Investors should watch for these factors impacting company earnings - The Average Joe

    Investors should watch for these factors impacting company earnings

    Victor Lei — Head of Research

    November 3, 2021

    company earnings

    November 3, 2021

    We’re deep in earnings seasons and what plagued the economy for most of 2021 is still plaguing earnings (per CNBC):

    • The good: Demand is strong in almost all sectors.
    • The bad: Labor shortage and supply issues are impacting companies the most.

    Many companies are adapting, some are struggling — and others are getting creative…

    • Getting creative: Under Armour (NYSE:UA), which jumped 14% yesterday on strong earnings, pulled products out of discount channels to sell at full price.
    • Cutting costs: Brands are lowering their advertising spend, carmakers are shifting production to higher-margin cars and Apple is cutting back production on their iPad in favor of the iPhone.

    The losers: Of the biggest tech stocks — Facebook, Apple, Amazon, Netflix and Alphabet (Google) — the worst performers in 2021 were:

    • Apple — which took a $6B sales hit from a shortage in chips to manufacture their products.
    • Amazon — which was heavily impacted by higher employment costs of warehouse workers and higher shipping costs.

    To keep up with higher costs, companies raised prices with little backlash from consumers (so far) — but prices can only go up so much before demand starts dropping.

    Looking forward: The supply chain issues are likely temporary but investors have bigger issues to worry about:

    • Fewer companies are reporting earnings beats.
    • Companies aren’t raising their forecasts for the next quarter as much as in previous ones.

    With these signals that the post-pandemic demand boost could be losing steam, 2022 might be facing bigger issues.

    Dive deeper: Look at companies with strong pricing power that can raise prices without impacting demand.

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