From Great to Ugly: Which of Our 30 Portfolio Stocks Crushed Q2 Earnings?

## Key Takeaways

* **Strong Second Quarter Earnings:** A significant portion of the companies in our portfolio posted impressive earnings results, with many exceeding expectations.
* **Resilient Consumer and Booming Business Confidence:** Key drivers behind the strong performance are a robust consumer base and heightened business confidence.
* **Anticipation of Lower Interest Rate Environment:** Positive sentiment about future economic prospects fueled by anticipated lower interest rates has contributed to favorable market conditions.
* **Sector-Specific Outperformance:** While technology, healthcare, and financials showed strong performance, healthcare and industrials dominated in exceeding bottom-line expectations.
* **Guidance is Key:** While some companies exceeded earnings expectations, their guidance for the upcoming quarter played a significant role in shaping investor sentiment.

## Navigating the Post-Earnings Landscape

While the **second-quarter earnings season** is largely behind us, it’s essential to remember these reports are not the ultimate indicators of company performance. With the **third quarter still unfolding**, a comprehensive picture of the overall business landscape remains in progress. However, analyzing the performance of companies during this period offers vital insights into their underlying business fundamentals. These insights become particularly valuable when navigating potential market fluctuations, such as pullbacks or rallies. They provide a framework for discerning which stocks might be attractive during market corrections and which might be subject to selling pressure during broader market rallies.

## A Spectrum of Company Performance

To provide a clearer understanding of the varied performance across our portfolio of companies, we categorized them into four distinct groups: *The Great*, *The Good*, *The Not So Bad*, and *The Ugly*. This classification helps investors better grasp the nuances of each company’s performance and the factors driving those results.

### The Great

This category encompasses those companies that not only surpassed expectations but delivered notably strong results and outlooks for the future, signaling robust business fundamentals and growth potential. These companies stand out as potential investment opportunities.

* **Apple:** **Apple** not only beat **earnings and sales expectations** but also provided positive revenue guidance and optimistic forecasts for its **services growth** in the current quarter.
* **Advanced Micro Devices (AMD):** **AMD** exceeded expectations on **both sales and earnings**, and its management painted a positive picture for the current quarter, expressing strong confidence in **AI chip demand**. The CEO, **Lisa Su**, highlighted the continued tight supply of **MI300 chips** through **2025**, attributing this to the growing demand for **AI-enabled PCs** and the need for a refresh cycle.
* **Best Buy:** Demonstrating robust execution, **Best Buy** exceeded expectations on both the **top and bottom lines.** The company’s management highlighted the potential for **increased adoption of AI devices** and the expected **lower interest rates**, leading them to raise their full-year guidance.
* **Salesforce:** The enterprise software giant delivered **strong second-quarter earnings**, surpassing **sales and earnings expectations**. While the company maintained its full-year revenue outlook, this was viewed positively after last quarter’s challenges. The increase in their margin forecast reinforces **Salesforce’s commitment to profitable growth.**
* **DuPont:** **DuPont** continued its recovery with another **beat-and-raise quarter**, driven by growing demand for **AI chips**, showcasing its progress and rewarding patient investors.
* **Danaher:** The life sciences company delivered a strong quarter, reaffirming its guidance, a positive sign for this longtime Club stock, suggesting it is **back on track**. This quarter was particularly noteworthy as **bioprocessing demand improved**, indicating a normalization of inventory and funding in the end market.
* **Dover:** The company exceeded **second-quarter earnings expectations** and raised its full-year guidance – a positive indicator of its strength and validating the decision to invest in this industrial name.
* **Eaton:** **Eaton** continues its upward trajectory with strong quarterly results and a positive outlook for the remainder of the year. **Segment profit margin and organic sales growth exceeded expectations**, and management raised its outlook for the year. **Eaton** , along with **Dover**, are benefiting from the rise of **AI-driven data center buildouts**, as they supply essential parts and systems for these infrastructure projects.
* **Eli Lilly:** The company delivered a stellar quarter propelled by strong sales of its blockbuster **obesity and diabetes drugs,** effectively alleviating any investor anxieties. **Eli Lilly exceeded estimates on all key metrics,** including **profits and sales of its diabetes treatment Mounjaro and its weight loss drug, Zepbound**, and went further to raise its full-year guidance for **revenue, earnings, and gross margin.**
* **Meta Platforms:** Management delivered **better-than-expected quarterly results**, achieving **revenue at the high end of guidance**, driven by an impressive **22% increase in advertising dollars.** While concerns remain about the company’s aggressive AI spending, the long-term potential of these investments is viewed positively.
* **Nvidia:** **Nvidia** showcased its dominance in the **accelerated computing megatrend**, delivering stellar results, ambitious guidance, and reaffirming its position as a leader in the semiconductor industry. These results further solidified the belief that the company is on track to become the world’s leading semiconductor company.
* **Palo Alto Networks:** The company produced **strong quarterly results**, with growth expected to continue. While **product sales** were slightly below expectations, this was offset by the strong performance of **subscription and support offerings.** Key metrics such as **gross and operating income** exceeded expectations. Management provided an optimistic outlook for sales, earnings, and recurring revenue in the future.
* **Stanley Black & Decker:** The company delivered solid quarterly results, bolstered by strong cash flow performance, enabling management to raise its full-year guidance. Like Best Buy, **Stanley** is poised to benefit from **lower borrowing costs**.

