Stocks ticked higher last week as first-quarter earnings season began. Both the Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) gained less than 2%, which put the indexes just slightly lower so far in 2018.
Earnings season kicks into high gear over the next few trading days, with highly anticipated reports on tap from Netflix (NASDAQ: NFLX), Johnson & Johnson (NYSE: JNJ), and Procter & Gamble (NYSE: PG). Here are a few trends for investors to watch in these announcements.
Netflix’s subscriber growth
It’s the market’s single biggest winner over the past decade, which means streaming video giant Netflix has a lot to prove when it posts earnings results on Monday. The last quarterly outing gave investors plenty to celebrate, as subscriber growth sped up to 24 million in fiscal 2017 from 19 million in the prior year. Netflix’s profit margin nearly doubled, just as management predicted, as an improving content slate allowed the company to raise prices without sacrificing user gains.
CEO Reed Hastings and his team have predicted that this positive momentum will continue into 2018, with subscriber growth forecast to accelerate to about 6.35 million this quarter from 4.95 million in the year-ago period. New content releases and growth in international markets will be the main drivers behind those gains. And if streamers continue to binge these original series, then investors can expect Netflix to keep spending heavily to keep that pipeline of new content as full as possible.
Johnson & Johnson’s drug pipeline
Healthcare titan Johnson & Johnson will announce its results before the market opens on Tuesday. Investors are optimistic that both sales and profits will increase at a robust pace this quarter. After all, the blue chip was able to overcome falling sales of its core Remicade drug last year to post a 6% increase in organic revenue. Each of its three massive business lines — consumer products, pharmaceuticals, and medical devices — expanded in 2017.
Johnson & Johnson has many more drugs in development that will help pick up the slack in its Remicade declines this year. Investors should look for CEO Alex Gorsky and his team to discuss that pipeline on Tuesday while also highlighting the company’s stellar cash flow.
As for its latest operating forecast, the outlook calls for a growth slowdown in 2018 to between 3.5% and 4.5%. But management might tweak that prediction on Tuesday. Earnings, on the other hand, are expected to rise by as much as 9.6% for the full year to $8.20 per share.
Procter & Gamble’s organic sales
Procter & Gamble’s stock has had an unusually weak run over the past five years, underperforming the market by nearly 50 percentage points. That’s because while sales growth has accelerated in each of the last two fiscal years and profitability is reaching new highs, the consumer products giant has lost market share across key franchises like Gillette.
Investors voiced their displeasure about these trends by voting to elect activist shareholder Nelson Peltz to the board of directors. This Friday’s earnings report will be the first one since the new board was seated, and so it might include the articulation of a strategic shift.
But the pressure to make aggressive changes will be greater if sales growth disappoints. Back in January, P&G said that organic gains would come in at the low end of their guidance of 2% to 3%, which would translate into essentially no improvement over the prior year’s disappointing pace.