Goldman Sachs analyzed 60 earnings calls and arrived at these 4 critical themes that are shaping the corporate landscape


FILE PHOTO: Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., June 4, 2019. REUTERS/Brendan McDermid/File Photo

A new Goldman Sachs report detailed four key themes observed across second-quarter earnings calls.
The report includes statements from 60 members of the S&P 500.
Company executives frequently mentioned the US-China trade war, increased pressure against profits, slowing global economies, and recent interest rate cuts.
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Second-quarter earnings season is all but wrapped up, and a bevy of earnings calls detailed some commonalities across industries.

Company executives highlighted four main themes during second-quarter calls, according to a Goldman Sachs report. Commentary from 60 members of the S&P 500 focused on the US-China trade war, increased pressure on margins, global economic growth, and lowered interest rates.

Here’s what companies said on these four topics, along with some specific company examples.

1. Minimizing trade war impact

Many corporate managers noted their plans to sit back and take a more patient approach as they monitor the financial impact of upcoming tariffs. President Trump announced Tuesday he would delay a portion of the next set of duties on Chinese goods, which were previously set to hit September 1.

Some popular strategies for mitigating trade-war costs were moving manufacturing away from China, divesting from Chinese businesses, passing the costs to consumers, and boosting domestic productivity. Firms without exposure to US-China trade outperformed those caught in the conflict, Goldman analysts said.

AT&T: “It’s been a little soft in the last quarter or two with the China trade discussions. The administration doesn’t like for us to talk about that. But look, business has pulled in investment the last quarter or so as a result of the trade uncertainty.”

Juniper Networks: “We are passing along some of that tariff increase to our customers. We’ve been fairly successful at doing that, but there have been some situations where we haven’t been able to pass all the cost through, which is why we are seeing some impact to our gross margin.”

2. Greater pressure on profits

Companies emphasized the tight labor market and rising commodity costs as challenges for financial growth. Average hourly earnings and the minimum wage grew throughout the second-quarter while unemployment remained low, and some managers said the rising labor costs cut into profits.

Increases in commodity costs and the stronger US dollar were also hot topics on earnings calls, particularly with companies selling abroad. Brent oil is up about 14% year-to-date as geopolitical tensions and the trade war threaten supply disruption.

Costco Wholesale: “We’re still facing pretty big headwinds from the U.S. wage increases to our hourly employees that went into effect in June of 2018 as well as additional wage increases implemented in March of 2019. Both of these wage increases negatively impacted SG&A during the quarter, representing about 10 to 12 basis points of the year-over-year variance.”

Mondelez International: “Without talking about specifics, we see some places where there is inflation, where there is some commodity and cost pressures, and we will take appropriate pricing actions as we see appropriate.”

3. Concerns around slowing economic growth

Economies are slowing around the globe, with all German bunds falling under 0%, the US …read more

Source:: Businessinsider – Finance

      

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