Midnight Friday marked the end of the September and third quarter for most quarterly reporting companies in the Americas, Europe, UK, Australia and Asia.
Soon we will be deluged with updates, downgrades, reports and addendum of all types – with currencies and inflation the most influential factors, especially the strong US dollar.
Inflation’s impact will be pervasive, currencies very different – negative for US companies because of the strong rise in the value of the greenback but positive for those in Australia when their export US dollar is converted to Aussie dollars.
But importers such as retailers will feel the pain, as will car companies and others with bug US dollar liabilities
Just look at what has happened in the three months to September for currencies – the greenback at or near all-time highs against the pound and euro, the highest for two years against the Aussie, 14 years against the yuan and 24-year highs against the yen.
An aggressive Federal Reserve and its assault on high inflation with a rapid rise in the federal funds rate is the main driver, but so to incompetence in the UK with the stupid 45 billion pounds of unfunded tax cuts, in China the hare-brained policies of President Xi in his campaign to become China’s leader for life, in Japan, a central bank ignoring the obvious and Europe (and the UK) in the midst of an energy crisis of unprecedented proportions and now a financial crisis of its own making/.
Overlaying all this, rising fears about a recession or slowdown and slide into stagflation in 2023.
And yet the US, led by an ancient president, looks like a beacon of stability thanks to the hawkishness of the Fed (which many big mouths in the markets and academia thought would never occur) and President Biden’s signature bills on infrastructure in 201, computer chips and technology in July and then the oddly-named IRA, Inflation Reduction Act – which is really about investing hundreds of billions of dollars in renewables, EVs and similar technologies and green commodities such as lithium hydrogen, wind power and solar.
With that background, many of the earnings reports to come in the next two months will shock, prove disappointing, tell a far greater story than just the raw numbers or change minds about the health of the various economies or markets.
There are several bellwethers as usual – thanks to recent profit warnings they include the likes of Ford Motor Co, Walmart, Best Buy and some of the big city banks which have signalled weak revenue or earnings, the impact of inflation or weaker consumer demand.
Two others to watch for though are Netflix (we looked at it several weeks ago) and Apple. Netflix is due to report on October 18, Apple on October 27.
Apple was in the news this week on two days – the first being good news in that its move away from China is underway with production of the iPhone 14 has started in India. The second news story involved claims that it may not increase production of its new iPhone range because of weaker than expected demand.
What to believe – the move into India is significant – along with production of some components shifting to Vietnam, the Indian move is big news – a market larger than China at an earlier stage of development and interested in products like iPhones.
And India and the US – along with Australia, Japan, Canada and New Zealand, plus the UK, are moving closer together strategically, politically and economically – with China the target for that closer co-operation.
Some analysts believed the weak iPhones sales story (see below) but this story is just more hot air from consultants/analysts looking for a headline. Apple has not provided iPhones sales numbers since 2018.
The September quarter is the company’s 4th, so full year figures will be watched closely as the quarterly numbers.
Some analysts point to industry reports suggesting that there is very strong demand for the iPhone 14 Pro model which is where most of the changes occurred in this generation, with other models not sought as keenly because of the fewer number of upgrades.
Morgan Stanley reports that waiting times for Pro models are the longest of any iPhone sold in the past six years. That’s good news for Apple because it is also the most expensive.
Apple didn’t lift prices with the series 14, but the reported strong demand for Pro is an effective price lift from buyers, which is happiness for Apple’s beancounters. Apple doesn’t provide enough data to work out is the rise in revenue is due to higher sakes or prices.
Apple’s report will include the latest-release MacBook models with the new chips this quarter as well as upgraded watches and an expected strong rise in services revenues; but not ad revenues, which are falling – bad news for Alphabet (Google) and Meta (Facebook).
Almost a quarter of sales come from services, where subscriptions provide recurring revenue. Apple had over 860 million paid subscriptions across all of its services, including Apple Music, Apple TV+, Apple News, iCloud, and more as at June.
It could very well get close to 900 million this year which is providing a vast flow of cash that feeds off services whose underlying costs are already in products like iPhones, MacBooks, iPads, watches etc.
For the year to September 30 Apple is expected to report net income above $US100 billion for the first time. In July Apple reported 9-month net income of $US79.08 billion on 9-month revenues of more than $US245 billion.
In 2020-21 Apple reported net income of $US94.68 billion on revenues of $US297.39 billion. 2021-22 revenues could quite easily top $US350 billion and net income just over $US101 billion.
But unlike most other big US companies, the company’s best quarter is its first – the three months to December with the Christmas selling season plus all the one offs from Amazon (two Prime days in the final quarter instead of one), Thanksgiving and Black Friday in the US.
Apple pays a small dividend and runs a continuous buyback (which the biggest shareholder, Warren Buffett and his Berkshire Hathaway group love).
But for all the good news in the looming results, analysts are watching for one item – not costs and inflation commentary, but the impact of the soaring dollar in revenues and net income.
It’s not phone sales that investors should be watching when Apple results, it’s the translation impact of the soaring dollar (all-time highs against the euro and sterling, 14-year highs against the yuan, 24-year highs against the yen). That’s where the pain will be felt.
And Apple will not be alone – Netflix will suffer, oracle, Microsoft, Alphabet (Google), Meta (Facebook), Amazon, Caterpillar, Boeing, the big banks, Cummins, GM, Ford, Tesla, Walmart, Target. Some like News Corp will see gains, others will see a mixture but for the likes of Apple and the energy giants, there could be a lot of pain.
Thursday saw Apple shares come under pressure from the well-publicised downgrade from Bank of America analysts who reckon the company will be hit by slowing consumer spending in the next year in the US and globally.
Bank of America changed its rating to a hold from a buy.
Bank of America got plenty of headlines for warning that Apple “may not be a safe haven for very much longer”.
But UBS countered that downgrade by continuing its buy recommendation, while a second, smaller broker issued a buy recommendation, up from a hold.
Bank of America’s gloom prevailed and Apple shares fell 4.9% to $US142.48. Apple shares hit a year low in trading of $US140.68.
It’s going to be of those earnings seasons where the contents of the reports won’t matter as much as what the fed or other central banks are doing so far as interest rates are concerned, or what the latest jobs or retail sales figures are telling.
