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Business

Apple, Amazon, McDonald’s Headline Busy Earnings Week

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Amazon.

com Inc.,

Apple Inc.

and

Meta Platforms Inc.

are among the tech heavyweights featured in a packed week of earnings that investors will probe for indicators about the broader economy.

Other tech companies scheduled to report their latest quarterly reports include Google parent company

Alphabet Inc.

and

Microsoft Corp.

Investors also will hear from airlines such as

Southwest Airlines Co.

and

JetBlue Airways Corp.

, automotive companies

General Motors Co.

and

Ford Motor Co.

, and energy giants

Chevron Corp.

and

Exxon

Mobil Corp.

Nearly a third of the S&P 500, or 161 companies, are slated to report earnings in the coming week, according to FactSet. Twelve bellwethers from the Dow Jones Industrial Average, including

Boeing Co.

and

McDonald’s

Corp., are expected to report as well.

The flurry of results from a broad set of companies will give a sense of how businesses are faring as they deal with inflation denting consumer spending, ongoing supply-chain challenges and a stronger dollar.

People awaited the release of Apple’s latest iPhones in New York last month. The company will report quarterly results on Thursday afternoon.



Photo:

ANDREW KELLY/REUTERS

One area holding up to the challenges has been travel. Several airline companies have reported that consumers still have an appetite to spend on trips and vacations. On Friday,

American Express Co.

raised its outlook for the year in part because of a surge in travel spending.

“We expected the recovery in travel spending to be a tailwind for us, but the strength of the rebound has exceeded our expectations throughout the year,” American Express Chief Executive

Stephen Squeri

said.

In addition to airlines reporting, companies such as car-rental company

Hertz Global Holdings Inc.

and lodging companies

Hilton Worldwide Holdings Inc.

and

Wyndham Hotels & Resorts Inc.

will offer reads into leisure spending.

Overall, earnings for the S&P 500 companies are on track to rise 1.5% this period compared with a year ago, while revenue is projected to grow 8.5%, FactSet said.

Other companies will serve as a gauge for how consumers have responded to higher prices and whether they have altered their spending as a result.

Coca-Cola Co.

and

Kimberly-Clark Corp.

on Tuesday and

Kraft Heinz Co.

on Wednesday will show how consumers are digesting higher prices.

Mattel Inc.,

set to report on Tuesday, will highlight whether demand for toys remains resilient. Rival

Hasbro Inc.

issued a warning ahead of the holiday season.

United Parcel Service Inc.

will release its results on Tuesday and provide an opportunity to show how it is faring ahead of the busy shipping season. The Atlanta-based carrier’s earnings come weeks after rival

FedEx Corp.

warned of a looming global recession and outlined plans to raise shipping rates across most of its services in January to contend with a global slowdown in business.

Results from credit-card companies

Visa Inc.

and

Mastercard Inc.

will offer insights into whether inflation has finally put a dent in consumer spending after both companies reported resilient numbers last quarter.

Wireless carrier

T-Mobile US Inc.’s

numbers on Thursday will give more context to mixed results from competitors

Verizon Communications Inc.

and

AT&T Inc.

AT&T

issued an upbeat outlook on Thursday after its core wireless business exceeded the company’s expectations, whereas Verizon on Friday said earnings tumbled as retail customers balked at recent price increases.

Other notable companies lined up to report include

Chipotle Mexican Grill Inc.

on Tuesday, chicken giant

Pilgrim’s Pride Corp.

on Wednesday and chip maker

Intel Corp.

on Thursday.

Write to Denny Jacob at denny.jacob@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Stock-market investors brace for busiest week of earnings season. Here’s how it stacks up so far.

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So far, so good?

Stocks ended the first full week of the earnings season on a strong note Friday, pushing the Dow Jones Industrial Average
DJIA,
+2.47%,
S&P 500
SPX,
+2.37%
and Nasdaq Composite
COMP,
-0.81%
to their strongest weekly gains since June. It gets more hectic in the week ahead, with 165 S&P 500 companies, including 12 Dow components, due to report results, according to FactSet, making it the busiest week of the season.

