Earnings This Week: Walmart, Tencent and Aviva

Corporate earnings calendar: August 14 - 18

We are approaching the end of US earnings season but this week is still an important one as the retail sector takes centre stage, with results due out from Walmart, Target, Home Depot, TJX and Ross Stores, with markets keeping an eye on US consumer spending. There is also US retail sales data due out on Tuesday.

Other big names in the US calendar this week include semiconductor firm Applied Materials, tech giant Cisco, machinery maker Deere & Co, luxury goods firm Tapestry and cybersecurity outfit Palo Alto Networks.

It will also big a big week for Chinese stocks that are listed in America, with tech conglomerate Tencent, video platform Bilibili, ecommerce firm JD.com and electric carmaker XPeng all due to provide updates. South-east Asian outfit Sea is also pencilled-in.

In the UK, insurers Aviva, Admiral Group and Legal & General take the spotlight, alongside retirement products provider Just Group, infrastructure builder Balfour Beatty and gambling firms 888 Holdings and Rank Group.

Below is the full calendar with all the key earnings reports we are watching this week:

WMT stock: Walmart Q2 earnings preview

Sales are forecast to rise 4.3% from last year to $159.5 billion, ahead of its 4% growth guidance, although that would mark the slowest growth in over a year. Walmart same-store sales growth in the US is pencilled-in at 4.2%, the slowest increase since early 2022.

Markets believe Walmart’s food and grocery offerings will remain in favour and keep giving it an edge over rivals that are geared more toward general merchandise, while its focus on value keeps appealing to customers that are keeping a close-eye on spending and shunning more discretionary items. Walmart is likely to lower prices as quickly as the inflationary environment allows it to so it can maintain or grow market share. Spending has held up better than anticipated so far this year, suggesting Walmart could keep outperforming.

Adjusted EPS is expected to drop for the first time in a year, by 4.7% to $1.69, which is just above Walmart’s target range. Margins are under pressure and interest payments on debt are also climbing as interest rates keep rising. Walmart is aiming to grow operating income faster than revenue over time. Analysts believe this will not be the case this quarter, but any signs that it is on the right path to improving profitability would be bullish. Walmart raised its guidance in the previous quarter, making another lift less likely but not impossible.

TGT stock: Target Q2 earnings preview

The situation at retailer Target, which has massively underperformed its rivals and the wider markets in 2023, is different. Sales are forecast to fall 1.8% this quarter to $25.2 billion, marking the first drop in around three-and-a-half years as its focus on general merchandise bites. Same-store sales are expected to drop 3.1%.

Target is trying to lean more into groceries and everyday items to appeal to cost-conscious consumers but it is still ultimately known for its general merchandise, where sales are faltering as consumers are forced to spend more on necessities. Target was dragged down by inventory problems last year, when it had too much of the stuff consumers didn’t want and not enough of what was in demand, but has been left facing with a drastic change in shopping habits once again since sorting its inventory out. Still, the ongoing reduction in inventory is helping improve margins.

There are other potential headwinds too. Target faced a backlash over its LGBTQ merchandise introduced in June, according to media reports, and it has already warned it is expecting to lose around $500 million this year through theft, which is rising amidst the cost-of-living crisis.

On a brighter note, Target is forecast to report adjusted EPS of $1.50 this quarter, which would mark a large jump from the $0.39 produced the year before. While strong, Target is coming up against easy comparatives following the slump in profits we saw in 2022, taking the shine off what would otherwise be stellar growth.

HD stock: Home Depot Q2 earnings preview

Meanwhile, conditions are even tougher at DIY retailer Home Depot as consumers pullback on big renovations and upgrades to their homes which, twinned with inflationary pressures, are crunching margins. As a result, Home Depot is expected to report its second consecutive quarter of lower revenue and earnings.

Revenue is forecast to fall 3.9% from last year to $42.1 billion, with same-store sales seen declining for a third consecutive quarter, this time by 4.1%. Most of the slump will come from everyday consumers, but more resilient demand from professional tradespeople is also feeling the pressure.

Adjusted EPS is estimated to drop 11.7% to $4.46. Margins are forecast to improve sequentially but still be down from last year as costs keep climbing, including wages for staff.

The outlook for the second half is uninspiring but at least priced-in. Home Depot has already warned sales will be down 2% to 5% over the full year, with earnings to drop 7% to 13%. Home Depot has made a comeback after rising over 17% since its last set of results, although it is still way behind the markets after rising just 5% since the start of 2023. The stock is trading below its historic average but in-line with the wider industry.

AMAT stock: Applied Materials Q3 earnings preview

Applied Materials, which makes fabrication equipment used to make semiconductor chips, is expected to report its first drop in quarterly sales and earnings in four years when it reports this week.

The bulk of the equipment made by Applied Materials finds its way into foundries that produce chips for a wide array of companies that design them. However, demand for devices has been unwinding since exploding during the pandemic and this is prompting companies to curtail investment in new equipment. Investment by memory chip makers is running at its lowest level in over a decade, Applied Materials said in the last quarter, when it also said foundry customers are also ‘trimming their spending plans for the year’. That may be hurting new sales, but the company’s service division should remain in positive territory given companies still need to maintain their existing equipment.

As a result, quarterly revenue is forecast to be down 5.6% from last year at $6.15 billion, in-line with the company’s guidance. Adjusted EPS is seen dropping 10.8% to $1.73, in the middle of the company’s guidance range of $1.56 to $1.92.

