Company Reports

More stories

  • 125 Shares169 Views

    in Economy

    Amazon Earnings: Return to Profitability But Slow Growth Signaled Ahead

    by

    The e-commerce giant, which also turned a profit in its latest quarter, indicated sales in the holiday period might rise at their lowest level since 2001.For much of this year, Amazon’s growth slowed and losses mounted as it faced high costs and changes in people’s shopping habits with the ebbing of the coronavirus pandemic.On Thursday, the e-commerce giant signaled that its business was rebounding. But it also cautioned that growth would be weak, possibly falling to its lowest level since 2001.Amazon, which is headquartered in Seattle, posted $127.1 billion in sales for the third quarter, up 15 percent from a year earlier, showing that high inflation has not pummeled consumer spending. It also returned to profitability, making $2.9 billion after two quarters of losses.At the same time, Amazon projected that sales might slow to as low as 2 percent in the current quarter, which includes the vital holiday shopping season. Those estimates, which fell far short of Wall Street’s expectations, include a forecast that the strong U.S. dollar will continue to depress international sales.The results come amid a rocky patch for tech giants. Microsoft, Meta and others have indicated in their earnings this week that tough days may be ahead. On Thursday, a day after Meta revealed that its profits and sales fell in the most recent quarter, the company’s stock plunged more than 24 percent, to its lowest level in at least five years. Shares of Microsoft and Alphabet, the parent of Google, also have declined this week.More on Big TechBig Tech’s Slowdown: Amid stubborn inflation and rising interest rates, Google, Meta, Microsoft and other Silicon Valley giants are signaling that tough days may be ahead.App Store Battle: Spotify wants to get into the audiobooks business, but Apple has rejected its new app three times. The standoff is the latest in a series of confrontations between the companies.Inside Meta’s Struggles: After a rocky year, employees at Meta are expressing skepticism, confusion and frustration over Mark Zuckerberg’s vision for the metaverse.A Deal for Twitter?: In a surprise move, Elon Musk has offered to acquire Twitter at his original price of $44 billion, which could bring to an end the acrimonious legal fight between the billionaire and the company.“We are seeing signs all around that people’s budgets are tight, inflation is still high, energy costs are an additional layer,” Brian Olsavsky, Amazon’s finance chief, said on a call with reporters. “We are preparing for what could be a slower growth period.”He added that demand was particularly weakening in Europe, where inflation and rising fuel costs from the war in Ukraine have affected consumers.Amazon’s stock dropped more than 19 percent in after-hours trading.Prices are rising, but the volume of items selling is falling, said Guru Hariharan, whose company, CommerceIQ, advises large consumer brands that sell products on Amazon. “That is a very concerning trend,” he said.After two years of breakneck expansion, Amazon has spent much of this year putting on the brakes. Andy Jassy, who took over as chief executive last year, has moved to swiftly cut costs after the company overbuilt in anticipation of an extended pandemic-fueled boom in e-commerce. Amazon has curtailed plans to open warehouses and worked to improve the efficiency of its fulfillment operations, and it imposed a hiring freeze for corporate and technology roles for its retail division.In the third quarter, Amazon benefited from its annual two-day Prime Day sale in July. In the previous year, Prime Day had been held earlier than July. The company called this year’s event its “biggest ever,” and it generated about $6.8 billion in revenue — about $5 billion more than a typical two days — according to estimates from the investment bank Cowen.Growth in Amazon’s cloud computing division was the slowest on record, increasing 27 percent to $20.5 billion. Amazon Web Services accounted for 16 percent of the company’s total sales but was the only division that produced an operating profit. Mr. Olsavsky said growth slowed in the late summer, as Amazon saw a “lot of customers cutting their bills, which we are glad to help with.”Its international operations, dragged down by the strong dollar, generated $2.5 billion in operating losses.The company employed 1.5 million people by the end of the third quarter, almost 100,000 fewer than at the start of the year.Mr. Olsavsky said Amazon generated more than $1 billion in productivity savings, about half a billion less than executives had hoped. The cost to ship products grew slower than the number of units it sold. But the depressed sales growth makes it harder to operate at optimal efficiency, Mr. Olsavsky said, because the company can best utilize its fulfillment and delivery infrastructure when it has more orders.Amazon’s lucrative advertising business, which Morgan Stanley estimates is worth about $185 billion, grew 25 percent to $9.5 billion, though there was a slowdown over the quarter as advertisers pulled back. The company’s subscription business, primarily Prime membership, grew 9 percent to $8.9 billion.Mr. Olsavsky said overall operating profit was reduced by high costs to market two major video offerings for Prime members — Thursday night football games with the National Football League, and its new “Lord of the Rings” series.In addition to the volatile economic environment, the value of Amazon’s investment in Rivian Automotive, an electric truck maker that has struggled to meet production goals, has added fluctuations to Amazon’s profits this year. That valuation rose $1.1 billion, contributing to Amazon’s profits in the latest quarter. More

