Summary
- The big story so far is a slowdown in advertising across every company that depends on it.
- Consumer-oriented companies are mixed, but few expect serious weakness in 2H. Real estate is hurting.
- Energy companies and many industrials are booming.
- With over 80% of companies having reported so far, the flow slows this week.
- Key earnings include Tyson Foods (TSN), Walt Disney (DIS) and World Wrestling Entertainment (WWE) – for a read on peoples’ fun-time budgets.
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Summary
- The big story so far is a slowdown in advertising across every company that depends on it.
- Consumer-oriented companies are mixed, but few expect serious weakness in 2H. Real estate is hurting.
- Energy companies and many industrials are booming.
- With over 80% of companies having reported so far, the flow slows this week.
- Key earnings include Tyson Foods (TSN), Walt Disney (DIS) and World Wrestling Entertainment (WWE) – for a read on peoples’ fun-time budgets.
Market Implications
- Our bottom-up perspective suggests recession risks remain low for now – more likely we see rolling recessions hit some sectors.
What We Learned Last Week
For the most part the outlook emerging from 2Q earnings is mixed, but tilted to the glass-half-full view.
- The clearest systemic trend is weakness in advertising. Every company exposed to advertising has reported softer than expected advertising volumes and sales. These range from tech companies such as Google and Meta Platforms (META) to communication companies such as New York Times (NYT) and Warner Brothers Discovery (WBD). In the most extreme case, Zillow, which relies on advertising from realtors, cut its 3Q EBITDA forecast to $73-87mn; analysts had expected $170mn!
- Consumer-facing companies are decidedly mixed. Kellogg (K) reported stronger than expected demand for cereal, and Starbucks (SBUK) has been able to pass on higher costs. Hoteliers Marriot Int’l (MAR) and Host Hotels and Resorts (HST) reported that travel related demand is strong.
- On the other hand, Clorox (CLX) cut its outlook due to higher costs. Yum Brands! (YUM) reported disappointing sales. Molson Coors (TAP) reported declining beer volumes. Under Armour (UAA) reported softer demand for its premium athletic apparel.
- The oil and gas energy sector is booming. Companies are still focused on returning cash to shareholders rather than ramping up production.
- Many industrial companies report strong demand for all sorts of industrial products. Companies that produce digital and clean energy products (such as Eaton (ETN) and Cummins Engines (CMI) seem particularly robust.
Summing it up, many companies seem aware of recession-related risk, but it is not affecting their business today or their 2H outlooks yet. Between the much stronger than expected employment report and the bottom-up perspective of what companies are saying, we may be in not for an economy-wide recession but more a rolling recession – where a slowdown hits only certain sectors.
So far, just over 80% of companies have reported 2Q earnings, for cumulative 4.3% beat, slightly lower than 4.8% last quarter. In the week ahead:
Monday
- News Corp (NWS) and Fox Corp (FOX (Wednesday)) should confirm slower advertising.
- Tyson Foods (TSN) gives yet another read on how attached consumers are to name brands.
Tuesday
- Hyatt Hotels (H) will likely report strong earnings; will it say more about 2H travel than MAR or HST?
- Norwegian Cruise Lines (NCLH) will have more to say about consumer travel.
- Planet Fitness (PLNT) results may indicate whether going to the gym is becoming a part of post-lockdown life.
- As people get out more, are they buying more Ralph Lauren Corp (RL) goods?
Wednesday
- Walt Disney Co (DIS) results will be closely scrutinised for any insights into evolving consumer demand for streaming products.
- Wendy’s (WEN) will add to the mixed picture on restaurant chains.
Thursday
- HanesBrands (HBI) may be in the consumer discretionary sector – but seriously, will people cut back on underwear?
- Do people value the convenience of stopping by Mister Car Wash (MCW) or are they washing their cars to save some money?
Friday
- World Wrestling Entertainment (WWE) is surely a discretionary expense – but we shall see.