Welcome everyone. Today on the Joseph Carlson show. We have a lot of news Walmart's earnings came in and they were very underwhelming. That's what the headlines say shares today are just getting crushed their down, nine point, six three percent. So investors were really disappointed by these earnings.
So I want to dive in deeper to this Walmart earnings report and I actually went ahead and annotated a lot of, I think the most important things to look at Walmart does have some weaknesses right now that I think need to be factored in. Now, we have Home Depot doing something a bit different, they beat their earnings per share. Ash are estimates and they beat their revenue estimates and likewise with Home Depot. I went ahead an annotated their earnings report as well.
And then, lastly, I also want to give an update on Berkshire, Hathaway's official, 13f filing with this filing. We get a clear. Look at everything that Warren Buffett did last quarter including adding to his portfolio, Paramount, plus Citigroup Ally Financial and importantly, we get to see the things that he decided to sell out of you sold a lot of his store Capital. You sold almost entirely out of his Verizon holding.
You sold it. Blow the big Pharma companies and then he exited Wells Fargo in place for Citigroup. So we'll be going over all of these changes in this episode. Now, welcome back again. Everyone. It's been almost a week since my previous upload and the portfolio hasn't done too much over the past week. In fact, it's basically flat. It's up point four percent, but it's actually been a very volatile week. There's Been ten thousand dollar plus swings over that time line.
So we're weathering some volatility overall, the market continues to go down and the one-week viewer up point for 3%. That's okay. And the one-month viewer down 8%. So we're still down big over the previous month, but regardless, that's not really what I focus on and I know that this is a little bit different. Everyone is focused in a bear Market on macroeconomics. Everyone becomes experts on upcoming recessions, inflation,
food prices, commodity prices. Everyone's focused on issues in China. What I'm focused on what I continually focus on is the businesses that I own their actual fundamentals. Their quality of earnings and their future growth prospects. Even putting aside how terrible this bear Market has been every single company. In my portfolio that is a dividend pair has continued to pay dividends as scheduled. They're still continuing to provide me passive income. We have JPMorgan paying $150.
We have apple paying me $77 Costco's paying me $64 Costco. At some point in time in the future will likely to disclose that they're going to do a special dividend because there simply to cash flow positive. Positive. This stream of passive dividend income is something that I've tracked for over the past three years, I built it up from 0 to now averaging around $600 a month.
So what I've built over this entire time period is a portfolio with the economic power to produce six hundred dollars in excess cash directly deposited in my bank every single month that money ends up right here under the cash balance where it says buying power and then I routinely every month, deploy that cash back into companies, that will provide even greater dividend. Come some of the companies that I'm buying right now are different restaurants.
Starbucks is one of them that I think is undervalued. I've lost some capital appreciation on this company, but I continue to dollar cost average into it. This is a free cash flow positive company. That is growing at a pretty decent rate that also pays a two point five, nine percent dividend yield. So that's basically the strategy building up a passive stream of dividend income by buying these companies over and over and over again. Come good or bad.
Now, this week in particular. There's a special group of companies that are getting a lot of attention. Tension there in the consumer category and it's the retailers. A lot of retailers are reporting earnings. This week and retailers are often spoken of to be indicated of of the broader economy. Meaning that if companies like Home Depot, Costco, Walmart, and Target are posting really poor numbers that same store sales are declining and revenues going
down. That means that the consumers not spending as much money going out and buying things, which means that we might be headed for the recession. If we have retailers on the other hand posting. Good numbers. That might indicate that we have higher inflation and the consumer remain strong. So these companies are looked at as indicate of of the broader economy. Now, I own Target Home Depot in Costco, but we have another huge company that just recently reported earnings, which is Walmart.
Walmart, earnings are dented by food inflation and Staffing costs after the earnings to companies down nine point, six eight percent. And the big news here is that the earnings per share was 1.3 versus 1.48, so they missed pretty big. Egg on their earnings per share.
They also missed on their revenue 140 1.5 billion versus 138. So both the top line and bottom line Miss. Now, I want to actually dive in a little bit deeper at Walmart's earnings report because I think there's some things we can learn from it. First of all, they have at the first page, some of the major highlights of the company. The one that stood out to me, the most was the enormous, slow down and e-commerce growth e-commerce. Their online efforts was 1%
growth year over year. Now, they In hair, a two-year rolling basis, which was 38%. So they're trying to normalize the earnings saying that. You know, the e-commerce was really good last year and it's not growing as much this year going down even further to page 2. We also see some weakness or at least slowing growth Revenue grew by two point four percent. That's pretty slow, even for a
company. As big as Walmart 2.4 percent growth is not something to get excited about now, moving on to this next part here, the free cash flow. This part seemed we bad. I actually had to take a double take on it to make sure I'm reading it correctly. Because what I'm seeing here is that they're operating cash flow was - 3.8 billion a change of - 6.6 billion over the last year. Their Capital expenditures grew by almost double up to 3.5 billion. So they made far less money.
