Market Snapshot
briefing.com
| Dow | 33548.72 | -326.59 | (-0.96%) | | Nasdaq | 11832.67 | -204.52 | (-1.70%) | | SP 500 | 4079.79 | -58.52 | (-1.41%) | | 10-yr Note | +8/32 | 3.40 |
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| | NYSE | Adv 462 | Dec 2470 | Vol 863 mln | | Nasdaq | Adv 968 | Dec 3496 | Vol 4.8 bln |
Industry Watch
| Strong: Consumer Staples, Real Estate, Utilities |
| | Weak: Energy, Materials, Industrials, Consumer Discretionary, Information Technology |
Moving the Market
-- Banking worries back at the forefront after First Republic Bank (FRC) earnings results
-- Global growth concerns weighing on sentiment after UPS partially attributed below-consensus guidance on changing consumer behavior
-- Treasury yields and oil prices declining, reflecting global growth concerns
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Closing Summary
25-Apr-23 16:30 ET
Dow -344.57 at 33530.74, Nasdaq -238.05 at 11799.14, S&P -65.41 at 4072.90
[BRIEFING.COM] Stocks had been languishing in tight trading ranges for several sessions before finally making an outsized move today. The major indices all registered decent losses despite roughly 75% of companies reporting quarterly results since yesterday's close topping earnings expectations.
Growth concerns drove the price action today following First Republic Bank's (FRC 8.10, -7.90, -49.4%) disappointing earnings results that included a 40% decline in deposits and downbeat guidance from UPS (UPS 176.29, -19.56, -10.0%).
FRC's earnings report renewed lingering worries about banks facing higher deposit costs and tighter lending standards, which would impede economic growth prospects. Sentiment around FRC deteriorated further following a Barron's report that a team of wealth advisors managing $13 billion in assets is said to be leaving the bank, and a Bloomberg report that First Republic is considering an asset sale. The stock was halted for volatility during today's session but faced ongoing selling pressure after it reopened and finished near its lows for the session.
Other bank stocks traded down in sympathy with FRC, driving a 4.2% loss in the SPDR S&P Regional Banking ETF (KRE).
UPS's earnings report contributed to the slowdown worries after the company lowered FY23 revenue guidance due to macroeconomic conditions and "changes in consumer behavior." On a related note, the April Consumer Confidence Index was weaker than expected at 101.3 (Briefing.com consensus 104.1), pressured by a drop in the Expectations Index.
The aforementioned catalysts offset any strength from other companies that reported earnings since yesterday's close. Namely, Dow component Verizon (VZ 37.30, +0.20, +0.5%), PepsiCo (PEP 189.71, +4.21, +2.3%), and Kimberly Clark (KMB 144.67, +2.24, +1.6%) all logged gains as investors digested their quarterly results.
McDonald's (MCD 291.51, -1.69, -0.6%), which posted impressive results, closed down nonetheless on a sell-the-news reaction. Fellow Dow component Dow Inc (DOW 52.50, -2.89, -5.2%) was confronted with selling pressure after reporting its Q1 results, which featured an 11% volume decline.
The S&P 500 closed below the 4,100 level today, finishing at its lows for the session, with all 11 sectors in the red. The defensive-oriented utilities (-0.1%) and consumer staples (-0.1%) sectors led the pack while some cyclical sectors -- materials (-2.2%), consumer discretionary (-2.1%), and energy (-1.8%) -- were among the worst performers. The information technology sector (-2.1%) was another top laggard today.
Price action in the Treasury market was another manifestation of growth concerns. The 2-yr note yield fell 18 basis points to 3.95% and the 10-yr note yield fell 12 basis points to 3.40%.
- Nasdaq Composite: +12.7% YTD
- S&P 500: +6.1% YTD
- Dow Jones Industrial Average: +1.2% YTD
- S&P Midcap 400: +0.9% YTD
- Russell 2000: -0.9% YTD
Reviewing today's economic data:
- The FHFA Housing Price Index rose 0.5% in February from a revised 0.1% in January (from 0.2%)
- The S&P Case-Shiller Home Price Index fell to 0.4% in February (Briefing.com consensus 0.0%) from a revised 2.6% in January (from 2.5%)
- New home sales increased 9.6% month-over-month in March to a seasonally adjusted annual rate of 683,000 units (Briefing.com consensus 630,000) from a downwardly revised 623,000 (from 640,000) in February. On a year-over-year basis, new home sales were down 3.4%.
