Business

McDonald’s and Chipotle Mexican Grill are seeing customers trade down as inflation pressures budgets.
The commentary follows Walmart slashing its profit outlook, citing the impact of higher prices on shopping habits.
Fast-food chains often fare well in economic slowdowns as they can steal business from pricier chains and restaurants.

Washington DC, Chinatown, Chipotle and McDonald’s fast food restaurants.
Jeff Greenberg | Universal Images Group | Getty Images

McDonald’s and Chipotle Mexican Grill say customers squeezed by inflation are choosing cheaper menu items and visiting their restaurants less often, signaling trends that could be hitting the broader restaurant industry.
The two companies were among the first restaurant chains to report their second-quarter results. Wingstop, Starbucks and Taco Bell owner Yum Brands are all scheduled to release their earnings reports within the next week.

Starting around mid-May, Chipotle said on Tuesday that low-income customers were visiting its restaurants less frequently, leading to slowing traffic. Earlier in the day, McDonald’s executives also said some low-income customers have been switching to its value menu or opting out of combo meals to save money. But McDonald’s executives added that the chain is also benefiting from customers trading down from more expensive full-service or fast-casual restaurants.
The restaurant companies’ commentary comes on the heels of Walmart slashing its profit outlook, citing surging prices for food and gas that are squeezing consumers’ wallets. Higher prices for necessities have curtailed shoppers’ willingness to buy items such as apparel and electronics — or dine out at restaurants and order food delivery.
On average, restaurant menu prices rose 7% in the three months ended May compared with the year-ago period, according to the NPD Group. During the same period, consumers from households with income under $75,000 cut their fast-food visits by 6%, the market research firm said.
Restaurant chief executives, including McDonald’s Chris Kempczinski, have pointed to the gap in rising prices for groceries and restaurant meals as an advantage for eateries. Prices for food at home have climbed 12.2% over the last 12 months, while prices for food away from home are up just 7.7%, according to the Bureau of Labor Statistics’ consumer price index.
“I don’t know what the impact of that is, but certainly we expect that there’s some benefit that we’re seeing as part of that,” Kempczinski told analysts Tuesday during the company’s conference call.

Historically, fast-food chains have fared well during economic slowdowns as diners shift to cheaper options without skipping out on eating out altogether.
McDonald’s is among the best-positioned restaurants to benefit from consumers trading down, according to BMO Capital Markets analyst Andrew Strelzik. Executives touted the chain’s value offerings compared with rivals, even as the company and its franchisees raise prices.
As a fast-casual chain, Chipotle says most of its customers aren’t as sensitive to pricing.
“The low-income consumer definitely has pulled back their purchase frequency,” CEO Brian Niccol said on the company’s conference call. “Fortunately for Chipotle, you know, the majority of our customers are a higher household income consumer.”
The burrito chain said it is confident it can hike menu prices without scaring off its core customers. It plans to raise prices about 4% in August to cover rising costs for tortillas, avocados and packaging.
Chipotle stock was up 11% in morning trading on Wednesday after the news of another round of price hikes and an earnings beat. Shares of McDonald’s were down less than 1% after Deutsche Bank downgraded the stock, citing its valuation relative to its fast-food peers.
By the end of the year, BTIG analyst Peter Saleh, predicts that Chipotle’s menu prices will be about 20% higher than they were two years earlier. The chain’s competitors have raised prices by similar levels or even higher, according to a survey conducted by the firm.
“The results of our pricing survey indicate that Chipotle still has pricing power that it can lean on to support margins in this inflationary environment,” Saleh wrote.
For the second quarter, Chipotle reported same-store sales growth of 10.1%, falling short of Wall Street’s expectations of 10.9%. The increase was largely the result of earlier price hikes, which offset a decline in customer traffic.
Some analysts questioned how much more Chipotle could raise prices. Cowen analyst Andrew Charles wrote in a note that the planned hikes this summer could erode traffic further, especially given the uncertain economic environment noted by the company’s executives.
— Ian Krietzberg contributed reporting for this story.

