- Raytheon Technologies reported a mixed quarter with a considerably strong outlook for FY2023.
- United Parcel Services had a mixed quarter as the business international segments had some headwinds while e-commerce cooled down in Q4.
- Ford Motor Company reported a mixed quarter as management monetized their Rivian stake for investors.
- Starbucks missed on the top and bottom line as COVID lockdowns in China hampered foot traffic.
- Amcor PLC reported a solid quarter as the company continues to show consistency.
Raytheon Technologies (RTX): Raytheon Technologies reported an earnings beat but missed revenue as the company struggled with supply chain constraints. The aerospace & defense contractor reported earnings of $1.27/share (beat WallStreet estimates by $0.02) and generated $18.1 billion in revenue (missed WallStreet estimates by $70 million). In comparison to our fund estimates, Raytheon Technologies missed our expectations of $1.29/share on revenue of $18.4 billion. The company reported revenue growth of 6.2% and management noted that they are reorganizing the company into three business units. The Missile and Intelligence & Space segments will be combined into Raytheon.
The company closed FY2022 with $67.1 billion up from $64.4 billion in FY2021. Looking at the segments in-depth, Collins Aerospace had revenue growth of 15% as they generated $5.7 billion. The segment is in the sweet spot of secular growth in commercial aerospace. Pratt & Whitney generated $5.6 billion up 10% from the prior year and this was on good volume, pricing mix, and higher shop visits by clients. Raytheon Intelligence & Space (RIS) generated $3.5 billion down 8% on unfavorable sales mix and divestitures. Management did some cost cuts during the quarter as operating income decreased by 31%. Raytheon Missile & Defense was up 6% with $4.1 billion in revenue as geopolitical risk has increased weapons orders. Supply chain constraints and labor shortages are still affecting missile production.
Raytheon’s backlog now sits at $175 billion and 60% of it is related to aerospace contracts. During the quarter, Raytheon won $5.4 billion in new business varying from missile to F-135 production. Net margins expanded from 9.5% to 10.3% as management continues to execute. Raytheon generated $3.8 billion in free cash flow up from $2.2 billion. Management delivered a solid FY2023 outlook as they look to generate $72–73 billion in revenue (vs consensus estimates of $72.4 billion). They are also looking to repurchase $3 billion worth of stock on top of dividend payout. The stock reacted well to the outlook as investors bid up the stock up 3%. We like our stock position and we would like to add more on market sell-offs.
United Parcel Services (UPS): The shipping and supply chain company beat on earnings but revenue came in below expectations. United Parcel Service reported earnings per share of $3.62 (beat WallStreet estimates by $0.03) on revenue of $27 billion (missed WallStreet estimates by $1.03 billion). We had high expectations for UPS going into earnings as we expected Q4 to be stronger due to the Christmas season and Black Friday sales. Based on that assumption we expected UPS to earn $3.69/share on $28.3 billion of revenue. For FY2022, UPS passed the $100 billion annual revenue mark for the first time as they generated $100.3 billion up 3.1% from FY2021 which is impressive.
For the quarter, UPS reported a revenue deceleration of 2.7% which is terrible for a holiday-filled quarter. The U.S. segment was the strong part of the business up 7.2% for the year but operating margins declined 1.8% due to the high inflationary environment. The International segment reported revenue declined by 8.3% due to the COVID-19 shutdowns in China. Operating margins from that segment contracted by 4%. The Supply Chain Solutions segment had a revenue decline of 18.1% due to lower transport costs and air freight rates. Operating margins from that segment contracted by only 1.2% due to some strength coming from lower costs on healthcare orders which had some growth.
Looking at free cash flow numbers for FY2022, UPS generated $14.1 billion in operating cash flow while free cash flow came in at $9 billion. As a result of the strong cash flow numbers, $8.6 billion was returned to shareholders through dividends and share buybacks. The dividend was raised by 6.6% to $1.62/share along with an additional new $5 billion share buyback program. Management gave a cautious outlook for 2023, as they expect revenue to decline by between 1%-3% as it comes from a record number. Overall, it was a mixed quarter with a lot of subdued sections in the report as two of the three segments had revenue declines. We will not add to our stock position and we will continue to hold the stock. We would be tempted to add to our position if the stock sells off below $175/share.
