- Halliburton Company reported a mixed quarter as the oil services giant beat on earnings but missed on revenue.
- Enphase Energy Inc. reported a blowout quarter with a top and bottom line beat with a solid outlook for FY2023.
- T Mobile reported a mixed quarter and delivered a solid FY2023 outlook that has the company defending its market share.
- Alphabet had a terrible quarter as the company missed earnings and revenue as the slowing ad market bites Google.
- The Walt Disney Company with Bob Iger at the helm again beat on earnings and revenue as Iger turns the company around.
Halliburton Company (HAL): The oil services company went into earnings with high expectations given the high oil price which caused them to have a mixed quarter. Halliburton reported earnings of $0.72/share (beat WallStreet estimates by $0.05) and revenue of $5.58 billion (missed WallStreet estimates by $10 million). The reported revenue was a slight disappointment for investors given the elevated price of oil. Despite missing revenue, Halliburton reported revenue growth of 30.4% thanks to the elevated price of oil throughout 2022. The company reported total fiscal revenues of $20.3 billion up 33% from FY2021 along with an operating income of $2.7 billion for the quarter highlighting the great execution by management.
The Completion & Production segment of the company which was trying to pass an elevated last year's number grew by 1% which vastly contributed to the revenue miss. However, the smaller (contributes 40% to total revenue) Drilling & Evaluation segment had revenue growth of 8%. Latin America and the Middle East regions were the strongest geographical locations for the company due to increased production in the UAE, Saudi Arabia, Colombia, and Argentina. Operating margins expanded from 14.4% to 18.7% highlighting the strong earning power of the oil service company. Net margins did contract significantly from 19.3% to 11.8% as management practiced risk management by allocating a $586 million tax provision to hedge against any global tax shifts.
Halliburton Company generated $1.23 billion in free cash flow up from $1.11 billion and as a result of solid cash flows management increased the dividend by 33%. The company ended the year with $2.35 billion in cash & cash equivalence on the balance sheet. Despite the slight revenue miss, this was a solid quarter for Halliburton to end the year. The stock sold off slightly (close to 2%) after the news, it seemed like a sell-the-news event for traders in the stock given how the stock has run up. We like our holding in Halliburton and would add to our position if the stock price goes below $36/share.
Enphase Energy Inc. (ENPH): The manufacturer of solar microinverters, battery energy storage, and EV charging ports for residential customers. Enphase Energy reported earnings per share of $1.51 (beat WallStreet estimates by $0.25) on revenue of $724.7 million (beat WallStreet estimates by $21.5 million). Enphase Energy’s headline numbers came in ahead of our expectations of earnings of $1.32/share on revenue of $715 million. The company reported outstanding revenue growth of 75.6% which justifies the 77x earnings multiple on the stock. The company is in a prime position for renewable energy secular growth as countries look to move away from fossil fuels.
The company’s report showed strong demand in North America and Europe in addition to being one of the winners from the passing of the Inflation Reduction Act. Enphase Energy reported margin expansion as gross margins expanded from 39.6% to 42.9% while net margins came in at 21.2% up from 12.7% from the same period a year ago. The company’s non-operating expenses were up 11.6% as management notes increased R&D spend. Enphase Energy generated $237.3 million in free cash flow up from $84.1 million and this will continue to grow as the company continues to grow. The cash balance ended the quarter at $473.2 million up from $119.3 million.
Management gave a solid outlook for the first quarter of FY2023 as the company continues to grow from strength to strength. The stock jumped up on the initial earnings report but the stock later sold off during the earnings call. Management noted that the U.S. segment will slow in 2023 which is unacceptable for a stock that trades at 77x earnings and 10x sales which is a lofty valuation. We have a small position in the stock and we are looking to add more to our position.
T Mobile U.S. Inc (TMUS): The communication service provider reported an earnings beat but missed the revenue number as they closed the year as the #1 service provider in the United States. The company reported earnings of $1.18/share (beat WallStreet estimates by $0.08) on revenue of $20.27 billion (missed WallStreet estimates by $390 million). Revenue came in below our fund estimates as we expected the company to capture a higher market share from Verizon and AT&T. We estimated the company would earn $1.12/share on revenue of $20.71 billion. T Mobile reported a slight revenue decline of 2.5% as they reported 314,000 in post-paid net account additions with a low churn of 0.92%. The company ended FY2022 with 1.4 million post-paid net accounts with total service revenue up 4% at $15.5 billion.
