Earnings This Week: US banks, Delta Air Lines & Walgreens

Corporate earnings calendar: October 9 - 14

The third-quarter earnings season kicks off in the US and, as usual, it will be the major banks to kick things off when JPMorgan, Wells Fargo and Citigroup report results at the end of the week. There are earnings out from Pepsi, Delta Air Lines and Walgreens Boots earlier in the week.

Below is a calendar outlining all the major updates we are watching next week:

US banks: Q3 earnings preview

JPMorgan, Wells Fargo and Citigroup are scheduled to be the first to report, followed by the other major banks the week after. This could be a weak earnings season for US banks, although it appears markets have already priced-in bleaker prospects.

JPMorgan has outperformed this year and will likely do so again this season, but most banks will report lower earnings and we anticipate more cautious commentary amid the uncertain economic outlook. Recession risks are rising and US household budgets are coming under strain from a myriad of headwinds. We may see some green shoots in investment banking, while trading arms will continue to find things difficult.

A shaky economic outlook, a muted investment banking market and tougher financial market conditions all point toward weaker prospects for banks, but has this already been priced-in? Banking stocks, tracked by the SPDR S&P Bank ETF, are down over 40% since hitting their cyclical peak back in January 2022 (just three months before the Fed started its hiking cycle) and have shed over 20% since the start of 2023 alone after tumbling in the wake of the banking crisis that erupted in March.

That has seen several bank hit multi-year lows and most of them are now trading below their five-year historic average, suggesting markets have baked-in tougher prospects.

You can find our in-depth analysis in our US Banks Q3 Earnings Preview.

DAL stock: Delta Air Lines Q3 earnings preview

The US airline industry warned last month that higher fuel prices, driven by the surge in oil prices, would push up costs and crimp profits in the third quarter and this resulted in Delta Air Lines lowering its guidance.

That caused Delta to recently slide to its lowest level in over four months last week, although it has started to rebound after becoming heavily oversold.

The airline has said EPS should come in between $1.85 to $2.05, and Wall Street has pencilled-in a figure of $1.94. The warning ahead of the results should reduce the potential of any unwelcome surprises this week. Delta’s operating margin should come in at about 13% in the quarter, down from its original hopes for a ‘mid-teens’ margin.

The fact Delta reiterated its earnings goal for the full year will also suggests the airline views the current pressure on profits as temporary, or at least manageable. However, the slide in the share price suggests markets remain concerned that the earnings outlook has deteriorated and unconvinced there won’t be any more bad news to come from the industry in the near-term.

Revenue should rise by a double-digit percentage and hit a new third-quarter record, with demand for travel still buoyant. Still, with the summer season now ending and the outlook for consumer spending darkening, investors will want to see more evidence that consumers are still prioritising travel.

WBA stock: Walgreens Q3 earnings preview

Walgreens Boots shares sank to their lowest level since 1998 last month, with the stock having been shaken by a weaker outlook and uncertainty after CEO Rosalind Brewer and chief financial officer James Kehoe left the business, with other directors fulfilling their roles on an interim basis.

That leaves the company rudderless until permanent replacements are found, with investors unsure of what to expect when the new boss arrives. Confirming a replacement would be, generally speaking, welcome as it will provide more certainty to the strategy and outlook.

Walgreens Boots lowered its guidance in the last quarter and said US consumer spending was tightening. Revenue is forecast to rise 7.3% from last year in the fourth quarter to $34.83 billion and adjusted EPS is seen falling 33% to $0.78. Adjusted operating profit is the company’s headline number and analysts see it rising 1.8% to $757.4 million.

Assuming it meets those expectations, it is on course to report a 4.4% rise in annual revenue to $138.49 billion and a 20.6% drop in full-year adjusted EPS to $4.00, which would be at the very bottom of the company’s revised guidance range.

We already have some preliminary guidance for the new financial year, so investors will want to see if Walgreens is feeling more optimistic, pessimistic or largely the same about its prospects than it was three months ago – although the lack of a boss makes any major changes unlikely and raises the likelihood that management will stick with a more cautious view. Walgreens said it is anticipating a mid-single digit rise in adjusted operating profits, with EPS figures to rise at a slower pace due to higher tax rates.

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