Q1 earnings season is well underway. 25% of the S&P 500 has reported, and a number of large-cap bellwether technology companies will report this week. So far, the EPS and sales beat rates are above their historical averages, and forward 12-month EPS estimates continue to surge.
An upbeat earnings season
The market has been behaving as expected in reaction to earnings reports by rewarding beats and punishing misses.
The economic dam is bursting and the economy is booming. Demand in the US was described as “very, very strong” and “phenomenal” thanks to strong consumer balance sheets and vaccinations. Supply chains are still disrupted and there are significant inflation pressures.
Reopening continues around the globe“…we see continued progress being made in the health crisis. More businesses are now opening up. Unemployment continues to decline. Consumers are spending at record levels. We are optimistic that expanding economic activity will in turn fuel loan growth as companies borrow, build inventory invest and hire more employees.” – Bank of America (BAC) CEO Brian Moynihan
“China appears to be the furthest along in terms of reopening, with activity levels largely back to normal. The US is not all the way back just yet, but is moving in the right direction. And an increase in vaccination rates across the country appear to be driving some of this progress. Europe is improving broadly. And while certain areas have recently experienced setbacks in the process of reopening, we’ve not seen any material impact.” – Danaher (DHR) CEO Rainer Blair
The US is very, very strong“I would say the U.S. was very, very strong.” – ManpowerGroup (MAN) CFO Jack McGinnis“I saw some commentary sort of questioning demand. Demand out there is absolutely phenomenal, across almost every sector. Very, very strong and it would appear to be there for the rest of this year going into next…So we see strong demand, tight supply, record low supply chain inventories across the space.” – Steel Dynamics (STLD) CEO Mark Millett
“And you heard us before talking about consumer demand, to be honest, in all the years I’ve been doing the earnings call, this is probably the year that I’m most bullish about mid-and long-term consumer demand trends in North America. So I’m not worried about consumer demand. ” – Whirlpool (WHR) CEO Marc Bitzer
Consumers have healthy balance sheets“Our FICO scores stayed extremely stable as have our debt-to-income levels. So it’s showing us that the buyer and the consumer is healthy today. And there are still plenty of people out there that can afford to buy a house.” – D.R. Horton (DHI) VP, Investor Relations Jessica Hansen
The economic dam is bursting“I think as you see the vaccine spread, this economic dam is really starting to burst and it’s going to be widespread in terms of an increase in activity and revenues across most businesses.” – The Blackstone Group (BX) COO Jon Gray
There are rapidly rising inflation pressures“…the inflationary pressures, particularly surrounding some of our key commodities, looks like it is going to be more of a headwind in ’22” – Coca-Cola (KO) CFO John Murphy
“…we’re watching and seeing SG&A inflation in different parts of the world and in different parts of the business, ranging from wage inflation in selective geographies. You’ve got global logistics inflation. You’ve got commodity inflation.” – Genuine Parts (GPC) President William Stengel
“In the first quarter, global semiconductors and resin shortages amplified existing supply constraints, and thus impacted our product availability. Further, we are faced with rapidly rising inflationary pressures, primarily in steel and resins. To address these issues, we swift the responses with the necessary actions to protect margins and product availability. We announced significant cost based price increase in various countries across the globe ranging from 5% to 12%” – Whirlpool (WHR) CEO Marc Bitzer
The tech sector’s acid test