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Spirit and Frontier agreed in February to combine into a giant budget airline.
A surprise, all-cash bid from JetBlue in April cast doubt over that deal.
Spirit had repeatedly postponed a vote on the Frontier deal as it lacked shareholder support and continued talks with JetBlue and Frontier.

A Frontier Airlines plane near a Spirit Airlines plane at the Fort Lauderdale-Hollywood International Airport on May 16, 2022 in Fort Lauderdale, Florida.
Joe Raedle | Getty Images

Spirit Airlines shareholders were finally voting Wednesday on a planned tie-up with Frontier Airlines, a deal that has been on the rocks following a rival bid from JetBlue Airways this spring.
Spirit had postponed the vote four times as it struggled to gather enough shareholder support for the Frontier merger, which the carriers first announced in February.

Frontier told Spirit earlier this month that its latest sweetened cash-and-stock offer was its “best and final” bid. But Spirit still lacks stockholder support for the deal, according to a person familiar with the matter.
The meeting began Wednesday morning and went into recess until 4 p.m. ET. Polls are open until 4:15 p.m. ET and the airline plans to announce results shortly afterward.
A rejection of the Frontier deal would be a blow to the discount carriers that planned to combine forces into a budget behemoth and the country’s fifth-largest airline.
Spirit shareholders will vote only on the Spirit-Frontier transaction, and not on the rival bid by JetBlue, which spent weeks urging shareholders to turn down the Frontier deal.
The vote could clear the way for Spirit to potentially strike a deal with JetBlue, which is seeking to buy the budget airline outright and refurbish its planes in JetBlue style, featuring seatback screens and more legroom. Talks are ongoing, according to a person familiar with the negotiations, but it’s still possible they fall apart.

Spirit’s board has repeatedly rebuffed JetBlue’s advances, arguing that it was unlikely that regulators would approve the deal.
It is possible that neither deal gets done. Both transactions would face a high hurdle for the Justice Department’s blessing because the Biden administration has vowed to crack down on consolidation.
Executives for all three airlines said their preferred deal would help them grow quickly and better compete with the top four U.S. carriers — American, Delta, United and Southwest — which control about three-quarters of the domestic market.
Spirit, however, has raised concerns about a JetBlue takeover because of the New York-based carrier’s alliance with American in the Northeast, a partnership the Justice Department last year sued to undo.
On Monday, Frontier Airlines moved up its second-quarter earnings release and conference call to after the market close Wednesday, shortly following Spirit’s meeting. They had been previously scheduled for Thursday.
Frontier, JetBlue and Spirit didn’t comment.
Correction: A previous version of this story misstated when Frontier announced it would move up its earnings report. It made the announcement on Monday.

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The Federal Reserve on Wednesday enacted its second consecutive three-quarters of a percentage point interest rate increase to combat soaring inflation.
Some advisors have shifted stock allocations to high dividend and value stocks while sticking with short- to immediate-term fixed-income assets.
However, long-term investors shouldn’t respond with “swift short-term moves,” said Jon Ulin, CEO of Ulin & Co. Wealth Management.

The Good Brigade | DigitalVision | Getty Images

Here’s how portfolio allocations have shifted

“We’re attempting to address both inflation and recession concerns,” said certified financial planner John Middleton, owner of Brighton Financial Planning in Flemington, New Jersey. 

For stock allocations, he likes companies paying a high dividend, and value stocks, which typically trade for less than the asset is worth, with a tilt to infrastructure, energy, real estate and consumer staples.
And the fixed-income side of the portfolio may include assets with a so-called shorter to intermediate duration, factoring in the bond’s coupon, time to maturity and yield paid through the term.

We’re attempting to address both inflation and recession concerns.

John Middleton
Owner of Brighton Financial Planning

“We’re slightly higher allocated to corporate bonds than we are to Treasury bonds,” said Middleton, explaining that he’s comfortable taking on greater credit risk to earn more income.
However, allocations may shift based on key data releases later this week.
Middleton may adjust portfolios based on readings on the personal consumption expenditures price index, the Fed’s preferred inflation gauge, and the U.S. gross domestic product, which may hit a second negative quarter of growth — one definition of a recession.

