Tag: Results

What To Expect From Coca-Cola’s Q1 2019 Results?

Cans of Coca-Cola Co. brand Coke carbonated soft drink are packed at the Moon Beverages Ltd. Coca-Cola Happiness Factory in Greater Noida, Uttar Pradesh, India, on Monday, March 25, 2019. Coke’s hunt for health-conscious alternatives in India has led it to tap into a rich vein of what’s known as “ethnic drinks” — traditional beverages brewed by grandmas in kitchens around the country using local spices and fruits. (Photographer: Sumit Dayal/Bloomberg)

© 2019 Bloomberg Finance LP

Coca-Cola Company (NYSE: KO) is set to announce its financial results for Q1 2019 on April 23, 2019, followed by a conference call with analysts. Total revenues for Coca-Cola have largely trended lower over recent quarters, falling from $8.9 billion in Q2 2018 to $7.1 billion in Q4 2018. Lower revenue was primarily driven by the loss of revenue from the refranchising of company-owned bottling operations and the impact of currency headwinds. However, the trend is expected to reverse, as revenues are projected to increase by 3%-4% (y-o-y) in Q1 2019 with most of the refranchising already completed, coupled with benefits from a number of acquisitions throughout 2018. Market expectation is for the company to report adjusted earnings of $0.46 per share in Q1 2019, marginally lower than $0.47 per share in Q1 2018. Lower earnings are likely to be a reflection of rising transportation costs and currency swings.

We have summarized our key expectations from the announcement in our interactive dashboard – How is Coca-Cola expected to fare in Q1 2019 and what is the outlook for the full year? In addition, here is more Consumer Staples data.

A} Revenue Trend


  • Revenue from the EMEA region has been under pressure due to a decline in price/mix primarily due to negative geographic mix from the timing of shipments across the Middle East and North Africa.
  • Additionally, continued double-digit growth in Coca-Cola Zero Sugar and strong performance in Fuze Tea was offset by the impact of a challenging macroeconomic environment in certain key African and Middle Eastern markets.

Latin America

  • In spite of volume declining by double-digits in Argentina, segment revenues have been more or less stable over the last couple of quarters largely driven by strong performance in Mexico through revenue growth management initiatives, as well as positive price/mix across all business units.
  • The segment is expected to see a pick-up in 2019 with KO’s increasing market share in non-alcoholic ready-to-drink beverages.

North America

  • Revenue from North America has declined in the last quarter due to lower volume of sparkling soft drinks, juice, dairy, and plant-based beverages.
  • Tea volume declined low single-digits, impacted by deprioritizing low-margin tea products. Additionally, refranchising of certain operations in the region has led to lower revenues.
  • However, revenue is expected to increase going forward as most of the refranchising is already completed, coupled with high growth in Coca-Cola Zero Sugar and strong performance in Sprite.


  • Revenue in APAC faced pressure in Q4 2018 with lower volumes in the Philippines and Australia and the impact of the deprioritization of low-margin commodity water.
  • However, the segment is once again expected to register growth, led by strong sales across India and Southeast Asia, benefiting from strong marketing and innovation within Trademark Coca-Cola and Sprite, coupled with rising market share in NARTD beverages, sparkling soft drinks, and tea and coffee.

Bottling Investments

  • Revenue from the bottling business has been decreasing due to refranchising of the company’s bottling operations.
  • However, with most of this program already behind us, the impact of refranchising is expected to be negligible in 2019.

B} Expenses Trend

  • Coca-Cola’s total expenses have been declining over the quarters due to benefits from refranchising of the high-cost bottling business.
  • Additionally, lower tax expense with the implementation of the TCJ Act has led to significant reduction in total expenses on a y-o-y basis.
  • We expect the extension of the company’s productivity plan to drive margin growth going forward.

What is the outlook for the full year?

  • Revenue is expected to increase by 4.6% to $33.3 billion in 2019, driven by growth across all major segments, offset by a lower revenue from the bottling business. However, with most of the refranchising already completed, the revenue loss from the segment is not expected to be as significant as in 2018.
  • Revenue growth would also be driven by inorganic growth strategies of Coca-Cola, with the company announcing several key acquisitions in 2018, including Costa Limited and a strategic partnership with BODYARMOR. Additionally, it also announced the acquisition of full ownership in Chi Ltd, which is a fast-growing leader in expanding beverage categories, including juices, value-added dairy, and iced tea in Nigeria.
  • We expect net income margin to rise only marginally to about 21% in 2019, from 20.2% in 2018. Margin growth would be driven by the ongoing refranchising of low-margin bottling operations and Coca-Cola’s new productivity plan which has been extended to 2019 to achieve incremental savings of about $800 million. However, rising transportation costs and currency swings are expected to be potential drags on the company’s margins, thus limiting the upside on earnings.

Trefis has a price estimate of $50 per share for Coca-Cola’s stock. We believe that an expanding footprint in the emerging markets, new product offerings, and strong organic sales growth would support growth in KO’s stock price.

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What To Expect From Philip Morris’ Q1 2019 Results?

