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To: Return to Sender who wrote (90453)

7/24/2023 5:21:06 PM

From: Return to Sender

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Cadence Reports Second Quarter 2023 Financial Results

finance.yahoo.com

SAN JOSE, Calif., July 24, 2023--( BUSINESS WIRE)--Cadence Design Systems, Inc. (Nasdaq: CDNS) today announced results for the second quarter of 2023.

Cadence reported second quarter 2023 revenue of $977 million, compared to revenue of $858 million for the same period in 2022. On a GAAP basis, Cadence achieved operating margin of 31 percent and recognized net income of $221 million, or $0.81 per share on a diluted basis, in the second quarter of 2023, compared to operating margin of 33 percent and net income of $187 million, or $0.68 per share on a diluted basis, for the same period in 2022.

Using the non-GAAP measures defined below, operating margin for the second quarter of 2023 was 42 percent and net income was $334 million, or $1.22 per share on a diluted basis, compared to operating margin of 42 percent and net income of $298 million, or $1.08 per share on a diluted basis, for the same period in 2022.

"Cadence delivered excellent results for the second quarter of 2023, with strong ongoing customer demand for our innovative technologies," said Anirudh Devgan, president and chief executive officer. "With its unparalleled promise, Generative AI is beginning to make a significant impact globally. Our dedicated focus on AI over the past several years, combined with our computational software expertise and invaluable data that lies at the core of AI, uniquely positions us to deliver to the tremendous potential of this transformative technology."

"We achieved another quarter of strong financial results and are raising our revenue, operating margin and EPS guidance for 2023 yet again," said John Wall, senior vice president and chief financial officer. "Our revenue outlook for the second half represents a year-over-year growth of approximately 15%, allowing us to raise our 2023 revenue guidance to more than 14% growth over 2022."

CFO Commentary

Commentary on the second quarter 2023 financial results by John Wall, senior vice president and chief financial officer, is available at www.cadence.com/cadence/investor_relations.

Business Outlook

For the second half of 2023, the company expects total revenue in the range of $2.052 billion to $2.092 billion. Second half GAAP operating margin is expected to be in the range of 30 percent to 31 percent and GAAP net income per diluted share is expected to be in the range of $1.65 to $1.71. Using the non-GAAP measures defined below, operating margin is expected to be in the range of 41 percent to 42 percent and net income per diluted share is expected to be in the range of $2.54 to $2.60.

For fiscal year 2023, the company expects total revenue in the range of $4.05 billion to $4.09 billion. On a GAAP basis, operating margin for 2023 is expected to be in the range of 30.2 percent to 31.2 percent and GAAP net income per diluted share for 2023 is expected to be in the range of $3.35 to $3.41. Using the non-GAAP measures defined below, operating margin for 2023 is expected to be in the range of 41.2 percent to 42.2 percent and net income per diluted share for 2023 is expected to be in the range of $5.05 to $5.11.

The company utilizes a long-term projected non-GAAP tax rate, which reflects currently available information, as well as other factors and assumptions. The non-GAAP tax rate could be subject to change for a variety of reasons, including the rapidly evolving global tax environment, significant changes in the company’s geographic earnings mix, or other changes to the company’s strategy or business operations. The company expects to use this normalized non-GAAP tax rate through fiscal 2025 but will re-evaluate this rate periodically for significant items that may materially affect its projections.

A schedule showing reconciliations of the business outlook from GAAP operating margin, GAAP net income and GAAP diluted net income per share to non-GAAP operating margin, non-GAAP net income and non-GAAP diluted net income per share, respectively, is included in this press release.

Audio Webcast Scheduled

Anirudh Devgan, president and chief executive officer, and John Wall, senior vice president and chief financial officer, will host the second quarter 2023 financial results audio webcast today, July 24, 2023, at 2 p.m. (Pacific) / 5 p.m. (Eastern). Attendees are asked to register at the website at least 10 minutes prior to the scheduled webcast. An archive of the webcast will be available starting July 24, 2023 at 5 p.m. (Pacific) and ending September 15, 2023 at 5 p.m. (Pacific). Webcast access is available at www.cadence.com/cadence/investor_relations.

About Cadence

Cadence is a pivotal leader in electronic systems design, building upon more than 30 years of computational software expertise. The company applies its underlying Intelligent System Design strategy to deliver software, hardware and IP that turn design concepts into reality. Cadence customers are the world’s most innovative companies, delivering extraordinary products from chips to boards to complete systems for the most dynamic market applications, including hyperscale computing, 5G communications, automotive, mobile, aerospace, consumer, industrial and healthcare. For nine years in a row, Fortune magazine has named Cadence one of the 100 Best Companies to Work For. Learn more at www.cadence.com.

© 2023 Cadence Design Systems, Inc. All rights reserved worldwide. Cadence, the Cadence logo and the other Cadence marks found at www.cadence.com/go/trademarks are trademarks or registered trademarks of Cadence Design Systems, Inc. All other trademarks are the property of their respective owners.

