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Home Depot
third-quarter earnings results beat expectations, giving the stock a boost on Tuesday.
The home-improvement retailer reported third-quarter earnings of $4.24 a share, topping analysts’ projections of $4.12 a share. Revenue came in at $38.9 billion, up 5.6% from a year earlier and topping estimates for $38 billion. Same-store sales rose 4.3%, ahead of estimates for 3.1%. U.S. same-store sales rose 4.5%.
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Shares of Chinese internet giants jumped in Hong Kong, after official data showed better-than-expected October retail sales in the world’s second-largest economy.
Alibaba Group Holding Ltd.
BABA,
9988,
jumped 9.8%, Kuaishou Technology
1024,
surged 8.7%, Tencent Holdings Ltd.
700,
rose 8.0% and Meituan
3690,
was up 5.8%. The Hang Seng Tech Index
HSXTCHINDXXX,
has gained as much as 7.7% and was last up 6.1%
The sector’s sharp upturn came after China’s National Bureau of Statistics said online retail sales of physical goods rose 7.2% in the first 10 months of the year. The number, closely watched by investors as an indicator of the country’s consumption trends, outpaced a 6.1% rise in the January-to-September period.
Jefferies analysts estimate that online retail sales grew more than 15% in October, accelerating from the three consecutive months of below-10% growth seen since July.
Write to Yifan Wang at yifan.wang@wsj.com
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The imploding cryptocurrency trading firm FTX is now short billions of dollars after experiencing the crypto equivalent of a bank run.
The exchange, formerly one of the world’s largest, sought bankruptcy protection last week, and its CEO and founder resigned. Hours later, the trading firm said there had been “unauthorized access” and that funds had disappeared. Analysts say hundreds of millions of dollars may have vanished.
The unraveling of the once-giant exchange is sending shockwaves through the industry. Here’s a look at the company’s collapse so far:
WHY DID FTX GO BANKRUPT?
Customers fled the exchange over fears about whether FTX had sufficient capital, and it agreed to sell itself to rival crypto exchange Binance. But the deal fell through pending Binance’s due diligence on FTX’s balance sheet.
FTX had valued its assets between $10 billion to $50 billion, and listed more than 130 affiliated companies around the world, according to its bankruptcy filing.
FTX and dozens of affiliated companies — including CEO Sam Bankman-Fried’s hedge fund, Alameda Research — filed the bankruptcy petition in Delaware on Friday.
This week’s developments marked a shocking turn of events for Bankman-Fried, who was hailed as somewhat of a savior earlier this year when he helped shore up a number of cryptocurrency companies that ran into financial trouble. He was recently estimated to be worth $23 billion and has been a prominent political donor to Democrats.
WAS IT HACKED, TOO?
FTX confirmed Saturday there had been unauthorized access to its accounts, hours after the company filed for Chapter 11 bankruptcy protection.
A debate formed on social media about whether the exchange was hacked or a company insider had stolen funds — a possibility that cryptocurrency analysts couldn’t rule out.
Exactly how much money is involved is unclear, but analytics firm Elliptic estimated Saturday that $477 million was missing from the exchange. FTX’s new CEO John Ray III said it was switching off the ability to trade or withdraw funds and taking steps to secure customers’ assets.
IS FTX UNDER INVESTIGATION?
The Royal Bahamas Police Force said Sunday it is investigating FTX, adding to the company’s woes. The police force said in a statement Sunday it was working with Bahamas securities regulators to “investigate if any criminal misconduct occurred” involving the exchange, which had moved its headquarters to the Caribbean country last year.
IS ANYONE ELSE INVESTIGATING?
Even before the bankruptcy filing and missing funds, the U.S. Department of Justice and the Securities and Exchange Commission began examining FTX to determine whether any criminal activity or securities offenses were committed, according to a person familiar with matter who spoke to The Associated Press last week on condition of anonymity because they could not discuss details of the investigations publicly.
WHAT ARE THE REPERCUSSIONS?
Companies that backed FTX are writing down investments, and the prices of bitcoin and other digital currencies have been falling. Politicians and regulators are calling for stricter oversight of the unwieldy industry. FTX said Saturday that it was moving as many digital assets as can be identified to a new “cold wallet custodian,” which is essentially a way of storing assets offline without allowing remote control.
FTX had also entered into a number of sports-related deals, some of which are crumbling. The NBA’s Miami Heat and Miami-Dade County decided Friday to terminate their relationship with FTX, and will rename the team’s arena. Earlier Friday, Mercedes said it would immediately remove FTX logos from its Formula One cars.
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NEW YORK — Collapsed cryptocurrency trading firm FTX confirmed there was “unauthorized access” to its accounts, hours after the company filed for Chapter 11 bankruptcy protection Friday.
The embattled company’s new CEO John Ray III said Saturday that FTX is switching off the ability to trade or withdraw funds and taking steps to secure customers’ assets, according to a tweet by FTX’s general counsel Ryne Miller. FTX is also coordinating with law enforcement and regulators, the company said.
Exactly how much money is involved is unclear, but analytics firm Elliptic estimated Saturday that $477 million was missing from the exchange. Another $186 million was moved out of FTX’s accounts, but that may have been FTX moving assets to storage, said Elliptic’s co-founder and chief scientist Tom Robinson.
A debate formed on social media about whether the exchange was hacked or a company insider had stolen funds, a possibility that cryptocurrency analysts couldn’t rule out.
Until recently, FTX was one of the world’s largest cryptocurrency exchanges. It was already short billions of dollars when it sought bankruptcy protection Friday and its former CEO and founder, Sam Bankman-Fried, resigned.