  • 113 Shares179 Views

    in Economy

    Chip Makers, Once in High Demand, Confront Sudden Challenges

    by

    Demand for semiconductors was off the charts last year. But a sharp slowdown coupled with new U.S. restrictions against China have created obstacles.A few months ago, makers of computer chips seemed on top of the world.Customers could not get enough of the small slices of silicon, which act as the brains of computers and are needed in just about every device with an on-off switch. Demand was so strong — and U.S. dependence on a foreign manufacturer so worrying — that Democrats and Republicans agreed in July on a $52 billion subsidy package that included grants to build new chip factories in America.U.S. chip makers such as Intel, Micron Technology, Texas Instruments and GlobalFoundries pledged huge expansions in domestic manufacturing, betting on a growing need for their products and the prospects of federal subsidies.But lately, supplies of some semiconductors are piling up, which could spell good news for consumers but not for industry executives. Their bold investment plans are running into a sudden and unexpected slowdown in consumer demand for electronic gadgets, new U.S. restrictions on sales to customers in China, rising inflation and the unusual prospect of a simultaneous shortage of some chips and glut of others.That has left chip makers, which had been looking ahead to immense demand and opportunity, suddenly grappling with immense challenges. Many of the companies now face complex questions about whether and when to boost production, amid uncertainty about how long the current sales slowdown may last.“Six months ago, I would have said we were in this hypergrowth phase,” Rene Haas, chief executive of Arm, the British company whose chip technology powers billions of smartphones, said of the broader industry. Now, he said, “we’re in a pause.”For many consumers, products that were scarce because of a chips shortage may start becoming more available, though not immediately. Automakers, which have struggled to make enough cars with the lack of chips and other components, said they were getting more but still face some problems. Prices of smartphones and computers could also fall as chip supplies grow and prices plummet for two types of memory chips they use.But for now, not everyone is able to get all the chips they need, and prices remain high for many kinds of semiconductors. “We are still way above prepandemic pricing,” said Frank Cavallaro, chief executive of A2 Global Electronics and Solutions, a chip distributor.Fears of a slump, which have clobbered semiconductor stocks this year, are evident in recent earnings announcements from chip makers. South Korea’s SK Hynix on Wednesday reported a 20 percent drop in revenue and said its business of memory chips “is facing an unprecedented deterioration in market conditions.” Intel provided more evidence of a downturn in its third-quarter results on Thursday, including a 20 percent drop in revenue and a $664 million charge to cover cost-cutting measures expected to include job cuts.The Biden administration delivered its own blow this month with sweeping restrictions aimed at hobbling China from using U.S. technology related to chips. The measures restrict sales of some advanced chips to Chinese customers and prevent U.S. companies from helping China develop some kinds of chips.That hurts semiconductor companies like Nvidia, which makes graphics chips used to run A.I. applications in China and elsewhere. The Silicon Valley company, already suffering from a sharp sales decline for video game applications, recently estimated that the U.S. restrictions would probably reduce revenues in its current quarter by about $400 million.The sanctions may bite even harder at companies that sell chip-making equipment, which relied heavily in recent years on sales to Chinese factories.Lam Research, which produces tools that etch silicon wafers to make chips, estimated that the China limitations would reduce its 2023 revenue by $2 billion to $2.5 billion. “We lost some very profitable customers in the China region, and that’s going to persist,” Doug Bettinger, Lam’s chief financial officer, said during an earnings call last week.Applied Materials, the biggest maker of chip manufacturing tools, also said sales would suffer because of the restrictions. On Wednesday, another maker of chip manufacturing tools, KLA, said its revenue next year was likely to shrink by $600 million to $900 million as it reduces equipment sales and services to some customers in China.Worries about foreign competition are nothing new in semiconductors, an industry known for boom-and-bust cycles. But it has rarely faced a player as potent as the Taiwan Semiconductor Manufacturing Company, whose factories on the island churn out chips designed by companies including Apple, Amazon, Nvidia and Qualcomm.China claims Taiwan as its own territory, creating a potential risk to chip supplies. That helped drive the recent bipartisan support for the U.S. chip legislation, which was heavily pushed by President Biden.President Biden trekked to Albany, Ohio, last month for the ground breaking of a $20 billion Intel manufacturing campus. Pete Marovich for The New York TimesHe trekked to Ohio last month for the ground breaking of a $20 billion Intel manufacturing campus. On Thursday, President Biden visited a site near Syracuse, N.Y., where Micron has vowed to spend as much as $100 billion over 20 years on a large complex to build memory chips, a project he called “one of the most significant investments in American history.”Those plants will be needed at some point, industry executives said. But they are now grappling with the sudden and sharp decline in chip demand. The problem is particularly acute in processors and memory chips, which perform calculations and store data in personal computers, tablets, smartphones and other devices.Those products were hot commodities as consumers worked from home during the coronavirus pandemic. But that boom has now cooled, with PC sales dropping 15 percent in the third quarter, according to estimates by International Data Corporation. The research firm also predicted that smartphone sales would fall 6.5 percent this year. Demand has been tempered by inflation as well as a lengthy Covid lockdown in China, analysts said.At the same time, inventories of chips piled up. Computer makers spooked by the shortage bought more components than they ended up needing, said Dan Hutcheson, a market researcher at the firm TechInsights. When customer demand dried up, they started slashing orders.“You see multiple issues converging,” said Syed Alam, who leads Accenture’s global high tech consulting practice, including semiconductors.Handel Jones, chief executive at International Business Strategies, predicts that total sales for the chip industry will still grow 9.5 percent this year. But he expects revenue to decline 3.4 percent to $584.5 billion next year. Last year, he had predicted steady yearly growth for the chip industry from 2022 until 2030.Warning signs included Intel’s second-quarter results, which it announced in July. The company posted a rare loss and a 22 percent drop in revenue, blaming its own missteps and customers who cut chip inventories.At Micron, the mood also changed quickly. In May, the company gave bullish presentations at an investor event in San Francisco about long-term demand for its memory chips. By the next month, it was warning of slowing demand and falling chip prices.In September, the company reported a 20 percent drop in fourth-quarter revenue. It also slashed planned spending on factories and equipment by nearly 50 percent in the current fiscal year.The swing in demand might seem to undercut Micron’s widely publicized expansion plans, which include the Syracuse complex and a new $15 billion factory in Boise. But chip manufacturers often juggle different time schedules. Since new factories take roughly three years to complete, waiting too long to build can leave them short-handed when sales rebound.“The long-term outlook for memory and storage is robust,” said Mark Murphy, Micron’s executive vice president and chief financial officer. The cuts in near-term capital spending, he added, are a needed response “to bring our supply in line with demand.”Intel’s situation is even more complex. The company has major factory expansions underway in Arizona, Oregon, New Mexico, Ireland and Israel, in addition to the new manufacturing campus in Ohio and one planned for Germany. Intel is also determined to start competing with T.S.M.C. in manufacturing for other companies, as well as making chips it designs.The Taiwan Semiconductor Manufacturing Company is a potent player in semiconductors, with factories that churn out chips designed by companies including Apple, Amazon and Qualcomm.An Rong Xu for The New York TimesIntel now plans to construct factory buildings while holding off on purchases of the costly machines inside them, which are a much bigger expense.Those purchases can be tailored to emerging demand for particular kinds of chips, said Keyvan Esfarjani, Intel’s executive vice president who oversees construction and operation of its factories. He said the long-term need to reduce U.S. and European dependence on chips made in Asia was too important to be halted by short-term business cycles.“This is beyond Intel,” Mr. Esfarjani said in an interview last month. “This is important for people, for communities, for the United States. It’s important for national security.” More

