Q2’22 Trending Earnings Topics Recap – Week of August 8th, 2022

Welcome to the final edition of the Q2 2022 earnings season weekly update on trending topics, macro trends and key management commentary. Almost 90% of S&P 500 companies have reported earnings to date. CS Disco, Owlet, SmartRent, Procore Technologies, ON24 & IAC were some of the prominent IT reporters from last week. Here are some key trending topics that emerged during earnings updates over this period:


Companies are frequently reporting on their appetite to pursue M&A deals to expand their business value, while some are also noting how recent acquisitions have paved the way for robust revenue growth.

Broadridge Financial Solutions – Prepared Remarks

Now let’s move for capital markets franchise where the acquisition of Itiviti is helping to transform our position in the market. In capital markets, we’re driving trading innovation, simplifying global post-trade technology, and building new enterprise data and network-enabled solutions. Itiviti’s leading front office capabilities have meaningfully extended our franchise, deepening our relationships with key clients. Capital markets revenues rose 39% to $921 million primarily driven by our acquisition of Itiviti on which I will touch in a moment.

In the meantime, despite our focus on the acquisition, we drove organic growth of 5%. The biggest factor in organic growth was revenue from new sales as we on-boarded multiple new clients to our global post-trade platform. It is great to see our platform investments converting to revenue growth.

  • Timothy C. Gokey – Broadridge Financial Solutions, Inc., Chief Executive Officer & Director

Visa Q&A

Question – David Mark Togut: Thank you. Good afternoon. You’ve clearly been continuing to be very aggressive on share repurchase, but could you update us on your capital allocation priorities in this particular environment? We’ve seen, obviously, a pretty big pullback in valuations and payments. How has your acquisition appetite and pipeline changed today versus, let’s say, a year ago?

Answer: Yeah. Capital allocation approach has not changed. As we’ve said before, our first priority is investing in our core business. We generate a lot of free cash flow. Our first priority is to invest in what is a fabulous business we have, which has tremendous growth opportunities, as we’ve discussed, around some of the new use cases and new flows around value-added services and, of course, in our core consumer payments business.

After that, clearly, it’s how can M&A enhance what we do, and we can do that by buying something that expands our capabilities like we’ve done in the past, or something that gives us new capabilities like Tink does with open banking, or like Currencycloud does with the capabilities they have that are geared towards real-time FX and serving the needs of newer enterprises, the fintechs rather than traditional companies. So, we will continue to look for things that can enhance what we have.

In terms of timing and opportunities, clearly, as valuations have come back in, we’ve stayed disciplined when things were bubbly. We have a very strong balance sheet. We have tremendous capacity. We’re definitely interested in acquisitions where the value is justified. Time will tell whether valuations in private markets get to levels that are attractive, and companies have to be for sale. But clearly, M&A is an important component of our future. We have clear ideas on where we want to expand M&A-wise. And as they come up, we’ll talk about it.

  • Vasant M. Prabhu – Visa, Inc., Vice Chairman & Chief Financial Officer

CBRE Group Q&A

Question – Anthony Paolone: Got it. Thanks for that. And then, on the buyback, you have free cash flow, but you’re also below target leverage that you laid out. So, I mean, when you think about continuing to do the buyback, is it about utilizing free cash flow or would you also be willing to move up closer to your target leverage?

Answer: So, our capital deployment strategy is unchanged. We continue to seek to reach our target of a turn of leverage and we’ll go up to a turn of leverage when we see an opportunity to continue with our buybacks at an attractive price. We are always prioritizing M&A. But right now, what we’re seeing is that there’s still a large bid-offer spread in terms of valuations. So, we’re building our M&A pipeline, as I mentioned in my remarks. And over the next year, especially if a recession continues, we expect to see opportunities in M&A arise. And so, we’re balancing what we see in M&A with buybacks and what you can expect for the balance of this year is that we’ll continue to aggressively deploy our capital towards buybacks as long as our price remains attractive. And in a base case, I think a safe assumption is that we will do another $ 0.5 billion of buybacks in the second half of the year, but it could easily exceed that.

  • Emma Giamartino – CBRE Group, Inc., Global Group President, Chief Financial Officer & Chief Investment Officer

Fox – Prepared Remarks

Other revenues at Television increased 3% in the quarter, primarily due to the impact of the acquisitions of TMZ and MarVista Entertainment, and the consolidation of our stake in Studio Ramsay Global, partially offset by the timing of deliveries at Bento Box. EBITDA at our Television segment increased over 50% as expenses were flat against the prior year quarter. Here, we sought accelerated digital investment at TUBI and the consolidation of the entertainment production assets, offset by the timing of programming cost at FOX Entertainment.

