Clothing retailer Lands’ End filed its latest earnings release on Tuesday, with what seemed like underwhelming results: revenue down 12.5 percent from the year-ago period ($324.5 million), operating income swinging to a loss of $101.3 million, largely driven by a big honking goodwill impairment of $106.7 million.
So why did Lands’ End ($LE) shares pop by nearly 10 percent when the company dropped such icky news? Perhaps because the company also reported an improvement in gross profit.
The company said so itself, in its earnings release: “Our deliberate efforts to generate more profitable sales resulted in increased gross profit dollars and gross margin expansion of approximately 700 basis points and drove Adjusted EBITDA above the high end of our guidance range.”
You can see why that might be the case. Gross profit is total revenue minus cost of revenue, and can be construed as a company’s ability to ward off inflationary pressure. If you can raise prices more than the cost of revenue, you can pass along higher cost of revenue to consumers, and protect net income. (Sure, other operating costs might rise due to inflation too, but you can always address that by being a cheap-o and embracing layoffs.)
For the record, gross profit at Lands’ End rose 2.8 percent from the year-earlier period: $148.4 million one year ago, to $152.6 million today. Gross profit margin was 47 percent.
Calcbench then wondered: how does Lands’ End gross margin compare to its competitors? So we fired up our Multi-Company database page to compare quarterly gross profit margin at four other firms as well: TJX Cos. ($TJX), Gap ($GPS), VF Corp. ($VFC), and Under Armour ($UA).
Our standardized metrics field tracks gross profit as a matter of course. Then we selected the “Time Series Data” option to pull up quarterly gross margins as far back as the start of 2019. The result is Figure 1, below.
Lands’ End is the line in red, and two points immediately jump out from the page. First, Lands’ End did not suffer any dramatic plunge in gross profit during the pandemic, which is more than we can say for Gap and TJX. (Presumably that’s because those two firms rely on in-store sales more than the others?)
Second, gross profit for Lands’ End began a sharp climb upward at the end of 2022 — much higher than the other four firms, although Gap does make a decent show of things in the last few quarters. If that steep ascend for Lands’ End is hard to discern, here’s how matters look if you start from the beginning of 2022.
Like, now you see it: while other retailers battled back and forth with inflationary pressures for the last 18 months, Lands End has made an impressive march upward since the start of this year.
We should also note that goodwill impairment of $106.7 million. Lands’ End attributes that to “the decline in the company’s share price,” and lord knows that’s true. The company went from a high of $42 per share in mid-2021 to $11 one year ago, to a lackluster $6.75 in the last six weeks or so.
But as ugly as that impairment makes net income this quarter, long-term growth depends on factors like gross and operating profit margin. Right now, gross profit is moving in the right direction — and it’s moving in that direction faster than Lands’ End competitors.
All of this insight, we brought to the surface with a few from our Recent Filings page (to notice Lands’ End at all), followed by our Multi-Company page (to research time-series data for Lands’ End and its competitors), then exported to Excel. Took us all of five minutes. What research do you want to perform for the companies you follow?
Everyone loves to talk about the potential for artificial intelligence these days. Calcbench decided to take that analysis one step further: how are things going with the microchip companies behind the budding AI revolution?
This is on our minds because Nvidia Corp. ($NVID), dominant player in the AI microchip market right now, filed its latest quarterly report just before Thanksgiving. Revenue was a stupendous $18.1 billion, up from $13.5 billion the previous quarter and more than triple the $5.9 billion Nvidia reported one year ago.
Impressive, sure. But if you want to see where Nvidia really pulls away from its competitors, you need to look at operating margins.
Figure 1, below, shows quarterly operating margins for Nvidia and competitors Advanced Micro Devices ($AM), Intel ($INTC), and Qualcomm ($QCOM) for the last two years. Nvidia is in yellow.
Astonishing, isn’t it? One year ago was when ChatGPT and its generative AI brethren took the world by storm — and that’s when demand for Nvidia chips took off. While revenue more than tripled, cost of revenue increased only 71.4 percent ($2.75 billion to $4.72 billion) and operating expenses 15.8 percent ($2.57 billion to $2.98 billion). See Figure 2, below.
With numbers like that, operating margin pretty much had no choice but to soar. Pre-tax income also ballooned, so Nvidia has barrels of money it can spend on dividends, product development, acquisitions, debt repayment (ponder this for a moment: Nvidia has $9.7 billion in total debt, so it could pay off all its debt from the operating income of this quarter alone), or anything else that comes to the executive suite’s mind.
We compiled this research using our Multi-Company Search page for Figure 1, and the Company-in-Detail page for Figure 2. With a few clicks to search for standardized metrics such as revenue and operating income, it took us 10 minutes to make the chart above.
Equity analysts can do similar in-depth research yourselves, including an easy ability to create charts and tables if you need to drop those into a presentation for the boss. Feel free to experiment yourself if you’re a Calcbench subscriber — or if not, contact us at firstname.lastname@example.org today for a demo!
Good news for analysts everywhere just before the Thanksgiving holiday: Calcbench has released its Q3 2023 Wrap-Up, so you have something to read surreptitiously on your phone while the in-laws gripe about politics.
We release our wrap-ups at the end of every earnings season (you probably figured out that part already) to study broad trends in revenue, net income, capital spending, and other important metrics. This quarter’s report tallies up the data for more than 3,300 non-financial firms — not quite every filer that’s out there, but more than enough to give us a sense of this quarter’s corporate performance.
Most notably, we saw an 11.8 percent increase in net income compared to the year-earlier period. That compares to more modest increases in capital expenditures (up 3.4 percent) and inventory (up 1.7 percent), and overall revenue actually edged downward by 1.1 percent. See Figure 1, below.
(To be clear, all firms included in this report filed earnings for Q3 in both 2023 and 2022, for the most apples-to-apples comparison.)
The Q3 Wrap-Up also examines three specific sectors: retail, software, and chemicals, to get a sense of how performance varied from one sector to another.
