Weekly Research Briefing: How do you like them apples?

1Q earnings season has been better than feared. 64% of the S&P 500 by market cap has reported 1Q 2023 earnings, and results have surprised to the upside. 54% of firms have beaten consensus EPS expectations by more than a standard deviation of analyst estimates, well above the long-term average of 46%. Both sales and margins exceeded expectations and S&P 500 EPS growth is now tracking at -5% yoy, vs. a consensus estimate of -7% before the season. The direction of analyst EPS revisions has also continued to improve, suggesting the most severe estimate cuts are likely behind us.

@GunjanJS: Earnings estimates are starting to bottom for the year... "After falling 13% since June, consensus 2023 EPS started to bottom, rising 0.3% w/w, the strongest weekly revision since the June peak" – BofA

Look, we remain encouraged by the demand environment that's out there. We see strong bookings strength really across the airline network International, of course, long-haul international is seeing a lot more bookings come in a lot sooner, really reflecting the pent-up demand that's been there in many markets they really haven't been open for the better part of 4 years. Domestic, we continue to see historically strong booking and indeed, a resumption of a lot of -- a lot more people looking further in advance than what they had last year, certainly, more people willing to go and shift from a peak time flight to a trough time play, which reflects changes in work schedules through the week. But by and large, we remain encouraged by what we see out there.
(Vasu Raja, SVP American Airlines)

@TheTranscript_: Hilton Worldwide CEO: "We carried strong momentum into 2023, exceeding the high end of our guidance for system-wide RevPAR....As a result of our strong performance and positive outlook, we are raising our Adj EBITDA guidance for the full year."

[NCLH] Exec: Demand and pricing is strong, not only for this year but as we look further out to 2024 sailings and beyond - earnings call comments

• Pricing and yields are expected to increase in H2, with Q4 exhibiting the strongest growth v 2019
• Total revenue per Passenger Cruise Day +18.3% cc y/y
• Occupancy 101.5%
• Adj EBITDA $234M v -$476.2M y/y
• Booking trends: On the heels of a very strong WAVE season, the Company continues to experience strong consumer demand. Cumulative booked position for the remainder of 2023 is ahead of 2019 levels inclusive of the Company’s approximately 18% increase in capacity, at continued higher pricing. As of March 31, 2023, the Company’s advance ticket sales balance, including the long-term portion, was a record $3.4 billion, approximately 26% higher than the prior quarter and approximately 60% higher than the first quarter of 2019.

Chipotle’s earnings were so good that its stock closed at a new high on Wednesday at $2,009.85, marking the first record close since September 2021, according to Dow Jones Market Data.

“Our base case does not include a recession, or certainly not a meaningful recession,” said John Hartung, Chipotle’s chief financial and administrative officer, in a call with analysts. “Again, it looks like unemployment is holding up really well. It looks like consumer spending is strong right now.”

McDonald’s Corp. reported first-quarter sales and profit that outpaced analysts’ projections, a renewed sign that the burger chain is picking up customers amid stubborn inflation and higher menu prices.

The key metric of comparable sales rose nearly 13% above the average estimate of 8.2% compiled by Bloomberg. US results also handily topped projections by that measure, with the company adding that comparable guest counts rose. Earnings in the quarter, excluding some items, were $2.63 a share, also beating estimates...

Same-store sales topped estimates in all geographic segments, with strong results from Japan, Australia, Canada, France, Germany and the UK. The company gets more than half of its revenue from international markets.

@TheTranscript_: PepsiCo CEO: "Organic revenue increased 14.3% and represents our sixth consecutive quarter of double-digit organic revenue growth. Our top-line performance was broad-based across geographies..."

@TheTranscript_: Honeywell CEO: " $HON delivered an outstanding start to 2023, exceeding expectations for all guided metrics...sales growth was underpinned by double-digit growth in our commercial aviation, UOP, process solutions, building solutions & advanced materials businesses"

@OptionsHawk: Some early themes tracking with Q1 earnings reports

$TPH: So far in April, we are experiencing continued strong demand and last week we recorded 192 net orders, which was our highest weekly order number for the year and the best single week for orders since March of 2021.

