US earnings week ahead: JPMorgan, Citi prepare for Fed’s higher-for-longer approach

JPMorgan Chase & Co. is expected to outperform Citigroup Inc. and Wells Fargo in profitability in the upcoming quarterly earnings reports, as per a Bloomberg report. All three banks, however, face challenges from a slow economy and high interest rates.

JPMorgan and its peers are likely to increase provisions for potential loan losses due to the ongoing risk of a United States recession this year. The persistently high interest rates are impacting the growth of net interest income, emphasizing the importance of reducing business costs.

The quarterly reports from Domino’s Pizza Inc., PepsiCo Inc., and Walgreens Boots Alliance Inc. will likely highlight the reduced spending power of American consumers. The people currently have less cash on hand than they did before the COVID-19 pandemic.

US Earnings Week Ahead

– Monday: There are no notable earnings expected at start of the week.

– Tuesday: Analysts expect PepsiCo Inc. earnings to rise 9.4 percent. The cola giant has seen double-digit profits the last two quarters as well. Goldman Sachs highlighted that cost-conscious consumers will switch to cheaper brands and said Pepsi’s edge comes through its “favorable geographic footprint” over rivals.

The report also noted that Pepsi is keen on bolstering its snack portfolio – evident from the interest shown in acquiring Hostess Brands. The company has the capacity to take on billions of debt without hurting its credit profile, it added.

– Wednesday: There are no notable earnings expected at start of the week.

-Thursday: Jefferies expects Walgreens Boots‘ earnings to shrink around 14 percent this earnings season due to continued pressure on its moneymaker-the pharmacy segment. Operational hiccups with VillageMD, are also expected to hurt earnings, Further, Walgreen’s 2024 and 2025 guidance is being questioned by analysts following recent changes in the chain’s top posts.

Estimates for Delta Air Lines have also been revised downwards on back of higher fuel and labour costs. BI noted that the airline’s four-year contracts with pilots, signed in March, will also hurt prospects as passengers tighten purse strings.

BI pointed out that Domino’s Pizza‘s domestic store sales have not grown quarter-on-quarter (Qo0) as they struggle with lower delivery orders. According to Barclays, a improved customer loyalty program and a fresh collaboration with Uber Eats might provide assistance in the fourth quarter. However, the challenging global consumer situation is expected to keep impacting earnings.

-Friday: Expected to release numbers pre-market, JPMorgan Chase looks poised to out earn its major investment banking rivals this season with the fastest earnings per share growth, Bloomberg data showed. Its net interest income is likely up 27 percent against fees and trading revenues. Piper Sandler expects the bank to beat its full-year guidance.

Among peers, analysts expect a 20 percent drop in Citigroup earnings and 3.9 percent fall for Wells Fargo. Since both will release earnings pre-maket, their expenses and efficiencies are likely to be under the scanner through the day, the report added. Citi particularly is likely to see growth and profits buried by rising operational costs, while it prepares for an organisational rejig, as per BI. and Piper Sandler expects Wells Fargo to improve efficiencies to meet its full=year expense outlook.

PNC Financial Services‘ revenue and earnings is likely reduced as net interest margin fell after six consecutive quarters of growth. Further, the Q3 earnings call is expected to shed more light on its acquisition of Signature Bank’s 17 billion capital commitment portfolio. RBC Capital Markets noted the deal could add about 10 cents/share to PNC’s Q4 “without materially impacting capital ratios”.

Citi analysts predict that BlackRock might experience an 11 percent decline in adjusted earnings compared to the previous year. This is due to challenges arising from a slowdown in institutional flows and difficulties related to foreign-currency changes.