Q3’21 Trending Earnings Topics Recap – Week of October 25, 2021

With the Q3’21 earnings season in full swing, your Q4 IR Excellence team has been closely monitoring trending topics and macro trends highlighted on earnings call transcripts of S&P 500 companies. With the aid of powerful AI search technology, we’ve summarized our findings and some key management commentary insights below.

You’ll find that we have grouped our analysis into six sections:
1) Some of the biggest names in Tech who reported last week and how they have been affected by ongoing supply chain challenges. 

2) How Energy companies have seen record profits as increased global demand for oil and gas combined with disciplined cost-cutting initiatives to increase the bottom line. 

3) Insights into sustained strong demand for Electric Vehicles (EVs) despite significant supply chain constraints. 

4) A summary of how executives at two of the largest tech companies, AAPL and AMZN, are anticipating how labor and supply constraints are weighing on their near-term outlook. 

5) How Utility and Renewable Energy executives are expecting to be able to manage through the short term implications of supply chain and inflation concerns. 

6) Topics raised by analysts in their questions on S&P 500 earnings calls. We have updated our breakdown of the percent of companies in each sector that have seen analysts ask questions about three key macro themes – inflationary pressure, supply chain challenges and labor constraints. 

We’ll continue to track these topics and provide additional updates as we move through this quarter’s earnings season.

Big tech showed that it is not immune to global supply chain challenges as advertising demand takes a hit

“On your supply chain question, I would say performance in Q3 was strong across ads revenue lines, regions and nearly all verticals, In line with the widespread reporting of supply chain weakness in the auto industry, we’ve seen some impact on vehicles within the auto vertical, which started earlier in the year, although the impact has really been offset somewhat by increased demand in related areas like parts, accessories, repairs and maintenance.”

-Phillip Schindler –  Alphabet Inc., Senior VP & Chief Business Officer

“These factors have been compounded for many advertisers by major global supply chain issues and labor shortages, which have left many consumer businesses with less inventory. This has reduced their appetite to generate demand from consumers, which has impacted advertising spend. Businesses in every region and across a range of verticals have been affected.”

-Sheryl Kara Sandberg – Facebook, Inc., COO & Director

“This [ad tracking] impact was compounded by the ongoing macroeconomic effects of the global pandemic with our advertising partners facing a variety of supply chain interruptions and labor shortages. This, in turn, reduces their short-term appetite to generate additional customer demand through advertising at a time when their businesses are already supply constrained. The ongoing magnitude and duration of these global supply and labor disruptions are inherently unpredictable. And in the meantime, we are focused on supporting our partners in this uncertain environment. While it is difficult to predict the trajectory of these challenges, the growth of our audience, the adoption of our new products and platforms by our community and the underlying efficacy of our advertising products for performance advertisers gives us confidence in the future of our business and our ability to navigate this environment as we continue to invest in our long-term vision.”

-Evan Spiegel – Snap Inc., Chief Executive Officer

The two largest U.S. oil companies, Exxon Mobil and Chevron, reported their most profitable quarterly earnings since before the start of the pandemic, citing plans to increase capex as oil prices surge

And while the improving market environment helps, we’re focused on what we can control, safe and reliable operations, capital and cost efficiency and value chain optimization to drive higher returns.

Some examples of our self-help actions include using digital tools to improve planning, scheduling and prioritization of maintenance activity, leveraging data analytics and asset flexibility to increase margins and adopting new technologies like robotic inspections and maintenance procedures.

-Pierre R. Breber – Chevron Corp., Vice President & Chief Financial Officer

We did have some deferred major capital project spending tied to Hurricane Ida and the Delta variant wave. And then we continue to see continued capital efficiency in the Permian and across the portfolio. It does not change our CapEx guidance.

Our CapEx guidance for next year and through 2025 is $15 billion to $17 billion. We do expect higher CapEx in the fourth quarter and next year. The low end of that range is about a 20% increase from the midpoint of our revised guidance. So these deferrals are very manageable.

-Pierre R. Breber – Chevron Corp., Vice President & Chief Financial Officer

So, obviously, this year our capital spending has been purposefully constrained, and we think we’re going to come in I’d say at the lower end of the $16 billion to $19 billion range we’ve provided. We are expecting higher CapEx in the fourth quarter and a significant increase as we head into 2022.

