The deluge of earnings continues, with these five big names set to report tomorrow.
Under Armour (UA)
Consumer Discretionary - Textiles, Apparel & Luxury Goods | Reports October 22, before the open.
Estimize is currently expecting EPS of $0.45, one cent higher than Wall Street’s consensus. Revenues are also slightly higher at $1.181B vs. the Street’s $1.173B. This would easily get UA out of the red on the bottom-line, with 10% EPS growth, after two negative quarters. Revenues are expected to stay in their recent range with 26% growth.
What to watch: Investors have taken this stock up 45% since the beginning of the year, but some worry that it is overvalued. With a forward P/E of 46 it’s certainly priced to perfection, and will have to hit analyst’s predictions for Q3 or else risk a significant drop in price. By comparison, Skechers (SKX) trades at 20x and Nike (NKE) at 25x. The main focus for UA this quarter will be on footwear, college athletic apparel and women’s apparel. The spike in popularity of basketball shoes makes the footwear segment an obvious target. Currently footwear accounts for less than 20% of UA’s total revenues, vs. competitor Nike for which footwear makes up around 65% of revenues. Under Armour should get some help from the Steph Curry line which is rumored to have sold $100M+ worth of shoes in the last year. The company also recently signed an apparel and footwear deal with the University of Wisconsin worth nearly $100M over a decade, and is pursuing the University of a Texas in a deal that could be worth $15M+ a year. These deals add up quickly and help increase awareness with fans. The company is also going to try to more effectively penetrate the women’s market, currently dominated by brands such as Lululemon.
McDonald’s (MCD)
Consumer Discretionary - Hotels Restaurants & Leisure | Reports October 22, before the open.
The Estimize community expects EPS of $1.28, one penny higher than Wall Street. Revenues are anticipated to come in at $6.452B vs. the Street’s $6.440B.
What to watch: As with competitor Yum Brands (YUM), which released dire results two weeks ago, expect McDonald’s to post poor results on account of China. While China’s slowing economy doesn’t help matters, there are other issues in that region that are impacting the fast food giant. Food quality issues that surfaced a year ago in which a main meat supplier was relabeling expired meat has made once loyal customers hesitant to return to the restaurant. It also seems possible that the cache of American quick serve restaurants is beginning to wear off as a slew of new international and domestic chains have emerged on the scene, but that hasn’t stopped McDonald’s from adding more locations in China. Add to that currency headwinds which will take their toll once again this quarter, as MCD receives over half of its revenues from overseas. The company is taking a number of measures to reinvigorate its brand, cutting unpopular items from the menu and implementing digital strategies that range from touch screen ordering to mobile ordering options. As consumer tastes trend towards fresh ingredients and customizable meals, MCD is trying to deliver but having issues scaling. A commitment to higher wages will make a dent in the bottom-line this quarter, but certainly a great move for public perception! Also expect to hear comments on the success of McDonald’s all day breakfast which has been performing well across the country, but comes with smaller margins.
Caterpillar (CAT)
Industrials - Machinery | Reports October 22, before the open.
The Estimize community is looking for EPS of $0.79, 4 cents ahead of Wall Street. Revenues are anticipated to come in at $11.252B vs. the Street’s $11.110B.
What to watch: Caterpillar forewarned about a less than stellar Q3, cutting their sales guidance to account for restructuring costs that include 10,000+ layoffs. The company also foreshadowed higher R&D costs as they invest in new products and technologies. Backlogs have been on the decline for the last couple of quarters, specifically in three areas: Construction, Energy & Transportation and Resource Industries. A drop in the demand for commodities such as energy and base metals has had the biggest negative impact on Caterpillar. The industrial giant falls within the machinery industry in the S&P 500, which is expecting a YoY drop in profits of 12.2% in the third quarter, with revenues anticipated to decline 9.4%. Other industries in which CAT is involved in are also expecting sharp decreases, with oil, gas and consumable fuels estimated to see a 65% decrease in EPS and 27.7% decline in sales. Metals & Mining, within the materials sector, is expected to fall 62.6% on earnings, and 15.4% on revenues. Caterpillar is typically seen as a proxy of global growth, but the picture for the second half of the year and even into 2016 isn’t a pretty one and has investors worried about the state of the world economy. One bright spot could be construction which continues to improve, especially on the commercial front.
Amazon (AMZN)
Consumer Discretionary - Internet & Catalog Retail | Reports October 22, after the close.
The Estimize community expects Amazon to post EPS of -$0.05 for Q3, higher than the Street’s expectation for -$0.10. Revenues are anticipated to come in at $24.909B vs. the Street’s $24.856 and company guidance of $24.400B. Keep in mind, however, last quarter the company was expected to post an EPS decline of $0.08, but blew everyone away when results came in at $0.19, 179% growth YoY. Revenues also beat and grew 20%.
What to watch: Notorious for overspending, it seems Amazon could be working itself out of a hole of poor investments such as the Amazon Fire Phone. Competitors can’t seem to keep up with their Prime service, with the likes of Wal-Mart (WMT) and Best Buy (BBY) doing their best to price match and offer similar shipping deals that haven’t yet caught on. Prime customers are incentivized to use the service to get deals, and have online cloud storage, free 2-day shipping, instant streaming videos etc. Wal-Mart began offering an unlimited shipping membership for $50 annually, but does not offer the other perks of Amazon Prime. A big boon for AMZN will be it’s Prime day event which will be counted this quarter. Amazon’s Prime Day sale held in July topped expectations and drove record revenues during a normally slow period. The company saw more orders than it did on Black Friday of 2014; 34.4M. They also saw a 266% increase in worldwide orders.
Alphabet, Inc. (GOOGL)
Information Technology - Internet Software & Services | Reports October 22, after the close.
The Estimize consensus calls for EPS of $7.33, 8 cents higher than Wall Street. Revenues ex-TAC are expected to come in at $15.2B as compared to the Street’s $15.1B consensus.
What to watch: While both EPS and revenue growth were in the double digits last quarter, weakness in cost-per-click (CPC) had a negative impact once again, now going on 2 years of steady decline. Sales from search ads have not kept up with the pace of search volume due to the emergence of programmatic buying (matching relevant ads with content) and user-generated content. Advertisers have been allocating more of their budget towards mobile in response to increasing traffic from mobile devices. Google dominates the PC search market, with 65% of market share, but desktop revenues continue to fall, and make up less of Google’s value now as compared to mobile revenues. Recognizing this trend, the tech giant has been increasingly investing in mobile, recently introducing deep links for mobile apps to help surface mobile content during search. Ad volume growth should also be a bright spot, as GOOGL implemented its enhanced campaigns program to combine ad marketing campaigns across mobile, desktop and laptops. Growth in video ads thanks to YouTube should also be a good thing, as online videos remain one of the fastest growing segments.
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