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Tesla reports first $1B quarterly profit, GE, UPS earnings beat

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Brian Sozzi, Julie Hyman, and Myles Udland break down Tuesday’s early market movers, which include: Tesla reporting strong earning that produced its first $1 billion quarterly profit, UPS beating on estimates as the delivery momentum continues to surge, and GE boosting its forecast for free cash flow amid an earnings beat.

Video Transcript

MYLES UDLAND: Let's get to some earnings here. And on the move, we have to start with what we saw out of Tesla last night. As we can see, beat on the top, beat on the bottom line. Record quarter across the board. And I think the story here, Julie, for Tesla continues to just be a company that operates and sells a lot of cars, delivers a lot of cars, and they just-- they just do their thing. It's not as dramatic as it was a couple of years ago.

JULIE HYMAN: But does it-- where there is drama is in the margins for Tesla. I mean, the margins were pretty spectacular. 25.8% last quarter. That's, quarter over quarter, from 22%. Year over year, 18.7%. So the margins just continue to be strong at Tesla, and they continue to make money, to wring more cash out of the business than perhaps many of the naysayers would have expected. Right, Brian?

BRIAN SOZZI: And it is amazing, they are producing the cash that they are, operating cash flow of $619 million in the quarter. What a difference in a story in terms of Tesla, even compared to Tesla itself, but also compared to a company like Lordstown, that's not making any money and is a complete disaster.

Also, an interesting little tidbit here, at the bottom of the earnings release, they noted their days of supply for inventory, nine days versus 17 days a year ago. So they're making these cars as much as they could, which is-- it's proving tough because of the chip shortage. These cars are selling very, very quickly, as soon as they make them, but the chip shortage is weighing on the company, the auto space, and also the battery shortage is a big problem.

MYLES UDLAND: You know, I think they-- Elon did an interesting job on the call of outlining that their level of production makes it such that the chip shortage doesn't hit them as hard as it might otherwise, right? So if you're not building 10 million cars in a year, you can still manage through the chip shortage right now. But as you note, Sozzi, they're kind of coming up against it.

And at one point on the call, Elon was saying, you know, people will ask us, why don't you build your own chip, and then he's like, well, it's really not that simple. And there's really-- there really, I think, in his view, is no practical way for the company to go about alleviating the shortage via that channel. But at current production levels, it seems Tesla can still pull it off.

BRIAN SOZZI: Not enough chips. And that means we will not have the Cybertruck, we will not have the Tesla semi, at least this year. At some point, perhaps, next year. Tesla moving out those timelines. So again, the chip shortage, we have Intel CEO on, Pat Gelsinger, later. He's been calling and saying that the chip shortage may not be done until 2023. And that's going to be a big problem for Tesla, auto space, and even PC makers.

JULIE HYMAN: Yeah, and a lot of other companies besides. We're going to talk more about Tesla in just a few moments with our reporter who covers it. We're going to talk about it with an analyst, as well. Can't get enough Tesla.

[INTERPOSING VOICES]

JULIE HYMAN: Exactly. But for now, let's talk about UPS also, because this company, talking about margins, also beat on margins. Operating margins at 14%. That's above what analysts had been predicting. Earnings per share coming in ahead of estimates. I mean, we all know what's driving UPS, right? We're all getting lots and lots and lots of boxes at our doors.

BRIAN SOZZI: Yeah, the margins in this overall for UPS were good. The US domestic, 11.6 versus 9.9-- 9.29% a year ago. Now, UPS came off of their investor day in June, I think disappointed some investors in terms of their longer-term operating margin outlook. But at least in the domestic business, that was good. International margins good.

I still think the company needs to come out here and provide more certainty with their outlook. Why are you not providing more clear-cut guidance for this year? There is start to-- there is a rhythm to your business, at least at UPS and other industrial companies. We have UPS CFO Brian Newman on later, about 3:30. We're going to put that question to him.

JULIE HYMAN: Well, yeah, to your point, they didn't offer any guidance, right? They're saying that the outlook-- that things are still too uncertain for them to give a full-year outlook, which, to your point, like, at what point does that stop being-- I guess now it stops being an acceptable excuse, because you're looking at the shares going down this morning.

BRIAN SOZZI: Look at these other industrial companies out today. 3M raised their-- raised their outlook. They have an outlook. Honeywell has come out with its own outlook. Tesla is providing some form of [INAUDIBLE] guidance. Why not at UPS?

MYLES UDLAND: Well, I mean, the stock now 7%-- or down 7% and moving lower, as we see in the premarket. Company talking a little bit on its call, average daily volume for the US down in the most recent quarter, down from a year ago. Now, of course, that's a tough comp related to COVID, but still, you know, the company not talking, to your point, Sozzi, about what the long-term view is. And we talked about this yesterday on the show, on the back of yesterday's morning brief, the idea of companies using a multiple-year stock to tell us what is trend growth. And it kind of seems here like UPS isn't able to tell the market that today.

BRIAN SOZZI: Even GE came out with an outlook, and that company is a black box of who knows what it is. And they came out and reiterated their full-year earnings outlook, $0.15 to $0.25 a share. They have an outlook. If you have an outlook from GE, UPS should have an outlook.

MYLES UDLAND: Well, let's talk a little bit about GE. On my notes here about the what to say about the GE quarter, I just put Sozzi, question mark. So this is all you, bud.

BRIAN SOZZI: Well, I appreciate it. So I think the key takeaway here-- and I'll just pull up the stock price in the early going here-- they came out, raised their free cash flow outlook to about-- about $5 billion on the high end for this year. They were looking for about-- let's say about--

[INTERPOSING VOICES]

BRIAN SOZZI: --$2.5 to $4 billion, so I think that's why the stock is getting a pop here, too, as well. Margins up in most of the segments, but still, the aviation business is a red flag for them. Their orders were down 5% in terms of new equipment. That was, of course, buried at the bottom of the presentation, because it is not a good look. But again, GE, slight recovery. Not a perfect quarter, but again, they have an outlook.

JULIE HYMAN: Well, sales in aviation were up 10%, so backward-looking looking better, forward-looking with those orders maybe not looking as strong here. But definitely when you look at the-- the GE reaction and the work that the company has been doing under Larry Culp, you know, at GE, it's just so sort of painful and long, the incremental improvements that the business has made--

BRIAN SOZZI: Painful to read their earnings release.

JULIE HYMAN: --over a long period of time. Well, it has been for years, right?

BRIAN SOZZI: It's painful. It's brutal.

JULIE HYMAN: So, you know, I think that that-- that's-- it's reflected in the share price. And it's a credit to him, but it still feels like that there's work to be done there.

BRIAN SOZZI: And again, we mentioned this yesterday, I'll mention it again, the industrial recovery is very much playing out. You're seeing it. We saw it in Honeywell. We talked about this yesterday. You saw 3M. You saw it at GE today. The industrial recovery-- you even saw it in Sherwin-Williams, too. They came out. And we'll talk more about it later, but again, and the industrial economy is powering back here, and we're seeing it in a lot of the earnings results.