14 July 2022 Equities | US

2Q Earnings Starting With a (Bad) Bang

Summary

More companies are running into headwinds even if 2Q earnings were a beat in most cases.
Weak investment banking results at two big banks shows that the collective C-suite of Corporate America must be doing some serious soul-seeking about how to position for the second half. Dealmaking and raising debt to finance growth is not at the top of many agendas.
The consumer may be determined to have a good summer but may retrench big time this fall.

Companies that report any bad news or even mention signs of weakness are getting hit hard.
Unlike 1Q earnings season, there will likely be fewer good days ahead where positive earnings surprises spark rallies.

Maker of industrial supplies: solid sales and earnings well above consensus forecasts.
Got dinged (stock down 6.4% yesterday) because it reported signs of weak demand in products for consumers and construction. Demand in other industrial sectors remains robust.
Says costs for fuel, transportation, plastics, and metals high but stabilizing.
Supply chain issues easing.
Bottomline – market clearly looking for opportunities to sell on any signs of weakness.

Missed on EPS – 1.44 vs 1.64 consensus due to sharply higher costs.
Plans to keep capacity at June level, or 17% below pre-pandemic level.
Costs are 22% above pre-pandemic levels.
Bad news for investors is that combination will hit 2H profits. But…
DAL continues to see strong travel demand and little adverse impact from inflation.
Good news for macroeconomy is that the consumer is alive and well, despite inflation.

Processed food maker CAG struggling to pass on rising costs; sales are up 6.2% due to higher prices, but volumes down 6.4% as consumers balk at higher prices!
Forecasts next year EPS up 1-5% vs analyst consensus forecast of 8%.

EPS miss: $2.76 vs consensus $2.88. Among other things, it saw higher loan loss provisions ($1.1 bn vs $1.07 bn consensus) and weak investment banking revenue (1.35 bn vs 1.92 bn consensus).
Suspends share buyback program because Fed stress test says JPM needs more capital. It is remarkable that JPM cannot manage its capital position to pass the test.
CEO Jamie Dimon again warns of economic hurricane ahead; says consumer and labor market still going strong but sees emerging signs of weakness.