Even ‘less robust’ third-quarter earnings may still be impressive amid inflation and supply woes: Morning Brief

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Tuesday 12 October 2021

“Unprecedented” inflation does not necessarily mean doom

On Wednesday, JPMorgan Chase will be the shooting gun for Third Quarter Earnings Rush (Third Quarter). Investors struggle to untie Gordian supply chain bottlenecksLabor shortages and elastic demand conspire against them Raising prices significantly, as Brian Suzy of Yahoo Finance explained on Monday.

With people spending as much as they ever would — and paying more for the privilege — corporate America’s balance sheets will likely reflect some of the ravages of McCormick’s high inflation (MKCC) Executive Director Recently it has been called “unprecedented”.

The big questions are exactly to what extent – and whether it will be enough to bring out a The bull market is already showing signs of erosion.

“We think earnings growth will be strong again this quarter,” explained Jeffrey Bushbinder, strategist at LPL Financial Research. “But those looking for massive upside surprises and big estimation increases will likely be disappointed” as strong cross-winds of employment, supply and prices keep growth in check.

According to Credit Suisse, pricing power and operating leverage are being systematically underestimated, and profit margins may still have some life in them given the strong demand in the era of the pandemic.

In a note Monday, the bank’s analysts estimated that “economic headwinds will dampen the benefits of pricing strength and operating leverage, leading to less strong surprises in the third quarter” — but strong nonetheless, Credit Suisse noted.

“Early reports – 21 so far – supported this view, which was a surprise at only 4.4%. Margins account for half of these surprises,” the bank noted. Meanwhile, earnings per share growth is expected to be around 27% — well below the 88% increase in the second quarter.

However, Credit Suisse noted that the slowdown was mostly “a result of normal cyclical forces and more challenges rather than supply issues.” With this in mind, there are several reasons to believe that the headwinds facing publicly traded companies may be less severe than has been announced.

In his summary of Q3 results, PepsiCo (PEP) CEO Ramon Laguarta said that consumers “have been looking at prices a little differently than before… as consumers shop faster in-store and may pay less attention to pricing as a decision factor and may be more relevant” to brands or brands they feel a little closer or close.”

Lagorta suggested that buyers were “more emotionally attached to our brand. So we’re seeing less flexibility and adjusting our models as we go.”

Brand loyalty and emotional connection matter a lot — both for customers hungry for pre-pandemic normals, and for companies trying to provide them.

This is especially true of beleaguered consumer goods, where third-quarter earnings growth is picking up gradually — up 3.04% from 1.96% just one month ago, according to S&P Global Market Intelligence data, even as overall growth has declined.

Even amid rising fears of stagflation and the COVID-19 delta variable, CFRA Research’s Sam Stovall reminds us that slowing down from historically high levels doesn’t have to be the end of the world.

“Digging a little deeper, we see that in addition to all of the volumes and patterns in the S&P 1500 reporting third-quarter EPS increases, so should eight of the 11 sectors, with industries, materials and real estate at the top,” Stovall wrote on Monday. .

He added that while the housing and other consumer sectors are generating the “worst returns”, energy, commodities and chemicals should see support from inflationary trends. Despite the palpable shock from the price hike, long-suffering sectors such as leisure and hospitality should benefit, Stovall said.

“With some indications of strong pent-up demand amid the vaccine launch, we believe the third quarter saw some notable strides for the broader leisure and hospitality sectors in the relatively early stages of recovery from the pandemic,” the analyst wrote.

by Javier E David, editor at Yahoo Finance. Follow him in Tweet embed

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