Weekly Reads - July 25, 2022
Please read the Unison Asset Management Social Media Disclaimerhere
Economic bellwether Walmart had bad news in store during their latest quarterly earnings report noting the continuing trend of tighter consumer budgets impacting retail sales. The company saw positive same store sales growth for the quarter yet saw operating income decline and guided a double-digit decline in operating income for the year. Walmart saw rising demand for food items as shoppers look for deals for necessary every day products but saw sharp decline in demand for discretionary items such as apparel and electronics. This trend has forced the company to follow its retail peers and discount a mass quantity of items consumers do not want right now. With food items possessing lower profit margins than discretionary items the company’s financial are being clearly impacted by changes in consumer shopping habits.
The usually steady and stable AT&T saw its shares plunge almost -8% as the company reported that on average consumers are paying their bills two days slower than a year ago impacting the company’s financials. The telecom industry is typically very steady with consumers often reducing expenses on discretionary items in order to pay for necessary items like their cell phone. AT&T’s CEO noted that economic conditions are forcing consumers to stretch out their payments due to tighter budgets caused by rising inflation. AT&T was forced to cut free cash flow guidance by $2 billion dollars citing further extension of payments by their customers and more challenging environment for their wireline business. If customers are struggling to afford their monthly bills the economy could be in further trouble with consumers being forced to cut discretionary spending further in order to make payments on necessary services.
Eutelsat is acquiring One Web merging together two rival satellite companies in their quest to unseat SpaceX. This merger comes at an interesting time in which investors are not looking for companies to take on excess risk. The early response to this merger has been clearly negative with Eutelsat down -17% after announcing the merger on Monday. This negativity has been spawned primarily from the bad track record of OneWeb who at point was anointed as a key challenger to SpaceX’s Starlink project and Amazon’s own Project Kuiper, but the company burned through billions of venture capital and had to emerge from bankruptcy with the help of the U.K government. The deal values OneWeb at $3.4 billion and the market clearly believes Eutelsat is overpaying for this company which will be dilutive to profits for the foreseeable future. Eutelsat’s management team see the merger as a way to speed up growth and make the company more competitive. With Eutelsat shares at their lowest since 2020 investor confidence in the company is dwindling as the company pivots toward a more growth-oriented strategy.