Sometimes that performance varied by a lot. The 230 companies in our retail group, for example, reported a year-over-year jump in net income of 148.4 percent, while capital expenditures dropped 11.2 percent. Various specific companies had equally impressive numbers. Walmart ($WMT) revenue rose 5 percent; Amazon.com ($AMZN) net income jumped from $2.9 billion to $9.9 billion.
Meanwhile, the software sector saw year-over-year revenue rise 9.5 percent, while net income rose 72.7 percent — led, not surprisingly, by tech giants such as Facebook ($META), Google ($GOOG), and Microsoft ($MSFT), which all reported multi-billion dollar increases in profit. See Figure 2, below.
The highlights in this report are a great place to start when analyzing Q3, but they certainly do not tell individual stories of specific companies. For example, Berkshire Hathaway ($BRKA) reported a year-over-year revenue of $16.3 billion (yay!) and a decrease in net income of $9.8 billion (yuck). To find out more about the specific companies you follow, you’ll need to do more digging and reading in the footnote disclosures.
For example, did you know Berkshire reported investment losses of $24.1 billion in the quarter? We did, because our Interactive Disclosure tool lets you dig into the footnotes and bring those important kernels of insight to the surface in short order.
Try Calcbench’s suite of products to get more data and details yourself!
If we love to do anything here at Calcbench, we love digging into the footnotes to excavate fascinating nuggets of financial analysis. So when Uber ($Uber) and Lyft ($Lyft) both filed their third-quarter earnings reports the other week, we got to work.
At first glance, Uber dwarfs Lyft in almost every way. Most notably, Uber had roughly nine times the revenue as Lyft ($9.3 billion versus $1.16 billion) and almost the same multiple on total assets ($35.95 billion versus $4.48 billion). Uber also had a positive number for net income ($219 million) which is more than we can say for Lyft (net loss of $12.1 million).
More than that, Uber also dwarfs Lyft on several non-GAAP metrics too. For example, Figure 1, below, shows total gross bookings — that is, the total amount paid for a rideshare trip, including taxes, tolls, the driver’s share of the payment, and everything else — for the last seven quarters.
For those who don’t have a magnifying glass to make out Lyft’s numbers, average quarterly gross bookings for Lyft was $3.16 billion. For Uber it was $30.8 billion. On the other hand, Lyft’s gross bookings did rise 32 percent, compared to 33.4 percent for Uber — so even though Lyft is starting from a far lower floor, its growth in bookings has kept pace with Uber.
Here’s where things get interesting, however. Gross bookings might not be the best comparison between Uber and Lyft, because Uber has multiple operating segments: Mobility (personal trips), Delivery (food delivery), and Freight, which is mostly logistics services to match carriers and shippers. Lyft, meanwhile, only reports a single operating segment of ridesharing.
This means that some portion of those sky-high Uber numbers in Figure 1 aren’t really fair to Lyft. So can we get a more accurate reading of Uber’s gross bookings for Mobility only?
We can! Dig into the Management Discussion & Analysis in Uber’s most recent 10-Q, and on Page 47 you find a table listing gross bookings by operating segment. See Figure 2, below.
This changes the proportions of the story, although not the basic plot. Even with those Mobility-only numbers, ranging from $10.7 billion at the start of 2022 to $17.9 billion in Q3, Uber still dwarfs Lyft’s numbers.
OK, but what about comparing the number of trips for Uber versus Lyft? Can that tell us anything? Kinda sorta, but not really.
Both Uber and Lyft do disclose the number of trips that their respective companies provide. Figure 3, below, shows the comparison, yet again with Uber dwarfing Lyft.
The drawback is that Uber and Lyft define this metric differently. Uber discloses “trips,” defined as the number of completed rides for its Mobility and Delivery segments. Lyft discloses “rides,” which is the number of completed rides — but since it has no Delivery segment, comparing trips to rides isn’t an apples-to-apples comparison.
What we don’t have from Uber is a breakdown of its Mobility trips versus Delivery trips. If we did have that number, then we could make a fair comparison and answer another burning question: How much revenue is each company making per trip?
Alas, Uber and Lyft don’t disclose sufficient numbers to let us draw any conclusions about that. They both do report revenue, obviously; but since they define “trips” and “rides” in non-comparable ways, we can’t really divide total number of trips/rides into revenue to derive a “revenue per ride” metric. Uber’s “trip” number would include food deliveries, while Lyft’s “ride” number wouldn’t.
Lyft does give a few tantalizing hints in its Management Discussion & Analysis, with non-GAAP disclosures such as “Active Riders” and “Revenue per Active Rider.” Except, Lyft defines an active rider as someone who uses the service at least once per quarter; Uber discloses a “Monthly Active Platform Consumer” (MPAC) which is someone who completes either a Mobility ride or a Delivery order at least once per month.
Maybe we could divide Lyft’s quarterly active users by three to get a rough estimate of monthly users, but we’d still be comparing Lyft’s rideshares against Uber’s rideshares and food deliveries. Is that a fair and useful way to calculate average number of riders, or average revenue per rider? We’re uncertain enough not even to try. Regardless, the point of this exercise was to show the range of non-GAAP disclosures that two comparable companies make, and the sorts of financial analysis you could at least begin to perform with those disclosures. Our Interactive Disclosure database has it all; with the right bit of sleuthing, you can go far.
The Calcbench research team has done it again, churning out another analysis of corporate debt soon coming due — and how much the refinancing of that debt at today’s high interest rates might crimp corporate earnings.
You can download the complete report on our Research page, but the gist of it is that dozens of companies are likely to face painfully higher interest costs next year as they refinance debt coming due in 2024. Those higher costs, in turn, could squeeze earnings per share by as much as 2.9 percent.
For example, Hewlett Packard Enterprise ($HPE) has $1 billion of debt coming due in 2024. That debt carries an interest rate of 1.45 percent. If HP decides to refinance that debt, it’s likely to face a new interest rate of 5 percent or higher. If we assume that new rate to be 5.44 percent (recently the rate on the one-year treasury note), that would lead to an extra $39.9 million in annual interest expense.