$MHI: We didn't feel like buyers were pulling back because we had changed our incentive structure, so it felt pretty much the same to us from our perspective, and I would tell you, April feels the same as well.

$TMHC: "Momentum has carried through the first three weeks of April ... leading indicators—including sales traffic, mortgage pre-qualifications and digital home reservations ... point to continued strength."

$CCS: “In terms of sales, what we experienced in the first quarter has continued into April. As we said in our prepared remarks, we increased sequentially in sales as the quarter went on. February was higher than January and March was higher than February was.”

$DHI: "We continue to be pleased with our sales pace in April. You heard us say stabilize lot on the call, and we really feel like we've seen signs of that and everything is continued into April as we would like to see."

$PHM: "we're seeing some nice momentum on the sales floor. And I think you've heard from us, we've seen that continue into April. And that's allowed us to be optimistic and bullish with our forward start projections"

@LizAnnSonders: March new home sales +9.6% vs. -1.3% est. & -3.9% prior (rev down from +1.1%) … strongest month since August 2022; in level terms (blue), sales now up by 26% from recent trough

@NickTimiraos: But for the first time since last June, U.S. home prices rose on a month-over-month basis.
At a six-month annualized rate, home prices declined 5.3% in December. The six-month annualized decline moderated to 3.3% in February.

Turning to our results. 2023 is proving to be an interesting year. In the U.S., relative to our base plan, volume was higher than we expected in January, close to our plan in February and then moved significantly lower than our plan in March, as retail sales contracted, and we saw a shift in consumer spending.
(Carol B. Tome; CEO & Director; United Parcel Service, Inc.)

"In AWS, net sales were $21.4 billion in the first quarter, up 16% year-over-year and representing an annualized sales run rate of more than $85 billion. Given the ongoing economic uncertainty, customers of all sizes in all industries continue to look for cost savings across their businesses…As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter. And we are seeing these optimizations continue into the second quarter with April revenue growth rates about 500 basis points lower than what we saw in Q1." - Amazon.com CFO Brian Olsavsky

"In Google Advertising, Search and Other, revenues grew 2% year-over-year, reflecting an increase in the travel and retail verticals, offset partially by a decline in finance as well as in media and entertainment. In YouTube Ads, we saw signs of stabilization and performance, while in network, there was an incremental pullback in advertiser spend...we were pleased that we saw the stabilization in ad spend on a sequential basis in YouTube. We still saw ongoing pullback in network, which tends to be a mix of businesses, as you know well" - Alphabet CFO Ruth Porat

"In March, payments volume growth ticked down and has remained at similar growth levels through the first 3 weeks of April. The primary driver of the tick down in the growth rate has been U.S. ticket size, while transaction growth remains in line with Q1 levels at around 8%. Ticket size was up over 1% year-over-year in the first quarter and is down about 2% in March through April 21. Ticket sizes are declining as inflation moderates." - Visa CFO Vasant Prabhu

"Both charge-off rate & delinquency rate continued to normalize...charge-off rate hasn't caught up yet but based on what we see in our delinquencies, we think the monthly charge-off rate will get back to 2019 levels around the middle of this year" - Capital One Financial CFO Andrew Young "...we are assuming material worsening of labor markets with the unemployment rate rising from today's very low levels to above 5% by the end of 2023. We are also assuming adverse effects from inflation & some further worsening of consumer profiles..." - Capital One Financial CEO Rich Fairbank

"We recognize the market is under pressure, especially in the U.S. where lending markets have tightened with further uncertainty caused by recent turmoil in the regional banking sector. The U.S. office sector is also facing greater pressure as the office vacancy rate is approaching 20% compared to approximately 7% in Europe." - Deutsche Bank Treasurer James Moltke

@TheTranscript_: $V CEO: "Globally, 74% of all face-to-face transactions outside the U.S. are now taps. In the U.S., we're at 34%, up 7x from 3 years ago and up more than 10 percentage points from last year"

JPM acquires most assets and assumes certain liabilities of FRC in a transaction expected to add $500M to Net Income, ex: one-time gain of $2.6B post-tax at closing and $2.0B in expected restructuring costs over 2023/24. Getting $173B in loans at a $150B market value, $30B in securities at market value, and $87.5B in deposits, after removing their prior $5B deposit, which will be eliminated on consolidation, and will repay $25B to U.S. banks.