  • 88 Shares99 Views

    in Economy

    Retailers Stumble Adjusting to More Selective Shoppers

    by

    In earnings reports this week, companies showed it has been a struggle to adapt to a consumer mind-set that is vastly different from what it was during much of the pandemic.This hasn’t been the year retailers planned for.After two years of navigating the pandemic — which brought record online sales and shoppers willing to buy all manners of items, to the point that the global supply chain became strained — executives knew a new normal would take shape.Sales might slow, the thinking went, but people would still want TVs, fashionable dresses and throw pillows. So, with supply chain issues in mind, companies stocked up. But this spring it became clear that those items weren’t selling quickly enough. As people watched the prices of food and gas rise, their spending became more selective, leaving retailers with shelves of inventory they couldn’t get rid of.The magnitude of the miscalculation was crystallized this week in a batch of quarterly earnings from major retailers like Walmart and Target, which showed a mix of declining sales of discretionary goods and lower profits. A number revised their guidance, lowering expectations for both sales and profits for the rest of the year. A glut of inventory weighed on companies’ balance sheets: Inventory at Walmart rose 25 percent from this time last year. At Target, it increased 36 percent. And Kohl’s said inventory was up 48 percent. “Since our last earnings call in May, a weakening environment, high inflation and dampened consumer spending are having broad implications across much of retail, especially in discretionary categories like apparel,” Michelle Gass, the chief executive of Kohl’s, said on a call with analysts. “Given our penetration in these categories, this is disproportionately impacting Kohl’s.”Taken together, the results show that the robust sales retailers grew accustomed to during the course of the pandemic have ceased — and the consumer landscape that awaits may be more austere than what they prepared for. (There were exceptions. Home Depot, for instance, said sales were still strong, driven by home improvement projects.) On earnings calls, executives said lower- to middle-income consumers were the most hesitant to spend. Stores are responding by pushing more discounts and highlighting private-label brand to shoppers, and, in some cases, canceling billions of dollars’ worth of orders with vendors. It remains to be seen which strategies will be most effective.Inflation F.A.Q.Card 1 of 5Inflation F.A.Q.What is inflation? More

