The third-quarter earnings season will kick off in earnest next week with the first reports expected Tuesday from big banks JPMorgan JPM, +1.69%, Goldman Sachs GS, +2.41% and C, +2.16% along with fellow Dow components Johnson and Johnson JNJ, +1.76% and UnitedHealth Group UNH, -0.74%.It‘s a busy start — earnings season typically starts with just one or two bank reports — but expectations for the season are subdued. The continued trade tensions between the U.S.
It was a similar message from chip company Micron Technology MU, +4.21% when it reported fiscal fourth quarter earnings last week with Chief Executive Sanjay Mehrotra “mindful of continued near-term macroeconomic and trade uncertainties.” “While Chinese tariffs are understandable, they are impacting our supply chain decisions,” one executive told ISM. “We are actively pursuing alternate sources for our China-based production. At this point, we have not passed on tariff costs to our customers, but we are evaluating all options.”
“Regardless of whether the two sides can reach a short-term, narrow truce, we remain pessimistic on the U.S.-China economic relationship over the medium term,” wrote Nomura chief U.S. economist Lewis Alexander in a note to clients. Investors should keep a keen eye on the geographic breakdowns of revenue or profit growth, to see the extent of international weakness, and whether that weakness has started hitting domestic results.
The company, which warned of a profit and cash flow shortfall, also said the more “broad-based global economic slowdown” isn’t likely to reverse course for the rest of the year. The average daily price of the ICE U.S. Dollar Index, which measures the buck against a basket of six major rivals, was 97.97 during the third quarter, up 3.2% from the daily average during the same period a year ago. More specifically, the dollar strengthened by 4.2% versus the euro and 2.5% versus the Chinese renminbi.
Investors should keep a close eye on what companies say about price and/or sales mix, which is another way of describing higher-and-lower priced products, and the impact on gross margins. Were sales boosted by increased demand or by higher prices, or were customers unwilling to pay more?Chief Executive Jeffrey Harmening of General Mills, which missed revenue expectations but beat on profit, said flat out that one reason behind its “good” profitability was “because of our pricing.
Meanwhile, FedEx has yet to pass on increased costs to its customers, as the company isn’t raising prices for ground and home delivery by 4.9% and for freight shipping by 5.9% until Jan. 6.
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