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When we look around the world right now, it's easy to focus on the negatives. There are plenty. Everyone's bearish. When the direction of travel seems so obvious, it just makes sense to lean into the doom and gloom...
We're heading into earnings season and chipmakers are finding that demand is still plummeting (AMD were the latest to warn of a big quarterly revenue miss yesterday) and their customers already have plenty of inventories.
That's been the general chipmaker trend for a few months now.
Nike reported a massive inventory stockpile in their latest earnings report last week. Last night Levi's reported a similar issue. Too much stock!
We wrote about Nike and the profit risks ahead of earnings season for Capital here 👇👇
But what about the positives? Are there any companies thriving in this environment? Aside from the obvious ones in the energy sector...
Well, Conor Sen was looking on the bright side yesterday and picked out a couple of companies that are talking up the benefits of input cost reduction and improving supply chains, while they expect, crucially, to maintain prices (and increase profit margins).
Importantly, as we had expected in the third quarter, we began to recover the cost inflation that had been outpacing our pricing actions and other levers.
We expect this will continue into next year as we plan to fully offset inflation over time.
The stock spiked after earnings and then retraced all of the gains in the following session 👇
McCormick projects earnings per share to be in the range of $2.64 to $2.69, compared to $2.80 in 2021 so it's not exactly a slam dunk. Just a little better than the rest.
So, for some of these companies, costs are coming down, but they're not ready to pass those savings on... 👇
Pricing at the retailer’s 839 global warehouse stores hasn’t decreased, according to Chief Financial Officer Richard Galanti, despite the lower prices for shipping goods and for things like gasoline and steel.
Costco in some cases locked in prices it pays to suppliers months ago and inflationary pressures from rising labor costs persist, which means the drops in shipping and commodities prices aren’t necessarily benefiting the company’s balance sheet yet.
“It takes time for changes to come through,” Mr. Galanti said.
And why would they be in a hurry to drop prices? If people are still paying the prices, why rush to discount?
But there ARE signs that things are gradually returning to normal. The next question is if the bullwhip effect will lead to discounts from the companies that now need to clear inventory, forcing the holdouts to join the race to the bottom and trim margins to to maintain market share.
That dynamic isn't present yet, but it's definitely something to look out for in coming months.
Used cars are also starting to decline in value...
As more new cars find their way to market...
This is the biggest concern around persistent inflation 👇
Even as the rental market cools, it takes time to show up properly in the stats. If this is the ONLY thing driving inflation, maybe the Fed can compartmentalise it and make their case that this isn't widespread.
However, it seems like there's still plenty of work to do to bring the economy back into balance.
The employment report came in plenty strong enough to justify the Fed staying the course. All the while they've got their foot to the floor, it's hard to be an optimist.
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