Weekend Update #95
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.
Markets started the week and fourth quarter strong with the S&P 500 and Nasdaq both up 5% by Tuesday’s close. JOLTS data came in below estimates with signs the labor market may finally be cooling, making way for a less hawkish Fed. However, markets reverted as further economic data suggests a more pessimistic outlook.
OPEC met on Wednesday, announcing its plans to cut oil production by 2 million barrels per day which could lead to a spike in gas prices in the months ahead and an increase in headline inflation.
Additionally, nonfarm payrolls climbed 263,000 in September, and the unemployment rate fell to 3.5%, matching a five decade low, as average hourly wages continued to rise. The strength in the labor market puts the Federal Reserve on course to deliver another aggressive interest-rate hike, with investors pricing in a fourth 75 basis point increase.
Despite a market meltdown with S&P 500 and Nasdaq falling 2.8% and 3.8%, respectively, on Friday following payrolls and unemployment data, markets ended the week slightly up. The S&P 500 finished 1.5% higher at 3,639, the Nasdaq Composite index finished 0.7% higher at 10,652, and the Dow Jones Industrial Average closed up 1.99% to 29,296.51.
Consumer price inflation data for September will be released next week which will also be fundamental in the Fed’s decision.
Thank you Blue Room Analyst NICK PEART
The JOLTS job report on Tuesday shocked equity markets as it showed job openings fell to 10.1 million in August, a decrease of 1.2 million from July — marking the biggest monthly decline since April 2020. The rapid fall was one of the most significant indicators yet that the Federal Reserve seems to be making an impact in tightening financial conditions, giving rise to speculation that the Fed could soon take a dovish turn as the economy cools. Especially after a surprise increase in the number of job openings in July, investors had a strong, positive reaction to the signal.
Job openings per unemployed worker fell from 1.97 in July to 1.67 in August, but even that number suggests that the labor market is still too tight and there is more work for the Fed to do.
JOLTS data also showed that the openings rate declined, the quits rate declined, and the layoffs rate slightly ticked up — all positive signals that the Fed is taking some of the heat out of the labor market.
Mickey Foster — Vice President of Investor Relations
Good afternoon and welcome to FedEx Corporation’s first quarter earnings conference call. Before we begin, we want to recognize our SEC 8-K was filed earlier than planned due to a technical issue. The first quarter earnings release, Form 10-Q and stat book are on our website at fedex.com. This call is being streamed from our website where the replay will be available for about 1 year.
Joining us on the call today are members of the media. During our question-and-answer session, callers will be limited to one question in order to allow us to accommodate all those who would like to participate. We want to remind all listeners that FedEx Corporation desires to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act. Certain statements in this conference call such as projections regarding future performance may be considered forward-looking statements within the meaning of the Act. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC. Please refer to the Investor Relations portion of our website at fedex.com for a reconciliation of the non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures.
We’re monitoring the Conagra Brands earnings release to get a glimpse on how packaged food companies are navigating the current inflationary environment.
Post-Covid, it appeared Conagra managed to grow its revenues faster than its cost of sales through Q3 2021. And then right around when the Fed began to talk about monetary tightening (Q4 2021), Conagra demonstrated a year-over-year revenue drop of 16.7%—greater than its decrease of cost of goods sold of -14.7%. Ever since then, their input costs have outpaced their revenue growth, which has shrunk their gross margins from 30.2% in Q1 2021 to 24.5% in Q4 2022—a 570-basis point reduction. One of my main questions of Conagra going into the first quarter of their fiscal year 2023 was—”is this trend going to continue? Is it improving or worsening?” If Conagra’s products are price inelastic—meaning that they are so essential that customers’ demand remains relatively unchanged regardless of price increases—then the company may perform well in an inflationary environment. If, however, their products are elastic, than that would bode ill for the short- to near-term prospects of the company.
Alas, Conagra reported yet another quarter of below-average gross margin, and even reported its first GAAP net loss since Q4 2016. Sean Connelly, CEO of Conagra, explained during the Q1 Fiscal 2023 Earnings Call that the company sustained significant goodwill and brand impairment charges of $386 million which hit the SG&A line and contributed to the net loss of 77.5 million. Conagra continued to experience internal and external operational challenges during the quarter that has led to increased costs and inefficiencies.
Although they continue to gain market share in their Frozen and Snacks domains, they don’t expect their supply chain interruptions to “disappear overnight”. Also, the company acknowledged that their inflation-driven price actions have been offset by decreases in volumes “due to the elasticity impact from those increases.” The company remains focused on deleverating, forecasting their net leverage ratio to fall from 3.9x to 3.7x by the end of fiscal ‘23.
Although the company has demonstrated some ability to pass on price increases, they don’t appear to be sufficient enough to warrant a positive investment recommendation at this time.
- - Archived Wednesday October 5, 2022 - -
Costco Wholesale Corporation: Shares of closed (COST) UP +2.12% to 490.52
Market Cap: 217.104B
Earnings Date: Dec. 08, 2022
Approx. Shares Outstanding: 442.6m
EPS (TTM): $13.48
Forward Dividend Yield: (0.73%)
PE: 36.39x
Tesla is trading down 19% in the last 10 trading days, driven both by macro pressures as well as some recent business updates. In the same period, the S&P 500 and Nasdaq exchanges are down 1.5% and 2% respectively.
October 2 — Tesla releases Q3 production and deliveries data
Despite setting new production and delivery records, Tesla’s total deliveries came in 4% below Wall Street estimates of 357,938. Although producing over 365,000 vehicles in the same period, the company cited increasing challenges related to actually transporting the finished vehicles to customers. As production continues to ramp up quickly, particularly at Berlin and Austin Gigafactories, Tesla intends to mitigate these issues moving forward as it aims to normalize deliveries throughout the quarter to avoid higher costs in peak logistics weeks which typically occur towards the end of the quarter.
Ramy Farid — President & Chief Executive Officer
Overview:
There’s a lot of excitement around the role computation plays in nearly every aspect of our lives — in particular in drug discovery and materials design
With all of that excitement often comes a lot of confusion and hype
Schrödinger thinks you should demand from any company that claims to have developed a transformative platform that they should should you how the platform works
Most importantly, much of the focus will be on validation of the platform
Schrödinger will show very clearly the platform is transforming drug discovery and materials design
The platform is delivering on the promise of delivering higher quality candidates faster and at lower cost
They’ve also increased the probability of success
Schrödinger licenses software to drug design and materials design companies worldwide
They’ve also formed collaborations on the drug design area
They’ll also go through the proprietary pipeline — wholly-owned and partnered
Schrödinger has a 30+ year track record of scientific innovation in computational chemistry
Over 800 employees worldwide — 40% are Ph.D.
Half of the company is dedicated to R&D
There’s a large commitment to education around this technology
There are 4 releases a year with new improvements to the technology
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