In this Oct. 22, 2018 photo, a visitor tries out an iQOS at a store in Tokyo. While New York-based Philip Morris is hoping to woo the world with its penlike “heat-not-burn” device iQOS (EYE-kose) as a better option than old-style smoking, nowhere else has it scored greater success than in Japan. (AP Photo/Eugene Hoshiko) photocredit: ASSOCIATED PRESS

Philip Morris International (NYSE: PM), manufacturer of cigarettes and other nicotine containing products including reduced-risk products, is set to announce its Q1 2019 results on April 18, 2019, followed by a conference call with analysts. We expect the company to report revenue of close to $6.75 billion in Q1 2019, which would mark a decline of 2.1% on a year-on-year basis. Sequentially, net revenue is expected to decrease by about 10%. Lower revenue is likely to be a reflection of decreasing sales of cigarettes and a slower than expected sales growth in the heated products segment due to regulatory uncertainty. Market expectation is for the company to report earnings of $1.01 per share in Q1 2019, marginally better than $1.00 per share in the year-ago period. Marginal improvement in earnings would most likely be driven by lower interest expense following repayment of high-cost debt in 2018.

We have summarized our key expectations from the earnings announcement in our interactive dashboard – How is Philip Morris expected to fare in Q1 2019 and what is the outlook for the full year? In addition, here is more Consumer Staples data.

Key Factors Affecting Earnings

Declining cigarette sales

  • Revenue from the company’s combustible products segment is expected to drop by 1.2% in the first quarter of 2019 compared to the previous-year period, and by 10.6% compared to Q4 2018. The decrease would primarily be driven by lower cigarette volume sold.
  • As millennials are moving away from combustible products to e-vapor/heated tobacco products due to health concerns, the cigarette shipment is expected to continue its downward trend. Though cigarette units are expected to be somewhat flat on a y-o-y basis, they are expected to drop by over 13% on a sequential basis.
  • Marlboro, the company’s flagship brand, which has witnessed a decrease in its market share over the last couple of quarters, is expected to continue the trend in 2019 as well, adversely affecting segment revenues.

Slow pick up in IQOS

  • Revenue for the company’s Reduced Risk Products segment is expected to decline by 6.8% on a year-on-year basis due to lower volume and price realization.
  • The company’s primary vapor product, IQOS, has not been able to see its sales pick up the way the market had expected, mainly due to regulatory uncertainty surrounding heated tobacco products. Recently, with the FDA cracking down on vapor companies, sales are expected to head south in early 2019.
  • Though IQOS is a brand that is expected to drive PM’s growth over the long term, the segment is projected to face dwindling sales in the short-term due to lower price realization on the back of heavy discounts offered to promote the product in the market.

Margin improvement

  • Net income margin is expected to increase from 22.6% in Q1 2018 to 26% in Q1 2019, driven by lower interest expense.
  • As a step towards optimizing its capital structure, the company used its high cash balance to pay off $2.5 billion of its 10-year U.S. bonds in 2018, which with a coupon of 5.65%, was the most expensive debt instrument on the company’s books.
  • Though an increase in marketing costs weighed on the margin in Q4 2018, interest saving is expected to provide an uptick to profitability in 2019.

Full Year Outlook

  • For the full year, we expect net revenue to increase by 3.9% to $30.8 billion in 2019, from $29.6 billion in 2018, as sales under the company’s heated tobacco segment are expected to pick up in the second half of the year with expectations of regulatory clarity with respect to the product.
  • Lower interest and tax outgo, coupled with a gradual phasing out of the discounts on IQOS is expected to drive profitability with net income margin expected to be ~27% in 2019, up from 26.7% in 2018.

Trefis has a price estimate of $87 per share for Philip Morris’ stock. Expectations of high growth in e-vapor in the long term, along with measures to improve profitability, is expected to provide support to the company’s stock price over the next one year.

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What To Expect From Netflix Post-Q1 Results

Netflix Inc. signage is seen on an Apple Inc. laptop computer in this arranged photograph taken in the Brooklyn Borough of New York, U.S., on Monday, Jan. 14, 2019. Photographer: Gabby Jones/Bloomberg

© 2019 Bloomberg Finance LP

Netflix‘s Q1 earnings per share and revenues both beat consensus estimates in its Q1 results. The company reported net streaming additions of 9.6 million in the quarter. In Q1, the company’s revenues grew a robust 22% year-over-year (y-o-y) to $4.5 billion, driven by growth in subscribers across both the U.S. and international streaming markets. The international subscriber base continued to increase at a rapid pace (33% y-o-y) once again, while the domestic subscriber base growth stabilized in the low double digits.

Netflix saw its stock gain nearly 35% over the course of 2019. We have a $378 price estimate for Netflix’s stock, which is slightly ahead of the current market price. We have created an interactive dashboard on What Has Driven Netflix’s Recent Results, which outlines our forecasts for the upcoming quarter and full-year 2019. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation, and see more Trefis Media data here.

