For the second quarter, the Consumer Cyclical sector posted more significant earnings surprises than other sectors. With inflation easing and labor markets remaining strong, consumer confidence in the U.S. recently reached a two-year high, culminating in an 11% month-over-month increase in the University of Michigan’s Consumer Sentiment Index in July. This improvement in consumer sentiment was evidenced by greater demand across the Consumer Cyclical sub-sectors below.
- Airlines rebound fueled by summer travels: American, Delta, Alaska, and United Airlines reported significant revenue growth and higher-than-expected earnings, which were propelled by pent-up demand for domestic and international travel alongside declining jet fuel prices. An outlier within the airline sub-sector was Southwest, whose persistent operational and technological woes since the fourth quarter have hampered its ability to perform in line with peers.
- Cruise lines remain afloat despite inflationary headwinds: Robust demand for cruise travel led bookings to reach their highest level since 2019. Additionally, increased onboard spending helped cruise lines to outperform estimates. Carnival, Royal Caribbean, and Norwegian beat estimates by 9%, 16%, and 18%, respectively.
- Home developers dig deep to meet demand: In March 2023, new homes under construction were 33% of listings compared to an average of 13% between 2000–2019. Rising interest rates have led to suppressed inventories as homeowners are reluctant to give up their low mortgage rates. New home developers such as D.R. Horton, Pulte Group, and Lennar Corp have experienced increased demand. Lennar boosted its deliveries in Q2 2023 compared to Q2 2022 (17,074 vs 16,549 homes). Pulte Group’s sale revenues for Q2 2023 grew 8% over the prior year, driven by a 5% increase in home closings. Dr. Horton Inc.’s revenues rose 11% to 9.7 billion quarter-over-quarter in Q2 2023, with net sales orders up 37%.
- Traditional automakers hold their ground with high earnings: Ford’s revenues climbed by 12% year-over-year to $45 billion for Q2 2023 due to healthy demand for pickups, delivery vans, and heavy trucks. Alongside Ford, General Motors’ vehicle sales were up 19% from Q2 2022, a 2-year record high for the car manufacturer. Ford’s earnings beat estimates by 32%, while GM’s earnings surprise of 2.9% was encouraging but notably much less than Ford’s. Meanwhile, Tesla, the dominant player in the electric vehicle space, missed on earnings by 3.5%.