If we then use Q2 2023 as a baseline, that extra $39.9 million would cut HP’s trailing twelve month EPS ($0.84) by $0.03, or 3.7 percent.
HP is by no means alone. The Calcbench research team found more than 50 companies that have disclosed debt coming due in 2024, all of them with impressively low interest rates today that won’t last much longer. So what happens then?
The forces driving this pressure are no longer news. Companies racked up debt during the low-interest rate era of the 2010s and early 2020s. That era ended in 2022 when the Fed jacked up interest rates to fight rising inflation. Now that debt from the 2010s is starting to come due. Companies can either (a) pay it off; or (b) refinance the debt at today’s higher rates.
To quantify all this, the crack Calcbench research team used our Segments and Breakouts page to examine the debt disclosures of S&P 500 companies. We found 55 firms with debt coming due in 2024. In total they owe more than $105 billion, at an average interest rate of 2.8 percent.
If those companies all refinanced their debt at 5.44 percent (that’s the rate we used for our model, based on the one-year treasury bill), that would add a total of $3.04 billion to their interest expense. Using Q2 2023 as a baseline, that additional expense would reduce average earnings per share by $0.10, or 2.9 percent.
But wait, there’s more! Among those 56 firms, we found 19 who, as of mid-2023, did not have enough cash on hand to cover their debt coming due. So those firms would either have to refinance at the higher interest rate, or sell assets to raise cash, or some combination of the two. Table 1, below, shows the 10 firms with the largest deficits between cash on hand and debt coming due.
The rest of our report explores some specific examples of corporations with 2024 debt, and how refinancing might cut into their EPS; we look at Home Depot ($HD), Tyson Foods ($TSN), Nvidia ($NVDA), and others. The report also includes a list of all 55 firms in our study, plus pointers on how you can use Calcbench tools to perform similar research on whatever companies you follow.
If you have a suggestion for other research we should dig into, drop us a line at email@example.com any time.
Sometimes you can see the plot twists in a TV show coming from a mile away. One could say the same for streaming service Hulu, which Disney $DIS just announced that it will buy out entirely for at least $8.6 billion.
Wait a minute — Calcbench did see that deal coming from a mile away, as far back as 2019!
Back during that golden era of streaming services, our research team had a hobby of analyzing the disclosures of Hulu’s corporate owners to see what clues we could garner about its financial performance. If you knew where to look, you could piece together quite a bit.
As far back as 2016, we had a post about the three corporate owners of Hulu at that time: Disney, Comcast $CMCSA, and 21st Century Fox ($FOX). Those three had each owned 33 percent of Hulu until mid-summer, when they allowed Time-Warner to buy a 10 percent stake of Hulu. We also noted that Comcast had booked a loss of $65 million from Hulu in the first half of that year. Do the math, and it meant that Hulu was on track to lose $390 million that year.
In May 2017 we had a follow-up post, again digging into disclosures at Comcast, Disney, and the other corporate parents. We estimated that Hulu lost $180 million in the first quarter of that year, although we never could deduce how much revenue the service was bringing in.
By the time of our third post on Hulu in December 2017, much had changed. Most notably, Disney had proposed to buy most of 21st Century Fox’s entertainment assets — including Fox’s stake in Hulu. That deal ultimately did close, giving Disney a controlling interest in Hulu (its own 30 percent stake, plus Fox’s 30 percent). We also figured out that Hulu’s losses had ballooned in the last three years to the mid-nine figures.
We published our longest analysis ever of Hulu in 2019. By then, Disney had bought out the 10 percent stake that Time-Warner had acquired back in 2016. Time-Warner paid $590 million for that stake in 2016; three years later, Disney bought it back for $1.4 billion.
Here’s the critical part. When Disney acquired all those Fox assets, it disclosed the purchase price allocation — and included the value of its own 30 percent stake that Disney had previously owned. Figure 1, below, shows that Disney valued that 30 percent slice of Hulu at $4.74 billion.
Do some math again, and that implies a total valuation of $15.8 billion. Thanks to some other fine-detail negotiations, Disney actually owned 67 percent of Hulu at the time. Which means Comcast’s remaining one-third stake would’ve been worth $5.26 billion.
Now comes the big reveal.
Disney and Comcast had also reached an agreement that come January 2024, either party would have the right to compel Disney to buy out Comcast’s remaining stake in Hulu for fair market value or total valuation of $27.5 billion, whichever is greater.
Disney is being cagey on what the exact final purchase price will be. The fair value will be assessed as of Sept. 30, 2023. The company said in a statement that “if the value is ultimately determined to be greater than the guaranteed floor value, Disney will pay [Comcast] its percentage of the difference between the equity fair value and the guaranteed floor value.”
We won’t know that exact final price until sometime in early 2024. Still, nobody who had been keeping an eye on the details should be surprised by any of this. For years, buried in the footnotes, were disclosures that showed steep losses at Hulu. Its valuation three years ago was $15.8 billion. Now the question is whether Hulu turned around its fortunes so quickly, and so dramatically, that its valuation will be worth more than the $27.5 billion floor price.
In other words, just like an episode of Only Murders in the Building, all you had to do was look for the clues there in the background all along.
Through the end of the week, we have tracked 238 firms in the S&P 500 that have reported #earnings so far. We are tracking #revenue and #netIncome for those firms (Net Income as defined through US-GAAP).
Here is the summary:
As you can see, year over year revenue growth for these 238 firms is 1.9%, and Net Income growth is almost 16%.
Let us know if you have any questions at firstname.lastname@example.org
As you may have seen in previous Calcbench blog posts, we love corporate operating segments. For example, we’ve looked at the effect of blockbuster drug sales on pharmaceutical company revenue, as well as the potential effect on revenue as Medicare begins negotiating with pharma firms on drug prices.
Today we are giving clients access to three firms as a small example of the data we track. Those firms are:
Each of these firms has one or more billion-dollar blockbuster drugs. Our template, shared via DropBox, automatically pulls the quarterly revenue for each of those drugs so you can compare sales over time.