Q2 Expectations

  • Netflix expects 5 million global paid net additions (around 300k net adds in the U.S. and 4.7 million internationally), compared to a 5.4 million consensus estimate.
  • The company has guided for its total revenues to reach $4.9 billion in Q2 2019. The company also expects an operating margin of 12.5% in Q1.
  • Netflix also raised its prices in the U.S. and some Latin American markets. Netflix’s new pricing in the U.S. will be phased in for existing members over Q1 and Q2, and its U.S. prices for new members are increasing across the board – the Standard plan (two HD streams) is increasing from $10.99 to $12.99 per month; the Premium plan (up to four Ultra HD streams) is increasing from $13.99 to $15.99 per month; and the Basic plan (with a single non-HD stream) is increasing for the first time, from $7.99 to $8.99 per month. This will help boost the company’s average revenue per customer over the coming quarters.
  • We forecast Netflix to reach 64 million subscribers (including free trials) in the U.S., with an average monthly fee per subscriber of over $11.50, translating into $2.2 billion in domestic streaming revenues for Q2. In addition, we also estimate nearly 100 million subscribers in international markets with an average monthly fee per subscriber of $8.70, translating into about $2.6 billion in international streaming revenues in the same period.
  • Netflix has been growing its subscribers by leveraging its original content slate, and we expect this to continue in the near term as well. On the other hand, Netflix’s DVD business is expected to continue to lose steam, and its revenues will likely decline to just over $77 million.

Fiscal 2019 Expectations

  • We expect the company to report close to $20.5 billion in revenues in 2019, with $9.3 billion revenues in the domestic streaming segment and $11 billion in the international streaming segment.
  • The U.S. market for streaming content is getting more saturated due to strong competitive pressure, which is expected to intensify once Disney launches its own direct-to-consumer offering Disney+. This service is also priced significantly cheaper than Netflix (at $7 per month versus $13)
  • Netflix reported negative cash flow of $3 billion for 2018 and now expects 2019 free cash flow deficit to be modestly higher at approximately -$3.5 billion, due to higher cash taxes related to the change in its corporate structure and additional investments in real estate and other infrastructure.
  • The company expects free cash flow to improve in 2020 and each year thereafter, driven by its growing subscriber base, revenues, and operating margins.

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What To Expect From PepsiCo’s Q1 2019 Results?

This Jan. 30, 2019, file photo an advertisement for Pepsi is shown downtown for the NFL Super Bowl 53 football game in Atlanta. (AP Photo/David J. Phillip, File)

PepsiCo Inc. (NYSE: PEP) is set to announce its Q1 2019 results on April 17, 2019, followed by a conference call with analysts. The company is expected to report revenues of $12.7 billion in Q1 2019, marking a growth of 1.3% on a year-on-year basis. Revenue growth is likely to be driven by increased sales across all its operating segments, especially with higher growth in emerging markets. Increased demand for healthy snacks, sports drinks, and non-carbonated drinks (NCDs) is expected to lead to healthy growth in the company’s healthy snacks and beverages portfolio. Revenue would be significantly lower compared to Q4 2018, mainly due to seasonality, with the fourth quarter being the best performing quarter for the company. Market expectations are for the company to report earnings of $0.92 per share in Q1, slightly lower than $0.96 per share in the previous year period. Lower earnings would likely be a reflection of a higher effective tax rate, incremental investments to strengthen its business, partially offset by cost savings due to refranchising of the bottling business.

We have summarized our key expectations from the announcement in our interactive dashboard – How is PepsiCo expected to fare in Q1 2019 and what is the full year outlook? In addition, here is more Consumer Staples data.

Key Factors Affecting Earnings

Frito-Lay North America

  • Frito-Lay North America, which contributes a little over a quarter of the company’s total revenue, is expected increase its sales by 1.6% (y-o-y) in Q1.
  • Higher revenue would primarily be driven by effective net pricing and volume growth in variety packs and its trademark Doritos.
  • However, we expect margins to continue to decline and remain subdued in the near future, driven by higher transportation costs and commodity prices, especially potatoes and motor fuel.

Quaker Foods North America

  • Net revenue of Quaker Foods has been declining over the last three years, reflecting lower volume and unfavorable net pricing and mix. The lower volume was driven by decline in trademark Gamesa and ready-to-eat cereals, partially offset by the growth in oatmeal.
  • We expect segment revenue to marginally increase in Q1 2019, compared to the previous year period, with the oats market projected to grow at a CAGR of 5.5% over the next 10 years, partially offset by a slowdown in ready-to-eat cereals.
  • Operating margins are expected to remain lower due to high commodity prices, partially offset by productivity savings.

North America Beverages

  • We expect revenue to grow by 0.8% in Q1, driven by healthy growth in the segment’s juice and sports drinks portfolio, partially offset by lower sales of carbonated soft drinks.
  • We expect operating margins to improve, driven by cost savings under its new productivity plan. However, they are unlikely to touch historical highs due to rising advertising and marketing expenditure.

Growth in Latin America

  • Net revenue is expected to increase by over 2% in Q1 in the absence of major foreign currency headwinds (with the dollar relatively stable) and the company’s campaign focus on healthy snacks and NCDs.
  • In spite of low revenue, operating margins were high in Q1 2018 mainly due to one-time insurance settlement recoveries related to the 2017 earthquake in Mexico. We expect margins to decline in the absence of any non-recurring benefit unlike last year, and higher spending on advertising.

