Dj Dir Madati Sells 269 Of Wingstop Inc >Wing

By Jack Hough

Four times a year, America's publicly traded companies line up for a dunk contest on lowered rims called earnings season. The latest has gone even better than usual — despite this past week's skittish market.

Wall Street analysts had reduced their third-quarter earnings growth forecast for S&P 500 companies from 13% at the beginning of the year to 8% by the end of September. Estimate-trimming is standard procedure for setting up positive "surprises" come reporting time, but analysts must have taken too much off. Earnings beats have hit a four-year high in prevalence and size. The quarter is tracking toward 13% earnings growth.

Tariffs haven't hurt as much as expected. Judging by inventories, companies stocked up during a tariff pause that ran out in August, according to BofA Securities. Those inventories are now probably depleted, so fourth-quarter profit margins could be more telling. A weak dollar can help; each 10% drop can boost earnings by 3%.

These are minor details. With investors piled into index funds, indexes loaded with Big Tech, and valuations riding high, two questions matter more than the rest: Are artificial-intelligence hyperscalers still spending like Congress? And do investors still like that? The answers are "yes" and "mostly."

Microsoft, Amazon.com, Alphabet, and Meta Platforms alone could combine for capital expenditures of $356 billion this year, up 56%, reckons BofA. That compares with $904 billion, up 5%, for the rest of the S&P 500. Much of this surplus investment will be spent within Big Tech, whose earnings grew some 29% in the third quarter, according to Barclays Research. That compares with 5% earnings growth for the rest of the S&P 500.

Lavish capex guidance was well received, with some exceptions. Amazon stock jumped 10% after strong web services growth suggested that its AI spree is paying off. But Meta's CEO missed the mark with talk of a theoretical path toward "superintelligence" and plans to "aggressively front-load building capacity, so that way we're prepared for the most optimistic cases." Shares fell 11%, the most in three years.

By Wall Street's tally, earnings beats have resulted in slim gains, while misses have been punished severely. That makes sense, with the S&P 500 trading at an ambitious 25 times earnings. With 90% of results in, the next two weeks will bring reports from a handful of big companies, including Walt Disney on Nov. 13, Nvidia on Nov. 19, and Walmart on Nov. 20.

I recently ran my own screen for earnings-day drama by focusing only on price reactions, which are often more telling than whether earnings topped forecasts. Among companies large and small in the S&P Composite 1500 that have reported since the start of October, I found 106 with double-digit percentage gains and 115 with double-digit declines, many having little to do with AI. Here are a handful:

Trex stock got taken behind the PVC woodshed. The decking company built its business on composite boards made from sawdust and recycled plastic shopping bags, which it pitches as more durable than pressure-treated lumber. Customers are increasingly being lured by brands like TimberTech, which dispense with wood altogether in favor of polyvinyl chloride patterned to resemble mahogany, teak, or hickory. After Trex cut guidance due to soft housing conditions and more competition, shares lost 31%.

Newell Brands extended a decadelong downtrend, losing 28% in a day following a sales decline. The maker of Sharpie markers and Rubbermaid containers says it raised prices in response to tariffs, but rivals declined to do the same. Contrast that with Winnebago Industries, which bounced 29% after it used price increases to offset weak recreational-vehicle demand.

Is a trucking turnaround afoot? Maybe not yet, judging by freight volumes. But cost-cutting and solid earnings sent J.B. Hunt Transport Services shares up 22% and logistics provider C.H. Robinson Worldwide up 20%. Next year, new federal restrictions on commercial driver's licenses for non-U.S. citizens could cut trucking capacity and lift prices.

Chipotle Mexican Grill blamed a burrito shortfall on young five-digit earners struggling with student-loan payments and slow wage growth. Shares lost 18%. Wingstop reported a same-store sales decline, but shares gained 11% on plans for kitchen renovations and a loyalty program.

General Motors gained 15% and Ford Motor, 12%, on healthy demand for gasoline vehicles and plans to cut losses from electric ones. And Hertz Global Holding is the biggest one-day gainer of the season so far, soaring 36% after reporting its first profit in two years, on a bustling new business retailing cars from its rental fleet.

Let's turn to the struggling beer business, and one brewer's, um, innovation. Three years ago, Molson Coors Beverage collaborated with Coca-Cola to launch Simply Spiked, fruity drinks with beer-like alcohol of 5%. Earlier this year, Coors added Simply Spiked Bold, whose "unapologetically bold attitude" brings 8% alcohol. Any guesses what's next? At a convenience-store conference last month, the company unveiled Simply Spiked Bolder, with smaller cans and 12% alcohol.

This compares with the firepower of the sweet screw-cap stuff in flask-shaped bottles sold quite profitably by liquor stores and downed from paper bags. Constellation Brands, known for Corona and Modelo beer in the U.S., started out in bulk wine and found success in 1954 with Richard's Wild Irish Rose, which it sold in 2019 to Gallo. The new Coors offering isn't classified as a fortified wine, but rather as a malt beverage — never mind that the alcohol comes from fermented cane sugar, not malted grains. That allows it to be sold in beer coolers. Apparently, two things bucking the current beer downdraft are nonalcoholic brews and turbocharged fruit punch.

Goldman Sachs calls long-struggling Molson Coors a Buy. It isn't for the 12% alcohol, but rather the price/earnings ratio of eight — and that next year's Olympics, World Cup, and 250th U.S. birthday could give beer a boost.

Write to Jack Hough at jack.hough@barrons.com. Follow him on X and subscribe to his Barron's Streetwise podcast.

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