The health of the US earnings season will be known this week with nearly 200 S&P 500 companies due to report results and that will be dominated by figures from a handful of tech giants.
Reports from Apple, the world’s largest publicly-traded company, Facebook, Twitter, Amazon and Alphabet (Google) will tell us how the current season will end up, and how the current quarter is looking.
A total of 194 S&P 500 companies are expected report their quarterly earnings next week. Reuters points out that figure is very high by comparison with past reporting periods.
Of reports in so far issued, Reuters says 54% have shown revenue above expectations, slightly better than the 48% beat rate over the past year, while the fall in earnings is lower than forecast.
Expectations for earnings seem to be on the mend after over a year of declines caused by the great oil price slide and a strong US dollar. Second-quarter profits are now forecast to be down 3% which is much better than the 4.5% to 4.7% forecast from the start of July.
Facebook, Apple, Alphabet, Amazon and Facebook account for around 7% of the S&P 500’s value and a fifth of the value of Nasdaq, which has underperformed the wider market so far this year. And of that group, its Apple, followed by Facebook and Amazon that will grab the most attention.
The S&P 500 is up 8% year to date in 2016 while the Nasdaq has edged up by just 4%. Apple shares fell half a per cent last week and are down 6% from the start of thisyear. More important they are down a quarter from the all time high of more than $US133 a share set on February 23, 2015.
While many analysts and fund managers on Wall Street expect these leading technology firms to at least meet or slightly exceed analysts’ forecasts, Apple is the one company seen as the one capable of disappointing on the downside.
The key to Apple will be its iPhone sales in the latest quarter (its third), especially in China. Management has already started softening up the market by describing the company’s growing services side and how much revenue and earnings it gets from the iStore, apps and streaming audio.The unspoken message to investors is, concentrate on these and not on iPhone sales.
Wall Street widely expects sales of Apple’s iPhones to fall this year for the first time ever as it competes with cheaper rivals in China and faces an increasingly saturated smart phone market in developed economies such as the US.
Investors are banking on the release of a new smartphone in September to return Apple to revenue growth in 2017. But there have been a clutch of reports in recent weeks strongly suggesting that the iPhone 7 won’t be a game changer because the company is only planning a few changes.
The second generation of the iPhone 7 in September of next year, has been tipped to be the next big change (like the first generation of iPhone 6 was in 2014).
Analysts expect Applet to again report a weak quarter, meaning two successive quarters of falling earnings, but the trick will be how the company has managed that expectation by guiding forecasts to a level lower than the one that will be reported next Tuesday morning.
If analysts talk about results being “better than expected” you know Apple management has pulled off the old pea and thimble trick.
The two companies expected to produce a positive message from their earnings reports this week will be Facebook and Amazon. Both have surprised in the past year on several occasions. Amazon is forecast to surprise on the upside for the second quarter in a row.
Facebook is expected to produce another stunner with a rise in user numbers and higher revenue and earnings figures.
"I’m looking at the numbers coming in next week, and Facebook, Google and Amazon should all be strong. Apple is the only one I’m concerned out because of the some of the issues they’ve had with lost market share,” said Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta told Reuters.
Apple releases its results on Tuesday (US time), while Facebook reports on Wednesday and Amazon and Alphabet report on Thursday. Besides the tech giants, print media companies will report this week led by the New York Times, Gannett and New Media Investments. McClatchy led the pack on Thursday and produced another quarterly loss of nearly $US15 on a falling revenues.
Cable giant, Comcast is also due to report this week, as is TV giant, CBS. In Europe, its the Murdoch family’s Sky Plc that will be the media figures to be watched closely , given its position in Britain, German and Italy.
It’s results could tell us a lot about the health of European advertising and the likely impact of Brexit on spending in coming quarters.
The second quarter rebound in oil prices will be measured by a number of results from US and European oil giants.
Leading the way late in the week Exxon Mobil and Chevron – the top of US groups. Tenneco and Hess, two smaller American companies are also reporting, as is Conoco Phillips. In Europe Repsol of Spain and Total of France are down to release results.
And a couple of big US chemical companies on the way to merging – Dupot and Dow Chemicals – are due to release their latest figures this week.
Big European banks, Barclays, UBS, Banco Santander and Credit Suisse will report and investors are looking for signs of better results along the lines of those reported from their US peers.
But the bank to watch in Europe this week will be Deutsche Bank’s quarterly figures early in the week. It is the sick big bank of Europe (outside of the Italian banks). Its figures won’t make pretty reading and its woes will be added to by the results of the latest european bank stress test results.
Some big European based car companies are to report – Fiat Chrysler, Renault, Peugeot, while in Asia, Hyundai and Kia of South Korea are also on the list of companies due to release.
Airliner giants, Boeing of the US and Airbus of Europe will release reports and tell us how strong the plane making business is, and will be for the rest of the year.
In the US the strength of consumer demand will be tested by results from fast food giant, McDonalds and drinks giant, Coca Cola. Chocolate group, Hershey is down to report. In Europe, Danone, the French dairy giants also releases quarterly figures.