The bar for earnings was set high last year as the global economy reopened from its pandemic-induced state. “Fast forward to this year, and earnings are facing tougher comparisons on a year-over-year basis. Add in the elevated risk of a recession, still hot inflation, and an aggressive Fed tightening cycle, and it is of little surprise that the sentiment surrounding the current 3Q22 earnings season is cautious,” said Larry Adam, chief investment officer for the private client group at Raymond James, in a Friday note.

“We have reason to believe the 3Q22 earnings season will be better than feared and could become a positive catalyst for equities just as the 2Q22 results were,” he wrote.

Read: Stocks are attempting a bounce as earnings season begins. Here’s what it will take for the gains to stick.

Better-than-feared earnings were credited with helping to fuel a stock-market rally from late June to early August, with equities bouncing back sharply from what were then 2020 lows before succumbing to fresh rounds of selling that, by the end of September, took the S&P 500 to its lowest close since November 2020.

While earnings weren’t the only factor in the past week’s gains, they probably didn’t hurt.

The number of S&P 500 companies reporting positive earnings surprises and the magnitude of these earnings surprises increased over the past week, noted John Butters, senior earnings analyst at FactSet, in a Friday note.

Even with that improvement, however, earnings beats are still running below long-term averages.

Through Friday, 20% of the companies in the S&P 500 had reported third-quarter results. Of these companies, 72% reported actual earnings per share, or EPS, above estimates, which is below the 5-year average of 77% and below the 10-year average of 73%, Butters said. In aggregate, companies are reporting earnings that are 2.3% above estimates, which is below the 5-year average of 8.7% and below the 10-year average of 6.5%.

Meanwhile, the blended-earnings growth rate, which combines actual results for companies that have reported with estimated results for companies that have yet to report, rose to 1.5% compared with 1.3% at the end of last week, but it was still below the estimated earnings growth rate at the end of the quarter at 2.8%, he said. And both the number and magnitude of positive earnings surprises are below their 5-year and 10-year averages. On a year-over-year basis, the S&P 500 is reporting its lowest earnings growth since the third quarter of 2020, according to Butters.

The blended-revenue growth rate for the third quarter was 8.5%, compared with a revenue growth rate of 8.4% last week and a revenue growth rate of 8.7% at the end of the third quarter.

Next week’s lineup accounts for over 30% of the S&P 500’s market capitalization, Adam said. And with the tech sector accounting for around 20% of the index’s earnings, reports from Visa Inc.
V,
+1.68%,
Google parent Alphabet Inc.
GOOG,
+0.94%

GOOGL,
+1.16%,
Microsoft Corp.
MSFT,
+2.53%,
Amazon.com Inc.
AMZN,
+3.53%
and Apple Inc.
AAPL,
+2.71%
will be closely watched.

Away from the backward-looking numbers, guidance from executives on the path ahead will be crucial against a backdrop of recession fears, Adam wrote, noting that so far guidance has remained resilient, with the net percentage of companies raising rather than lowering their outlook remaining positive.

“For example, the ‘Summer of Revenge Travel’ was known to benefit the airlines, but commentary from United
UAL,
+3.56%,
American
AAL,
+1.86%
and Delta Airlines
DAL,
+1.34%
suggests demand remains strong for the months ahead and into 2023. Ultimately, the broader based and better the forward guidance, the higher the confidence in our $215 S&P 500 earnings target for 2023,” Adam said.

The soaring U.S. dollar
DXY,
-0.89%,
which remains not far off a two-decade high set at the end of last month, also remains a concern.

See: How the strong dollar can affect your financial health

“While the degree of the impact depends on the blend of costs versus sales overseas and how much of the currency risk is hedged, a stronger dollar typically impairs earnings,” Adam wrote.

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Business

Lyft Lays Off About 60 Employees, Folds Its Car Rentals for Riders

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Lyft Inc.

has shed about 60 people while hitting the brakes on renting its cars to riders and consolidating its global operations team, according to people familiar with the matter and an employee memo reviewed by The Wall Street Journal.

