Consumer-focused companies are outperforming this earnings season, defying Wall Street expectations and showcasing the resilience of American spending even as inflation bites into budgets.
(Bloomberg) — Consumer-focused companies are outperforming this earnings season, defying Wall Street expectations and showcasing the resilience of American spending even as inflation bites into budgets.
With more than a third of US results in, consumer discretionary companies have beaten earnings projections by more than 13%, versus an average 7% across the 11 sectors, according to data compiled by Bloomberg. In dollar terms, discretionary profits are already $3 billion higher than expected.
And while it’s early days for consumer staples — less than a quarter have reported — only two of the 31 companies have missed estimates. That’s the best ratio of any sector.
Among America’s largest companies in the S&P 500 Index, standouts like Newell Brands Inc. and CarMax Inc. have carried the discretionary sector higher, posting 79% and 78% earnings beats respectively. The more muted staples side has seen surprises of as much as 19%.
The better-than-expected profits fly in the face of warnings that rising prices would dent discretionary spending, leading to lower volumes and plummeting sales, and illustrate the unexpected willingness of Americans to keep buying despite economic pain.
Mondelez International Inc. exemplifies the surprise. Off of its self-proclaimed “best quarter ever,” the package food company posted adjusted earnings per share growth of 13%, smashing the average projection of only about 3%. Mizuho’s John Baumgartner said the results were “another high-quality beat” in a note to clients, and was impressed with emerging markets volume despite price increases.
Skechers USA Inc. is another overachiever, posting the sixth-best surprise among consumer discretionary companies — an 82% adjusted earnings per share beat. The shoemaker’s stock rose almost 10% as a result.
While consumer-focused companies are outperforming, all 11 sectors have posted profits higher than expected in aggregate so far this season. It comes after US gross domestic product growth beat expectations last week, and economists at the Federal Reserve said they no longer project a recession.
Now strategists are scrambling to catch up, with some Wall Street’s highest-profile bears boosting their year-end target for the S&P 500 Index.
But while profits are coming in stronger than expected, earnings growth overall remains sluggish. The median earnings growth among the 1,034 companies that have reported is just 1%, according to data compiled by Bloomberg. The median for America’s largest companies, in the S&P500 Index, is nearly 6%.
An index that tracks consumer discretionary companies in the S&P 500 is up nearly 14% since the start of June, versus a 9% gain for the index as a whole. A similar index that tracks staples is up 4% over that time frame.
Major consumer discretionary and staple companies due to report this week include Starbucks Corp., The Kraft Heinz Co., and Kellogg Co.
–With assistance from Gabriel Sanchez.
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