This press release contains forward-looking statements, including Cadence's outlook on future operating results, strategic objectives, business prospects, technology and product developments, industry trends and other statements using words such as "anticipates," "believes," "expects," "intends," "plans," "will," and words of similar import and the negatives thereof. Forward-looking statements are subject to a number of risks, uncertainties and other factors, many of which are outside Cadence’s control, and which may cause actual results to differ materially from expectations expressed or implied in the forward-looking statements, including, among others: (i) Cadence’s ability to compete successfully in the highly competitive industries in which it operates; (ii) the success of Cadence’s efforts to maintain and improve operational efficiency and growth; (iii) the mix of products and services sold, the timing of orders and deliveries and the ability to develop, install or deliver Cadence’s products or services; (iv) change in customer demands or supply constraints that could result in delays in purchases, development, installations or deliveries of Cadence's products or services, including those resulting from consolidation, restructurings and other operational efficiency improvements of Cadence’s customers; (v) economic, geopolitical and industry conditions, including that of the semiconductor and electronics industries, government regulations and trade restrictions; (vi) capital expenditure requirements, legislative or regulatory requirements, changes in tax laws, interest rates, currency exchange rate fluctuations, inflation rates and Cadence’s ability to access capital and debt markets; (vii) the acquisition of other companies, businesses or technologies or the failure to successfully integrate and operate them; (viii) events that affect cash flow, liquidity, or reserves, or settlement assumptions Cadence may take from time to time with respect to accounts receivable, taxes and tax examinations, litigation, regulatory or other matters; and (ix) the effects of any litigation, regulatory, tax or other proceedings to which Cadence is or may become a party or to which Cadence or its products, services or properties are subject. In addition, the timing and amount of Cadence’s repurchases of its common stock are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors.

For a detailed discussion of these and other cautionary statements related to Cadence’s business, please refer to Cadence’s filings with the U.S. Securities and Exchange Commission, including its most recent report on Form 10-K, subsequent reports on Form 10-Q and future filings.

All forward-looking statements in this press release are based on management's expectations as of the date of this press release and, except as required by law, Cadence disclaims any obligation to update these forward-looking statements to reflect future events or circumstances.

GAAP to Non-GAAP Reconciliation

Non-GAAP financial measures should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with generally accepted accounting principles, or GAAP. Investors are encouraged to review the reconciliation of non-GAAP measures contained within this press release with their most directly comparable GAAP results. Investors are also encouraged to look at the GAAP results as the best measure of financial performance.

To supplement Cadence’s financial results presented on a GAAP basis, Cadence management uses non-GAAP measures that it believes are helpful in understanding Cadence’s performance. One such measure is non-GAAP net income, which is a financial measure not calculated under GAAP. Non-GAAP net income is calculated by Cadence management by taking GAAP net income and excluding, as applicable, amortization of intangible assets, stock-based compensation expense, acquisition and integration-related costs including retention expenses, investment gains or losses, income or expenses related to Cadence’s non-qualified deferred compensation plan, restructuring and other significant items not directly related to Cadence’s core business operations, and the income tax effect of non-GAAP pre-tax adjustments.

Cadence management uses non-GAAP net income because it excludes items that are generally not directly related to the performance of Cadence’s core business operations and therefore provides supplemental information to Cadence management and investors regarding the performance of the business operations, facilitates comparisons to the historical operating results and allows the review of Cadence's business from the same perspective as Cadence management, including forecasting and budgeting.

The following tables reconcile the specific items excluded from GAAP operating margin, GAAP net income and GAAP net income per diluted share in the calculation of non-GAAP operating margin, non-GAAP net income and non-GAAP net income per diluted share for the periods shown below:

Operating Margin Reconciliation	Three Months Ended
	June 30, 2023	July 2, 2022
	(unaudited)
GAAP operating margin as a percent of total revenue	31%	33%
Reconciling items to non-GAAP operating margin as a percent of total revenue:
Stock-based compensation expense	8%	7%
Amortization of acquired intangibles	2%	2%
Acquisition and integration-related costs	1%	1%
Restructuring	0%	0%
Non-qualified deferred compensation expenses (credits)	0%	(1)%
Non-GAAP operating margin as a percent of total revenue	42%	42%

Net Income Reconciliation	Three Months Ended
	June 30, 2023			July 2, 2022
(in thousands)	(unaudited)
Net income on a GAAP basis	$	221,120		$	186,920
Stock-based compensation expense		76,608			64,270
Amortization of acquired intangibles		14,920			14,701
Acquisition and integration-related costs		13,946			8,278
Restructuring		—			16
Non-qualified deferred compensation expenses (credits)		3,155			(6,524	)
Other income or expense related to investments and non-qualified deferred compensation plan assets*		(2,508	)		7,610
Income tax effect of non-GAAP adjustments		6,509			22,551
Net income on a non-GAAP basis	$	333,750		$	297,822

*	Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense.

Diluted Net Income Per Share Reconciliation	Three Months Ended
	June 30, 2023			July 2, 2022
(in thousands, except per share data)	(unaudited)
Diluted net income per share on a GAAP basis	$	0.81		$	0.68
Stock-based compensation expense		0.28			0.23
Amortization of acquired intangibles		0.06			0.05
Acquisition and integration-related costs		0.05			0.03
Restructuring		—			—
Non-qualified deferred compensation expenses (credits)		0.01			(0.02	)
Other income or expense related to investments and non-qualified deferred compensation plan assets*		(0.01	)		0.03
Income tax effect of non-GAAP adjustments		0.02			0.08
Diluted net income per share on a non-GAAP basis	$	1.22		$	1.08
Shares used in calculation of diluted net income per share		272,996			275,172

*	Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense.

