Higher earnings expectations can mean big letdowns: Morning Brief
Yahoo Finance’s Brian Sozzi and Julie Hyman break down why higher earnings expectations can hit companies hard.
Video Transcript
JULIE HYMAN: At the moment it's still worth highlighting some of the things that he talked about in this morning's brief, what wrote about in this morning's brief. And it was triggered by Netflix coming out yesterday-- or I should say, the day before yesterday, the close after the close before yesterday-- with subscriber numbers that disappointed, which really highlights a concern about a number of different growth companies that thrive during the pandemic, is that those successes are not repeatable. Now, as he rightly points out, some of this is specific to Netflix. But you have to extrapolate out and wonder if this is going to become more common. There are other obvious examples-- Zoom, for instance.
But that seems to be one of the themes that could emerge from this earnings season, Brian. The other that also Myles has touched on and touched on again has to do with rising costs and rising prices, which we've seen multiple examples of this morning. So, to me, that seems about right, that those are sort of the two concurrent big themes of this earnings season, whether those successful companies can keep it going-- Netflix couldn't for now-- and how much these costs are going to have an effect on a lot of companies.
BRIAN SOZZI: Julie, right on. If we learned anything this week from our various chats, P&G's CFO, Whirlpool's CFO, just a couple of minutes ago, even Chipotle's CFO, corporate America is raising prices. And the days of raising prices by 2% to 3% to offset some type of commodity inflation, that's over. Whirlpool's CFO Jim Peters just told us, on some product lines, he may have increased prices by close to 12%. Sure, that will boost the bottom line, but that 12% is going to be a hit to consumers who might want to buy a new appliance.
But, Myles, also noting in the newsletter, this is going to be a weird earnings season. Now I'm looking back to some notes I took this morning on my pad here after looking at the airline results. I wrote down, so the losses were pretty big at the airlines, but they beat estimates. But the commentary was pretty good, forward-looking commentary from the airlines on where demand might be. But business travel still under pressure. And then, oh, yeah, these companies are still sitting on billions of dollars in new debt.
So it's a weird environment to be an investor. Do you stay concerned about the debt levels? Do you care about the quarter? Do you trade on the forward-looking commentary? It's confusing. It's a confusing time to be an investor, Julie.
JULIE HYMAN: Yeah, and throw something else into those airline earnings. That's the billions that they're still receiving from the US government, right? That throwing kind of a spanner in the works, if you will, as well. So a lot of different things to consider from all of these various earnings news. I mean, the other thing about Chipotle is, it almost falls into both categories, both trends that we're talking about. It defies one of them, however, even as it also falls into the other category. In other words, it's raising prices because it's seeing higher costs.
On the flip side, where you might think that the reopening trade would more benefit a sit-down restaurant, for example, Chipotle is still thriving, still getting a lot of digital orders, and still seeing more traffic than analysts had anticipated. So, it's just really hard to predict right now what is going to happen in some industries, as things reopen back up because human behavior, you know, a lot of the time, you can sort of predict, but some of the time, you just can't.
BRIAN SOZZI: Yeah, if there's any savings grace here, Julie, it's that even in light of these price increases, you're not seeing any volumes at companies fall off a cliff. The consumer, I guess, armed with stimulus, is still out there spending. I've got a good note from Deutsche Bank this morning, saying that the attendance at Disney World last week up 18%, which is very interesting and coincides what we heard from the airlines today, that forward bookings for the summer are looking pretty good. And maybe people are going back to Disney World and paying a little bit more to do it.
JULIE HYMAN: Yeah, and to your point as well about raising prices and consumers paying those prices, right, as Jim Peters pointed out at Whirlpool, the whole industry is doing it. So, many of these cases, it's not specific to one company. And you can go to a competitor and pay less. A lot of these increases and pressures are happening across the board.