  • 150 Shares169 Views

    in Economy

    GM Quarterly Sales Fall Amid Shortage in Computer Chips and Other Parts

    by

    The auto industry is facing worrying signs all across its horizon, including rising interest rates and fears of a recession.But the biggest problem still seems to be making enough cars.General Motors said Friday that its U.S. deliveries of new vehicles in the second quarter declined 15 percent from a year earlier, while Toyota Motor reported a drop of 23 percent in U.S. sales. The obstacle continues to be an inability to get enough computer chips to finish vehicles.For now, at least, consumers are still eager to buy. Manufacturers are selling practically every car or truck they make and have seen no sign that inventory is building up on dealer lots, even as new-vehicle prices have climbed to record highs.“That tells me that the vehicles are still moving, and that’s probably the No. 1 thing that I’m looking at,” Paul Jacobson, the chief financial officer of General Motors, told financial analysts at a conference last month.G.M. sold 582,401 cars and light trucks from April to June, down from 688,236 a year earlier. Toyota sold 531,105, down from 688,813. Honda said its U.S. sales fell 51 percent to 239,789 vehicles.G.M. noted that its factories were holding 95,000 vehicles manufactured without certain electric components that were in short supply because of the chip shortage.At times automakers have dropped some features from vehicles because they or their suppliers didn’t have the chips they require. Honda has shipped vehicles without advanced parking sensors, and Volkswagen has produced models that don’t have blind-spot monitors that the vehicles would normally include.G.M. plans to install the missing parts in its vehicles when they become available and then make deliveries to dealers.If those vehicles had been shipped, its second-quarter sales would probably have been nearly level with its year-ago total.“We will work with our suppliers and manufacturing and logistics teams to deliver all the units held at our plants as quickly as possible,” said Steve Carlisle, executive vice president and president, North America.Understand Inflation and How It Impacts YouInflation 101: What’s driving inflation in the United States? What can slow the rapid price gains? Here’s what to know.Inflation Calculator: How you experience inflation can vary greatly depending on your spending habits. Answer these seven questions to estimate your personal inflation rate.Greedflation: Some experts say that big corporations are supercharging inflation by jacking up prices. We take a closer look at the issue. Changing Behaviors: From driving fewer miles to downgrading vacations, Americans are making changes to their spending because of inflation. Here’s how five households are coping.In a filing with the Securities and Exchange Commission, G.M. said the backlog would affect second-quarter net income, which it projected to be $1.6 billion to $1.9 billion. A consensus of analysts’ forecasts compiled by Bloomberg had pointed to earnings of $2.4 billion.Because the company expects to ship most or all of the 95,000 partly completed vehicles by the end of the year, it reaffirmed its full-year outlook for net income of $9.6 billion to $11.2 billion.That may be why G.M.’s stock rose on Friday despite the lowered forecast. Its shares ended the day 1.3 percent higher, outpacing the overall market.But that outlook also assumes that demand will hold up as threats to the U.S. economy mount. Consumers are being squeezed by rising prices for gasoline and groceries. The average price paid for new vehicles in May was $47,148, up more than $5,000 from a year earlier, and the average monthly car payment was over $700, more than $100 higher than a year earlier, according to data from Cox Automotive, a market researcher. Since new models are in short supply, consumers are often paying $3,000 or more above sticker prices.And last month, the Federal Reserve increased its benchmark interest rate by three-quarters of a point, in a bid to slow the economy and tamp down inflation, and has indicated that further increases may be necessary. Higher interest rates make home and auto loans more expensive, and the Fed’s move has already resulted in a slight slowdown in housing.Some economists believe the risk of a recession is moderated by the increased savings that most consumers have built up since the coronavirus pandemic started in 2020. Eighty percent of consumers have more money in their checking accounts now than two years ago, Jonathan Smoke, the chief economist of Cox Automotive, told reporters this week on a conference call.“These consumers are able to withstand inflation because they’ve got quite a bit of cushion and their wage growth is strong enough to deal with pricing increases,” he said.Inflation F.A.Q.Card 1 of 5What is inflation? More

  • 113 Shares119 Views

    in Economy

    Toyota Topped G.M. in U.S. Car Sales in 2021

    by

