Your portfolios in brief
We chose to talk to you about Disney's stock as it released its quarterly results this week. During its call with investors on Wednesday, the company announced $5.5 billion in cost reductions and the elimination of 7,000 jobs from its workforce.
So here are Disney's first quarter results compared to Wall Street consensus estimates, compiled by Bloomberg:
- Revenues: $23.51 billion versus $23.4 billion expected
- Adjusted earnings per share (EPS): $0.99 versus $0.75 expected
- Total Disney+ subscribers: 161.8 million vs. 164 million expected
- Parks, experience and consumer products revenue: $8.74 billion vs. $8.08 billion expected
The group also announced a reorganization of its company into three segments:
- Disney Entertainment, which includes most of its streaming and media operations
- An ESPN division that includes the TV network and the ESPN+ streaming service
- A Parks, Experiences and Products unit
The company's reorganization is aimed at improving profit margins and represents the third major transformation of the business. The group estimates that Disney+ should be able to become profitable in 2024.
The stock has had a difficult 2022 with a 45% loss accumulation, its worst annual stock performance since 1974. However, the stock has posted gains of more than 20% since the beginning of the year, even before its results were announced.
Disney's quarterly results show stability at the corporate level and potential for growth in the coming quarters. The strength of the theme parks and the return of CEO Bob Iger bring confidence for the future of the company and its long-term forecasts, making it once again a stock to keep in our portfolios.
Last November, Disney's board of directors dismissed Bob Chapek as CEO and rehired Mr. Iger, 71, who had led the company from late 2005 to early 2020. His time at Disney had helped the company become the giant it is today. It is in fact thanks to his initiatives that Disney acquired Pixar, Marvel and Lucasfilm as well as the launch of the Disney + platform.
In short, investors are enthusiastic about the return of Bob Iger, who has been able to make significant changes to the company since his return, which should pay off in the coming quarters.
Markets in brief
The Fed Chairman's comments were well received by the markets on Tuesday. He emphasized that disinflation has begun, adopting a more sympathetic and less aggressive tone than usual. Although he reiterated that further hikes will likely be necessary if the labor market remains strong, his comments soothed investors who were expecting a more aggressive reaction against an easing of financial conditions after the payrolls report appeared last Friday.
These surprising employment figures highlight the creation of 517,000 jobs for the month of January, almost triple the economists' projections of 187,000, offering investors a glimmer of hope.
Zoom unveiled on Tuesday that it would lay off 15 percent of its workforce, or about 1,300 jobs. The company's stock, a favorite during the covid era, has lost more than 80 percent since its last peak in 2020. According to Layoffs.fyi, more than 300 tech companies have laid off nearly 100,000 workers worldwide so far this year. The announcements come as companies face new post-pandemic challenges. Following the announcement, Zoom stock closed the session up 9.85%. Dell and eBay also announced employee layoffs this week, adding to the many companies that have had to lay off employees after years of hiring.
Quarterly earnings season continued this week as other major companies unveiled better than expected results. Uber unveiled quarterly earnings up 49% in revenue, closing out 2022 with its quarter as well as its strongest year in its young existence.
We see a similar scenario for Under Armour, which reported better-than-expected results, as well as Yum, whose Taco Bell restaurant chain saw its sales increase in the last quarter. The low prices of its products have attracted customers in recent months as they look for bargains due to rising prices.
This quarter was widely watched by investors as they hoped to see how companies will restructure after a difficult 2022, rising interest rates and rising inflation. According to Refinitiv, for the first quarter of 2023, 42 S&P 500 companies issued negative earnings guidance, while only eight issued positive guidance. However, many companies did not change their forecasts.
Also according to Refinitiv, more than 69% of the 297 S&P 500 companies that reported their fourth quarter earnings have so far beaten analysts' estimates. However, it should be noted that many investors had lowered their expectations for this quarter, which was expected to be more difficult due to the economic situation.
It was a difficult week for Google, which lost more than 12% since its last peak. This drop was attributed to an error of its new conversational robot, and this, in the middle of a marketing presentation. The day before, Microsoft had also presented the integration of the conversational AI ChatGPT in its search engine Bing while the competition between the two companies in this matter is fierce.
"All the indices have recorded interesting gains since the beginning of the year, the chances of a recession remain the same. The possibility of additional unexpected interest rate hikes is starting to be considered as the odds have tightened in recent days in both Canada and the U.S.," says our President and Portfolio Manager Philippe Pratte.
"The Fed Chairman's comments once again created uncertainty for investors by suggesting that additional rate hikes may be in order to combat inflation. The labor market remains extremely tight which encourages investors to believe that the Federal Reserve could continue to raise rates as this metric is heavily used in their expectations and does not seem to be waning at this time," added Philippe Pratte.
Here is the average for the week of the three main indexes at 1 p.m. Friday.
And here's the average for the week for the TSX in Canada.
Pratte Portfolio Management is a firm registered with the Autorité des marchés financiers (AMF) and the Ontario Securities Commission (OSC).
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