Europe, Sub-Saharan Africa and Asia, Middle East and North Africa

  • Though the ESSA segment saw impressive growth through 2018, we expect revenue growth to be muted at 1.9% in Q1 2019, driven by the effects of refranchising of all its beverage bottling and snacks distribution operations at Czech Republic, Hungary, and Slovakia in 2018.
  • Revenue in the AMENA segment is projected to increase by 1.3% in Q1 driven by projected double-digit growth in snacks volume in India, China, and Pakistan, along with increasing sales of NCDs (non-carbonated drinks) in the region, partially offset by loss of volumes due to refranchising a portion of the beverage businesses in Thailand.
  • We expect both the segments to continue growing their operating profit margin, benefiting from productivity gains and cost savings due to refranchising of their high-cost bottling business.

Lower Profitability

  • We expect net income margin to decline to 10% in Q1 2019, which is a sharp drop from 35.1% in Q4 2018 and slightly lower than 10.7% in Q1 2018.
  • The primary factor driving margins lower would be the effective tax rate, which is expected to be 21% throughout 2019, compared to -254.9% in Q4 2018.
  • The one-time tax benefit in Q4 related to net tax benefits resulting from the reorganization of PEP’s international operations and the implementation of TCJ Act.

Full-year picture

  • For the full year, we expect the company’s revenues to grow by 3.1% to $66.7 billion in 2019, driven by growth in the company’s healthy snacks, sports drinks, and non-carbonated beverage portfolio.
  • An effective tax rate of 21% in 2019 (compared to tax benefits received in 2018) and incremental investments by the company to strengthen its business is expected to lead to a sharp drop in net income margin to 8.5% in 2019 from 19.4% in 2018. However, gains from the company’s recently announced new productivity plan are expected to support margin growth going forward.

Trefis has a price estimate of $119 per share for PepsiCo’s stock.

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Would A Slowdown In The Aluminum Market Dampen Alcoa’s Q1 2019 Results?

The logo for Alcoa appears above a trading post on the floor of the New York Stock Exchange, Monday, March 5, 2018. (AP Photo/Richard Drew)

Alcoa (NYSE: AA) will release its Q1 2019 earnings on April 17, 2019, followed by a conference call with analysts. We expect the company to report revenue of $2.82 billion for the quarter, which marks a decline of 8.7% on a year-on-year basis. Lower revenue would likely be driven by a sharp reduction in revenue from the company’s aluminum segment due to a significant drop in global aluminum prices. Market expectations are for the company to report a loss of $0.06 per share in Q1, driven by a decrease in revenue, lower shipments, decrease in price realization, and higher expenditure to improve the existing asset base.

We have summarized our key expectations from the company’s earnings in our interactive dashboard – How is Alcoa expected to fare in Q1 2019 and what is the outlook for the full year? In addition, here is more Materials data.

Key Factors Affecting Earnings

Alumina Revenue

  • Revenue from third-party alumina sales is expected to come in at close to $1 billion, which would be a decline of over 11.5% sequentially, driven by an 11.3% drop in price realization and lower shipments. However, on a year-on-year basis, alumina revenue is expected to increase by 9.2%, mainly due to a much lower price level during Q1 2018.
  • Alumina shipments are expected to decrease from 2.38 million tons in Q1 2018 to 2.35 million tons in Q1 2019. Lower volume is expected to be driven by lower demand for alumina with many aluminum companies shedding capacity in China (alumina is a raw material for aluminum companies).
  • With a year of being in deficit, alumina prices increased significantly during most of 2018. However, currently due to lower demand, alumina is expected to be in surplus (excess supply) from Q1 2019, which has in turn led to a sharp drop in prices. Thus, we expect price realized per ton of alumina to decrease to $425 in Q1 from $479 per ton in the previous quarter. However, the price would still be higher than $385 during Q1 2018.

Aluminum Revenue

  • Revenue from third-party primary aluminum sales is expected to decrease by 23.3% (y-o-y) to $1.51 billion in Q1 2019, compared to $1.97 billion in the year-ago period. Decrease in aluminum revenue is expected to be driven by a drop of close to 24% in price realized per ton of aluminum sold. The decrease in price realization is in line with a sharp drop in global aluminum prices since December 2018.
  • With aluminum exports from China being at record highs (exports exceeded 500kmt in seven of the last eight months) due to very low domestic demand driven by a drop in industrial and construction activity, the metal is in excess supply world-over. This has led to a sharp drop in the price of aluminum to below $1,900/ton in Q1 2019 from its high of over $2,620/ton in mid-2018. We expect Alcoa to realize $1,890/ton of aluminum in Q1 2019, significantly lower than $2,483/ton in Q1 2018.
  • Such a sharp reduction in price is expected to completely overshadow a marginal increase in shipments to 800kmt for the quarter.

What Is In Store For The Year?

  • For the full year, we expect revenue to decrease by close to 14% (y-o-y) to $11.5 billion in 2019, led by slowdown across all its operating segments for the year.
  • A drop in total shipments is expected to adversely affect the company’s profitability as the total cost would be attributed to lower volume. Expectations of net income margin declining from 1.7% in 2018 to 1.2% in 2019 would also reflect increased expenditure from the company to improve its asset base, though this would provide benefits in the form of margin improvement in the long-term.
  • Net income would likely be around $138 million on the back of lower revenue and drop in margins.

Trefis has a price estimate of $37 per share for Alcoa’s stock, which is higher than its current market price. Alcoa has been able to beat consensus estimates in each of the last four quarters. We believe that the company’s stock price could see a short term improvement if it manages to beat the consensus this time as well. Additionally, the company’s plans to focus on improving its asset base and reducing cost, along with the recently announced $200 million share repurchase program (of which $50 million worth of shares have been repurchased) would continue to support the growth in its stock price.