In fact, it went into the negative in terms of cash flow and they had Rising expenses, which made their free cash flow - 7.3 billion. Know what I bring Walmart up on quality. Sites, which this tool in this websites available to patreon members. If I look at their history, this is unusual every single quarter. They've posted at least some positive free cash, flow back to 2017. It's gotten pretty low on some
quarters. So we have last year than posting 300 million, but they've never had a negative quarter in the past five years and this one's minus 7.5 billion. That is a big negative quarter in free cash flow. Now, if we look at their notes and additional commentary on this, they actually meant action. The decline here. They say, the decline is primarily due to an increase in inventory costs and purchases to support strong sales, lowering operating income and the timing
of certain payments. So there's not a whole lot of context there. But again, that's not something that I really like to see. Now side of the free cash flow which looks really ugly this quarter. They also continue to pay their dividend as per usual. And they did share BuyBacks, which is something they've continued to do. They bought back 70 million shares last quarter. Now, moving on, we get Our guidance for the next year. They're guiding for Revenue
growth of 4%, very slow. But I guess, it's okay, at least they're guiding to the positive. Their same-store sales are guiding 43.5 percent. They gained three percent, same store sales, this quarter. So I think that seems okay. We have EPS growth that they're decreasing, their guidance by 1%, So now they're guiding to grow their earnings per share by four to five percent, which is very slow earnings per share
growth. Now, let's go ahead and compare that earnings report and their future guidance. Ins to their current valuation right now. Walmart trades at a 21.8 forward P/E, that to me seems a little expensive that's quite a high PE for a company. That's a retailer. That's growing its online sales by 1% last quarter. That's free cash flow. Negative, this quarter and is moving their guidance down to fortify percent earnings growth. You're paying a 20 to 40 PE
ratio that right. There just looks expensive. The Enterprise Value to eat. Is 14 .32, that's not exactly cheap for this company. So just based off of the two most fundamental valuation metrics. Walmart does not look cheap based off of their incredibly slow future guidance. So this isn't really shocking to me that the company selling off right now this 11 to 12 percent sell off. I don't think it should be two
unexpected. So ultimately Walmart is a slow growing company, it grows pretty consistently with the economy year-over-year, the same store sales will probably continue to grow at 3%, but Costs are rising inflation is taking its toll and this latest quarter. If we look at the latest quarter here, the worst free cash flow quarter. They've had in recent history. Now, that probably will improve.
You can see that these free cash flow quarters can move into the positive, but that free cash flow hit. I think is also another - to factor in overall. I don't think that Walmart's The Worst by in the market, but right now, it's not really tempting me. This isn't something where I want to go in and buy the dip. Now, next up. We have Home Depot, which also reported. Today. I currently have nine. Thousand six hundred dollars in
value. In this company a gain of one thousand, five hundred and seventy four dollars. Currently. The headline news is at Home Depot raises. Its full-year Outlook as Shoppers, trade up to premium products, and fuel record, q1 sales. We can look at the analyst, expectations earnings per share for Home Depot, came in at four dollars and ninety cents verse three dollars and sixty eight cents expected. So they absolutely Crush their EPS. The revenue was also a large
beat thirty. Eight point nine billion versus 36.7 expected. So they beat on the top line and the bottom line. That's good. News. Now, I did the same thing an annotated some of the details on Home, Depot's earnings report right here. At the beginning. They say that comparable same-store sales for the first quarter in 2022, increased 22.2 percent. So they grew same store, sales 2.2%.
And I think anything in the positive for them was good because they're going against very tough comparable sales being one of the biggest pandemic winners. So 2.2 same-store sales is not Even crazy but investors are just hoping that they don't have a decline in same-store sales. So 2.2 overall is slow but good now they also give guidance here and overall they're guiding for us, slow down 3%, same store, sales growth and three percent total sales growth. 3% is slow
growth. Even for a company Like Home Depot, then they also guide diluted earnings per share percent growth to be mid-single digits. So maybe five percent earnings growth is what they're Guiding over the next year, which again is slow. They're guiding force, low Revenue growth, and slow earnings growth. Now, we can look at some of the more details here on Home Depot this quarter.
