Earnings Weekly: Will a Flood Drown the Recent Equity Optimism?

Summary

• Some 210 Russell 1000 companies report this week, including FANG heavyweights Apple, Amazon, Google, and Meta Platforms.
• We expect mixed messages, with generally good earnings but outlooks ranging from robust to cautious.
• Equities have had a generally good tone so far. By Friday, we may have a better idea whether this will persist into 3Q or if markets are headed lower.

What We Learned Last Week

So far, 14% of the Russell 1000 universe have reported earnings, posting an aggregate EPS beat of 4.1%. The general tone has been good, but with some surprising contrasts:

• Toymaker Hasbro (HAS) said demand for its toys is still strong. Mattel, however, cited inflation, supply-chain problems, and shrinking margins.
• Oil services companies Halliburton (HAL) and Schlumberger (SLB) reported strong demand for their services, as oil and gas companies want to increase drilling to capitalise on high prices – but they cannot meet that demand. Meanwhile, Baker Hughes (BKR) is struggling with supply-chain issues. Bottomline – new oil/gas supply will be slow in coming, implying continued high energy prices.
• Verizon (VZ) and AT&T (T) implied a weakening consumer. T said FY cashflow will be $2bn (or 12.5%) less than expected, apparently because people are slower in paying their bills. VZ only added 12,700 new subscribers in 2Q, compared with 167,200 forecast, and cut its outlook.

Looking Ahead…

Some 210 companies report in the coming week, across a broad array of sectors. We expect to hear many more mixed messages. Among the highlights:

Monday

• Appliance maker Whirlpool’s (WHR) outlook is closely tied to housing. While it may report strong earnings given the robust housing market until recently, will it remain constructive going forward?

Tuesday

• 3M, maker of many consumer and industrial products, should be highly sensitive to any shifts in consumer demand and willingness to spend on quasi-discretionary items.
• Tech giant Google (GOOG) probably reports good earnings, but will it show signs of weakness in digital advertising, like Snap? And will it say anything new about regulatory pressures?
• In consumer staples, grocer Albertsons Co (ACI) and food products and commodities dealer Archer Daniels (ADM) may indicate whether and how consumers shifted their spending as inflation surged in 2Q.
• Coca Cola (KO) will surely report sharply higher costs; will it be as successful as Pepsi (PEP) in passing them through to consumers?
• 20^th century industrial beacons General Electric (GE) and General Motors (GM) will report on their ongoing struggles to adapt to the 21^st century economy.
• United Parcel Service (UPS) will indicate whether high gas prices are causing consumers to forego shopping at the mall and return to internet shopping.

Wednesday

• Having announced plans to shed thousands of workers, Ford may discuss a restructuring to help it focus on EVs in coming years.
• Sherwin Williams, maker of paints, will give another read on the housing market outlook.
• Will T-Mobile (TMUS) report emerging problems like T and VZ?
• Meta Platforms (META) gives another crucial update on digital advertising demand.

Thursday

• Apple (AAPL) and Amazon (AMZN) will set the tone for much of the tech sector and may discuss how they are adapting their business models to shifting consumer demand.
• Comcast (CMCSA) has been more successful than VZ and T in making inroads to the 21^st century economy. But it may be vulnerable to the same forces buffeting Netflix (NFLX), T and VZ.

Friday

• Exxon Mobil’s results and outlook will likely be the template for most of the oil and gas majors.
• Colgate Palmolive (CL), Proctor and Gamble (PG) and Newell Brands (NWL), all producers of well-known name-brand consumer products, may offer a mixed view of both stable and changing consumer behaviour. And are supply-chain problems easing for them?

Over a 30-year career as a sell side analyst, John covered the structured finance and credit markets before serving as a corporate market strategist. In recent years, he has moved into a global strategist role.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)