Q2 Earnings Season Complete – some quotes

Michael Rudd, CFA | President, CEO and Portfolio Manager

As regular readers of the Investment Outlook know, our writing follows the calendar of quarterly earnings reports. The companies that we invest in report financial data and management commentary on a regular basis, which is colloquially called “earnings season”. This is an important part of our investment process because we are able to check-in on the progress of the companies that we own, as well as management’s expectations for the future of their business operations. Last week, we presented aggregate sales data as a consistent way to take the temperature of how the North American economy is performing. This week, we focus on commentary from company managements. Although anecdotal, we find this type of information vey useful in formulating our investment opinions. Below is selected commentary from the management conference calls of companies that we own or follow closely.

  • “Our sales were well ahead of plan, with inflation lifting our average transaction size, but we know that the amount and persistence of inflation is negatively affecting many families. From the U.S. to Mexico to Canada to Chile, they are prioritizing how they spend their money.” – Walmart (WMT) CEO Doug McMillon

  • “Recession is a word. Whether we are in a recession or not is really not the important thing. It’s what it feels like for the people going through this” – Bank of America (BAC) CEO Brian Moynihan

  • “We see no deterioration in consumer behavior from the beginning of the year until now” – Bank of America (BAC) CEO Brian Moynihan

  • “…while conditions remain far from what we would have considered normal in the years before the pandemic, there are early signs that both costs and volatility may have peaked. More specifically, lead times in global shipping have begun to decline. Spot rates to move shipping containers have fallen somewhat. And in light of the reduction in petroleum prices we’ve all seen recently, fuel surcharges have been easing somewhat compared with the peak rates we saw earlier in the second quarter. That said, conditions remain highly unfavorable when compared to the years before the pandemic, and we’re mindful of the continued risks in the months ahead” – Target Corporation (TGT) COO John Mulligan

“This means that” we notice different types of messaging this quarter. For example, the first three bullet points seem somewhat dire, while the last one seems cautious but more constructive.  We think that this is a reasonable expectation for where the economy is.  There is clearly inflation in the system, and it seems more persistent than we thought at the beginning of the cycle. There is risk in that. It appears to us that it will take longer to normalize the various issues than what investors expect. For this reason, we believe that volatility will continue for some time.

Pathfinder Asset Management Ltd. | Equally Invested™
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Sources: Pathfinder Asset Management Limited

National Instrument 31-103 requires registered firms to disclose information that a reasonable investor would expect to know, including any material conflicts with the firm or its representatives. Doug Johnson and/or Pathfinder Asset Management Limited are an insider of companies periodically mentioned in this report. Please visit www.paml.ca for full disclosures.

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