Earnings Outlook: Nothing This Week – But Analysts Are Still Bullish

Summary

• Analysts continue to raise their earnings forecasts for the next year.
• Companies continue to offer mixed outlooks. Some are bullish; many are hurting.
• There are no earnings reports until 12 July when PepsiCo kicks off the 2Q season.

Nuts and Bolts

We expand our earnings coverage to Russell 1000 companies. Previously, we covered S&P 500 companies. With markets and the economy at an inflection point, we are interested in how a broader range of companies are doing and what they have to say about their outlooks.

Analysts’ year-ahead EPS projections continue to climb. The S&P 500 EPS forecast is +14.8% vs +14.2% last week; the Russell 1000 is +17.2% vs +15.7% last week. The NASDAQ 100 is + 18.1% vs 16.7% last week. Wow.

Given the slowing economy and the (largely) negative outlooks from companies, we expect earnings forecasts will fall at some point. The upcoming 2Q earnings season may start the process, but it may take another quarter before the forecasts start dropping.

What We Learned Last Week

• General Mills (GIS) offered a bullish outlook. It forecasts EPS of 4.05 vs analysts’ 3.97 projection, and it expects organic sales in the coming year of 4-5% vs analysts’ 3.7% projection. Significantly, it says it has been able to pass on rising costs to consumers, and it sees supply chain problems easing over next six months.
• Whatever GIS is doing right, spice manufacturer McCormick (MKC) is doing wrong. Gross margin shrank 5.5 pp on rising input and transportation costs and poor product mix. It cut its EPS forecast.
• Micron Technologies (MU) gave an unexpectedly weak 4Q sales projection of $7.2bn vs analysts’ $9.1 bn projection. It expects next-quarter EPS of 1.63 vs 2.57 consensus, but a brighter outlook after that. The problem is weaker demand for computers and smartphones, which hurts demand for MU’s memory chips.
• The MU outlook is troubling in what it says about softening demand but also encouraging in that it may give the semiconductor industry some space to put its supply chain problems behind it. In the short run, however, it may look like a classic boom/bust scenario for the industry.

Upcoming Earnings

There are no earnings reports until July 12, when PepsiCo (PEP) leads off the 2Q season.

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.)