Welcome to the final edition of our Q3 22 Trending Earnings Topics Recap on trending earnings topics, macro trends and key management commentary. Numerous large-cap companies reported last week, including Walt Disney, AstraZeneca, Bayer, Merck, Franco-Nevada, Mitsubishi, and Nintendo. Here are some key trending earnings topics that emerged during earnings updates over this period:
- Ongoing FX Headwinds: Companies across the board are continuing to share the noticeable impact on business performance caused by foreign exchange headwinds, triggered by currency inflation in a recessionary environment.
- Conservative ‘23 Guidance: Keeping the uncertain macroeconomic conditions in mind, some companies are sharing a cautiously optimistic outlook for 2023, while others are guiding to a difficult road ahead.
- Demand Environment: As Inflation has impacted consumer spending across many sectors, organizations share their outlook on current market demand and how they intend to capitalize on potential opportunities.
- Recent Layoffs: Many companies had to make the difficult decision to reduce their headcount in 2022 due to challenging economic conditions. In both their earnings calls and separate announcements, some companies are sharing their perspective on such workforce layoffs and the subsequent business impact.
PerkinElmer – Prepared Remarks
From a high level, we had another terrific quarter financially as we again were able to meet or exceed our guidance across the board. We generated pro forma total company adjusted revenues of $1.03 billion, which was at the high end of our expectations despite foreign exchange pressures clearly coming in greater than we were facing 90 days ago.
We were able to offset these incremental FX pressures with our pro forma organic revenue declining only 13%. This was driven by the company generating 9% pro forma non-COVID organic growth, which was above our 6% to 8% guidance. This growth includes an approximately 200-basis-point headwind from significant pressures in some specific areas of our business in China due to the continued lockdowns in the region.
- Maxwell Krakowiak – PerkinElmer, Inc. (United States), Chief Financial Officer & Senior Vice President
Dentsply Sirona – Prepared Remarks
As previously announced, GAAP results were impacted by the recording of a noncash charge for the impairment of goodwill and intangible assets of $1.1 billion net of tax, associated with two reporting units. This charge primarily reflects changes in macroeconomic factors such as rising interest rates, foreign exchange headwinds and broad declines in equity valuations, as well as lower forecasted revenues, which are negatively impacting our financial projections. More information regarding the impairment charge is available in our third quarter 10-Q.
In the third quarter, the business delivered revenue of $947 million, in line with the preliminary results we announced previously. In comparison to prior year, organic sales declined by 0.7%, while reported sales declined by 8.9% due to the significant strengthening of the US dollar versus foreign currencies. The difference between reported and organic sales was fully attributable to foreign exchange.
Gross profit was $539 million or 56.9% of sales, and declined 100 basis points from the prior year, with half of the reduction coming from FX and the remainder from inflation and volume de-leverage.
- Glenn G. Coleman – Dentsply Sirona, Inc., Chief Financial Officer & Executive Vice President
Becton, Dickinson & Co – Prepared Remarks
Our FY 2023 guidance aligns with the framework we communicated last quarter and the value-creation model and long-term targets we outlined at our Investor Day to deliver 5.5%-plus base revenue growth, continued margin improvement and double-digit base earnings growth on a currency-neutral basis.
As a reminder, we manage our business on a currency-neutral basis to best represent underlying performance. Consistent with what other companies are discussing in their forward outlook, we are accounting for a headwind to our reported results as we translate currency to a stronger US dollar. Beyond that change, our guidance has only strengthened in a complex macro environment where we continue to see elevated inflation and geopolitical uncertainty.
- Christopher DelOrefice – Becton, Dickinson & Co., Chief Financial Officer & Executive Vice President
WestRock – Prepared Remarks
Notable items impacting our 2023 year-over-year guidance include the following. First, a contribution of approximately $85 million from the net impact of the pending sale of our RTS joint venture and URB mills, along with our Grupo Gondi acquisition in the fast growing Latin America market. Our guidance also includes the closures of our Panama City mill and corrugated medium production in St. Paul. These benefits are partially offset by an unfavorable non-cash pension expense of approximately $160 million due to higher interest rates and market volatility. And finally, we have a $50 million unfavorable impact from foreign exchange rates.
- Alexander W. Pease – WestRock Co., Chief Financial Officer & Executive Vice President
DuPont de Nemours – Q&A
Question – Daniel Rizzo: Thank you. That’s helpful. And then just one other question. In terms of FX, you mentioned the headwinds. I was wondering if you were able to give it a rule of thumb, like a $0.05 move in the euro versus the dollar or something like that, or the basket translates into X percent, I’m sorry, X in sales or EBITDA?
