Weekend Update #110
Welcome to Blue Room's Weekend Update. Each week, we're sharing what companies we're researching and the what, the who and the how that we think makes the companies interesting and unique. This roundup is brought to you weekly by a group of interns, creative minds, artists and investors who believe that through best in class investing along with the democratization of financial education we can do great things together. Enjoy, Explore and Share.
To kick off earnings season, stocks rallied on Friday to finish the week strong after briefly losing momentum in its January rally. The rally, driven mostly by tech, was sparked by Google announcing layoffs of 6% of its workforce, or 12,000 employees, and Netflix reporting strong subscriber growth for Q4 2022. Additionally, stocks saw an increase after Federal Reserve Governor Christopher Waller said he backs a quarter percentage point interest rate increase at the central bank’s next meeting, bringing the target rate to 4.5% - 4.75%. Crypto has also been surging as of late, with a potential set up for a supply squeeze as Bitcoin pushed higher by about 12% for the week and Ether rose 14%.
Producer price index declined 0.5% for the month, compared to the median estimates for a 0.1% decrease, further supporting inflation could be coming down. Furthermore, sales of previously owned homes fell for the 11th consecutive month in December, existing homes fell to an annualized pace of 4.02 million units in December, down 1.5% month over month and 34% year over year, the slowest pace since 2010.
For economic data next week, investors will be watching Core PCE and Michigan’s consumer sentiment and inflation expectations.
Friday’s Close
S&P 500 -0.66%
Dow Jones -2.70%
Nasdaq +0.55%
Thank you Blue Room Analyst NICK PEART
Bryan Gill — EVP, Director of Investor Relations
Good morning. Welcome to today's conference call for the PNC Financial Services Group. Participating on this call are PNC's Chairman, President and CEO, Bill Demchak; and Rob Reilly, Executive Vice President and CFO.
Today's presentation contains forward-looking information. Cautionary statements about this information as well as reconciliations of non-GAAP measures are included in today's earnings release materials as well as our SEC filings and other investor materials. These are all available on our corporate website, pnc.com, under Investor Relations. These statements speak only as of January 18, 2023, and PNC undertakes no obligation to update them.
Earnings Press Release Overview
4Q22 Net income per diluted share was $0.71, versus $1.80 in the third quarter of this year and $1.91 in the fourth quarter of last year. Net income was $155.7 million in 4Q22, versus $394.8 million in 3Q22 and $406.4 million last year.
“Northern Trust’s fourth quarter results reflected strong y/y growth in net interest income, which more than offset lower trust fees. Expense levels remained elevated as we continued to invest in people and technology to enhance our resiliency and support growth in the business. Reported results Included $266 million in charges related to a repositioning of our securities portfolio and, in part, steps we are taking to optimize our cost bases and drive greater efficiency throughout the company. These actions underscore our commitment to improving our profitability. As we look ahead, we are focused on driving organic growth, improving our productivity, and further strengthening our foundation.”
Michael O’Grady, Chairman and Chief Executive Offer
Cash Flow and Capital Structure
Net cash generated by operating activities was $0.4B in Q4’22 and $2.0B for the full year (vs. $0.4B in FY21)
Free cash flow for Q4 totaled $0.3B, and $1.6B for the full year, above guidance of ~$1B.
Assuming no material swings in F/X, we expect at least $3B of FCF for the full year 2023
Closed two previously announced acquisitions in Q4 — animation studio Animal Logic and games studio Spry Fox, both with cash
On Tuesday, January 17, Moderna announced positive topline data from its ConquerRSV Phase 3 pivotal efficacy trial of mRNA-1345, an investigational mRNA vaccine targeting respiratory syncytial virus (RSV) in older adults. Given the positive data, Moderna announced that they will apply for U.S. regulatory approval in the coming months, thus propelling themselves into the fierce race among pharmaceutical giants to supply the world with a vaccine for RSV – an illness for which there is no commercially approved vaccine.
RSV is a highly contagious seasonal respiratory virus and a leading cause of lower respiratory tract infections and pneumonia. It causes a particularly large burden of disease in infants and older adults. RSV has the potential to cause severe disease, with an estimated 5.2 million cases and nearly 500,000 hospitalizations in adults 60 years or older reported across high-income countries in 2019. Each year in the U.S., approximately 60,000 to 120,000 older adults are hospitalized, and 6,000-10,000 of those hospitalizations result in death due to RSV infection.
OVERVIEW
United States Producer Price Index YoY and MoM
PPI is a family of data that gauges the costs of production. There are three areas of PPI classification that use the same pool of data from the BLS: industry, commodity and commodity-based final and intermediate demand (FD-ID).
Finished Goods YoY~ Finished goods are goods that have completed the manufacturing process but have not yet been sold or distributed to the end user.
Final Demand ~ PPI for final demand measures the average change in prices received by domestic producers of goods, services and construction sold for personal consumption, capital, investment, government and export.
Key Business Highlights
The Firm reported full year net revenues of $53.7 billion and net income of $11.0 billion as our businesses navigated a challenging market environment.
The Firm delivered full year ROTCE of 15.3%, or 15.7% excluding the impact of integration-related expenses.
The full year Firm expense efficiency ratio was 73%, or 72% excluding integration-related expenses.
Standardized Common Equity Tier 1 capital ratio was 15.3%.
Institutional Securities reported full year net revenues of $24.4 billion reflecting lower activity in Investment Banking driven by the uncertain macroeconomic environment, partially offset by strong performance in Fixed Income.
Wealth Management delivered record full year net revenues of $24.4 billion and a pre-tax margin of 27.0% or 28.4% excluding integration-related expenses. The business added net new assets of $311 billion, representing a full year 6% annualized growth rate from beginning period assets.
Investment Management reported full year net revenues of $5.4 billion and AUM of $1.3 trillion in a challenging market environment.
Fixed income revenues of $9 billion for the full year were the highest in over a decade.
U.S. ++ VIETNAM
— Combined Team Meeting —
__________
Wednesday,
January 18, 2023
7 AM Hanoi
Tuesday
January 17,
5 PM Denver
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