Their net sales grew by 3.8%, That was slow, their Costas sales grew by a quicker pace, which isn't a good thing, but overall you're seeing the theme Here Home Depot's growth has slowed substantially. Now. Another thing that's slowing for Home Depot. Is there share BuyBacks, you can see over the course of an entire year. They went from one point zero seven five billion. One point zero three four, but
just from most recent quarter. They went from one point zero three five to one point zero three four, that is a big deceleration and the level of BuyBacks are doing. So that's also a slow down on the amount of money. They're returning to shareholders. Now, we can take a look at the balance sheet of Home Depot. Another thing I'd point out is they gained 500 million dollars in cash. So they went from 2.3 billion to 2.8., That's a good thing. Now.
The bad news is, is although they gained 500 million dollars in cash. They also, Oh, gained three billion dollars of debt, not over the entire year, but just from last quarter, this change from thirty, six point six billion to 39.1 that's in 1/4 over the full year. It's from 34 to 39. So Home Depot put on another three billion dollars of debt. Just this last quarter. Now, one important note on breaking down. This debt is any type of retailer?
That has a lot of leases. They have a lot of locations. They usually break out from their long-term debt, their Capital operating lease. Liabilities. So that's not really debt per se. That is obligations. They have for the leases for their location. And I personally think that should be put in a different category. So in qualitative insights, for example, I take out those Capital leases, but even outside of that last quarter, Home Depot had thirty. Six point four billion.
Now, that's gone to thirty nine billion. So when this data updates, quiet rooms going to show them having thirty-nine billion dollars of debt, which is a lot of debt. Now. The last thing that I'd point out is on the cash flow statement, just a simple observation. Servation here, Home Depot, did increase the amount of dividends.
They're paying by 10%, which seems good a 10% raise, but at the rate that they're growing, they're not going to be able to maintain growing their dividend by 10 percent year over year unless their earnings accelerate faster than they are right. Now. Home Depot has a 2.57 percent yield which is a nice healthy yield, their payout ratio is 44% a little higher than their historical payout ratio, but it still looks okay? A payout ratio of above 40 is a little bit on the High-end though.
Most companies I invest in, I want that payout ratio to be below 40%. So look Home. Depot's a company overall that is guiding 43 percent. Same store, sales growth, five percent earnings growth. So very slow EPS growth. That's below the markets average. Most companies grow earnings a little bit faster than that. So Home Depot's guiding for this very slow growth. And in the meanwhile, they're stacking on. Billions of dollars of debt,
seemingly, every single quarter. You can see the trend here. Now, terms of Uation. The PE ratio for Home Depot is eighteen. Point four eight. That's a little bit above the S&P 500. It's lower than Walmart, but I still don't consider this to be a very cheap company based off of its growth rate. It's trading at an Enterprise Value to ebit of 13.4. That is kind of expensive. It's on the higher end for company expected to grow earnings by 5% and have very
slow. Same store, sales growth and a company that's tacking on more debt. I see a lot of things slowing down for Home Depot, but the Uh, in still doesn't reflect that fully and I think it's telling that even though Home Depot beyond their earnings and their revenue estimates by a wide. Margin, the company's only up 1.45%. So barely even a pop when you factor in that, the rest of the markets in the green right now.
Basically Home Depot, had a beat its earnings by a huge margin just to keep up with the rest of the market. So, overall, even though companies like Home Depot and Walmart are down pretty big. Year-to-date. Walmart's Down, 9.3% Home, Depot's down 26, %. I don't consider either of these to be Stills or situations where I would go out and buy the dip aggressively. I think both of them are going through a lot of troubles.
They're both stacking on debt. Walmart had a hugely negative free cash flow quarter Home. Depot stacked on three billion dollars of debt in the quarter. They're both guiding for 45 percent earnings growth over the next year and their valuations are still on the high end for retailers. Now, moving on, we have Warren Buffett and Berkshire. Hathaway's, full 13f statement, which shows all the trades they
made last quarter. The official trade In it, we get a lot of insight into what Warren Buffett and Berkshire. Hathaway are thinking, first of all, I went through and highlighted some of the most interesting buys here and the most interesting cells. So, let's go ahead and go through those. We have H PQ, which is he lit Packard, even though this represents a very small portion of Berkshire. They added to this position.
HP is for sure, a value company trades at a very low forward, P/E ratio as very slow Revenue growth, but pretty consistent overall. It's free cash, flow generative and does share BuyBacks and they've been growing their earnings consistently. Now, HP is not a company that really interests me. So I'm not going to be doing much research on this one. It does however feel very much like a typical Warren Buffett purchase. We also have Warren Buffett selling out of Wells Fargo
completely. So, he dumped Wells Fargo, what little amount he had and then he purchased Citigroup City. Stock is bumped up 7% after the Buffett bump. And if we look at the valuation here, Citigroup is undoubtedly. The cheapest of the big four Banks. It trades at a price to book of point five. We can compare that to j.p. Morgan for 'Well, even after JP Morgan has traded down substantially from 1.8 it.