Answer – Lori D. Koch: So we never give it a rule of thumb. The drop-down from the top-line headwinds, so in the fourth quarter we expect about a 6% year-over-year headwind from a currency perspective. The drop-through down into EBITDA is not materially different than the overall EBITDA margin that we have for the total company. So you could use that to kind of model where we think the roughly $200 million year-over-year headwind in currency translates to EBITDA.
- Lori D. Koch – DuPont de Nemours, Inc., Chief Financial Officer
Q3 22 Trending Earnings Topics Recap: Keeping the uncertain macroeconomic conditions in mind, some companies are sharing a cautiously optimistic outlook for 2023, while others are guiding to a difficult road ahead.
TransDigm Group – Prepared Remarks
We are cautiously optimistic that the prevailing conditions will continue to evolve favorably. However, as our fiscal 2023 progress, we will continue to monitor the ongoing uncertainty and risks in market conditions closely and will react as necessary. Changes in market conditions and the impact to our primary end markets could lead to revisions in our guidance for 2023.
Our initial guidance for fiscal 2023 continuing operations is as follows and can also be found on slide 7 in the presentation. The midpoint of our fiscal year 2023 revenue guidance is $6.09 billion or up approximately 12%. As a reminder and consistent with past years, with roughly 10% less working days than subsequent quarters, fiscal 2023 Q1 revenues, EBITDA and EBITDA margins are anticipated to be lower than the other three quarters of 2023.
- Kevin M. Stein – TransDigm Group, Inc., President, Chief Executive Officer & Director
Jack Henry & Associates – Q&A
Question – David Mark Togut: Thank you. Good morning. Could you give us a preliminary view of how you see margins trending in fiscal 2024, given the substantial pressure you’ve called out in 2023? In other words, how much of the inflationary pressure in FY 2023 is simply related to Payrailz, necessary investments related to that versus pressures that might be more persistent and push into FY 2024?
Answer – Mimi L. Carsley: Hi Dave. This is Mimi. I’ll take that. So I would say that we’re still very early in 2023. So FY 2024 is a long way away in a very uncertain global context. But we remain quite vigilant in our focus on expanding margin growth in FY 2024. And some of the headwinds that we’ve seen in FY 2023, some of them were one-time in nature like the Java payment in terms of the year-on-year impact. And others, we’re starting to see some loosening of inflationary pressure as it relates to personnel costs, so.
Answer – David B. Foss: I think the thing that I would add to that, Dave, the things we’ve highlighted in the past and Mimi just alluded to, Java, for example, going from zero to actually, and this is impacting all companies, not just Jack Henry, but going from zero to having to pay for that technology. The travel, the uptick that we’ve seen in travel, so that will normalize now. So when you think about FY 2024, the travel uptick will have been baked into the FY 2023 comps. And so that should provide the opportunity for margin expansion as we look into 2024. And then on the wage side, we, like everybody, have seen wage inflation, but that is really starting to normalize as well. And so I think that is baked into, or will be baked into the 2023 numbers when you get to comparing us during 2024. So I think a lot of those things that we’ve highlighted and most companies have highlighted, that stuff is really starting to normalize for Jack Henry, and I think that it provides opportunity for us to get back to margin expansion again next year.
- Mimi L. Carsley – Jack Henry & Associates, Inc., Chief Financial Officer & Treasurer
- David B. Foss – Jack Henry & Associates, Inc., Board Chair & Chief Executive Officer
Alliant Energy – Prepared Remarks
And turning to 2023, I’m pleased to share our earnings guidance and dividend target. We pride ourselves on consistency, and these targets demonstrate our commitment to our long-term 5% to 7% earnings growth objectives. Our 2023 earnings midpoint represents a 6% increase to our forecasted 2022 temperature normalized adjusted earnings. And our 2023 common stock dividend target is $1.81 per share, which is a 6% increase from the prior year. Our commitment to steady and predictable results has never been stronger.
Another key headline is our updated capital investment forecast. We are adding $2.4 billion of investment compared to last year’s plan. This is yet another indication of how our well-executed and transparent Clean Energy Blueprint has us positioned for long-term growth. Our Clean Energy Blueprint serves as our road map to deliver on our purpose, to serve customers and build stronger communities. It’s not only well-designed for success, but also flexible, allowing us to adjust and adapt to the needs of our customers and economic changes.
