In this week’s update, CIO Tom Weary, CFA®️, reviews the latest numbers on the pandemic as more Americans become eligible to get the vaccine. He also shares earnings from a number of companies, including RFA Defensive Portfolio holdings The Coca-Cola Company, Procter & Gamble, and Intel.

Transcript

Hi, I’m Tom Weary here at Reilly Financial Advisors with your Weekly Market Update.  This week we heard earnings reports from a number of your companies across a broad spectrum of industries.  But before reviewing those, let’s take a quick look at where things stand with the COVID-19 pandemic.

America has made a big push recently to get as many people vaccinated quickly as possible.  On Monday anyone over the age of 16 became eligible, while 50% of adults have received at least one shot and 25% are fully vaccinated.  And yet, the pandemic is still very much with us.  As you can see in this first chart, while daily reported cases have dropped dramatically from the terrifying levels witnessed in January, we seem to have hit a plateau around 60,000, which is the same level as the worst point last summer and double the level during last years’ nationwide lockdown.  And yet, many Americans are acting as if the pandemic is over.  We can see in this next chart that Americans are now driving as much as they did before the pandemic.  After a brief respite, air pollution around the world is returning to pre-pandemic levels.  While an aggressive vaccination campaign has made a dent here in the U.S., this next chart illustrates that the pandemic has not been brought under control in other parts of the world.  Much of Europe is returning to strict lockdowns and cases are rising in South America and exploding in Asia.  As we see in this next chart, the result is that global new daily cases are hitting all-time records.  And some of the poorest countries are being hit the hardest.  This last chart shows that new cases are growing exponentially in India, and those are just the confirmed cases.  The true number is likely much higher.  The coast isn’t clear yet, and we all need to remain vigilant a while longer.  The light at the end of the tunnel is getting closer, but it isn’t here yet.

On Tuesday we heard from healthcare giants Abbott Laboratories and Johnson & Johnson.  J&J reported absolutely stellar results.  Revenue of $22.3 billion grew 8% and beat estimates by $280 million.  International sales grew over 12% versus 4% in the U.S.  Earnings of $2.32 grew 7% and beat by 24 cents.  The company raised their earnings guidance for 2021 and increased the dividend by 5%, the 59th consecutive annual increase.  Abbott reported first quarter earnings of $1.32, which beat by a nickel, but sales of $10.5 billion missed estimates by $170 million, and they guided analysts lower for 2021 earnings, hitting the stock price.  The board of directors, however, expressed their confidence by increasing the dividend for the 49th consecutive year.  And on Thursday, HCA Healthcare, a leading hospital chain and Defensive Portfolio holding, beat on the top and bottom lines and raised their outlook for the year reporting revenue of $14 billion rising 9% and beating by $350 million and earnings of $4.14 beating by 83 cents.  Although the number of hospital admissions dropped, HCA saw the revenue per patient climb 17%.  Perhaps we are seeing signs of things returning to normal in the healthcare arena.

This week we heard from a couple of Consumer Staples companies in the Defensive Portfolio.  On Monday, Coca-Cola reported earnings of 55 cents, which beat by a nickel, on revenue of $9 billion, which grew 5% from last year and beat by $370 million.  The company smashed consensus estimates with organic sales growth of 6% versus flat expectations as the lifting of lockdown restrictions allowed more consumption away from home.  And on Tuesday, Procter & Gamble reported another solid quarter with revenue of $18 billion rising over 5% and beating by $150 million while earnings of $1.26 beat by 7 cents.  The company announced that they would be seeking price increases in the fall on some products as they have been facing increased cost pressures related to pandemic-related supply chain issues.

Semiconductor equipment maker Lam Research reported blowout results with revenue up 55% on the year and earnings of $7.49 beating estimates by 88 cents.  CEO Tim Archer stated, “Semiconductors are reaching new heights of strategic relevance, and Lam’s differentiated ability to meet our customers’ scaling challenges positions us well amid a strong wafer fabrication spending environment.”  And on Thursday, Defensive Portfolio holding Intel beat on the top and bottom lines and raised their full-year guidance.  Sales of $19.7 billion beat by $1.75 billion and earnings of $1.39 beat by a quarter.  But the company reported that data center sales were down 20% and missed estimates, which hit the stock price after hours and on Friday.

Telecom giant Verizon reported earnings of $1.31 which beat by 2 cents on sales of $32.9 billion which beat estimates by $440 million.  Both figures were up about 4% from last year.  Verizon lost more wireless subscribers than expected but did show strength in their FiOS fiber optic high speed internet business.   Crown Castle, a major player in cellphone towers, reported earnings of $1.71, which beat by 26 cents, and revenue of $1.5 billion which gained 5% from a year ago but missed expectations by $10 million.  And Swedish telecom equipment maker Ericsson saw its stock rise after its sales and earnings missed estimates but the company produced what one analyst called “blow-out” margins.  On an adjusted basis, sales rose 10% year-over-year, falling short of consensus.  But stellar growth in Networks was the focus of the report as the company reported market share gains. Sales there increased double digits and margins were just short of 20%.

Defense contractor Lockheed Martin reported earnings of $6.56 which rose 8% and beat estimates by 24 cents, but revenue of $16.3 billion, an increase of 4%, missed by $40 million.  Sales rose in all four segments of the business: planes, helicopters, missiles and space.  The company also raised their earnings guidance for the year.  Travelers, a leading insurer and Defensive Portfolio holding, reported earnings of $2.73 versus estimates of $2.40 even as revenue of $7.4 billion missed by $110 million and pretax catastrophe losses more than doubled from $333 million to $835 million.  The insurer also boosted its dividend and added $5 billion to the share buyback program for good measure.

So, what does it all mean?  The pandemic is still with us as the battle between vaccines and variants proceeds at different paces in different places.  Our rate of vaccination here at RFA is proceeding very well, so we are hoping to back to near normal operations before too much longer.  In the meantime, the companies in your portfolio continue to report surprisingly strong results for the most part.  We will have even more companies reporting next week.  So, please, sit back, relax, and join us again next week for the RFA Weekly Market Update.

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