The second-quarter earnings season was packed with mostly good news for investors. Many of the market's biggest companies, from retailers to tech giants, raised their 2021 outlooks following a surprisingly strong first half of the year.
But there were some notable standouts even among the list of expectation-beating companies in the past few weeks. Let's look at why eBay (EBAY -2.79%), Garmin (GRMN -0.45%), and Target (TGT -5.62%) thrilled Wall Street with their latest operating updates.
eBay has the cash
eBay's growth in Q2 didn't shock investors, although the marketplace enjoyed double-digit sales gains even as volumes turned negative compared to a year ago. Yet the e-commerce specialist had even better news to report about its earnings potential.
eBay's seller fees jumped to 11.3% compared to 9.7% a year ago and 10.5% in the previous quarter. That surge is important because those charges filter almost directly into earnings. Higher fees also reflect the extra value eBay is packing into its marketplace through recent additions like promoted listings, payments processing, and a revamped shopping experience.
Continued progress here means investors might see even more growth in the fee rate, which will support higher cash returns. That's already happening today, with free cash flow hitting a whopping 34% of sales in Q2.
Target hits its goal
Expectations could hardly have been higher for Target's mid-August earnings report. But the retailer trounced them anyway. Sales jumped 9% in Q2 -- and that was on top of the 24% spike it posted a year earlier. Target's impressive track record of winning market share in niches like consumer tech, apparel, and home furnishings continued.
Wall Street loves that these merchandising categories mostly raise Target's overall profit margin. That boost is being further supported by a shift toward premium products and premium fulfillment options like same-day delivery. But Target's business isn't set up simply to profit during economic expansions like the one we're going through right now. Its nearly 50-year streak of consecutive annual dividend raises means shareholders can rest easy about the next industry downturn, whether it hits this year or in several years.
Garmin navigates home
Consumer tech can be a brutal competitive space, but Garmin appears to have it figured out. The GPS navigation device giant has been growing sales and core profitability for roughly six years despite weaknesses in some parts of its portfolio from time to time.
That success is partly due to a widening collection of niches that it caters to, including smartwatches, fitness trackers, and aviation and boating navigation. You can see evidence of Garmin's innovation prowess in its recent 53% sales spike.
CEO Cliff Pemble and his team just secured a fourth massive manufacturing factory, which should help it double its capacity in the coming quarters. That's good news because soaring demand across its portfolio has Garmin operating near its limits today.
That outsize level of growth isn't necessary for investors to enjoy strong returns by holding the stock, but it will support long-term returns by driving costs down and increasing Garmin's installed base of devices over the next few years.