The company had valued its assets between $10 billion to $50 billion, and listed more than 130 affiliated companies around the world, according to its bankruptcy filing.
The unraveling of the once-giant exchange is sending shockwaves through the industry, with companies that backed FTX writing down investments and the prices of bitcoin and other digital currencies falling. Politicians and regulators are calling for stricter oversight of the unwieldy industry. Experts say the saga is still unfolding.
“We’ll have to wait and see what the fallout is, but I think we are going to see more dominoes falling and an awful lot of people stand to lose their money and their savings,” said Frances Coppola, an independent financial and economic commentator. “And that is just tragic, really.”
The timing and the extent of access that the assumed hacker appeared to achieve, siphoning money from multiple parts of the company, led Coppola and other analysts to theorize that it could have been an inside job.
FTX said Saturday that it’s moving as many digital assets as can be identified to a new “cold wallet custodian,” which is essentially a way of storing assets offline without allowing remote control.
“It does look as if the liquidators didn’t act fast enough to stop some kind of siphoning off of funds from FTX after it filed for bankruptcy, and that’s bad, but it just shows how complex this thing is,” Coppola said.
Initially, some people were hoping that perhaps all the missing funds were liquidators or bankruptcy administrators trying to move assets to a more secure spot. But it would be unusual for that to happen on a Friday night, said Molly White, cryptocurrency researcher and fellow with the Library Innovation Lab at Harvard University.
“It looked very different from what a liquidator might do if they were trying to secure the funds,” she said.
White also said there are signs of possible insider involvement. “It seems unlikely that someone who is not an insider could have pulled off such a massive hack with so much access to FTX systems.”
The collapse of FTX highlights the need for cryptocurrency to be regulated more like traditional finance, Coppola said.
“Cyrpto isn’t in the very early stages anymore,” she said. “We’ve got ordinary people putting their life savings into it.”
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NEW YORK — Collapsed cryptocurrency trading firm FTX confirmed there was “unauthorized access” to its accounts, hours after the company filed for Chapter 11 bankruptcy protection Friday.
The embattled company’s new CEO John Ray III said Saturday that FTX is switching off the ability to trade or withdraw funds and taking steps to secure customers’ assets, according to a tweet by FTX’s general counsel Ryne Miller. FTX is also coordinating with law enforcement and regulators, the company said.
Exactly how much money is involved is unclear, but analytics firm Elliptic estimated Saturday that $477 million was missing from the exchange. Another $186 million was moved out of FTX’s accounts, but that may have been FTX moving assets to storage, said Elliptic’s co-founder and chief scientist Tom Robinson.
A debate formed on social media about whether the exchange was hacked or a company insider had stolen funds, a possibility that cryptocurrency analysts couldn’t rule out.
Until recently, FTX was one of the world’s largest cryptocurrency exchanges. It was already short billions of dollars when it sought bankruptcy protection Friday and its former CEO and founder, Sam Bankman-Fried, resigned.
The company had valued its assets between $10 billion to $50 billion, and listed more than 130 affiliated companies around the world, according to its bankruptcy filing.
The unraveling of the once-giant exchange is sending shockwaves through the industry, with companies that backed FTX writing down investments and the prices of bitcoin and other digital currencies falling. Politicians and regulators are calling for stricter oversight of the unwieldy industry. Experts say the saga is still unfolding.
“We’ll have to wait and see what the fallout is, but I think we are going to see more dominoes falling and an awful lot of people stand to lose their money and their savings,” said Frances Coppola, an independent financial and economic commentator. “And that is just tragic, really.”
The timing and the extent of access that the assumed hacker appeared to achieve, siphoning money from multiple parts of the company, led Coppola and other analysts to theorize that it could have been an inside job.
FTX said Saturday that it’s moving as many digital assets as can be identified to a new “cold wallet custodian,” which is essentially a way of storing assets offline without allowing remote control.
“It does look as if the liquidators didn’t act fast enough to stop some kind of siphoning off of funds from FTX after it filed for bankruptcy, and that’s bad, but it just shows how complex this thing is,” Coppola said.
Initially, some people were hoping that perhaps all the missing funds were liquidators or bankruptcy administrators trying to move assets to a more secure spot. But it would be unusual for that to happen on a Friday night, said Molly White, cryptocurrency researcher and fellow with the Library Innovation Lab at Harvard University.
“It looked very different from what a liquidator might do if they were trying to secure the funds,” she said.
White also said there are signs of possible insider involvement. “It seems unlikely that someone who is not an insider could have pulled off such a massive hack with so much access to FTX systems.”
The collapse of FTX highlights the need for cryptocurrency to be regulated more like traditional finance, Coppola said.
“Cyrpto isn’t in the very early stages anymore,” she said. “We’ve got ordinary people putting their life savings into it.”
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NEW YORK — Stocks that traded heavily or had substantial price changes Friday:
Steel Dynamics Inc., up 40 cents to $96.74.
The steel producer and metals recycler increased its stock buyback program by $1.5 billion.
Toast Inc., up 48 cents to $20.48.
The restaurant software provider raised its revenue forecast for the year.
Doximity Inc., up $8.61 to $34.94.
The medical social networking site beat analysts’ fiscal second-quarter earnings and revenue forecasts.
LegalZoom.com Inc., up 98 cents to $10.44.
The online platform for legal services raised its revenue forecast for the year.
Mister Car Wash Inc., up $1.37 to $10.63.
The car wash operator beat Wall Street’s third-quarter financial forecasts.