By using our template, Calcbench clients can automate the data collection of the sales that the firms report for those specific drugs within a few minutes of the information being made public through the earnings press release. This means that you don’t have to wait until the 10-Q is reported to get this information (although the information from the 10-Q is also available formulaically when that document is made public).
Keep in mind, Merck and Pfizer have yet to file their Q3 reports; Merck reports on Oct. 26, Pfizer on Oct. 31. You'll be able to get all that segment-level data immediately upon those quarterly reports being filed. (Johnson & Johnson already filed on Oct. 17.)
Since this is a template, our clients can use the formulas in it to expand the use to other companies you might want to follow.
Also, as a bonus to subscribers, we have a second template which will give a client top-level income statement information. The template updates in real time as filings come in for a list of firms (such as the S&P 500) and acts as a scorecard of sorts. It's the same template we use for our earnings scorecard that we've been updating this earnings season.
We look forward to your using the template and for your feedback! If you need our assistance, please email email@example.com.
Our earnings extravaganza continues this week as Q3 earnings releases continue to pour in! Today let’s take a look at Microsoft ($MSFT) and Google ($GOOG), and demonstrate how Calcbench can capture rich detail about their disclosures quickly and easily.
First, Microsoft. The company filed its latest quarterly report on Tuesday, and pleasantly surprised the market with a jump in revenue from its cloud-services line of business. To find that information, however, analysts would need to take a deep dive into Microsoft’s segment disclosures. See Figure 1, below, for a breakdown of Microsoft’s three principal operating segments.
But wait, there’s more! Microsoft also discloses revenue by “significant product and service offerings,” which is even more detailed than those three operating segments above. This is where the company reports revenue by products such as Windows, LinkedIn, search advertising, gaming, and more.
Calcbench lets you track all those product-level disclosures over time and for subscribers, we even built a handy spreadsheet to help you with your analysis. For example, Figure 2, below, shows LinkedIn revenue as a percentage of total Microsoft revenue by quarter. (Microsoft uses a June 30 fiscal year-end, so Q3 2023 on the calendar is Q1 2024 for Microsoft’s fiscal year.)
Figure 3, below, shows the same for Microsoft’s gaming revenue.
That level of detail lets you ponder more specific questions. For example, LinkedIn revenue surged for Microsoft last year, when the labor market was brutally tight. Now the labor market has loosened, and LinkedIn revenue is falling as a portion of total revenue. What does that mean for Microsoft’s overall revenue strategy?
Google also reported its latest quarterly results on Tuesday, and its numbers were not as well-received. The company did report growth in its cloud services division, but not as much growth as analysts had expected, and share price sagged.
At Calcbench, we created a spreadsheet to capture Google’s operating segment disclosures within minutes of when Google filed. Its 10-Q officially hit the Securities and Exchange Commission database at 4:02 p.m. ET, and shortly thereafter we had this:
In other words, real-time analysis of segment-level disclosures, all at your fingertips and in a format ready for charts or other visual presentations. We picked the tech giants because they happened to file yesterday, but you can do the same speedy, detailed analysis for any of the companies you follow. Drop us a line at firstname.lastname@example.org and we’ll show you how.
Strap yourselves in, Calcbench subscribers and financial analysts everywhere! We are about to be hit by a flood of Q3 earnings releases. Calcbench will, of course, be with you for every drop of financial data that washes upon our shores.
The week ending Oct. 20 saw 80 firms in the S&P 500 file their Q3 reports. Revenue growth for those firms was 5 percent compared to the year-ago period; net income jumped 24 percent from the year-ago period and 19.4 percent from Q2.
Figure 1, below, shows the growth in revenue for those 80 firms.
And Figure 2, below, shows the same for GAAP net income.
Many more S&P 500 firms will file their Q3 reports this coming week, and by the end of October almost all S&P 500 firms on a calendar year-end schedule should have their numbers out. Calcbench is updating our quarterly earnings analysis in real time, as companies file their earnings, via a spreadsheet we are maintaining on DropBox for Calcbench subscribers.
Already, however, market analysts expect Q3 and perhaps even Q4 to look quite impressive. How true will that prediction be? We don’t know yet, but Calcbench will capture every bit of data as it arrives so you can reach your own conclusions swiftly and correctly.
Earlier this week railroad giant Union Pacific, UNP, filed its most recent quarterly report. This gives us an excellent chance to demonstrate just how precisely you can tailor the key performance metrics you want to track using Calcbench data.
Let’s start with the income statement since that’s always a good place to begin with financial analysis. Figure 1, below, shows quarterly results for the last five periods.
As you can see, operating revenue dropped 9.5 percent, from $6.56 billion in third-quarter 2022 to $5.94 billion in third-quarter 2023.
That decline in revenue is good to know, but honestly it doesn't tell you much about where within Union Pacific’s railroad empire those declines are coming from. To find out that information, you’re better off digging into the Management Discussion & Analysis. There, you can find average revenue per car, categorized by type of good. See Figure 2, below.
Nifty data, but a bit hard to comprehend in table format. So we used our "Export Table" functionality within our Disclosure Viewer and .... Presto! We now have an easy way to see changes in revenue per carload for each type of shipment Union Pacific offers. See Figure 3, below.
With our API and Excel Add-In, you can even automate exercises like this. The real challenge is in knowing what data is available for the companies you follow and how to find it.
Thankfully Calcbench has all sorts of data — including segment-level disclosures, non-GAAP items, and earnings release data. We work hard to find interesting examples to prove the analysis potential here; Union Pacific is today’s example. If you have other ideas for what we should research or questions about what we can find, drop us a line at email@example.com any time.
As we all prepare for Q3 earnings releases and quarterly reports to arrive within days, Calcbench wanted to fire off one more post about a performance metric important to the banking sector.
Total loss-absorbing capacity, or TLAC.
