US FINANCIAL MARKET

Stocks Waver, on Track for Fourth Weekly Loss – Wall Street Journal, 1/28/2022

• Stocks wavered on Friday, with the Dow Jones Industrial Average and the S&P 500 on track for their fourth straight weekly loss, as investors parsed earnings from Chevron, Caterpillar and other big-name companies.
• The Dow was down 87 points, or 0.3%, in late-morning trading.
• The S&P 500 ticked up 0.2%. The technology-heavy Nasdaq Composite gained 0.6%.
• Chevron slid 4.7% after reporting fourth-quarter earnings that were lower than expected, even as surging commodity prices lifted the oil producer to its most profitable year since 2014.
• Caterpillar tumbled 5.7% after the equipment maker reported a surge in costs that offset a jump in revenue.
• Shares of Robinhood Markets rebounded from a steep loss of more than 10% after the opening bell and were recently up about 2%. The brokerage popular with small investors reported a larger-than-expected quarterly loss on Thursday afternoon.
• Among the day’s winners, Apple rose 4.3% after the tech giant posted record revenue and profits.
• Visa rallied 6.3% after beating analysts’ forecasts for profits and sales.
• New government data released Friday showed the upward pressure on prices that has worried policy makers.
• The Fed’s preferred measure of inflation, the core personal-consumption expenditures price index, rose at 4.9% in December over the prior year.
• A separate measure showed employers spent 4% more on wages and benefits last year—an increase not seen since 2001—as a tight labor market encouraged workers to demand pay hikes.
• Meanwhile, new Commerce Department data showed consumer spending fell last month amid rising prices and the fallout from the Omicron wave of Covid-19.
• Jitters over the Fed and inflation have preoccupied investors even as corporate earnings have generally been solid.
• Almost a third of the companies on the S&P 500 have reported fourth-quarter results, and 78% of them have beaten analysts’ estimates for earnings per share, according to FactSet.
• Investors bought government bonds on Friday, pushing down yields. The yield on the 10-year Treasury note dropped to 1.789% from 1.807% on Thursday. Bond yields move in the opposite direction from prices.

Apple Posts Record Quarterly Results Despite Parts Shortages – Wall Street Journal, 1/28/2022

• Apple posted quarterly results Thursday that shattered previous records, answering the concerns of jittery investors about the toll supply chain constraints are having on the world’s biggest company.
• Shares rose more than 4% after markets closed Thursday in New York, following Apple’s report that October-to-December revenue hit $123.9 billion and profit reached $34.6 billion, both company records that exceeded Wall Street expectations.
• Year-over-year iPhone sales rose 9% to $71.6 billion during the fiscal first quarter that ran through December, the company said. That beat Wall Street expectations for a 3% gain, according to the average estimate from analysts surveyed by FactSet.
• Sales of Macs exceeded expectations by rising 25%, while iPad revenue declined 14%, missing projections for a 2.89% fall.
• During the July-to-September quarter, Apple said it lost out on $6 billion in sales because of supply constraints and predicted a larger hit during the fiscal first quarter.
• On Thursday, Mr. Cook said the October-to-December period was in fact hurt more than $6 billion but didn’t say by how much.
• The company also expects more challenges from foreign exchange costs compared with the December period. It expects a gross margin for the quarter to be between 42.5% and 43.5%

Visa profit beats quarterly estimates on higher travel, online spending – Reuters, 1/28/2022

• Visa beat Wall Street’s quarterly estimates on as more international travel and e-commerce drove an increase spending volumes.
• Net revenue rose to $7.1 billion in the three months ended Dec. 31, an increase of 24% over the prior year.
• The world’s largest payments processor reported transactions rose 21% to $47.6 billion during the quarter compared with a year earlier.
• Cross-border volumes rose 40%, marked by a steep increase in travel between September and November when the U.S. border and most of the borders within Europe reopened.
• Visa reported profit of $3.9 billion, or $1.81 per share.
• Analysts, on average, had estimated net income of $1.70 per share, according to IBES data from Refinitiv.

Robinhood Shares Fall After Bigger-Than-Expected Loss – Wall Street Journal, 1/28/2022

• Robinhood’s stock fell 9% after the brokerage reported a loss of $423 million for the fourth quarter, helping drag the firm’s stock down 40% in 2022 so far.
• The brokerage used by individual investors recorded revenue of $363 million for the October-through-December period, an increase of 14%.
• Robinhood’s results missed analyst expectations.
• Analysts polled by FactSet expected fourth-quarter revenue of $376 million and a net loss of $225 million.
• The brokerage in 2021 experienced momentum in its options and cryptocurrency trading business, as individual investors dabbled in riskier and more speculative trading strategies. But in the fourth quarter, the company said, revenue tied to stock trading fell 35% to $52 million from $80 million.
• In contrast, revenue tied to customers’ options trading rose 14% to $163 million.
• Robinhood became a darling of the Covid-19 era, as millions of new investors began trying their hand at trading.
• The brokerage now has 22.7 million customers, it said Thursday, up from 12.5 million in 2020.
• Robinhood lowered its revenue expectations for the first quarter to less than $340 million, which, at the top end would be a 35% decline.