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What To Expect From CSX Corporation’s Q1 Results

In this April 26, 2018, file photo, a CSX Transportation locomotive pulls a train of tank cars across a bridge on the Hudson River along the edge of Bear Mountain State Park near Fort Montgomery, N.Y. (AP Photo/Julie Jacobson, File) photocredit: ASSOCIATED PRESS

CSX Corporation (NYSE: CSX) is set to release its Q1 financial performance on April 16. This note details Trefis’ forecasts for CSX Corporation, as well as some of the key trends we will be watching when the company reports earnings.

What To Expect From CSX In Q1

  • Expect revenues to be a little over $3 billion, reflecting 5% growth year-over-year, but down 4% sequentially, due to expected rationalization of intermodal lanes.
  • EPS will likely be $0.95 per share, marking a 21% growth year-over-year.
  • Expect merchandise freight to drive the Q1 growth, led by higher industrial and construction related shipments.
  • The growth will be led by gains in both volume and average revenue per carload.
  • The U.S. construction sector is forecast to grow in mid-single-digits over the next three years.
  • This should result in higher shipments of metals, construction products, plastics, and industrial chemicals.
  • Intermodal growth will likely be muted, as the company focuses on rationalization of intermodal lanes.
  • Coal is unlikely to see any significant growth, as utility coal could continue to decline.
  • The decline in utility coal demand can largely be attributed to the trends in natural gas prices.
  • The benchmark Henry Hub natural gas price is currently trading under $3 levels, falling from the highs of $4.50 in late 2018.
  • With gas prices being more attractive, the dependency on coal as an energy source continues to come down.
  • EIA estimates 603 million short tons (mst) coal consumption in 2019, which will be the lowest coal consumption over the past few decades.
  • Coal exports have been trending higher in the recent quarters, but it may see a slight decline in 2019, thereby impacting the overall volume.

You can view our interactive dashboard analysis on How Is CSX Corporation Likely To Have Fared In Q1? for more details on the expected performance of the company. In addition, you can see more of our data for industrial companies here.

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JPMorgan’s Record Q1 Results Demonstrate Strength Of Its Business Model

A monitor displays JPMorgan Chase & Co. signage on the floor of the New York Stock Exchange (NYSE) in New York. Photographer: Michael Nagle/Bloomberg

© 2018 Bloomberg Finance LP

JPMorgan Chase kicked off the earnings season for banks late last week with a much stronger-than-expected performance for the first quarter. The largest U.S. bank reported strong gains across most of its operating divisions, which helped revenues soar to a record $29.1 billion for the quarter (well ahead of the consensus estimate of $28.1 billion), while earnings for the quarter also jumped to an all-time high of $2.65 compared to the consensus figure of $2.32. Notably, JPMorgan achieved these strong results despite a visibly weak performance by its trading desks. This highlights the benefits of its diversified business model, which has a dominant presence in retail banking, investment banking, commercial banking, custody banking as well as asset & wealth management services.

The bank’s strong Q1 showing reinforces our belief that its EPS figure for full-year 2019 will reach $10.00, as detailed in the Trefis valuation dashboard for JPMorgan. Taken together with a forward P/E multiple of 12 for the diversified banking giant, this points to a $120 price estimate for JPMorgan’s stock, which is roughly 10% ahead of the current share price. We detail the key factors that drove JPMorgan’s results in Q1 2019, along with the likely trend for full-year 2019 in the sections below.

What Drove JPMorgan’s Q1 Revenues, And What’s The 2019 Outlook?

Net Interest Income: The single biggest driver of JPMorgan’s top line in Q1 2019 was its net interest income, which swelled from $13.3 billion in Q1 2018 to almost $14.5 billion in Q1 2019. These gains can be attributed to:

  • An increase in average interest-earning assets from $2.2 trillion in Q1 2018 to over $2.31 trillion in Q1 2019. This includes a strong 4% jump in average loan balances from below $927 billion a year ago to over $968 billion now.
  • A steady increase in the net interest margin from 2.48% in Q1 2018 to over 2.56% in Q1 2019 thanks to the Fed’s four rate hikes in 2018, even as JPMorgan’s focus on credit card lending (which attract the highest interest rates among all loan categories) helped boost interest revenues.

With the Fed expected to hold interest rates steady over the year, JPMorgan’s NIM figure for full-year 2018 should largely remain around the levels seen in Q1 2019. However, its interest-earning assets should continue to witness strong growth over the year, and should average more than $2.35 trillion in size for full-year 2019. This should help JPMorgan report a net interest income of well over $58 billion for full-year 2019, as detailed below.

Investment Banking Revenues: JPMorgan’s investment banking revenues include its fees from M&A advisory activities as well as its equity underwriting and debt origination fees. The total investment banking fees for Q1 2019 increased to $1.84 billion from just under $1.7 billion a year ago. While the bank benefited from a sizable improvement in activity in the global M&A as well as debt capital markets for the quarter, there was a notable decline in equity underwriting activity. With several big ticket IPOs expected over the coming months, total investment banking revenues should witness strong growth for the year. We forecast these revenues to cross a record $7.5 billion for full-year 2019 – up from $7.2 billion in 2018.