TLAC was born after the financial crisis of 2008, as a means to keep large banks solvent enough to avoid needing government bailouts. Simply put, banks must hold a certain amount of safe financial instruments on their balance sheets so that if financial conditions go south, those instruments can keep the bank stable enough to go through an orderly liquidation process (rather than the messy liquidations we saw in 2008).
The securities that can be held as TLAC include common equity, subordinated debt, and some senior debt, but what they are isn’t as important as how much the bank holds. Under rules set down by the Federal Reserve, globally systemically important banks (G-SIBs) must keep either 18 percent of their total risk-weighted assets or 7.5 percent of total leverage exposure as TLAC.
Anyway, that’s not the most important point in our post today. The most important point is that Calcbench does have this data, if you’re a financial analyst who follows banks and you’re looking for it.
Unfortunately TLAC disclosures are not tagged in XBRL, which means Calcbench users cannot automatically pull it from banks’ financial statements. But banks do include TLAC information in their Management Discussion & Analysis disclosures — so you can search through the disclosures of one or more banks using our Interactive Disclosure tool, typing “TLAC” into the text search field.
For example, we established a search group of all filers with an SIC code in the 6000s, which is the category that includes depository institutions. Then we searched “TLAC” in the text search box, and found 47 large banks that disclosed TLAC information to various extents.
For example, JPMorgan Chase (JPM) disclosed this nifty table listing TLAC volumes:
Another example comes from State Street Corp. (SST) and its most recent 10-K filing.
As you can see, TLAC can be reported as a percentage of assets, dollar amounts, or both. When banks have surplus TLAC, that means they are (in theory) more than well-capitalized for any sudden liquidity stress. Banks under their TLAC goals, on the other hand, can face penalties from the Fed such as a freeze on asset growth.
That’s all for today. Let’s see what the banks have to say when they start filing quarterly reports in another week or so!
One of the complaints about financial statement analysis is that those statements only show you the history of what a company has already achieved, when financial analysts want to project future outcomes.
Sure, we can always look at past trends to make predictions, but fear not! Calcbench can also help analysts examine leading indicators, too.
As part of our occasional series looking at key performance indicators (KPIs), today we want to examine a leading indicator for revenue: remaining performance obligations, or RPO.
RPO represents revenue that a company expects to collect in future periods based on the company’s current contracts. So if a company has high RPO today, that implies it will have high revenue in the future.
The data to capture this information is available in Calcbench today. Some of the metrics that illuminate RPO include:
Here’s an example. We reviewed a bundle of companies in the prepackaged software sector. (SIC code 7372, for you sticklers out there.) By examining trends in reported revenue and RPO from 2018 to 2022, we could calculate the average revenue and average RPO for the sample group overall. Figure 1, below, shows that on average, revenue increased by 10.5 percent and RPO by 16.7 percent.
Of course, what we see is just an average. When you analyze specific companies, many different tales emerge.
Figure 2, below, charts the revenue and RPO for Activision Blizzard (ATVI), Oracle (ORCL), and Salesforce (CRM). Revenue is the solid line for each company; RPO is the dotted line.
As you can see, Salesforce seems to show a solid increase in both revenue and RPO (18.7 and 13.6 percent per year on average, respectively). Oracle shows a relatively flat trend for revenues, but a significant increase in RPO, which would likely lead to an increase in revenues in the future. Activision Blizzard has shown an average revenue increase of 0.1 percent per year, but its RPO has an average decrease of 5.4 percent per year.
To demonstrate the value of RPO as a metric, look at Oracle circa 2020. Its RPO (the dotted line) starts to pull above the solid revenue line. Then from 2021 into 2022, revenue starts to increase along a similar slope as RPO’s line from 2020. Presumably that is the prior period’s RPO finally arriving in Oracle’s bank account. If past is prologue, then RPO’s even steeper increase in 2022 should mean brisk revenue growth in 2023.
Will that be the case? We’ll try to revisit Oracle’s numbers when it files its next annual report in early 2024. For now, we encourage you to develop your own models for RPO and see what the data tells you.
Worries about the high cost of labor and services persist in Corporate America, even as various economic indicators suggest that the job market and the economy overall are cooling. Today the crack Calcbench research team wanted to explore that issue by asking a specific question.
Are revenues keeping pace with Sales, General, and Administrative costs?
SG&A costs include employee compensation, office supplies, shipping services, utility bills, paper clips, coffee filters — really any expense not directly related to your costs for producing a good or service. Put simply, SG&A is overhead costs.
One might naturally expect SG&A expenses to rise as your business grows and you need more stuff. Then again, SG&A costs can also rise due to external factors such as a labor shortage, supply shortages, or general inflation. Lately we’ve had all three of those factors in spades. Hence we were curious whether revenues are rising faster than SG&A cost, so companies can protect operating margins.
To answer that question, we looked at SG&A expense as a percentage of revenue for the last 18 quarters, from the start of 2019 through Q2 2023. Even better, we compared those numbers for two groups: companies in the S&P 500, and all companies with less than $500 million in annual revenue (a group of about 8,200).
The results are in Figure 1, below; and they are as striking as they are clear.
Among the S&P 500 (the red line in Figure 1), SG&A costs have remained relatively stable as a percentage of revenue, even through the pandemic in 2020, the shortage-driven years of 2021 and 2022, and the whatever-it-is we’re calling 2023. SG&A costs fluctuated from 14.5 to 17.1 percent, quite a narrow range.
At the same time, however, smaller companies have gone through an SG&A wringer. They started from the far higher base of 33.9 percent of revenue at the start of 2019, then popped above 46 percent twice in 2021 and 2022. The numbers have declined a bit this year, but are still well above that baseline of 33.9 percent before the pandemic.
What can financial analysts do with that information? For starters, understand the pressure that smaller firms are under. If SG&A costs are a bigger part of the cost structure, management needs to pay more attention to issues such as wages and operating expense; cost management becomes more important. You can also have a more nuanced appreciation of how supply chain and labor market pressures might affect operating margins, unless that small-company management comes up with new ways to grow revenue. Those are all good questions to ask the CEO and CFO on the next earnings call.
