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(Bloomberg) — Corporate America is reporting its most underwhelming sales in four years this earnings season, indicating that subdued consumer demand is restricting companies’ ability to raise prices.
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Out of the over 80% of S&P 500 firms that have released their reports, less than half have exceeded revenue expectations for the third quarter, according to data compiled by Bloomberg Intelligence — the smallest proportion since the same period in 2019. The rate of sales growth globally has also decelerated to the “lower end of the pre-pandemic range,” remarked strategists at Deutsche Bank Group AG.
Amidst the surprise growth in quarterly earnings so far, investors have instead been fixated on a lengthy list of revenue warnings from companies such as Apple Inc. and Estée Lauder Co. Similarly, in Europe, the season has been marked by high-profile reductions, including Remi Cointreau from SA.
“Throughout the season, we have encountered a lot of caution in management guidance and this is precisely what we are witnessing – weaker sales and margins due to diminished pricing power,” stated Marija Weitmane, senior multi-asset strategist at State Street Global Markets. “At present, consumers and companies still have access to credit, but it is becoming more challenging and costly. Once it becomes scarce, we will witness more suffering.”
Last week, Apple issued a warning that holiday quarter revenue would remain unchanged from the previous year, disappointing investors anticipating a return to growth. The share price of Estée Lauder tumbled after the owner of MAC and Tom Ford brands indicated a decline in sales. Remy Cointreau reached a three-year low after the French distiller revised down its annual sales guidance.
An analysis of earnings call transcripts by Bloomberg reveals that “weak demand” is one of the most popular phrases in both the US and Europe. According to data dating back to 2000, with 20% of companies yet to report their earnings, these mentions have already reached the second highest level on record.
Read more: Heightened concerns about weak demand this earnings season
Data from Barclays PLC also indicates that management teams hold a significantly more negative outlook on revenues compared to profits, as profit margins appear stagnant. As a result, sales estimates are being revised more rapidly than earnings per share, according to strategist Emmanuel Cau.
For Michael Wilson of Morgan Stanley, this trend signifies a diminishing pricing power of goods, particularly when compared to services. The strategist, who is one of the top equity bears on Wall Street, maintains his pessimistic outlook on the S&P 500 for the remainder of 2023, citing a disappointing earnings outlook, weak macro data, and deteriorating analyst views.
–With assistance from Michael Misica.
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