Flowers Foods Inc., down $2.51 to $26.90.
The bakery goods company maintained its earnings forecast for the year.
Thermo Fisher Scientific Inc., up $18.10 to $538.68.
The maker of scientific instruments and laboratory supplies announced a $4 billion stock buyback plan.
Figs Inc., up 34 cents to $6.91.
The maker of scrubs and other apparel for healthcare workers reported encouraging third-quarter financial results.
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Shoe and sports apparel maker Adidas has lowered its earnings forecast for the full year to account for losses from ending its partnership with rapper Ye, formerly known as Kanye West, in response to Ye’s antisemitic remarks
FRANKFURT, Germany — Shoe and sportswear maker Adidas on Wednesday lowered its earnings forecast for the full year to account for losses from ending its partnership with rapper Ye, formerly known as Kanye West, in response to the artist’s antisemitic remarks.
Adidas cut its sales outlook for the year as part of its third-quarter earnings statement, to a low single digit increase from a mid-single digit increase, and net profit from continuing operations to 250 million euros ($252 million) instead of 500 million euros.
The company, based in Herzogenaurach, Germany, had previously said ending the partnership with Ye’s Yeezy brand would cost it 250 million euros. The Yeezy brand accounted for up to 15% of Adidas’ net income, according to Morningstar analyst David Swartz. Adidas has ended production of all Yeezy products and ceased royalty payments.
For weeks, Ye made antisemitic comments in interviews and social media, including a Twitter post earlier this month that he would soon go “death con 3 on JEWISH PEOPLE,” an apparent reference to the U.S. defense readiness condition scale known as DEFCON. He was suspended from both Twitter and Instagram.
The company had already cut its year forecasts on Oct. 20, five days before it announced it was ending the relationship with Yeezy. The earlier outlook revision cited slowing activity in China, where severe restrictions aimed at limiting the spread of COVID-19 have held back the economy, and clearance of elevated inventory levels.
Net income for the third quarter from continuing operations was 66 million euros, down from 479 million euros in the same quarter a year ago. The decrease largely reflected 300 million in one-time costs, most of it from winding down the company’s business in Russia.
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The Walt Disney Co. on Tuesday posted lower-than-expected profit and revenue for its fiscal fourth quarter even as its streaming services did well, sending its shares lower in after-hours trading.
The company said it earned $162 million, or 9 cents per share, in the July-September quarter, nearly flat compared to $160 million, or 9 cents a share, a year earlier.
Excluding one-time items, Disney earned 30 cents per share. Analysts, on average, were expecting earnings of 56 cents per share on that basis, according to FactSet.
Revenue grew 9% to $20.15 billion from $18.53 billion. Analysts were expecting revenue of $21.27 billion.
Disney said it ended its fiscal year with more than 235 million subscribers to its streaming services. That’s above analysts’ expectations of 231.5 million.
The company plans to increase prices at Disney+ next month and also introduce a lower-priced version that includes advertisements. Currently, Disney+ is ad-free.
Disney+ added 12.1 million subscribers to bring the total 164.2 million as of Oct. 1. In comparison, Netflix — which is also adding an ad-supported tier to its streaming service — has about 223 million subscribers.
CEO Bob Chapek said the company still expects Disney+ to be profitable in 2024 “assuming we don not see a meaningful shift in the economic climate.”
Shares in Disney, which is based in Burbank, California, fell almost 8% in after-hours trading.
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Walt Disney Co. wrapped up its fiscal year with record sales and its best revenue growth in more than 25 years, but executives predicted much slower sales increases in the year ahead while missing expectations for fourth-quarter earnings and sales, sending shares down more than 10% Tuesday afternoon.
Disney
DIS,
reported fiscal fourth-quarter net income of $162 million, or 9 cents a share, on sales of $20.15 billion, up from $18.53 billion a year ago but more than $1 billion short of expectations. After adjusting for amortization and certain investment changes, Disney reported earnings of 30 cents a share, down from 37 cents a share a year ago.
Analysts surveyed by FactSet had on average expected adjusted earnings of 56 cents a share on revenue of $21.27 billion.
Disney executives blamed a number of factors for the revenue miss, including lower content sales because they had fewer theatrical films on the calendar; underperformance of the parks and media divisions; and seasonality of its fourth quarter, which tends to be the lowest for margins.
For the full fiscal year, Disney reported record sales of $82.72 billion, more than 22% higher than the previous year, the strongest annual sales growth for Disney since the 1996 fiscal year, according to FactSet records. Profit grew to $3.19 billion from $2.02 billion the year before, but is nowhere close to prepandemic Disney earnings, which hit eight figures in both 2019 and 2018.
In a conference call Tuesday afternoon, though, Chief Financial Officer Christine McCarthy suggested that revenue and profit growth will slow to single digits on a percentage basis in the current fiscal year, missing Wall Street’s expectations. Analysts’ average revenue projection for Disney in the new fiscal year suggested revenue growth of about 13.9% and operating-income growth of roughly 17.4%, according to FactSet.
“Putting this all together, assuming we do not see a meaningful shift in the macroeconomic climate, we currently expect total company fiscal 2023 revenue and segment operating income to both grow at a high-single-digit percentage rate versus fiscal 2022,” McCarthy said.
Disney shares initially fell more than 6% in after-hours trading following the release of the results, but plunged anew to a decline of more than 10% after closing with a 0.5% decline at $99.94.
