2024Q2 Earnings Review Part V: Consumer Cyclical, Consumer Defensive, Healthcare, Semiconductors & Technology Software
- Home Depot reported a tough quarter, and its acquisition of SRS Distribution helped the company report sales growth.
- Walmart reported impressive top and bottom line beats with a raised outlook for the rest of the fiscal year.
- Palo Alto Networks reported a great quarter to close out its 2024 fiscal year and gave a good outlook going into 2025.
- Veeva Systems reported a top- and bottom-line beat and a promising outlook, helping to boost the shares.
- NVIDIA's impressive report showcased its benefits as the number one AI chip company despite being priced for perfection.
- Autodesk reported an excellent quarter accompanied by good management guidance, which will keep its activist investor at bay.
The Home Depot Inc (HD): Home Depot reported Q2 2024 earnings, with sales slightly rising by 0.6%, influenced by the acquisition of SRS Distribution. The home improvement company generated $43.2 billion (beating Wall Street estimates by $490 million). The company’s net income for the fiscal second quarter decreased to $4.56 billion, or $4.60 per share, from $4.66 billion, or $4.65 per share, in the year-ago period. The company earned $4.67 per share non-GAAP, beating Wall Street’s estimates by $0.12. We had meager expectations going into this quarter, given how high interest rates are a headwind for companies like Home Depot, given the high ticket prices related to projects. Based on that premise, we estimated the company would earn $4.48 per share on a revenue basis of $42.55 billion. Home Depot’s CFO mentioned that consumers defer projects due to higher interest rates and economic uncertainty.
Despite the company reporting revenue growth all thanks to its acquisition of SRS, the same-store sales were down 3.3%, with the U.S. down 3.6% on a same-store sales basis. This same-store sales decline can be attributed to the average ticket being down 1.3% in addition to the economic uncertainty and high interest rates. Home Depot had some margin contraction as the operating margin declined from 15.4% to 15.1%, while the net income margin was down 30 basis points to 10.6%. We expect the margins to improve as management integrates the SRS Distribution acquisition and produces cost savings from synergies. Regarding free cash flow, Home Depot has generated $9.34 billion year-to-date, down from $10.51 billion. The company returned $5.11 billion to shareholders in 2024, down from $9.17 billion as it had to use some cash for its acquisition.
The company expects full-year comparable sales to decline by 3% to 4%, adjusting previous estimates due to the current economic climate. Despite the soft outlook, Home Depot’s annual sales are projected to increase between 2.5% and 3.5%, including a 53rd week in the fiscal year and approximately $6.4 billion in sales from SRS. Overall, this was a challenging quarter for Home Depot, and it was a surprise that the stock had traded up. From the outlook, it looks like the consumer is set for a tough second half of 2024, but once the rate-cutting cycle starts, it will be a tailwind for the stock. For now, the stock is a hold for us, and we would look to add to our stock position at lower levels in the stock.
Walmart Inc (WMT): Walmart reported a total revenue of $169.3 billion (beating Wall Street estimates by $770 million) in Q2 FY25, a 4.8% increase from the previous fiscal year’s second quarter. Earnings Per Share (EPS) was reported at $0.56 GAAP and $0.67 adjusted (beating Wall Street estimates by $0.02), with the adjusted EPS showing a 9.8% increase. The retail giant reported impressive headline numbers, which we liked, but we had a higher bar for management on the EPS side as we expected them to rein in the costs, but this might be something they couldn't avoid as they look to capture market share. Going into the earnings report, we estimated that the fund would earn $0.72 per share from a revenue base of $169.25 billion.
The growth was driven by solid segment revenue, ranging from Sam’s Club to its e-commerce business. Walmart U.S. saw comparable sales growth of 4.2% (excluding fuel) and net sales growth from $110.9 billion in FY24 Q2 to $115.3 billion in FY25 Q2. The average ticket was up 0.6%, a healthy sign that the consumer is getting more from Walmart and the company is competing well on price. Sam’s Club comparable sales grew by 5.2% (excluding fuel), with net sales increasing from $21.8 billion in FY24 Q2 to $22.9 billion in FY25 Q2. Walmart International reported an 8.3% net sales growth in constant currency, with sales growing from $27.6 billion in FY24 Q2 to $29.6 billion in FY25 Q2. The international growth was fueled by its Mexico and Flipkart operations in India. Global eCommerce sales surged by 21%, contributing significantly to the overall revenue growth. Walmart Connect in the U.S. grew by 30%, driving the global advertising revenue increase by 26%. Walmart’s marketplace sales in the U.S. grew by 32%, highlighting the strength in store-fulfilled pickup & delivery and marketplace.