- John O. Larsen – Alliant Energy Corp., Chairman, President & Chief Executive Officer
Ralph Lauren – Prepared Remarks
Our outlet AUR, up mid-teens, reflects our ongoing brand elevation efforts in the channel. However, we continue to see softness in our value-oriented consumers, a sub-segment of the channel. In the current environment, we are focused on communicating our strong value proposition to the consumer, which as Patrice mentioned, continued to strengthen in Q2. This is supported by our targeted personalized communications. We are managing this channel carefully given ongoing macro headwinds and have assumed increased caution in our fiscal 2023 outlook.
North America store traffic trends remain below pre-pandemic levels, consistent with the broader industry, although, our foreign tourist sales continued to show improvements to last year. Comps in our owned ralphlauren.com site were down slightly, but increased more than 30% on the two-year stack. While we were encouraged by our increased penetration of full-price sales online, this was offset by higher seasonal clearance to keep inventory clean ahead of holiday.
- Jane Nielsen – Ralph Lauren Corp., Chief Operating Officer and Chief Financial Officer
International Flavors & Fragrances – Prepared Remarks
Looking into 2023, the current macroeconomic environment makes us cautious. And as a result, we anticipate that we will be in a low volume growth environment, particularly in the first half of next year. In addition, while we see raw material inflation easing, we do anticipate some year-over-year increases in raw materials and continued volatile energy markets, which will require additional pricing actions.
As a result, we will continue to examine and refine our resource allocation to focus on strong cost discipline and accelerating our productivity across our business. We will also continue to implement pricing actions surgically to support our profitability and ensure our business remains resilient.
- Glenn Robert Richter – International Flavors & Fragrances, Inc., Chief Financial Officer & Executive Vice President
The Mosaic Co. – Prepared Remarks
In Brazil, the higher-priced inventory built during the first half of the year has slowed third quarter shipments. But sentiment is improving. Prices have retreated enough to encourage sales and we expect inventories will end the year much the same as where they started. The barter ratio suggests we’re approaching a much more constructive environment for demand.
In India, importers are taking advantage of the price pull back in phosphates. India’s phosphates inventory is still low, while farmer demand remains strong. Government subsidies remain at a level that is supportive of phosphate imports, but are likely to leave the country short of adequate supply of potash.
To summarize, the strength of crop prices and more affordable fertilizer prices suggest nutrient demand will recover from the summer lull we experienced during the third quarter.
- James Calvin O’Rourke – The Mosaic Co., President, Chief Executive Officer & Director
TransDigm Group – Prepared Remarks
Commentary from airlines in recent months regarding passenger demand continues to be positive. Despite the increase in airline ticket prices, passenger demand has remained strong as the summer travel season came to a close and we entered the fall season. The recovery in domestic travel continues to be stronger than international travel. In the most recently reported IATA traffic data for September, domestic air traffic was only down 19% compared to pre-pandemic. The US and Europe continue to lead, showing strong demand for domestic travel.
US domestic travel in September was back to pre-pandemic levels. However, China’s domestic travel had another steep drop-off in September due to strict COVID policies and was down about 60% compared to pre-pandemic. The international air traffic recovery has continued to make progress throughout 2022. Many countries have fully reopened to international travelers, and there is pent-up demand for long-haul travel. Approximately six months ago, international travel was still down about 50%, but in the most recently reported IATA traffic data for September international travel was only down about 30% compared to pre-pandemic levels.
- Jorge L. Valladares – TransDigm Group, Inc., Chief Operating Officer
WestRock Co. – Prepared Remarks
During the quarter, North American shipments per day declined 4.6%, as continued inventory rebalancing and softer demand drove weakness in several of our end markets. That said, we serve a broad range of customers and several other end markets exhibited more resilient demand, including packaged food and beverage. During the quarter, we were focused on driving margin over volume. We also incurred economic downtime of approximately 288,000 tons as we sought to balance our supply with our customers’ demand.
Strong pricing and mix contributed $284 million, largely offset by $168 million of inflation, $77 million from higher operating costs, and $29 million from lower volumes. We continued to navigate a difficult inflationary environment, driven by higher costs across energy, freight, labor, chemicals, and virgin fiber during the quarter.
In the near term, we will continue to actively manage our business for the current environment and we will focus on balancing our production with our customers’ demand.
- Alexander W. Pease – WestRock Co., Chief Financial Officer & Executive Vice President
Hanesbrands – Prepared Remarks
Looking at the current environment, in just six months, we’ve seen the consumer and retail landscape flip from one with too much demand and not enough supply to one with too much supply and not enough demand. Inflation is hitting consumers’ wallets and slowing demand. Retailers broadly are sitting on too much overall inventory, which is impacting orders in different ways across our business.
