Commencing the Quarter Q3'23

This week officially commences Q3’23 Earnings Season! 

Yesterday, we published our 56th issue of our Inside The Buy-Side® Earnings Primer® 

According to our survey of 80 institutional investors and analysts globally, top areas to address on earnings calls this quarter include: 

• Margins, Expense Management | 63% 
• Macro & Outlook | 39% 
• Inflation / Cost, Pricing Power | 38% 
• Growth | 24% 
• Demand | 20% 
• NEW: Cash Flow | 19% 

An analysis of 30 off-cycle earnings calls over the last several weeks finds that inflation continues to moderate for many, though wage pressures appear to be a persistent hurdle for outright margin improvement, and pricing elasticities are proving mixed from company to company as the consumer exhibits weakening buying patterns. Secular positioning remains a key element of the communication strategy this quarter as demand for some consumer-facing industries softens and the effects of destocking begin to resonate throughout selected company results. Overall, operational improvements, productivity gains, automation and digital investments, and controlling-what-can-be-controlled are all integral parts of the earnings conversation. 

Not surprisingly, executives are reinforcing their focus on maintaining more conservative debt levels in the midst of an increasingly challenging economic backdrop. It remains to be seen whether the recently-announced Exxon-Mobil (XOM) acquisition of Pioneer Natural Resources (PXD) — likely to be 2023’s largest announced M&A transaction — will be a catalyst for animal spirits heading into 2024 or an exception to an otherwise cautious M&A market this year. As we reported, support for M&A is at a 10-year low. 

Key Themes 

• Outlook – Amid a Consumer Landscape that Appears to be Weakening with Conditions Resembling a Rolling Recession, Companies are Implementing Promotions and Optimizing Operations for a Projected Late ‘24/Early ‘25 Rebound; Executives Keeping a Watchful Eye on the Potential for Cascading Effects of Union Strikes and Impact from Student Loan Payment Resumptions 
• Volume and Pricing Power – Some Highlight Recent Consumer Softness as “Episodic” or “Temporary”, While Others Point to Stretched Dollars and Clear Demand Depression Following Destocking 
• Inflation – Costs Show Signs of Moderating, including Raw Materials in General, though Labor Expenses Remain Elevated 
• Capital Allocation – In Line with our Earnings Primer® Findings, Companies Prioritize Debt Reduction; the Prospect of M&A is Largely Dismissed for Now, But Some Hint Toward Increased Activity in 2024
• China & Europe – China Exhibits Emerging Green Shoots Albeit Off a Low Base, While Europe Garners Mixed Perspectives   

Stay tuned for next week when we release our Q3’23 Industrial Sentiment Survey®.