    After struggling to produce cars because of a global computer chip shortage, automakers are trying to move quickly to making electric vehicles.Toyota Motor unseated General Motors as the top-selling automaker in the United States last year, becoming the first manufacturer based outside the country to achieve that feat in the industry’s nearly 120-year history.That milestone underlines the changes shaking automakers, which face strong competition and external forces as they move into electric vehicles. And it came in a tumultuous and strange year in which automakers contended with an accelerating shift to electric vehicles and struggled with profound manufacturing challenges. New car sales have been damped by a severe shortage of computer chips that forced automakers to idle plants even though demand for cars has been incredibly robust.G.M., Ford Motor and Stellantis, the automaker created by the merger of Fiat Chrysler and Peugeot, produced and sold fewer cars than they had hoped to in 2021 because they were hit hard by the chip shortage. Toyota was not hurt as much.In addition to that shortage, the coronavirus pandemic and related supply-chain problems depressed sales while driving up the prices of new and used cars, sometimes to dizzying heights. Auto manufacturers sold just under 15 million new vehicles in 2021, according to estimates by Cox Automotive, which tracks the industry. That is 2.5 percent more than in 2020 but well short of the 17 million vehicles the industry usually sold in a year before the pandemic took hold.G.M. said on Tuesday that its U.S. sales slumped 13 percent in 2021, to 2.2 million trucks and cars. Toyota had access to more chips because it set aside larger stockpiles of parts after an earthquake and tsunami in Japan knocked out production of several key components in 2011. Its 2021 sales rose more than 10 percent, to 2.3 million.“The dominance of the U.S. automakers of the U.S. market is just over,” said Erik Gordon, a business professor at the University of Michigan who follows the auto industry. “Toyota might not beat G.M. again this year, but the fact that they did it is symbolic of how the industry changed. No U.S. automaker can think of themselves as entitled to market share just because they’re American.”Ford is expected to finish third when the company releases sales data on Wednesday.The shortage of chips stems from the beginning of the pandemic, when auto plants around the world closed to prevent the spread of the coronavirus. At the same time, sales of computers and other consumer electronics took off. When automakers resumed production, they found fewer chips available to them.Despite weak new-vehicle sales, automakers and dealers alike have been ringing up hefty profits because they have been able to raise prices.“Sales volumes are down but our margins are up and expenses are down,” said Rick Ricart, whose family owns Ford, Hyundai, Kia and other dealerships around Columbus, Ohio. “We barely had any inventory cost now. Cars arrive on the truck and they’re already sold. They’re gone within 24 to 48 hours.”Automakers are also contending with the transition to electric cars and trucks. Many companies are spending tens of billions of dollars designing battery-powered models and building plants to produce them. They are racing to catch up to Tesla, which sells a large majority of electric vehicles now.But most established automakers are unlikely to gain ground in U.S. electric vehicle sales this year because they are not in a position to produce many tens of thousands of such cars for at least another year or two.And Tesla, which was founded in 2003, is not standing still. After reporting a nearly 90 percent jump in global sales last year, to just shy of one million, the company plans to start mass production at two new factories this year, near Austin, Texas, and Berlin. It has been less affected by the chip shortage because it was able to switch to types of chips that are more readily available.The electric-car maker does not break out sales by country, but Cox Automotive estimated that it sold more than 330,000 in the United States, or roughly as many vehicles as Mercedes-Benz and BMW each sold here.Ford is perhaps the only major automaker that could pose a serious competitive threat to Tesla this year. This spring, Ford plans to start selling an electric version of its F-150 pickup truck, the top-selling vehicle in the United States. The company has taken more than 200,000 reservations for that truck, the F-150 Lightning, and hopes to produce more than 50,000 this year. It is increasing production at a plant near Detroit to build 80,000 in 2023 and up to 150,000 in 2024.“The F-150 is the most important franchise in our company,” Kumar Galhotra, president of Ford’s Americas and international markets group, said in an interview. “The F-150 Lightning shows how serious our commitment is to the E.V. market.”Ford has been selling a popular electric sport-utility vehicle, the Mustang Mach E, for nearly a year. It said Tuesday that it aimed to increase production of the Mach E to 200,000 vehicles a year by 2023.Other automakers are planning to produce relatively modest numbers of electric cars this year because they and their suppliers are still gearing up to build factories and produce batteries and other components. G.M. has set a goal of producing only electric vehicles by 2035, and on Wednesday it will unveil a battery-powered Chevrolet Silverado pickup truck at the Consumer Electronics Show. But the electric Silverado isn’t expected to go into production until 2023.The Coronavirus Pandemic: Key Things to KnowCard 1 of 3The global surge. More

