After investors raced for the exits following their last earnings reports, package-deliverer FedEx Corp. and athletic-gear maker Nike Inc. will try it again. And they’ll offer important reads on demand as inflation-chastened consumers navigate holiday shopping.
Quarterly results from FedEx FDX, -0.84% and Nike NKE, -2.36% in the week ahead, along with a report from General Mills Inc. GIS, -0.02%, will provide a taste of what’s to come when the bigger earnings storm hits next month. For sure, rising prices for core necessities mix with a barrage of holiday discounts.
Analysts have been slightly less downcast on the fourth quarter than they were about the third, even as the Federal Reserve’s inflation-busting tactics raise concerns about the economy and U.S. retail sales marked their biggest decrease in nearly a year in November amid sluggish car sales and slower spending elsewhere
FactSet senior earnings analyst John Butters, in a report on Friday, said that analysts and companies “have been slightly less pessimistic in their earnings outlooks for S&P 500 companies for the fourth quarter compared to the third quarter,” even if they’re more cautious when compared to trends over the last five years.
Analysts have lowered their earnings-per-share estimates by 6.1% since Sept. 30. That’s a bit narrower than the 6.8% haircut for the third quarter.
But with 2022 largely in the bag, analysts’ buy, hold and sell ratings haven’t always panned out as planned.
The energy sector, Butters said, had the largest percentage of buy ratings at the end of 2021, and also logged the biggest price gain of all the sectors tracked by FactSet. But the two sectors that had next largest percentages of buy ratings at the end of 2021 — information technology, which includes Microsoft Corp. MSFT, -1.73% and Apple Inc. AAPL, -1.46% ; and communication services, which includes Google parent Alphabet Inc. GOOGL, -0.66% — “have seen the largest price decline and fourth-largest price decline of all eleven sectors during this time.”
“It is interesting to note that the same three sectors that had the highest percentages of Buy ratings at the end of last year also have the highest percentages of Buy ratings at the end of this year,” Butters said in the report.
“On the other hand,” he continued, “the two sectors with smallest percentages of Buy ratings (Consumer Staples and Utilities) at the end of last year have been the second-best and fourth-best performers in terms of price returns of all eleven sectors during this time.”
This week in earnings
Nine S&P 500 SPX, -1.11% components and one member of the Dow Jones Industrial Average DJIA, -0.85% are set to report quarterly results in the week ahead, according to FactSet.
General Mills GIS, -0.02% — which makes food under brands like Betty Crocker, Bisquick and pet-food producer Blue Buffalo — reports quarterly earnings on Tuesday, as do FedEx FDX, -0.84% and Nike NKE, -2.36%. Cybersecurity and connected-device company BlackBerry Ltd. BB, -0.94% also reports on Tuesday.
Cruise-line operator Carnival Corp. CCL, -2.09% will report Wednesday, with analyst reservations about the travel rebound starting to surface. Micron Technology Inc. MU, +0.06%, a chip maker facing concerns about memory demand on electronic devices is due to report.
Also scheduled for Wednesday are results from drugstore chain Rite Aid Corp. RAD, +1.18% and work-uniform provider Cintas Corp. CTAS, +0.17% Results expected on Thursday include used-car retailer CarMax Inc. KMX, -6.04% and payroll-services provider Paychex Inc. PAYX, -0.96%.
The calls to put on your calendar
FedEx, Nike, General Mills and consumer demand: The results from FedEx, General Mills and Nike will give us a sense of the degree to which people are still buying and shipping holiday items, as higher food and gas RB00, +0.38% prices this year reshape shopper behavior.
Shares of FedEx tanked in September after the ground-and-air shipping service warned of a falloff in demand in the U.S. and Asia and service issues in Europe. It said then it planned up to $ 2.7 billion in cost cuts but higher shipping rates. The company’s ground-shipping business reportedly planned to cut its holiday volume outlook.
“We believe earnings declined (year over year) and sequentially as volumes continue to decline, even as we are in peak season,” Cowen analyst Helane Becker said in a research note on Tuesday.
Nike shares in September tanked similarly, after executives said markdowns on its own products would hit margins. They said they expected their rivals to keep cutting prices on clothing through at least the end of the year.
For more: Inventory concerns are pounding Nike’s stock
The consumer shift away from buying clothes left Nike and other retailers trying to find ways to slim down excess goods in warehouses and backrooms that piled up after supply-chain snags, overordering and misreading demand. However, Nike’s management has said that the swell in inventory levels likely peaked in North America in the three-month period that ended on Aug. 31.
“The market is focused on progress to resolution of FY23 inventory issues as a set up to a strong margin recovery in” fiscal 2024, Stifel analysts said in a note on Wednesday. However, they said they expected there would be “more work to be done” in the second half of Nike’s fiscal year, which ends in May.
General Mills will report as higher food prices — a function of their own rising costs and consumer demand — carry many producers to bigger profits. Executives in the food space have said they have room to keep prices high, and are betting that consumers, who have limited choice when it comes to spending to eat, will continue to pay up.
For more: Food inflation is cooling, but double-digit percentage increases persist for these items
The number to watch
Micron and chip demand: Micron will report as analysts try to find the bottom for the chip sector, after a onetime shortage turned into a glut. The company this month got hit with a downgrade from Deutsche Bank, citing potential weakness in demand for memory chips.
“We are incrementally more cautious on the memory market, as we believe the current downturn will last longer and be more severe than we previously forecasted,” Deutsche Bank analyst Sidney Ho said of Micron in a note to clients. “On the demand side, weakness in consumer PC/smartphone has now spread to the enterprise side, and even cloud demand is starting to weaken.”
Micron last month cut its supply outlook, saying it was “taking bold and aggressive steps to reduce bit supply growth to limit the size of our inventory” as demand contracts. Chip stocks have fallen as demand for electronics fades, after consumers loaded up on them at the height of the pandemic.