Disney has been helped by the return of visitors to its theme parks in the third year of the COVID-19 pandemic, as well as a recovering movie business. The main attraction for investors, though, has been growing Disney’s streaming efforts — total streaming subscribers topped Netflix Inc.’s
NFLX,
subscriber total last quarter, and grew its lead in Tuesday’s report, with Disney adding 12.1 million net new subscribers, while analysts on average expected 10.4 million.
Disney’s streaming growth has hampered its profitability, however, as the company spends to add content to its streaming services in order to compete with Netflix. Those days appear to be coming to an end as Disney struggles with profit.
“The rapid growth of Disney+ in just three years since launch is a direct result of our strategic decision to invest heavily in creating incredible content and rolling out the service internationally, and we expect our DTC operating losses to narrow going forward and that Disney+ will still achieve profitability in fiscal 2024, assuming we do not see a meaningful shift in the economic climate,” Disney Chief Executive Bob Chapek said in a statement announcing the results. “By realigning our costs and realizing the benefits of price increases and our Disney+ ad-supported tier coming December 8, we believe we will be on the path to achieve a profitable streaming business that will drive continued growth and generate shareholder value long into the future.”
Disney’s largest business segment, media and entertainment distribution, reported sales of $12.73 billion in the quarter, down from $13.08 billion a year ago; analysts on average predicted $13.86 billion. Direct-to-consumer sales, which includes streaming services as well as some international products, hauled in $4.9 billion, compared with analysts’ forecast of $5.4 billion on average.
The trajectory of Disney’ meteoric rise as video-streaming market leader is likely to continue once its advertising-supported service debuts in the U.S. next month, according to Wall Street analysts, after Netflix launched its rival offering on Nov. 3. Disney has leaned heavily on its stable of mega-franchises such as “Star Wars” and the Marvel Cinematic Universe to outpace Netflix Inc.
NFLX,
Apple Inc.
AAPL,
Comcast Corp.
CMCSA,
Warner Bros. Discover Inc.
WBD,
Amazon.com Inc.
AMZN,
Paramount Global
PARA,
and others.
Read more: Disney overtook Netflix as the streaming leader, and is expected to widen its lead
Disney’s television networks generated sales of $6.34 billion, while analysts’ average estimates called for $6.64 billion. Content sales and licensing, a category that includes Disney’s film business, registered revenue of $1.74 billion vs. analysts’ expectations of $2.08 billion.
The company’s signature theme parks and product sales business increased to $7.43 billion in revenue from $5.45 billion a year ago. The average analyst estimate was $7.46 billion.
Shares of Disney are down 35.5% this year, while the broader S&P 500 index
SPX,
has dropped 20%.
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TOKYO — Japanese video game maker Nintendo recorded a 34% surge in its profit in the first half of the fiscal year on strong sales of products for its Switch console like “Splatoon 3,” a paint-shooting game, the company said Tuesday.
That prompted the maker of Pokemon and Super Mario games to raise its profit forecast for the April-March fiscal year to 400 billion yen ($2.7 billion), from an earlier projection for a 340 billion yen ($2.3 billion) profit.
Even the better forecast is below what Nintendo earned in the last fiscal year, at 477.7 billion yen.
Entertainment companies got a boost from the pandemic because people tended to stay home more, instead of going out. That advantage is likely to wear off as coronavirus restrictions ease.
Japanese exporters like Nintendo are also getting a boost from a weaker yen, which lifts the value of their overseas earnings when translated into yen. The U.S. dollar, trading at about 110 Japanese yen a year ago, is now at nearly 150 yen.
Net profit at Kyoto-based Nintendo Co. totaled 230.45 billion yen ($1.6 billion) during the six months through September, up from 171.8 billion yen the previous year.
First-half sales totaled 656.97 billion yen ($4.5 billion), up 5% from 624.3 billion yen.
Nintendo said shortages of computer chips and other components caused by COVID-19-related lockdowns and other disruptions hurt production. Nintendo Switch sales fell 19% from the previous year to 6.68 million units.
Other Japanese companies like Sony Corp. and Toyota Motor Corp. have also been hurt by the chips shortage.
Other popular Nintendo game software released during the last six months include “Nintendo Switch Sports,” which sold 6.15 million units, and “Mario Strikers: Battle League,” at 2.17 million units.
The Mario Kart and Kirby games, released earlier, also sold briskly, as did offerings from outside publishers, resulting in 15 million-seller games for the Switch during the six month period.
Nintendo’s software sales grew by 1.6% year-on-year to 95.41 million units. Downloadable online games also did well, it said.
Nintendo said the crunch in chips and other parts would likely improve gradually over the coming months. Christmas and the New Year’s holidays are crucial times for Nintendo’s business.
“By continually working to front-load production and selecting appropriate transportation methods in preparation for the holiday season, we will work to deliver as many consoles as possible to consumers in every region of the world,” the company said in a statement.
In game software, “Bayonetta 3” is set for release in October, followed by “Pokémon Scarlet” and “Pokémon Violet” in November, “Fire Emblem Engage” in January 2023, and “Kirby’s Return to Dream Land Deluxe” in February 2023, according to Nintendo.
Nintendo expects to sell 19 million Switch consoles in the current fiscal year. It earlier expected to sell 21 million Switch machines. Cumulative Switch sales around the world have topped 114 million machines.
———
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama
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Apple Inc. said Sunday that it now expects lower shipments of its high-end iPhone 14 Pro and iPhone 14 Pro Max devices than it did previously, as COVID-19 issues hamper production in China.
