Three reports in the US on Friday and over the weekend tell us a lot about what the US corporate scene looks like heading into the June quarter earnings season amid growing concerns about growth, interest rates and rising inflation.
This inflation was triggered by the rise in oil prices after the Russian invasion of Ukraine and no one has benefited from it more than Exxon Mobil. But Meta Platforms (née Facebook) is facing a revenue and earnings crisis that many of its other tech peers won’t like to hear. And Covid — along with some of CEO Elon Musk’s antics and Twitter offering — hit Tesla’s performance in the June quarter, particularly in China.
Tesla’s recent job cuts can now be more easily understood after worse-than-expected car deliveries in the June quarter thanks to the harsh Covid shutdowns in Shanghai in April and May.
Last week, the company cut 200 jobs and closed an office in California where data was collected for self-driving software. The cuts appear to have been part of CEO Elon Musk’s announcement of 10% staff cuts revealed earlier in June.
Tesla said over the weekend that its vehicle deliveries fell 18% in the three months to June thanks to the closure of its Shanghai factory.
Tesla delivered 254,695 vehicles in the quarter compared to 310,048 in the first quarter.
The strong performance in the March quarter saw revenues jump to record highs along with earnings. March quarter revenue totaled $18.8 billion, against $10.4 billion the previous year. Profits jumped to $3.3 billion.
In the June quarter of last year, Tesla reported nearly $12 billion in revenue and $1.142 billion in profit. Analysts are uncertain about the impact of the Shanghai shutdown on costs and earnings in the quarter. Tesla raised car prices during the quarter.
Sales would no doubt have been even higher had it not been for the shutdowns and supply chain issues in Shanghai. China has the largest car market in the world and accounts for around 40% of Tesla’s sales. The closure of Shanghai also meant that exports to much of Asia, including Australia, were halted or severely curtailed.
Tesla suggested in Saturday’s statement that it had overcome production issues, saying it built more cars in June than at any time in its history.
Tesla releases its second quarter numbers on July 20.
Surprisingly, a grim warning from Meta about the difficulty of finding trade terms had no impact on Wall Street on Friday.
Meta shares fell 0.7% after the announcement of an internal briefing and gloomy forecasts on the conditions the company was facing.
Meta CEO Mark Zuckerberg told employees (helped by a note from the company’s chief product officer) that the company would cut its hiring of engineers by 30%.
“If I had to bet, I’d say this could be one of the worst downturns we’ve seen in recent history,” Zuckerberg said during a briefing late last week, which is one of the most influential people in technology. world.
He made the remarks during a weekly Q&A session with employees, according to Reuters, which said it had access to audio from the event.
Meta originally planned to hire 10,000 new engineers, Zuckerberg said. In addition to cutting hiring, the company was leaving some positions vacant in response to attrition and “increasing the pressure” on performance management to weed out employees unable to meet more aggressive goals, he said. .
“In reality, there’s probably a bunch of people in the business who shouldn’t be here,” Zuckerberg said.
A memo from product manager Chris Cox was sent to Reuters and others around the same time Zuckerberg’s audio surfaced.
In the memo that was released around the same time as Zuckerberg’s comments, Cox said:
“I must point out that we are going through a difficult time here and the headwinds are fierce.
“We need to perform perfectly in a slower growth environment, where teams shouldn’t expect vast influxes of new engineers and budgets,” Cox wrote.
Meanwhile, for oil and gas companies, the June quarter will be a whole different story.
On Friday, Exxon Mobil updated its estimates for the June quarter. The company said in a regulatory filing that higher profit margins from fuel (particularly gasoline and diesel) and crude oil sales could drive record quarterly profit.
Exxon Mobil expects operating profit to rise about $7.4 billion from the first quarter. In the first quarter, Exxon posted a profit of $8.8 billion, excluding a multibillion-dollar writedown in Russia.
Friday’s filing says Exxon is eyeing potential second-quarter earnings of more than $16 billion, a record if that happens. The company’s peak quarterly profit was $15.9 billion in 2012.
The filing showed Exxon expects higher oil and gas prices to add about $2.9 billion to earnings. High margins from the sale of gasoline and diesel will add another $4.5 billion to operating profits.
“High energy prices are largely the result of the underinvestment by many people in the energy industry over the past several years and particularly during the pandemic,” Exxon said in a statement on the profit gains.
Exxon lost more than $22 billion in 2020 and used the extra cash from rising energy prices to pay down debt and pay more to shareholders. It plans to buy back up to $30 billion of its shares through 2023.
Exxon report July 29.
So before the start of the earnings season next week, it’s already clear that two tech giants – Tesla and Meta – will struggle, while Exxon Mobil (and Chevron and their energy peers) will gain. more money than before.
The year-to-date stock performance of the three companies tells the story: Tesla shares are down 43% and Meta shares are down more than 52%, but Exxon shares are up nearly 38% .