The cuts covered less than 2% of staff and mainly affected employees who worked in operations, the people said. In a memo to some staff sent Tuesday, the company said it was folding the part of its business that allowed consumers to rent its fleet of cars on the app.

“Our road to scaling first party rentals is long and challenging with significant uncertainty,” according to the memo, sent by Cal Lankton, vice president of fleet and global operations at Lyft. Mr. Lankton wrote that conversations about exiting the business started last fall and “then accelerated as the economy made the business case unworkable.”

Lyft shares rose around 8% Wednesday to close at $14.70, while the tech-heavy Nasdaq Composite Index climbed less than 2%.

The company said it is going to continue working with big car-rental companies. Lyft’s car-rental business had five locations while it has car-rental partnerships with

Sixt

SE and

Hertz Global Holdings Inc.

in more than 30 locations, a spokeswoman said.

“This decision will ensure we continue to have national coverage and offer riders a more seamless booking experience,” the spokeswoman said in a statement.

The company also is reorganizing its global operations team, consolidating from 13 to nine regions and closing a location in Northern California and its Detroit hub, according to the memo.

Lyft joins other tech companies that are trimming staff or scaling back hiring plans as economic challenges cool the once-hot sector. The industry has been hiring at a rapid pace for years, but easy money is drying up and share prices have been plunging amid the reversal of some pandemic trends, high inflation, supply-chain shortages and growing worries about an economic slowdown.

Lyft’s stock has fallen more than 70% in the past 12 months compared with the less than 20% decline in the Nasdaq Composite Index.

In May, rival Uber Technologies Inc. said it would slow hiring. Its stock has halved over the same period.

Last week, Alphabet Inc.’s Google said it will slow hiring for the rest of the year while Microsoft Corp. cut a small percentage of its staff, attributing the layoffs to regular adjustments at the start of its fiscal year. Rapid-delivery startup Gopuff cut 10% of its staff last week, citing growing concerns about the economy.

Earlier this month,

Facebook

-parent Meta Platforms Inc.’s head of engineering told managers to identify and push out low-performing employees, according to an internal post. Snap Inc. Chief Executive

Evan Spiegel

recently told staff the company would slow hiring, warning that the economy “has definitely deteriorated further and faster than we expected.”

In May, Lyft President

John Zimmer

said in a staff memo the company planned to slow hiring, reduce the budgets of some of its departments and grant new stock options to some employees to make up for its eroding share price. At the time, Mr. Zimmer said the company didn’t plan to cut staff.

After enduring the pandemic, ride-share companies like Uber and Lyft are now facing a new world of high inflation, driver shortages, and dwindling passenger numbers. WSJ’s George Downs explains what they’re doing to try and survive. Illustration: George Downs

Write to Preetika Rana at preetika.rana@wsj.com and Emily Glazer at emily.glazer@wsj.com

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Business

Buybacks Hit Record After Pulling Back in 2020

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Stock buybacks are back.

Companies in the S&P 500 repurchased $234.5 billion in shares during the third quarter, topping the previous record of $223 billion in the fourth quarter of 2018, according to preliminary data from S&P Dow Jones Indices. The wave of share repurchases has helped propel U.S. stock indexes to dozens of records in 2021. The S&P 500 is up 25% this year, notching 67 record closes.

More buybacks are coming. Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, said he projects that S&P 500 buybacks will reach $236 billion in the fourth quarter.

S&P 500 component

Microsoft Corp.

said in September that its board had approved a plan to repurchase up to $60 billion of its stock. Car-rental company

Hertz Global Holdings Inc.

recently said it would buy back as much as $2 billion of its stock, while tech company

Dell Technologies Inc.

is planning a $5 billion share-repurchase program. 

Buybacks are just one of the forces behind the stock market’s rally. Asset prices have continued to benefit from the monetary and fiscal support that policy makers put in place to help the economy get through the pandemic. And analysts have consistently underestimated corporate earnings, which are expected to grow 45% in 2021 for companies in the S&P 500. 

