US earnings look strong, but supply chains and costs are worrisome to investors

File Photo: Trader works on the floor of the New York Stock Exchange (NYSE) in Manhattan, New York City, USA on September 24, 2021.Reuters / Andrew Kelly

October 11, 2021

Caroline Valetokevic

New York (Reuters) – Investors are preparing for another period of strong US profit growth as US companies’ third-quarter reports begin next week. But as businesses continue to emerge from the coronavirus pandemic, new issues are emerging that are central to Wall Street, such as supply chain disruptions and inflationary pressures.

Many companies have announced a conservative outlook for the earnings season. FedEx Corp said labor shortages boosted wage rates and overtime, and Nike Inc blamed the supply chain crisis and rising fares for lowering 2022 sales forecasts and warning of late vacation seasons.

Terry Sandben, Chief Equity Strategist at US Bankwealth Management, said: Due to product and labor shortages and inflationary pressures, “we will determine how much demand there is and what that means for important vacation spending periods.”

Analysts see third-quarter S & P 500 enterprise revenues up 29.6% year-over-year, down from 96.3% in the second quarter, according to Refinitiv’s IBES data as of Friday. .. Forecasts for the third quarter have fallen slightly from a few weeks ago, reversing the trend in recent estimates.

Third-quarter profit growth was always expected to be much lower than the second-quarter explosive profit, which made companies much easier to compare year-on-year due to the pandemic.

“We were up with such a high clip. The positive revision momentum has been lost,” said Nick Raich, CEO of independent research firm The Earnings Scout.

This week, the earnings season begins at major banks such as JP Morgan Chase.

For an analyst chart, see US Revenue Growth of 30% in the Third Quarter.

Supply chain, cost

Investors are weighing the impact of sharp rises in energy costs on businesses and consumers following the recent rise in oil and gas prices. While rising energy prices should benefit energy producers, they are an inflation risk for many other companies, such as airlines and other industries, and reduce consumer spending.

So far this year, US companies have maintained profit margins at record levels as they cut costs and passed on high prices to their customers. Some investors want to know how long it will last.

Third-quarter earnings arrive in a still volatile market after the weak and volatile situation in September. The S & P 500 in September recorded the largest monthly decline since the March 2020 pandemic. This was also the first monthly decline in the index since January.

Analysts are skeptical about the price of.

“COVID-related supply chain problems extend beyond consumer goods, and it’s easy to find long-term signs of global friction,” said Merrill Lynch Japan Equity and Quantitative Strategy Responsibility. Savita Subramanian wrote in a memo on Friday. But she said these issues were far from being fully priced in stock.

Analysts at Morgan Stanley have not fully priced consensus revenue expectations due to the supply chain constraints facing companies, far beyond the rate at which companies exceed estimates in recent quarters. It says it’s making it difficult.

“Consumer discretionary companies of all kinds are on the cross of supply shortages, higher logistics costs and higher labor costs,” they write. These strategists believe the stock market is set for a larger pullback and say third-quarter earnings could determine the stock market plunge.

(Report by Caroline Valetkevitch in New York; edited by Megan Davies and Matthew Lewis)

US earnings look strong, but supply chains and costs are worrisome to investors

Source link US earnings look strong, but supply chains and costs are worrisome to investors

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