Walmart expanded its gross margins by 43 basis points to 24.4% as management continues to execute its strategy well. Operating income was reported at $7.9 billion, both reported and adjusted, with the adjusted operating income showing a 7.2% increase. Looking at cash flow, operating cash flows declined by $1.8 billion to $16.4 billion due to some payment timing and inventory increases, which could hint at the company starting to stock up for the holiday season. Walmart’s free cash flow decreased by 34% to $5.9 billion, and the company has pledged up to $1.3 billion to capital spending as it looks to increase its e-commerce capabilities. The company’s cash returned to shareholders through share repurchases, and dividends increased by 35% to $2.7 billion. The company’s return on assets was 6.4%, and the return on investment was 15.1%, indicating disciplined execution and growing margins.
Following the strong Q2 earnings, management raised its FY25 guidance by increasing its net sales growth range and operating income. Overall, this was a great report from Walmart, and the company is getting some market share as consumers look for reasonable prices and value. Some might see this as a bad sign for the consumer as they will lower price options, but Walmart has transformed itself to cater to a wide-ranging demographic. Investors cheered the earnings report, with the stock going up over 6%, and the company’s stock is proving to be a good core holding in our portfolio.
Palo Alto Networks (PANW): Palo Alto Networks reported fiscal fourth-quarter revenue of $2.2 billion (beating Wall Street estimates by $40 million), a 12% increase year over year. In fiscal year 2024, revenue grew by 16% to $8.0 billion. This highlights how Cybersecurity is a consistent secular grower, and Palo Alto is in the middle of this growth. Next-Generation Security Annual Recurring Revenue (ARR) saw a significant 43% year over year, reaching $4.2 billion. The company’s platformization strategy seems to be working well, surpassing our fund estimates that it would earn $1.45 per share from a revenue base of $2.18 billion. Non-GAAP net income for the same period was higher at $522.2 million, or $1.51 per diluted share (beating Wall Street estimates by $0.10).
The company’s operating income was down 6% to $238.4 million, representing an operating margin of 10.8%, down from 13%. Palo Alto Networks increased its R&D, Sales, and marketing to capture market share from Sentinel One (S) and CrowdStrike (CRWD). The company’s remaining performance obligation, essentially its backlog, also grew by 20% yearly, amounting to $12.7 billion. GAAP net income for the fiscal fourth quarter was $357.7 million, up 57.1% from last year, representing a margin of 16.3%, up from 11.7%. The company generated $2.64 billion in free cash flow in FY2024, up from $2.25 billion, and this allowed the Board to authorize $500 million for share repurchases, increasing the total authorization for future share repurchases to $1 billion, expiring on December 31, 2025.
For the fiscal first quarter of 2025, Palo Alto Networks expects revenue from $2.10 billion to $2.13 billion and non-GAAP diluted net income per share between $1.47 and $1.49. Revenue for fiscal year 2025 is projected to be between $9.10 billion and $9.15 billion, with a non-GAAP operating margin between 27.5% and 28.0%. Adjusted free cash flow margin is expected to be 37% to 38% for fiscal year 2025. Management gave good guidance, and investors liked the quarter overall, as the stock went up 7% the day after the earnings release. Given how the stock has run up, we would add to this position on a pullback, but we like the story surrounding cybersecurity.
Veeva Systems Inc.(VEEV): Veeva Systems Inc., a leader in cloud-based software for the global life sciences industry, has reported its fiscal second-quarter earnings, showcasing a robust performance that exceeded market expectations. The company, trading under the symbol VEEV on the New York Stock Exchange, announced a net income of $171 million, with earnings per share (EPS) at $1.04. Adjusted for one-time gains and costs, the EPS rose to $1.62, surpassing the analyst estimate of $1.53. The revenue figures were equally impressive, with the company bringing in $676.2 million for the quarter, above the consensus estimate of $667.84 million. This performance indicates a continued upward trajectory for Veeva Systems, reflecting its strong market position and ability to adapt and thrive in the dynamic healthcare sector. We expected the EPS to be slightly higher but the revenue beat was impressive, going into the quarter we estimated the company would earn $1.65 per share from a revenue base of $675.83 million.
Veeva’s success can be attributed to its comprehensive suite of solutions that cater to the nuanced needs of life sciences companies. From clinical to commercial and regulatory, Veeva’s cloud-based applications provide an integrated approach to managing drug development and commercialization processes. This has allowed the company to secure a loyal customer base and expand its reach within the industry. As a result of these factors, the company reported revenue growth of 15% year over year, with its Subscription segment leading the charge with 19.3% growth. The Professional Services segment had a revenue decline of 3.9% for the quarter. Veeva’s operating income was up 60% to $166.49 million, representing an operating margin of 24.6%, up from 17.6%. Management seems to be controlling its costs well, especially on the cost of goods sold, where expenses were only up 0.8% year over year.