“We continue to see strong demand for iPhone 14 Pro and iPhone 14 Pro Max models,” the company announced in a Sunday evening press release. “However, we now expect lower iPhone 14 Pro and iPhone 14 Pro Max shipments than we previously anticipated and customers will experience longer wait times to receive their new products.”
Apple
AAPL,
acknowledged in its release that COVID-19 issues have “temporarily impacted” production of the devices at the Zhengzhou site that is the “primary” assembly facility for the iPhone 14 Pro and iPhone 14 Pro Max. That facility is currently seeing “significantly reduced” operating capacity.
“We are working closely with our supplier to return to normal production levels while ensuring the health and safety of every worker,” the company added in the release.
Analysts have been discussing iPhone production disruption at manufacturer Foxconn’s
2354,
Zhengzhou facility for the past week amid fallout from COVID-19 restrictions in the city.
“Although Apple earnings were only a week ago, supply shortages at the high end of the market and recent COVID lockdowns in China impacting a Foxconn plant could negatively impact iPhone units in the December quarter,” UBS analyst David Vogt wrote Wednesday, ahead of Apple’s press release. “While we believe iPhone demand tends to not be perishable, a slippage of a couple of million units is possible below our 86 million forecast.”
While Apple was the only Big Tech company to see its shares rally in the wake of its late-October earnings report, shares have struggled more since then. They logged their worst weekly performance since March 2020 last week.
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Shares of Apple Inc. and Alphabet Inc. both suffered their largest weekly declines since the beginning days of the pandemic this week, as Big Tech companies continued to draw closer scrutiny from Wall Street.
Apple’s stock
AAPL,
finished down 11.2% on the week, its worst weekly performance since the week that ended March 20, 2020, according to Dow Jones Market Data. The stock declined 17.5% during that early-pandemic stretch.
Shares of Apple fell during all five sessions this week.
Shares in Google parent Alphabet
GOOG,
GOOGL,
declined 10.1% during the week, their worst one-day percentage drop since that same March 20, 2020 week, when they fell 12.03%. The stock’s biggest weekly tumble in more than two years came even as Alphabet snapped a four-session losing streak in Friday trading.
While Apple’s stock has fared better than that of Alphabet and other Big Tech peers, the company faces potential pandemic-related challenges owing to new COVID-19 setbacks at manufacturer Foxconn’s major facility. In addition, the realities of the current economic climate may be catching up to Apple, as Bloomberg News reported Thursday that the company had paused hiring in several areas unrelated to research and development.
See more: Apple reportedly pauses hiring for many roles, joining Amazon in belt-tightening
Though there didn’t seem to be any major news developments pegged to Alphabet specifically in the past week, investors are putting more pressure on big internet companies, according to Bernstein analyst Mark Shmulik. He recently conducted a Big Tech “autopsy” of results from Alphabet, Amazon.com Inc.
AMZN,
and Meta Platforms Inc.
META,
concluding that “perfection is required from here” for the three tech giants since Wall Street has less patience for weak performance in any one of their many business areas.
Read: Amazon closes below $1 trillion valuation for the first time since 2020
All three names suffered negative stock reactions in the wake of their latest earnings reports, which indicated challenges in the ad market due to economic pressures. At Alphabet specifically, “Search was more or less in-line with the buy-side bogey and the Cloud beat, but disappointing YouTube results combined with margin contraction drove a ~10% fall after-hours,” Shmulik wrote.
Alphabet’s stock has declined 40% so far in 2022, while Apple’s is off 22% over the same span. The S&P 500
SPX,
is down 21% on the year while the Dow Jones Industrial Average
DJIA,
is off 11%.
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OMAHA, Neb. — Warren Buffett’s company again reported a loss — this time only $2.7 billion — because of a drop in the paper value of its investment portfolio in the third quarter, but most of its operating businesses performed well with the notable exception of Geico.
Berkshire Hathaway reported a quarterly loss Saturday of $2.7 billion, or $1,832 per Class A share. That’s down from a $10.3 billion profit, or $6,882 per Class A share, a year ago when the stock market was soaring. In the second quarter of this year, Berkshire reported a $44 billion loss.
Buffett has long said he believes Berkshire’s operating earnings are a better measure of the company’s performance because they exclude investment gains and losses, which can vary widely quarter to quarter. By that measure, Berkshire’s operating earnings jumped 20% to $7.76 billion, or $5,293.83 per Class A share. That’s up from $6.47 billion, or $4,330.60 per Class A share.
The four analysts surveyed by FactSet expected Berkshire to report operating earnings per Class A share of $4,205.82 on average.
Berkshire said its revenue grew 9% to $76.9 billion.
Most of Berkshire’s eclectic assortment of more than 90 companies performed well during the quarter, but the key insurance unit of Geico reported a pre-tax underwriting loss of $759 million as the cost of auto claims soared along with the prices of used cars and car parts. Geico has been hampered by soaring costs since the second half of last year.
Geico did increase its rates by 5.4% during the quarter, but that was almost entirely offset because it lost 4.6% of its customers.
Another notable weak spot in the results was that BNSF railroad’s profit declined 6% to $1.44 billion as it hauled 5% less freight the cost of fuel soared and salary costs were adjusted up to reflect the raises railroads have agreed to pay their workers in tentative agreements with their 12 unions. Most of BNSF’s peers reported significant increases in profits during the quarter.
Berkshire said its insurance units recorded after tax losses of $2.7 billion related to Hurricane Ian. That compares with $1.7 billion in catastrophic losses a year ago related to Hurricane Ida and major floods in Europe.