And while the Calcbench team didn’t explore this angle, you could also study SG&A costs by specific industry. We used our Bulk Data Query tool to pull all these numbers; you can do the same, selecting a peer group that reflects a certain industry, NAIC code, or even other filters such as revenue or asset size.
How did you learn about Calcbench? When did you start using the platform?
I first met [Calcbench co-founder and chief technology officer] Alex Rapp at a conference where he presented Calcbench as a beta-stage product; the year was 2012 or 2013. I thought it was cool tech. Following the conference, I spent time with Alex in Boston and started using Calcbench.
As an early adopter it’s been great to see the development of the platform over the past decade — it’s changed a lot since the early days! It’s more complex and offers more features.
Which features do you use on the platform?
I started using Calcbench’s high-level financial data in my role at Audit Analytics to supplement the data Audit Analytics received from other data providers. My usage evolved into using data from the footnotes. Recently, I started digging into the text search feature. I like to search for information within specific footnotes.
Depending on the type of the analysis that I am doing, I use either the Company-in-Detail or the Multi-Company page. For example, I recently used the Company-in-Detail page to compare 10-Q filings of the same company. See the excerpt below from my Substack article, Can SEC Comment Letters Shed Light on Crypto Accounting?
We used Calcbench’s Company-in-Detail page to compare Marathon Digital’s disclosure of Digital Currencies Policy between 10-Q filings for the three months ending on March 31, 2023, and June 30, 2023, and identified the following language added to the June 30, 2023 filing:
“Digital assets are included in current assets in the condensed consolidated balance sheets. In addition, digital assets provided as collateral for long-term loans were reported as Digital assets, restricted at December 31, 2022 and classified as long-term assets in the condensed consolidated balance sheets. During the first quarter of 2023, the long-term loan was terminated and the restrictions on digital assets lapsed (refer to NOTE 12 – DEBT, for further discussion).”
The added language could be related to the unresolved comments disclosed in Item 1B of the 10-K filing discussed above. (Interestingly, an SEC comment letter to Microstrategy (MSTR) publicly released on June 9, 2023, also raised questions about bitcoin used as collateral.)
For the recent research piece that I wrote for Calcbench, Understanding Changes to Non-GAAP reporting, I performed a bulk download from the Multi-Company page.
By the way, I never had a demo from Calcbench. The platform is intuitive and easy to use.
You have used the platform in academic and professional settings. Explain how that worked for both.
In a professional setting, I use Calcbench to supplement other data sources. Calcbench helps me with trends analysis. For example, with Calcbench I can easily evaluate changes in disclosure to see where disclosures are moving. With Calcbench, I can understand the difference in ratios over time.
For academic purposes I use Calcbench’s bulk data for statistical analysis. Calcbench data is in a machine-readable format and is easy to aggregate, which saves time.
You’re familiar with other data platforms. What data can you get from Calcbench that you can’t get from other providers?
Believe it or not, one of the variables that I look for, that’s not easy to get elsewhere, is number of shares. While that information may be available at big data providers, it can be expensive or may not be in the format that I need.
A unique feature that Calcbench offers is XBRL custom tags. This feature is helpful when I need to pull the data related to a particular topic. Let's say I need to identify balances related to the fair value of Level 3 securities. It is easy to search for "Level 3" XBRL tags and pull the relevant data.
A couple of other things that are not as popular with other providers: revisions and trace history and linking back to the original file.
What other offerings would you like Calcbench to offer?
I like getting alerts. It would be great if Calcbench could offer alerts on specific disclosures, such as if a specific phrase shows up in a particular footnote. For example, take discount rates. I would like to get an alert when a discount rate changes in a pension footnote. These days, I am using text search more often and would like to see an expansion of this search.
Lastly, executive compensation is a hot topic. It would be helpful to how companies are integrating pay-for-performance into their disclosures.
How much are you paying for gas? Or, more precisely, how much are you paying for gas when flying at an altitude of 32,000 feet in an aluminum tube with several hundred other people?
Airlines, like many businesses, report a wide range of metrics and KPIs in their earnings press releases. Some of those disclosures are downright fascinating, because they tell us so much about how well the companies are performing—and how well those companies are likely to perform in the future, too.
One such metric is average price per gallon of fuel for the period. In general, you would expect prices among airlines to be quite similar. After all, fuel is a commodity, so all buyers should pay a similar price for it, right?
To test that thesis, we examine the disclosures of five airlines: Delta Air Lines (DAL), Southwest Airlines (LUV), Alaska Air Group (ALK), American Airlines Group (AAL), and United Airlines (UAL). We collected data from their earnings press releases from Q1 2020 to Q2 2023, focusing on the average price of fuel per gallon. The result is in Figure 1, below.
As expected, we see that average prices for the fuel were generally similar for all five airlines over time. (Remember that this is the price per gallon, so every cent counts and would be significant.) With that in mind, we note a couple of interesting cases.
In Q1 2022, Southwest (the green line in Figure 1) seems to be paying much less than the others. In its filing for that period, the airline said: “While we are experiencing inflationary pressure from higher jet fuel prices, our fuel hedge is providing significant protection against rising oil prices.” The entire filing can be found in our disclosure page.
A similar case happened in Q3 2022 where again, Southwest seemed to be paying less. In that period’s filing, the airline said: “Our fuel hedging strategy continues to provide protection against persistently high jet fuel prices, and we are 61 percent hedged in fourth quarter 2022 and 50 percent hedged in full year 2023. We continue to execute well against our full year 2022 non-fuel cost guidance, despite cost headwinds due to operating at suboptimal productivity levels and significant inflationary cost pressures.” Again, the entire filing can be found in our disclosure page.
Because we love our subscribers so much, you can use the spreadsheet template which we created on the airlines which we've posted publicly to DropBox.
Interested in more data about airlines, or interested in more KPIs? Calcbench has access to all the data and collects many such KPIs, across a wide range of industries. to let us know what you’re looking for and how we can help. Sign up for a free trial at www.calcbench.com/join or click on the chat button on our homepage www.calcbench.com to speak with us today.