Investors this week will scrutinize signals out of the Federal Reserve’s two-day policy meeting, where officials may accelerate the process of winding down a bond-buying stimulus program. Central-bank officials could also shed more light on their expectations for interest-rate increases next year.

Microsoft has approved the repurchase of up to $60 billion of its stock. Its HoloLens headset.



Photo:

Thanassis Stavrakis/Associated Press

S&P 500 buybacks plunged from nearly $199 billion in the first quarter of 2020 to just under $89 billion in the second, as companies reeling from the onset of the pandemic moved to conserve cash. Share repurchases increased in each following quarter, approaching $199 billion again in the second quarter of 2021.

Repurchases can support stocks by reducing a company’s share count, boosting its per-share profits. And they can boost investor sentiment by suggesting executives are optimistic about their companies’ prospects and confident in their financial position.

“It’s always comforting to have a management team come in and tell you how undervalued they think their shares are,” said

Anne Wickland,

a portfolio manager at Easterly Investment Partners. “It’s a vote of confidence in the longer-term outlook.” 

Her team bought shares of

Lockheed Martin Corp.

in the summer, in part because of the defense company’s share-buyback program and dividend yield. Lockheed shares fell 12% on Oct. 26 after the company reported lower-than-expected quarterly sales and revised its full-year sales forecast lower. Ms. Wickland said she believes the shares are undervalued and continues to like them.

Stock buybacks have come under fire from politicians who say companies should use cash to invest in their businesses instead of supporting their share prices. The version of the $2 trillion education, healthcare and climate spending package that passed the House in November would ​​create a 1% tax on the net value of a company’s stock buybacks. 

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What is your reaction to this latest streak of stock buybacks? Join the conversation below.

The Senate hasn’t voted yet, but the buyback tax has so far generated less corporate opposition than the bill’s other tax increases. Strategists at BofA Global Research project that the proposed tax would result in a 0.3% reduction to S&P 500 per-share earnings, assuming that companies didn’t change the amount of stock they repurchase. 

Several investors said they don’t believe the tax would have much of an effect on companies’ behavior if it became law. “The 1% tax on buybacks is so low that I don’t think it will impact anything,” said

Olivier Sarfati,

head of equities at wealth-management firm GenTrust.

Write to Karen Langley at karen.langley@wsj.com

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Business

Tesla Stock Is Dropping. Here’s What’s Really Behind the Slide.

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Tesla shares are dropping. Recalls and uncertainty could be responsible. A third reason, however, is most likely.


Joe Raedle/Getty Images

Text size


Tesla

stock can’t go up forever, and finally turned lower on Tuesday. Reports of recalls and uncertainty about the company’s deal with Hertz are two potential reasons, but a third factor may be the real key.

Tesla (ticker: TSLA) stock was down 1.6% in morning trading, following a slump of as much as 5% before the open. The


S&P 500
and


Dow Jones Industrial Average
were up 0.3% and 0.2%, respectively.

Tesla stock has been on a tear. It has risen eight of the past nine trading sessions, and has gained 70% over the past three months. Its shares have been buoyed by signs that the company really has won the EV race, signing a deal with Hertz (HTZ) for 100,000 electric vehicles. Companies such as


Ford

Motor (F) and


General Motors

(GM) have announced enormous spending plans to try to close the gap.

No surprise, then, that the stock would react badly to potentially negative headlines. First, Musk himself tweeted that Tesla had yet to sign a contract with


Hertz

(HTZZ). Then came the announcement that the company would be recalling 11,700 vehicles.

The Musk tweet, however, was intended as a positive. The Hertz deal is Tesla’s first large fleet sale. Fleet sales tend to be lower-margin. Fleet buyers look for volume discounts and don’t often buy all the high-end options individual consumers do.

Musk has assured investors, on


Twitter

(TWTR), a couple of times that Tesla is selling all the cars it can make and isn’t giving any discounts these days.

Hertz shares initially took a hit because of the tweet, starting off with a loss of about 6% in premarket trading. But nothing happens in a vacuum.

Hertz’s peer


Avis Budget

(CAR) reported better-than-expected results Monday evening, sending the stock up about 1% in premarket trading, despite year-to-date gains of about 360%. Rental-car demand and operating metrics are improving.