Now sits at one point three seven, so it's still valued at over double the valuation of Citigroup. So Citigroup by the numbers is very cheap, but overall it's a less Diversified less insulated Bank than one like Bank of America or JP Morgan. That's another one that I probably won't be following them into, but I think it's a decent value play. We also have Paramount Global, he added this one to the portfolio. Paramount Global is the Paramount plus streaming service
the company. It is a smaller company. 18 billion dollar market cap forward, P/E ratio of a 9 point, 4 3, So based on future earnings. It has very low expectations. Baked into it. It has an Enterprise Value to ibadah of 5.19. So it's a very cheap company on paper. It is growing its Revenue. It is free, cash, flow generative and it does have some dilution but not enough to be
concerned with overall though. I look at this company and I think the biggest bull case for Paramount plus is a simply be acquired by Another company to have apple or Amazon, or Netflix, or Disney. Another big company that wants a lot of content could come in and buy this company, and that would give a little bit of a premium. So I think Warren Buffett is kind of doing this on the possibility of an Arbitrage. He's buying a company that's trading at a discount.
There's some chance that it will be purchased by another company. And in the process, he could make some money. That would be my guess after that. We also have a very interesting new addition to the portfolio. Ally Financial Ally is a company that I've Interested in for a very long time, if I'm going to buy another bank, it'll probably be a lie trades at a 5-4, PE ratio The Price to Book is point
nine. So not as cheap as City, not as expensive as JP Morgan, but this bank is very well managed and it's running in an incredibly inefficient way and it's growing the revenue growth overall is steady and consistent. Their debts being reduced over time. They pay a growing dividend and the shares outstanding are declining as they're doing BuyBacks. This been currently pays a 3% dividend yield with a 12 percent
payout ratio. So it has a healthy and growing dividend along with doing share BuyBacks. And I think that when you look over the entire Financial metrics of this company, it's a very strong company overall. I think it's going to do well, the biggest concern with Ally Financial is if we go into a recession, this Bank in particular is very much concentrated into auto loans, but overall, I do like the purchase of Ally Financial.
I think it's one of the better ones that he bought this last quarter now, but look at the companies that he sold or Just, I think it's just as much telling he's sold out of the pharmaceutical companies. So he dumped a V and Bristol-Myers Squibb. He also sold out of Wells Fargo. So you replace that one with Citigroup and then he also dumped 99.1 percent of his Verizon stake. And this was a pretty significant stake. This made up two point, two eight percent of berkshire's
portfolio. I've called this one for a long time. I think Verizon is a value trap. I think it's mostly a dud. I think it's going to be basically dead or next to dead money for a very long time, going forward. And every time I look at the numbers, I come to that same conclusion. It's a cheap company on paper, a 9 forward, P/E ratio. But what are you getting for that? You're getting almost no Revenue, growth back in 2017.
They had 126 billion. Now, they have 133, so a couple billion dollars of Revenue growth over the course of five years on the size of 130-plus Revenue, that is not a lot of Revenue growth. So their revenue growth is really almost. Nonexistent, it's really not that meaningful at all. And their debt growth is actually meaningful in 2019. They had 111 billion dollars of debt. Now, they have 150 150 billion
dollars of debt. They're actually growing their debt more consistently than their revenue. This is not something that I want to see with any company that I own. And the amount of debt that Verizon has is just staggering 150 billion dollars of debt for a company with a 205 billion dollar market cap. So, every time I look at Verizon, I just come back. To the same conclusion that this is a wide moat company, but it has very little growth, very little earnings growth.
It has a very large payout ratio and it's going to be weighed down by a massive staggering pile of debt for the long-term future. It's not the type of company that I want to make individual investments into. So, if I was a Berkshire shareholder, I'd be happy to see them exit this position. So there's my thoughts on Warren Buffett's changes to the Berkshire Hathaway portfolio. Overall. He still has that massive 43%
waiting in apple alone. And it doesn't look like he's intending to sell this anytime soon, because he recently just added a little bit more last quarter. He's, of course, adding still, to financials and heavy to oil companies. So Warren Buffett has built out a massive energy business, which he continually adds more and more to, it's a pretty incredible business that Berkshire own. So, that's all for now.
Later this week. I'll have more reaction videos on different earnings reports like this one, as well as commentary on different things. I'm doing with my portfolio. So if you haven't already, subscribe to the channel, And I'll see you next time.