Earning(s) the Consumer’s Trust

Key Takeaways

Sometimes, earnings season provides clarity to the economic outlook. Sometimes, it does not. This earnings season is a bit of both. A confused and confusing U.S. consumer is one of the more obvious topics of conversation. And it is a story of back to normal with a side dispersion in execution.

To say the corporate commentaries about the U.S. consumer and its outlook have been rather varied would be an understatement. There is a little bit of everything for everyone. Want to see a slowing of the U.S. consumer? Look at McDonald’s and Starbucks. Looking for resilience? Chipotle, Domino’s Pizza and Taco Bell.

Understanding the dynamics of the U.S. consumer is probably the single most important part of analyzing the U.S. economy. If the consumer is fine, the U.S. economy is fine.

McDonald’s Earnings Conference Call

Starbucks Earnings Conference Call

If these were the only two data points, it would be reasonable to assume the consumer was in trouble. But these are not the only two data points. Both Starbucks and McDonald’s raised prices significantly, and consumers are finding other places to spend. There is no shortage of places to get a cup of coffee. McDonald’s is not known for its elegant, elevated burger experience. It is highly questionable whether this is a consumer spending issue or something less sinister to the economy and more company-specific.

Yum! Brands Earnings Conference Call

Domino’s Earnings Conference Call

Chipotle Earnings Conference Call

To be clear, the picture is never perfect—and when coffee and burgers are struggling, eyebrows should be raised. But in the battle between burgers and burritos, burritos are winning. Pricing? Not much. Traffic? Plenty. Given the commentary from McDonald’s, this is a touch surprising. In the past, Taco Bell and McDonald’s have had similar “value propositions.” McDonald’s sounded rather downbeat on the consumer. Yum! Brands talked about accelerating comparable sales. Confused yet? Domino’s called out better sales results due—in part—to being an early mover on price. And that is important. The consumer has been more price-sensitive over the past few quarters. If you did not get your pricing in early, you might not be able to get it in at all.

McDonald’s Earnings Conference Call

Kraft Heinz Earnings Presentation

Coca-Cola Earnings Conference Call

It is the pricing side of the equation that is notable. Domino’s and Taco Bell talked about maintaining their value-oriented propositions. Meanwhile, that is only now entering the formula for McDonald’s. After getting the margins back to normal, normalizing the pricing equation is now entering into the “go-forward” mentality. That is a primary differential between the winners and the losers this earnings season. Those that took their price early and were early to moderate are winning.

From Coca-Cola to Kraft Heinz, the pricing side of the revenue equation is fading. Kraft already has its anticipated pricing in the system for the year. Coca-Cola made it clear that the bump in pricing was only due to a handful of countries with hyperinflation, and the remainder will fade. Simply, price was your friend. Now, the relationship is getting rocky.

Yum! Brands Earnings Conference Call

Starbucks Earnings Conference Call

Almost as a throwaway, Yum! said the quiet thing out loud. AI is all about the data, and the more data, the better. There is a tremendous amount of ink spilled about which chips are the best and the tech exposures and winners. But there are other winners, too. Those with the data to improve their business models are going to be beneficiaries. Not to mention, the dynamic pricing of a latte will be fun to see.

Never ignore the totality of earnings. There is always much to learn. But sometimes, it takes a bit of digging.