  • 113 Shares109 Views

    in Economy

    Economic and Earnings Concerns Begin to Weigh on Stocks

    by

    After having few cares about the markets all year, investors are getting nervous as the Fed signals that harsher policies are on the way.Wall Street’s imperviousness to bad news, which enabled stocks to double in value from their pandemic panic lows, may be starting to crack.When the Federal Reserve signaled in September that it would soon tighten monetary policy by curtailing asset purchases, the stock market took it well, but not for long. The S&P 500 rose modestly for a few days before reversing course, pushing the index more than 5 percent below the high it set earlier in the month, which amounted to its biggest drop for the year.Despite that setback, the market managed to eke out a 0.2 percent gain for the third quarter.A stingier Fed is not the market’s only concern. Inflation, dismissed until recently by the Fed as a transitory artifact of the pandemic, is coming to be seen as more persistent as the prices of goods, services and labor increase. What is being acknowledged as transitory, though, is the jolt to economic growth and corporate profits provided by several trillion dollars of added spending by Congress.With a number of threats to prosperity becoming harder to ignore, many investment advisers have become less enthusiastic about stocks. They are revising return expectations down and recommending exposure only to narrow niches.“We’re not bullish today at all,” said David Giroux, head of investment strategy at T. Rowe Price. “What really drives the market is earnings growth,” he said. “We can’t repeat some of the things we’ve done this year. Earnings growth may slow in ’22, maybe dramatically.”After being a colossal boon for the economy, fiscal stimulus — in the form of enormous federal spending — may now prove to be three problems for the stock market in one. Government expenditure focused on the pandemic that boosted growth is ebbing. There is a broad consensus that taxes will rise soon to help pay for that spending. And, because many people took direct stimulus payments and invested them in the stock market, stocks ran up faster than they would otherwise.The positive effects of so much stimulus may have run their course, as domestic stock funds tracked by Morningstar lost 0.6 percent in the third quarter, with portfolios that focus on financial services among the few clear winners.The SPDR S&P 500 E.T.F. Trust, which tracks the index and is the largest exchange-traded fund, returned 0.6 percent in the quarter, beating the average actively managed mutual fund.The very fact that many investors until lately have seemed untroubled by the perils facing the economy is what some find troubling.“There is complacency in a lot of things,” said Luca Paolini, chief strategist at Pictet Asset Management. He enumerated some of his worries: “‘Inflation is temporary.’ Maybe. Maybe not. Six months ago, consumption was booming. People had money and time. Now they have less money and less time. Earnings momentum has peaked, clearly, relative to six months ago. I’m concerned the market isn’t pricing in deterioration in the economic outlook.”By some measures, stocks are as expensive as at almost any time in history. The S&P 500 trades at about 34 times the last 12 months of earnings. Sarah Ketterer, chief executive of Causeway Capital Management, worries that corporate profits face numerous headwinds and that their impact on stocks could be especially high with valuations so rich.“Inflation is up, economic growth is down,” she said. “The supply chain disruption phenomenon is global, creating cost increases and margin pressure.” Companies in many industries have reported trouble sourcing some commodities and important components of manufactured goods, such as semiconductors, hindering production and making what they do produce more expensive.Rising prices have sent interest rates in the bond market higher, driving down bond prices and keeping a lid on bond funds in the third quarter. The average one rose 0.2 percent, dragged down by a 2.9 percent decline in emerging-market portfolios.“I’m hard pressed to find an area of costs that haven’t gone up, and this may continue for some time,” Ms. Ketterer said. “No one knows how long it will take to unravel the tangled supply chain situation.”The situation seems most tangled in Asia, where many raw and intermediate materials originate. China has been the source of several worrying recent events, including power cuts that have impeded manufacturing, and financial instability at the China Evergrande Group, a giant, heavily indebted developer.Some specialists in Asian markets see little chance of Evergrande’s woes spilling over to the wider Chinese financial system, let alone beyond. Matthews Asia, a mutual fund manager, said in a note to investors that mortgage lending standards in China are fairly tight, with large down payments required and the packaging of loans into securities sold to investors minimal.“Evergrande’s problems are unlikely to cause systemic problems and the likelihood of this devolving into a global financial problem is minuscule,” Matthews’s analysts said. But they added that restrictions could be placed on the property sector in coming quarters.Saira Malik, head of equities at Nuveen, an asset manager, likewise does not expect Evergrande to become a global problem, but she cautions that it is not China’s only problem.“The government is focusing on social issues, and some of that is leading to moderation in the growth rate” of China’s economy, she said. While more expansive central bank policies would be helpful, she added, “we think China could get worse before it gets better.”Funds that focus on Chinese stocks got worse in the third quarter, sinking 13.8 percent. International stock funds in general lost 2.9 percent.As prices and risks in stock markets at home and abroad rise, the opportunities for strong, relatively safe gains shrink.Mr. Giroux said he is “buying what the market is concerned about in the short term,” such as stocks in managed care providers, which are trading at a discount to the market because earnings growth has been subdued.He said he would avoid smaller companies, as well as companies that have benefited from fiscal stimulus programs, including automakers, heavy industrial companies and semiconductor manufacturers.Ms. Malik, who said she is “moderately bullish” overall, prefers smaller companies and European stock markets. She also likes makers of office software, such as Salesforce and HubSpot, and high-quality consumer cyclicals like Nike.Mr. Paolini also favors European stocks.“The case for Europe is quite solid,” he said. “Vaccination rates are high; the Covid story is over,” yet government stimulus continues across the region, so “they don’t have the same fiscal cliff as in the U.S. and U.K.”His other recommendations include financial stocks, which tend to benefit from higher interest rates, and drug makers.Ms. Ketterer thinks there is more potential for pandemic recovery stocks to appreciate. In particular, she expects Rolls-Royce, which makes jet engines, to benefit from an operational restructuring, and Air Canada, which cut costs during the pandemic and has a strong balance sheet and little competition, to do well as travel picks up.Ms. Ketterer remains resolute about trying to pick winners when there may not be many winners to pick.“What do we do?” she said. “We’re not going to hide. We don’t want to be in cash, and we don’t want to be in bonds if rates are rising.”Mr. Giroux said he doesn’t care much for bonds or cash — money-market funds — right now, either. He favors bank loans, floating-rate securities created by bundling loans that banks have made to corporate customers. They yield close to 4 percent, and that could increase if market interest rates rise. Default risk is mitigated because bank loans have a high place in corporate capital structures.The troubles in the stock market lately are barely a blip when viewed on a chart of the phenomenal last 18 months, so a single-digit percent return may seem meager. But it may start to look generous if the time has arrived for investors to learn to live with less.“The risk profile for equities over the next three to five years is not as good as it was a year ago because valuations are high, sentiment is good and earnings growth is likely to slow,” Mr. Giroux said. “We pull back on risk assets when things feel pretty good, and right now things feel pretty good.” More