- The key takeaway from the report is that new home sales activity is being helped by the tight supply of existing homes for sale, although affordability issues with higher prices and higher mortgage rates are still impeding stronger new home sales activity.
- The Conference Board's Consumer Confidence Index for April fell to 101.3 (Briefing.com consensus 104.1) from a downwardly revised 104.0 (from 104.2) in March. In the same period a year ago, the index stood at 108.6.
- The key takeaway from the report is that consumers were more pessimistic about the outlook for business conditions and the labor market, which translated into another sub-80.0 reading for the Expectations Index (the 13th out of the last 14 months). A level below 80.0, the Conference Board says, is a level associated with a recession within the next year.
Ahead of tomorrow's open, Humana (HUM), Boeing (BA), Automatic Data (ADP), Teck Resources (TECK), Norfolk Southern (NSC), Old Dominion (ODFL), Thermo Fisher (TMO), Boston Scientific (BSX), Amphenol (APH), American Tower (AMT), Hilton (HLT), and Teledyne Tech (TDY) are among the notable companies reporting earnings.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -8.8%)
- 8:30 ET: March Durable Orders (Briefing.com consensus 0.7%; prior -1.0%), Durable Orders ex-transportation (Briefing.com consensus -0.1%; prior 0.0%), March advance goods trade deficit (prior -$91.6 bln), March advance Retail Inventories (prior 0.8%), and March advance Wholesale Inventories (prior 0.2%)
- 10:30 ET: Weekly crude oil inventories (prior -4.58 mln)
Treasury yields settle sharply lower
25-Apr-23 15:35 ET
Dow -294.56 at 33580.75, Nasdaq -203.54 at 11833.65, S&P -57.42 at 4080.89
[BRIEFING.COM] The market remains near the lows of the day ahead of the close.
Treasury yields fell sharply this session. The 2-yr note yield fell 18 basis points to 3.95% and the 10-yr note yield fell 12 basis points to 3.40%.
Ahead of tomorrow's open, Humana (HUM), Boeing (BA), Automatic Data (ADP), Teck Resources (TECK), Norfolk Southern (NSC), Old Dominion (ODFL), Thermo Fisher (TMO), Boston Scientific (BSX), Amphenol (APH), American Tower (AMT), Hilton (HLT), and Teledyne Tech (TDY) are among the notable companies reporting earnings.
Looking ahead to Wednesday, market participants will receive the following economic data:
- 7:00 ET: Weekly MBA Mortgage Index (prior -8.8%)
- 8:30 ET: March Durable Orders (Briefing.com consensus 0.7%; prior -1.0%), Durable Orders ex-transportation (Briefing.com consensus -0.1%; prior 0.0%), March advance goods trade deficit (prior -$91.6 bln), March advance Retail Inventories (prior 0.8%), and March advance Wholesale Inventories (prior 0.2%)
- 10:30 ET: Weekly crude oil inventories (prior -4.58 mln)
WTI crude oil futures sink on growth concerns
25-Apr-23 15:00 ET
Dow -326.59 at 33548.72, Nasdaq -204.52 at 11832.67, S&P -58.52 at 4079.79
[BRIEFING.COM] The major indices are hanging around near their lows of the day.
After the close today, Alphabet (GOOG) and Microsoft (MSFT) will headline the earnings reports along with Visa (V), Texas Instruments (TXN), Chipotle Mexican Grill (CMG), Juniper Networks (JNPR), Illumina (ILMN), Enphase Energy (ENPH), and PacWest Bancorp (PACW).
Energy complex futures settled the session in mixed fashion. WTI crude oil futures fell 2.1% to $77.07/bbl due to global growth concerns and natural gas futures rose 1.4% to $2.29/mmbtu.
Earnings movers dominate opposite ends of S&P 500
25-Apr-23 14:30 ET
Dow -305.41 at 33569.90, Nasdaq -204.79 at 11832.40, S&P -56.95 at 4081.36
[BRIEFING.COM] The S&P 500 (-1.38%) is in second place to this point on Tuesday afternoon, having trickled off levels from the previous half hour.
S&P 500 constituents MSCI (MSCI 486.42, -58.19, -10.68%), Northern Trust (NTRS 78.15, -7.98, -9.27%), and GE HealthCare (GEHC 79.83, -7.96, -9.07%) pepper the bottom of the S&P, all following earnings reports.
