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| Hello Insiders! Wednesday’s business newsletter focuses on the following: - GM raises profit outlook, cuts costs
- Analysis of why airline cargo revenue drop is a good sign
- Q2: Podcast cuts hit Spotify hard
Also, we want to hear from you! Tell us how businesses can adapt to changing consumer behaviors and preferences here. Please share this newsletter with your friends and colleagues if you find it helpful. Shriram
p/Shriram | |
| 1 | | GM has increased its profit outlook for 2023 to $12B to $14B, citing high demand for new vehicles and consumers' willingness to purchase expensive models. The company also plans to further cut $1B in fixed costs and reduce spending on capital projects. More: - GM's revenue jumped 25% to $44.7B, while its net income increased by 52% to $2.6B.
- The shares of GM dropped by nearly 3.5% despite the increased profit outlook.
- Pretax earnings per share were $1.91, exceeding analysts' expectations of $1.87, and pretax profit, excluding one-time factors, grew 38% YoY to $3.2B.
- A 39% increase in pretax profit from North America to $3.2B was attributed to strong demand for big cash cows, notably more recent models of heavy pickup trucks.
- The average car cost at GM increased by nearly 3% to about $52,000 in the second quarter.
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What the numbers say: The revenue from cargo in the second quarter decreased by nearly 40% YoY for Delta, United, and American Airlines. Delta's cargo revenue fell to $381M in the first half of 2023 from $561M in the corresponding period of 2022. While United's cargo revenue declined to $760M from $1.2B the year before, American's cargo unit saw sales of $420M, down from $692M. Relevance: Airlines' primary source of survival during COVID-19, when travel demand collapsed, was cargo revenue. Due mainly to the recovery in travel demand, which has lessened the financial impact of cargo revenue, airlines are currently reporting record revenue. More data: In comparison to 2020, the percentage of United, Delta, and American Airlines' overall revenue that came from cargo decreased in 2023 due to the pandemic's increased shipping costs. A surplus of cargo space and a decline in cargo revenue result from the airlines' expansion of services and flights due to the rebound in travel demand; the Baltic Air Freight Index shows a 47% drop in air cargo rates. | | | |
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| 3 | | Spotify surpassed its expectations with a 27% growth in monthly active users, reaching 551 million, and exceeded its paying subscriber target by three million, at 220 million. However, despite the impressive user growth, the company reported a more comprehensive loss of $335M for the quarter, compared to $138M in the previous year. More: - Charges for terminating podcast episodes, personnel layoffs, and excess real estate impairment caused the gross margin to drop to 24.1%.
- Spotify paid more in music royalties and saw a little increase in podcast profitability.
- Overall revenue for the second quarter increased by 11% to $3.51B, falling short of the company's projection; subscription revenue was $3B, and advertising revenue came in at $447M.
- The subscription business's average income per user fell 6% to $4.73, which can be attributed to cheaper plans and lower prices in developing regions to attract new customers.
- By increasing the cost of its premium subscription and scaling back its podcasting spending, Spotify is attempting to increase profitability.
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| 4 | | Due to a downturn in the consumer electronics market, which caused smartphone manufacturers to deal with an inventory build-up brought on by inflation and rising interest rates, specialty glass manufacturer Corning projects third-quarter core sales of ~$3.5B, falling short of analyst estimates of $3.70B. The company has been pursuing cost-cutting measures to counteract the drop and keep the core gross margin at 36.2%, which increased by 100 basis points. More: - Core sales in the second quarter dropped 7.4% YoY to $3.48B but saw a 3% improvement compared to the previous quarter, hinting at a possible alleviation of the decline in customer spending.
- Even though Corning reported adjusted earnings of $0.45 per share, just under analysts' expectations of $0.46, CEO Weeks anticipates greater profitability and cash flow.
- Due to the sluggish demand for optical fiber cables used in telecommunications, revenue from Corning's largest optical communications sector fell by 19%.
- A 13% revenue decline in the specialty materials segment, which includes Gorilla Glass, was offset by higher sales in the display technologies division.
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| 5 | | Walmart is offering a 50% discount on its Walmart+ subscription service for Americans receiving government assistance, reducing the price to $49 per year or $6.47 per month. This move targets low-income shoppers by providing a more affordable option, helping them save on recurring fees. More: - Customers feel the effects of increasing grocery costs owing to inflation, particularly for food, which led to Walmart's decision.
- In 2022, the SNAP provided food assistance to more than 41 million Americans who would be eligible for the Walmart+ price break.
- Walmart+ provides limitless delivery of online orders over $35, free shipping, gasoline discounts, and access to the Paramount+ streaming service.
- Morgan Stanley estimated that Walmart+ had roughly 21.5 million members, a much smaller number than the estimated 170 million Americans who are members of Amazon Prime.
Zoom Out: - On Walmart's earnings call in May, CEO Doug McMillon, expressed concern about the impact of rising grocery prices on customers, calling it a significant factor contributing to uncertainty in the upcoming months.
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| 6 | | The remaining shares of Total Eren, a French clean-power developer, will be purchased by TotalEnergies SE for $1.66B, giving it full ownership of Total Eren's 3.5 gigawatts of operating renewable energy assets as well as a sizable project pipeline of over 10 gigawatts. This action is consistent with TotalEnergies' plan to diversify its renewable energy sources and lessen its dependency on fossil fuels. More: - The transaction is anticipated to boost operating cash flow by around $442M and net operating income by about $170M for TotalEnergies' power business the following year.
- Eren Groupe SA, the current owner of Total Eren, will invest the sale proceeds into sustainable energy projects such as building energy management, biomass farming, renewable gas, and new nuclear technologies.
- Minority stakeholders Bpifrance, Tikehau Capital SCA, Peugeot Invest, and Next World Capital LLC sold their shares to Total Energies, making a profit that was more than double their initial investment.
- To increase its footprint in the renewable energy sector, TotalEnergies has made acquisitions in the U.S., Brazil, Turkey, and Germany.
- Patrick Pouyanne, the CEO of TotalEnergies, has pledged to devote $5B of the company's total capital expenditures this year to low-carbon energy sources.
Zoom Out: - In 2017, TotalEnergies paid $262M for an initial 23% share in Eren.
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| 7 | | Quick Hits: - Invest in Virtuix before they ship their VR treadmills to their waitlist, a $100M opportunity. This opportunity ends on 8/10.*
- Adidas is expected to recover some of its losses through strong sales of the remaining Yeezy inventory, reducing its operating loss to $498.3M.
- Shares of Digital World Acquisition Corp. surged over 50% after the company agreed to an $18M fraud settlement with the SEC, as it aims to make Truth Social, former President Donald Trump's social media platform, publicly available.
- Biogen to cut 1,000 jobs, around 11% of the workforce, to save costs and prioritize the launch of Alzheimer's drug Leqembi, aiming for $700M in net operating expense savings by 2025.
- Pratt & Whitney's engine troubles have caused a 10% decline in parent company RTX's shares, as over 1,000 engines on Airbus planes will need to be inspected for microscopic cracks.
- Discover how collagen helps reduce loose skin, deep wrinkles, and dark spots.*
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INSIDE BUSINESS LEADERBOARD (7 DAYS) |
 | Freelance Writer | | Shriram is pursuing Master’s in Business with Marketing at Warwick Business School. He worked as a Senior Consultant in Tech and Political Consultancies before his Masters. He is passionate about Tech, Marketing, Strategy, Anthropology and Politics. He is also the Postgraduate Ambassador for Warwick Business School. | | This newsletter was edited by Vibha Chapparike | |
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