Cadence Design Systems, Inc.
Condensed Consolidated Balance Sheets
June 30, 2023 and December 31, 2022
(In thousands)
(Unaudited)

	June 30, 2023		December 31, 2022

Current assets:
Cash and cash equivalents	$	873,925	$	882,325
Receivables, net		440,915		486,710
Inventories		139,576		128,005
Prepaid expenses and other		188,634		209,727
Total current assets		1,643,050		1,706,767

Property, plant and equipment, net		370,193		371,451
Goodwill		1,428,772		1,374,268
Acquired intangibles, net		340,742		354,617
Deferred taxes		872,151		853,691
Other assets		500,216		476,277
Total assets	$	5,155,124	$	5,137,071

Current liabilities:
Revolving credit facility	$	-	$	100,000
Accounts payable and accrued liabilities		510,007		557,158
Current portion of deferred revenue		686,293		690,538
Total current liabilities		1,196,300		1,347,696

Long-term liabilities:
Long-term portion of deferred revenue		96,653		91,524
Long-term debt		648,551		648,078
Other long-term liabilities		305,165		304,660
Total long-term liabilities		1,050,369		1,044,262

Stockholders' equity		2,908,455		2,745,113
Total liabilities and stockholders' equity	$	5,155,124	$	5,137,071

Cadence Design Systems, Inc.
Condensed Consolidated Income Statements
For the Three and Six Months Ended June 30, 2023 and July 2, 2022
(In thousands, except per share amounts)
(Unaudited)


	Three Months Ended						Six Months Ended
	June 30, 2023			July 2, 2022			June 30, 2023			July 2, 2022

Revenue:
Product and maintenance	$	922,790		$	802,285		$	1,886,532		$	1,648,529
Services		53,789			55,236			111,737			110,758

Total revenue		976,579			857,521			1,998,269			1,759,287

Costs and expenses:
Cost of product and maintenance		74,218			68,717			174,456			141,512
Cost of services		22,640			23,948			46,874			48,996
Marketing and sales		167,070			139,296			333,736			279,482
Research and development		354,416			286,597			704,711			577,492
General and administrative		54,605			51,426			108,132			100,363
Amortization of acquired intangibles		4,302			4,633			8,569			9,597
Restructuring		-			16			-			28

Total costs and expenses		677,251			574,633			1,376,478			1,157,470

Income from operations		299,328			282,888			621,791			601,817

Interest expense		(8,877	)		(4,281	)		(18,137	)		(8,389	)
Other income (expense), net		7,973			(5,962	)		16,257			(10,862	)

Income before provision for income taxes		298,424			272,645			619,911			582,566

Provision for income taxes		77,304			85,725			156,987			160,311

Net income	$	221,120		$	186,920		$	462,924		$	422,255


Net income per share - basic	$	0.82		$	0.69		$	1.72		$	1.55

Net income per share - diluted	$	0.81		$	0.68		$	1.70		$	1.53

Weighted average common shares outstanding - basic		269,714			271,520			269,607			272,028

Weighted average common shares outstanding - diluted		272,996			275,172			273,078			276,097

Cadence Design Systems, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2023 and July 2, 2022
(In thousands)
(Unaudited)


	Six Months Ended
	June 30,			July 2,
	2023			2022

Cash and cash equivalents at beginning of period	$	882,325		$	1,088,940
Cash flows from operating activities:
Net income		462,924			422,255
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		70,432			67,690
Amortization of debt discount and fees		626			539
Stock-based compensation		150,896			123,739
Loss on investments, net		554			3,124
Deferred income taxes		(20,171	)		(41,597	)
Provisions for losses on receivables		720			133
ROU asset amortization and change in operating lease liabilities		(3,543	)		1,742
Other non-cash items		1,834			88
Changes in operating assets and liabilities, net of effect of acquired businesses:
Receivables		41,208			(64,036	)
Inventories		(16,981	)		367
Prepaid expenses and other		50,793			40,571
Other assets		(31,838	)		14,476
Accounts payable and accrued liabilities		(37,049	)		17,470
Deferred revenue		1,269			80,460
Other long-term liabilities		9,497			(5,872	)
Net cash provided by operating activities		681,171			661,149

Cash flows from investing activities:
Purchases of investments		(29,212	)		(1,000	)
Proceeds from the sale and maturity of investments		1,505			-
Purchases of property, plant and equipment		(46,655	)		(42,202	)
Purchases of intangible assets		-			(750	)
Cash paid in business combinations, net of cash acquired		(55,379	)		(25,000	)
Net cash used for investing activities		(129,741	)		(68,952	)

Cash flows from financing activities:
Proceeds from revolving credit facility		50,000			-
Payments on revolving credit facility		(150,000	)		-
Proceeds from issuance of common stock		77,502			50,224
Stock received for payment of employee taxes on vesting of restricted stock		(78,988	)		(63,544	)
Payments for repurchases of common stock		(450,119	)		(600,049	)
Net cash used for financing activities		(551,605	)		(613,369	)

Effect of exchange rate changes on cash and cash equivalents		(8,225	)		(38,224	)

Decrease in cash and cash equivalents		(8,400	)		(59,396	)

Cash and cash equivalents at end of period	$	873,925		$	1,029,544

Cadence Design Systems, Inc.
(Unaudited)

Revenue Mix by Geography (% of Total Revenue)
	2022					2023
GEOGRAPHY	Q1	Q2	Q3	Q4	Year	Q1	Q2

Americas	47%	45%	45%	46%	46%	44%	41%
China	16%	13%	17%	13%	15%	17%	18%
Other Asia	18%	18%	17%	18%	18%	18%	18%
Europe, Middle East and Africa	14%	18%	16%	17%	16%	15%	17%
Japan	5%	6%	5%	6%	5%	6%	6%
Total	100%	100%	100%	100%	100%	100%	100%


Revenue Mix by Product Category (% of Total Revenue)
	2022					2023
PRODUCT CATEGORY	Q1	Q2	Q3	Q4	Year	Q1	Q2

Custom IC Design and Simulation	22%	23%	22%	22%	22%	20%	22%
Digital IC Design and Signoff	27%	27%	29%	28%	28%	25%	27%
Functional Verification, including Emulation and Prototyping Hardware	28%	24%	25%	25%	26%	32%	27%
IP	13%	14%	12%	12%	12%	11%	11%
System Design and Analysis	10%	12%	12%	13%	12%	12%	13%
Total	100%	100%	100%	100%	100%	100%	100%