Securities Trading Revenues: The weakest aspect of JPMorgan’s Q1 results was the fact that its securities trading revenues fell 17% year-on-year from $6.6 billion in Q1 2018 to $5.5 billion in Q1 2019. This includes an 18% reduction in fixed income trading revenues (from $4.55 billion to $3.7 billion), and a 14% decline in equity trading revenues from $2 billion to $1.4 billion. As the first quarter is seasonally the strongest period for securities trading, this will have a tangible impact on revenues for full-year 2019. However, it should be noted that Q4 2018 was the worst quarter in terms of securities trading revenues for the largest U.S. banks in four years. While JPMorgan is unlikely to repeat its extremely strong trading performance for the first half of 2018 over the first half of 2019, we expect it to fare much better in the latter half of the year. This should help securities trading revenues for full-year 2019 remain largely level with the figure for full-year 2018.

What Drove JPMorgan’s Expenses In Q1, And What’s The 2019 Outlook?

Compensation Expenses: JPMorgan’s record revenues for the quarter were accompanied by all-time high compensation expenses of $8.94 billion. This is largely expected, especially since the first quarter of the year has seasonally elevated compensation costs (due to bonus payouts to employees). Notably, though, JPMorgan’s compensation expenses have grown only 1% year-on-year – well below the 4% growth in its revenues over the same period. With the bank looking to reduce headcount in its asset & wealth management division, the total compensation expenses for the year should only be slightly ahead of the figure for full-year 2018.

Loan Provisions: JPMorgan’s loan provisions for Q1 2019 nudged lower to $1.5 billion from $1.55 billion in the previous quarter, although the figure swelled 28% when compared to the $1.17 billion figure a year ago. The year-on-year jump can be explained by the fact that the bank had to incur higher provisions in its commercial banking segment this time around, while the segment benefited from a sizable one-time release of provisions last year. That said, there was a small increase in charge-off rates for several loan categories – especially card loans. This should result in provisions remaining elevated over the rest of the year compared to the figures for 2018. Accordingly, we expect loan provisions for full-year 2019 to increase to $5.2 billion from $4.9 billion in 2018.

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Citigroup And Goldman Sachs Kick Things Off With Mixed Results

Everybody loves a good comeback story, as golf fans might tell you following Tiger Woods’ unexpected victory at the Masters over the weekend. The markets have also staged quite a comeback since the end of 2018, and there was more evidence of that Friday when the S&P 500 Index closed above 2900 for the first time since last fall.

The S&P 500 is now up more than 23% from its Dec. 24 low as earnings season begins, and JP Morgan got things off pretty nicely on Friday. Now it’s time for more big banks to report, and the first one Monday, from Goldman Sachs, looks like it might be a bit of a puzzle.

Fresh Bank Earnings To Ponder

As detective Sherlock Holmes once said, “Well, Watson, what do you make of it?” Investors might be asking themselves the same question this morning after a first glance at Goldman Sachs’ earnings as another huge week of quarterly big bank reporting begins.

Goldman Sachs took care of business on the earnings side of the equation in Q1, easily surpassing third-party consensus estimates with a $5.71 earnings per share reading. The average analyst projection was $4.96.

However, revenue of $8.81 billion came in under third-party consensus of $9.07. The lower than expected top line appeared to reflect weaker trading activity in the quarter, something many analysts had predicted going into bank earnings due in part to low volatility in the markets and investor shyness after stocks cratered in December.

Fixed income trading revenue fell 11% to $1.84 billion, and stock-trading revenue tumbled 24% to $1.77 billion. There’s no way to get around it. These just aren’t very good numbers, though they weren’t surprising considering they came in near analyst estimates. The question is whether investors might discount some of the bad news in Q1 as a short-term obstacle that might be a one and done issue as the year rolls on.

With Goldman Sachs, you don’t like to see them miss on revenue, but management of expenses was so good it might have helped them manage the overall 18% trading revenue drop. The issue now is how do they continue to make things balance. Will trading revenue be able to come back enough? You can’t just cut and cut and cut. Goldman Sachs shares rolled back and forth between a bit higher and a bit lower in pre-market trading right after the report.

The other big bank this morning is Citigroup, which also posted better than expected earnings per share at $1.87 vs. third-party consensus of $1.80. Revenue of $18.6 billion came in just a little under analysts’ expectations. Fixed income trading came in above where Wall Street had been looking, but equities trading slumped. Remember, some of the banks might have gotten a lift earlier in Q1 from the Fed’s December interest rate hike, something that became apparent Friday with earnings from JPMorgan Chase.

Citigroup also appeared to do a good job managing expenses, and if you were bullish about the banks Friday it doesn’t look like Monday’s results would be likely to change things too much. The market doesn’t seem to have too much direction early on as many investors continue struggling to interpret the two big reports this morning.

The puzzle so far with bank earnings, despite Friday’s JP Morgan-assisted rally, is that you could make arguments either way about the quality so far. Wells Fargo, for instance, beat earnings expectations but saw shares get hit Friday due in part to disappointing guidance about the bank’s net interest income outlook. Citigroup and Goldman Sachs didn’t really have the flags waving in one direction or the other.

