Some global consumers are showing signs of cracking, as shoppers stressed by record inflation stick to buying basics like food, bleach, cheap burgers, while those with bigger bank accounts are snapping up $50,000 pickup trucks.
Investors are closely watching corporate results for signs economies are headed toward recession. But so far consumers are sending mixed signals. There is weakness seen in those that have been hit hardest by record fuel and food prices. Meanwhile, credit card and other data shows some are still spending on travel and other high-end pursuits.
Walmart sounded a warning shot on Monday, issuing a rare profit warning. Its US customers, who tend to come from lower-income households, are buying food and other essentials, while skipping aisles filled with clothes and sporting goods.
"The results overnight indicate that US consumer is now much more focused on the staples element of shopping where we've got double-digit food inflation coming through in some of these retailers," says Nicola Morgan-Brownsell, fund manager at Legal & General Investment Management.
US consumer confidence fell for a third straight month in July amid persistent worries about higher inflation and rising interest rates.
YOU GOTTA EAT
Consumer giants Coca Cola and McDonald's Corp and Unilever all said on Tuesday that their products are still selling, even at higher prices.
Unilever, which has 400 brands including Hellmann's mayonnaise, Knorr stock cubes and Domestos bleach, raised its full-year sales guidance after beating first-half underlying sales forecasts as its hiked prices.
So far consumers are buying, but there is a question around how long that can last.
"We see price increases when we go out to do a weekly shop. The question is: how much more accepting can the consumer be on those price increases?" said Ashish Sinha, portfolio manager at Unilever and Reckitt shareholder Gabelli.
McDonald's which operates nearly 40,000 restaurants, said its global same-store sales jumped almost 10 percent, much better than the expectation for an increase of 6.5 percent.
Even so, the Chicago-based company said it is considering whether to add more discounted menu options because soaring inflation - particularly in Europe - is leading some lower-income consumers to "trade-down" to cheaper items and to buy fewer big combination meals, Chief Financial Officer Kevin Ozan said during a call with investors.
Coke's global sales volumes rose 8 percent in the second quarter, the company said, powered by growth in both developed and emerging markets, while average selling prices increased about 12 percent.
"Coke's results are testament to its brand value because consumers are unwilling to trade down to other colas, despite increasing prices," CFRA analyst Garrett Nelson said.
General Motors Co on Tuesday reaffirmed its full-year profit outlook on an expected surge in demand and said it was curbing spending and hiring ahead of a potential economic slowdown, but a 40 percent drop in its quarterly net income disappointed, sending shares lower.
The Detroit automaker's net income fell 40 percent in the second quarter from a year earlier due to supply-chain snarls, including a global semiconductor chip shortage that hit hardest in June. The company's shares fell 3.5 percent in midmorning trading.
Nevertheless, GM sees a lot of pent-up demand.
GM Chief Financial Officer Paul Jacobson said Tuesday that despite the hit from the global chip shortage in June which continued in July, GM still sees strong pricing and demand for its vehicles. The automaker reaffirmed its profit outlook for the year, as Jacobson said the company sees demand in the second half making up for any shortfalls in the second quarter.
A GM pickup truck starts around $31,500 for a base Chevrolet model, while a loaded GMC Sierra can top $100,000. Most models come in the $50,000 to $70,000 range.
We feel good about making up all that (lost) volume in the back half of the year," he said.