Construction Demand Lifts Caterpillar Profit as Order Backlog Grows – Wall Street Journal, 1/28/2022

• Strong construction activity in the U.S. drove demand for equipment maker Caterpillar, though the company said it faced higher costs and its order backlog increased by billions.
• The Deerfield, Ill.-based maker of construction bulldozers and mining drills said revenue grew 23% to $13.8 billion in its fourth quarter.
• Construction sales and mining sales both climbed by 27%, while energy and transportation sales rose by 19%.
• The company’s cost of goods sold increased 29% to $10 billion.
• Higher manufacturing costs more than offset Caterpillar’s price increases.
• Higher prices added $507 million to operating profit while higher manufacturing costs reduced it by $816 million.
• The company’s operating profit margin, a profit measure, was 11.7% for the quarter, down from 12.3% in the same period a year earlier.
• The company earned a profit of $3.91 a share, compared with $1.42 a share a year earlier. Total profit in the quarter was $2.12 billion, up from $780 million in the same period the year before. The increase was driven by remeasurement of pension assets.
• Caterpillar said Friday that it continues to face issues obtaining enough electronics, semiconductors and other parts to make hydraulic shovels and asphalt pavers.
• The company’s backlog increased by $8.9 billion, or around 64%, in the quarter ended Dec. 31 from the year before.

Chevron Rakes in $15.6 Billion in Annual Profits as Oil Prices Climb – Wall Street Journal, 1/28/2022

• Chevron had its most profitable year since 2014, reporting Friday that it earned $15.6 billion in net income in 2021, as commodity prices surged on the back of a global economic recovery.
• It reported a fourth-quarter profit of $5.1 billion Friday, up from a $665 million loss during the same period last year.
• Chevron also said it generated $21.1 billion in free cash flow in 2021, its most ever.
• Despite lower spending levels, Chevron said it set a record for oil and gas production in 2021, producing 3.1 million barrels a day, a modest increase from last year’s levels.
• The company’s oil-and-gas production unit earned $7.3 billion in 2021, compared with a loss of $1.6 billion in 2020.
• Chevron’s dividend increase Thursday marked the 35th consecutive year the company has raised the payout.
• Chevron has also said it would buy back as much as $5 billion of its stock after buying back $1.4 billion in 2021.

Western Digital Stock Slides Despite Strong Earnings. Supply Chain Issues Are Taking a Toll. – Barron’s, 1/28/2022

• Western Digital stock slid sharply after hours on Thursday—despite stronger-than-expected quarterly results—as the disk-drive and flash memory chip company warned that supply chain issues will result in disappointing profitability in the current quarter.
• For the December quarter, Western Digital posted revenue of $4.83 billion, up 23% from a year ago, with non-GAAP earnings of $2.30 a share. That blew past the Street consensus forecast at $4.26 billion in sales and earnings of $1.87 a share.
• Western said that cloud-related revenue soared 89% in the quarter, while PC revenue fell 1%, and products sold at retail were flat.
• Western Digital CEO David Goeckeler highlighted that the strong results came amid “ongoing supply chain disruptions and Covid-related challenges,” but noted those issues will continue to affect results.
• Western’s profit guidance for the fiscal third quarter ending in March came up well short of previous estimates.
• Western projects revenue of $4.45 billion to $4.65 billion, with adjusted earnings of $1.50 to $1.80 a share.
• Wall Street consensus had been for revenue of $4.23 billion and $1.76 in per-share earnings.
• In short, the company has some issues on costs and margins—a contrast to last night’s earnings report from rival Seagate, which raised its operating margin model going forward, triggering a nearly 8% rally in the stock on Thursday.

Fuel demand rebound powers Phillips 66 profit beat – Reuters, 1/28/2022

• Phillips 66 posted quarterly earnings almost a dollar more than Wall Street estimates on Friday, as the U.S. refiner capitalized on mounting demand for fuel due to a loosening up of coronavirus restrictions.
• The Houston, Texas-based company said its fourth-quarter realized refining margins rose to $11.60 per barrel from $8.57 per barrel in the third quarter.
• Phillips 66’s refining business posted an adjusted pre-tax income of $404 million in the fourth quarter, compared with an adjusted pre-tax loss of $1.1 billion last year, helped by higher margins and improved volumes.
• Its adjusted net income of $2.94 per share for the quarter ended Dec. 31 handily beat analysts’ average estimate of $1.95, according to Refinitiv data.

Steel Market Cools as Supplies Expand – Wall Street Journal, 1/28/2022

• Prices for steel have fallen from last year’s record levels as expanding supplies exceed demand for the first time in more than a year, according to steel-industry analysts and company executives.
• Steel production in the U.S. rose by 19% last year from 2020, as surging demand followed Covid-19-related shutdowns of mills and depleted the country’s steel supply.
• Though prices remain high, executives say the drop is a relief for manufacturers and construction firms after months of panic buying and low inventories made U.S. steel the most expensive in the world last year.
• Since late September, when the spot-market price for hot-rolled sheet steel reached a record $1,960 a ton, prices have fallen by more than one-third, according to S&P Global Platts.
• The decline has accelerated since the start of December, falling by $480 to a recent $1,270 a ton, a level last seen in March 2021.
• Lower prices will likely take months to flow through supply chains, since many manufacturers purchase steel through fixed-price contracts, while other costs like semiconductors, transportation and labor remain high.