Meanwhile, Florida-based financial services firm Brown & Brown (BRO 63.22, +2.16, +3.54%) is atop the standings following this morning's Q1 earnings beat.
Gold holds up despite stronger dollar
25-Apr-23 14:00 ET
Dow -313.98 at 33561.33, Nasdaq -191.79 at 11845.40, S&P -55.41 at 4082.90
[BRIEFING.COM] The tech-heavy Nasdaq Composite (-1.59%) is today's worst-performing major average, pressured by weakness in mega cap tech names like Apple (AAPL -0.8%), Microsoft (MSFT -1.3%), and NVIDIA (NVDA -2.3%).
Gold futures settled $4.70 higher (+0.2%) to $2,004.50/oz, managing to close above the $2K level despite a rise in the greenback.
Meanwhile, the U.S. Dollar Index is up about +0.5% to $101.89.
Stuck on growth and earnings concerns
A lot of companies have reported their quarterly results since yesterday's close and, in a manner of speaking, we are only just getting started. Unfortunately, the latest batch of results have failed to jumpstart the equity futures market.
Currently, the S&P 500 futures are down 17 points and are trading 0.4% below fair value, the Nasdaq 100 futures are down 53 points and are trading 0.4% below fair value, and the Dow Jones Industrial Average futures are down 70 points and are trading 0.2% below fair value.
There has been plenty of good earnings news. Dow components McDonald's (MCD), 3M (MMM), Dow, Inc. (DOW), and Verizon (VZ) all exceeded consensus earnings estimates, as did fellow blue chip companies PepsiCo (PEP), General Motors (GM), General Electric (GE), Whirlpool (WHR), Sherwin-Williams (SHW), and Raytheon Technologies (RTX) to name a few others.
Still, the aggregate reaction to those reports hasn't been enough to drive the market into a buying mode.
The reasons why are debatable, yet there are at least three reasons why the equity futures market has a tepid disposition:
- Shares of regional bank First Republic (FRC) are down 24% following the bank's report of a 40% drop in deposits. That deposit decline and the reaction of the stock is weighing on sentiment.
- UPS (UPS) came up shy of the Q1 consensus EPS estimate and lowered its FY23 revenue outlook to around $97.0 billion from $97.0-99.4 billion due in part to changing consumer behavior, which is piquing concerns about the broader economic outlook and earnings prospects.
- There is some hesitation in front of earnings reports after the close from Alphabet (GOOG) and Microsoft (MSFT).
To be fair, the equity futures market has bounced back from larger losses seen earlier, yet it is still pointing to a lackluster open for the cash market that is in keeping with the lackluster action that has been seen for the past few weeks.
Market participants are presumably waiting for things to take a more convincing turn, one way or another, following the reports from the mega-cap companies. We will get two tonight followed by the report from Meta Platforms (META) after Wednesday's close and the report from Amazon.com (AMZN) after Thursday's close. Apple (AAPL) reports next week.
Growth concerns, however, appear to be hanging over the market for now. You can see it in the Treasury market and in commodity prices. The former is rallying while the latter are sliding.
The 2-yr note yield is down nine basis points to 4.04% and the 10-yr note yield is down nine basis points to 3.43%. WTI crude oil futures are down 0.9% to $78.04 per barrel and copper futures are down 2.6% to $3.85 per pound.
Accordingly, today's economic releases -- the February FHFA Housing Price Index and February S&P Case-Shiller Home Price Index at 9:00 a.m. ET and the March New Home Sales and April Consumer Confidence reports at 10:00 a.m. ET -- will be commanding some added attention as potential market drivers leading up to tonight's earnings results.
-- Patrick J. O'Hare, Briefing.com
3M beats Q1 estimates, but company still trying to tape up sales declines (MMM)
Beleaguered industrial giant 3M (MMM), which has seen its stock plummet by more than 40% since early 2022, rebounded in 1Q23 with a top and bottom-line beat after missing EPS estimates last quarter. Although shares have since given up their early gains, MMM jumped sharply higher following its earnings press release. However, the rally wasn't solely due to the quarterly results.
- After announcing that its cutting 2,500 manufacturing jobs last quarter, MMM disclosed in its Q1 earnings report that it's taking additional restructuring actions, including the elimination of another 6,000 positions.
- The cost-cutting initiative is expected to generate pre-tax savings of $700-$900 mln as MMM reduces layers of management, reduces the size of its corporate center, and simplifies its supply chain.