Looking at the Prepaid side of the business, the company had 338,000 prepaid account additions with a churn of 2.93%. In addition to the contract customers, T Mobile ended the year with a total customer count of 113.6 million. The company’s net income margin expanded from 2.8% to 7.3% as the company continues to realize merger synergies & cost cuts of $6 billion. T Mobile generated $2.2 billion in free cash flow up 96% from the prior year which will translate to higher dividends and share buybacks. Management is happy with its 5G buildout with $14 billion in FY2022 and they reported a solid 2023 outlook. For their outlook, management looks to generate $13 billion in free cash flow in 2023 and will invest up to $9.7 billion in capital expenditures.
Despite the mixed quarter, T Mobile had a great FY2022 as it became the number 1 cell provider in the United States. For us, this is a fairly new position in the fund and we are going to be adding to our position throughout the year. We like the free cash flow and capital expenditure growth we think the dividend has room to grow its dividend.
Alphabet Inc. (GOOGL): The parent company of Google missed on both earnings and revenue as the company feels the headwinds in the digital advertising market. Alphabet reported earnings of $1.05/share (missed WallStreet estimates by $0.14) on revenue of $76.1 billion (missed WallStreet estimates by $440 million). Alphabet reported big headline misses but in comparison to our fund estimates the weak revenue (a clear sign of a slowing digital ad market) beat our estimate. We estimated Alphabet would earn $1.15/share on revenue of $75.9 billion. The company reported miserly revenue growth of 1% with Google Advertising revenue down 3.6% at $59 billion (missing of fund estimate of $60.3 billion).
YouTube Ad revenue came in at $7.9 billion down 7.8% as they missed our fund estimate of $8.6 billion. Alphabet’s Google Cloud revenue came in at $7.32 billion (up 32%) but missed our fund expectations of $7.78 billion. The company had an operating margin contraction from 29.1% to 23.9% due to higher traffic acquisition costs for Google. Net margins came in at 17.9% down from 27.4% despite the margin contraction the company continues to invest in the future (R&D spending up 18%). Alphabet generated $16 billion in free cash flow down from $18.6 billion. The company still has a huge cash hoard as it ended the year with $114 billion in cash and cash equivalents.
This was a bad quarter for Alphabet Inc and a wake-up call to management to bring in some cost discipline going into a year full of headwinds. The stock is a core holding in our portfolio and for now, we are in now in a wait-and-see mode to see how management navigates.
The Walt Disney Company (DIS): The entertainment and theme park company beat on the top and bottom line as Iger returned to the company as CEO after Bob Chapek was ousted. The company reported earnings per share of $0.99 (beat WallStreet estimates by $0.20) on revenue of $23.51 billion (beat WallStreet estimates by $230 million). The revenue came in a tad bit light in comparison to our fund estimates where we estimated Disney would earn $0.85/share on revenue of $23.55 billion. The company posted revenue growth of 7.7% which was primarily driven by the Parks segment being up 21% in revenue. The Media segment was sluggish as that business only had 1% in revenue growth.
As a result of the sluggish growth in the Media segment that division had an operating loss of $1.05 billion from its DTC business (Disney +, ESPN+, etc.) which offset the $1.26 billion profit from Linear Networks. Disney did have 2% user growth from Hulu while Disney + disappointed in user growth down 1% with 161.8 million users. Global revenue per user from Disney + was up to $3.93 up 1% while ESPN+ was impressive up 14% to $5.53 per user thanks to the NFL playoffs & the World Cup in Qatar. The Parks segment produced $3.05 billion in operating profit up 25% as the lifting of COVID restrictions has consumers using up their savings for travel experiences. Disney ended the quarter with $1.28 billion up from $1.1 billion.
Free cash flow numbers were disappointing for Disney as the company had a cash burn of $2.2 billion down from a cash burn of $1.1 billion. This is because of the higher spending on Parks & Resorts and DTC businesses as the company ended the quarter with $8.52 billion down from $14.5 billion. This is an area Iger will have to address in FY2023, as long as the company does not generate free cash flow it will be difficult for the company to reinstate the dividend. Iger promised to reinstate the company’s dividend by end of FY2023. Overall, this was a solid quarter for Walt Disney which resulted in the stock going up but ended the day down close to 1% as the stock had run up into earnings. We are buyers of the stock at any price below $100/share as we want to make this a core holding in our fund.
Disclosure: Cresco Investments is long Halliburton (HAL), Enphase Energy (ENPH), T Mobile USA Inc. (TMUS), Alphabet Inc. (GOOGL), and The Walt Disney Company (DIS).
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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