We have one more dispatch from our conversation with banking industry analyst John Helfst, based on the podcast interview we recorded with Helfst (analyst at 1919 Investment Counsel) a few weeks back.
Our previous posts discussed the data about deposits and loans are worth your attention when reviewing bank disclosures; and which disclosures about mortgages and other lines of business are also worth your time.
We wanted to close this series with a more open-ended question: What else would Helfst recommend financial analysts to consider when studying bank disclosures?
He recommended numerous sources of data, including:
To be clear, Calcbench databases won’t possess the above information unless a bank specifically includes it in an SEC filing. But we love our subscribers anyway, and are more than happy to recommend other sources of useful data that complement our own.
Helfst also said that he likes to perform a fair bit of what he calls “cross-industry supply and demand analysis.” That is, since banks are so important to the insurance and commercial real estate sectors, he examines those sectors too, to see whether what the banks are saying lines up with what those other folks are saying.
One example might be to look at real estate investment trusts (REITs) to see what they’re saying about new construction in various parts of the United States. Then you could compare what local banks in those regions are reporting about commercial mortgage activity to see whether the narratives support or contradict each other. (Don’t forget, we had a post earlier this month about how to research commercial mortgage activity in bank disclosures, using PacWest Bancorp (PACW) as an example.)
Another recommendation: keyword searches, either in earnings call transcripts (which Calcbench sometimes has, depending on the company) or in the SEC filings themselves (which Calcbench has in spades). You can look up specific keywords by visiting our Interactive Disclosures page and then entering your keywords in the “full text search” field toward the left side of the page.
You can also search for earnings guidance, which Calcbench has when companies provide guidance (not all do); and especially look for updated earnings guidance, typically filed as a Form 8-K. Again, Calcbench only has such updated guidance when a company chooses to disclose such information.
Then again, earlier this year lots of banks did provide updated guidance or other disclosures generally when people were anxious about commercial real estate exposure. Helfst gave the example that during Q1 2023, many banks broke out additional disclosures to report their exposure to commercial real estate, and in particular office loans. Some banks reported loan levels by property type, and some gave loan maturity schedules for the coming three years to help analysts understand potential payment or rate shock to commercial real estate borrowers.
In short, financial analysts have lots of data they can use to build better analytical models and forecasts. Calcbench has lots of it. You can hear our complete interview with John Helfst on our page dedicated to this conversation, with lots more suggestions and good ideas!
We love to follow interest expense here at Calcbench, always looking for new ways to understand how higher interest rates are eating into corporate profits and other financial goals. We last looked at interest expense in May, and the picture was not terribly pretty; today we offer another view.
Figure 1, below, shows the total quarterly interest expense among non-financial firms in the S&P 500 (roughly 410 companies) for the last two years.
As you can see, starting around mid-2022 — right when the Fed began its series of swift and substantial rate hikes — interest expense began to climb. In total, interest expense went from $45.2 billion in Q3 2021 to $54.1 billion in Q2 2023. That’s an increase of 19.7 percent. Ouch.
Then we wondered: How much (if at all) did those higher interest costs eat into net income? So we tallied up total quarterly net income for those same non-financial firms for the same two-year period.
Net income is substantially higher than interest expense, so there’s no easy way to overlay both numbers on the same chart. Instead, we offer Table 1, below, which lets you see the change in interest expense and net income from one quarter to the next.
For the entire two years together, interest expense rose that 19.7 percent, while net income fell 0.2 percent — but those net income numbers are much more choppy from one quarter to the next than the interest expense numbers. (For example, without that 20.4 percent pop in net income at the start of 2023, net income growth would look decidedly worse.)
What was the point of our exercise? Mostly to sharpen everyone’s insight into the macro-economic forces at work on Corporate America, so we can all ask better questions when on those Q3 earning calls (starting in a few weeks, yay!) or just when undertaking your own research.
For example, clearly the Fed’s interest rate hikes do pressure the income statement, but companies have done a reasonably good job at not letting those costs squeeze net income. Well, how? Did the company successfully pass along higher costs to the customer? Did it cut costs somewhere else in operations to keep net income high? Did it perform some other strategic or financial maneuver to avoid the squeeze?
We at Calcbench can’t say, but the answers (or at least lots of evidence for potential answers) are out there somewhere in the data, and Calcbench has data to spare. All you need to do is look.
Today we continue our look at issues in the banking sector, based on the podcast we recorded with John Helfst, a banking industry analyst with 1919 Investment Counsel. In our previous post, we reviewed some of the disclosures that he typically wants to study when researching bank stocks.
In this post we wanted to look at some of the lines of business that banks report — especially mortgage banking, which had been going like gangbusters while interest rates were low, and then fell off a cliff when the Federal Reserve began a punishing series of rate increases last year.
We asked Helfst: how should analysts think about pressures like that?
Helfst agreed that mortgage banking has felt a terrific squeeze in the last 12 to 18 months — and you can see that in the disclosures, as banks report various revenue streams. Small and regional banks were hurt the most, but even some large banks with sizable mortgage origination and securitization saw sharp declines in their business too.
One elementary question is whether banks’ net interest income could make up for the collapse in non-interest income. “No,” Helfst was quick to say. So the better question to ask is whether banks’ mortgage origination, capital markets, and investment advisory lines of business can revive any time soon.
Helfst isn’t entirely sanguine about that question either. Take mortgage refinancing as an example. Even if that line of business starts to level off compared to the plunges we saw in 2022, those year-earlier plunges were so swift and so steep that today’s leveling off — assuming it actually holds, which is still an open question — isn’t much to celebrate. “Management is trying to rationalize to a lower origination volume environment,” Helfst said.
One could make similar statements about investment banking. Private equity deals and acquisitions due to SPACs were all the rage in 2021 and early 2022. Well, now the SPAC bubble has burst, IPOs and M&A deals aren’t much better, and private equity isn’t going to pick up enough slack to overcome that drag.
OK, enough prognostication. Where can analysts find disclosures about all these issues in Calcbench?
