To The Moon

2022 Q2 Earnings Review Part VI: BioNTech, Barrick Gold, Avnet, Walt Disney & Algonquin Power & Utilities Corp

• BioNTech missed on earnings and revenue as vaccine demand starts to wane as the pandemic becomes endemic.
• Barrick Gold continues to execute well but the strong dollar is weighing on the company’s performance.
• Avnet Inc. produced another top and bottom-line beat, we think this company is one of the cheapest stocks in the market.
• Disney had a strong quarter all thanks to the execution of the new CEO.
• Algonquin Power & Utilities Corp delivered a strong quarter with another solid showing on earnings and revenue.

Part VI of the earnings review represents the tail-end section of the earnings season. Where our positions in biotechnology, basic materials, technology, communication services, and utility sectors reported steady earnings and revenue growth. The earnings reports from these companies showed a mixed picture on the margin front but the financial outlooks for the rest of the year seem intact given the macroeconomic headwinds. All in all a majority of our stock positions delivered well-executed quarters.

BioNTech SE (BNTX): The biotechnology company reported a top and bottom line miss as the demand for the COVID-19 vaccine starts to wane. Governments around the world are no longer purchasing vaccines as the pandemic is now becoming endemic. The company reported earnings of €6.45/share ($6.43/share)-missed WallStreet estimates by €0.63 and revenue of €3.2 billion (missed Wallstreet estimates by €910 million). These numbers came in way short of our fund estimates of €7.25/share and €4.07 billion for earnings and revenue. We expected the vaccine revenue to decelerate but not at this rapid pace.

Revenue decelerated by 39.8% showing that the demand for the COVID-19 vaccine has started to plateau at a rapid rate. Despite the declining sales, BioNTech's cost of sales declined 13.5% as the company capitalizes on its economies of scale. The company is also capitalizing on its windfall revenue from the vaccine to invest in its research and development as the company doubled its spending. BioNTech has an interesting pipeline with prospective therapies in the oncology and immunotherapy spaces. The operating margin contracted by 10% to 69.1% which shows inflationary pressure. The free cash flow was good at €3.85 billion up from a decline of €125.9 million. Despite returning €771.2 million to shareholders (in dividends and share buybacks), cash increased by €3.06 billion and has ample liquidity at €9.33 billion.

The company reiterated its outlook for the fiscal year 2022 despite its poor revenue numbers in the quarter and it seems like the vaccine demand will boost up in Q3 and Q4 as governments gear up for the fall and winter seasons. Investors reacted harshly to the quarter as the stock declined 7.5% but given how they did not cut guidance I think the stock deserves to be in the $160/share range. The company is becoming a good takeover candidate for Pfizer or some other pharmaceutical giant. We continue to add to our position because we think the company is more than a COVID-19 vaccine story.

Barrick Gold (GOLD): The mining company reported a top and bottom line as the price of gold was steady during the quarter. Barrick Gold reported earnings of $0.24/share (beat WallStreet estimates by $0.02) and revenue of $2.86 billion (beat WallStreet estimates by $7.13 million). In comparison to our fund estimates, Barrick Gold came in ahead of our expectations of earnings of $0.20/share on revenue of $2.75 billion. We thought the inflationary pressure and the strong dollar would affect the company’s quarter. Although the company beat on revenue, Barrick Gold’s quarterly revenue decelerated by 1% despite copper and gold production being up. The company had a higher realized gold price at $1,861/oz up from $1,820/oz.

Cost of sales was up 9% compared to the same period last year, a reflection of the inflationary pressures. Free cash flow improved significantly from contracting $19 million to expanding by $169 million. The cash balance was up 12% ending the quarter at $5.78 billion. Barrick Gold has ample cash to return to shareholders as the company repurchased $182 million worth of its shares along with a $0.30/share dividend. Management is looking at some capital expenditures as they look to expand into Tanzania and Dominican Republic. Barrick Gold had a solid quarter and this was reflected by a 4% jump after the report was released. The company is well positioned to add to its gold and copper production. We like the CEO’s comments on the global copper demand, especially with the rise of EVs.

