Global companies, including McDonald’s and Tesla, are lowering sales and profit forecasts as higher interest rates and China’s economic slowdown impact consumer sentiment and earnings growth.
Bollywood Fever: Companies worldwide are reducing their full-year sales and profit guidance as higher interest rates and China’s economic weakness dampen global consumer sentiment, affecting earnings growth in the latest quarter.
Several high-profile companies, including McDonald’s, Nissan, Tesla, Nestle, and Unilever, have underwhelmed investors. With roughly 40% of U.S. and European companies reporting results, earnings have met expectations, but this “about as expected” performance seems disappointing given the strong run by world equity markets.
“A very mixed season so far in terms of results,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. “We’re starting to see the pressure that the higher-for-longer interest rate environment is putting on companies and their ability to continue to drive earnings and revenue growth.”
This week, the earnings season will see reports from tech giants Apple, Microsoft, and Samsung Electronics; Japan’s Toyota Motor; oil titans Exxon Mobil and Shell; and European retailers L’Oreal and Adidas.
Global companies have identified two major issues impacting their bottom lines: higher interest rates pinching consumer spending and underperformance in China’s economy, the world’s second-largest.
McDonald’s reported its first drop in sales worldwide in 13 quarters, citing weakness in China’s economy. Companies including Unilever, Visa, and Aston Martin also noted China’s economic slowdown, with analysts warning that demand is unlikely to rebound soon due to a prolonged property downturn and job insecurity.
“The Chinese… are not willing to spend because they are afraid about the future,” said Stefan-Guenter Bauknecht, portfolio manager at DWS. Until growth improves in China, the country will be “the weakest of the big regions, or at least the most far behind expectation,” he added.
Earnings per share in the United States have risen by nearly 12% from a year ago, the strongest quarter in the last 10, according to LSEG data. In Europe, earnings are up 4%, slightly ahead of market expectations and marking the first positive growth rate since 2022, according to Bank of America Securities.
However, consumer weakness is evident across industry sectors, and guidance cuts have increased. U.S. companies have reduced third-quarter forecasts to 7.3% year-over-year growth from 8.6% at the beginning of July, according to LSEG data.
“While Q2 results overall have been decent, the season has nonetheless spooked the market on signs of consumer stress,” Bank of America analysts noted in a research report.
Nestle and Unilever both reported first-half sales growth below expectations. Companies in the eurozone’s two largest economies are growing more pessimistic, raising concerns over the bloc’s sluggish recovery.
“There is value-seeking behavior among consumers. There is pressure, especially at the low-income range,” Nestle CEO Mark Schneider said during a call with journalists.
Auto companies are also facing difficulties in the United States, where high inventories and logistical issues hurt profits for Ford Motor, Stellantis, and Nissan. EV leader Tesla disappointed investors with its results, and many still see the company as overvalued with slowing EV sales.
EV battery firm LG Energy Solution, which supplies Tesla and Hyundai Motor, forecast revenue would fall more than 20% this year due to a sharper-than-expected slowdown in global EV demand. Its bigger rival, China’s CATL, reported a 13% drop in second-quarter revenue.
Cashing in Chips
The earnings news hasn’t been all bad. Google parent Alphabet’s growth in cloud computing revenue bodes well for other tech bellwethers. Industrial conglomerate 3M saw its shares near a two-year high following strong results, while General Motors, Johnson & Johnson, and JPMorgan Chase also posted strong earnings.
Asian chipmakers have turned more bullish about demand, benefiting from the global AI boom. “AI is so hot; right now everybody, all my customers, want to put AI functionality into their devices,” said TSMC Chairman and CEO C.C. Wei. Shares of TSMC have gained 56% in 2024.
Despite upbeat forecasts, major Asian chipmakers face pressure to meet high expectations, evident in the performance of AI leader Nvidia, whose value surged past $3 trillion earlier this year before pulling back in the summer.
“Investor expectations are so high they may be hard to meet, and in the short term, the stock price may not rise as much,” said analyst Lee Min-hee at BNK Investment & Securities.
The broad-market MSCI International index has gained 11% this year, peaking earlier this month before selling off due to hopes that the U.S. Federal Reserve will begin cutting interest rates after similar moves from other central banks.
“To the extent that lower rates ahead remains the popular view, analysts are unlikely to be lowering overall earnings projections for next year,” said Rick Meckler, partner at Cherry Lane Investments.
Also Read other news articles, Sika AG Reports Strong H1 Sales and EBITDA Growth, Beats Analyst Estimates
Meta Introduces AI Studio for Custom Chatbots on Instagram Profiles
Coindcx CEO Criticizes Wazirx’s Response to $230 Million Cyberattack