What underpins that is further investments in Guyana, focused on Payara, Yellowtail appraisals. Bacalhau in Brazil is now moving into the startup of drilling, and so more significant spending heading into there. We obviously paused a number of downstream and chemical projects. Those are restarting, and so we’ll start to see that spend in the fourth quarter and pick up pretty significantly into 2022

-Kathryn A. Mikells – Exxon Mobil Corp., Chief Financial Officer & Senior Vice President

A 31% gain on shares of EV-maker, Lucid, ahead of the company delivering it’s first vehicles this past weekend shows that despite significant supply constraints in the auto industry, global demand for electric vehicles continues to grow

Our challenge now is to break production constraints and increase availability to meet this incredible demand, both in North America and in Europe and also in China, the biggest EV market in the world, where we are just starting production of Mach-E. We believe the global demand just for Mustang Mach-E could approach about 200,000 vehicles a year.

-James D. Farley, Jr. – Ford Motor Co., President, Chief Executive Officer & Director

We’ve established and announced four major supply chain initiatives recently. And we expect to add more soon to support our growth, our performance and our cost reduction plans. And our goal is to eliminate supply chain risks and control our own destiny as we rapidly scale our EV volume. A common thread that runs through these in our recent announcement is a clear commitment to US leadership in EVs. For example, we will add two more battery plants in the US by mid-decade. We also have plans to build EV motors and another EV truck facility here in the US. 

-Mary Teresa Barra – General Motors Co., Chairman & Chief Executive Officer

Component and labor shortages weigh down outlook for tech giants like Apple and Amazon.com

In Q3, labor became our primary capacity constraint, not storage space or fulfillment capacity. As a result, inventory placement was frequently redirected to fulfillment centers that had the labor to receive the products. This resulted in less optimal placement, which leads to longer and more expensive transportation routes. In short, our operations are normally well staffed and optimized to be in stock and to deliver to customers in one to two days. Labor shortages and supply chain disruptions upset this balance and resulted in additional costs to ensure that we continue to maintain our service levels to customers.

As you look to Q4, we have incorporated this nearly $4 billion of added cost into our operating income guidance range.

-Brian T. Olsavsky – Amazon.com, Inc., Chief Financial Officer & Senior Vice President

If you look at Q4 for a moment, we had about $6 billion in supply constraints, and it affected the iPhone, the iPad, and the Mac. There were two causes of them for Q4. One was the chip shortages that you’ve heard a lot about from many different companies through the industry, and the second was COVID-related manufacturing disruptions in Southeast Asia.

The second of those, the COVID disruptions, have improved materially across October to where we currently are. And so for this quarter, we think that the primary cause of supply chain-related shortages will be the chip shortage. It will affect – it is affecting, I should say, pretty much most of our products currently. But from a demand point of view, demand is very robust, and so part of this is the demand also is very strong. But we believe that by the time we finish the quarter that the constraints will be larger than the $6 billion that we experienced in Q4.

-Timothy Donald Cook – Apple, Inc., Chief Executive Officer & Director

Utility and renewable energy provider executives reassure analysts and investors they can ride out supply chain and inflation concerns dominating the second half of 2021

Consistent with the broader market, we are experiencing inflation pressure, which we expect to be limited for the balance of 2021. Next year we anticipate a more challenging inflation environment. The most adverse impact is expected in Onshore Wind due to the rising cost of transportation and commodities such as steel and resin, impacting the entire industry. We are taking action to mitigate inflation in each of our businesses. Our shorter-cycle businesses felt the impact earliest, while our longer-cycle businesses were more protected, given expanded purchasing and production cycles. Our service businesses fall in between. 

-Carolina Dybeck Happe – General Electric Co., Senior Vice President & Chief Financial Officer

It’s good to be us and we’ve highlighted that in the past in the sense of being large in this industry, having significant capital dollars to put to work, enables us to have strong relationships, and extensive relationships with those in the supply chain to help navigate these uncertainties. We feel good about our ability to navigate them. The plan does get iterated from time-to-time as the circumstances change, but we feel good about the long-term view for renewables and our ability to deliver on our expectations.

-Rebecca Jones Kujawa – NextEra Energy, Inc., Executive Vice President-Finance & Chief Financial Officer

Earnings Call Q&A Sector Analysis

We’ve included an updated breakdown of the percent of companies in each sector that have reported Q3’21 earnings that have seen analysts ask questions about key macro themes – inflationary pressure, supply chain challenges and labor constraints.

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