Consumer spending makes up a huge fraction of the overall economy. Investors are therefore always looking at consumers to try to gauge whether their financial condition remains healthy. That's a big part of why the stock market saw a bear market in 2022, as some feared that a consumer-led recession would result in much weaker business performance across the sector.
However, that much-anticipated recession hasn't happened yet, and there's still plenty of uncertainty about the future direction of consumer-facing stocks. A pair of earnings reports early Wednesday didn't do much to resolve the debate, as household products giant Procter & Gamble (PG -0.78%) saw its stock rise even as recreational vehicle manufacturer Winnebago Industries (WGO 0.90%) declined.
Procter & Gamble flexes its pricing-power muscles
Shares of Procter & Gamble rose about 1.5% in premarket trading on Wednesday morning. The consumer products giant reported fiscal first-quarter financial results for the period ended Sept. 30 that demonstrated the power of its brand to generate sales even under difficult conditions.
Procter & Gamble's numbers showed steady growth. Revenue of $21.9 billion was up 6% year over year, with organic sales excluding foreign currency movements and various acquisitions and divestitures rising 7%. Net income came in at $4.6 billion, and the resulting earnings of $1.83 per share were up 17% from year-ago levels.
Most of P&G's segments grew in line with the overall company. Healthcare stood out with the strongest results, with sales climbing 11%. However, Procter & Gamble's beauty products business only grew its revenue at a 3% rate. The company repeatedly pointed to price increases it was able to implement as the key factor in pushing sales higher.
Procter & Gamble still expects earnings to grow between 6% and 9% in fiscal 2024, with organic sales seen rising 4% to 5%. That's not super-fast growth, but it's the kind of consistent performance that many investors are looking for right now.
Winnebago faces consumer weakness
Meanwhile, shares of Winnebago Industries were down about 6% early Wednesday. The maker of recreational vehicles reported fiscal fourth-quarter results for the period ended Aug. 26, making particular note of the weakness of the consumer economy in explaining the numbers.
Winnebago saw sales plunge almost 35% year over year to $771 million. Operating income dropped by more than half, and net income of $43.8 million was down 47% from year-ago levels. That resulted in adjusted earnings of $1.59 per share. Weakness came across the board for Winnebago, as towable RV sales were down 31% and motorhome RV revenue dropped 43%. Even the marine segment, which had been stronger in recent periods, suffered a 21% decline in sales from year-ago levels.
Winnebago CEO Michael Happe tried to keep a positive view on the business. Despite characterizing the consumer economy as "challenged" and saying that Winnebago's latest results "reflect a stubborn retail environment," Happe believes that moves to broaden its portfolio of businesses should have long-term payoffs. In particular, the Winnebago CEO pointed to the recent acquisition of onboard battery solutions specialist Lithionics Battery, which should help put the company in a better position as the electric vehicle revolution turns its attention to recreational vehicles.
Interest in RVs has skyrocketed over the past decade, and that longer-term trend likely remains in place. That doesn't mean that Winnebago's business won't see ups and downs, but in the long run, the RV giant could well be in the right place to capitalize for a very long time.
