US Quarterly Earnings Breakdown: FY23

US Quarterly Earnings Breakdown: FY23

With FY23 earnings behind us, we take a look at the data from the latest earnings cycle and identify more interesting observations across US markets and sectors.

As each quarterly earnings cycle ends, we take some time to analyze the enormous amount of data we process 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. 

Without further delay, here's our Quarterly Earnings Breakdown for FY23 - US Edition.

Strong rebound in Consumer Services revenues driven by Hotels, Restaurants & Leisure spending

A continued recovery in consumer spending was apparent throughout FY23 as annual revenues in US Hotels, Resorts, and Cruise Lines increased an average of 30% vs the prior year. 

Revenue Delta % YoY Consumer Spending | Chart | Cognitive Credit

Revenue growth in Cruise Lines was outstanding, with Carnival and Norwegian leading the pack.  Both posted year-over-year increases in the mid to high 70% range with EBITDA increases of over 300%.  While the nominal YoY rates of increase moderated each quarter as 2022 comps got tougher, the trend nonetheless demonstrated impressive durability with the top line growing at 41% and 31% respectively in 4Q’23.

Key performance indicators released by each company demonstrate the foundation of this robust demand. Quarterly Passengers Carried at Carnival surpassed the pre-covid level for the first time in the latest quarter (3.1mm in 4Q’23 vs 3.07mm in 4Q’19).

Carnival Quarterly Passengers Carried (Thousands) | Chart | Cognitive Credit

Carnival’s occupancy also steadily recovered over the past 12 quarters and has retaken the 100% level. 

Carnival Quarterly Occupancy percentage | Chart | Cognitive Credit

Similarly, Passenger Cruise Days at Norwegian have now surpassed pre-covid levels.

Norwegian Quarterly Passenger Cruise Days (Thousands) | Chart | Cognitive Credit

The US Casinos and Gaming space observed similar trends, with sector revenues up 27% year over year and sector EBITDA more than doubling.  We have observed a massive deleveraging in names like Las Vegas Sands and Wynn Resorts over the last 4 quarters driven by this EBITDA growth.  

Las Vegas Sands Adjusted Net Leverage since FY21: 

Las Vegas Sands LTMs Adjusted Net Leverage | Chart | Cognitive Credit

Robust spending in US Aerospace & Defense reflects tension in the global geopolitical environment 

In the face of a more uncertain geopolitical environment across the world, revenue growth in the Aerospace & Defense sector was nearly triple that of the broader market, with the top line up 17.5% for US HY names and 10.1% for US IG names. Growth was broad based across the sector, reflecting a growing market; every company in the space posted a YoY revenue gain.  

Revenue Delta YoY Aerospace Sector | Chart | Cognitive Credit

Transdigm, a leading provider of engineered components for commercial & military aircraft, posted an industry leading 24% increase in FY23 revenue.  It has delivered double-digit growth for eight consecutive quarters and a marked improvement in Free Cash Flow / Total Debt.

Transdigm Quarterly Y/o/Y Revenue Change | Chart | Cognitive Credit

Transdigm LTMs LTM FCF / Total Net Debt | Chart | Cognitive Credit

At Howmet Aerospace, a 12-quarter trend in the core Engine Products segment continued its impressive momentum, with sales increasing at a CAGR of nearly 19%. 

Howmet Aerospace Quarterly Third-party sales - Engine Products | Chart | Cognitive Credit

This has contributed to sequential EBITDA growth for 12 straight quarters and a material improvement in the credit story, as evidenced by the company’s climbing interest coverage ratio.

Howmet Aerospace LTMs Coverage Ratio (EBITDA) | Chart | Cognitive Credit

Pharmaceuticals profitability under pressure 

The FY23 story was more challenging in US Pharmaceuticals. Regulatory scrutiny and the increasing presence of generics have reduced pricing power, while costs are ticking up due to increased litigation and R&D spending as legacy patents expire.  Average revenues for the sector were flat (-0.2%) while EBITDA was down 29%.  

One example in the IG space is Viatris, which saw revenues down 5.1% while total operating expenses increased 16.2% due to rising R&D and litigation costs. EBITDA margin declined by 230bp.

Viatris Quarterly Litigation Settlements and other Contingencies, net $mm | Chart | Cognitive Credit

Within HY Pharmaceuticals, margins continued to deteriorate at Mallinckrodt as a result of increased competition, scrutiny around specialty pharmaceutical spending, legal action, and slower than expected returning patient volumes. This reduced profitability has brought the company’s fixed charge coverage ratio to a fresh low of 0.7x.

Mallinckrodt LTMs Adjusted EBITDA Margin | Chart | Cognitive Credit

Significant pullback in the Materials sector, led by Chemicals

Finally, we saw a substantial decline in the materials sector in FY23, particularly in the Chemicals subset. Of the 20 largest names in the sector by revenue, only 5 were up year over year, and sales declined by 10.3% in aggregate.

Material Sector Revenue Delt % YoY | Chart | Cognitive Credit

The largest company in the space, Dow Chemicals, saw sales down 20% or more in each of its 3 operating segments, with both price and volume under pressure.  Volumes demonstrated a meaningful recovery in the latest quarter, but pricing trends remained more subdued.  

Dow Chemical Quarterly YoY - Volume (Packaging & Specialty Plastics) | Chart | Cognitive Credit

Dow Chemical Quarterly YoY - Local Price & Product Mix (Packaging & Specialty Plastics) | Chart | Cognitive Credit

Dow Chemicals Quarterly YoY - Volume (Industrial Intermediates & Infrastructure) | Chart | Cognitive Credit

Dow Chemical Quarterly YoY - Local Price & Product Mix (Industrial Intermediates & Infrastructure) | Chart | Cognitive Credit

Dow Chemicals Quarterly YoY - Volume (Performance Materials & Coatings) | Chart | Cognitive Credit

Dow Chemicals Quarterly YoY - Local Price & Product Mix (Performance Materials & Coatings) | Chart | Cognitive Credit

Similar price and volume pressures at Huntsman Chemicals have driven a materially weaker Free Cash Flow profile over the last four quarters.  Despite this, HUN credit spreads are trading at their YTD tight.  

Huntsman Chemicals  Quarterly LTM FCF / Total Net Debt | Chart | Cognitive Credit

Huntsman Chemicals USD 7,500,000,000 4.500% Sr Unsec Note due 01 May 2029 STW (bp) | Chart | Cognitive Credit

FY23: By the numbers

And to round things off, here’s a quick look at how much earnings data was processed in our US coverage during the FY23 earnings cycle:



Looking ahead

Looking ahead to 1Q24, we expect investors to closely follow KPI’s underpinning consumer demand to gauge the durability of the post-covid spending revival.  We also expect investors will pay increasing attention to companies with the combination of deteriorating fundamentals and near term refinancing risk. Market price action has been largely broad based across companies and sectors in recent months.

Could the market start to price in more fundamental differentiation between credits in 1Q24? 

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To see our Comparables feature in action, request your demo today.