Strong results from BHP and CSL headline earnings, Rio Tinto to report, and more...

Last week was full of major companies reporting, as investors were able to get more of a gauge how different companies dealt with tailwinds from a growing economy as well as headwinds such as supply chain issues.

Consumer behemoth Walmart (NYSE: WMT) exceeded expectations in their earnings call and reported revenue of $152.87 billion. Walmart’s same store sales climbed 5.6%. They were able to grow revenue by effectively utilising their pricing power. They have signalled that they are chasing new revenue streams beyond retail, with CEO Doug McMillan saying that advertising, third-party marketplace, and online grocery delivery are gaining momentum.

Chipmaking giant Nvidia (NASDAQ: NVDA) surpassed revenue and earnings expectations, with revenue up 68% from the same quarter in the previous year. This was driven by its gaming chips, which make up nearly half of all sales. This segment was up 85%. Nvidia has been boosted by strong demand for its semiconductors which are in short supply worldwide.

BHP (ASX: BHP) posted some excellent results last week, on the back of a recovery of iron ore prices later last year. Underlying profit was up 57% to US$9.7 billion, off revenue of US$30.5 billion. BHP recorded a strong EBITDA margin of 64%, helped by higher realised prices, disciplined cost performance and near record production at Western Australia Iron Ore (WAIO). BHP has also been managing their balance sheet, reducing net debt down to $6.1 billion. Net debt was at US$11.8 billion a year earlier. These strong results allowed BHP to pay out an interim dividend of US$1.50 per share, or A$2.10. This is up 49% from the previous interim dividend.

Australian healthcare giant CSL (ASX: CSL) also posted strong results, beating market expectations by around 10%. Plasma collection volumes were up 18%, and its vaccine revenue grew 17%. Its vaccine business reported a solid EBIT margin expansion from 48.7% to 52.5%, but there was margin deterioration in its plasma segment. The deterioration is due to this segment significant operating leverage where there is a high fixed costs. This means that margins will recover when plasma collections return to pre-Covid levels.

There were some signs that the US and Australian economy was still charging along, despite some hiccups from Covid-19. US core retail sales were up 3.3% in January, smashing forecasts of 0.8%. In Australia, around 12,900 jobs were added in January, well above the economists’ bearish prediction of a decline of 15,000, which allowed the unemployment rate to stay flat at 4.2%. It is pleasing to see such good retail and jobs figures given that January was the peak of the Omicron variant in these countries.

Looking at the week ahead, a key focus will be outside the financial markets. With the massive build up of Russian troops on the Ukrainian border, there is a level of uncertainty on what will happen if he invades or not. Although the market may react, we don’t see any long term impacts on the earnings of any of our holdings, so we are cautious but not worried.

Back to the financial world. There a few big names reporting both in the US and Australia. Warren Buffett’s Berkshire Hathaway (NYSE: BRK.B) is expected to report an EPS of $3.17 and revenue of $71.55 billion.

With an investment style focused on long term value and investing with a margin of safety, Buffett was criticised for missing out on some of the large gains available in the unprecedented year of 2020, when hedge funds such as Cathie Wood’s ARK Innovation ETF increased 200%. However, over the last 2 years Berkshire Hathaway has returned 38% while ARK has returned just 16%, proving that investing based on fundamentals and not sentiment will win out over the longer term.

Home improvement retailer Home Depot (NYSE: HD) is expected to report revenue of $34.83 billion. Their results is expect to benefit from continued solid demand for home improvement with a robust housing market, as well as its execution of its ‘One Home Depot’ plan. This plan focuses on expanding the supply chain and investing in technology to boost web traffic to boost digital sales.

In Australia, mining giant Rio Tinto (ASX: RIO) is reporting. Off the back of BHP’s strong results, investors are hoping for Rio Tinto to keep up this momentum. Iron ore prices have been supported by China’s higher demand for steel. Rio Tinto also has exposure to aluminium and copper, of which prices have both soared to its decade high. Underlying EBITDA is expected to increase by 48%.

Consumer companies Woolworths and Coles will also be reporting. Margins may be helped by falling Covid-19 costs, but revenue is still expected to be impacted by lockdowns and supply chain disruptions.

US GDP figures will be reported this week, with economists expecting 7% growth from the previous quarter. With concerns of rising prices and Covid-19, we are interested to see what the print for US consumer confidence will be, which is expected to come in at 110.

The most underrated statistic to come out this week will be Australia’s Wage Price Index. RBA Governor Phillip Lowe has continually reiterated meeting after meeting that he will only be moved to raise interest rates if he sees a sustained increase in wage levels. If wages do come in at elevated levels, this will give us more of an indication of when the first rate rise will be. Wages are expected to rise 0.5% from the previous quarter.

Interesting finance fact

Apple makes on average $1 billion in revenue a day

Let's say it takes you 5 minutes to read this article. By the time you finish reading it Apple will have made around $3.5 million in revenue.

Have a great week,

Sam Waldron - Research Analyst

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