Investors cheered the development, mainly because MMM's financial performance is still in need of some serious repair work. Although the company beat analysts' subdued expectations, a number of metrics point to its ongoing struggles.
- Most notably, MMM's yr/yr revenue declines are worsening, sliding to -9.0% in 1Q23 from -5.9% in 4Q22 and -3.8% in 3Q22.
- Similar to last quarter, MMM's consumer-facing businesses, such as electronics and home improvement-related products, experienced softening demand due to macroeconomic headwinds.
- During the earnings call, CFO Monish Patolawala stated that the company's consumer electronics business, which serves phone, tablet, and TV manufacturers, declined by 35% in Q1.
- Accordingly, MMM's Transportation and Electronics segment saw organic sales slip by 6% in Q1. Fortunately, the automotive and aerospace end markets have remained pretty strong, helping to cushion the impact of the weakening consumer electronics market.
- The Consumer segment, though, is experiencing a more broad-based downturn with fewer areas of strength. This business sells everything from Scotch Tape to personal respirators to sports knee pads and braces. In Q1, organic sales fell by nearly 7% -- the steepest decline for any of MMM's business segments. A consumer spending trend towards more non-discretionary items and an associated reduction in retailers' inventory levels continues to hamper this segment.
On the positive side, MMM's restructuring actions helped push operating cash flow higher by 26% yr/yr to $1.3 bln, while adjusted free cash flow climbed 24% to $900 mln. With the next round of restructuring underway, investors are anticipating further improvements in cash flow.
Overall, though, MMM's quarterly results were underwhelming, and it seems that each quarterly report features a key end market or two that is struggling. The company did reaffirm its FY23 EPS and organic sales growth guidance, providing a sign of relief for investors, but between the substantial litigation issues (PFAS and earplugs) and the top-line downtrend, it's hard to see the stock making a meaningful recovery anytime soon.
Whirlpool shares reverse course at market open despite upbeat Q1 results last night (WHR)
Even though Whirlpool (WHR -5%) shares initially shot up following the household appliance manufacturer's top and bottom line upside in Q1 last night, as well as reaffirmed FY23 forecasts, the stock took a nasty turn to start today's trading session. The quick reversal highlights investors' concerns regarding short-term uncertainties, which continue to hang over the stock.
For example, although recent results from home builders, such as DR Horton (DHI), which crushed Q1 earnings estimates last week, have provided evidence that the housing market may have bottomed, it has not translated to much positivity in WHR shares. WHR relies heavily on the replacement market, representing 55% of the industry. With intense inflationary pressures and lingering recession fears, consumers may be trying to squeeze as much life out of their current appliances for as long as possible instead of upgrading them.
- Short-term headwinds were present in WHR's Q1 results, illuminated by adjusted EPS tumbling by 50.0% yr/yr to $2.66 and revs edging 5.5% lower to $4.65 bln.
- As expected, weakness was felt globally, with EMEA and Asia experiencing the most pronounced sales declines yr/yr at 18.0% and 10.2%, respectively. A silver lining was that in WHR's largest region, North America, sales only dipped by 1.6% yr/yr, helped by the company's recent purchase of InSinkErator and market share gains.
- Nevertheless, WHR exceeded expectations by focusing on internal improvements. The company achieved meaningful cost reductions, improved its supply chain, and gained market share yr/yr and sequentially, particularly within the U.S. builder segment. Cost inflation likely peaked around 3Q22 and 4Q22 as easing raw material costs resulted in a 0.5 pt positive impact on operating margins. Meanwhile, WHR's actions to reduce parts complexity significantly improved overall product availability. As a result, operating margins expanded by 200 bps from 4Q22.
- WHR's operational improvements are keeping it on track to reduce its cost base by $800-900 mln in FY23 (although recent material cost trends will likely result in WHR hitting the lower end of its target). As such, combined with sturdy Q1 results, WHR was confident in reiterating its FY23 outlook, targeting adjusted EPS of $16.00-18.00 and revs of $19.40 bln.
Looking beyond FY23, WHR is "extremely confident" in its ability to capitalize on favorable dynamics over the long term. The company expects replacement demand to remain soft over the short run but should bounce back over the mid-to-long term. Furthermore, WHR pointed to remote and hybrid work trends driving elevated usage, twice as high as before the pandemic, in its cooking appliances, reducing their lifespan by around two years. Meanwhile, new housing supply remains limited and cannot support current population growth trends, buoying longer-term new housing demand, which comprises 45% of the household appliance industry.