Earnings Helped Provide Friday’s Tailwind

After a rough start, the old week ended on a very strong note with the S&P 500 Index finishing above 2900 for the first time in six months. The all-time high close is around 2930, so we’re getting pretty near.

The Dow Jones Industrial Average had an even better day than the S&P on Friday, due in part to the performance of two of its components: Walt Disney  and JP Morgan. The strength in JP Morgan was likely a function of earnings, as the company kicked off earnings season by topping the Street’s expectations on both top- and bottom-lines. Also, it’s possible that positive comments about the economy from JP Morgan Chairman and CEO Jamie Dimon might have added to the general good feelings across sectors Friday.

Disney was arguably one of the “happiest places” to be on Wall Street Friday as the stock catapulted to better than 11% gains after the company announced a streaming service offering lower prices than Netflix. Perhaps proving Newton’s Third Law of Motion that every action has an equal and opposite reaction, shares of Netflix fell nearly 4.5% (see more on Disney and Netflix below). Friday’s double-digit gains brought DIS to a new all-time high, and it’s not often that one sees a Dow stock rise more than 11% in a single session.

It was one of those days that showed how the Dow can get easily influenced by just a couple of names, rising 1% while the S&P rose just a shade more than 0.6%. Still, both indices ended higher for the week. The S&P 500 is up three weeks in a row going into the new week, and crude oil prices registered their sixth-straight week of gains. Volatility, meanwhile, continued to descend, as the Cboe Volatility Index ended the week just above 12. That’s down from 17 just a few weeks ago and well below the historical average of around 15.

Yields March Higher

As the Cboe Volatility Index dug a deeper hole, Treasury yields climbed. The slide below 2.4% in the 10-year yield earlier this year and the yield curve inversion seem like faraway memories now, with the 10-year yield back above 2.55%. That’s still below where they were at the start of 2019, but the push above what some analysts saw as key resistance at 2.55% might help set a more positive tone for the week ahead. Falling yields earlier this year had caused some hand-wringing about a possible recession. Now we’re starting to see U.S. economic growth estimates turn higher.

Speaking of higher, some analysts are now looking at the two bank earnings Friday—JPM and Wells Fargo—and wondering if current Q1 S&P 500 earnings estimates might be a bit too negative. One thing to consider is that it’s still very early to be talking about this. Another week or two of earnings from across multiple industries might help clarify whether the average analyst estimate for a low-to-mid single-digit year-over-year earnings decline is still in the cards.

However, one thing we might have learned Friday was that it’s easy to live in the moment and overlook something that happened a while back. JP Morgan’s quarter, in particular, appeared to benefit from the Fed’s late December rate hike, and that’s something many people didn’t really factor in. The biggest surprise in JP Morgan was trading revenue not being as bad as many had thought, but in a way JP Morgan had a big first-mover advantage. Now the onus might be on Goldman Sachs and Morgan Stanley to show that they, too, had good trading quarters.

From a sector standpoint, the week ended with cyclical stocks ahead of the game. Industrials, Financials, and Communication Services were some of the biggest gainers, while Health Care and Staples stayed in the rear. This is often the kind of market action one sees when investors feel positive about the economy. This week brings some more economic news, including China’s Q1 economic growth, U.S. March retail sales, U.S. March housing starts and building permits, and U.S. March industrial production (see more below). We’ll also have the Fed’s Beige Book for April, which is a summary of business activity across Federal Reserve member banks.

Also remember that this is a shortened week, with U.S. markets closed Friday for the Good Friday holiday. That could potentially cause some heightened volatility Thursday ahead of the long weekend.

Figure 1: OUT OF SYNC: After moving closely together much of last year, 10-year Treasury yields (candlestick) and the S&P 500 Index (purple line) have gone different directions so far in 2019. Although yields are starting to gain some ground over the last week or two, they still remain down for the year even as stocks continue moving rapidly higher. The question is whether this dichotomy can continue. Data Sources: Cboe, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Data Sources: Cboe, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade.

Don’t Forget Big Blue: Amid the slew of bank earnings early this week, it might be easy to forget it’s not all about the Financial sector early in earnings season. For instance, most investors are probably aware that FAANG member Netflix is due to report tomorrow, but so are Johnson & Johnson and CSX, along with United Continental and IBM. Between these four, investors might get a really good sense of trends in health care, consumer goods, air travel, transport, and to some extent, Info Tech.

Of all these earnings reports, IBM might be among the most interesting. The company delivered strong Q4 earnings and issued robust guidance the last time it reported, back in January. Revenue, however, declined year-over-year. Consider watching results from IBM’s Technology Services and Cloud Platforms segment, which posted nearly $9 billion in Q4 revenue but just missed analysts’ expectations. It might also be worth checking in to see if IBM has any updates on its acquisition of software firm Red Hat.

Soft Industrial Production Mulled Ahead of Data: Tomorrow brings the latest monthly industrial production data from the Fed, and it follows three consecutive months of weak performance for this key metric. Last time out, in February, industrial production rose just 0.1%, and it fell in January. Softness in durable goods manufacturing was the story earlier this year, and that could reflect falling demand from both businesses and consumers for some of the bigger ticket items like machinery and major appliances. Manufacturing output fell 0.4% in February, while utilities output was the report’s only real strong point.