In Innerwear, our retail inventory is actually below last year’s level. However, as retailers manage their overall inventory levels, it’s negatively impacting near-term replenishment orders as well as delaying the timing of certain events. And as you’ve heard from others, retailers across channels are seeing slowing consumer demand and have excess Activewear inventory, which is resulting in order cancellations, including for Champion.
The combination of these factors weighed on our sales performance in the third quarter, and we expect these headwinds to continue through the fourth quarter.
- Stephen B. Bratspies – Hanesbrands, Inc., Chief Executive Officer & Director
Many companies had to make the difficult decision to reduce their headcount in 2022 due to challenging economic conditions. In both their earnings calls and separate announcements, some companies are sharing their perspective on such workforce layoffs and the subsequent business impact.
Lyft – Prepared Remarks
First, I want to thank all of the team members that we had to say goodbye to last week. I’m grateful for all of their contributions towards building the business and advancing the mission.
While difficult, the reduction in force sets us up for a strong 2023 where we can focus on execution, knowing we are in a strong position in the face of external uncertainty. Thank you again to the entire team for your continued hard work to take care of drivers, riders in our business…
First, on head count. Earlier this year, we significantly slowed and then froze new hiring. Last week’s action reflected a continuation of our commitment to carefully manage our team size and expenses in this environment. One focus was to remove management layers to accelerate decision-making and execution. It was a hard decision, but we’re confident that it’s the right step for the business.
- Logan Green – Lyft, Inc., Chief Executive Officer, Co-Founder & Director
Beyond Meat – Prepared Remarks
To date, we have instituted two separate reduction-in-force actions, one in August and one in October, totaling approximately 240 positions. Together these actions represent more than 20% of our global workforce. With our most reduction in force, we are expecting operating expense savings of approximately $39 million over the next 12 months, excluding onetime separation costs of approximately $4 million. Although letting go of these dedicated, passionate and talented team members was painful, these actions were necessary to rightsize our organization, so that we are aligned with current business conditions.
- Ethan Walden Brown – Beyond Meat, Inc., Founder, President and Chief Executive Officer & Director
Meta – Layoff Announcement (November 9th, 2022)
Today I’m sharing some of the most difficult changes we’ve made in Meta’s history. I’ve decided to reduce the size of our team by about 13% and let more than 11,000 of our talented employees go…
At the start of Covid, the world rapidly moved online and the surge of e-commerce led to outsized revenue growth. Many people predicted this would be a permanent acceleration that would continue even after the pandemic ended. I did too, so I made the decision to significantly increase our investments. Unfortunately, this did not play out the way I expected. Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I’d expected. I got this wrong, and I take responsibility for that.
In this new environment, we need to become more capital efficient. We’ve shifted more of our resources onto a smaller number of high priority growth areas — like our AI discovery engine, our ads and business platforms, and our long-term vision for the metaverse. We’ve cut costs across our business, including scaling back budgets, reducing perks, and shrinking our real estate footprint. We’re restructuring teams to increase our efficiency. But these measures alone won’t bring our expenses in line with our revenue growth, so I’ve also made the hard decision to let people go.
- Mark Zuckerberg – Meta Platforms, Inc., Founder, Chairman and Chief Executive Officer
Amazon – Reported Layoff Update (by New York Times)
Amazon plans to lay off approximately 10,000 people in corporate and technology jobs starting as soon as this week, people with knowledge of the matter said, in what would be the largest job cuts in the company’s history.
The cuts will focus on Amazon’s devices organization, including the voice assistant Alexa, as well as at its retail division and in human resources, said the people, who spoke on condition of anonymity because they were not authorized to speak publicly.
The number of layoffs remains fluid and is likely to roll out team by team rather than all at once as each business finishes plans, one person said. But if it stays around 10,000, it would represent roughly 3 percent of Amazon’s corporate employees and less than 1 percent of its global work force of more than 1.5 million, which is primarily composed of hourly workers.
Amazon’s planned retrenchment during the critical holiday shopping season — when the company typically has valued stability — shows how quickly the souring global economy has put pressure on it to trim businesses that have been overstaffed or underdelivering for years.
Amazon would also become the latest technology company to lay off workers, which only recently it had been fighting to retain. The e-commerce giant more than doubled the cap on cash compensation for its tech workers this year, citing “a particularly competitive labor market.”
- Karen Weise – New York Times., Technology Correspondent
Thanks for reading the final issue of the Earnings Recap blog for the Q3’22 Earnings season. Stay tuned for our trending earnings topics recap for Q4’22!