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Current trends in the economy: how companies are responding to challenges and finding ways to grow

Charles Sainsbury
30. 12. 2023
3 min read

Recent events and market developments suggest that some companies are facing increasing challenges in terms of pricing power and demand.

Recently, we have witnessed changes in consumer behaviour and an increase in price sensitivity. Companies such as FedEx($FDX-2.1%), Target($TGT-0.7%)and General Mills($GIS+1.1%) are lowering their revenue outlooks due to declining demand and consumers watching their budgets closely. Airlines, including Southwest, have responded by cutting off-peak fares.

Constraints on pricing power are thus forcing businesses to find innovative ways to increase profits without raising prices. Companies like Nike($NKE+0.7%) have outlined plans to cut $2 billion in costs, while others like Spirit Airlines($SAVE-2.9%) and Hasbro($HAS+11.9%) have stepped up to buyouts or layoffs.

"Companies are better at controlling costs than maintaining pricing power," noted David Kelly, chief global strategist at J.P. Morgan Asset Management. "Companies in the consumer goods sector don't have the pricing power they did during the pandemic, and some sectors, such as the hotel and travel industries, are now facing challenges in price competition."

Companies are trying to respond to these challenges by cutting costs and improving efficiency. FedEx, while expecting lower sales, is maintaining its adjusted earnings outlook for its fiscal year. But analysts estimate that overall earnings growth for companies in the S&P 500 index will be lower than last year, at just 2.7%.

FDX
$266.07 -$5.68 -2.09%
Capital Structure
Market Cap
65.5B
Enterpr. Val.
97.3B
Valuation
P/E
15.3
P/S
0.7
Dividends
Yield
1.9%
Payout
28.2%

Consumer spending is slowing, but some sectors, like restaurants, are still seeing growth. Companies in the auto industry are struggling with a loss of pricing power after years of growth. Even if companies are unable to raise prices, analysts are still optimistic about future earnings.

An exceptionally resilient job market and low unemployment are keeping the American consumer in good shape. However, consumers are also drawing on their savings and increasing credit card debt. This raises the question of whether consumers will continue to maintain their spending habits in the months ahead.

Conclusion:

In a period of an expected downturn in shopping and travel, companies are struggling to adapt to the new conditions and are looking for strategies to maintain profits. Despite the challenges, optimism is still present among investors, with companies expecting improved earnings in the year ahead.

An analysis of the first quarter of 2024 estimates a 6.6% increase in earnings for companies in the S&P 500 index from the previous year. While companies face several challenges, it appears that changes in strategy and cost cutting can help maintain and grow earnings in this dynamic economic environment.

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Source.


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