Investors need to ‘stay the course,’ experts say

Long-term investors shouldn’t respond to rising interest rates with “swift short-term moves,” said Jon Ulin, a CFP and CEO of Ulin & Co. Wealth Management in Boca Raton, Florida.
Whether you’re deferring funds into your 401(k) plan or investing cash as a retiree, now isn’t the time to be “cute or fancy,” he said. By staying invested when the market is down, you may benefit from market upswings and future recovery, he said. 
While it’s been a rough year for bond prices, which typically move down as interest rates go up, these assets are now offering the negative stock market correlation that investors expect, Ulin said.  
“Diversification can now help investors sleep a little bit better,” he said. “You need to stay the course, calm down and take a deep breath.”

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Major gun manufacturers have made over $1 billion in the last decade selling military-style weapons, according to an investigation by the House Committee on Oversight and Reform.
A memo from the panel outlines companies’ revenue and marketing strategy for their assault-style weapons.
At a House hearing, gun manufacturer CEOs called shootings “local problems” and defended firearms as “inanimate” objects.

Fire arms are seen at the Bobâs Little Sport Gun Shop in the town of Glassboro, New Jersey, United States on May 26, 2022. 
Tayfun Coskun | Anadolu Agency | Getty Images

Major gun manufacturers have made over $1 billion in the last decade selling military-style weapons, according to an investigation by the House Committee on Oversight and Reform.
A memo from the panel outlines manufacturers’ revenue and marketing strategies for assault-style weapons, focusing on the gun brands used in recent mass shootings. The release came ahead of a hearing Wednesday on the role of the firearm industry in pervasive gun violence in the United States.

At the hearing, gun manufacturer CEOs called shootings “local problems” and defended firearms as “inanimate” objects.
Sturm Ruger CEO Christopher Killoy, and Daniel Defense CEO Marty Daniel testified at Wednesday’s hearing. Smith & Wesson CEO Mark Smith was invited but didn’t attend.

At the hearing, committee chair Rep. Carolyn B. Maloney, D-N.Y., said the panel will issue subpoenas to Smith & Wesson and other manufacturers.
Earnings from assault-style weapons more than doubled for brands like Smith & Wesson, Sturm, Ruger & Co. and Daniel Defense between 2019 and 2021, according to House findings.
The committee also provided these estimated assault-style weapon revenues since 2012, the year a gunman killed 20 children and six adults at Sandy Hook Elementary School in Connecticut:

Smith & Wesson: $695 million
Sturm, Ruger & Co: $514 million
Daniel Defense: $528 million
SIG Sauer: Refused to report
Bushmaster: $2.9 million (2021 only)

Gun-makers’ products used in recent mass shooting deaths were also noted. For example, a Daniel Defense weapon was used to kill 19 children and two teachers in May at Robb Elementary School in Uvalde, Texas.
The brands themselves do not track deaths, injuries or crimes that involve their weapons. Sig Sauer told the committee that it does “not have the means” to track deaths. Ruger said it learns of incidents through its “customer service department,” the media or from occasional lawsuits.
“These murders are local problems that have to be solved locally,” Daniel said to committee members Wednesday.
When Maloney asked whether Killoy, the Sturm Ruger CEO, would apologize to victims of shootings, he defended the company’s product as an “inanimate object.”
The hearing comes just after California Gov. Gavin Newsom recently signed a law allowing citizens affected by gun violence to sue manufacturers.
The committee also focused on marketing tactics, including Smith & Wesson advertisements that mimic first-person shooter video games and a Sig Sauer weapon sold as an “apex predator.”
House Democrats are pushing to vote on an assault weapons ban later this week. If passed, the bill is unlikely to make it through the Senate.
Smith & Wesson, Sig Sauer and Sturm Ruger did not immediately respond to a request for comment.

