Under the Hood: Key Takeaways from Early Earnings Reports

“Wall Street tends to overreact when it gets worried about earnings” – Michael Price


As we begin to sift through reports from the start of the earnings season, the takeaway message appears to be ‘good but not great.’ Analysts were expecting sluggish growth in the first quarter with sequential acceleration as the year progressed. At first blush, results are coming in about as expected with management teams reluctant to raise expectations going forward. Often, companies wait until the second half of the year before increasing guidance, and with the interest rate uncertainty facing markets today, it is not surprising to see a more cautious tone.

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Charles Schwab – The company delivered its second consecutive encouraging update with client assets surpassing a record $9 trillion. Growth faltered in 2023 following the TD Ameritrade merger as some customers opted not to make the switch, thus the return to healthy asset growth is welcomed. A year ago, rising interest rates led customers to shift funds into higher-yield money markets, which forced Schwab to resort to costly borrowings to fund the gap. Fortunately, this trend appears to have stabilized, enabling the company to reduce its supplemental borrowings by $9 billion in the quarter. The setup for growth is promising, the company’s earnings benefit both from repaying the temporary funding and investing its deposits at higher interest rates. As a dominant player in the brokerage industry, and with the TD Ameritrade integration now complete, Schwab is poised to capitalize on increased scale and deliver sustained growth in years to come.

United Health Group – Investors cheered United Health’s first quarter results that came in better than feared despite a number of headwinds the company faced. The key metric was the Medical Loss Ratio (MLR), or the percentage of premiums that get paid out as claims; that number ticked down sequentially. Facing rising medical costs due to an increase in outpatient care coupled with no increase in reimbursement rates from Medicare Advantage, investors were concerned that profitability would deteriorate. Management gave guidance for this ratio to continue trending downward throughout the rest of the year, which was a welcomed relief. Surprisingly, it also managed to absorb disruption from the cyberattack it faced and still beat earnings expectations by a wide margin. Looking ahead, we believe United Healthcare is uniquely positioned to capitalize on artificial intelligence given its vast trove of data that spans the entirely of the healthcare system.

Indianapolis – Circa March 2021: UnitedHealthcare Indiana Office. UnitedHealth Group Provides Employer, Individual and Family Health Insurance.

Abbott Labs – This was a strong quarter for the company, except for the ongoing steep decline in COVID testing which continues to hamper growth. Management offered a conservative outlook that left investors wanting and the stock fell 3%. Abbott’s diagnostic business more than doubled at the pandemic’s peak in 2022 but has since become a major drag on the company’s overall growth. This headwind is expected to persist throughout 2024; however, it is masking solid performance in the other business segments. Medical devices, which account for nearly half of Abbott’s business, have been a standout with sales growing at a mid-teens rate. The growth is being led by its continuous glucose monitoring business and portfolio of heart devices, with additional products coming to market over the next few years. While many pandemic beneficiaries have struggled as the world returned to normal over the past two years, there seems to be a light at the end of the tunnel.

United Airlines – The airline saw its shares soar 17% following an earnings beat and a positive outlook for the year ahead. Pre-earnings worries about Boeing’s grounded 737 MAX and order delays did pose challenges, but these were more than offset by a 16% surge in international travel revenues. The major carriers like United, Delta, and American, are benefitting much more than their domestic counterparts due to this strong international demand. A silver lining to Boeing’s issues is they’ve helped keep ticket prices elevated. Industry experts were hopeful that an increase in capacity would lead to lower fares. Given the sustained strong demand for travel, United’s near-term outlook looks favorable.

Miami, USA – February 16, 2023: United Airlines airplane (Boeing 737-8 Max) landing at Miami International Airport. United Airlines is the third-largest airline in the world after its merger with Continental Airlines.

Netflix – Once again, the streaming titan defied expectations, adding a whopping 9.3 million new subscribers. Since initiating its global crackdown on password sharing, the platform has attracted nearly 40 million new users, bringing its total paying subscriber count to an impressive 270 million. (Read more here about how streaming’s global scale dwarfs the legacy cable market.) Despite the strong performance, shares dipped as the guidance was a little soft and management announced it would no longer report subscriber metrics beginning in 2025 – just as the tailwind from the password-sharing crackdown will annualize. Shifting focus towards traditional financial metrics like revenues and cash flows, Netflix is making a strategic move for the long-term, even if it might suggest slower sub growth ahead.

The information in this article reflects the author’s opinion and is based upon SEC filings and other filings from each company’s investor relations website. 


For more content by Jake Bleicher, Portfolio Manager click here.


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