For starters, most large banks will break out lines of revenue that you can find on the Company-in-Detail page. For example, we looked up JPMorgan’s ($JPM) Q2 numbers for 2023 and 2022 — and sure enough, found declines in investment banking, mortgage fees, and credit cards. See Figure 1, below.
Most large banks will break out lines of business right there on the income statement, so the Company-in-Detail page is an easy place to start.
One can also reach banks on the Interactive Disclosures page. Start by looking up the footnote disclosure on operating segments, which can provide granular detail about a bank’s lines of business, even if some banks stack their year-earlier comparables on top of each other rather than side-by-side. Figure 2, below, is an example from Wells Fargo ($WFC) in Q2 2023.
Remember, whenever you see a disclosure that appears as a web link, that means you can use our Show Tag History feature to pull up that disclosure’s value for prior periods. You can then quickly dump those values into a spreadsheet and convert them into a chart, or if you’re using our Excel Add-in you can pull those values directly into whatever model you’re using on your desktop.
And as always, you can read the bank’s Management Discussion & Analysis, which has even more information about various lines of business and their performance.
In other words, Calcbench has all the segment-level data you might want to explore, to see whether the banks you follow are clawing their way back to normalcy after the Fed’s punishing series of rate hikes.
The banking sector is one of the biggest, most important industries to financial analysts, but it’s also one of the most challenging industries to analyze skillfully. For example, the financial disclosures that banks make can often look quite different from those of other sectors, as can the key metrics that analysts should follow.
To help us understand those challenges, and what an analyst might consider when studying banks’ financial disclosures, we decided to go to an expert: John Helfst, an analyst at 1919 Investment Counsel who follows the banking sector closely, and who also happens to be a member of the Financial Accounting Standards Board’s investor advisory committee. We called him up, asked him some questions about issues in the banking sector these days, and turned the whole conversation into a podcast.
You can hear our entire podcast conversation by using this link. Meanwhile, for those who prefer the written word, we also jotted down some of Helfst’s observations for a series of blog posts. Our first post is below.
We began by asking Helfst what disclosures he follows for the banking sector. He drew a distinction between disclosures that have always been important, and disclosures that have become more important since the collapse of Silicon Valley Bank back in March of this year.
Traditionally, Helfst said, you want to look at disclosures that help you understand the mix of a bank’s deposits, since that will help you understand the probable future costs of servicing those deposits.
For example, Helfst said, you want to study the percentage of non-interest bearing deposits, retail deposits, corporate deposits, and municipal deposits. You also want to understand the mix of “timed deposits” (that is, certificates of deposits) versus demand deposits, which are deposits sitting in a regular savings account. Finally, you want to understand the spread between deposit interest rates and the Federal Reserve funds rate, since a wide spread suggests that the bank’s deposit rates (which will affect interest expense) will soon change.
OK, let’s pause right there. If that’s the sort of data an analyst wants, where can Calcbench users find it?
One place to start would be the deposits footnote that just about all banks include in their quarterly filings. For example, we wrote a quick review of Citigroup’s ($C) deposit footnote in March. Figure 1, below, shows a quick sample.
As you can see, it includes a breakdown of interest bearing and non-interest bearing deposits. Further down in the footnote, Citigroup also discloses timed deposits, the maturity dates of those deposits, and the portion of timed deposits that exceed the federal insurance limit of $250,000.
The deposits footnote does not include data about the interest rates paid on savings accounts, although analysts can often find that information elsewhere in the 10-K or from sources other than SEC filings.
OK, back to Helfst. In addition to disclosures about deposits, he also pays close attention to disclosures about loans. Specifically, he wants to know which loans have floating interest rates, versus those that carry a fixed rate. He also looks for what’s known as the “gap table” that banks typically report somewhere in their 10-K.
A gap table is any presentation of information about a bank’s interest rate exposure. It’s not a fixed-format thing, where you can search “gap table” and always find such information. Sometimes you will find a bank disclosing this information and calling it a gap table; other times you’ll need to scan through the Management Discussion & Analysis to find the information, and it might go under any number of names.
Valley National Bank ($VLY) is a great example because it offers two gap tables in quick success in its MD&A. The first presents maturity dates for its various types of loans; the second provides a breakdown of fixed-rate versus floating-rate loans, again by loan type. See Figure 2, below.
From there, an analyst could get a much better sense of which loans might roll over into much higher (or lower, for that theoretical day when the Fed cuts rates again) interest rates, and how that change might affect the bank’s interest income, interest expense, and net interest income.
All those disclosures are still valuable for the banking industry today, but the collapse of Silicon Valley Bank did force analysts to pay attention to many more issues. “We were looking at stats that analysts had never considered before,” Helfst said.
So what disclosures would be useful in that new world? Helfst had a few ideas.
Foremost, he said, analysts should look at the percentage of total deposits that exceed the federal deposit insurance limit of $250,000 per account. They might also study disclosures about the bank’s securities holding, such as the mix of held-to-market (HTM) versus available-for-sale (AFS) securities and what the yield is for each of those categories. For example, in his research Helfst found that over the last three years, large banks had shifted their mix from 70 percent AFS to 70 percent HTM, mostly to protect the Tier 1 capital that the banks had to keep on the balance sheet. Smaller banks, which aren’t subject to the same capital reserve requirements, didn’t do that.
As it happens, Calcbench can help you find that sort of data, too. Just the other week we had a post looking at PacWest Bancorp ($PACW) that traced the flow of its AFS and HTM securities, which PacWest neatly organized into commercial mortgage-backed securities, residential securities, and other asset classes. It also reported the maturity dates for those HTM holdings, and even the credit quality.
We’ve also had numerous posts this year looking at bank deposit disclosures, and yes, many banks do disclose both insured and uninsured deposit levels.
In other words, the information you need for solid analysis of the banking sector is generally in the 10-K or 10-Q somewhere. You just need to know what you want to find, and a tool to help you find it. Calcbench is happy to be the latter.
We’ll have more of Helfst’s banking observations in coming days.