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The global space economy grew last year at the fastest annual rate since 2014, according to a report by the Space Foundation.
Total output by the world’s governments and corporations in the realm of rockets, satellites and more expanded by 9% year-over-year, the report found.
Space Foundation CEO Tom Zelibor told CNBC that the space economy is expected to weather market volatility and macroeconomic pressures, and continue growing this year.

People watch from Canaveral National Seashore as a SpaceX Falcon 9 rocket launches from pad 39A at the Kennedy Space Center in Cape Canaveral, Florida, Feb. 3, 2022. The rocket is carrying 49 Starlink internet satellites for a broadband network.
Paul Hennessy | SOPA Images | LightRocket | Getty Images

The global space economy grew last year at the fastest annual rate since 2014, hitting a record of $469 billion, according to a report by the Space Foundation released Wednesday.
Total output by the world’s governments and corporations in the realm of rockets, satellites and more expanded by 9% year-over-year, the report says.

While 2022 has seen a slowdown in U.S. markets and the economy, Space Foundation CEO Tom Zelibor told CNBC that the space economy is expected to weather the storm and continue growing this year.
“Maybe it won’t be this record-breaking number,” Zelibor said, “but the space industry has really shown itself to be pretty resilient.” He noted the industry’s growth during the height of the Covid pandemic.
“I really don’t see a change,” he said.
The Space Foundation is a U.S. nonprofit founded in 1983, focused on education and advocacy regarding the industry.
Financial activity in the space economy, such as M&A and private investment, has seen a slowdown in 2022, Zelibor acknowledged, but he emphasized that government and commercial spending remain strong. For example, the report highlighted commercial space’s growth to $362 billion last year – with space-based products and services such as broadband and GPS generating continued revenue as staples of the modern global economy.

Government spending continues to grow, and Zelibor highlighted that there are “over 90 countries operating in space now.”
The United States remains the biggest spender, with its $60 billion total space budget nearly quadruple of the next largest, China. Additionally, India and multiple European countries each increased space spending by 30% or more in 2021, although those countries’ budgets remain under $2 billion a year.
Zelibor also emphasized that the first six months of 2022 has seen 75 rocket launches worldwide, matching the record pace set in 1967 by the U.S. and the Soviet Union during the race to the moon. “It’s phenomenal,” he said.
The report noted that about 90% of the more than 1,000 spacecraft launched this year have been backed by commercial firms — most notably the hundreds of Starlink internet satellites launched by Elon Musk’s SpaceX.

