Corporate Earnings: The Consumer Picture
We were keeping an eye on PepsiCo, Tesco, and Delta Air Lines - to gauge the strength of the consumer in both the US and the UK.
PepsiCo: a mixed bag report with a negative tilt. While the company did manage to show overall revenue growth, the bulk of that was driven by international markets. Their core North American market is struggling, with revenues in some areas running flat to shrinking. This provides some insight into a US consumer that is feeling the pinch and actively withholding spend.
Source: PepsiCo Q3 10Q Report
Tesco: The UK grocer reported pretty good results, though top-line growth was modest at just a couple of percent. Operating profit grew at a faster clip, largely driven by a favorable sales mix. However, Tesco’s position in the mid-range of the grocery market makes it difficult to draw a definitive read on the broader UK consumer. It is hard to gauge exactly how much of their success is organic versus consumers “trading down” from higher-end supermarkets like Waitrose and Marks & Spencer. Overall, it is a positive story for Tesco, with no glaring negatives.
Delta Air Lines: Delta reported a record breaking quarter for revenues but this did not fall to the bottom line as elevated fuel prices due to the Iran conflict ate away the potential profit. The airline also slashed its profit forecast going forward for the same reason.
Macro Developments: US Jobs and Australian Consumer Confidence
US Jobs Report: The September jobs report came in drastically below expectations. The US economy added just 29,000 jobs last month, falling far short of estimates that hovered closer to 90,000.
As the last jobs report before the US elections, this data has significant implications. On the positive side for markets, a cooling labor market reduces inflation fears and lessens the inclination for the Federal Reserve to hold rates higher for longer. However, the fundamental reality is that such a stark miss is not a great sign for the underlying economy.
Australia in Focus: We have also been tracking the situation in Australia, where the macro picture is declining. The latest consumer confidence survey, taken across September, showed a considerable drop following the central bank’s decision to raise interest rates at the end of the month.
Source: Westpac-Melbourne Institute Consumer Sentiment Index
In fact, consumer sentiment has plummeted to its lowest level since the early 1990s. When paired with falling house prices in the region, it is clear that Australian consumers are feeling the strain, and their forward outlook is deteriorating.
The AI Boom Continues: TSMC and Samsung
While the consumer sectors show signs of fatigue, the AI growth story continues to have wind in its sails.
This week, semiconductor heavyweights TSMC and Samsung Electronics released preliminary pre-report guidance, and the revenue figures are nothing short of astonishing:
TSMC: Preliminary revenues are up approximately 54% compared to the same period last year, driven entirely by insatiable AI demand.
Samsung Electronics: The numbers here are even more staggering. Samsung’s operating profits have rocketed up roughly ninefold over the last quarter.
Both companies will report their full numbers next week, which will provide deeper insights into the sustainability and scale of this ongoing AI hardware supercycle.
Content Updates
The full World for Sale and Odyssey conversations are up.
Part one of my conversation with Sean Peche is available in the next 24 hours.
Nike Deep Dive: Following up on last week’s note about Nike’s 80% decline over the last five years, I have published a dedicated piece examining the company’s faltering performance through the pandemic and beyond. Thank you to everyone who requested more detail on this please keep the feedback and comments coming.
Have a great weekend.
