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What Pepsi and Wells Fargo Tell Us About Earnings Season
Early results weren't encouraging.
Travis Hoium
July 14, 2024
In partnership with
Earnings season began last week with a few big banks and a report from PepsiCo. We will learn more this week, but some comments were telling about the state of the economy and consumers.
I’ve been pretty consistent with my skepticism that stocks deserve to be at all-time highs with consumers pinched by higher housing prices and a relatively weak labor market. Early returns show that skepticism was warranted.
The Asymmetric Portfolio has been sideways for months because I don’t have much exposure to AI, but the moves will likely change as earnings start coming out next week.
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In Case You Missed It
Here’s some of the content I put out this week. Enjoy!
Something Seems Fishy on Wall Street: The market is at all-time highs but there are plenty of signs a slowdown is in the future.
Earnings Season Preview Part 1: Previewing the bigger tech stocks in the Asymmetric Portfolio.
Earnings Season Preview Part 2: Previewing the big consumer goods stocks in the Asymmetric Portfolio.
Pepsi Reaches a Tipping Point
If you like salty snacks like I do, you’ve noticed an insane price jump over the past few years. A back of chips that once cost $4 at regular price and $3 on sale was suddenly $8.
Those high prices are unwinding and Pepsi is feeling the brunt of the impact as owner of Frito Lay. They’ve been losing sales, so they’re lowering prices to gain back market share.
I always chuckle at how management spins this. They aren’t backtracking on previous price increases. They are working on “different tactics to give the consumer what they want.”
And then now in the U.S., there is clearly a consumer that is more challenged and it's a consumer that is telling us that in particular parts of our portfolio, they want more value to stay with our brands. That is not for all the consumers. It's some consumers. That is not for all the portfolio. It's some parts of the portfolio. And we have been working different tactics to give the consumer what they want. And we see that is working.
Gouge consumers long enough and they’ll abandon your products. Win them back by lowering prices.
Gotta love competition.
What I’m more concerned about is, what does it say about the consumer?
Big Banks See More Weakness
Wells Fargo’s stock crashed 6.0% on Friday after reporting earnings.
I’m not a bank analyst, but I look at banks to see how they feel about the consumer, who drives 70% of the economy. Wells Fargo doesn’t feel great…
However, the economy is slowing and there are continued headwinds from still elevated inflation and elevated interest rates.
Consumer deposits were also down sharply. Is this because high-yield accounts from Robinhood and SoFi are stealing customers? Or do people have less money in the bank than they used to?
I mentioned last week that I’m concerned consumers are cutting back more than investors expect. Nike expects sales to fall 10% in the current quarter and now we see Pepsi lowering prices and Wells Fargo bearish on the economy.
This is worth watching as earnings season wears on.
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Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.
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