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The auto industry has experienced declining sales growth in 2022. The semiconductor chip shortage, a key component in building many modern-day vehicles, is still a major challenge preventing the industry from scaling production to meet demand. Club holding Ford Motor (F) has no doubt been impacted. However, the automaker is still seeing gains and outperforming the industry in sales. Here’s what you need to know ahead of the company’s results, which come out after the closing bell Wednesday. Ford is a longer-term play EV battery capacity How the competition lines up Bottom line Ford is a longer-term play A hurdle the auto industry has been facing is higher new car prices due to low car inventory, driven by the chip shortage. But as pent-up consumer demand for new vehicles continues over the next few years, Ford is one of the best-positioned automakers because it is the biggest commercial consumer. In June, while overall auto industry sales were down 11%, Ford sales in were up 31.5% compared to a year ago, outperforming its peers despite the chip shortage and supply constraints. Ford’s electric vehicle sales were up 77% in June compared to a year ago, helped by its F-150 Lightning being America’s best-selling electric truck in the month. Ford delivered $34.5 billion in revenue in the first quarter , which was $3.1 billion less than the year before but still beat earnings expectations. If it wasn’t for supply chain issues, that number could have been higher given Ford’s strong demand for its new line-up of cars. A good problem that Ford has is high demand outpacing resources available to scale its production. Despite the chip shortage, Ford will still be producing cars, and its business remains strong because of limited inventory. Most importantly, Ford is a financially sound company. It has strong total company cash of $23.6 billion and liquidity of $44.6 billion, according to the company’s first-quarter earnings release . Ford also maintained its full-year positive outlook on profitability. EV battery capacity Ford has also been making great strides to electrify its fleet as high demand for EVs persists. In its EV battery capacity plan update last week, Ford announced that it has secured 100% of the annual battery cell capacity needed to support its goal of selling 600,000 EVs annually on a global scale by late 2023. A highlight from the plan was Ford’s addition of lithium iron phosphate battery chemistry to its portfolio, which will allow the automaker to build more units required for EVs as well as reduce the reliance on other scarce minerals such as nickel. This new chemistry will also allow Ford to save 10% to 15% on its bill compared to the nickel-based batteries. How the competition lines up Ford competitor General Motors (GM) on Tuesday morning delivered mixed second-quarter results, with better-than-expected revenue of $35.76 billion, up nearly 5% increase over last year, and lower-than-expected adjusted earnings of $1.14 per share. That numbers highlight the pressures of protecting profit margins as material costs rise in price. Top auto industry leaders are racing to be the leader in EVs. GM aims to achieve an all-electric future and overtake Tesla (TSLA) and Ford. However, it fell short in delivering about 100,000 vehicles by the end of the quarter, while Tesla delivered more than 254,000 vehicles during the same period. When Ford’s numbers are out later in the afternoon, we’ll be looking at whether the company has kept up its sales momentum and EV production and how it fared overall in this challenging economic environment. Bottom line The Club invests in Ford because the automaker is working on aggressively cutting costs, refocusing its business on profitable regions and quickly progressing in its efforts to electrify its fleet. In June, CEO Jim Farley told us that the company is closing its Ford Focus plant in Germany because it was losing money but plans to keep open a second German plant that’s profitable. Ford also decisively restructured its South American operations in January 2021, which included shutting down a manufacturing plant in Brazil, allowing the company to increase its operational efficiency. The restructuring resulted in three consecutive quarters of profitability. These actions have helped Ford improved its profitability, which can help the automaker weather headwinds many other companies are facing this earnings season like higher input costs. Ford shares are down about 38% for the year, but this is not a reason to sell. The stock’s drop alludes to recession fears in the U.S. economy, Ford’s main market, and the rising prices of batteries. But while the macroeconomic backdrop is difficult, Ford’s management team appears to be executing on factors it can control. The stock’s correction is one of the reasons why Nomura upgraded Ford to neutral from reduce (hold from sell), seeing Ford shares as no longer overvalued. The Club has a 2 rating on Ford, which means we’d like to see a pullback before buying more. The stock is trading at less than 7 times earnings, nearly half the valuation it came into the year with. This indicates that despite earnings estimates coming down a bit throughout the year, as economic concerns increased, the stock has become significantly cheaper as it moved lower. Remember, a stock can move lower, but if the valuation doesn’t move lower as well, the stock isn’t becoming a better value. Ford also pays a slightly greater than 3% dividend, which has us patient and willing to ride out the drop. (Jim Cramer’s Charitable Trust is long F. See here for a full list of the stocks.) Correction: This story has been updated to clarify Ford’s first-quarter cash and liquidity numbers. As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Traders work on the floor of the New York Stock Exchange (NYSE) on April 28, 2022 in New York City.
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Boeing disclosed a charge of $93 million in the second quarter from its Starliner astronaut capsule program.
The latest Starliner-related charge means the company has absorbed $688 million in costs from delays and additional work on the capsule to date.
Boeing was once seen as evenly matched with SpaceX in the race to launch NASA astronauts, but fell behind due to development setbacks.

Boeing’s Starliner spacecraft is seen before docking with the International Space Station on May 20, 2022 during the uncrewed OFT-2 mission.

Boeing disclosed a charge of $93 million in the second quarter from its Starliner astronaut capsule program, bringing the program’s overrun costs to nearly $700 million.
The aerospace giant said the latest charge was “primarily driven by launch manifest updates and additional costs associated with OFT-2,” or Orbital Flight Test 2. The second uncrewed flight of Starliner successfully completed a six-day long mission in May, reaching a critical test objective – docking with the International Space Station – as Boeing prepares for the capsule to carry astronauts.

