Into the Earnings Season

Into the Earnings Season

With inflationary challenges felt by companies and industries across the world, this earnings season

Inflation brings high interest rates - but who benefits?

With the earnings season well underway, the divide between winners and losers of the current economic climate has become clear. The obvious winners are the financial institutions - especially brokerages, commercial banks, and regional banks.

As central banks globally hike rates to tame inflation, banks benefit from a wider NIM (net interest rate margin – the difference between what they charge borrowers and what they pay out to depositors). This, along with a strong consumer appetite for lending, has helped banks like Bank of America, HSBC, Lloyds Banking Group, Barclays more than offset the increase in labour costs and report stronger than expected earnings.

Interest Rate Hike Profits on Portfolio Activity Monitor (PAM)

How is inflation impacting forward guidance for retail?

A week into the US earnings season, the dominant topic for retail earnings has been the effect of cost pressures - high labour costs, energy prices and commodity costs.

Majority of the consumer goods companies to report so far, including The Coca-Cola Company, Nestlé, Procter & Gamble etc have managed to pass on higher prices to consumers and reported revenues that topped analyst estimates.

While these companies have weathered inflationary challenges in Q1, all of them have there are “storm clouds” on the horizon. As consumer confidence dips and disposable income is expected to erode further in the year and consumers become sensitive to price hikes, it will be extremely difficult for companies manage to keep their forward guidance.

Inflation Crisis: Consumer Goods Outlook on Portfolio Activity Monitor (PAM)

What are the major trends so far into the earnings season?

The US earnings season has just kicked off and market expectations for year on year growth are quite tempered.

Investors are keenly watching forward guidance in the current economic outlook marred by high inflation.

Auquan has condensed earnings and guidance into top themes to surface which trends dominate revenue and which companies are affected by them.

- #inflation : As expected, the dominant topic has been the effect of cost pressures. High labour, energy and commodity costs are major headwinds for most companies. Investors are scrutinising which companies have managed to pass on higher prices to protect profit margins and which ones have still seen sales growth.
- #russiaukrainecrisis : The impact of Russian sanctions and divestment are also a hot theme, with investors looking for guidance on expected operational loss and writeoffs.
- #supplychain : Supply chain disruptions, second order dislocations due to the Ukraine conflict and colour on the expected timing of normalisation is a significant trend.
- #consumerbehavior : Lastly, erosion of disposable income and consumer spending capacity are being closely watched

Exclusive for subscribers only:

Subscribe to Auquan

Don’t miss out on the latest issues. Sign up now to get access to the library of members-only issues.