  • Steve Tomsic – Fox Corp., Chief Financial Officer

Emerson Electric – Prepared Remarks

Emerson’s portfolio transformation is well underway, and in the quarter, we made significant progress to create a higher growth, more diversified, cohesive portfolio. We took five important steps. Number one, on May 16, we closed the AspenTech transaction. We are very excited about the synergy opportunities, which are sized at $160 million in the funnel and the project’s won to-date.

Number two, AspenTech announced an agreement to acquire Micromine, the first transaction under the new structure. Micromine is an Australian-based exploration to optimization software offering, well-positioned to benefit from the minerals required to fuel the renewable revolution.

Number three, we announced and closed the acquisition of Fluxa, a critical life science process knowledge business, highly synergistic with our industry-leading DeltaV system. Number four, on May 31, we closed the TOD sale. And last, five, yesterday, we announced the sale of InSinkErator to Whirlpool Corporation for $3 billion on an 18.1 multiple of adjusted EBITA.

  • Surendralal L Karsanbhai – Emerson Electric Co., President, Chief Executive Officer & Inside Director

As organizations report on their capital deployment initiatives this quarter, it’s notable that capital expenditures among S&P 500 companies are growing faster than stock repurchases compared to early 2021.

Cardinal Health – Prepared Remarks

We are focused on deploying capital in a balanced, disciplined and shareholder-friendly manner. This year, we invested approximately $385 million of CapEx, back into the business to drive future growth, paid down approximately $850 million in debt to reduce leverage, and returned $1.6 billion to shareholders through share repurchases and dividends. We ended the year with a cash position of $4.7 billion, which does reflect some timing favorability with no outstanding borrowings on our credit facilities.

As for the segment’s full year results, beginning with Pharma on slide 10, Pharma revenue increased 14% to $165 billion, reflecting consistent drivers with the fourth quarter. Pharma segment profit increased 5% to $1.8 billion, driven primarily by generics program performance and an improvement in volumes compared to the prior year. This was partially offset by investments in technology enhancements and inflationary supply chain costs.

  • Jason M. Hollar – Cardinal Health, Inc., Chief Financial Officer & Director

Welltower – Prepared Remarks

Turning to the capital deployment, I cannot overstate how favorable of an environment we find ourselves in today. During the second quarter, our off-market privately negotiated transaction machine kept humming, having deployed an additional $1.1 billion of capital. Today, there’s definite stress in the lending environment given the significant rate and credit volatility and increasing recession talk. Cap rates are going up across the board, and most institutional capital is waiting to see where the chips fall. We’re seeing many high-quality opportunities, and we think the environment will only get more favorable as Fed continues to raise rate at a rapid clip.

Our pipeline remains robust, having replenished after all of our Q2 and Q3 closings. Our fundamental investment thesis remain intact. One, we need to buy at a favorable basis relative to replacement cost. And two, we need to be able to add value through our platform. We’re not spread investing deal junkies, and instead remain laser-focused on total return or unlevered IRR.

I continue to believe this year will be a record year for Welltower from a capital deployment standpoint. Cost of capital has surged for everybody including governments, and access to capital remains very sparse for most people. In this environment, we remain in a very favorable capital position with $2-plus billion of equity capital that is raised but not settled and almost full availability of our $4 billion line.

  • Shankh Mitra – Welltower, Inc., Chief Executive Officer, Chief Investment Officer & Director

ONEOK Q&A

Question – Michael Lapides: So then, if there’s not really a need potentially – I mean, the volumes could always surprise to the upside, but if there’s not really any need for any material new asset development in 2023, that implies that the capital budget kind of declines a ton, which is not a surprise. How are you and how are the board – how’s the board kind of thinking about capital allocation and uses of some of that significant free cash flow that you might be generating next year?

Answer: So this is Pierce. The way we look at that is that we look at all the levers that’s available to us. So we’re going to be looking at – as we get closer and closer to what Walt had mentioned about the 3.5 times on the debt to EBITDA ratio, as we continue to go below 100% on our payout ratio, then that’s going to actually open up some of those other elements to us that we’ve had in the past.

