Waiting for Q3 earnings
The Q2 earnings rebound on the back of cost cutting and inflation combined with the recent rebound in equities made investors forget about the underlying structural headwinds for equities. Wage pressures and the inability to pass on the full rise in input costs will force companies to reduce their profit margins in the quarters to come. Lower operating margins with no change in revenue expectations and a US 10-year yield likely to be 1%-point higher by early Q2 next year will force equities.
The Q3 earnings season is just around corner starting in mid-October and here investors will get a feel of the pressure the corporate sector is experiencing. In the meantime, off calendar earnings will continue to roll in and the list below shows the most important earnings releases next week. In one of our recent equity notes we wrote that the cost-of-living crisis will severely impact consumer discretionary companies and as the most exciting earnings to watch next week are the US homebuilder Lennar and cruise line operator Carnival as both companies’ outlook is sensitive to higher interest rates and less disposable income.
- Monday: AutoZone
- Tuesday: Haleon
- Wednesday: Lennar, Trip.com, General Mills
- Thursday: Costco Wholesale, Accenture, FactSet Research Systems, Darden Restaurants
- Friday: Carnival
FedEx shares down
The big story today is FedEx reporting preliminary FY23 Q1 results (ending 31 August) showing adjusted EPS at $3.44 vs est. $5.10 as logistic company is pressure on freight rates combined with rising input costs highlighting our margin squeeze hypothesis above. But one thing is a bad quarter, the real worry for investors is that FedEx is withdrawing its FY23 guidance suggesting the company has zero visibility of the next nine months, or that their internal forecast is so bad that they fear it would severely tank the share price. In any case, the announcement has spooked investors sending FedEx shares down 20% in pre-market trading.
Our Saxo logistics theme basket is the fifth best performing basket this year down only 8.8% and we have repeatedly said that the logistics theme is a strong long-term theme. Based on our assumption of accelerating deglobalization supply chains will likely become more fragmented across more logistical hubs and countries and as such FedEx’s guidance withdrawal for the current fiscal year is not something that makes us change our long-term view.