Berkshire is sitting on nearly $109 billion cash even though it has been actively investing in the stock market this year, including putting more than $51 billion to work in the first quarter. That is up slightly from the $105.4 billion it held at the end of the second quarter because Berkshire’s businesses generated more cash than it spent. Although after the end of the third quarter, Berkshire did spend $11.6 billion in October to complete its acquisition of the Alleghany insurance conglomerate.
Buffett’s biggest stock investments this year included buying roughly $12 billion worth of Occidental Petroleum stock and about $20 billion worth of Chevron shares. Besides those oil sector investments, Berkshire also bought more than 120 million shares of printer maker HP Inc. and bet big that Microsoft’s acquisition of Activision Blizzard will go through by buying nearly 70 million shares of the video game maker.
Berkshire’s investment portfolio also includes major stakes in Apple, American Express, Bank of America and Coca-Cola stock.
The Omaha, Nebraska, based conglomerate’s companies include manufacturing firms like aviation parts maker Precision Castparts and specialty chemical maker Lubrizol, retail firms like See’s Candy, Dairy Queen and Helzberg Diamonds and other companies like NetJets.
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Atlassian Corp. shares dropped nearly 30% Friday, after the business-collaboration software company’s earnings and revenue outlook fell short of Wall Street expectations and executives described signs of economic weakness taking hold.
Atlassian
TEAM,
shares plummeted to an intraday low of $117.11 in Friday trading, nearly 33% lower than Thursday’s closing price and the lowest price for Atlassian stock since March of 2020. At the close, shares were trading for $123.73, a 29% descent that is easily the worst daily percentage decline on record for Atlassian stock — the previous mark was a 15.9% decline on Feb. 5, 2016.
Atlassian — known for software programs such as Jira — was worth roughly $44 billion at its closing price Thursday, so Friday’s decline represented a loss of nearly $13 billion in market capitalization, $12.86 billion to be exact. Atlassian shares had already declined 54.3% so far this year as of Thursday’s close, while the S&P 500 index
SPX,
declined 21.1%.
Atlassian executives forecast revenue of $835 million to $855 million for their fiscal second quarter, while analysts expected $879.3 million on average, according to FactSet. Executives also decreased their revenue guidance for the full year, without providing a specific figure for overall annual revenue; instead, they gave color in a letter to shareholders about the different revenue segments within the company.
In that letter to shareholders, Atlassian’s co-chief executives and co-founders, Mike Cannon-Brooks and Scoot Farquhar, said that the company tracked slower conversions from free to paid subscriptions for its “freemium” software, and slower growth from its paying customers in the quarter.
“The above two trends are the result of companies tightening their belts and slowing their pace of hiring. In other words, Atlassian is not immune to broader macroeconomic impacts,” they wrote. “Our outlook assumes these trends will persist, but we’ll monitor, respond and keep you updated accordingly.”
“We will focus our investments on strengthening our market position and scooping up top-tier talent in this environment. But we will balance these investments with the growth of our business and be responsive to the macroeconomic conditions,” they continued. “So while we’re lowering our revenue outlook for FY23 based on macroeconomic headwinds, we are maintaining our midteens % operating margin outlook for the year.”
Chief Financial Officer Joe Binz detailed planned cost cuts and a hiring slowdown in response during a conference call Thursday afternoon.
“First and foremost, we’re making reductions in our non-head count-driven discretionary spending,” he said in response to an analyst’s question. “And then, secondarily, we’ll be moderating the rate of planned head count growth in the second half of FY 2023.”
Executives reported a fiscal first-quarter loss of $13.7 million, or 5 cents a share, compared with a loss of $411.2 million, or $1.63 a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were 36 cents a share, compared with 37 cents a share in the year-ago period.
Revenue rose to $807.4 million from $614 million in the year-ago quarter. Analysts surveyed by FactSet had forecast adjusted earnings of 40 cents a share on revenue of $806.3 million.
“These results came as a bit of a shock, and are frankly something we thought we’d never see from a high-performing company like TEAM that also possesses a unique value proposition and business model,” Mizuho analysts wrote while chopping their price target on the stock to $255 from $320 but maintaining a “Buy” rating on the stock.
“Despite the big setback, we believe TEAM is likely to be one of the biggest
winners once the macro environment improves,” they wrote. “Why? Most notably, we would highlight a very strong competitive position in the important DevOps market, a still vibrant top-of-funnel (35K net new paid customers added over the LTM), a multiyear cloud migration catalyst, and meaningful pricing power as key growth drivers.”
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U.S. consumers continue to face the highest prices in decades for gasoline and other products, but if they’re in a state that allows sales of cannabis, at least they’re paying less for legal weed.
Amid price rivalries — not only between legal cannabis companies but also against sales from the illicit market — the cost of wholesale pot has plunged and supply has climbed.
The evidence is clear in the country’s largest legal cannabis market, California, which notched a whopping $1 billion in sales in the past year.
California has seen cannabis prices as low as $100 a pound, a fraction of the average cost of $786 for an untrimmed, dried pound in the state, according to a report released Tuesday by Leafly.
As farmers in California increased pot production by 63 metric tons, the value of the state’s weed harvest has dropped in the face of price competition.
“Consumers are seeing unheard-of-bargains in 2022, with $20 retail eighths [of an ounce] now the norm,” Leafy said in its Cannabis Harvest Report.
Currently 19 states and the District of Colombia allow sales of cannabis to adults, and initiatives are on the ballot in five more states.
While cheaper prices make cannabis more affordable for consumers, they’re not considered good news for cannabis operators.
One of the largest U.S. cannabis companies, Green Thumb Industries Inc.