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Operating Margin
As of July 24, 2023
(Unaudited)

	Six Months Ending	Year Ending
	December 31, 2023	December 31, 2023
	Forecast	Forecast

GAAP operating margin as a percent of total revenue	30% - 31%	30.2% - 31.2%

Reconciling items to non-GAAP operating margin as a
percent of total revenue:
Stock-based compensation expense	8%	8%
Amortization of acquired intangibles	2%	2%
Acquisition and integration-related costs	1%	1%
Non-qualified deferred compensation expenses	0%	0%

Non-GAAP operating margin as a percent of total revenue†	41% - 42%	41.2% - 42.2%

†The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Diluted Net Income Per Share
As of July 24, 2023
(Unaudited)

	Six Months Ending	Year Ending
	December 31, 2023	December 31, 2023
	Forecast	Forecast

Diluted net income per share on a GAAP basis	$1.65 to $1.71	$3.35 to $3.41

Stock-based compensation expense	0.65	1.20
Amortization of acquired intangibles	0.12	0.23
Acquisition and integration-related costs	0.06	0.17
Non-qualified deferred compensation expenses	-	0.02
Other income or expense related to investments and non-qualified deferred compensation plan assets*	-	(0.02)
Income tax effect of non-GAAP adjustments	0.06	0.10

Diluted net income per share on a non-GAAP basis†	$2.54 to $2.60	$5.05 to $5.11

Cadence Design Systems, Inc.
Impact of Non-GAAP Adjustments on Forward Looking Net Income
As of July 24, 2023
(Unaudited)


	Six Months Ending	Year Ending
	December 31, 2023	December 31, 2023
($ in millions)	Forecast	Forecast

Net income on a GAAP basis	$452 to $468	$915 to $931

Stock-based compensation expense	178	329
Amortization of acquired intangibles	33	63
Acquisition and integration-related costs	17	47
Non-qualified deferred compensation expenses	-	6
Other income or expense related to investments and non-qualified deferred compensation plan assets*	-	(6)
Income tax effect of non-GAAP adjustments	15	26

Net income on a non-GAAP basis†	$695 to $711	$1,380 to $1,396


†The non-GAAP measures presented in the table above should not be considered a substitute for financial results and measures determined or calculated in accordance with GAAP.

* Includes, as applicable, equity in losses or income from investments, write-down of investments, gains or losses on investments and gains or losses on non-qualified deferred compensation plan assets recorded in other income or expense.

CDNS-IR

Category: Financial, Featured

View source version on businesswire.com: businesswire.com

Contacts

For more information, please contact:

Cadence Investor Relations
408-944-7100
investor_relations@cadence.com

Cadence Newsroom
408-944-7039
newsroom@cadence.com

To: Return to Sender who wrote (90453)

7/25/2023 5:24:23 PM

From: Return to Sender

3 Recommendations

Recommended By
kckip
Sam
Sr K

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Market Snapshot

briefing.com

Dow	35461.33	+50.18	(0.14%)
Nasdaq	14166.11	+106.86	(0.76%)
SP 500	4572.61	+16.70	(0.37%)
10-yr Note	-3/32	3.91

NYSE	Adv 1462	Dec 1384	Vol 826 mln
Nasdaq	Adv 1933	Dec 2459	Vol 4.5 bln

Industry Watch

Strong: Materials, Information Technology, Utilities, Energy

Weak: Financials, Real Estate, Industrials, Consumer Discretionary

Moving the Market

-- Better-than-expected earnings results from several blue chip stocks

-- Strength in the mega cap space

-- Wait-and-see in front of earnings from Microsoft (MSFT) and Alphabet (GOOG) after the close, and FOMC policy decision tomorrow at 2:00 p.m. ET followed by Fed Chair Powell's press conference at 2:30 p.m. ET

Closing Summary
25-Jul-23 16:30 ET

Dow +26.83 at 35437.98, Nasdaq +85.69 at 14144.94, S&P +12.82 at 4568.73
[BRIEFING.COM] The major indices closed with gains after the S&P 500 and Dow Jones Industrial Average each hit new 52-week highs at their best levels of the day. The DJIA also logged its twelfth straight winning session. Strength from some mega cap stocks helped to boost index performance.

Alphabet (GOOG 122.79, +0.91, +0.8%) and Microsoft (MSFT 350.98, +5.87, +1.7%) were some of the top performers from the space ahead of their earnings report after today's close. The Vanguard Mega Cap Growth ETF (MGK) rose 0.6% versus a more modest 0.1% gain in the Invesco S&P 500 Equal Weight ETF (RSP). The market-cap weighted S&P 500 rose 0.3%.

Blue chip companies dominated the earnings calendar since yesterday's close and largely received positive reactions from market participants, acting as added support for the market. Packaging Corp. (PKG 152.65, +13.98, +10.1%), General Electric (GE 117.16, +6.91, +6.3%), 3M (MMM 109.83, +5.56, +5.3%), Dow, Inc. (DOW 53.48, +0.93, +1.8%), Nucor (NUE 172.88, +6.23, +3.7%), and Sherwin-Williams (SHW 275.96, +7.94, +3.0%) were among the standouts following their earnings reports.

Today's positive bias was also supported by the July Consumer Confidence Index, which showed the highest reading since July 2021, driven both by a pickup in views about current conditions and the outlook.

Five of the 11 S&P 500 sectors closed in positive territory. The materials (+1.8%) and information technology (+1.2%) sectors registered the biggest gains by a decent margin. Meanwhile, the real estate sector (-0.7%) fell to the bottom of the pack.

