(The Economic Times)
- Disney had a difficult as the media giant missed earnings and revenue.
- Uber reported a mixed quarter as the company is close to having operational profitability.
- Starbucks reported a solid as Schultz has restored stability at the company.
- Home Depot reported a strong quarter despite the slowdown in housing and the stock currently has a good valuation.
- Nvidia had a mixed quarter as management hinted that the company is on the cusp of returning to revenue growth.
Part VIII of the 2022 Q3 earnings review looks at various stocks in the sectors ranging from communication services to technology as earnings season begins to reach the final stages. Outside of The Walt Disney Company (DIS), all the other companies in Uber Technologies (UBER), Starbucks (SBUX), Home Depot Inc. (HD), and Nvidia (NVDA) reported fairly good earnings reports. Most of our positions received a positive stock reaction after they reported earnings as investors rewarded good execution in this challenging environment.
The Walt Disney Company (DIS): The media & theme park operator reported earnings of $0.30/share (missed Wall Street estimates by $0.26) and revenue of $20.2 billion (missed Wall Street estimates by $1.29 billion). Disney missed our expectations by a mile as we estimated the company would earn $0.58/share on $21.32 billion of revenue. We thought the new CEO, Bob Chapek had everything under control now since taking over but it does not seem to be the case given the miss on the earnings side especially. Chapek is known for his operational prowess but it seems like he is not executing well at the helm of Disney.
The company reported revenue growth of 8.7% thanks to the direct-to-consumer segment posting up 8% revenue growth with $4.9 billion and the Theme Park segment. The Parks segment recorded revenue growth of 36% as the reopening from COVID-19 restrictions (outside of the Shanghai Theme Park) is now in full swing for the company. Despite the good DTC numbers, the media segment suffered an operating loss of $1.5 billion. Management commented that Disney + is on the path to profitability by 2024. Disney had 12 million additional paid subscriptions during Q3 and the total user base is up 39% year-over-year. Total operating income was up 10% but the company’s margins eroded from 8.56% to 7.93%.
Disney’s free cash flow decreased by 10% to $1.38 billion and the company had a net cash loss of $1.34 billion during Q3. The company ended the quarter with $11.7 billion. Overall, Disney’s media business is in bad shape and Bob Chapek needs to stop the bleeding quickly given the stock’s reaction (down 6%) we will be adding to our position.
Uber Technologies (UBER): The ride-hailing and food delivery company reported an earnings loss of $0.61 (missed WallStreet estimates by $0.43) and revenue of $8.34 billion (beat WallStreet estimates by $220 million). The wider-than-expected loss was disappointing and we expect that management would reign that in. We estimated Uber Technologies would report a loss of $0.12/share on $8.2 billion of revenue. The company is still very much in growth mode as it reported revenue growth of 72% and this company is a beneficiary of the global economy reopening. The company’s gross bookings were up 26% to $29.12 billion versus our expectation of $30.77 billion.
The company’s Mobility segment recorded revenue growth of 38% and the number of trips came in at 1.95 billion (ahead of our expectation of 1.92 billion). A bulk of the company’s losses were attributed to the company’s equity investments which generated a $1.2 billion loss. Operating cash flow came in at $432 million and free cash flow came in at $358 million. Management gave an upbeat Q4 outlook to close out the fiscal year 2022 as they expect gross bookings of between 23–27%. The stock was up 11% on the earnings news and we like the company’s path to profitability. We will continue to add to our stock position on any stock sell-off.
Starbucks Corporation (SBUX): The coffee maker reported earnings of $0.81/share (beat WallStreet estimates by $0.09) and revenue of $8.41 billion (beat WallStreet estimates by $90 million). Starbucks exceeded our expectations as we estimated that they would earn $0.76/share on revenue of $8.34 billion. Despite the COVID-19 shutdowns in China, the company was able to report a 3.2% revenue growth. Same-store sales came in at 7% which missed our expectation of 11% because we factored in that China would be open. Starbucks passed on some pricing to customers as they raised prices by 11% in North America.
The company’s international segment reported a revenue decline of 5% as China was down 16% which was better than feared by investors. Starbucks opened 763 stores during the quarter and passed the 6,000 milestone mark in China. The company had a cash decrease from $6.45 billion to $2.81 as management invested back into its staff, stores, and expansion (proceeds from the suspended share buyback program). The company’s free cash flow decreased from $4.5 billion to $2.6 billion. The company still has a suspended financial outlook and interim CEO Howard Schultz has steadied things at the company. We think the stock has room to run to $100/share and we would be looking to add on any pullback.
Home Depot Inc. (HD): The home improvement retail outlet reported earnings of $4.24/share (beat WallStreet estimates by $0.12) and revenue of $38.87 billion (beat WallStreet estimates by $907.95 million). Home Depot’s headline numbers exceeded expectations as we estimated the company would earn $4.07/share on $37.93 billion of revenue. This company is a new position in our portfolio and we think the sell-off in the housing sector is now overdone due to interest rate hikes. We believe Home Depot is a way to play housing secular growth outside of owning the homebuilder stocks. The company posted revenue growth of 5.6% and same-store sales came in at 4.3% (ahead of the estimate of 3.2%).
Management found it important to reaffirm the company’s FY 2022 guidance at the top of the earnings report to highlight to investors that they are on track. Management was able to defend its margins in a high inflationary environment as gross profit came in at 34% down 12 basis points from a year ago. Operational expenses were up 4.6% but management generated 6.1% growth in operating income which shows great execution. Free cash flow was eroded from $11.65 billion to $7.81 billion due to high inventory levels may be due to double ordering. Overall, this was a solid quarter for Home Depot and we added more after earnings given the stock’s valuation of 19 times earnings.
Nvidia Corporation (NVDA): The semiconductor company reported earnings of $0.58/share (missed WallStreet estimates by $0.12) and revenue of $5.93 billion (beat WallStreet estimates by $110 million). In comparison to our estimates, Nvidia’s headline numbers were mixed as we expected the company to earn $0.65/share on $5.83 billion of revenue. The earnings miss from Nvidia suggests this was another kitchen sink quarter from the company as they get rid of excess inventory in their channel. The company is still facing headwinds from COVID-19 shutdowns in China to the slowing industry trends in gaming and crypto mining. The company reported a revenue decline of 17% from the prior year.
Looking at the segments, Nvidia’s Data Center segment business is still in growth mode posting 31% year-over-year revenue growth. The Auto & Professional Visualization segments posted 60% plus year-over-year growth but from a smaller base. The Gaming segment was significantly down as revenue declined 51% from a year ago. The company returned $3.75 billion to shareholders and they have $8 billion still left over on its share buyback program. Gross margins improved to 56.1% up from 52% a year ago and this exceeded our expectations, especially in a high inflationary environment. Net income ended the quarter at $680 million up 4% from the prior year.
Nvidia had a free cash flow burn of $138 million compared to the $1.3 billion generated a year ago. The company ended the quarter with $2.8 billion down $213 million from a year ago. Management gave a confident outlook as they expect to generate $6 billion and expect to have gross margins of 66%. Overall, this was a decent quarter for Nvidia as they continue to get rid of excess inventory. The company is going to have easier comparisons in FY2023. Nvidia is a core position in our portfolio and we will be looking to add to our stock position.
Disclosure: Cresco Investments is long The Walt Disney Company (DIS), Uber Technologies (UBER), Starbucks (SBUX), Home Depot Inc. (HD), and Nvidia (NVDA)
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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