GTBIF,
earlier this week reported lower price compression its third-quarter results.
Citing industry data from BDSA Analytics, Green Thumb CEO Ben Kovler said U.S. cannabis sales are up 3% while unit sales have risen 22%. That pricing dynamic “shows you the the price deflation” in cannabis, Kovler told MarketWatch.
“Price deflation at a time with massive inflation it makes it hard to operate when costs go up,” Kovler said.
Also read: Sean Combs seeks to boost minority representation in cannabis with $185 million deal
To soften the impact of lower prices, Green Thumb focuses on the more lucrative premium end of the market. It has also worked to increase wholesale production efficiency and has taken an aggressive approach on procurement and goods purchases.
The efforts helped the company generate gross margins slightly above its internal 50% target in its third-quarter results, even as it continues to face inflationary pressure on packaging and labor.
Fighting price competition
As legal cannabis companies compete for market share while absorbing a range of costs including regulatory compliance efforts and taxes, sellers on the illicit market — who pay none of those costs — continue to undercut them.
The U.S. Cannabis Council, an industry advocacy group, this week launched a Buy Legal campaign with backing from cannabis businesses — some of them minority-owned — to encourage adult cannabis consumers to purchase only from state-licensed businesses.
The effort has drawn support from New Jersey Gov. Phil Murphy as well as NBA veteran and cannabis entrepreneur Al Harrington, who is CEO of Viola.
“Now more than ever it’s imperative to educate consumers on the importance of buying regulated, safe products,” Harrington said in a statement.
The Buy Legal effort was unveiled just ahead of the Black CannaBiz Expo in New Orleans, which held a panel on the topic with Anacostia Organics Owner and CEO Linda Mercado Greene, as well as Josephine & Billies CEO Whitney Beatty and Keya Kellum, director of marketing and procurement at Harvest of Ohio.
An industry with big numbers
All told, legal U.S. cannabis farmers grew 2,834 metric tons of cannabis, according to the Leafly Cannabis Harvest Report 2022. The wholesale value of the market was about $5 billion.
That figure makes cannabis the sixth-largest cash crop in the country after corn, soybeans, hay, wheat and cotton.
After California, the states that generate the most dollars from legal wholesale cannabis are Colorado ($687 million), Michigan ($551 million) and Oregon ($500 million), according to the Leafly study.
The 15 U.S. states that currently allow adult-use cannabis stores contain 13,297 active legal cannabis farms with tens of thousands of full-time workers, the study said.
“The story in 2022 is all about rising production and falling prices,” the Leafly study said. “As the legal harvest continued to ramp up in legal states, the average price of cannabis fell over the past twelve months.”
Jeremy Owens contributed to this article.
Also read: Cannabis edibles company Wyld builds national footprint as it keeps hiring
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Pumpkin spice pumped up Starbucks‘ sales in its fiscal fourth quarter, and the company said it’s confident that momentum will carry on into next year.
Starbucks’ revenue rose 3% to a record $8.41 billion in the July-September period. The company said Thursday it saw its highest-ever sales week in September when it introduced its fall drinks. Sales of both hot and cold pumpkin spice drinks jumped 17% during the quarter.
Starbucks shares rose nearly 2% in after-hours trading.
Customers shrugged off higher prices and continued to pay extra for specialty drinks and snacks. Starbucks noted that 60% of the beverages it sells are now customized with flavor shots, foam and other extras.
“There is an affordable luxury to Starbucks that our customer base has been willing to support,” Starbucks’ interim CEO Howard Schultz said Thursday in a conference call with investors. Schultz said the company raised prices around 6% over the last year.
The Seattle coffee giant said its same-store sales —— or sales at locations open at least a year —— were up 7% worldwide in the July-September period. That beat Wall Street’s forecast of a 4.2% increase, according to analysts polled by FactSet.
North American strength offset weakness in China, where pandemic lockdowns are still impacting sales.
Same-store sales jumped 11% in North America, driven by a 10% increase in spending per visit. Same-store sales in China, Starbucks’ second-largest market after the U.S., fell 16%. Still, Starbucks noted that was significantly better than the third quarter, when China’s same-store sales plunged 44%.
“We are encouraged by the early signs of recovery we saw in China,” Schultz said.
Starbucks said it expects global same-store sales will rise between 7% and 9% in its 2023 fiscal year, compared to 8% in the fiscal year that just ended. Schultz said he’s confident the company can meet that goal because of its strong rewards program and its increasingly younger and very loyal customer base. Schultz said more than half of Starbucks’ customers are Millennials or Generation Z.
Starbucks said its net income fell 50% to $878 million in the three-month period that ended Oct. 2 as it invested in store remodels and employee wages. Adjusted for one-time items, the company earned 81 cents per share. That also beat Wall Street’s forecast of 72 cents.
Starbucks has been spending heavily on a plan to boost U.S. store efficiency and employee morale as it tries to head off a growing unionization movement, which it opposes. At least 249 of Starbucks’ 10,000 company-owned U.S. stores have voted to unionize since late last year.
At an investor meeting in September, Starbucks announced it will invest $450 million next year to make its North American stores more efficient and less complex. Employees have struggled with rising demand for customizable cold drinks —— they now make up 76% of U.S. drink sales —— in store kitchens designed for simpler hot drinks.
Sara Trilling, Starbucks’ executive vice president for North America, said the company has already rolled out hand-held cold foamers, new espresso machines and new warming ovens to the majority of its company-owned U.S. stores.
The company also announced a $1 billion investment in employee wages and benefits last fall and added $200 million more for pay, worker training and other benefits in May.
