Optimism is fading among CEOs, with the greatest hope in the discovery of vaccines.
We highlight several non-technological elements of the economy that are working well.
These portions represent strong demand, low source and the ability to increase costs even in the pandemic.
As of last Friday (24th July), approximately 25.6% of the companies of the S&P 500 companies had reported earnings for Q2 2020. This week (week 31) will be the busiest as 189 S&P 500 companies report, mostly from the industrials and big tech areas. While there is plenty to make one pessimistic, including the fading optimism and rising bankruptcy rates among small businesses, there are some companies from some niche markets that are doing particularly well in this pandemic. We will highlight them in our newsletter this week.
Breakdown of reporting corporations the week of July 27
A few weeks ago, when the economy reopened, there was a lot of optimism in the C-suite. As instances increased, we regained renewed optimism and business and customer confidence. Marriott International (MAR CEO Arne Sorenson) said he is now “less optimistic” than he was a month ago. The general genius is cautious and little hope of a V-shaped recovery:
I have a more cautious vision than I was four weeks ago. While the T.S.A. the numbers have continued to rise slowly, the truth is that the cash that other people are willing to devote to long-term decisions is stagnant. The concern the virus has created in the South has put others more into the mindset of staying at home than we had noticed before. – Ed Bastian, CEO of Delta Air Lines (DAL)
We, speaking of an immediate recovery, are definitely at the positive end of the scale. A deep global recession has already begun and admissions patterns are becoming dramatically. We are seeing an immediate accumulation of unemployment in all markets. And even for job managers, we know that some consumers will decide to save more: Alan Jope, CEO of Unilever (NYSE: UN) (NYSE: UL)
First, owners of seasonal market pools that stop opening the pools until the warmer weather arrives, they sought to use their pools as soon as possible, resulting in a significant build-up in the call for maintenance and purchases of appliances such as Heaters and Cleaners. Second, consumers have taken refuge instead, and interest and demand for new basins have made considerable progress. But as consumers soon discovered, many others came here with the same concept that temporarily absorbed the ability of developers in this limited labor industry. This has been further exacerbated through the already compressed structure season as a result of COVID-related delays. At the same time, owners turned to other tactics to turn their garden into a recreational oasis in search of pools and on-the-ground spas – Peter Arvan, CEO of Pool Corporation (Emphasis Mine)
Even more encouraging is the fact that our brands, renovators and stores report ongoing demand, and many brands point out that their order book will bring them back next year, Peter Arvan, CEO of Pool Corporation.
For Pool Corporation, in particular, higher demand resulted in higher margins and higher results year after year. Here’s what the company’s monetary knowledge looks like for the T1 and S1 2020:
Source: Q2 2020 Group Report
Residential housing: housing is one of the sectors of the economy. This is partly due to traditionally low loan rates and is evidenced by an accumulation in loan applications. To make the sector even more attractive, home inventories remain at their lowest point in several years, and it seems that this trend towards smart housing is here to stay.
I am pleased to report that the recovery in demand for new homes we experienced in the quarter was exceptional. Our effects of the quarter show a noticeable uptick in demand, as new net orders in April fell 53% from last year, only to see year-over-year orders increase to 50% by June. Driven by strong demand for new customers, we saw a significant improvement in all customer teams and geographies as the quarter went along. This improvement resulted in a build-up of orders in June of 77% for the first time, 48% for a construction and 21% for active adults compared to June last year … The customer call obviously picked up dramatically the quarter and remained strong in the first 3 weeks. July – Ryan Marshall, CEO of PulteGroup (PHM)
… We continue to see smart lending activity in the United States. In fact, in the quarter, we saw an expansion in loans and had record loan balances at the end of the quarter: UBS CHIEF Financial Officer Kirt Gardner
I am optimistic, because the mix of low lending rates, still in markets with shortages of supplies and the broader nesting trend we are seeing among consumers, I think this is news for the builders channel: Marc Bitzer, CEO of Whirlpool (WHR)
We’ll take a look to load more relocations, more renovations so we can bring more Chipotlane, not only through new stores, but also through those other approaches. The good news is that in this environment, our owners are more willing to paint with us to do a remodel. And if you’re not willing to paint with us in a remodel, there’s a place across the street that we’ll also see: John R. Hartung, Chief Financial Officer of Chipotle Mexican Grill (CMG)
Games and semiconductors: Games have grown as other people take refuge in their homes and seek entertainment. Microsoft CEO Satya Nadella called it a “revolutionary quarter for the game” for his company and:
“We’ve noticed a record commitment and force-driven monetization on and off the console, as other people around the world have turned to games to connect, socialize and play with others… we believe that in the long term [this] will be a much more addressable market.
The semiconductor remains strong, and the outlook is also positive:
“The location of the semiconductor market remained positive in the current quarter, with a call to improve compared to the first quarter of 2020. Our outlook remains positive for the OEM component and is based on the projects of this market location in the other geographic areas we serve – James Hoffman, CEO of Reliance Steel – Aluminum (RS)