In late morning trading, it looked as if meme traders were squeezing short sellers, as they did with


GameStop

stock at the start of the year. Avis stock was up 162% to $450 a share, bringing Hertz is along for the ride with a gain of about 16%.

For Tesla stock, the recall might be a bigger deal than the status of the sale to Hertz. The cars are being recalled because of a software-communication error that can activate automatic emergency braking. The fix is an over-the-air software update. Tesla has faced more regulator scrutiny over driver-assistance features in recent months.

What’s more, Tesla recently introduced a “beta” version of its latest full-self-driving software to Tesla drivers who qualified for the upgrade. Tesla believes its software makes vehicles safer. Regulators, however, still need to adjust to cars being improved by software updates and how to handle changes made to software to fix bugs.

Any news, however, could have sparked a selloff in Tesla stock. The stock is extremely overbought, which is to say that it is rising quickly relative to its own history. When things get extreme, stocks can revert to the mean. Tesla’s relative strength reading is at 94. A reading of 50 is, essentially, normal and levels of above 70 generally have traders looking for a drop.

Coming into Tuesday, Tesla stock has outperformed the S&P 500 by about 77 percentage points over the past 100 days, as Datatrek Research pointed out in a Tuesday note. That’s a lot, but not unheard of for Tesla.

“Crazy as it sounds, the stock’s recent rally is pretty normal action for this name,” the research outfit said. With outperformance like that, investors don’t really need an excuse to take profits.

Tesla stock has a long way to go before it will look ripe for a hit.

Write to Ben Levisohn at ben.levisohn@barrons.com

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Business

Ticket? Passport? Add a Covid Vaccination Card to the List of Must-Have Travel Documents

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LONDON—The world’s airlines are betting on vaccinations to restart international travel.

Two of Europe’s biggest airlines, British Airways and budget carrier Ryanair Holdings PLC, have started allowing fliers to provide Covid-19 vaccination and test-result details alongside personal data, like passport numbers and visa information, during bookings. The airlines say the move will eventually help passengers show they have been inoculated when landing at destinations that have started to welcome vaccinated travelers.

Across the U.S., domestic travel is picking up amid stabilizing or falling Covid-19 cases and a relatively quick vaccination drive. That rebound isn’t yet happening with international traffic, where a patchwork of travel bans, quarantine rules and testing requirements have stymied cross-border flights.

U.S. domestic carriers have increased scheduled capacity by more than 50% between September and March, according to aviation analytics firm Cirium. Global capacity across all international routes, meanwhile, has increased just a little over 7%.

British Airways, Ryanair and other airlines dependent on international travel are hoping to boost ticket sales by capitalizing on nascent optimism over vaccinations. Their move isn’t quite the sort of vaccination passport that some governments and international agencies are exploring to help unlock pandemic-stricken economies. Countries have considered documents that would allow vaccinated residents to visit bars and restaurants, or go to the office or a sporting event.

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Business

GE Nears Deal to Combine Aircraft-Leasing Unit With AerCap

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General Electric Co. is nearing a $30 billion-plus deal to combine its aircraft-leasing business with Ireland’s

AerCap

AER 1.62%

Holdings NV, according to people familiar with the matter, the latest in a string of moves by the industrial conglomerate to restructure its once-sprawling operations.

Though details of how the deal would be structured couldn’t be learned, it is expected to have a valuation of more than $30 billion, some of the people said. An announcement is expected Monday, assuming the talks don’t fall apart.

The

GE

GE 0.29%

unit, known as GE Capital Aviation Services, or Gecas, is the biggest remaining piece of GE Capital, a once-sprawling lending operation that rivaled the biggest U.S. banks but nearly sank the company during the 2008 financial crisis. GE already took a major step back from the lending business in 2015 when it said it would exit the bulk of GE Capital, and a deal for Gecas would represent another big move in that direction.

It would also represent another significant move by GE Chief Executive Larry Culp to right the course of a company that has been battered in recent years by souring prospects for some of its top business lines and a structure that has fallen out of favor with investors.

