In a volatile environment marked by rising interest rates, flattening consumer spending, and bank failures, management teams are currently facing an uphill battle when speaking to expectations for the remainder of the year.

While the Q1 earnings season has turned out to be better than expected, with the large majority of the S&P 500 companies reported delivering earnings beats versus consensus estimates, most saw year-over-year declines, with further earnings declines anticipated in the second quarter (FactSet).

Detailed below are some of the top themes addressed by management teams during this latest earnings season, all of which are likely to be top of mind for investors as they start the conference and NDR circuit.

As your team prepares for investor meetings, consider if there are areas where you might sharpen your focus, while also laying the groundwork for the stock pickers looking for a diamond in the rough.

1. Consumer health

While banks may be getting a boost from interest income, some are seeing credit usage and loan activity decline as capital expenditures are deferred. One Reuters article highlights the earning call comments from Wells Fargo Chief Financial Officer, Mike Santomassimo, noting weakening consumer health trends while another article points to major institutions continuing to build bad debt reserves in anticipation of potential defaults.

In the Equifax first quarter press release, the company called out continued declines in mortgage origination, increases in credit card and personal loan delinquencies, and subprime auto loan delinquency rates above historical levels. Equifax expects weakening lending markets throughout 2023 and does not anticipate a “fundamental improvement” in the mortgage or housing markets this year.

Management teams in other industries are closely monitoring consumer demand and sensitivity, but in the automotive and CPG industries, this is generally not yet a concern. Lithia Motors cited affordability being a “focus for consumers” due to rising interest rates and is seeing a “rebalancing of supply and demand” in the new vehicle market. As vehicle inventories improve, Lithia expects incentives to increase throughout the year to offset the impact of rising rates.

Procter & Gamble performed better than expected in the first quarter with organic sales growth across all lines of business. The company noted “more careful usage of products” by consumers driven in part by price increases, but overall, P&G management says the US consumer is “holding up well.” According to a Yahoo Finance recap of the P&G earnings call, when asked if he is seeing any signs of a potential recession, CEO Jon Moeller answered, “We are not.”

2. Supply chain constraints and inflationary pressures

Companies are disclosing an overall easing in supply chain constraints, most notably around semiconductor shortages that have plagued manufacturers throughout the pandemic. However, inflated input costs remain a significant headwind with little commentary provided about expected moderation. In their reports, management teams specifically addressed what they are seeing with regard to input costs, as well as speaking to the levers they can pull to mitigate the costs going forward.

For example, the Valmont Industries first quarter earnings presentation notes ongoing raw material headwinds, most pronounced in steel and zinc prices. The company discussed how it plans to offset these costs through price increases, which it anticipates its customers can bear without issue. Similarly, the Autoliv first quarter financial report commented that while semiconductor supply is “moving in the right direction” and production capacity is up, the company is facing rising raw materials costs along with “cost pressures from labor, logistics, utilities, and other items” particularly in Europe. Autoliv shared plans to offset through cost recoveries and keeping SG&A “as lean as possible”. For its part, Procter & Gamble noted freight, raw materials, and packaging materials costs as ongoing headwinds, but calls out some stabilization in these areas. However, P&G is also feeling the impact of suppliers looking to recover cost increases, as well as higher wages and benefits. The company communicated plans to counterbalance these headwinds through price increases and “productivity savings.”