The industrials sector (-0.1%) was another notable laggard, weighed down by a big decline in RTX (RTX 87.10, -9.91, -10.2%), which lowered its free cash flow guidance for the year due to a need to inspect a significant portion of the PW1100G-JM engine fleet after finding that a powdered metal used in the production of those engines has a contaminant in it.

In other corporate news, the International Brotherhood of Teamsters and UPS (UPS 184.69, -3.65, -1.9%) announced that they have reached a five year tentative collective bargaining agreement.

Banc of California (BANC 14.61, +1.46, +11.2%) is in advanced discussions to buy PacWest (PACW 7.69, -2.85, -27.0%), according to The Wall Street Journal.

The 2-yr Treasury note yield rose one basis point to 4.90% and the 10-yr note yield rose six basis points to 3.91%. On a related note, today's $43 billion 5-yr note sale met decent demand, though foreign interest was a bit below average.

Participants are still eyeing some market-moving events later in the week. The FOMC began its two-day policy meeting today. A new policy directive will be released at 2:00 p.m. ET on Wednesday followed by Fed Chair Powell's press conference at 2:30 p.m. ET.

Nasdaq Composite: +35.1% YTD
S&P 500: +19.0% YTD
Russell 2000: +11.6% YTD
S&P Midcap 400: +11.7% YTD
Dow Jones Industrial Average: +6.9% YTD

Reviewing today's economic data:

The FHFA Housing Price Index rose 0.7% in May following a 0.7% in the prior month.
The S&P Case-Shiller Home Price Index fell 1.7% in May (Briefing.com consensus -1.9%) following a 1.7% decline in the prior month.
The Conference Board's Consumer Confidence Index jumped to 117.0 in July (Briefing.com consensus 111.5) from an upwardly revised 110.1 (from 109.7) in June. In the same period a year ago, the index stood at 95.3.
- The key takeaway from the report is that the uptick in consumer confidence was driven both by a pickup in views about current conditions and the outlook, which are an offshoot of better feelings about inflation coming down and the labor market remaining tight.

Ahead of Wednesday's open, AT&T (T), Boeing (BA), Coca-Cola (KO), Thermo Fisher (TMO), Union Pacific (UNP), Fiserv (FI), Automatic Data (ADP), Ryder System (RO), Old Dominion (ODFL), and Teledyne Tech (TDY) are some of the more notable companies reporting earnings.

Looking ahead to Wednesday, market participants will receive the following economic data:

7:00 ET: Weekly MBA Mortgage Index (prior 1.1%)
10:00 ET: June New Home Sales (Briefing.com consensus 722,000; prior 763,000)
10:30 ET: Weekly crude oil inventories (prior -708,000)
14:00 ET: July FOMC Rate Decision (Briefing.com consensus 5.25-5.50%; prior 5.00-5.25%)

Market stays near highs ahead of the close
25-Jul-23 15:40 ET

Dow +66.57 at 35477.72, Nasdaq +115.95 at 14175.20, S&P +19.07 at 4574.98
[BRIEFING.COM] The market is little changed over the last half hour.

Treasuries settled with losses. The 2-yr note yield rose one basis point to 4.90% and the 10-yr note yield rose six basis points to 3.91%.

Ahead of Wednesday's open, AT&T (T), Boeing (BA), Coca-Cola (KO), Thermo Fisher (TMO), Union Pacific (UNP), Fiserv (FI), Automatic Data (ADP), Ryder System (RO), Old Dominion (ODFL), and Teledyne Tech (TDY) are some of the more notable companies reporting earnings.

Looking ahead to Wednesday, market participants will receive the following economic data:

7:00 ET: Weekly MBA Mortgage Index (prior 1.1%)
10:00 ET: June New Home Sales (Briefing.com consensus 722,000; prior 763,000)
10:30 ET: Weekly crude oil inventories (prior -708,000)
14:00 ET: July FOMC Rate Decision (Briefing.com consensus 5.25-5.50%; prior 5.00-5.25%)

BANC to buy PACW; earnings after the close
25-Jul-23 15:00 ET

Dow +50.18 at 35461.33, Nasdaq +106.86 at 14166.11, S&P +16.70 at 4572.61
[BRIEFING.COM] The major indices remain near their best levels of the session.

Banc of California (BANC 14.43, +1.21, +9.7%) is in advanced discussions to buy PacWest (PACW 9.13, -1.41, -13.4%), according to The Wall Street Journal. Western Alliance (WAL 48.34, -1.57, -2.8%) shares took a sharp turn lower in response. The SPDR S&P Regional Banking ETF (KRE) is down 1.0%.

PACW will report earnings after the close today.

Alphabet (GOOG) and Microsoft (MSFT) will headline the earnings reports after the close. Visa (V), Waste Mgmt (MW), Texas Instruments (TXN), Snap (SNAP), and EQT Corp. (EQT) are also among notable earnings reporters.

Alaska Air slips after forecasting revenue slowdown next qtr
25-Jul-23 14:30 ET

Dow +100.02 at 35511.17, Nasdaq +126.64 at 14185.89, S&P +22.51 at 4578.42
[BRIEFING.COM] The S&P 500 (+0.49%) and the DJIA (+0.28%) are riding near highs in recent trading, the former situated comfortably in second place.

S&P 500 constituents MSCI (MSCI 545.77, +43.02, +8.56%), WestRock (WRK 32.33, +1.57, +5.12%), and Archer-Daniels (ADM 85.97, +2.86, +3.44%) pepper the top of the S&P. MSCI and ADM move higher on earnings, while WRK gains in sympathy to peer Packaging Corp's (PKG 152.90, +14.23, +10.26%) report.

