As America records 1,000 deaths a day for an all-time single-day COVID record, the market barely blinked because it was busy watching Q2 earnings for clues as to which stocks and sectors are benefitting and which are going to be left behind in the new normal.
And as earnings season gets under way in full force, the name of the game is to jump in with headlining news in advance. That’s what Best Buy has done, stealing the limelight from other earnings reports, when it’s own isn’t due until August, to let the media know that it’s sales are soaring now.
Best Buy had to close down its brick and mortar stores other than for pickups of online orders in March, but in June it reopened and says sales are up 15% this month compared to the same period in 2019. On Tuesday, Best Buy stock started marching toward an all-time high on the news.
But here’s the rub: Airline stocks, for instance, will trade up on bad news that is simply better-than-expected, while much, much more is expected of tech stocks, and Snap is the first to go under the earnings gun.
Wednesday morning will see the big dogs take their turn at earnings, with Microsoft, Tesla, Apple, Amazon and Netflix all up next.
As of Tuesday, these are the most important highlights, with plenty of room to read between the lines:
#1 Coca Cola (NYSE:KO): Not Much to Smile About
Coca Cola’s Tuesday earnings report showed the company’s biggest quarterly revenue decline in three decades, so it was low-key celebration over news that demand is rebounding a bit as the world eases up on lockdowns and stay-at-home orders.
Wall Street expectations were largely for earnings per share of 40 cents, and Coca Cola beat those expectations with 42 cents. The company met expectations of $7.2 billion in revenue, but reported fiscal Q2 net income of $1.78 billion, down from $2.61 billion the previous year.
Shares were up slightly after the earnings report, but the big picture is that the iconic beverage giant saw global sales plunge 28% in Q2 because of the pandemic. That’s largely because Coke depends on sales to non-home venues, including restaurants, bars, movie theaters, etc.
So, if you’re looking at the beverage sector and thinking it should be soaring because people technically shouldn’t be consuming less, you would be missing a piece of this puzzle. The supply chain is much more complicated than that. And now, Coke needs to be able to see demand recovery, and that is still highly uncertain with new COVID cases still raging like never before and some U.S. states considering new lockdowns, or avoiding the next step in their phased reopenings.
#2 United Airlines (NYSE:UAL)
United reported a massive $2-billion loss for Q2 on Tuesday. But that didn’t really matter because it’s stock is still soaring, mostly likely thanks to all the newbie retail investors who have been playing contrarian on the Robinhood zero-fee trading app since the pandemic. They’ve decided, against all fundamental odds--and against Warren Buffett--that airlines are still a solid buy. Fundamentals don’t concern them.
But the $2 billion pre-tax loss for Q2 was actually less than expected, also boosting the stock as standards in these pandemic days are far lower. Consensus estimates were for a loss of $3.1 billion as the airline saw revenue nose dive 87%.
United also beat on earnings per share, reporting a loss of $5.79, while the consensus estimate was for a $7.39 loss.
But again, the big picture here doesn’t look attractive. This week, U.S. air travel dropped for the first time since April because COVID cases are again spiking.
“We’re generally avoiding the space” as one with “terrible economics”, “high fixed costs” and “very little pricing power”, Todd Gordon, a managing director at Ascent Wealth Partners, told CNBC’s ‘Trading Nation’ on Tuesday.
#3 Snap (NYSE:SNAP)
Snap is a good one to watch because it’s sort of a precursor to what everyone’s really waiting for: big tech earnings, and particularly as a barometer for digital advertising.
Snap’s Tuesday earnings showed consensus-beating Q2 revenue, with $454.2 million in revenue for a 17% year-on-year increase. That was compared to analyst estimates of $441.6 million, according to Business Insider.
More specifically, Snap reported a 9-cent adjusted loss, compared to expectations of a 23-cent loss.
But this wasn’t as much about revenue as it was about daily active users, for which Snap missed the mark that Wall Street hoped to see. Snap’s daily active users rose 17% to 238 million, but projected growth was 239 million, representing a 20% slowdown from Q1.
As a result, the stock was trading down after hours.
This is generally what the tech stocks look like these days--the reverse of many other sectors:
By Michael Kern for Safehaven.com
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