FedEx and Nike earnings will hold vital hints about the power of Christmas shopping

After investors raced to exits after their latest earnings reports, parcel delivery company FedEx Corp. and manufacturer of athletic equipment Nike Inc. try again. And they will provide important information on demand as inflation-challenged consumers shop for the holiday season.

FedEx FDX Quarterly Results,
-0.84%
and Nike NKE,
-2.36%
in the coming week, along with a report from General Mills Inc. GIS,
-0.02%,
will provide a preview of what’s to come when the bigger revenue storm hits next month. Sure, rising prices for basic necessities mingle with a barrage of holiday discounts.

Analysts were slightly less downbeat about the fourth quarter than the third, even as the Federal Reserve’s anti-inflation tactics were worrying for the economy and US retail sales marked their biggest fall in nearly a year in November amid low auto sales and less elsewhere give out

FactSet senior earnings analyst John Butters said in a report on Friday that analysts and companies are “slightly less pessimistic in their earnings outlook for S&P 500 companies for the fourth quarter compared to the third quarter,” even though they are more cautious about the trends. of the past five years.

Analysts have cut their earnings per share estimates by 6.1% since Sept. 30. That’s slightly narrower than the 6.8% haircut for the third quarter.

But with 2022 largely in the pocket, analysts’ buy, hold, and sell ratings haven’t always panned out as planned.

The energy sector, Butters said, had the largest percentage of buy ratings at the end of 2021 and also recorded the largest price gains of any industry tracked by FactSet. But the two industries that had the second-largest percentages of buy ratings at the end of 2021 — information technology, including Microsoft Corp. MSFT,
-1.73%
and Apple Inc. AAPL,
-1.46%
; and communications services, including Google parent Alphabet Inc. google,
-0.66%
– “have seen the largest price drop and the fourth largest price drop of all eleven industries during this period.”

“It is interesting to note that the same three industries that had the highest percentages of Buy ratings at the end of last year also have the highest percentages of Buy ratings at the end of this year,” Butters said in the report.

“On the other hand,” he continued, “the two industries with the lowest percentages of Buy ratings (Consumer Staples and Utilities) at the end of last year were the second best and fourth best performers in terms of price returns of all eleven industries over this period. time.”

This week in profit

Nine S&P 500 SPX,
-1.11%
components and a member of the Dow Jones Industrial Average DJIA,
-0.85%
will report quarterly results next week, according to FactSet.

General Mills GIS,
-0.02%
— which makes food under brands such as Betty Crocker, Bisquick and pet food maker Blue Buffalo — reports quarterly earnings Tuesday, as does FedEx FDX,
-0.84%
and Nike NKE,
-2.36%.
Cybersecurity and connected devices company BlackBerry Ltd. BB,
-0.94%
also reports Tuesday.

Cruise line Carnival Corp. CCL,
-2.09%
will report Wednesday, with analyst reservations about the travel rebound beginning to surface. Micron Technology Inc. mu,
+0.06%,
a chipmaker concerned about the demand for memory in electronic devices should come forward.

Also scheduled for Wednesday are results from drugstore chain Rite Aid Corp. RAD,
+1.18%
and workwear supplier Cintas Corp. CTAS,
+0.17%
Results expected on Thursday include CarMax Inc.
-6.04%
and payroll service provider Paychex Inc. PAYX,
-0.96%.

The calls to put in your calendar

FedEx, Nike, General Mills and consumer demand: The results from FedEx, General Mills and Nike will give us an idea of ​​the extent to which people are still buying and shipping holiday items, such as higher food and gas costs RB00,
+0.74%
prices are changing shopping behavior this year.

Shares of FedEx tumbled in September after the ground and air transportation service warned of a slump in demand in the US and Asia and service problems in Europe. It then said it had planned up to $2.7 billion in cost savings, but higher shipping costs. The company’s ground shipping business reportedly planned to lower its holiday volume outlook.

“We think revenues have been down (year over year) and that’s sequential as volumes continue to decline even as we enter peak season,” Cowen analyst Helane Becker said in a research note Tuesday.

Nike shares similarly fell in September after executives said markdowns on its own products would hit margins. They said they expected their rivals to continue slashing prices on clothing at least through the end of the year.

For more: Inventory troubles are rocking Nike stock

With the consumer shift away from buying clothes, Nike and other retailers sought ways to slim down excess goods in warehouses and backrooms that accumulated after supply chain problems, over-ordering and misinterpretation of demand. However, Nike management has said that the increase in inventory levels likely peaked in North America in the three-month period ending Aug. 31.

“The market is focused on progress in resolving inventory issues in FY23 as an impetus for a strong margin recovery in” fiscal 2024, Stifel analysts said in a note Wednesday. However, they said they expected there would be “more work to be done” in the second half of Nike’s fiscal year, which ends in May.

General Mills will report as higher food prices — a function of their own rising costs and consumer demand — drive many producers toward greater profits. Food industry executives have said they have room to keep prices high, betting that consumers, who have limited choice when it comes to food spending, will continue to pay.

Read More: Food inflation is cooling, but rates continue to climb double digits for these items

The number to watch

Micron and chip question: Micron will report as analysts try to find the bottom for the chip sector after a one-time deficit turned into a glut. The company was hit by a downgrade from Deutsche Bank this month, citing a potential weakness in demand for memory chips.

“We are increasingly cautious in the memory market as we believe the current downturn will last longer and be more severe than we previously predicted,” Deutsche Bank analyst Sidney Ho said of Micron in a note to clients. “On the demand side, the weakness in consumer PCs/smartphones has now spread to the business side, and even demand for the cloud is starting to decline.”

Micron lowered its supply outlook last month, saying it was taking “bold and aggressive steps to reduce supply growth to limit the size of our inventory” as demand eases. Chip stocks have fallen as demand for electronics slows after consumers started buying them at the height of the pandemic.

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