Meanwhile, Alaska Air (ALK 47.92, -5.41, -10.14%) is near the bottom of the standings today after forecasting a revenue slowdown in the coming quarter.

Gold slightly higher on Tuesday
25-Jul-23 14:00 ET

Dow +74.30 at 35485.45, Nasdaq +112.85 at 14172.10, S&P +17.98 at 4573.89
[BRIEFING.COM] With about two hours left to go on Tuesday the tech-heavy Nasdaq Composite (+0.80%) clings to a commanding lead, up about 113 points.

Gold futures settled $1.50 higher (+0.1%) to $1,963.70/oz taken against modest moves in both the dollar and treasury yields ahead of tomorrow's Fed rate decision.

Meanwhile, the U.S. Dollar Index is up less than +0.1% to $101.41.

A steady and familiar-looking state for stock market
The equity futures market has a familiar look, which is to say it isn't pointing to the likelihood of big losses at today's open. On the contrary, the cash market looks poised to hold its ground or nudge higher when the opening bell rings.

Currently, the S&P 500 futures are up one point and are trading in-line with fair value, the Nasdaq 100 futures are up 42 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are down nine points and are trading in-line with fair value.

Those indications might not seem like much, but they are meaningful in the sense that they reflect a willingness to keep holding/buying stocks after a huge run for the broader market. Said another way, they also reflect an ongoing lack of concerted selling interest after that big run.

Entering today, the market-cap weighted S&P 500 is up 9% since the end of May while the Invesco S&P 500 Equal-Weight ETF (RSP) is up 10.7% over the same period.

Good earnings results (and responses) from a host of blue-chip companies since yesterday's close, coupled with gains among the mega-cap stocks and big moves in Chinese markets following the Politburo's tease of increased policy support, have provided the early support.

General Motors (GM), 3M (MMM), General Electric (GE), Sherwin-Williams (SHW), Kimberly-Clark (KMB), and Verizon (VZ) all exceeded consensus earnings estimates and are all trading higher in pre-market action.

Notably, Alphabet (GOOG) and Microsoft (MSFT) are trading higher, too, in front of their earnings reports after today's close. Those reports are important for the market given the size of those companies, but even more important will be the reaction to those reports.

Will these stocks continue to move higher after their results or will they be met with some selling resistance? It is reasonable to think that the stocks will sell off if there is "bad news" in the reports and/or guidance, but will they sell off if there is good news in the reports and/or guidance? That is really what market participants are waiting to assess.

The reaction will be a driving force for the market, which will also be waiting on the Fed decision and Fed Chair Powell's press conference, on Wednesday.

For now, it is a steady state in the stock market, which is going to be inundated with earnings news in the next few weeks that will either validate or not validate the multiple expansion that has been predicated on the tenets of the economy avoiding a hard landing, the Fed being close to the end of its tightening cycle, and earnings growth accelerating in the second half of the year.

-- Patrick J. O'Hare, Briefing.com

General Electric flying to multi-year highs as Aerospace segment fuels beat-and-raise report (GE)

On the strength of its Aerospace segment, which is experiencing robust demand due to an ongoing boom in air travel, and its considerable streamlining efforts, General Electric (GE) has reported solid quarterly results lately. That trend continued this morning with GE issuing an impressive beat-and-raise Q2 earnings report that has shares flying to their highest levels since late 2017.

CEO Larry Culp's vision and strategy to transform GE into a pure play aviation company couldn't be playing out any better. There is still some work to be done -- GE Vernova, which includes the Renewable Energy and Power businesses -- is set to be spun off in late 2023 or early 2024. However, over the past few years, GE has undergone a major transformation, including the spinoff of the healthcare segment in January and the merger of its aircraft leasing unit with AerCap Holdings (AER) in March.

As GE has cut down and simplified its operations, the emphasis has shifted substantially to its Aerospace segment. This transformation has coincided with a recovery and subsequent boom in air travel demand, pushing sales and orders for GE's jet engines sharply higher. Likewise, as mileage piles up for commercial jets across the country, GE's aircraft services business is seeing a major upswing on rising demand for parts and maintenance.

In Q2, Aerospace organic revenue climbed by 28% with strength in both equipment and services. More specifically, commercial engines and services generated revenue growth of 32%.
On the defense side, which dealt with significant supply chain issues last year, orders more than doubled while engine output soared by 74% yr/yr.

The robust results for Aerospace don't come as a surprise given the surging momentum in the commercial airline industry, but the recovery in the Renewable Energy segment has been pretty remarkable.

Rewinding to the year-ago period, organic revenue sank by 20% and segment margin plummeted by 1,210 bps to (13.5)% due to weak orders for wind turbines. Uncertainty surrounding future tax credits for wind generation acted as a drag on the unit, prompting GE to initiate cost-cutting measures that included a 20% reduction in headcount for the segment.
After the Inflation Reduction Act was passed on August 16, 2022, order activity for wind turbines began to accelerate. Simultaneously, the effects from GE's cost-cutting initiatives gradually took hold, resulting in margin and profitability improvements.
Bolstered by rising equipment growth across the onshore, offshore, and grid markets, revenue in Renewable Energy climbed by 27% to $3.8 bln in 2Q23. Meanwhile, productivity improvements and price adjustments drove segment margin higher by 680 bps to (9.3)%, leading to a 35% increase in profit to ($400) mln.

Assuming the recovery in Renewable Energy continues -- while Power remains steady (orders up 7% in Q2) -- investor enthusiasm for the GE Verona spinoff should only build. That's a positive for GE as the valuation for GE Verona will presumably rise. Overall, this was a very strong earnings report for GE and its outlook only seems to be brightening as it inches closer to becoming a standalone aviation company.