  • 113 Shares119 Views

    in Economy

    Chip Shortage Makes Big Dent in Automakers’ U.S. Sales

    by

    General Motors, Toyota, Honda, Stellantis and Nissan reported recent declines as problems in the global supply chain held down output and inventories.Four of the biggest sellers of cars and trucks in the United States said Friday that their sales had plunged recently, reflecting the intense squeeze that a global semiconductor shortage has put on auto production.General Motors, Honda, Nissan and Stellantis reported significant declines in sales in the three months that ended in September — in G.M.’s case, a drop of one-third from a year earlier — as chip shortages forced them to idle plants, leaving dealers with few vehicles to offer customers.Toyota had a slight increase for the quarter, but its sales in September fell sharply after it was forced to slash global production because of the chip shortage and other disruptions to its parts supplies stemming from the coronavirus pandemic.“We are in uncharted waters,” said Alan Haig, president of Haig Partners, an automotive consultant. “We’ve never seen a vehicle shortage like this. There are just not enough cars to sell.”The shortage of semiconductors stems from the beginning of the pandemic, when automakers around the world closed factories for weeks and suddenly cut their orders for computer chips. At the same time, manufacturers of laptops, game consoles and other electronics were demanding more chips as sales of their products took off among homebound consumers.When automakers resumed production, chip makers had much less production capacity to allocate for automotive chips.Strong auto sales, spurred in part by government stimulus checks, helped prop up consumer spending during the first year of the pandemic. But now production delays and depleted inventories are hurting sales when waning government support and the rise of the Delta variant of the coronavirus are acting as a drag on consumer spending.The forecasting firm IHS Markit on Friday lowered its estimate of third-quarter consumer spending growth to an annual rate of just 0.4 percent, down from 12 percent in the second quarter, contributing to a sharp slowdown in overall economic growth.Automakers have tried to use the electronic components they have in stock for their most profitable vehicles, such as pickup trucks and large sport utility vehicles. But in recent months those models have been affected, too.With fewer vehicles rolling off assembly lines, dealers’ inventories have become skimpy. On Friday, Kenosha Toyota in Wisconsin had a single new vehicle for sale — a two-wheel-drive Tacoma pickup. Suburban Chevrolet of Ann Arbor in Michigan was displaying just 11 new models for sale on its website.Despite the shortage, automakers and dealers alike are reaping hefty profits because tight inventories have forced consumers to pay higher prices. J.D. Power estimated that the average selling price of a new vehicle in September was $42,802, up more than $12,000 from the same month in 2020.“It’s a bonanza for the dealers and the factories, despite the shortage of inventory,” Mr. Haig said.With new cars scarce, prices of used cars have also shot up. And the latest sales figures raise concerns that the inventory shortage is worsening and crimping sales.“There are simply not enough vehicles available to meet consumer demand,” said Thomas King, president of J.D. Power’s data and analytics division.At General Motors, sales were down 33 percent in the quarter. The automaker sold 446,997 vehicles, compared with 665,192 light trucks and cars a year earlier. In the same quarter of 2019, G.M. sold 738,638.Honda’s sales were down 11 percent in the quarter, to 354,914 cars and trucks. But a decline in September of nearly 25 percent from the prior year showed the increasing squeeze on production. Stellantis, which was formed by the merger of Fiat Chrysler and France’s Peugeot, reported a 19 percent drop in third-quarter sales. At Nissan, the decline was 10 percent.Toyota said its sales in the quarter were about 1 percent higher than a year earlier, at 566,005. But its sales for September were down 22 percent.General Motors does not report monthly sales figures. Ford is expected to report its third-quarter sales on Monday.The shortage of semiconductors has forced manufacturers to idle plants for weeks at a time. G.M. idled several pickup truck plants for parts of August and September. Toyota cut global production by 40 percent in September, and expects a similar cut in October.General Motors emphasized that a lack of potential buyers was not the problem. “Underlying demand conditions remain strong, thanks to ample job openings, growing pent-up vehicle demand and excess savings accumulated by many households during the pandemic,” Elaine Buckberg, G.M.’s chief economist, said in a company statement.And the company signaled that the chip supply was improving. “We look forward to a more stable operating environment through the fall,” said Steve Carlisle, the president of G.M. North America.At the end of September, G.M. had 128,757 vehicles in dealer inventories, down from 211,974 at the end of June and more than 334,000 at the end of the first quarter. In years past, the figure was often about 800,000.Toyota had 37,516 vehicles on dealer lots at the end of the quarter, and 61,208 at ports serving the U.S. market. At the current sales rate, that is enough to last about 18 days.Ben Casselman More