Avnet Inc. (AVT): The electric component distributor reported a solid top and bottom-line beat as it reported earnings of $2.07/share ($0.07 ahead of WallStreet estimates) and revenue of $6.37 billion (beat WallStreet estimates by $80 million). Avnet blew away our expectations by a mile as their earnings report came in ahead of our estimate of $1.95/share and $6.33 billion. We thought supply chain constraints would affect earnings and revenue numbers for the company. The company reported revenue growth of 22% (solid small cap company growth) with all geographic areas reporting good revenue numbers. The Americas was a standout with revenue growth of 35% year over year.

Avnet’s Electronics Component segment showed significant demand from various industries as the segment had 23.9% revenue growth. The company’s distribution business had flat revenue growth and given how much most of its operations are centered around Europe, we thought Ukraine would report decelerating revenue. Operating margins improved to 4.5% up from 2.2% a year ago and net income margin went up to 3.87% (up from 1.63%). Free cash flow was disappointing contracting by $268.2 million down from being up $40.6million a year ago. The company had a net cash decrease of $46 million, $34 million of the decrease was related to the strong U.S. dollar.

Management cut guidance on the revenue number by $100 million because of the strong U.S. dollar. Besides the guidance, this was an impressive quarter from Avnet and we think this is a good opportunity to add to our position since the stock sold off by 6%. Avnet is a small growth value stock that has a solid balance sheet and a good dividend yield of over 3%.

The Walt Disney Company (DIS): The entertainment conglomerate reported earnings of $1.09/share (beat WallStreet estimates by $0.10) and revenue of $21.5 billion (beat WallStreet estimates by $490 million). Disney executed an exceptional quarter as they reported well ahead of our estimates of $1.06/share and $21.2 billion. The reopening of the economy has boosted Disney’s earning power all thanks to strong growth in the Theme Parks segment. The company posted revenue growth of 26.3% which was mainly driven by the continued rebound from the Theme Parks up 70%. The new CEO’s strategy is starting to show out and this was an operational clinic from management.

The Media & Entertainment segment reflected some steady growth with revenue up 11% for the year. The direct-to-consumer was the strongest business unit in that segment with 19% revenue growth. However, the whole segment had an operating loss of $1.1 billion because of the expansion of Disney + and higher programming costs. Disney +’s growth has been so formidable as the streaming unit now has 152.1 million paid subscribers and is well on its 2024 target of 240 million paid subscribers. ARPU for all of Disney’s segments is up 5% globally but down 5% in North America which was a surprise.

Operating income was up 50% to $3.6 billion all thanks to the Parks & Experience segment which contributed 62% of the income. The new CEO, Bob Chapek is showing some of his operational excellence as he was the former chairman of the Parks business. Net income was solid up 53% to $1.41 billion. Disney did have a cash burn as free cash flow went from $528 million to $187 million. With the spending on the expansion of Disney + and the upcoming movie slate, Disney's cash balance declined from $15.96 billion to $12.96 billion. Overall, this was a well-executed and solid quarter from Disney as we are starting to see Bob Chapek really start to show out his operational excellence. Investors reacted well to the earnings report with the stock going up 8% on the day. We think the company should be valued around $135/share range and we continue to be buyers of the stock.

Algonquin Power & Utilities Corp. (AQN): The utility company delivered a solid quarter as they earned $0.16/share ($0.01 ahead of WallStreet consensus) on revenue of $624.3 million ($10 million ahead of WallStreet consensus). Algonquin reported an in-line quarter with our fund estimates of $0.17/share on revenue of $620 million. The company is a typical utility ist revenue predictable and very stable because consumers will always pay their utility bills. Algonquin posted revenue growth of 18% as they keep on growing its renewable assets as its Solar & Wind projects now collectively generate 644 megawatts to supplement its current asset (1 megawatt provides power to 400–1,000 households a year).

The pending acquisition of Algonquin’s Kentucky Power Company seems to be making progress and will help the company’s expansion. Management reiterated its commitment to deploy $4.3 billion in capital in the fiscal year 2022. The adjusted EBITDA is up 18% to $289.3 million and net earnings were up 19% all thanks to a $143.5 million gain on investments.

Disclosure: Cresco Investments is long BioNTech SE (BNTX), Barrick Gold (GOLD), Avnet Inc. (AVT), The Walt Disney Company (DIS), and Algonquin Power & Utilities Corp. (AQN).

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).