Of course, our first focus is going to be on these organic opportunities, because they give us the best chance to deploy capital that gives us really, really good rates of return. We are proud of our ROIC that we’ve been able to achieve, and we are predicting that is going to continue to go up. So, I think what it’s going to do is just give us more flexibility, to use whatever levers that we feel like bring the most value to our shareholders.

  • Pierce H. Norton II – ONEOK, Inc., Director, President & Chief Executive Officer

TransDigm Group Q&A

Question: Hi. So you’re seeing strong recovery in commercial aftermarket. You’re seeing some supply chain issues in defense. And you’re also seeing like order book buildup. So what does expansion of existing operations look like? And will there be more CapEx going forward?

Answer – Kevin M. Stein: I’ll comment on CapEx. I think there’s always opportunity for internal investment in our businesses, and we’re constantly looking for those. We are looking at some select additional investment in some of our businesses. But again, these things all pay back. We have the same payback standards as before. So maybe there’ll be some selectively, but I don’t see any major trend of additional spending.

Answer – Jorge L. Valladares III: Yeah. I think, in general, the operating units have come to us with different ideas, and they’ve been very focused in automation over the last two to three years. But we don’t expect any significant shift in the overall CapEx that we’ve traditionally run at.

In terms of capacity, we’re looking to leverage some of the restructuring activities that we did over the past couple of years and the process improvements to support additional demand. But that’s something that each team looks at individually and something that we’re constantly talking about in this environment.

Answer – Kevin M. Stein: I think one area that we are doing some selective investment is solar at some of our facilities, help with our greenhouse gas footprint. So we are looking for investments of that nature as well, and that’s something that we are spending a little more money on as those opportunities now have a reasonable payback across our businesses.

  • Kevin M. Stein – TransDigm Group, Inc., President, Chief Executive Officer & Director
  • Jorge L. Valladares III – TransDigm Group, Inc., Chief Operating Officer

Ameren Q&A

Question – Shahriar Pourreza: …Friday. Very good. Marty, let me ask, just thank you for the visibility, obviously, on the Tranche 1 opportunities. But just a two-part question here. Which should, I guess, confidence level on the competitive slice or how should we be thinking about maybe your ability to capture that? Is there a technical or cost of capital facet to your advantage? And then, does this – how does this sort of interact with your prior CapEx and sort of rate base guide? I mean, some of the projects do break ground in 2025, so could these be accretive to your 6% to 8%? Thanks.

Answer: Yeah. Hey. Good morning, Shar. I think Marty said it well. In terms of the capital plan and (32:15), we’ve talked about this, I mean, I think that it’s great to start getting some clarity here around these different projects. And as Marty said, I think some of this could even benefit the five-year plan.

As we have indicated, we’re going to step back on what we typically deal with our cadences. We’ll update all of this in the February timeframe. And my sense is this has got the ability to be accretive to our five-year capital plans as well as just additive to the overall runway as we talk about the growth story.

I think as we – if you kind of remember, if you reflect back on the $48 billion that we have there now, that number used to be $40 billion. We captured about $5 billion associated with transmission projects. It was broadly to try to look at these LRTP projects over the next 10 years. So, I think we got it in there. And now, it’s a matter of where it just ends up by (33:09), if that makes sense.

  • Michael L. Moehn – Ameren Corp., Executive Vice President, Chief Financial Officer & President-Ameren Services

While the market continues to remain volatile and economic uncertainty looms, businesses are focusing on new product development and innovations to help them stand out in a competitive environment.

The Home Depot – Prepared Remarks

We continue to introduce new and innovative products aimed at simplifying the project, saving our Pros time and helping them take on more jobs. One example in building materials where we launched nationally, Henry’s Tropi-Cool roof coatings. This new formula offers maximum reflectivity, helping reduce cooling costs. Henry’s Tropi-Cool can be applied in any season, is 100% waterproof and rain-safe within 15 minutes of application, and this product is exclusive to The Home Depot in the big box channel.

  • Jeff Kinnaird – The Home Depot, Inc., Executive Vice President – Merchandising

Hanesbrands – Prepared Remarks

Touching on each of these, I like how we’ve consolidated design globally in Innerwear. We’re starting to see results with new Innerwear products and innovation, and we’re driving retail space gains.

I’m very pleased with how our Total Support Pouch with X-Temp is performing, both in the US and Australia. This is the first time we’ve launched innovation globally and supported it with a global marketing campaign.

Our Retro Rib product from Australia was launched in the United States under the Hanes brand and is exceeding our expectations. Our top customers are very pleased with the consumer response and we expect to gain additional retail space.

