Financials provide further insight on the macro landscape, Tesla talks about its robots, geopolitical instability has differing impacts on different metals, and healthcare companies discuss COVID uncertainty.
BNY Mellon: “In the face of the tragic events occurring in Ukraine, we ceased new banking business in Russia and suspended investment management purchases of Russian securities… Total revenue was flat and included an approximately $90 million reduction related to Russia, a notable item this quarter.”
Bank of America: “On Russian counterparty risk, our teams have done a tremendous job from ending down our exposures… And as you might note, after the 2014 Crimea conflict, we intentionally reduced our exposure. And Russia has not been in our top 20 country risk exposure table since 2015.”
Bank of America: “Net interest income grew on the back of strong loans and deposits growth… The company's overall investment banking fees of $1.5 billion declined 35% year-over-year.
Truist: “Compared to the fourth quarter, adjusted EPS declined 11% driven primarily by a 4% decrease in adjusted revenue attributed to more challenging market conditions and fee businesses such as investment banking and residential mortgage in addition to some normal seasonal patterns.”
BNY Mellon: “Throughout the quarter, we took actions in the investment securities portfolio to temper the immediate impact to capital from higher interest rates. And we expect higher rates to be both a positive for fees and net interest revenue going forward.”
Citizens: “Among the highlights of the quarter, we had a successful conversion of the HSBC branch and online customers, which was then followed by closing the Investors acquisition on April 6. We continue to take actions to position our balance sheet well for rising rates, and we've made further progress on our strategic initiatives.”
Citizens Financial: “Inflation pressures are real and the possibility of recession in 2023 has increased.”
QUESTION: “I don't think there's a recession this year, but I've been wrong before. And the stock market is telling us there might be a pretty good chance of a recession. So Brian and Alastair, what do you think the chance of recession is in 2022? You have a lot more people, data, businesses, insight into the U.S. economy, and you need to have a percentage for that for your provision for loan losses. So is this 50% chance? 20% chance?”
ANSWER: “The reality is we have economists predict recessions and all the adages about them. The reality is they always have a prediction for recession that runs around 10%, 20% according to economists activity… So I'm not going to chatterbox with you about soft landing, hard landing and all that stuff. But the reality is they've got to take the inflation out of system. They know that. The rising rates do that. But there's tensions against how easy or hard that is going to be, obviously pandemic, war, but also this issue that the massive amount of stimulus is still out there being spent. So we're braced for every scenario. We model every scenario, but we don't put a specific percentage. That's somebody else's job to do that, but our economists do not have a recession predicted in terms of this year. And even though there may be some quarters that would show modest growth, I think they're all positive.”
BofA Gives Another Positive Indicator for the Economy - People Are Paying Their Bills: “Consumer delinquencies remain well below pre-pandemic levels… On asset quality, more broadly, we continue to see very strong metrics. Net charge-offs remained low, and in fact, they're down more than 50% in just the past year. Consumer early and late-stage delinquencies are still below 2019 levels.”
Elon Musk: Inflation is Understated and Will Persist, But Can Be Offset by Autonomy: “We absolutely want to make EVs as affordable as possible. It's been very difficult with inflation at like a 40 or 50 year high. And I think the official numbers actually understate the true magnitude of inflation -- and that inflation appears to be likely to continue for at least the remainder of this year… But I think, especially with the robotaxi and autonomy, I think we will end up providing consumers with, by far, the lowest cost per mile of transport that they've ever experienced. Looking at some of our projections, it would appear that a robotaxi ride will cost less than a bus ticket, subsidized bus ticket or subsidized subway ticket.”
Tesla’s Robot Business Will Be Worth More Than The Car Business: “And then there's, of course, Optimus, which I was surprised that people did not realize the magnitude of the Optimus robot program. The importance of Optimus will become apparent in the coming years. Those who are insightful or listen carefully will understand that Optimus ultimately will be worth more than the car business, worth more than FSD. That's my firm belief.”
QUESTION: “I'd like to ask you some questions about free cash flow. Do you -- so first, maybe in the long run, if you look at your performance and your growth model and your growth ambitions, I did the math very quick, and I see you guys sitting on $400 billion or maybe $500 billion of cash at the end of the decade. And I was wondering if it's something you have given some thoughts about.”
ANSWER (ELON MUSK): “If inflation keeps going crazy, $500 billion might be like $20 billion today, I don't know. So we'll see what $500 billion buys you in a decade, but it might be a lot less. That seems like a lot of cash. I don't know. We'll try to do something useful with it. I mean, Zach, I don't know -- I realize that's your problem, that's for sure.”
ANSWER (ZACHARY KIRKHORN): “Yes. So our focus is to get to the point where robotaxis are on the road, Optimus in use, get the economic model for that dialed in and then evaluate the size of cash flows at that point and make decisions then as to what's next.”
Supply Chain Normalization Bodes Well for Future Performance: “As we look across many of our markets, demand continues to outstrip supply. We expect this to improve as resources are added across the supply chain. Current demand remains strong across most merchandise markets, with shippers prioritizing environmental benefits of rail and pursuing lower cost options to offset inflation.”