Sherwin-Williams brushes concerns to the side as Q2 results underscore favorable trends (SHW)

Sherwin-Williams (SHW +4%) brushes over analysts' forecasts in Q2, delivering sizeable beats on its top and bottom lines and raising its FY23 guidance significantly. Positive sentiment surrounded the paints and coatings supplier leading into its Q2 report today, illustrated by shares soaring over +25% from March lows. Several favorable developments, from easing inflationary pressures to homebuilders displaying resilient housing trends, ignited SHW's blazing rally. After delivering figures surpassing raised expectations in Q2, shares are popping off to 52-week highs.

Consolidated net sales expanded 6.3% y/yr to $6.24 bln, easily toppling analyst expectations and helping fuel SHW's largest EPS beat since 4Q21. The favorable pricing environment touched on by PPG was apparent for SHW in Q2, with each of its operating segments delivering positive yr/yr growth.
The star of Q2 was SHW's largest segment, Paint Stores Group (PSG), which advanced its top-line by 10% yr/yr to $3.5 bln, assisting in a 280 bp improvement in reported segment margins. Consumer Brands Group (CBG) was also up nicely in the quarter, climbing 5.1% to $945.8 mln, igniting a 470 bp margin increase. Lagging the broader group was Performance Coatings Group (PCG), where sales were mostly flat at 0.3% to $1.79 bln. However, recent acquisitions kept PCG from sinking, adding 4.5 pts to the top line in the quarter.
- Notable highlights include marine and commercial property maintenance, which ticked up by a double-digit percentage, residential repaint, which edged up by high single digits, and Automotive Refinish, which grew in the high single digits.
Outside the U.S., SHW painted over brewing concerns sparked by peer PPG Industries (PPG), which remarked that industrial production levels will likely remain low over the near term and discussed cautious consumer buying behavior in Europe and a slower-than-expected recovery in China. Despite this, SHW recorded a double-digit percentage revenue increase in Europe. Also, even though China sales were down by double-digits, SHW is amid a divestiture of its China business, which should be completed in Q3.
CEO John Morikis still cautioned that the demand environment was not entirely back to normal, noting that demand will likely vary meaningfully by region and end market. In PCG, management warned that North America demand has decelerated while Europe and Asia remain choppy, echoing sentiments expressed by PPG.
Nevertheless, SHW lifted its FY23 outlook considerably, projecting adjusted EPS of $9.30-9.70, up from $7.95-8.65, and revs enjoying positive low single-digit percentage growth, a massive reversal from its previous estimate of down mid-single digits to flat. SHW pointed to encouraging developments within the end markets that exhibited particular strength in Q2 as factors in its raised guidance.

Overall, SHW's Q2 results underpinned strengthening and resilient trends across multiple end markets, particularly the automotive and repair and remodel housing markets. Although demand remains uneven across geographies and industries, conditions appear to be improving as SHW enters the back half of the year.

General Motors heads lower following smaller EPS beat; UAW negotiations loom on the horizon (GM)

General Motors (GM -4%) is trading lower after the automotive giant reported Q2 results this morning. GM reported upside for EPS, but it was much narrower than what we saw the last three quarters. Revenue came in better than expected. GM also raised its FY23 adjusted EPS guidance to $7.15-8.15 from $6.35-7.35.

Adjusted EBIT is the most closely followed metric. It jumped 38% yr/yr to $3.23 bln in Q2, with a 7.2% adjusted EBIT margin which was up from 6.6% a year ago. Q2 adjusted EBIT included a $792 mln impact related to extra steps (trade-ins, loaner vehicles) the company took to resolve the issue for consumers. It also includes new agreements with LG Electronics and LG Energy Solution related to the Bolt recall. Despite the Q2 charge, GM still raised its FY23 adjusted EBIT guidance for the second quarter in a row. GM bumped its outlook to $12-14 bln from $11-13 bln.
GM says the biggest driving force behind its results is customer demand for its vehicles. GM has increased retail market share yr/yr in each of the past four quarters with strong pricing and incentive discipline. For example, half of customers in the US for the popular new Chevrolet Trax are new to GM. GM is also excited about the upcoming launch of the 2024 Chevrolet Traverse which it revealed earlier this month.
GM is also performing well in international markets such as Brazil and Korea. For example, two-thirds of Trax buyers in Korea are new to GM. In just four months, the Chevrolet Montana, GM's first compact pickup for the Brazil market, has earned one-third of its segment.
GM also continues to lead the full-size pickup market in the US, with the new Chevrolet Silverado HD and GMC Sierra HD showing momentum. In the EV market, GM met its target to produce 50,000 EVs in North America in 1H23. With both cell and vehicle production increasing, GM continues to target production of roughly 100,000 EVs in 2H23.
GM is also making a big push to become more efficient and reduce costs. It now expects FY23 capital spending to be $11-12 bln, which is about $1 bln less than the high end of prior guidance. GM also said it's focusing more on profitability and it is not sacrificing margin for volume.

Overall, this was a solid but not a great report from GM. We think the much more modest EPS beat this quarter is a bit of a letdown for investors following three huge beats in Q3-Q1. Also, GM's decision to do more for customers related to the Bolt recall may be weighing on the stock a bit. Looking ahead, a key issue to watch in Q3 will be getting a new UAW contract signed to avoid any work stoppages. The current deal expires in mid-September. This could weigh on the shares in the coming months until a deal can get struck. Finally, we think this report makes us a bit more worried about Ford's (F) Q2 report on Thursday after the close.