Bottom line, even though it is not reflected in today's price action, WHR's Q1 results underpinned meaningful progress toward becoming a higher-growth, higher-margin business, a journey the company embarked on five years ago. Although the short term will likely be filled with disruptions, WHR is ripe to benefit over the long haul.
General Motors shifts into reverse despite blowout report as investors take cautious view (GM)
General Motors' (GM) confidence in the U.S. consumers' ability and willingness to absorb higher prices continued to pay off in 1Q23 as the country's largest automaker easily beat earnings estimates for the third consecutive quarter. Expected to post a yr/yr EPS decline of 17%, GM actually saw earnings grow by about 6%, sitting in stark contrast to the 74% plunge in Q1 EPS for Tesla (TSLA). Like last quarter, GM's executives showed no interest in following TSLA's recent price-cutting path, with CFO Paul Jacobson stating that the company "feels good about where we're at with pricing right now."
It's hard to argue with that sentiment.
- GM's reluctance to enter into a price war, combined with the implementation of an employee buyout program and other cost reductions, drove strong adjusted EBIT of $3.8 bln.
- The better-than-expected performance and the company's sales momentum -- GM gained 1.3 pts of market share in the U.S. in Q1, the most of any auto maker -- allowed it to raise its FY23 guidance.
However, there may be some disappointment regarding the amount that GM lifted its outlook.
- GM is now forecasting EPS of $6.35-$7.35 compared to its prior guidance of $6.00-$7.00. The problem, though, is that GM exceeded Q1 EPS estimates by $0.48, which is a bit more than the $0.35 that it raised its guidance by. In other words, the company actually slightly downgraded its EPS forecast for the remainder of the year.
- That may be nitpicking, but it doesn't take much to put investors on edge, especially for a stock like GM that's very sensitive to economic shifts. On that note, First Republic's (FRC) earnings report from last night, which showed a 40% decrease in deposits, is reigniting some concerns around the health of the regional banking industry.
Those issues aside, GM's earnings report was pretty solid, demonstrating resilience in a challenging environment characterized by higher interest rates and stubborn inflation.
- Total deliveries jumped by 18% yr/yr to 603,208 vehicles, with electric vehicle deliveries reaching over 20,000 in the U.S.
- Nearly all of those EV sales came from the Chevrolet Bolt EV and Bolt EUV, but that won't be the case for too much longer.
- Deliveries of the Silverado EV, GM's popular pickup truck, are scheduled to begin in late Q2, while the Blazer EV and Equinox EV are slated to launch this summer and fall, respectively.
- Looking out on the horizon, GM is expecting EV production from 2022 through 1H24 to reach 400K units.
To support this increase in EV production, GM has been busy ramping up its battery production capacity.
- Yesterday, GM announced a new partnership with Samsung in which the companies plan to invest over $3 bln to expand U.S. battery cell manufacturing. This development comes on the heels of GM launching plans for new battery production facilities in Tennessee and Michigan, each of which will be producing batteries by next year.
The main takeaway is that GM is executing very well and that it's pricing strategy of refraining from price cuts is paying dividends. There may be some doubt whether GM can continue to keep prices this high, though, given the economic headwinds and a brewing price war in the EV market. GM's revised FY23 EPS guidance reflects its upside performance in Q1 but seems to suggest some caution for the remainder of the year.
McDonald's trades flat despite another nice EPS beat, looks like it was priced in already (MCD)
McDonald's (MCD -0.5%) is trading flat despite reporting yet another nice EPS and revenue beat. It also reported strong comps. MCD is seeing strong consumer demand despite a challenging operating environment. Also, China had been a weak spot following the COVID closures, but MCD saw a steady recovery with China posting positive comps in Q1.
- What really stood out were MCD's Q1 global same store comps. At +12.6%, this was the fifth quarter in a row where comps were better than analyst expectations and really impressive considering that MCD was lapping strong +11.8% comps a year ago.
- US comps also came in at +12.6%, which was a nice acceleration from +10.3% in Q4 and +6.1% in Q3. In fairness, last year's hurdle of +3.5% was pretty small as Omicron impacted Jan 2022 sales. But this was still a very good US comp number. US comps benefited from menu price increases and positive comparable guest count growth. Effective marketing campaigns featuring the core menu also helped drive comps.
