This Week in Earnings – Q3’24

Broadly, executives point to a continuation of consumer trends seen in recent quarters, with affordability and strained budgets shifting spending away from higher-ticket discretionary items. That said, while many characterize the environment as challenging — and expect it to remain so in the near term amid macro headwinds and U.S. election uncertainty —executives continue to express cautious optimism toward 2025 with hopes for an improved environment once Fed rate cuts have had a chance to work their way through the system.  

Against this challenging macro backdrop, more companies across the sector are lowering revenue guidance than raising. Homebuilders point to buyers remaining on the sidelines amid the volatile interest rate backdrop, with mortgage rates having marched higher, reversing the pullback that came in anticipation of the Fed’s September rate cut. Companies tied to home improvement and automotive markets also cite sluggish demand, particularly for higher-margin discretionary items. Across restaurants, companies are doubling down on value offerings, with some citing strong traction in Q3 and heading into Q4. 

At the same time, while top-line dynamics are challenged, companies are offsetting weaker sales through operational efficiency and cost reductions, positioning them for future growth once demand recovers. To that end, more Consumer Discretionary companies are raising EPS guides than lowering so far this quarter. Indeed, with 53% having raised EPS guidance thus far, the sector is outpacing our all-company group at 48%.  

Regionally, Europe remains soft with sluggish economic growth and depressed real wages weighing on consumer sentiment. And in China, while consumer trends have worsened and are not seen rebounding near term, executives retain some longer-term optimism for the market. Ex-China, India remains a pocket of strength in Asia. 

Key Themes

• Mixed Macro Signals – Execs continue to navigate a challenging macro environment amid ongoing consumer pressure and election uncertainty; cautious optimism remains for economic soft landing and rate relief to be felt in 2025
• Guidance Trends – Challenging market conditions persist for many on the top line, leading to lowered guides; those raising EPS outlooks highlight strong execution and operational discipline
• Demand – Affordability challenges continue to weigh on housing and auto amid uncertain interest rate backdrop; restaurants see traction with value offerings
• Consumer Health – “Judicious” spending patterns seen punctuated by pullback on big-ticket items; bifurcation still in focus with higher income cohorts driving spend while lower income consumers face increased pressure
• Margins and Pricing – Amid challenging top-line environment and competitive pricing, companies highlight operational efficiency and cost management efforts
• Regional Trends – Consumer headwinds persist in Europe; China weakness seen continuing near term; India remains a key growth market