  • 138 Shares179 Views

    in Economy

    People Are Now Spending More Money at Amazon Than at Walmart

    by

    Proof that the online future has arrived: The biggest e-commerce company outside China has unseated the biggest brick-and-mortar seller.SEATTLE — Amazon has eclipsed Walmart to become the world’s largest retail seller outside China, according to corporate and industry data, a milestone in the shift from brick-and-mortar to online shopping that has changed how people buy everything from Teddy Grahams to teddy bears.Propelled in part by surging demand during the pandemic, people spent more than $610 billion on Amazon over the 12 months ending in June, according to Wall Street estimates compiled by the financial research firm FactSet. Walmart on Tuesday posted sales of $566 billion for the 12 months ending in July.Alibaba, the giant online Chinese retailer, is the world’s top seller. Neither Amazon nor Walmart is a dominant player in China.In racing past Walmart, Amazon has dethroned one of the most successful — and feared — companies of recent decades. Walmart perfected a thriving big-box model of retailing that squeezed every possible penny out of its costs, which drove down prices and vanquished competitors.But even with all of that efficiency and power, the quest to dominate today’s retail environment is being won on the internet. And no company has taken better advantage of that than Amazon. Indeed, the company’s delivery (many items land on doorsteps in a day or two) and wide selection first drew customers to online shopping, and it has kept them buying more there ever since. It has also made Jeff Bezos, the company’s founder, one of the richest people in the world.An employee sorting items into the robots at an Amazon warehouse on Staten Island.Chang W. Lee/The New York Times“It is a historic moment,” said Juozas Kaziukenas, founder of the Marketplace Pulse, a research company. “Walmart has been around for so long, and now Amazon comes around with a different model and replaces them as a No. 1.”Wall Street firms had been expecting this retail baton to change hands in the coming years. But the pandemic accelerated the timeline, as people stuck at home relied on deliveries. Walmart’s sales rose sharply during the pandemic, but it has not matched Amazon, which has added hundreds of new warehouses and hired about 500,000 workers since the start of last year.Walmart’s sales grew $24 billion in the last year, the company said Tuesday. During roughly the same period, the total value of everything people bought on Amazon rose by nearly $200 billion, analysts estimate.While the figures are calculated differently, analysts regularly use them as a rough comparison. Knowing the full value of Walmart’s sales is simple, because they nearly all come from its own inventory and are disclosed publicly each quarter. But analysts must calculate an estimate of the value of Amazon’s overall sales because most of what people buy on its site are products owned and listed by outside merchants. The company publicly reports only the fees it takes from those transactions.With Amazon’s success has come greater scrutiny. And the company has started to receive many of the same complaints — over its treatment of workers and impact on local and national economies — that Walmart faced during its biggest periods of expansion more than a decade ago.“The Big Bad Wolf is Amazon now,” said Barbara Kahn, a professor of marketing at University of Pennsylvania’s Wharton School of Business who has written several books on retailing.Amazon and Walmart declined to comment.Over the last century, very few companies could stake a claim to world’s biggest retailer. The grocery chain A.&P. was such a force that antitrust authorities pursued it in the 1940s. Sears overtook A.&P. as the largest retailer in the early 1960s by targeting middle-class shoppers in the suburbs and expanding the department store model.Then came Walmart.President George H.W. Bush awarded Sam Walton the Medal of Freedom in 1992, with Barbara Bush, at Walmart’s headquarters in Bentonville, Ark.J. Scott Applewhite/Associated PressThe original Walton five-and-dime store on the square in Bentonville.Terra Fondriest for The New York TimesIn 1962, Sam Walton founded the retailer in small-town Arkansas. Mr. Walton had “a true passion — some would say obsession — to win,” he wrote in his autobiography, and he sold a huge variety of products at low prices, including eventually fresh food. But his true innovation was building a vast logistics network that operated with such precision and efficiency that it crushed many competitors that couldn’t compete.By the 1990s, Walmart had surpassed Sears. And then it kept growing, opening thousands of stores and acquiring other retailers across the world.Just as Mr. Walton founded Walmart as Sears was ascendant, Mr. Bezos started Amazon in the early 1990s as Walmart was king.Guru Hariharan, who worked on Amazon’s retail business, said Amazon had eclipsed Walmart by playing a different game. Walmart has hardened its lock on physical stores and the grocery business. But shopping online is growing far faster than in physical stores, even as it accounts for only about a seventh of U.S. retail sales. Amazon captures 41 cents of every dollar spent online in the United States, while Walmart takes just 7 cents, according to eMarketer.Shopping in Walmart in 1996. Getty ImagesFriday night traffic in 1992.Getty Images“They have their own turfs that they are the kings of,” said Mr. Hariharan, who left Amazon and eventually founded CommerceIQ, which advises brands like Colgate and Kimberly-Clark on e-commerce.Amazon has ascended in part because it opened its website to let third-party sellers list their products alongside items that Amazon buys and resells itself. This marketplace greatly increased the assortment of available items. Almost two million sellers offer products on Amazon, and they account for 56 percent of the items sold.The marketplace makes it harder to determine Amazon’s true influence in the retail industry. The company captures and reports only the fees it charges sellers to list, ship and market their goods, not the total money that flows through its business. The model is more profitable, but produces less revenue.“It makes Amazon appear smaller,” Mr. Kaziukenas said. “They are obfuscating their reality.”Jeff Bezos, right, with David Robichaud, center, who became the company’s 10 millionth customer when he ordered golf clubs from Gregory Nixon, left, on Amazon in 1999.Paul Conors/Associated PressThat has led analysts at investment banks like J.P. Morgan, BMO Capital Markets and Cowen to estimate what is known as the “gross merchandise value,” calculating how much customers buy on Amazon, regardless of whether it comes from Amazon’s inventory or from a seller’s. The analysts make the estimates based on data the company releases, such as revenue it collects from sellers and the marketplace’s share of total units sold, and their own research. FactSet compiles and averages the estimates. In the last 12 months, Amazon reported total retail revenue of $390 billion. But total product sales, including third-party transactions, was nearly 60 percent higher, according to the analysts’ estimates.Amazon has not regularly disclosed its gross merchandise value, but in 2019, facing antitrust pressure, Mr. Bezos shared the measure — then $277 billion — for the first time as a way to show that the third-party sellers were growing faster than Amazon’s direct retail business. “Third-party sellers are kicking our first-party butt,” he wrote.When Mr. Bezos testified in Congress last summer, he pointed to Walmart’s size as evidence of a competitive retail industry. “We compete against large, established players, like Target, Costco, Kroger and, of course, Walmart,” he said, “a company more than twice Amazon’s size” — presumably referring to Walmart’s revenue.Walmart is still the largest private employer in the United States, with 1.6 million workers. And it sells more in the United States than Amazon, though J.P. Morgan estimates that Amazon will surpass Walmart in the United States next year.A Walmart worker delivering online orders in Charlottesville, Va.Eze Amos for The New York TimesDuring the pandemic, Walmart honed its ability to use its stores as mini-distribution centers, where shoppers drive to retrieve their purchase “curbside,” a far less costly way to fulfill online orders than delivery. On Tuesday, Walmart said it expected to generate $75 billion in total online sales this year. The company has been expanding its effort to build its own marketplace, but the vast majority of its online sales still come from its own inventory, Mr. Kaziukenas said.Edward Yruma, a retail analyst and managing director at KeyBanc Capital Markets, said Amazon had only started to come to grips with the reality of its size.“Walmart is big, and they know it,” he said. Amazon has long played the role of the upstart, even as it became enormous. Just this summer, when it already employed about 1.3 million people, it added a new leadership principle that acknowledged the responsibility of its scale.“We started in a garage,” the new principle starts, “but we’re not there anymore.” More