3M sticks to cost cutting and price increases to drive upside EPS in uneven demand climate (MMM)

Restructuring charges and a massive $10.3 bln settlement agreement for PFAS related claims made for a messy and highly unprofitable quarter on a GAAP basis for 3M (MMM), but the company's 2Q23 operating results comfortably surpassed expectations. The better-than-expected performance enabled MMM to significantly lift its FY23 EPS guidance and nudge its revenue outlook slightly higher.

Through a combination of cost-cutting measures, including the elimination of 8,500 jobs since last January, and price increases across its vast product portfolio, MMM's adjusted operating margin improved sequentially in each of its business segments.
- On a consolidated basis, adjusted operating margin expanded by 140 bps qtr/qtr to 19.3%, underpinning the company's largest EPS beat since 1Q21.

Muted expectations also likely played a role in the upside performance. Indeed, business is far from booming for MMM. With the exception of the Health Care segment -- which is set to be spun off later this year or early next year -- every business unit experienced a yr/yr decline in organic sales growth.

Like last quarter, weakness in consumer-facing markets, such as electronics, retail, and home improvement, weighed on MMM's sales.

The pullback in consumer spending was most acutely felt in the Transportation & Electronics segment. Weak demand for semiconductors, smartphones, TVs, and tablets drove a 22% yr/yr decline in electronics.
- Fortunately, automotive remained a source of strength, primarily due to robust demand for electric vehicles, helping to offset the soft electronics market. Overall, adjusted organic revenue for the segment dipped by 2.4% yr/yr.
A similar story played out in the Consumer segment, which posted an organic revenue decrease of 2.2%. Product categories such as stationery and office supplies (Scotch tape, post-it notes) aren't only being impacted by a slowdown in consumer spending, but they're also still taking a hit from fewer employees working in office settings.
- MMM doesn't anticipate business conditions improving much for this segment, commenting that demand for hardline categories will likely remain subdued in 2H23.
Slowing sales of disposable respirators are still an issue for MMM's Safety & Industrial segment. Excluding a 4.8 percentage point headwind from lower disposable respirator sales, organic sales for the segment would have been up by 0.2%.
- Safety & Industrial is also the only segment to post a yr/yr increase in adjusted operating margin as productivity actions, strong spending discipline, and price increases pushed margins higher by 70 bps to 22.2%.

The main takeaway is that MMM's restructuring and streamlining actions paid dividends in Q2 and should continue to support healthier margins and profits in 2H23. The potential removal of the PFAS overhang and the upcoming Health Care spin-off are two other positive factors that could support the stock. However, the demand picture remains mixed-at-best with ongoing weakness in the consumer electronics market weighing heavily on the top-line.

Whirlpool shares sink despite EPS beat as promotional environment weighs on sales in Q2 (WHR)

Household appliance giant Whirlpool (WHR -3%) is seeing its shares sink today despite exceeding bottom-line estimates and reaffirming FY23 guidance. Last week, European-based rival Electrolux AB (ELUXY) registered downbeat Q2 results, commenting that the macroeconomic environment proved challenging as weak demand clipped volumes, especially in Europe, and spurred heightened promotional activity, particularly in North America, compared to the year-ago period.

Even though Whirlpool derives most of its sales from North America (~58% in FY22) and mostly exited the European market after divesting its EMEA operations outside of its KitchenAid brand and a 25% stake in a newly formed entity earlier this year, the increasing promotions Electrolux warned about still weighed on Whirlpool's top line. Sales dipped 6% yr/yr to $4.79 bln, coming up a tad light compared to estimates, which was somewhat troubling given the inflationary environment. It also is leading to profit-taking today after shares ascended over +17% from May lows.

Nevertheless, mild revs should not wash over Whirlpool's several other highlights from Q2.

To help dodge economic hurdles, Whirlpool has been cutting costs, focusing on becoming a higher growth, higher margin company. Alongside the partial divestiture of its EMEA business, Whirlpool has been reducing the complexity of its parts, lowering its headcount, and targeting other areas of inefficiency, resulting in an expected cost takeout of $500 mln in FY23. As such, Whirlpool's adjusted operating margins improved by around 200 bps sequentially to 7.3%, fueling another double-digit earnings beat in the quarter.
Outside of Latin America, which demonstrated relative resilience with a +4.1% jump in sales yr/yr, all geographies posted declines in the quarter. Mirroring Electrolux's Q2 results, EMEA was Whirlpool's weakest region, with sales falling 15.3% yr/yr. Asia closely trailed, dropping 12.7%. In Whirlpool's dominant North American market, net sales edged 4.7% lower. However, like last quarter, Whirlpool's acquisition of InSinkErator helped partially offset weakness in the region.
Encouragingly, management left its industry demand outlook unchanged for FY23 despite the volatile environment, projecting adjusted EPS of $16.00-18.00 and revs of $19.4 bln. Whirlpool touched on similar positive developments as last quarter, noting that although broader consumer sentiment remains cautious, it sees early but unmistakable signs of a strengthening U.S. housing market while supply chains are returning to pre-pandemic conditions.
Whirlpool also repeated that it is on track to deliver $800-900 mln of additional cost takeout benefits this year, including $300-400 mln of reduced raw material costs.

Despite not showing up in the price action today, Whirlpool's Q2 results were mostly upbeat. Discretionary spending remains suppressed, with no indication of a reversal. However, this is not translating to significant weakness, a testament to Whirlpool's ability to cut costs and capitalize on a relatively resilient U.S. housing market. Uncertainty will likely continue to linger throughout the rest of the year. However, long-term dynamics, including a severe housing shortage domestically and increased replacement cycle as more individuals work and cook at home, remain intact, ready to fuel accelerated performance once broader economic conditions turn.