Q2 2024 Earnings Report Reflections
In July and August, I listened to 25 earnings calls and read 2 call transcripts for the quarter. This is the best I've ever done in terms of covering the earnings reports for companies I own. At the moment I'm holding 38 stocks with 6 more companies yet to report for this quarter. Below, I have written some themes and patterns observed here to reflect on what I heard in the past month.
Rate Cuts Are Coming
I heard many variations of "rate cuts coming later this year" meaning good times are coming for a lot of companies. Nerdwallet (NRDS) said their loans business will pick up once rate cuts happen. Solar companies like Enphase Energy (ENPH) said "lower rates will be a tailwind" on their earnings call. The consensus says the first rate cut will be in September.
Currency Volatility Uncertainty
On the Coca-Cola (KO) earnings call, they mentioned the possiblity of 10% "currency headwinds". I heard similar rhetoric cited as a headwind on many of the calls. Apple (AAPL) guided to expect a "foreign exchange headwinds impact on YoY basis"
The State of the Consumer
As always, there is an interest in understanding the state of the consumer within the lens of the broader economy. How good or bad are they doing? Coca-Cola (KO) noted they are seeing a "resilient consumer". Chipotle (CMG) said on their earnings call they are seeing a "pullback in spending" by the consumer. In general, the narrative seems to be "the consumer is struggling", but the best companies seem to be unaffected or even thriving regardless.
Streamers Are Turning Profitable
Disney (DIS) and Paramount (PARA) both reached streaming profitability on their respective platforms, Disney+ and Paramount+ in this quarter. Disney's three headed monster of Hulu, Disney+ and ESPN is now making money. It seems legacy media is figuring out how to run a streaming platform that makes money. Spotify (SPOT) also recorded its 3rd consecutive quarter of profitability in the audio streaming world. Fubo (FUBO) is the other streamer I follow which is not currently profitable but is giving promising guidance for the future by raising revenue and subscriber guidance. FUBO won an injunction in court against VENU, the new sports streaming joint venture from Disney and Warner Bros. They're guiding to be profitable sometime in 2025.
Food & Beverage Fading
On the Pinterest (PINS) call, they noted "broader headwinds" for their food & beverage customers. In general, restaurant brands and beverage companies are seeing a slowdown in business. Who knows how long this will last.
China Growth is at a Premium
After a period of relative prosperity for American companies operating in China, it seems the growth has stalled or at least slowed down. This quarter, Apple's China sales were down 6% (3% currency related). They did celebrate a record high Chinese install base for the quarter. Crocs (CROX) is showing impressive growth with 70% sales growth in China. Tesla (TSLA) China growth has declined with the overall auto industry lull in recent years. It has good relationships in China for its robotaxi operations to flourish, but when? Lately, the Chinese seem to be opting in favor of products from Chinese companies. Companies with superior products will win in China but not everyone will be able to compete with Chinese counterparts.
Buybacks are Boomin'
Lots of companies I own are aggressively buying back their own stock through share repurchases. It seems to be buybacks season for some reason. Here are a few that I noted: Paypal (PYPL), Alibaba (BABA), Apple (AAPL), Block (SQ), Crocs (CROX) and Enphase Energy (ENPH).
Tough Times in the Auto Industry
Almost all automakers have experienced a rough 2024. The ones that are doing well have capitalized by selling hybrid vehicles. The earnings reactions for almost all of them that I follow were negative after they reported:
- Ford, F -12%
- Toyota, TM - 6%
- Tesla, TSLA -12%
- Rivian, RIVN - 5%
As Elon once tweeted, it's hard to turn profits in the auto business. This is another sector that seemingly should benefit with rate cuts because it makes the loan to buy a car cheaper.
Marijuana Stocks Will Benefit from Relaxed Government Regulation in the Future
This is nothing new as murmurs of descheduling marijuana have floated around for years and state legislation change is ongoing. But this time it might be different. On their earnings call, Cresco Labs (CRLBF) said polls show support for schedule III drug reclassification. They are watching as adult use legislation hits the ballot in Florida in November, a crucial state with lots of potential. No one knows when the federal reclassification will hit the US. Cresco said on its recent earnings call, "Reform is imminent and we are ready."
Disclosure: the author holds the stocks mentioned at the time of writing.