Ford Motor Company (F): The auto manufacturer reported a mixed quarter as they beat on revenue but missed on earnings as they failed to mitigate cost headwinds. Ford reported earnings per share of $0.51 (missed WallStreet estimates by $0.11) on revenue of $41.8 billion (beat WallStreet estimates by $170 million). In comparison to our fund estimates, the headline revenue number was impressive but the earnings per share were disappointing as we expected management to have some cost discipline. We estimated Ford would earn $0.66/share on revenue of $41.3 billion as we forecasted that supply chain disruptions would affect revenue.
The company reported solid revenue growth of 18.6% as 4% more units were sold compared to the same period last year. The company reported higher costs due to labor and supply chain constraints. Despite the increased costs, Ford’s operating margins expanded from 3.3% to 4% which is impressive given the macroeconomic environment. Looking at cash flow numbers, Ford had a cash burn of $13 million in FY2022 down from generating $9.6 billion. The company is investing heavily in its electric vehicle build-out and it's understandable why the company had a cash burn in 2022. Ford ended FY2022 with $25.3 billion cash on the balance sheet and management announced a supplemental dividend of $0.65/share to shareholders to monetize the sold Rivian stake.
Ford gave a cautious outlook for FY2023 as management expected to have earnings before interest & taxes between $9 and $11 billion. We expect Ford’s supply chain disruption to be resolved but the company will face recession headwinds in 2023. We liked the supplemental dividend from Ford and we like our stock position as we continue to hold the shares.
Starbucks Corporation (SBUX): The coffee maker missed on both the top and bottom lines as FY2023 started off rough for the company. Starbucks reported earnings per share of $0.75 (missed WallStreet estimates by $0.02) on a revenue base of $8.71 billion (missed WallStreet estimates by $70 million). The company’s headline numbers came in well short of our fund estimates as we expected the COVID shutdowns in China to not be as severe. China is Starbucks’ second biggest market which is significant. We estimated the coffee maker would earn $0.79/share on revenue of $8.82 billion.
Looking at revenue, Starbucks reported revenue growth of 8.2% primarily driven by global same-store sales up 5% and higher pricing. The same-store sales number from Starbucks missed our fund estimate of 8.5%. The company’s International segment was down 13% all because of China which was down 29% because of the government-mandated COVID lockdowns in China. Despite all these headwinds, the company opened 459 net new stores during the quarter which shows some strong growth. Operating margins contracted significantly for the company down from 16% to 13.9% due to higher commodity and labor costs. Starbucks generated $1.08 billion in free cash flow down from $1.45 billion as they ended the quarter with $3.19 billion in cash.
Management declared a $0.53/share dividend for shareholders and we think this will be a reset year for the company. As for the stock, it is a core holding in our portfolio and we are buyers of the stock on any significant sell-off.
Amcor PLC (AMCR): The global packaging company beat on earnings and revenue and is one of the newest positions in the fund. We like the company’s defensive attributes given its high dividend yield and steady cash flows. Amcor reported earnings of $0.37/share (beat WallStreet estimates by $0.01) and revenue of $7.35 billion (beat WallStreet estimates by $10 million). In comparison to our fund estimates, the company missed on earnings but beat on revenue as we expected better cost discipline from management. Based on that expectation, we estimated Amcor would earn $0.40/share on revenue of $7.21 billion.
Amcor continued its steady growth reporting revenue growth of 6% driven by the impressive growth in the Flexible Product segment up 12.9% with $3.35 billion. While the Rigid Packaging segment reported revenue growth of 7.4% on revenue of $1.58 billion. The strong U.S. dollar was a 5% headwind on revenue growth for the company. Gross margins were eroded by 60 basis points on higher raw costs of $670 million. Net income margins increased from 6.2% to 9.4% thanks to a $215 million gain on the sale of its Russian business. Adjusted free cash flow came in at $(61)million down from generating $105 million in the same period a year ago. This is because of the cost impact of exiting Russia and Eastern Europe.
The company ended the quarter with $837 million in cash on the balance sheet. Management raised its dividend by 2% and plans to buy back up to 3% of the company over the next 12 months. Management reiterated its FY2023 outlook which is positive given the forecast that there will be a mild global recession. The stock sold off after the earnings news and we are looking to add more to our stock position.
Disclosure: Cresco Investments is long Raytheon Technologies (RTX), United Parcel Services (UPS), Ford Motor Company (F), Starbucks Corporation (SBUX), and Amcor PLC (AMCR).
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/or consult with their financial advisor(s).
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