Earnings Round-Up: In short – energy good, tech bad

Three reports in the US on Friday and the weekend tell us a lot about what America’s corporate scene looks like approaching the June quarter earnings season amid growing worries about growth, rates and rising inflation.

That inflation has been triggered by the rise in oil prices after the Russian invasion of Ukraine and no one has benefitted more than Exxon Mobil. But Meta Platforms (nee Facebook) is facing a crunch in revenue and earnings which many other of its tech peers will not like to hear. And Covid – along with some of the antics of CEO Elon Musk and his Twitter bid – has hit the June quarter performance of Tesla, especially in China.

…………

Tesla’s recent job cuts can now be more easily understood after worse than forecast car deliveries in the June quarter thanks to the tough Covid-driven lockdowns in Shanghai in April and May.

The company last week cut 200 jobs and closed an office in California where data was collected for self-driving software. The cuts seem to have been part of CEO Elon Musk’s 10% staff cuts announcement revealed earlier in June.

Tesla said at the weekend that its vehicle deliveries fell 18% in the three months to June thanks to the shutdown of its Shanghai plant.

Tesla delivered 254,695 vehicles in the quarter compared with 310,048 in the first quarter.

The strong March quarter performance saw revenues leap to record levels along with earnings. March quarter revenue totalled $US18.8 billion, up from $US10.4 billion the year prior. Earnings jumped to $US3.3 billion.

In the June quarter of last year, Tesla reported revenues of nearly $US12 billion and earnings of $US1.142 billion. Analysts are uncertain about the impact of the Shanghai closure on costs and earnings in the quarter. Tesla did lift car prices during the quarter.

Sales would arguably have been even higher if not for the shutdowns and supply chain problems in Shanghai. China has the world’s largest car market and accounts for about 40% of Tesla’s sales. The Shanghai closure also meant exports to much of Asia, including Australia were cut off or severely reduced.

Tesla suggested in Saturday’s statement that it had overcome the production problems, saying that it built more cars in June than ever in its history.

Tesla reports its second quarter figures on July 20.

…………

Surprisingly, a grim warning from Meta about how tough it was finding business conditions had no impact on Wall Street on Friday.

Meta shares eased 0.7% after news of an internal briefing and grim forecast about the conditions the company was facing.

Meta CEO, Mark Zuckerberg told employees (helped by a memo from the company’s product chief) that the company will cut its intake of engineers by 30%.

“If I had to bet, I’d say that this might be one of the worst downturns that we’ve seen in recent history,” said Zuckerberg in a briefing late last week, who is one of the most influential people in the technology world.

He made the remarks in a weekly employee Q&A session, according to Reuters, which said it had access to audio from the event.

Meta had initially planned to hire 10,000 new engineers this, Zuckerberg said. In addition to reducing hiring, the company was leaving certain positions unfilled in response to attrition and “turning up the heat” on performance management to weed out staffers unable to meet more aggressive goals, he said.

“Realistically, there are probably a bunch of people at the company who shouldn’t be here,” Zuckerberg said.

A memo from chief product officer Chris Cox made its way to Reuters and others about the same time as the Zuckerberg audio surfaced.

In the memo which was released around the same time as Zuckerberg’s comments, Cox said:

“I have to underscore that we are in serious times here and the headwinds are fierce.

“We need to execute flawlessly in an environment of slower growth, where teams should not expect vast influxes of new engineers and budgets,” Cox wrote.

…………

Meanwhile for oil and gas companies, the June quarter will be a very different story.

Friday saw Exxon Mobil upgrade its June quarter estimates. The company said in a regulatory filing that surging profit margins from fuel (especially petrol and diesel) and crude oil sales could generate a record quarterly profit.

Exxon Mobil forecast a rise of about $US7.4 billion in operating profits compared with the first quarter. In the first quarter, Exxon posted an $US8.8 billion profit, excluding a multi-billion-dollar Russia write down.

Friday’s filing indicates Exxon is looking at a potential profit of more than $US16 billion for the second quarter, a record if it happens. The company’s peak quarterly profit was $15.9 billion in 2012.

The filing showed Exxon expects higher oil and gas prices will add about $US2.9 billion to results. High margins from selling gasoline and diesel will add another $US4.5 billion to operating profits.

“High energy prices are largely a result of underinvestment by many in the energy industry over the last several years and especially during the pandemic,” Exxon said in a statement on the profit gains.

Exxon lost more than $US22 billion in 2020 and has been using the extra cash from higher energy prices sales to pay debt and pay more to shareholders. It plans to buy back up to $US30 billion of its shares through 2023.

Exxon reports July 29.

…………

So ahead of the earnings season start next week, it’s clear already that two tech giants – Tesla and Meta – will struggle, while Exxon Mobil (and Chevron and their energy peers) will make more money than before.

The year-to-date share performances of the three companies tell the story: Tesla shares are down 43% and Meta shares are down more than 52%, but Exxon shares are up nearly 38%.