Macro Wrap – What Are the Takeaways From Earnings So Far, $JPM, $KO, $JNJ, $YUM

by Enis October 16, 2013 6:31 am • Commentary

The first batch of earnings reports are in, and the picture is mixed.

First, the main takeaways from the banks, JPM, WFC, and C:

  • Mortgage production sees serious dropoff:  A major drop year-over-year (in some regions, 50%+) for JPM, WFC, and C
  • Biggest positive is the continued good credit quality of U.S. consumers.  All 3 banks booked increased loan loss reserve releases.
  • Biggest negative outside of mortgages is the reduced overall revenue run rate at all 3 major banks.  Not one single culprit, though reduced risk-taking by the trading businesses likely a big factor as managements get more conservative

Yesterday, 2 major consumer staples companies reported – KO and JNJ.  Key points:

  • Coca-Cola cited volatile emerging markets as a headwind (with decreased EM currencies hurting too).  Latin America (mainly Brazil and Mexico) was a weak standout.  Southern Europe also continues to be a difficult area, while Northern Europe was stronger.
  • JNJ’s Pharmaceutical division was the clear winner, driving 11% operational sales growth year-over-year.  Meanwhile, medical device sales were down yoy, with the U.S. the main culprit.  International sales were stronger in both divisions.
  • Notable that both stocks traded higher in the pre-market but closed the day down or flat.

Meanwhile, retailers have been struggling.  YUM and COST missed on both revenues and earnings (though COST reacted much better), while other retailers like GPS and LVMH have also missed expectations.  The widely cited Gallup poll shows a rapid loss of confidence among U.S. consumers due to the ongoing political impasse.

Tech sector earnings are about to hit in earnest too.  Both INTC and YHOO beat this quarter’s expectations but lowered future estimates.  Tech bellwether reports continue today – EBAY and IBM report today after the close.  GOOG reports tomorrow afternoon.  We’ll have an IBM cheat sheet and a GOOG full preview later today.