishing it to our application as ready-to-use credit models. As each quarterly cycle ends, we take some time to analyze the data in-application with our Comparables feature - a powerful tool to view markets and sectors top down and in their entirety - to see what sector trends jump out at us across our current coverage universes (European & US High Yield, as well as the BBB cohort of the European & US Investment Grade universes).
Each quarter, we publish some of those insights in this blog as a representation of the depth of information available in our datasets, and the ease with which it can be analyzed from a top-down vantage.
So, without further delay, here's our Quarterly Earnings Breakdown for 3Q23.
Food and Staples sector revenue increased +3.2% Y/o/Y, nevertheless strained consumer finances are showing up in how spending habits changed in the period. Walmart achieved overall Revenue growth of +5.3% Y/o/Y in 3Q24, with its largest segment Walmart U.S. increasing by +4.4% Y/o/Y.
Utilizing Cognitive Credit KPI data, we see that whilst Walmart U.S. consumers visited stores more often (Transactions +3.4% Y/o/Y), average ticket (basket) sizes only rose at +1.5% Y/o/Y, despite inflation. It appears that consumers are managing budget constraints by visiting more often and spending less, and purchasing lower value ‘essentials’ as a priority over higher value goods. General merchandise sales reflected softness in discretionary categories including apparel, home, and toys. The overall effect has been a +4.9% Y/o/Y increase in comparative sales (ex. fuel) although revenue growth is decelerating.
Nvidia continued to shine with Revenue +205.5% Y/o/Y as growing interest in artificial intelligence (AI) led to unprecedented demand growth for its chips. It is a notable outlier though: ASML was the only other company in our coverage with significant revenue growth (+15.5% Y/o/Y). The impact of supply chain issues and tensions between the US and China have resulted in revenues falling -12.3% Y/o/Y excluding Nvidia.
For example, Micron’s Revenues have been hit significantly after China banned Critical Information Infrastructure (CII) operators from purchasing Micron products earlier this year.
One positive note, overshadowed by the general trend was the performance of Autos segments within the Semiconductors sector. Qualcomm recorded its 12th consecutive quarter of double-digit Auto revenue growth Y/o/Y, whilst Analog Devices’ Automotive segment grew +9.0% Y/o/Y.
Automobile manufacturers have been resilient, even in the face of a higher financing-rate environment for consumers. The sector achieved a +5.3% increase in Revenue Y/o/Y, alongside EBITDA growth of +9.6% Y/o/Y. A contributing factor aiding the recovery in production versus 2022 has been a more secure supply of semiconductors.
Honda’s Automobile volumes rose in 2Q24 (+23.9% Y/o/Y) as the Company continues its journey towards pre-pandemic volumes.
As discussed last quarter, it was interesting to see how the travel sector, particularly Airlines, continued to recover (Revenue +13.3% Y/o/Y) through the summer despite consumer’s disposable income being squeezed. The overall picture was positive, with European Airlines enjoying more momentum than their US counterparts.
Spirit Airlines revenue fell by -6.3% Y/o/Y. Spirit continued to increase its flight capacity (Available seat miles, ASMs) Y/o/Y, but failed to maintain load factors, despite having significantly reduced its fares charged to consumers. Spirit intends to merge with fellow underperformer JetBlue as they seek to turn around their respective businesses.
Property investment vehicles are under pressure. Despite enacting inflationary rent increases, higher required yields have driven downward portfolio revaluations. Investors are growing concerned as LTVs rise, pressuring credit ratings and reducing credit facility covenant headroom.
Aroundtown’s KPIs illustrate these issues. The Company has successfully continued to increase its rental charges, with Total in-place rent per sqm rising +4.9% Y/o/Y. Rental yields have however remained elevated, resulting in a fall in Fair value per sqm of -6.9% Y/o/Y. In order to shore up its cash flow the Company has been selling parts of its portfolio.
And to round things off, here’s a quick look at how much earnings data was processed for 3Q23 to date.
Into the final quarter of the year, it will be interesting to see how retailers perform through the vital run up to Christmas, as consumers continue to feel the squeeze from higher interest rates. Impacted in a different way, Real Estate companies are likely to face greater scrutiny over their investment property valuations as they prepare to release their audited year-end financial statements.
As Cognitive Credit’s KPI coverage continues to expand, the ability to delve deeper into the year-end results becomes ever easier.
Cross-market analysis like the above is easy with Cognitive Credit. Our Comparables feature offers a top-down view of all our fundamental data across our four coverage universes (European & US High Yield, and European & US Investment Grade), allowing you to find relative value opportunities across your markets, sectors and companies quickly and conveniently.
To see our Comparables feature in action, request your demo today.