One question heading into the March report tomorrow is whether the Fed’s decision to keep interest rates low might have increased demand from where it was in January and February, when the Fed had just raised rates for the fourth time in a year. Another question might be whether higher commodity costs are playing a role in current softness. Crude has been on a tear most of the year, and some of the industrial metals like copper have been climbing again, too.

Greenspan Delivers Note of Caution: Former Fed Chairman Alan Greenspan made some bearish comments on CNBC early Friday, saying growing U.S. deficits and the rising cost of entitlements pose dangers in the future. He’s also worried about inflation. His remarks didn’t seem to hurt markets too much Friday, but they could help serve as a reminder that the markets are reaching historic highs now and prudence is never a bad idea. With the S&P only about 1% away from its all-time high close, it might not be the best time for investors to go “all-in.” Also, with the old quarter done, now could be a good time to consider looking at your performance and seeing if Q1’s big stock market rally has your portfolio more weighted to stocks than you originally intended. Greenspan long ago warned about the danger of “irrational exuberance,” and while the markets and economy do appear healthy, his words still have meaning for investors who might be getting carried away by this fierce rally.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

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North America Could Continue To Weigh On Halliburton’s Results

Attendees pass in front of the Halliburton Co. booth during the 2018 Offshore Technology Conference (OTC) in Houston, Texas. Photographer: Aaron M. Sprecher/Bloomberg

© 2018 Bloomberg Finance LP

Halliburton, the second-largest oilfield services provider, is expected to publish its Q1 2019 results on April 22. This note discusses Trefis’ expectations, as well as consensus estimates, for the company’s earnings.

What to expect from Halliburton in Q1 2019?

  • Consensus earnings expectations stand at ~ $0.22 per share, marking a 45% decline year
  • Consensus revenue expectations of $5.5 billion represent a slight year-over-year decline

What trends will drive the company’s results?

  • Halliburton is likely to underperform in the North American market (which accounted for ~60% of 2018 revenue), although international operations will fare better.
  • Average North American rig count over the quarter down 1% year-over-year, versus growth of 6% in international rig count
  • While crude oil prices also saw a modest recovery over the quarter, it is unlikely to have benefited results.

Why Is North America expected to underperform?

  • In the on-shore U.S. market, operators are looking to align investments to their cash flows, likely reducing oilfield services spending.
  • Operators could be focusing on spending on the inventory of drilled but uncompleted wells, reducing drilling-related activity.
  • Pipeline capacity in the Permian – the largest U.S. shale basin – is likely to remain a constraint until H2’19, weighing on activity in the region.
  • There has also been a meaningful decline in Canadian activity, with the average rig count down 30% year-over-year.

What about international markets?

  • Weather-related seasonality and the roll-off of higher-margin year-end product/software sales will result in a sequential decline in international revenue.
  • However, there could be a year-over-year improvement, driven by rising activity in markets such as Africa and the Asia Pacific
  • Moreover, equipment availability is expected to be tightening, potentially helping pricing.

View our interactive dashboard analysis on What’s Driving Our Price Estimate For Halliburton. You can change key drivers to arrive at your own price estimate for the company. In addition, you can see all our data for Energy Companies here.

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What Impacted GameStop’s Q4 Results?

Signage is displayed at a GameStop Corp. store in Oswego, Illinois, on Monday, April 1, 2019. (Photographer: Daniel Acker/Bloomberg)

© 2019 Bloomberg Finance LP

GameStop Inc (NYSE:GME) recently posted its Q4 FY 2018 results, which were below our estimates, as the pre-owned video games sales plummeted. Below we outline some of the key takeaways from the company’s earnings, and our estimates for 2019.

How Did GameStop Perform Over Q4?

  • GameStop’s Q4 revenue stood at $3 billion, down 13% year-over-year.
  • Pre-owned video games sales were down 21% while new video game hardware and software sales declined by 10% and 8%, respectively.
  • The company divested its Spring Mobile business last year, which also impacted the y-o-y growth.
  • Adjusted net income stood at $164 million for the quarter, compared to $205 million in Q4 FY’17
  • The company saw strong 19% growth in the video game accessories business, which has been trending well of late.
  • The overall gross margins narrowed during the quarter, due to lower pre-owned video games sales, which offers higher margins.

What Impacted The Sales In 2018?

  • New consoles, such as Nintendo Switch, launched in 2017, spurred video games hardware sales for GameStop.
  • The sales have cooled in subsequent years, thereby impacting the company’s new video game hardware revenues.
  • Lower hardware sales have impacted the new video game software sales.
  • Fewer title releases in 2018 when compared to 2017 have also impacted the sales.
  • Video game accessories sales growth was led by higher demand for audio-related and battle royale (gaming genre) related accessories.

What’s The Outlook For GameStop For Fiscal 2019?

  • Expect revenues to decline 2% to $8.1 billion in fiscal 2019.
  • Continued growth in video game accessories, and collectibles should offset some of the declines expected in other segments.
  • Margins could see further pressure with lower mix of pre-owned video games sales.
  • Lower revenues and margins will result in adjusted earnings of $1.08 per share in fiscal 2019, as compared to $2.70 per share in fiscal 2018, in our view.
  • Our price estimate of $12 for GameStop is based on a 11x forward price to earnings multiple.



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