- Outside of the US, IOM comps were +12.6%, led by strong comps across the Big Five and the majority of other markets. IDL comps at +12.6% were led by Japan, along with all geographic regions. If you think all of these +12.6% comps are a misprint, they are not. We have never seen this before, but global comps, US comps, IOM and IDL comps were all exactly the same. We had to double check it, but that is correct.
- There have been recent press reports of MCD's plans to make its burgers more juicy and better tasting. The company has been enhancing its cooking procedures and making other slight changes. This new system is now being used in over 15 markets, which is resulting in improved taste perceptions. MCD recently began to introduce these changes to its US customers through a rolling deployment and the initial reaction has been positive.
- Despite the strong top line growth and comps, MCD said that company operating margin was slightly below internal forecasts. MCD cited higher levels of inflation that it was expecting, including for food, paper and labor. In terms of its outlook on macro factors, MCD says its view remains unchanged, which is a base expectation for a mild recession in the US with Europe perhaps being more challenging.
Overall, investors may be surprised to see the stock trading roughly flat despite the big EPS/revenue beat and double digit US comps. We think a combination of factors may be at play here. First, the stock has been on a tear in recent weeks, so a good Q1 report was likely priced in. Also, margins were a bit light, delivery growth rates have slowed and MCD remains cautious on its macro outlook. Nevertheless, we think this report bodes well for other fast food names reporting soon, including CMG (today after the close), DPZ (Apr 27), WING (May 3), YUM (May 3), PZZA (May 4), WEN (May 10), JACK (May 17).
PepsiCo pops to 52-week highs on upbeat Q1 results and raised FY23 guidance (PEP)
PepsiCo (PEP +2%) topped earnings and sales estimates in Q1 while raising its FY23 guidance, reflecting a healthy end consumer as shoppers prioritize brand-name staples despite increasing price tags. Yesterday, Coca-Cola's (KO) upbeat Q1 numbers signaled that consumers will absorb higher-cost sodas and other beverages. However, investors mostly yawned at KO's solid report, perhaps due to the beverage giant only reiterating its FY23 financial targets despite its overall sturdy Q1 results. Therefore, by upping its FY23 adjusted EPS and organic sales growth outlook, PEP is popping to 52-week highs today.
- PEP grew its adjusted earnings 16.3% yr/yr to $1.50 on top-line growth of 10.2% to $17.85 bln, both topping consensus handily. When backing out FX, acquisitions, and divestitures impacts (organic basis), PEP grew its sales by 14.3%. Strength was broad-based on a reported and organic basis, with only Asia Pacific seeing declining sales growth. However, on that note, PEP stated that a growing optimism in China should act as a tailwind in its Asia Pacific market as the year progresses.
- Resembling KO's numbers, PEP's pricing had a 16 pt positive impact on organic sales growth in the quarter, yet total organic volumes only slipped by 2%, adding further credence to the relative health of consumers.
- Breaking down volumes, in PEP's two largest divisions by revenue, Frito-Lay North America (FLNA) and PepsiCo Beverage North America (PBNA), growth was fairly steady from the year-ago period, with flat volumes in FLNA and a 2% dip in PBNA. Meanwhile, overseas, PEP's numbers mirrored KO's. For example, Latin America was a bright spot, with volumes climbing 1% and 5% in foods and beverages, respectively. However, Europe remained weak, as volumes tumbled by 5% and 11% in foods and drinks, respectively.
- Another similarity to KO was PEP expanding its non-GAAP operating margins. Although, PEP boasted a roughly 110 bp improvement yr/yr versus KO's 40 bps. CEO Ramon Laguarta commented that margins were assisted by an improved supply of materials and better labor availability. These favorable dynamics particularly helped Frito-Lay and should continue to buoy this business's margins in subsequent quarters, albeit possibly below Q1 levels, which Mr. Laguarta conceded were slightly elevated.
- With demand remaining solid throughout Q1, PEP confidently increased its FY23 outlook, expecting adjusted EPS of $7.27 (up from $7.20) and organic sales growth of +8% yr/yr (up from +6%).
The main takeaway is that within both the beverage category and convenience channel, PEP continues to enjoy robust demand despite continuously rising consumer prices, underpinning the relative strength of name-brand consumer staples. If upcoming big-name tech earnings spark an extensive pullback in the market, PEP may see a further push higher as investors shift into more defensive stocks. Lastly, although investors were not as warm toward KO as they are toward PEP, both companies' Q1 results are a good sign ahead of other consumer staples reporting earnings over the next few weeks.
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