The company’s spending on R&D grew 12.2% as management looked to increase their product offerings. The net income margin was up 6.4% from last year to 25.4% due to good treasury management, as Other Income grew by 51%. Year-to-date free cash flow improved to $844.9 million, up from $758.2 million, helping to bolster its cash position. Looking ahead, Veeva Systems has provided guidance that suggests confidence in its continued growth. Overall, this was a good quarter for Veeva Systems, and investors seem to agree with our sentiment as the stock rose close to 9% after the earnings release. We like our stock position in Veeva and would add on any significant pullback.
NVIDIA Corporation (NVDA): NVIDIA has once again made headlines with its Q2 2025 earnings report, showcasing a remarkable financial performance that has caught the attention of investors and tech enthusiasts alike. The company reported a staggering $30.04 billion in revenue (beating Wall Street estimates by $1.31 billion), marking a 122% increase from the previous year and a 15% increase from the prior quarter. This impressive growth can be attributed to NVIDIA’s innovative AI sector strides, which continue to drive the demand for its cutting-edge GPU technology. NVIDIA’s earnings per share (EPS) of $0.68 (beating Wall Street estimates by $0.04), up 12% from the previous quarter and 168% from the prior year. The semiconductor company reported impressive headline numbers, especially on the revenue, as it beat our fund estimates of earnings of $0.68 per share from a revenue base of $28.75 billion.
The company’s financial success is a testament to its strategic positioning within the exponentially growing AI and machine learning markets. NVIDIA’s GPUs power gaming PCs and are at the forefront of research and development in AI, contributing to advancements in fields such as autonomous vehicles, healthcare, and finance. All of the company’s revenue segments had revenue growth, with the Data Center segment leading the charge with 154% year-over-year growth. Gross margins came in at 75.1%, up 5% from last year, while operating margins improved by 11.8% to 62.1%. The company’s operating income grew by 174.1% year-over-year to $18.64 billion, while net income grew by 168% to $16.6 billion, representing a net income margin of 55.3%, up 9.5%. NVIDIA’s free cash flow is up 122.9% to $13.48 billion, and its cash balance has grown 33.9% from the same period last year to $34.8 billion. This robust cash flow allowed management to announce a share buyback of $50 billion, which could signal that they think their shares are undervalued.
During the quarter, the company returned $7.4 billion to shareholders, up from $3.2 billion. NVIDIA’s focus on AI and expansion into new markets suggest a promising future for the company. This was backed up by solid guidance from management as the company ramps up towards its next-generation AI chip in Blackwell in the fourth quarter of its FY2025. This was a robust quarter for NVIDIA, which is firing on all cylinders, but the stock sold off over 6% as it seems like the company was priced for something over the top. If the stock sells below $110/share (approximately 6.5% downside from the closing price on August 29th), we will look to add to our position.
Autodesk Inc. (ADSK): Autodesk Inc., a leader in 3D design, engineering, and entertainment software, has reported its earnings for the second quarter of fiscal year 2025. The company has again demonstrated robust financial health and growth, surpassing analyst expectations. Q2 2025 revenue reached $1.51 billion (beating Wall Street estimates by $30 million), a 12% increase from the previous year’s figures. Earnings per share (EPS) were reported at $2.15 (beating Wall Street estimates by $0.15), indicating a solid profit margin and operational efficiency. Autodesk’s headline numbers beat our fund estimates of earnings of $2.13 per share from a revenue basis of $1.5 billion. The company’s revenue growth was helped by 13% billings growth. The EMEA and Americas regions led the revenue growth, posting 13% and 12%, respectively, while Asia had 9% revenue growth.
Operating income jumped by 30.9% to $343 million, representing a margin of 22.8%, reflecting an expansion of 3.3%. The company increased its Sales and marketing spending for its product offerings, and management increased its R&D spending by 3.7% as the company looks to infuse AI into its products. Autodesk’s net income jumped 27% to $282 million, representing a net margin of 18.7%, reflecting strong cost management and profitability. Autodesk’s return on equity was an impressive 65.46%, showcasing the company’s effective use of shareholder capital. Autodesk’s backlog, represented by its Remaining Performance Obligations (RPO), grew by 11% to end the quarter at $3.9 billion. The company reported a free cash flow of $203 million, up from $128 million in the same period last year.
The company reported solid guidance for FY2025 Q3 and the rest of the fiscal year, which is a testament to its innovative product offerings and strategic initiatives. Autodesk’s commitment to sustainability and customer-centric approach continues to drive its success in the competitive software industry. This was an excellent quarter for Autodesk as the stock went up 5% in the after-hours, and it is a type of report that will keep the activist investor Starboard at bay. The stock has room to challenge its 52-week high of $279/share.
Disclosure: Cresco Investments is long The Home Depot Inc (HD), Walmart Inc (WMT), Palo Alto Networks (PANW), Veeva Systems (VEEVA), NVIDIA Corporation (NVDA) and Autodesk Inc. (ADSK).
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is intended for information, engagement & entertainment purposes only and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and consult with their financial advisor(s).
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