## The Good

These companies presented a balanced picture with some positive aspects but also areas that prompted some investor caution. While their overall performance is considered good, their future trajectory might be subject to further observation and analysis.

* **Abbott Laboratories:** **Abbott Laboratories** excelled across **sales, earnings, and organic growth**, exceeding analyst estimates. However, the company’s **softer-than-expected guidance** for the current quarter dampened investor sentiment. Investors should focus on **management’s upward revision of its full-year forecast** for **both organic revenue growth and earnings** as a key indicator of the company’s long-term potential.
* **Broadcom:** The company exceeded expectations on both **sales and earnings**, driven by robust sales of its **AI products and VMware software.** Despite this positive performance, **management’s guidance for the current quarter fell short of investor expectations**, preventing this quarter from being classified as “great.”
* **Disney:** While **Disney** achieved **better-than-expected headline results** and exhibited strong performance in its streaming segment, investor concerns about attendance at its theme parks overshadowed those positive aspects. Despite these concerns, the quarter delivered on some key areas, which are crucial for long-term growth.
* **Alphabet:** **Alphabet** delivered **generally positive earnings results**, demonstrating the company’s strong position in the rapidly growing **AI space**.
* **Linde:** The industrial gas supplier maintained its reputation for reliability and value, delivering another impressive quarter.
* **Morgan Stanley:** While **Morgan Stanley** exceeded expectations on **revenue and earnings**, it also delivered better-than-expected results across most of its key metrics. However, results fell slightly short in both its **Wealth management and Investment Management segments**, indicating areas that require closer attention.
* **Microsoft:** **Microsoft** surpassed expectations on both **fiscal Q4 sales and earnings**, achieving higher-than-expected gross, operating, and net profit margins. Operating profitability also exceeded expectations across all three main operating segments, and cash flow generation greatly exceeded expectations. Despite these positive results, the **Azure segment’s performance fell short of expectations**, preventing the quarter from being classified as “great.”
* **Nextracker:** The company achieved a significant **$100 million revenue beat** and delivered strong **profits per share**. However, investor scrutiny of the company’s **revenue backlog** during the conference call overshadowed these positive results, becoming a primary concern.
* **Starbucks:** After a challenging previous quarter that resulted in a significant stock drop, **Starbucks** presented **modest signs of improvement**, particularly in its **North American business**. While this quarter was not considered “great,” the company managed to maintain its full-year outlook.
* **Constellation Brands:** **Constellation Brands** reported an earnings beat driven by its **strong beer business**. However, persistent weakness in its **wines and spirits business** remained a concern for investors.
* **TJX Companies:** The company continues to attract customers with its **deal-driven strategy**, demonstrating this through a **4% increase in quarterly comparable store sales, driven by increased purchases.** Combining this with its efficient operations, **TJX** maintains its impressive financial results.

## The Not So Bad

These companies delivered mixed results, showcasing some positive elements but also shortcomings. While not considered “ugly,” they might require closer monitoring to ascertain whether their performance aligns with long-term investment strategies.

* **Amazon:** The company’s quarterly results were mixed, with **sales falling short of expectations**. However, **Amazon Web Services (AWS)** delivered a strong performance, achieving a **$105 billion revenue run rate** and continued improvement in operating margins despite significant investments to keep up with demand. On the other hand, the **e-commerce and associated businesses missed expectations**. This, coupled with **lower-than-expected guidance** for the current quarter, prevented the quarter from being classified as “good.”
* **Coterra Energy:** **Coterra Energy** fell short of expectations on both **sales and earnings**, but exceeded expectations in **production volume and cash generation**. Furthermore, management **raised their production outlook and discretionary cash flow target** for the remainder of the year, indicating long-term growth potential for the company.
* **GE Healthcare:** The company did not deliver its best performance during the quarter. **China** emerged as a key source of weakness, leading to **management’s downward revision of its full-year organic growth outlook**.
* **Honeywell:** **Honeywell’s strong second-quarter results** were overshadowed by a mixed update to its outlook for the remainder of the year. Despite this, the belief that the industrial conglomerate is on a positive trajectory towards a healthy **2025** provides some hope.
* **Wells Fargo:** The bank reported **better-than-expected earnings** , but its **guidance was softened due to the uncertain economic and interest-rate environment.** This raises concerns about the company’s potential challenges in navigating the current market landscape.

## The Ugly

Finally, this category reflects those companies that encountered significant challenges during the quarter, presenting a less-than-ideal picture of their performance and requiring careful consideration before investors make any strategic decisions.

* **Procter & Gamble:** The company experienced a challenging quarter, raising investor concerns about the potential impact of a **deterioration in the consumer** on their guidance. Despite this, **P&G** maintains its importance in a diversified portfolio, and its business remains strong.

While the **second quarter of 2023** presented a mixed bag of outcomes for companies across our portfolio, the overall trend suggests a resilient market driven by consumer strength and heightened business confidence. As we continue to monitor the performance of these companies in the coming quarters, their ability to adapt to the evolving market landscape will be crucial for their long-term success.