That sets a challenging outlook over the next 12 months, although Applied Materials has said it expects to outperform its rivals and gain market share during this time and that the long-term investment case – underpinned by semiconductors forming the foundation of the global digital economy – remains intact. The eruption of interest in AI also provides scope for a major new catalyst as companies start to update their DRAM used in servers.

The outlook for the fourth and final quarter will be key in deciding how markets will respond, so keep an eye on how it compares to estimates. Wall Street is looking for revenue of $5.86 billion and adjusted EPS of $1.60.

TCEHY stock: Tencent Q2 earnings preview

We have seen a mixed picture come out of China over the past week, with the country entering deflation and the latest trade data showing both domestic and international demand could be faltering. Meanwhile, giant Alibaba managed to impress with its latest set of results as its ecommerce division and cloud computing arms returned to growth.

The strong beat from Alibaba has raised hopes, but also pressure, on Tencent to follow this week. With that in mind, analysts believe Tencent will report its fastest topline growth in almost two years. Revenue is forecast to grow 13.4% from the year before in the second quarter to RMB152 billion. Its gaming division is making a comeback after being rocked by government-imposed restrictions at home, while its international expansion continues. The reopening of the Chinese economy, while lacklustre so far, is also fuelling a revival in its advertising and fintech businesses. On the social media side of things, analysts believe it had 1.324 billion monthly active users on Weixin and WeChat at the end of June, which would mark a mild sequential uptick and be some 2% higher than the year before.

Margins are also improving, which will allow adjusted EPS to grow at an even faster pace with analysts predicting it will jump 27% to RMB3.73. However, the need to invest in AI could counter any profitability gains later this year, while revenue growth will remain at the behest of the uncertain economic outlook in China.

BILI stock: Bilibili Q2 earnings preview

Bilibili is striving to improve margins and reinvigorate growth but the speed of its turnaround could be dictated by how the Chinese economy performs, especially given a lot of its services are geared toward younger customers that tend to feel the pinch more than others.

Revenue is forecast to rise 6.4% from the year before to RMB5.2 billion. Income from mobile games and ecommerce continue to decline, but this is being countered by an acceleration in advertising revenue and ongoing strength from value-added services, which homes its subscriptions and live streaming platform. It is expected to have ended June with 96.4 million daily active users, up 2.8% from the previous quarter and over 15% above the year before.

They key earnings metric to watch is adjusted operating losses, which are seen coming in at RMB1.3 billion. The company is working to become profitable by the end of 2024, and any sign it could get their sooner would be bullish. Its adjusted net loss is expected to come in at RMB1.04 billion, which would be narrower than the RMB1.96 billion loss seen the year before.

Bilibili is currently aiming to deliver annual revenue of RMB24 billion to RMB26 billion in 2023 and markets currently believe it will be at the low-end of that range, although that would still be over 10% above what we saw in 2022.

XPeng stock: Q2 earnings preview

We already know that XPeng delivered 23,205 vehicles in the second quarter, which came in ahead of its guidance range. XPeng has raised output for six consecutive months to July, with the latest month benefiting from the launch of the new G6 Ultra Smart Coupe SUV, as it recovers from the problems suffered during the back-end of 2022.

Still, deliveries were about 35% lower in the period than a year earlier and this is expected to result in a 34% fall in quarterly revenue to RMB4.9 billion. Its adjusted loss per ADS is seen coming in at RMB1.19, which would mark an improvement from the RMB1.44 loss booked a year earlier.

Notably, XPeng has also recently struck a long-term partnership with German automaker Volkswagen that will see the pair develop two battery electric vehicles that will eventually be sold under the Volkswagen brand. It is also looking for a new boss for its autonomous driving arm after president Xinzhou Wu resigned for personal reasons earlier this month.

The outlook for XPeng looks rosier in the second half as it will start to come up against more favourable comparatives, which analysts believe will allow it to return to sales growth, with a big uptick forecast in deliveries as its new model takes off. Still, XPeng is expected to remain loss making until 2026, which will raise questions about funding in the future – with the company boasting just under $5 billion in cash at the end of March.

LGEN share price: L&G H1 earnings preview

Legal & General is expected to report lower earnings in the first half of 2023, as the adoption of IFRS 17 is set to slow the pace it is able to recognise earnings. The new accounting change came into effect at the start of 2023 and, while it doesn’t impact its strategy or business, it does alter the way it books income from its annuity and protection businesses.

The key metric to watch is operating profit, which is seen falling 29% in the first half to £823.3 million. EPS is forecast to fall 30% to around 11p. That will be driven by a sharp 16% fall from its investment management arm given the uncertain climate, as well as a milder fall from its retirement products. Watch out for any impact on the dividend from IFRS 17, as slower profit growth may make it more difficult to keep up with its ambitions to grow payouts.

AV share price: Aviva H1 earnings preview

Aviva made a strong start to 2023 after delivering double-digit growth in sales across its various businesses. Healthcare continues to benefit from more people going private, its workplace pensions business remains buoyant as higher wages push up contributions and its general insurance arm has also proven resilient.

Operating profit is forecast to be down over 15% from last year at £703.3 million in the first half. It too will be impacted by the new IFRS 17 rules and investors will also want reassurance that its plans to grow its dividend remain unchanged.

ADM share price: Admiral Group H1 earnings preview

Admiral Group will see tougher underwriting conditions, both in the UK and at home, and higher claims hit earnings in the first half, with analysts predicting an 8.2% fall in pretax profit to £230.8 million.

Its focus on motor insurance is currently a headwind as claims inflation – representing the extra costs paid for insurers to settle a claim – is on the rise, and this is heightening the need for it to diversify through Admiral Money, its personal loan arm that turned profitable last year.