Oil companies are giving back tons of cash — and other things we've learned this earnings season

Published Fri, Aug 5 20224:21 PM EDT

Kevin Stankiewicz @in/kevinstankiewicz @kevin_stank

After making it through the busiest three weeks of earnings season, we're taking a step back and making sense of what we've learned. Here are four common themes around the consumer, banks, Big Tech and energy that have emerged among companies in our portfolio. 1. (Some) consumers are strong How's the consumer holding up in the face of the hottest inflation in four decades? Earnings season so far tells us the answer is not as simple as "well" or "poorly." It depends on who you ask and where you look. In a general sense, higher-income consumers have been able to weather the inflationary storm better than those in lower-income brackets. Unfortunately, this is not a complete surprise. The earnings reports of American Express (AXP) and Dom Perignon parent LVMH offer evidence of this bifurcation. Fast food giant McDonald's (MCD), on the other hand, has said it's seeing lower-income customers trade down to value-menu offerings and buy less combo meals. Walmart (WMT), which had been a Club holding until Monday , warned last week that inflation is causing many shoppers to spend more of their discretionary income on food and other essentials. What we've seen from the consumer-focused stocks we still own has, so far, been respectable all things considered. Amazon Wall Street had pretty low expectations for Amazon (AMZN) ahead of the print, but the e-commerce giant's results ultimately proved to be mostly positive. While revenue at Amazon's online store sales were down 4% year over year, that figure includes the negative effects of the strong U.S. dollar and compares to a time in 2021 when e-commerce sales soared thanks to the pandemic. Strip out currency headwinds, and online store revenue from April to June was flat compared with the same period in 2021, which happened to include Prime Day. This year, Prime Day is in Amazon's third quarter (current quarter) — and, as we wrote last month, data suggests it was another successful day. Note: Online store revenue consists of revenue from first-party products and vendors. Amazon reports the commissions it collects from third-party sellers in its "third party seller services" segment, which grew 9% year over year. Sales at Amazon's physical stores, which primarily consists of Whole Foods locations, rose 12% year over year (13% ex-currency). Costco Costco (COST) hasn't reported quarterly earnings yet, as the wholesale retailer operates on a slightly different calendar than others; its fiscal Q4 numbers are set to be released Sept. 22. We have, however, gotten its June and July monthly sales data, and both updates served to only bolster our conviction in owning Costco despite concerns about a recession and consumer slowdown. On Wednesday, Costco said total comparable sales in July rose 10% overall , and 7% when excluding currency impacts and gasoline price changes. We also were very happy with Costco's June sales . While we've liked Costco for years, the company's membership model and value-driven ethos really makes it the right retailer to own in this environment . Membership fees are its main source of profit, protecting the bottom line even as other retailers face pressure there. Those fees also allow the company to offer competitive prices on the actual products in its warehouses, appealing to price-conscious consumers due to inflation. That said, Costco's members tend to skew toward higher-income brackets , meaning they may not be feeling as squeezed compared to, say, the average Walmart shopper. Apple Apple's earnings report also showed the resiliency of certain types of consumers. For example, sales of iPhones in its April-to-June quarter topped Wall Street expectations , and CEO Tim Cook indicated the company saw "a record level of switchers" to iPhone from Android devices. In general, iPhones are thought to be premium smartphones, so the figure Cook cites may suggest those who can afford to spend a bit more on their mobile device are willing to do so. While Apple did not issue formal guidance for its ongoing fiscal fourth quarter, Cook told CNBC the tech titan anticipates sales will "accelerate in the September quarter despite seeing some pockets of softness." Procter & Gamble For Procter & Gamble (P & G), we know the products it makes like laundry detergent, toothpaste and paper towels will remain in demand even if the economy is slowing. It's why we look at P & G as a recession-resistant stock. However, we are always mindful about the potential for consumers to trade down to cheaper alternatives of those essential household items. Management spoke about that dynamic when the company reported fiscal Q4 numbers last week . Here's what CEO Jon Moeller said on the conference call: "As consumers face increased pressure on nearly every aspect of their household budgets, we invest to deliver truly superior value in combination of price and product performance to earn their loyalty every day. So far, elasticities in most categories where we've taken price increases have been better than our historical experience," he said. Even though consumers have generally stuck with P & G despite recent price hikes, CFO Andre Schulten said it would be "naïve" to think consumers aren't more attentive to their spending right now. To that end, the company expects at some point price elasticities to return to their historic levels. Note: Price elasticity is all about the relationship between rising prices of products and demand for those products. P & G execs are essentially saying that recent price hikes to offset rising input costs haven't impacted demand as much as they've historically done. Schulten also said P & G is monitor what he calls a "reemergence" of private-label brands in certain categories, such as family care. However, the CFO said, "We are still able to grow share in those markets where we see private label coming back." 2. Reasons for owning banks intact As we detailed earlier this week , we continue to hold two financial stocks in the portfolio despite the fact recession fears have weighed on the group: Wells Fargo (WFC) and Morgan Stanley (MS). On the earnings front, specifically, we hoped for a better quarter from Morgan Stanley than we received in mid-June, and Wells Fargo's headline numbers were mixed . I