(Bloomberg) -- Even as most of the US reporting season nears its end, this week’s earnings will put big-box chains, chipmakers and home-improvement retailers under a stark spotlight amid a deteriorating economic environment. Yet glimmers of optimism can still be seen.
Tyson Foods gained in premarket trading Monday after the biggest US meat producer said sales could rise to a record next year amid “solid profitability”, despite the company’s missing adjusted EPS estimates as inflation fears pushed consumers to buy less pork and prepared foods and trade down to cheaper products. Shares of Alibaba and JD.com, both due to report full results in the coming days, are also rising premarket, shrugging off mixed reports from their Singles’ Day promotions, as China plans to ease Covid restrictions and implement a sweeping package to address the struggling property market.
Still, more than half of the S&P 500 sectors could fall into earnings recession by the next reporting season, Bloomberg Intelligence wrote, with the positive-to-negative revenue guidance ratio now at the lowest level since 2019. Lackluster results from Disney, Lyft and Roblox last week underlined the entertainment industry’s earnings weakness in the face of a broader economic slowdown. Among the 11 S&P 500 sectors, communications firms have posted the highest proportion of earnings misses so far this season. Meanwhile, Ralph Lauren and Tapestry also took a hit, citing the strong dollar. This week, reports from US retailers including Walmart, Target, Home Depot, Lowe’s and Gap will offer more clarity around consumer spending as regulators look to stem heightened inflation rates.
S&P 500 futures were little-changed early Monday as investors watched a handshake between President Joe Biden and his Chinese counterpart Xi Jinping that marked the start of their first face-to-face summit since the pandemic began. The two join other G-20 leaders to gather in Bali, Indonesia, on Tuesday and Wednesday amidst heightened geopolitical tensions, a war in Ukraine, and soaring inflation, which central banks and corporations have scrambled in recent months to address. As the G-20 wraps up, focus will shift to former President Donald Trump, who could send shock waves through the markets from his “big announcement” expected Tuesday.
Votes across the country continue to be counted in key midterm races, with Democrats retaining control of the Senate while Republicans look poised to take control of the House, albeit by smaller margins than forecast. Congress returns to Washington Monday for its year-end push that could see legislative action over matters like the debt ceiling in the weeks ahead.
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Earnings highlights to look for this week:
Tuesday: Walmart (WMT US), releasing its third-quarter results before the bell, is projected to benefit from a strong back-to-school season and a consumer shift to value amid rising costs, per Bloomberg Intelligence. Still, inflation is causing a shift in the mix of sales and margins as customers spend more on food and less on discretionary items. The company’s inventory will be of note, as it tried to sell-through excess stock and minimize markdown risk ahead of the holiday season. Generally, retail sales fell in October, as more promotions from inventory-laden sellers led to falling net sales despite increased traffic. Still, Walmart, along with peer Target (TGT US) due to report on Wednesday, saw October non-cash sales that were up year-over-year, aided by the flight to value.
- Home Depot (HD US) is due before the bell, and is expected to report resilient same-store sales growth for the third quarter, with consensus calling for around 3%, due to increasing retail sales at home centers, according to Bloomberg Intelligence. The growth could be supported by higher prices, partly due to inflation, which would offset a sixth quarter of declines in the number of transactions. Still, though Home Depot’s exposure to professional customers will help it outperform peer Lowe’s (LOW US), which reports its own results Wednesday, overall industry demand is expected to fall through the end of the year and into 2023 given the housing market decline amid rising mortgage rates.
Wednesday: Nvidia (NVDA US) results are due after the closing bell, and the most valuable chipmaker in the US is expected to deliver year-over-year drops in both revenue and earnings for the first time in two years. Its gaming segment may take the biggest hit as economic conditions continues to weigh on demand which could call for cuts to guidance, according to Bloomberg Intelligence. Investors will look for commentary about the company’s elevated exposure to China, where it originates about 25% of sales, after the Biden administration expanded restrictions on semiconductor sales to the country last month. Earlier this week, Nvidia announced it began the production of a new chip that is said to conform to the new export rules, hoping to recover revenue put at risk by government action. The company has lost almost half its value this year, following three straight years of gains in the stock market.
- ESG in focus: The chipmaker’s advances in “green computing,” the practice of limiting the environmental impact of computer chips, has the potential to help address energy usage concerns at data centers, as data traffic continues to increase. Nvidia estimates that companies could save as much as 19 terawatt-hours of electricity a year, equivalent to taking 2.9 million cars off the roads for a year, if artificial intelligence and high performance computing were run on its more efficient chips. Read more in this week’s ESG Stock Watch.
Thursday: Gap (GPS US) reports after the closing bell. Investors will seek signs of earnings growth after the owner of Old Navy and Banana Republic brands pulled its full-year guidance and ended its partnership with Kayne West and his Yeezy Gap label. Bloomberg consensus is calling for adjusted EPS of $0.01 for the third quarter, down 83% from last quarter’s surprise profit. The apparel retailer’s turnaround, which includes an ongoing CEO search, the axing of 500 corporate jobs and an impairment charge to address inventory glut, will take several quarters to complete, according to analysts at Argus Research.
- Alibaba (BABA US) is due before the opening bell. The Chinese e-commerce behemoth could report its first year-on-year expansion in adjusted Ebita margin since 2019, thanks to narrower losses expected at its online food delivery platform Ele.me and its Southeast Asian arm Lazada, Bloomberg Intelligence wrote. The retailer said Sunday that gross merchandise value from its Singles’ Day shopping event was roughly in line with last year, although it broke from its past tradition of disclosing the full sales results from the promotion, and China’s Covid-Zero policy could also force Alibaba to focus on boosting profits rather than top-line growth. In the upcoming fiscal second-quarter report, Wall Street analysts are expecting sales to grow by 4.3% — down from the 29% gain seen in the same period last year — mirroring revenue concerns raised by JPMorgan when they cut the price target in September.
Friday: JD.com (JD US) reports before the market open. Third-quarter results from China’s second-largest online retailer will come on the heels of the Singles’ Day shopping spree and peer Alibaba’s earnings, with Bloomberg consensus projecting the highest gross margin in two years. Improved product mix and platform fees could compensate for higher fulfillment expenses stemming from the country’s mobility curbs, Bloomberg Intelligence wrote. Nevertheless, BI also pointed out that potentially weaker business sentiment in China could drag down service revenue contribution in the current quarter.
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