Starbucks Corp., Ford Motor Co. and the owner of Chili’s Grill & Bar easily surpassed Wall Street’s earnings estimates in their most recent quarter. But for investors, they’re stoking worries about a slowdown.
(Bloomberg) — Starbucks Corp., Ford Motor Co. and the owner of Chili’s Grill & Bar easily surpassed Wall Street’s earnings estimates in their most recent quarter. But for investors, they’re stoking worries about a slowdown.
That’s because all three companies left their annual profit forecasts unchanged, suggesting they’re not convinced the robust results will last. Starbucks shares fell Wednesday by the most in three years after executives pointed to “economic uncertainties” around the world. That echoed Ford’s warning that the economic backdrop is “opaque.”
The corporate caution underscores the cloudy outlook for the US economy as the Federal Reserve raises interest rates and banking turmoil fuels fear of a credit crunch. The concern is particularly acute for sellers of discretionary goods as doubts swirl about the continued resilience of US consumers as they contend with lingering inflation and dwindling savings.
“There’s a split perspective on how bad the consumer really is,” said Jennifer Bartashus, a retail analyst at Bloomberg Intelligence. “There are people who think a recession is right around the corner, and the companies that are holding their forecasts steady are taking the cautious view on the economic outlook.”
Coca-Cola, Applebee’s
Leaving forecasts unchanged early in the year makes it easier for corporate bosses to hand investors an upside surprise later. And plenty of companies, from General Motors Co. to PepsiCo Inc., have lifted their outlooks in recent weeks.
But others eschewed the halo of a “beat-and-raise” quarter for what could be called the “beat-no-raise” approach. Like Ford, Stellantis NV took that path. So did Coca-Cola Co., Molson Coors Beverage Co., Pfizer Inc., Norwegian Cruise Line Holdings Ltd., Sherwin-Williams Co. and Brinker International Inc., which owns Chili’s.
Many executives went out of their way to emphasize caution. Dine Brands Global Inc., the parent of Applebee’s and IHOP, left its outlook unchanged even after topping analysts’ earnings estimates for the ninth straight quarter. A big reason for caution is consumer sentiment as customers worry about a potential recession, the company said.
“We’re encouraged by our performance in the first quarter and remain confident in our ability to deliver on our 2023 financial guidance,” Dine Brands Chief Financial Officer Vance Chang said on an earnings call. “But with the current macro uncertainty, we’re taking the more prudent approach and are leaving our outlook unchanged across all metrics.”
Ford CFO John Lawler said the automaker anticipates more pressure on pricing as supply-chain disruptions and parts shortages wane after plaguing the industry during the pandemic.
US Sales
At Starbucks, the decision to maintain the forecasts for earnings per share and same-store sales in the Americas shows a desire to set a low bar for the new chief executive officer, Laxman Narasimhan, said Cowen analyst Andrew Charles. Still, said Jefferies analyst Andy Barish, Starbucks may prove unable to beat its outlook for the year, saying US same-store sales are likely to cool off.
Additional insight into the outlook for US shoppers will come later this month when big retailers report results. Profits fell last year at Walmart Inc. and Target Corp. after consumers stopped buying as many kitchen appliances, electronic goods and patio chairs as they did in the early days of the pandemic. And both companies issued forecasts for the current year that fell short of analyst estimates.
Walmart, which reports fiscal first-quarter earnings May 18, predicted a sharp slowdown in US comparable sales this year. CEO Doug McMillon stressed the retailer’s uncertainty around the second half — the same kind of caution that’s increasingly taking root even at companies that are ahead of schedule, for now, on their annual profit forecasts.
“Unchanged for the year may be a good thing after they were downgrading forecasts for most of the last year,” said Gina Martin Adams, chief equity strategist at Bloomberg Intelligence.
–With assistance from Keith Naughton, Leslie Patton and Daniela Sirtori-Cortina.
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