I’m going to focus on four key industries here when reviewing earnings reports, tech, auto finance, consumer finance and banking.
CDW is one of the most important tech companies that many haven’t heard of. They are a $23b revenue company distributing tech hardware, software, computer peripherals, cloud computing products, mobile devices, network communication and security related products to more than 250,000 business, government, education and healthcare customers in the US, UK and Canada.
In their earnings release, “The first quarter was marked by a period of intensifying economic uncertainty that led our customers to spend more cautiously and prioritize mission critical initiatives. This demand contraction resulted in first quarter performance below our expectations. Volume declines were most acute with our largest commercial customers and across transactional products. Solutions were more resilient, but performance also came in below our expectations.”
As for their forecast, “Given first quarter market performance and near-term conditions, we currently expect the US IT market to decline at a high single digit rate in 2023.” Soak that in ahead of a slew of tech earnings reports coming in the next few weeks.
ALLY Financial
With respect to extending auto credit, “We now anticipate we will originate around $40b this year, slightly lower than the expectation communicated last quarter.”
“our origination mix has skewed towards higher credit tier segments on a y/o/y basis. We’ve added significant price across the entirety of the credit spectrum but our pricing action has been very targeted.”
With regards to used car assumptions, “Consumer demand has been strong to start the year, but given the dynamic macro environment, we feel it’s prudent to remain balanced…Beyond 2023, the ongoing lack of quality used vehicle supply is expected to keep auction prices above pre-pandemic levels.”
On credit quality, “First quarter losses of 1.68% were in line with our 1.7% guide as favorable used values were offset by elevated loss frequency…Delinquency rates were elevated in first quarter vs our expectations and do present a headwind. We observed a smaller benefit from tax refunds than in prior years and without continued flow to loss favorability, elevated delinquencies pose risk to future defaults. Additionally, the macro environment continues to pressure consumers.”
Discover Financial has its earnings call this morning but in their release they saw higher net charge-offs mostly across the board. “The credit card net charge-off rate was 3.10%, up 126 bps from the prior period and up 73 bps from the prior quarter. The 30+ delinquency rate for credit card loans was 2.76%, up 99 bps y/o/y and up 23 bps q/o/q. The student loan net charge-off rate was 1.04%, up 35 bps from the prior year and down 29 bps from the prior quarter. Personal loans net charge-off rate of 1.94% was up 82 bps from the prior year and up 45 bps from the prior quarter.”
On the regional banks that have all been reporting, they are all making it a point to highlight their strengths in light of what was seen last month.
Huntington Bancshares:
“Huntington’s solid capital levels, strong credit profile, and leading deposit and liquidity profile have positioned the company to enter this period from a position of strength.”
Truist Financial:
“In a challenging and unique quarter for the banking industry, Truist demonstrated strength and leadership that reflects our diverse business model, granular and relationship-oriented deposit base, and strong capital and liquidity position.”
Fifth Third Banc:
“We have continued to navigate the uncertain economic environment well, including delivering solid deposit outcomes throughout the first quarter. Our results reflect the strength and resiliency of our balance sheet, disciplined credit risk management, and strong and diversified revenue streams.”
Shifting to market sentiment after I highlighted the II data yesterday where the Bulls rose to the highest level since November 2021 and now exceed the Bears by 26 points. This is measuring the mood of the ‘professional investor’ in the newsletter space. The individual investor mood though remains more sober according to AAII. Bulls rose 1.1 pts to 27.2, off the multi month high two weeks ago of 33.3, though off the low post SVB of 19.2. Bears were little changed at 35.1, up .6 pts. It was 48.9 after SVB and as low as 25 in early February. The Neutral category is just off a two month high and that is likely the best way of classifying this investing cohort.
Moving overseas, Taiwan said its March export orders fell a sharp 26% y/o/y, more than the forecast of down almost 19%, led by falls in electronics. This comes as the CFO of Taiwan Semi said today in their earnings call that “Moving into second quarter 2023, we expect our business to continue to be impacted by customers’ further inventory adjustment.”
Japan in contrast saw a 4.3% y/o/y rise in exports in March and was driven by autos as inventories normalize.
In Europe, French business confidence fell 1 pt m/o/m where no change was expected. Declines were seen m/o/m in manufacturing, services and employment and a slight uptick was in retail and with no change in construction. As seen in the chart below, this index is just 1 pt from falling to a 2 yr low.
German PPI in March fell 2.6% m/o/m which was much more than the estimate of down .6%. Prices are still up 7.5% y/o/y but that continues to decelerate as the comps are REALLY tough. In March 2022, PPI was up 31% y/o/y.
French Business Confidence
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