Top US stocks to watch: Alibaba, Eli Lilly and PepsiCo

Alibaba launches the biggest buyback in its history, Eli Lilly lowers expectations, PepsiCo sells its juice business in North America, Marriott starts to recover, Under Armour hikes its guidance, Discovery adds millions of subscribers, and Take-Two delays two key video game titles.

USA (1)

Alibaba

Alibaba smashed earnings expectations in the second quarter and upped its share buyback programme to make it the largest in the company’s history, demonstrating the confidence it has going forward despite uncertainty spawning from the regulatory crackdown in China.

Revenue rose 34% year-on-year to RMB205,740 million and net profit dipped to RMB45,141 million from RMB47,591 million. Earnings per ADS managed to increase to $16.60 from $14.82. Revenue did not grow as much as Wall Street expected, but earnings were much better than the RMB29,072 million net profit and $9.81 earnings per ADS forecast by analysts.

Analysts believed earnings would take a bigger hit as it prioritised growing users, but Alibaba still added 45 million new active consumers in the quarter to end it with 1.18 billion in total. Still, Alibaba warned it was continuing to invest excess profits and cash to help merchants and penetrate new markets, but said it has also hiked its buyback programme to $15 billion from $10 billion.

Eli Lilly

Eli Lilly lowered its earnings guidance for the full year after missing expectations in the second quarter as its bottom-line failed to follow strong topline growth.

Revenue increased 23% in the second quarter to $6.74 billion. Higher volumes were the primary driver but improved prices also helped, with Trulicity, Taltz, Verzenio, Jardiance, Emgality, Olumiant, Tyvyt, Retevmo and Cyramza driving growth. Adjusted EPS grew to $1.87 from $1.45 the year before, but narrowly missed the $1.89 expected by analysts, while reported EPS dipped to $1.53 from $1.55.

Eli Lilly left its guidance for adjusted EPS for the full year unchanged at between $7.80 to $8.00 but tweaked its reported EPS target range to $6.73 to $6.93 from $7.03 to $7.23 beforehand – which in turn had already been lowered back in April.

PepsiCo

PepsiCo has announced it plans to sell the Tropicana, Naked and other juice brands in North America to PAI Partners, stating it will retain some exposure to the business and have the option to sell its European juice business in the future.

The deal is worth $3.3 billion in total. PepsiCo will sell the business to PAI, which will then place the assets into a new joint venture that the beverage giant will retain a 39% non-controlling interest in. PepsiCo will also retain exclusive US distribution rights for the brands involved.

The juice brands being sold generated net revenue of $3 billion last year but they boast lower margins than PepsiCo’s wider portfolio. The proceeds will be used to strengthen the balance sheet and make organic investments. The deal should close late in 2021 or in early 2022.

Marriot International

Marriott International revealed a significant improvement in performance during the second quarter and said it expects momentum to continue to build as leisure and business travel recovers this year.

Revenue more than doubled year-on-year as restrictions eased and people started travelling again to $3.14 billion from $1.46 billion. That resulted in an pretax profit of $381.0 million compared to the $298.0 million loss booked last year. EPS of $1.29 turned from a $0.72 loss. Revenue per average room was up more than 200% across most markets and occupancy levels averaged around 51% for the quarter.

‘While we are keeping a close eye on the Delta and other variant strains, we are optimistic that the upward trajectory of the global recovery will continue.  We anticipate that more workers returning to their offices on a hybrid basis will serve as a catalyst for a meaningful increase in business transient and group demand in the fall.  Many of our associates are starting to get back on the road, and our largest corporate clients tell us they are beginning to do the same.  Our recovery to date has shown us that there is tremendous pent-up demand for the travel experiences we consistently provide.  Timelines are hard to predict and will continue to vary by region, but I believe that we are on our way to a full global recovery,’ said chief executive Anthony Capuano.

ConocoPhillips

ConocoPhillips posted a significant improvement in results as it reaped the rewards of increasing output at a time of higher prices.

Adjusted EPS of $1.27 improved from the $0.92 loss booked the year before, while reported EPS jumped to $1.55 from $0.24. Revenue increased as production rose to 1,547 thousand barrels per day from 981 thousand barrels the year before and it benefited from higher prices.

