Several leading companies have reported better-than-expected sales, leading to a temporary lull in concerns about the global economy and consumer strength. Nestle SA and Unilever Plc reported sales that topped expectations, and Carlsberg A/S raised its full-year profit outlook. LVMH, Alphabet Inc.’s Google, and Microsoft Corp. also reported strong figures.
This is an indication that households, businesses, and economies are putting up resistance against inflation and rising interest rates. However, the share-price reaction to recent results has been muted, and cracks are beginning to show. For instance, the figures from drinks maker Keurig Dr Pepper Inc., Church & Dwight Co., and Mastercard Inc. were better than expected, but there is still concern about the outlook.
Several automakers, including Mercedes-Benz Group AG and Renault SA, have been faring better than expected. The US economy reported slower-than-expected growth in the first quarter. Consumer spending, however, rose by 3.7%, the fastest in almost two years. While almost 83% of S&P 500 firms have beaten first-quarter estimates, the average stock has outperformed the index by only 0.2% on the day of results.
Those that missed expectations have underperformed the benchmark by almost 3%. There are several reasons to be cautious about the latest earnings season, including a sharp cut in analysts’ estimates and inflation, which consumers are seeing in the news headlines, experiencing in the supermarket stores, and feeling in their pockets.
The better-than-expected results may be due in part to the scale of savings after the pandemic, but that is not an endless resource, and it may dwindle even faster as mortgage rates rise, tightening the squeeze on borrowers.
The housing affordability crisis in the UK is also a particular risk. Some consumer companies see Europe as a weak spot, and while commodity prices have eased, they have not yet fully translated through to shoppers. Carlsberg warned that the impact on demand from higher beer prices and faster inflation “remains uncertain.”
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