With more than 1,600 aircraft owned or on order, Gecas is one of the world’s biggest jet-leasing companies, alongside AerCap and Los Angeles-based Air Lease Corp. It leases passenger aircraft made by Boeing Co. and

Airbus SE

as well as regional jets and cargo planes to customers ranging from flagship airlines to startups. Gecas had $35.86 billion in assets as of Dec. 31.

AerCap has a market value of $6.5 billion and an enterprise value—adjusted for debt and cash—of about $34 billion, according to S&P Capital IQ, and around 1,400 owned or ordered aircraft. The company has experience in deal making, paying around $7.6 billion in 2014 to buy International Lease Finance Corp. AerCap’s revenue last year was about $4.4 billion, down from around $5 billion in the previous few years.

The aviation business has been hit hard by the Covid-19 pandemic, which has resulted in a sharp drop in global travel and prompted airlines to ground planes. Some airlines have sought to defer lease payments or purchases of new aircraft. Gecas had an operating loss of $786 million on revenue of $3.95 billion in 2020. GE took a roughly $500 million write-down on the value of its aircraft portfolio in the fourth quarter.

Combining the companies could afford cost-cutting opportunities and help the new entity weather the downturn.

Separating Gecas could help GE with its efforts to shore up its balance sheet and improve cash flows. Despite a recent increase, GE’s share price remains below where it was before significant problems in the company’s power and finance units emerged in recent years.

The Boston company has a market value of around $119 billion after the shares more than doubled in the past six months as it posted improving results. Still, the stock has fallen by about three-quarters from the peak just over 20 years ago.

Mr. Culp became the first CEO from outside of GE in late 2018 after the company was forced to slash its dividend and sell off businesses. The former

Danaher Corp.

boss has sought to simplify GE’s wide-ranging conglomerate structure further, as other industrial giants such as Siemens AG and

Honeywell International Inc.

have done in recent years.

Activist investor Trian Fund Management LP, which has owned a significant position in the company since 2015 and holds a seat on its board, has supported such changes.

Early in his tenure, Mr. Culp said he had no plans to sell Gecas, a move his predecessor

John Flannery

had considered after the unit drew interest from private-equity firms pushing further into the leasing business.

Mr. Culp has sought to even out cash flows and refocus on core areas. Operations he has parted with include the company’s biotech business, which was purchased by Danaher in a $21 billion deal that closed last year. GE also sold its iconic lightbulb business in a much smaller deal last year, and previously said it was unloading its majority stake in oil-field-services firm Baker Hughes Co.

GE has cut overhead costs and jobs in its jet-engine unit while streamlining its power business. The pandemic continues to pressure the jet-engine business, GE’s largest division, however.

The company also makes healthcare machines and power-generating equipment, and the rest of GE Capital extends loans to help customers purchase its machines and contains legacy insurance assets too.

AerCap is based in Ireland and Gecas has headquarters there as well. The aircraft-leasing industry has long had a significant presence in Ireland due to the country’s favorable tax regime and the importance of Guinness Peat Aviation in the development of the sector. (A deal between GE and AerCap would reunite two companies that bought their main assets from GPA.) The industry has gotten more competitive as Chinese companies have gained market share, however, and the combination could help the new group stem that tide.

Shares in aircraft-leasing companies plummeted along with much of the market in the early days of the pandemic as demand from major airlines, who lease planes to avoid the costs of owning them, evaporated. But many of the major lessors’ stocks have recovered lost ground and then some in the months since as lockdowns ease and the outlook for travel improves.

AerCap’s Chief Executive Aengus Kelly said on its fourth-quarter earnings call this month that he expects airlines to shift more toward leasing planes as they rebuild their balance sheets, in what would be a boon to the company and its peers.

“Their appetite for deploying large amounts of scarce capital to aircraft purchases will remain muted for some time,” he said. “The priority will be to repay debt or government subsidies.”

—Thomas Gryta contributed to this article.

Write to Cara Lombardo at cara.lombardo@wsj.com and Emily Glazer at emily.glazer@wsj.com

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