Earnings Reports (April 22nd-26th)
Earnings Reports (April 22nd-26th)
Taking a Look at Quarterly Results for Tesla (TSLA) and Lockheed Martin (LMT).
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1. Tesla (TSLA)
Tesla's (TSLA) stock saw a notable gain of 13.3% in AH trading on Tuesday, despite underwhelming results for the first quarter of 2024. The EV manufacturer (or should I say “AI Robotics Company”) reported revenues and adjusted earnings per share that fell below Wall Street's expectations. However, a significant portion of this gain is attributed to positive investor response to TSLA's updated vehicle launch plans, detailed in the "Outlook" section of their shareholder letter:
"We have updated our future vehicle line-up to accelerate the launch of new models ahead of our previously communicated start of production in the second half of 2025. These new vehicles, including more affordable models, will utilize aspects of the next generation platform as well as aspects of our current platforms, and will be able to be produced on the same manufacturing lines as our current vehicle line-up."
Absent this encouraging news, as well as FSD and Optimus reiterations, TSLA's stock might have faced a decline, primarily due to its failure to meet first-quarter revenue and earnings forecasts. Here's a breakdown of the key figures from the quarter:
Revenue: There was a 9% YoY decrease in quarterly revenue, amounting to $21.30B, missing the expected $22.15B (expected). The decline was driven by a lower average selling price of vehicles due to continued price cuts and a change in vehicle model mix, coupled with a drop in vehicle deliveries. Production disruptions and an update to the Model 3 in their Fremont factory also contributed to this decrease.
Vehicle Production and Deliveries: The company produced 433,371 vehicles and delivered 386,810 during the quarter, marking a decrease of 2% and 9%, respectively, from the previous year. This decline reflects a softening demand in the EV market, leading to an increase in inventory.
Automotive Segment Revenue: Dropped by 13% to $17.38B. Conversely, revenue from energy generation and storage grew by 7% to $1.64B, driven by strong demand for its Megapack energy storage product.
Services and Other Revenue: Increased by 25% to $2.29B, boosted in part by the expansion of Tesla’s North American Supercharger Network to more non-Tesla EV owners.
Gross Margin: The automotive segment’s gross margin decreased to 18.5% from 21.1% in the previous year.
Operating Income and Margin: Operating income plummeted by 56% to $1.17B, with operating margin falling to 5.5% from 11.4%.
Earnings Per Share: Adjusted earnings per share fell 47% YoY to $0.45, missing the anticipated $0.51 per share.
Cash Flow: Operating cash flow was drastically reduced by 90%, and FCF turned negative to the tune of $2.5B, influenced partly by substantial investments in artificial intelligence infrastructure.
My Take
Despite the challenges, the accelerated timeline for the introduction of more affordable vehicle models has injected optimism among investors, potentially buoying demand for TSLA's lower-priced EVs in the near future. The surge in optimism surrounding TSLA largely stems from the accelerated timeline for their new initiatives, particularly FSD and the Optimus project, which played key roles in the stock's AH gains. CEO Elon Musk has frequently discussed the profound impact FSD will have on society, positioning the company far ahead of any competition, which he characterizes as virtually non-existent. Further bolstering this vision, TSLA has introduced a "ride-hailing" app, described as an 'Uber on steroids,' which integrates with their forthcoming robotaxi service.
Musk also unveiled details about Optimus, suggesting that this project could tap into a market size we can’t comprehend, potentially, in my opinion, being larger than the current space economy. This cascade of exciting news undoubtedly fueled the recent surge in the stock, but it also brings to the forefront the critical need for execution moving forward.
Reflecting on the sentiment going into this report, it's reminiscent of the enthusiasm last seen in 2018, making even a "better than feared" outcome a victory for shareholders. Looking ahead, TSLA remains one of my highest conviction stocks. I believe that if Musk can successfully bring these products to fruition, they could very well become the first company valued at over $5T+ by the end of this decade.
2. Lockheed Martin (LMT)
Lockheed Martin (LMT) reported great Q1 2024 results, with net sales of $17.2B, up from $15.1B in the same period last year. Net earnings stood at $1.5B, translating to earnings of $6.39 per share. The company maintained a strong cash position too, generating $1.6B in cash from operations and achieving a FCF of $1.3B.
Segment Performance
Aeronautics: Sales increased by 9% to $6.84B, driven by higher volumes in F-35 and F-16 programs. Operating profit remained stable at $679M.
Missiles and Fire Control (MFC): This segment saw a 25% increase in sales, reaching $2.9B. However, operating profit decreased by 18% to $311M, primarily due to a $100M loss recognized on a classified program.
Rotary and Mission Systems (RMS): Sales in this segment rose by 16% to $4.08B, with operating profit up 23% to $430M, benefiting from higher volume and favorable profit rate adjustments on several programs.
Space: Sales increased by 10% to $3.26B, with operating profit rising 16% to $325M, driven by higher volume in strategic and missile defense programs and equity earnings from United Launch Alliance due to increased launch activity.
Guidance
LMT reaffirmed its financial outlook for 2024, projecting strong sales and continued profitability. The company’s forward-looking statements highlighted ongoing commitments to key defense and aerospace programs, including the F-35 and space systems, and anticipated challenges such as inflation and supply chain dynamics (expected).
My Take
LMT’s Q1 2024 results reflect a strong start to the year beating expectations across the board, with significant increases in sales across multiple segments and stable profit generation. The company's strategic focus on high-value aerospace and defense programs continues to pay dividends (literally), positioning it well for sustained growth amid a complex global environment with higher geopolitical tensions. LMT will continue to be a cornerstone in my portfolio, and frankly, it's a stock that everyone should consider holding. While I don't have immediate plans to increase my position, it remains one of my highest conviction stocks due to its leadership in the aerospace and defense industry.