Wall Street Lunch: Don’t Count Out The Combustibles

Summary:

• Philip Morris International and General Motors lead S&P 500 gains, with PMI’s strong earnings and GM’s robust internal combustion engine performance driving their stock prices up over 8%.
• GE Aerospace, Verizon, Lockheed Martin, and Genuine Parts faced challenges, with disappointing earnings.
• The IMF revised U.S. output projections upward for 2024 and 2025, but warned of downside risks due to geopolitical tensions and policy uncertainty.

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Philip Morris International sees strong ZYN volumes. (0:15) GM internal combustion strength counters China weakness. (1:18) IMF lowers 2025 global growth outlook. (3:17)

Our top story so far. Don’t count out cigarettes and gasoline just yet.

Tobacco and automobiles—two things that helped build America—saw the biggest recognition in a massive day of earnings reports.

Philip Morris International (PMI) and General Motors (NYSE:GM) are the top gainers in the S&P 500 following their results, both up more than 8%.

Philip Morris revenue rose 8.4% year-over-year during the quarter to $9.91 billion. On an organic basis, revenue jumped 11.6%. EPS came in at $1.91 vs. $1.56 consensus and $1.67 a year ago.

CEO Jacek Olczak said the numbers reflect “excellent momentum across all regions and categories, with a reacceleration in IQOS adjusted in-market sales growth, strong ZYN volumes, and resilient combustible performance.”

Looking ahead, the company predicts full-year adjusted EPS of $6.45 to $6.51 (midpoint $6.48) vs. a prior outlook for $6.33 to $6.45 and $6.41 consensus. The company sees net revenue growth of around 9.5% on an organic basis.

GM was fueled by the strength of its internal combustion engine business, which accounts for over 80% of its U.S. business.

That overcame struggles in China, where market share shrank to 6.5% from 8.3% a year ago, resulting in a loss of $137 million. CFO Paul Jacobson attributes the profitability challenge in China to a “sizable inventory build” that necessitated incentive pricing.

For the remainder of 2024, GM again raised its bottom-line profit forecast to $14 billion to $15 billion from the previous forecast of $13 billion to $15 billion. Adjusted automotive free cash flow is now expected to be between $12.5 billion and $13.5 billion from $9.5 billion to $11.5 billion in the company’s previous forecast.

Among other major earnings reports, GE Aerospace (GE) fell after the maker of jet engines said revenue grew 6% from a year earlier to $8.9 billion, shy of the consensus of $9.38 billion.

Verizon (VZ) was also under pressure as it reported a marginal bottom line beat and a slight topline miss. It did reaffirm previous annual guidance, though.

Seeking Alpha analyst Michael Dion said: “On the business side, I continue to be disappointed as management continues to pitch this as the growth business, but it never gets any traction. In a world of cybersecurity, AI, and 5G, Verizon has no excuse to be underperforming in this space.”

Lockheed Martin (LMT) reported disappointing sales growth. Sales edged up 1% from a year earlier to $17.1 billion, less than the average estimate of $17.37 billion.

And Genuine Parts (GPC) plunged nearly 20% as the company’s disappointing Q3 results coupled with significantly lowered guidance for FY24 chased shares to their lowest level since March 2022. For the full year, the company now expects revenue growth of just 1% to 2% versus an earlier forecast of 1% to 3% growth, while earnings are now expected to be between $8.00 and $8.20 per share from initial guidance of $9.30 to $9.50 per share.

On the macro front, the data calendar is pretty much empty, but the International Monetary Fund slightly lowered its global economic outlook for 2025 and kept its 2024 projection unchanged from its July estimates, masking numerous under-the-hood revisions.

While inflation has cooled, risks to the global outlook “are tilted to the downside amid elevated policy uncertainty,” the IMF said. Geopolitical tensions could trigger new spikes in commodity prices, China’s property sector contraction could spill over, and protectionist policies could “exacerbate trade tensions, reduce market efficiency, and further disrupt supply chains.”

For 2024, the IMF made the biggest upward revisions for Brazil, Spain, Russia, and the U.K. On the flip side, Mexico and Japan saw the biggest downward revisions.

U.S. output is projected to rise 2.8% in 2024, up 0.2 pp from July, and 2.2% in 2025, up 0.3 pp.

In other news of note, Walmart (WMT) is adding a new service that has the potential to be disruptive. It will begin to deliver prescriptions to households in the U.S. in as little as 30 minutes. The service will see customers have the ability to add prescriptions and medication refills to their orders for groceries and other products. The service will be free for customers of Walmart+.

Walmart aims to have prescription delivery available in 49 states by the end of January, with coverage of more than 86% of U.S. households.

In a recent survey, Walmart customers were asked how the company could better serve them. Fifty-five percent expressed a desire to have their prescriptions delivered along with their groceries and other items they need in a single online order.

And in the Wall Street Research Corner, Goldman Sachs predicts a better environment for income investors than what’s priced in by the market.

Strategist David Kostin forecast S&P 500 (SP500) dividend per share of $80 in 2025, which is 5% above market pricing at $76. He predicts dividends will grow by 7% this year and another 7% next year.

“Despite weak EPS growth in 2023, mega-cap tech dividend initiations have supported DPS (dividend per share) growth in 2024,” Kostin said.

“Futures contracts ultimately pay out based on the level of realized DPS, with considerable volatility along the way. Investors who can tolerate that volatility should be rewarded as futures market pricing converges towards our fundamental forecasts,” he added.

Among the names in Goldman’s Dividend Yield and Growth Basket are Interpublic Group (IPG), eBay (EBAY), Molson Coors (TAP), Devon Energy (DVN), Wells Fargo (WFC), Cigna (CI), Fastenal (FAST), IBM (IBM), LyondellBasell (LYB), SBA Communications (SBAC), and WEC Energy (WEC).

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