J.P. Morgan Flags Pricing Concerns in Earnings Season

J.P. Morgan has raised concerns about pricing power issues in the current earnings season, as several major European companies have flagged the issue in analyst calls. The brokerage firm anticipates a softening in pricing due to the normalization of COVID distortions and the end of other growth tailwinds. It also predicts a potential decline in earnings projections for 2024. Some European companies, including LVMH Moët Hennessy, AstraZeneca, Airbus, Schneider Electric, Stellantis, and LANXESS, have expressed concerns about pricing. Additionally, J.P. Morgan believes that the earnings outperformance by US companies compared with Eurozone companies may be coming to an end.

Key Takeaways

• Companies are concerned about weakening pricing power during the first quarter earnings season, with mentions of "pricing power" in company transcripts falling below average.
• J.P. Morgan's analysis indicates that pricing sentiment is "stretched," and companies may ramp up cost-cutting talk due to the likely softening in pricing power.
• Earnings projections may keep declining in 2024, with first-quarter consensus projections for S&P 500 profit growth down from 10-12% to 3% year over year, and a negative first-quarter rate for Europe.
• Relative US-Eurozone Purchasing Managers' Index momentum and topline beats for the US versus Eurozone may be ending, while a few European companies have highlighted pricing as an issue during analyst calls.
• Several major European companies, including LVMH, AstraZeneca, Airbus, Schneider Electric, Stellantis, and LANXESS, have flagged pricing as an issue, affecting their performance and pricing actions for the coming years.

Analysis

J.P. Morgan's warnings about pricing power issues in the current earnings season are likely to impact major European companies like LVMH Moët Hennessy, AstraZeneca, Airbus, Schneider Electric, Stellantis, and LANXESS. The normalization of COVID distortions and the end of growth tailwinds are affecting pricing sentiments, leading to potential declines in earnings projections for 2024. The softening in pricing power may prompt companies to increase cost-cutting measures. This situation could have short-term repercussions on earnings projections for both S&P 500 and Eurozone companies, while also potentially signaling long-term shifts in relative Purchasing Managers' Index momentum and topline beats for the US versus Eurozone.

Did You Know?

• Pricing Power Concerns: Companies are worried about their ability to control and increase prices, with mentions of "pricing power" in company transcripts falling below average. This indicates a potential weakening of pricing power in the current earnings season.

• Earnings Projections Decline: J.P. Morgan predicts a potential decline in earnings projections for 2024, with first-quarter consensus projections for S&P 500 profit growth down from 10-12% to 3% year over year. This reflects the anticipated impact of pricing issues and other growth tailwinds coming to an end.

• US-Eurozone PMI Momentum Shift: Relative US-Eurozone Purchasing Managers' Index momentum and topline beats for the US versus Eurozone may be ending, indicating a potential shift in economic performance between the two regions. This could have implications for business and investment decisions.