UK's HSBC, ARM React to Earnings

Major UK-based companies reported varying earnings results as markets assess future growth in light of increasing uncertainty.

HSBC Offsets Worries with Share Buyback Programme

HSBC's first-half earnings on Wednesday saw its share price increase by 3%, aided by the announcement of a new $3 billion share buyback programme. The bank's profit declined marginally to $21.6 billion from $21.7 billion in the same period last year but was above the $20.5 billion expected. Investors had been concerned about the potential effects of China's economic slowdown and the prospects of lower interest rates in Europe. The bank attributed the improved performance to higher activity in its trading and personal banking divisions, both focused on larger clients. Wealth revenue increased 12% year-on-year (YOY).

HSBC will have new leadership later this year as CEO Noel Quinn steps down in favour of Georges Ehedry at the end of the quarter, alongside an ongoing search for a new CFO. The immediate focus has been reducing sensitivity to interest rate changes as central banks move towards less restrictive monetary policies. The bank is also working to decrease concentration in China, seeing an 8% rise in international consumers and reducing its lending portfolio in China's real estate sector. Even with lower rates, the company believes it can generate good income, raising its forecast for net interest margin (NIM) for the current year to $43 billion from the $41 billion previously guided.​

ARM's Revenue Growth Fails to Meet Expectations

The British chip designer reported that revenue had grown by 39% over the last year, achieving a fourth consecutive record high. However, investor reaction to the news was not positive, with the stock price falling by 13% in extended trading after earnings were disclosed on Wednesday evening. The company had even surpassed estimates for earnings per share (EPS) and revenue, reporting EPS of $0.40 against a forecast of $0.34 and revenue of $939 million above the consensus estimate of $903 million.

What concerned investors was the company's decision not to increase guidance for the full year, maintaining its EPS forecast of $1.45 to $1.65 (equivalent to $1.55 at the midpoint), compared to the consensus estimate of $1.58. ARM shares had risen over 90% for the year to date, including an 8% increase on the day before the earnings announcement. The post-earnings share price drop suggests some market participants had become overly optimistic about the company's growth outlook.

Its CFO also indicated that royalty revenue growth would be in the low 20% range rather than the mid-twenties as previously projected. While royalties represent most of the firm's income, licencing is the division experiencing the strongest growth, up 72% YOY. The company ceased disclosing the number of chips shipped following a reported 10% decline in the previous quarter.​

ARM in H&S Pattern(s)

ARM stock has declined approximately 35% from its peak of $190 but has rebounded recently after dropping to $125, which is considered a key Fibonacci support - the golden ratio of the $85-$195 leg. The movement followed an established head-and-shoulders (H&S) pattern, where prices dropped below $150. However, this has now been retested, increasing the likelihood of a larger H&S pattern taking shape. This would involve a neckline near $85 should prices slide below the $100 support and previous highs forming the left shoulder at around $150-163.​

Source: SpreadEx / ARM Holdings

Key Takeaways

Major UK-based companies reported varying earnings amid uncertainty, with HSBC rising 3%, aided by a new $3 billion share buyback programme, and ARM falling 13% after the company missed full-year guidance. HSBC's profit declined marginally but exceeded expectations, attributing improved performance to higher trading and personal banking divisions focused on larger clients. ARM's revenue grew 39% over the last year, but its CFO indicated royalty revenue growth would be in the low 20% range rather than the mid-twenties projected.