Before the bell: earnings season kicks off

With fresh results from Coca-Cola, Lockheed Martin and General Motors, earnings season in the United States is in full swing. In Belgium, Sofina also provided an update.

Earnings season is now underway, although some companies are off to a better start than others. Defense giant Lockheed Martin dropped 10.8% after issuing a sharp profit warning due to unexpectedly high factory costs. General Motors fell 8.1% after revealing that U.S. trade tariffs cost the company 1.1 billion dollar last quarter—a hefty figure compared to its 1.9 billion dollar net profit. Coca-Cola slipped 0.6% after posting results in line with expectations, but investors showed little enthusiasm. Meanwhile, the United States signed a trade agreement with Japan, under which Japanese exports to the U.S. will be subject to a 15% tariff. The S&P 500 ended the day flat, but Asian markets looked brighter: Japan’s Nikkei jumped 3%, led by auto stocks like Mazda Motor (+17.8%).

For earnings enthusiasts, today is the week’s highlight: both Tesla and Alphabet are due to report their second-quarter results.

Sofina sees net asset value fall

Sofina’s figures may disappoint, but for loyal Spaarvarkens readers, it’s hardly surprising. Just last week (see minute 19:45), we warned that the results could underwhelm due to the so-called “dollar effect.” Since the dollar has already lost 14% of its value this year, the euro value of Sofina’s U.S. dollar-denominated assets has dropped too. The result? Net asset value per share fell from 312 to 293 euro, a 6% decline. That news will likely drag the Sofina share price lower at today’s market open. Our view? There’s nothing surprising in yesterday’s results. If Sofina drops sharply today, we see it as a buying opportunity. The long-term story for the holding remains intact. It’s worth checking whether you’ve got sufficient exposure to this investment company, which holds stakes in some of the world’s most sought-after private equity firms.

A victim of the weak dollar

Sofina isn’t the only one facing headwinds from the weak dollar. SAP, the German software company, is feeling it too. While earnings beat analyst expectations, cloud revenue growth disappointed: revenue rose 24% to 5.1 billion euro, falling short of the pace of over 25% that investors had grown used to. That said, SAP is offering something markets do appreciate—visibility and stability. The company expects full-year revenue to come in between 21.6 and 21.9 billion euro, which would be 300 to 600 million euro above expectations. Due to the slight blemish in the cloud division, we don’t expect an exuberant market reaction today.

Did you know…

that Coca-Cola isn’t primarily a soft drink company, but a syrup seller? A full 56% of its revenue comes from selling syrup—which is far more profitable than delivering finished beverages. That’s because Coca-Cola doesn’t have to transport water: the customer (often in the hospitality sector) adds it themselves later.

This article was translated from Dutch and was originally published on Spaarvarkens.be.