The good news in Starbucks (SBUX) and Ford (F) revenue

EResults reporting is, by its very nature, primarily about individual companies. Sometimes, however, the data they contain or CEO comments can be revealing in a more macro sense. That was definitely the case last night when, amid a slew of big tech profits from Apple (AAPL), Alphabet (GOOG, GOOGL) and Amazon (AMZN), reports from two more traditional companies caught the eye. . While the technology benefits were a little disappointing, this disappointment was what was most expected. On the other hand, Starbucks (SBUX) and Ford (F) released reports and commentary that should give investors hope.

That might seem like a strange thing to say given that both of these stocks are trading lower in this morning’s pre-market, but in neither case is the optimism coming from the EPS bottom line. Both companies missed estimates for the fourth quarter on this metric, albeit in different ways. Ford did so while beating revenue estimates, when a revenue shortfall was apparently a big part of the problem for Starbucks.

What interests me most is what the two companies have said about their earnings, and this has wider implications for all investors.

Ford CEO Jim Farley had some honest and refreshing comments about their quarter and 2022 in general. He said Ford “left about $2 billion in profits on the table” and they “could have done better.” That’s unusual on its own, but it was when Farley talked about what they were going to do about it that things got really interesting.

In an interview with CNBC after the release, he said they felt differently than before about the cuts. Previously, he said, cuts from Ford and other automakers had focused on cutting labor costs. This time, he said, it would be different. He described the past reduction in jobs as a reduction in production and said that this time around they will focus on reducing input costs. This is telling from a macroeconomic perspective because it suggests two things. First, in Ford’s experience, cost pressure, and therefore inflationary pressure, comes from the supply side and second, they don’t expect a big drop in demand.

If Farley is correct, this has big implications for the fight against inflation over the next few months. This implies that, to some degree at least, inflation was as much about the extraordinary effects of the pandemic and the resulting supply chain disruption as it was about monetary and fiscal policy. If so, the combined effects of the rate hikes we’ve already seen and a return to some degree of normality after a disruption as China dropped its “zero Covid” restrictions at the end of the fourth quarter will make it very likely that the Fed will pause earlier and perhaps even reverse policy before the end of the year.

Meanwhile, Starbucks revenue details suggest the same, albeit in a different way. The headline-grabbing part of their report was the sharp drop in profits and revenue from China, where sales fell 28% in the fourth quarter. It’s hardly surprising given the fuss around Zero covid’s abandonment, but the effects have been even worse than expected. However, if you look at Starbucks’ domestic operations in the fourth quarter, the news is actually quite encouraging.

US same-store sales increased 10%, but only about 1% of that increase was due to increased traffic. Most were due to customers spending more per visit, a metric that increased by 7% globally. So even as the Fed tightened and recession fears grew, American consumers were spending more on an affordable luxury purchase.

To sum up: in the space of a few hours, investors have learned that one of the world’s largest automakers sees its problems stemming from problems on the supply side, not the demand side, and that a large retailer attributes its disappointing results primarily to turbulence. in China which by its nature was always going to be temporary and which may have already been addressed. The individual results may have caused both F and SBUX to lose ground, but the underlying causes of these results are, in fact, quite encouraging for US equity investors as a whole.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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