An Evolving Market Brings Evolving Concerns: “Other revenue increased primarily due to higher intermodal storage and equipment usage but was partially offset by lower payments from customers that did not meet volume commitments. As we exit the quarter, concerns around the Omicron variant have been replaced by broader global supply chain uncertainty in the wake of the crisis in Ukraine.”
Fuel Prices Impacting Operating Expenses: “I want to start by recognizing that several things have changed since we provided guidance in January, from fuel prices to our operational performance. As we sit here today, those pressures make achievement of around a 55.5% operating ratio unlikely. However, assuming some stabilization in fuel and recovery in our service product, we'll still look to achieve our long-term goal of an OR that starts with a 55 this year.”
Labor Challenges Create a Self-Reinforcing Negative Cycle: “In the back half of February, we started getting some body blows from what normally happens in winter (labor constraints due to COVID-19). Usually, we have enough excess resources to be able to bring them to bear and clean out of it. This time around, we didn't. And as a result, we started getting behind inventory built up, and it's for the exact reasons that make all the sense in the world. As customers see us slow down, they put in more freight car inventory so that they get their needs satisfied. And that then turns into kind of a self-reinforcing negative cycle. And that's where we are right now.”
Nucor Sees Higher Q2 Profit Amid Rising Prices: “Second quarter earnings will be driven by the increased profitability in the steel product segment I mentioned earlier. In addition, the steel mill segment earnings are expected to strengthen due primarily to increased profitability of our sheet and plate Mills Nucor's raw materials segment is expected to generate increased profits in the second quarter due to relatively higher selling prices for raw materials.”
Steel Dynamics has a Record Quarter: “During the first quarter of 2022, we generated record cash flow from operations of $819 million working capital grew $757 million due to higher customer account values stemming from higher prices and volume coupled with the payment of our 2021 company wide profit sharing.”
Non-Residential Construction will Continue to Drive Steel Growth: “The earnings power of this platform and this environment still has not been completely displayed as customer demand and pricing continue to be strong. While steel joist and deck order backlogs remain at record volume and forward pricing levels, spending well into the first quarter of 2023. The nonresidential construction market remains solid. Hearing the trend we've seen over the last year, especially in areas that support online retail specifically represented by construction of distribution warehouse facilities, along with data centers, schools and health care.”
Alcoa Cites Geopolitical Turmoil: “I'd like to give an overview of what we're seeing in our markets. Last year, we saw a general price recovery after the impact from the 2020 pandemic. Now today's markets are experiencing increased volatility, most notably from Russia's invasion of Ukraine, but prices remain at higher levels than both the 2020 and 2021 averages.”
Soaring Material Prices Softens Aluminum Outlook: “For the second quarter based on today's prices, we expect both alumina and aluminum realized third-party prices to be higher than the first quarter, with part of that benefit offset by approximately $115 million of higher energy and raw material costs.”
JNJ Suspending Covid Vaccine Guidance: “Moving to full year 2022 guidance and key considerations. I'll start with comments on our COVID-19 vaccine and foreign exchange impacts, essentially the only items with updates from our January guidance. As market demand for all COVID-19 vaccines is currently challenged by global supply surplus and vaccine hesitancy in developing markets, we have made the decision to suspend guidance for sales of our COVID-19 vaccine. This will enable investors to focus on the performance of our core businesses, which drive the current and future value for investors.”
Commodity Inflation Impacts Margins: “Consumer Health margins declined from 26.8% to 22.1% due to commodity inflation and higher brand marketing expenses.”
Covid Tests Drive Earnings Beat for Abbott: “Moving to Diagnostics, where sales grew 35%. COVID test sales were $3.3 billion in the quarter, more than 90% of which came from our rapid test, including BinaxNOW in the U.S.”
Across All 10 of Procter & Gamble’s Verticals, Healthcare Grew the Most: “Each of the 10 product categories grew organic sales in the quarter. Personal Health Care grew more than 30%.”
QUESTION: “I wanted to ask a question about the Personal Health Care business. Organic growth over 30%, certainly impressive… I wonder if you can just comment on how much of the strength in the business was just recovery versus things you're doing a bit more offensively that have a bit more legs long term?”
ANSWER: “PHC had a fabulous quarter, as we point out. Part of that certainly is the stronger cold, cough and flu season. It's 57% stronger in our estimation than last year's season, which was abnormally low driven by the mask mandates and everything else going on, a slightly stronger season than average by about 4%. But importantly, North America Vicks, for example, was able to outpace that season growth, plus 123% growth versus the season… So within respiratory, season recovery is certainly a big point. The growth is also broader than just respiratory. Digestive organic sales are up mid-teens, and fleet is up nearly 30%. So the breadth of the portfolio is performing even beyond just the season recovery. So we continue to be very pleased with the results of the PHC portfolio and certainly see significant future runway there.”
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