Boeing’s latest Starliner-related charge means the company has absorbed $688 million in costs from delays and additional work on the capsule to date.

The company has been developing its Starliner spacecraft under NASA’s Commercial Crew program, having won nearly $5 billion in contracts to build the capsule. Boeing’s program competes with Elon Musk’s SpaceX, which finished development of its Crew Dragon spacecraft and is now on its fourth operational human spaceflight for NASA.
Boeing was once seen as evenly matched with SpaceX in the race to launch NASA astronauts, but fell behind due to development setbacks.
The next Starliner mission is expected to be the Crew Flight Test, or CFT, flying the first astronauts onboard the capsule. However, Boeing is examining whether to redesign the Aerojet Rocketdyne-made propulsion valves on Starliner, which malfunctioned during the company’s first attempt to launch the OFT-2 mission in August 2021.

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Boeing and Airbus customers are enjoying a rebound in air travel.
Supply chain and labor constraints are headwinds for both manufacturers.
Boeing delivered 121 aircraft in the quarter, most of them 737s, and said it’s in “final stages” of resuming Dreamliner deliveries.

An aerial view of Boeing 777X and Boeing 737 MAX 10 airplanes parked at King County International Airport-Boeing Field, in Seattle, Washington, June 1, 2022.
Lindsey Wasson | Reuters

Boeing on Wednesday stuck by its forecast to return to free cash flow in this year as it prepares to resume deliveries of its 787 Dreamliner planes after manufacturing flaws paused deliveries for much of the past two years.
The company’s second quarter results fell short of analysts estimates. Weakness in its defense unit dragged down results, but was partly offset by strength in its commercial airplane unit. Aircraft deliveries rose to 121 in the second quarter from 79 a year ago, while commercial aircraft revenue rose 3% to more than $6.2 billion.

The company is fresh from winning high-profile orders at the Farnborough Air Show like those for 100 737 Max 10s from Delta Air Lines. Boeing and rival Airbus’ customers have been benefitting from a rebound in travel after demand for flights slumped during the pandemic.
Here’s how the company performed compared with analysts’ estimates complied by Refinitiv:

Adjusted loss per share: 37 cents vs an expected loss 14 cents.
Revenue: $16.68 billion vs. $17.57 billion expected.

Boeing swung to operating cash flow of $81 million in the quarter after burning $483 million in the same period last year. The Arlington, Virginia-based company posted net income of $160 million, down 72% from a year ago on revenue of $16.68 billion, which was down 2% from the second quarter of 2021.
CEO Dave Calhoun earlier this month said that the company is producing an average of 31 737 Max jetliners each month. He said the company won’t raise production too quickly because of supply chain and labor constraints. Rival Airbus has expressed similar concerns.
“Even with demand high, we won’t chase production rates or push our system too fast,” Calhoun said in a staff note on Wednesday. “With safety and quality at the forefront, we will prioritize stability and predictability.”

He also reiterated that Boeing is “in the final stages” of preparations to resume deliveries of its 787 Dreamliners, which have been paused for more than a year because of production flaws.
In January, Boeing said the issues would cost it $5.5 billion, including $2 billion in irregular manufacturing costs as it dialed back production to avoid a pileup of inventory. Boeing recorded $283 million of that in the second quarter.
A return of 787 deliveries is key for Boeing because customers pay the bulk of an aircraft’s price when they receive the planes.
The company’s defense unit revenue dropped 10% from a year ago and the company took a $147 million charge on its MQ-25 unmanned refueler because of higher costs.
Boeing executives will discuss results with analysts at 10:30 a.m. Wednesday, when they are likely to face questions about the 737 Max’s return to flying in key aircraft customer China, timing on the 777X and its cash flow forecast for this and next year.
Analysts are also likely to ask Boeing’s leaders to outline when they expect to win U.S. certification of the 737 Max 10, the largest in the Max family.
Boeing shares are down more than 22% so far this year. Shares were up more than 3% in premarket trading after releasing results.

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