Wishing a Happy Easter and Passover to all of those celebrating.
Not to mention — a Happy Master’s Sunday as well.
Read on for your quick recap of the last week in the markets!
One Interesting Observation:
We loved this viewpoint via zerohedge — see below for the relationship between money market fund holdings and bank deposits (with bank deposits having an inverted relationship).
Over just the last couple of months, inflows have been pouring into money market funds.
The real question is what happens if those money market holdings don’t come back to deposits?
Perhaps those ‘temporary Fed liquidity injections’ will become indefinite — and the arduous fight of quantitative tightening (QT) will have been overall ineffective?
Food for thought!
“The "Bank Walk" continues.
Bank deposits now down -4.1%. This is your sibling, your neighbor, people with money sitting in a bank account, each at their own pace deciding they're sick of earning 0%. Each day, someone new, moving their money out of 0% and into 4% T-Bills.” — Jeff Weniger
Want to learn more about how you can earn between 4.5% and 5% on your money easily? Read the below post.
Week in Review — Too Long, Didn’t Read:
Constellation Brands returned $2.3B to shareholders, Conagra Brands’ supply chain caused unwanted “sellouts,” Cash App founder is tragically slain in the streets, Taiwan is surrounded, Goldman’s A.I. report is scary, the Services and Manufacturing PMI trends aren’t looking great, the Jobs Report encourages more rate hikes, and the Crude Awakening has arrived.
Key Earnings Announcements:
Constellation Brands returned $2.3 billion to shareholders, while Conagra Brands experienced supply chain disruptions.
Constellation Brands (STZ)
Key Metrics
Revenue: $2.1 billion, compared to $2.3 billion last year
Operating Income: $466.7 million, compared to $677.5 million last year
Profits: $223.0 million, compared to $395.0 million last year
Earnings Release Callout
“Our solid performance and disciplined capital allocation enabled us to return nearly $2.3 billion to shareholders in share repurchases and dividends.
Our Beer business exceeded its net sales and operating income outlook, and we continued to make progress with our investments to support its strong growth.”
My Takeaway
The business of alcohol is very profitable, especially if you own a laundry list of popular brands like Constellation.
Beer depletions of +6.3% were ahead of Wall Street’s estimates of +5.0% — driven primarily by Modelo Especial and Corona Extra. Despite this, beer sales were down -1.9% while volumes were down -5.4% — and total organic sales were down -9.4%, while volumes were down -18.9%.
The company provided healthy guidance headed into 2023, despite a few “industry reports” hinting to a slow down in sales. However, the company guided to free cash flow of only ~$1.3B, down about -$400M from their 2022 print.
Despite the steadily increasing dividend, I’m not impressed and believe capital is better allocated elsewhere. No position.
Conagra Brands (CAG)
Key Metrics
Revenue: $3.1 billion, an increase of +6% YoY
Operating Income: $391.8 million, an increase of +39% YoY
Profits: $341.7 million, an increase of +56% YoY
Earnings Release Callout
“Our top-line posted solid growth as we demonstrated strong pricing execution with modest elasticities.
Additionally, our productivity and service level improvement allowed us to continue to make meaningful progress on our adjusted gross margin and adjusted operating margin recovery, despite more impactful supply chain disruptions than anticipated.”
My Takeaway
CAG results beat Wall Street estimates because of strong pricing and better sell-through rates — aiding their gross margins. Their +21% increase in adj. EBITDA was driven by higher prices and improved service levels.
The company experienced a few isolated supply chain disruptions that resulted in “out of stocks” for canned meals and frozen fish — but isn’t anticipated to continue into 2023.
Looking forward, I don’t plan to open a position in the company. Their execution of profitable growth proves to be inconsistent as the company continues to battle cost inflation, demand uncertainty, and working capital weighing on free cash flow.
Investor Events / Global Affairs:
Rampant San Francisco crime takes a tech leader too soon, Taiwan is on red alert from China, and Goldman Sachs’ freaky A.I. report.
Creator of Cash App Murdered
Early Tuesday morning, Cash App Founder Bob Lee was stabbed to death in San Francisco. Rest in peace to him and we wish his family and loved ones as peaceful of a recovery process as possible.
Taiwan Surrounded
China's military simulated precision strikes against Taiwan in a second day of drills around the island on Sunday, with the island's defense ministry reporting multiple air force sorties.
China, which claims democratically governed Taiwan as its own territory, began three days of military exercises around the island on Saturday — the day after Taiwan President Tsai Ing-wen returned from a brief visit to the United States.
Check this out if you want to be terrified by China’s willingness to implement their “One China” philosophy:
Goldman Sachs A.I. Report
Goldman Sachs sees labor market disruption, productivity escalation, and a massive flow of investments to continue into A.I.
Most wild of all — they predict 300 million jobs will be lost to automation.
Major Economic Events:
PMI results are sketchy, the Jobs Report was mixed and increased the odds of another rate hike, and oil futures soar due to OPEC+ production cuts.
Manufacturing and Services PMI Readings
Services PMI is hovering around the ‘danger territory’ of falling below 50. Manufacturing PMI remains firmly in contraction.
These statistics from the Institute of Supply Management (ISM) are not getting enough attention. Horrible results — which are almost always indicative of recessions.
Jobs Report