Earnings Outlook: Cracks, but No Meltdown (Yet)

Summary

• More energy companies – big and small – report this week, with most probably hitting record revenue and earnings. But will they boost production?
• Several other big reports come this week – Caterpillar (always an economic bellwether), Warner Brothers Discovery (update on merger and if it is adding subscribers), and Zillow (what’s happening with new listings)?
• Consumer staples companies Clorox and Kellogg will report on consumer loyalty to their brand-name products and whether they can pass on higher costs.

What We Learned Last Week

Big energy earned big, with Exxon Mobil (XOM) and Chevron (CVX) posting earnings far above previous highs. They say they are increasing production, but the focus continues to be returning cash to investors. They expect oil and gas prices to remain high for the foreseeable future.

Big tech also mostly posted strong earnings, including Alphabet (GOOG), Microsoft (MSFT), Apple (AAPL) and Amazon (AMZN). Only Meta Platforms (META) came up short. The one common issue across all of them was weakness in digital advertising – possibly a leading indication of coming economic weakness.

Consumers are cutting back on luxury goods and gadgets. Garmin (GRMN), maker of fitness and lifestyle digital products, reported weak sales; AAPL reported weakness in its wearable tech sector.

Telecom giants Verizon (VZ) and AT&T (T) both reported weaker than expected growth in subscribers. But T-Mobile (TMUS) reported much stronger than expected subscriber growth – probably because, unlike rivals, it did not boost prices.

So far, we see cracks appearing in the economy, but nothing like a meltdown yet. In the week ahead, some 375 companies in the Russell 1000 will report earnings.

Monday

• Avis Budget (CAR) should report strong demand – but can it meet that demand?
• Is independent Devon Energy (DVN) increasing production?
• Simon Property (SPG) and Vornado Realty Trust (VNO) will indicate how the retail mall and office building sectors are faring.

Tuesday

• Advanced Micro Devices (AMD) will be a key read on evolving conditions in the semiconductor industry.
• Airbnb (ABNB) and Marriot International (MAR) should report that America is traveling a lot this summer.
• Caterpillar (CAT) is a bellwether for the US and global economic activity.
• If people cannot live without Pepsi (PEP) and Coke (KO) fizz, surely they cannot live without Starbucks’ (SBUK) many coffee offerings, can they?

Wednesday

• The consumer staples sector has been mixed so far; Clorox (CLX) gives another key read on consumer attachment to name-brand products.
• CVS Health Corp (CVS) pharma sales will likely be strong, but how are sales in the front of the store are holding up? McKesson (MCK) also reports.
• People are traveling; how many are stopping by MGM Resorts (MGM) facilities?
• If businesses are cutting back on digital ads, what does that mean for print ads? New York Times (NYT) is a key player in that space.

Thursday

• As the reopening runs its course are people cutting back on services like Doordash (DASH) or has it become part of the new normal?
• Expedia Group (EXPE) may provide insights into where people are traveling to this summer – and whether travel will continue into autumn.
• Kellogg (K) and Monster Beverage (MNST) provide another read on what staples people really need these days.
• Fresh from its recent merger, Warner Brothers Discovery (WBD) will report on how the operation is coming together – and whether it is retaining and attracting subscribers.
• Everyone will be watching Zillow Group’s (Z) outlook for housing in coming months.

Friday

• Frontier Communications (FYBR) serves more rural areas; is it running into the kind of problems besetting T and VZ?
• HanesBrands (HBI) may be in the consumer discretionary sector – but seriously, will people cut back on underwear?

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.)