"Our government invited us and others to step up, and we did...This acquisition modestly benefits our company overall, it is accretive to shareholders, it helps further advance our wealth strategy & it is complementary to our existing franchise"
(Jamie Dimon, CEO J.P. Morgan Chase & Co.)

@WayneWhaley1136: The S&P posted a 1.46% April.
Since 1950, the S&P in April is:
36-14 for an avg gain of 1.49%,
18-1 in PreElection Yrs for an avg gain of 3.48%,
29-4 when Jan was +2% for an avg gain of 2.85%
And the 6 mts ending in April of PreElection yrs are 18-0 for an avg gain of 14.7%.

Officials who are more concerned about the impact from any tightening of credit conditions are likely to push for a signal that the Fed will suspend rate increases.

The Fed shouldn’t give up on fighting inflation, “but we also have to recognize that this combination could hit some sectors or regions in a way that looks different than if monetary policy was acting on its own,” Chicago Fed President Austan Goolsbee said April 11.

Eric Rosengren, Boston Fed president from 2007 to 2021, said last week that if he was still a policy maker he would vote against lifting rates at this meeting. He thinks banking stress is going to be more damaging to the economy than most Fed officials do, he said at an event hosted by Harvard Business School.

At the same time, a sizable minority of Fed officials in March indicated they thought more than one increase would be justified this year if the economic outlook didn’t deteriorate.

Those officials are more concerned that the central bank will take its foot off the brake too soon and find that inflation, hiring, and economic growth defy forecasts of a steady slowdown this year.

“I would welcome signs of moderating demand, but until they appear and I see inflation moving meaningfully and persistently down toward our 2% target, I believe there is still work to do,” Fed governor Christopher Waller said in an April speech.

@Schuldensuehner: Despite the 2nd biggest bank failure in U.S. history, markets still expect >90% to expect the Fed to raise rates by 25bps this week.

@carlquintanilla: “.. The Fed has recently focused on ‘Core Services ex-housing.’” Today’s print “is an annualized rate of +2.8% .. one could argue the PCE inflation as Fed sees it, is essentially at target.” @fundstrat

@housing_alex: The White House CEA model shows housing inflation normalizing by the end of 2023, given trends in private data. This is broadly good for the Fed, but the 6-12 month lags associated with housing inflation data (+ monetary policy) make the Fed's job considerably more challenging.

The ISM manufacturing index increased by 0.8pt to 47.1 in April, slightly above consensus expectations for a more moderate increase. The underlying composition was strong, as the production (+1.1pt to 48.9), new orders (+1.4pt to 45.7), and employment (+3.3pt to 50.2) components all increased. The supplier deliveries component edged down by 0.2pt to 44.6 while the prices paid measure increased by 4.0pt to 53.2 (nsa). The inventory index decreased by 1.2pt to 46.3, the lowest level since August 2020. The body of the report did not include any mentions of the recent banking stress.

At HCA Healthcare Inc., the nation’s largest publicly traded hospital chain, nurse hiring increased 19% in the first three months of this year compared with the average across the prior four quarters, and turnover dipped to near prepandemic levels.

Nurses who left its payrolls during the pandemic are among those HCA is now hiring, according to the company. About 20% of the company’s 37,000 nurses hired since January 2022 worked for the company at some point between 2016 and 2022.

Its spending on temporary nurses fell 21% during the first quarter compared with last year.

HCA hospitals are also turning away fewer patients, Chief Executive Sam Hazen told investors in April, though continued short-staffing means the company’s hospitals, operating rooms and emergency departments aren’t at full capacity.