Monday, July 25, 2022

Holy smokes, the floodgates are now open for second-quarter 2022 earnings reports, and rarely has Calcbench ever seen so many interesting data points about corporate activity arriving at one time.

Below is a quick recap of the more interesting disclosures we saw from last week’s earnings reports. These are only sample observations and may be a bit biased, so do your own research too — but watch for some of the common themes that jumped out to us.

First, fuel costs are way up year over year.

For example, Alaska Airlines ($ALK) reported a 183 percent increase in fuel costs, from $224 million in second-quarter 2021 to $776 million this year. American Airlines ($AAL) saw its fuel costs go from $1.61 billion to $4.02 billion, a 150 percent jump.

We see the same fuel pressures in the railroads. At CSX Corp. ($CSX), fuel costs went from $194 million to $446 million, an increase of 130 percent. At Union Pacific ($UNP), costs rose from $497 million to $940 million, an increase of 90 percent.

One interesting item about the railroads is that despite those cost pressures, GAAP net income did not decrease. On the contrary, Union Pacific’s net income went from $1.8 billion to $1.83 billion, and CSX edged upward from $1.173 billion to $1.178 billion.

So despite those painful increases in fuel costs, at least those two firms are still wringing out profit increases via other means — by passing along the higher costs to customers, cutting costs elsewhere, or some mixture of both tactics. Look for other firms in other industries to do the same as more earnings reports arrive this week.

In Consumer and Retail

We also noted the latest filing from Bath & Body Works ($BBWI), previously known as L Brands until L spun out its Victoria’s Secret business last year. BBW is what remains — and ouch, that company is not having a fun time right now.

The company released updated earnings guidance for Q2 and the rest of this year, warning that “we are navigating a challenging operating and macroeconomic environment with inflationary pressure affecting our customers and our business.”

Indeed. BBW now expects second-quarter sales to be down 6 to 7 percent compared to the year-ago period, versus previous guidance that expected a low single-digit percent increase. Second-quarter earnings from continuing operations per diluted share is expected to be $0.40 to $0.42, versus previous guidance of $0.60 to $0.65.

And why are things so gloomy? The guidance update then proceeds to offer 41 bullet points elaborating on why business conditions are so bad. Heck, one of those bullet points even has another nine sub-bullet points. That may well be a record for Corporate America.

On the other hand, we saw an upbeat earnings release from Mattel Inc. ($MAT), which reported revenue, operating income, net income, and EPS all up from the year-ago period. Gross margins trended downward thanks to inflation, but management essentially said that the inflation that’s out there isn’t anything Mattel can’t handle.

So overall, firms are reporting a wide range of experiences in today’s tumultuous markets: some doing fine, some staggering around like Rocky Balboa in the 9th round. As always, the footnotes, comparisons to peers, and historical data offer the complete picture.

More to Come This Week

Meanwhile, prepare for more earnings data! Numerous large tech companies will report this week (Microsoft, Facebook, Apple, Google, Amazon). So will several large consumer-facing brands (Comcast, McDonalds, Kraft-Heinz, Etsy), and big energy companies such as Exxon Mobil, Chevron, and Eversource.

Calcbench will be there with all the data every step of the way.

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