ConocoPhillips said production should be between 1,480 to 1,520 thousand barrels per day in the current quarter, dropping due to seasonal maintenance in Alaska and in Asia Pacific.

DuPont

Chemicals giant DuPont beat expectations and raised its guidance this morning as it continues to benefit from the recovery in demand from the automotive, construction and industrial sectors.

Net sales rose 26% year-on-year in the second quarter to $4.1 billion. Adjusted EPS of $1.06 was up 240% from the year before and ahead of the $0.95 booked expected by analysts.

DuPont said it expects net sales of $4.18 to $4.23 billion in the third quarter and adjusted EPS of $1.11 to $1.13. For the full year, it is aiming for $16.45 to $16.55 billion in sales and adjusted EPS of $4.24 to $4.30. Previously, it was targeting annual sales of $15.7 to $15.9 billion and EPS of $3.60 to $3.75.

Under Armour

Under Armour hiked expectations for the rest of the year this morning as it smashed earnings estimates in the second quarter.

Revenue soared 91% to $1.4 billion, driven by a doubling in revenue from its wholesale, apparel and North American divisions. Adjusted EPS came in at $0.24. Analysts had expected revenue of $1.21 billion and adjusted EPS of just $0.06.

Under Armour said it now expects annual revenue to grow by a ‘low twenties percentage rate’ compared to growth in the high-teens beforehand, and adjusted EPS of $0.50 to $0.52 from its previous target of just $0.28 to $0.30.

Clorox

The Clorox Company posted lower revenue and earnings in the final quarter of its financial year as the increase in demand for its household products unwound, and warned it expected this trend to continue in the new financial year.

Clorox reported a 9% decline in sales in the fourth quarter and said adjusted EPS dropped 61% to $0.95. Demand for Health & Wellness, Household and Lifestyle products all declined and were only partly offset by a rise in international sales outside the US. For the full year, sales managed to grow 9% but reported EPS plunged 24% and adjusted EPS fell to 2% to $7.25.

Clorox warned it is expecting revenue to fall 2% to 6% in the new financial year, worse than the 1% drop anticipated by analysts. Reported EPS is expected to decline 4% to 9% year-on-year to $5.05 to $5.35, while adjusted EPS is expected to fall 21% to 26% to a range of $5.40 to $5.70. It said this will be caused by the strong comparative periods in the first half and a return to more normal trading conditions in the second.

Discovery

Discovery continued to acquire millions of new subscribers during the latest quarter, helping drive double-digit growth in revenue and allowing it to beat expectations.

Revenue climbed 21% in the second quarter to $3.06 billion, beating the $2.99 billion expected by Wall Street. EPS jumped to $1.01 from just $0.40 the year before as net income leapt to $672 million from $271 million.

The growth was driven by an increase in subscribers to 17 million at the end of the quarter from 13 million three months earlier, and Discovery said that figure has increased to over 18 million today. Notably, Discovery was rumoured to be lining up a potential bid for the UK’s Channel 4 earlier this week, although could face competition from other potential bidders including ITV and Sky.

Take-Two Interactive

Video game firm Take-Two Interactive disappointed analysts with its outlook as it posted first quarter results, warning it has delayed releasing some key titles.

Revenue dipped 2% year-on-year to $813.3 million but adjusted revenue of $711.4 million came in better than the $687.6 million expected by Wall Street. EPS grew to $1.32 from $0.78. However, Take-Two warned it has delayed the release of two ‘immersive core titles’, without providing details.

The firm is expecting second quarter net revenue of $740 to $790 million, below the $890 million expected by analysts. For the full year, net revenue should be between $3.14 to $3.24 billion, also below the $3.47 billion hoped for by Wall Street.

Marvell Technology

Marvell Technology has announced it is acquiring Innovium in an all-stock deal worth around $1.1 billion.

Innovium makes chips used in cloud and edge data centres, an area that Marvell sees as strategically important. ‘The planned acquisition of Innovium allows Marvell to immediately participate in the fastest growing segment of the switch market with a cloud-optimized solution,’ said Marvell.

Marvell said it is expecting Innovium to add $150 million in incremental revenue in the next financial year. It will have a neutral impact on EPS in the first quarter upon completing, but will boost EPS over the first full year.

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