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Coinbase Global Inc. late Thursday reported a wider quarterly loss and a 54% drop in revenue, saying the headwinds for its business will continue and likely intensify next year.
Coinbase
COIN,
said it lost $545 million, or $2.43 a share, in the quarter, swinging from earnings of $406 million, or $1.62 a share, in the year-ago period.
Revenue dropped to $576 million from $1.24 billion a year ago.
Analysts surveyed by FactSet expected the crypto exchange to report a loss of $2.38 a share on revenue of $641 million.
Shares traded lower immediately after the report, but at last check were rising more than 8% in the extended session.
The quarter was “mixed” for Coinbase, the company said in a letter to shareholders. “Transaction revenue was significantly impacted by stronger macroeconomic and crypto market headwinds, as well as trading volume moving offshore.”
On the plus side, Coinbase saw “strong growth in our subscription and services revenue,” it said.
Those headwinds, however, continued to impact transaction revenue, which was down 44% quarter on quarter, Coinbase said in the letter.
Trading volume dropped to $159 billion in the quarter from $217 billion in the second quarter.
“For 2022, we remain cautiously optimistic that we will operate within the $500 million adjusted EBITDA loss guardrail that we previously communicated,” the company said. That assumes that the crypto market does not deteriorate further, it said.
For next year, however, Coinbase is “preparing with a conservative bias and assuming that the current macroeconomic headwinds will persist and possibly intensify,” the company said.
Coinbase earlier this week said its chief product officer was stepping down as the company reorganizes its business.
In August, the company reported a $1.1 billion loss.
Coinbase shares have lost more than 77% this year, compared with losses of around 21% for the S&P 500 index
SPX,
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Ever since Starbucks Corp. rolled out longer-term financial targets in September, Wall Street has wondered how the coffee chain might meet what analysts say were ambitious goals, as rising prices drain consumer spending. For at least the year ahead, executives on Thursday called out three ways to get there: higher prices, younger customers and cold, customizable beverages.
For the fiscal year ahead, executives for the coffee chain on Thursday said they expected global same-store sales to be “near the high end” of its long-term target of between 7% to 9% growth. FactSet expects growth of 8.6%.
When an analyst asked what gave management confidence in that target, interim Chief Executive Howard Schultz said that its coffee was an “affordable luxury,” and that it was armed with a loyalty program that it didn’t have in years past. And they said its customers were getting younger, not older.
“Not only has it gotten younger, but that young, Gen Z customer tends to have significantly more discretionary money at their disposal,” he said. “And their loyalty to Starbucks has been quite significant and predicted.”
He said Starbucks
SBUX,
had raised prices by nearly 6% over the past 12 months and hadn’t seen demand subside. And he said cold coffee beverages made up 76% percent of total drink sales in its U.S. company-owned stores. In the fourth quarter, more than half of beverages overall in those stores were customized, leading to $1 billion in sales a year for add-on syrups, foams and other ingredients.
“I think customization, which we spoke a lot about in our prepared remarks, is obviously giving us the ticket is becoming more accretive,” he said.
Management said they expect U.S. same-store sales growth of 7% to 9% for the year ahead. For China, they’re banking on “outsize” growth for the metric — interrupted by a decrease in the first-quarter — as the nation potentially emerges from pandemic-related lockdowns.
For overall revenue, they expect gains of between 10% and 12%. Management also said they would resume their buyback program in fiscal 2023.
Even as the Federal Reserve tries to chart a path to lower prices, Starbucks is the latest company to say it still has “pricing power,” or the ability to charge customers more. Snack maker Mondelez International
MDLZ,
earlier in the week, said it planned to raise prices through next year. Similarly, its own chief executive also described its snacks as an “affordable indulgence.”
Prior to the call, Starbucks reported fiscal fourth-quarter results that beat expectations, helped by a boost in U.S. sales and higher prices.
The coffee chain reported net income of $878 million, or 76 cents a share, compared with $1.76 billion, or $1.49 a share, in the same quarter last year. Revenue rose 3% to $8.4 billion, compared with $8.15 billion in the prior-year quarter.
Same-store sales rose 7% worldwide, helped largely by bigger ticket sizes, even as actual transaction volume remained muted. They were up 11% in the U.S. But international same-store sales fell 5%, with a 16% drop in China.
Excluding restructuring, impairment and other costs, Starbucks earned 81 cents per share, compared with 99 cents a year earlier. U.S. members of its loyalty program who were active for three months rose 16% to 28.7 million.
Analysts polled by FactSet expected Starbucks to report adjusted earnings per share of 72 cents, on revenue of $8.323 billion. Same-store sales were expected to rise 4.2%.
Shares rose 2.4% after hours.
As with other restaurants and retailers, Starbucks’ sales this year have been helped by price increases. Analysts have also said higher-income consumers, who might not mind higher prices as much, as well as demand for cold beverages, have propelled demand. While China’s COVID-19 restrictions have weighed on sales, analysts say demand trends are strong elsewhere.
“The U.S. business is humming, and the China risk is increasingly understood,” Wedbush analyst Nick Setyan wrote in a research note ahead of Starbucks’ earnings.
The earnings report comes as Starbucks battles a nascent unionization push at some of its stores. Some bargaining efforts between the company and the union members have stalled, amid allegations from both of bad-faith negotiations. The company over the past year has spent more to raise employee pay and rolled out other incentives at non-union stores.
Starbucks stock has tumbled 27% so far this year. The S&P 500 Index
SPX,
by comparison, is down around 22%.
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