We’re also building innovation platforms around absorbency. We believe this is a meaningful opportunity under our Hanes and Bonds brands, with lots of different usage occasions, ranging from adult and child absorbency to post-pregnancy needs for women. And this is just a start.

Our product and innovation pipeline is full. We have a lot of big ideas across our basics and intimates brands that we expect to drive continued retail space gains. I look forward to sharing more of our innovation pipeline toward the end of this year and into 2023.

  • Stephen B. Bratspies – Hanesbrands, Inc., Chief Executive Officer & Director

International Flavors & Fragrances – Prepared Remarks

Across the board, we are focused on driving margin improvements, but to do so effectively, we are pursuing differential management strategy across key areas. Last quarter, I shared an ROIC chart, which was a first glimpse into the lens that we’re viewing the company through.

To move forward with this plan, we have developed a comprehensive playbook that segments our business into three distinct archetypes with unique strategic imperatives. When we look at our portfolio, we will consider whether to invest to grow, maximize to drive efficiencies or optimize to rapidly improve performance. Using this model, we remain intensely focused on achieving above-market growth, strengthening our competitive global position, increasing our return on invested capital, and analyzing the most valuable use of our existing assets.

For example, in a category like flavors, we see meaningful opportunities to drive above-market revenue growth, primarily through reinvesting in innovation and commercial initiatives. We are prioritizing above-market revenue expansion in this category as opposed to margin improvement alone as we’re focusing on large, profitable and faster-growing subcategories like beverages or dairy to drive strong value creation. Here it is more about reinvesting in margin upside to ensure we are bringing the best innovation to our customers to drive dollar profit growth.

On the other hand, in a market like animal nutrition, we are focused on maintaining the consistent growth we’ve delivered with an emphasis on driving further productivity. By identifying certain segments in which to reinvest, while strategically reducing R&D expenses and others, we will focus on margin improvement and create opportunities to invest in the highest value offerings.

  • Franklin K. Clyburn – International Flavors & Fragrances, Inc., Chief Executive Officer & Director

Regency Centers – Prepared Remarks

During the second quarter, we started Phase 2 of our ground-up Baybrook development in Houston. You may recall that we completed Phase 1 of this project late last year and the H-E-B anchor, which opened in December, is already one of the top performing grocers in the Houston market. This new phase of the project will include roughly 50,000 square feet of shops and outparcels adjacent to the new H-E-B store. We have already signed or committed leases on the nearly 75% of the new space and anticipate the first tenants opening in about a year from now.

We also started major redevelopment this quarter at our Buckhead Landing property in Atlanta, formerly known as the Piedmont Peachtree. With total costs around $25 million, we will redevelop the 150,000 square foot center and replace the existing grocer with a new Publix anchor. Our team is really excited to start this much-anticipated transformation of this irreplaceable location in the heart of Buckhead.

Our consistent track record and successful execution within our development and redevelopment program is a testament to the depth and perseverance of our experienced teams across the country.

  • James D. Thompson – Regency Centers Corp., Executive Vice President & Chief Operating Officer

Amgen – Prepared Remarks

With our planned acquisition of ChemoCentryx, we’ll be adding another newly launched innovative product to our portfolio, TAVNEOS, which is for ANCA-associated vasculitis, which is a serious and sometimes life-threatening autoimmune disease. TAVNEOS is a terrific medicine, the first innovation in this space in more than 10 years and very much needed, given the harsh side effects of the older treatments and the seriousness of the disease. This product also fits right in Amgen’s strategic sweet spot. Our decades of leadership in immunology and nephrology will enable us to add value to the TAVNEOS launch, reaching many more patients and much more quickly than would otherwise have been possible.

You’ll hear from Murdo in a moment, but let me just say that opportunities like this don’t come along often. We’re really looking forward to working with the highly skilled and committed team from ChemoCentryx to realize the full potential of this very innovative product. We think we can make a difference for patients and earn an attractive return for our shareholders from this investment.

Dave will talk about the pipeline shortly, and our innovative and biosimilar molecules are proceeding well through the pipeline. And highlights, of course, include the really encouraging data for our cardiovascular molecule, olpasiran, which we expect

  • Robert A. Bradway – Amgen, Inc., Chairman & Chief Executive Officer

Thanks for reading the final issue of the Earnings Recap blog for the Q2’22 Earnings season. Stay tuned for our trending topics recap next quarter. Feel free to review the prior iterations of our weekly blog for this quarter below:

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