A good deal of the positive sentiment which had built up so far in 2023 was punctured this week as weak consumer spending figures undermined the idea the US economy is headed for a soft landing.
Retail sales for the key December period dropped 1.1%, materially more than the 0.8% decline which had been forecast, US industrial production also fell 0.7%.
US bank earnings were also weak, adding to recessionary fears, Morgan Stanley (MS:NYSE) seeing profit fall 41% in the final three months of 2022 as investment banking income dried up (17 January).
It's smaller financials peer, PNC Financial Services (PNC:NYSE) fell sharply as its own quarterly earnings (18 January) came in well below expectations.
There was some relief for Tesla (TSLA:NASDAQ) shareholders after a bruising period with investors apparently reacting with cautious optimism to plans to cut prices to help fight off mounting competition in the electric vehicle space.
NETFLIX
Streaming giant Netflix (NFLX:NASDAQ) beat expectations for subscriber numbers in the fourth quarter - the first earnings report to reflect any impact from its new ad-supported tier.
The company added 7.66 million subscribers in the period compared with the 4.57 million which had been anticipated by analysts - supported by hit shows like Wednesday and Harry & Meghan. Earnings per share came in below the $0.45 consensus estimate at $0.12 but this mainly reflected adjustments relating to euro-denominated debt and margins were also higher than expected at 7%.
The other big news was the departure of co-CEO Reed Hastings with Greg Peters stepping up from chief operating officer to share the top role with Ted Sarandos.
Whether coincidental or not Netflix has also announced it will stop giving guidance on subscriber numbers as it looks to shift the focus to revenue instead. First quarter revenue is guided to be up 4%, supported by more paid membership and more money paid per membership with the company set to launch paid sharing - seeking to capture users who previously borrowed their login from friends or family.
PROCTER & GAMBLE
Consumer goods giant Procter & Gamble (PG:NYSE) saw its shares fall to two month lows despite beating quarterly sales estimates and increasing organic sales guidance to 4%-5% from 3%-5%.
The Tide detergent and Crest toothpaste maker reiterated earnings per share guidance for the 2023 financial year in a range of flat to up 4% and cited raw materials cost pressures.
For the second quarter to 31 December the firm reported adjusted earnings per share of $1.59, bang in line with street estimates while revenues came in a touch ahead at $20.77 billion compared with $20.73 billion.
The company said second quarter sales volumes dropped 6% driven by a fall in consumption, reduced activity in Russia and higher inventories in China, its second largest market.
P&G was able to grow organic revenues by 5% as higher pricing outweighed lower volumes. Chief finance officer Andre Shulten said consumers reacted to price hikes ‘generally better than expected’. Further price increases are planned.
KB HOME
Housebuilder KB Home (KBH:NYSE), the oldest listed developer on Wall Street, posted an exceptionally strong set of financial results for the year to December sending its shares to a nine-month high of $36 at the start of the week.
Revenues were up 21% to $6.9 billion, mostly thanks to an 18% increase in average selling prices to $500,000, and book value per share increased 27% to $43.59.
It wasn't all sweetness and light, however. Fourth quarter 2022 net orders were for just 692 homes with a value of $363 million compared with 3,529 homes and a value of $1.77 billion in the fourth quarter of 2021.
Gross orders halved to less than 2,200 and the cancellation rate jumped to 68% from 13% a year earlier.
In other words, in the last three months two in three people reneged on their agreement to buy a house.
These statistics didn't get much airplay and KB Home could be an isolated case, but given the significance of the housing market to the US economy and its banking system this needs monitoring.
