Meda Singh
(Reuters) – Companies around the world are lowering their full-year sales and profit guidance, dimming the shine of latest quarterly earnings growth as rising interest rates and a weakening Chinese economy hurt global consumer confidence.
Many high-profile companies have failed to impress investors, including McDonald’s (NYSE: ), automakers Nissan (OTC: ) and Tesla (NASDAQ: ) and consumer giants Nestlé and Tesla pull. Unilever (Lang:). About 40% of U.S. and European companies reported earnings that were broadly in line with expectations, but “roughly in line with expectations” seems disappointing after a strong run in world stock markets.
“It’s been a very mixed season so far in terms of employment performance,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. “We’re starting to see a longer-term higher interest rate environment for businesses and that continues to drive earnings and revenue. The pressure to grow.”
Earnings season will take a hit this week for global tech giants, including Apple (NASDAQ:), Microsoft (NASDAQ:) and Samsung Electronics (KS:), Japan’s toyota Automotive (NYSE: ), Oil Major Exxon Mobil (NYSE: ) and Shell (LON: ) as well as European retailers L’Oréal and Adidas (OTC: ).
Businesses around the world are focused on two issues affecting their profits: rising interest rates squeezing consumer spending and the poor performance of China, the world’s second-largest economy.
McDonald’s reported its first global sales decline in 13 quarters due to a weakening economy in China. Companies including Unilever, Visa and Aston Martin are also taking note of weakness in the Chinese market, with analysts warning that a prolonged housing downturn and job instability are taking their toll on consumers. Come pressure, the Asian giant’s demand is unlikely to reverse.
“The Chinese … are reluctant to spend money because they are worried about the future,” said DWS portfolio manager Stefan-Guenter Bauknecht. He said that until China’s economic growth improves, the country will be “the weakest among the major regions, or At least the ones that are the furthest behind expectations.”
U.S. earnings per share are up nearly 12% year-to-date so far, the strongest quarter in the past 10 quarters, according to London Stock Exchange Group (LSEG) data. According to data from BofA Securities, profits in Europe grew by 4%, slightly higher than market expectations and the first time Europe has seen a positive growth rate since 2022.
The brokerage said guidance cuts increased as sectors showed signs of consumer weakness. As of Friday, U.S. companies had lowered their third-quarter annual growth forecast to 7.3% from 8.6% in early July, according to London Stock Exchange Group (LSEG).
“While second-quarter results were generally good, signs of consumer stress continue to unsettle markets,” analysts at Bank of America said in a research note.
Nestlé and Unilever both reported lower-than-expected sales growth in the first half. Businesses in the euro zone’s two largest economies have become more pessimistic, raising concerns about the bloc’s slow recovery.
Nestlé CEO Mark Schneider said in a phone interview with reporters: “Consumers have value-seeking behavior. There is pressure, especially among low-income groups.”
Auto companies are facing difficulties in the United States, with high inventories and logistics problems hurting profits at Ford Motor Co (NYSE: ), Stellantis (NYSE: ) and Nissan Motor Co. EV leader Tesla’s results have disappointed investors, with many still believing the company is overvalued as sales of electric vehicles slow.
LG Energy Solution, an electric vehicle battery company that supplies Tesla and Hyundai Motor Co (OTC: ), expects revenue to fall by more than 20% this year as global demand for electric vehicles slows more than expected. Its larger rival China’s Contemporary Amperex Technology (CATL) reported a 13% drop in second-quarter revenue.
cash out chips
The earnings news isn’t all bad. Growth in Google parent Alphabet’s (NASDAQ: NASDAQ: ) cloud computing revenue bodes well for other tech leaders later in the week. Industrial conglomerate 3M’s results sent its shares to near two-year highs, automaker General Motors (NYSE: ) and pharmaceutical giant Johnson & Johnson (NYSE: ) reported strong earnings, and banking giant JPMorgan Chase & Co. said its profits hit a record high.
Asian chipmakers have become more optimistic about the demand outlook as they benefit from a global boom in artificial intelligence, helping them weather a tapering period in demand for electronics due to the pandemic.
“Artificial intelligence is so hot; now everyone, all of my customers, want to put artificial intelligence capabilities into their devices,” TSMC Chairman and CEO CC Wei said during the earnings call, adding that today’s artificial intelligence The need for wisdom is more real than it was two or three years ago. Since 2024, TSMC’s stock price has risen 56%.
Despite the optimistic forecast, shares of Asia’s major chipmakers are still under pressure to keep up with rising expectations. This is also evident in the performance of artificial intelligence leader Nvidia (NASDAQ: NVIDIA), whose market value surged to more than $3 trillion earlier this year, only to fall back this summer.
“Investors’ expectations are too high and may be difficult to meet, and the stock price may not rise that much in the short term,” said Lee Min-hee, an analyst at BNK Investment & Securities.
The broad market MSCI International index has gained 11% so far this year, peaking earlier this month before selling off in part on hopes the Federal Reserve would start cutting interest rates after other central banks took similar steps.
“To the extent that lower interest rates remain the consensus view going forward, analysts are unlikely to lower their overall earnings forecasts for next year,” said Rick Meckler, partner at Cherry Lane Investments.
