What The CEOs Are Really Saying In Q2: "The Recovery Remains Fragile"

Despite exuberant Services and Manufacturing PMIs, Bloomberg's index of CEO sentiment remains stagnant near 2014 lows as April's hope for Q2 has faded into 'more of the same' by June. As Bloomberg's Rich Yamarone points out, in reality (in spite of all the hope), the second quarter is drawing to a close and it was a rough one for corporate America, with CEOs citing "slower growth in household income overall", "the recovery remains fragile, especially for customers on a budget", and perhaps most concerning, "whether or not this softness in store traffic is representative of a permanent sea change in customer behavior or a temporary phenomenon is hard to tell at this stage."

 

CEO Sentiment remains flat...

 

As can be seen here...

Darden Restaurants [DRI] Earnings Call 6/20/14: “We think about the industry’s maturation. There are a number of things that are driving that. Certainly, slower growth in the boomer population age 50 to 60 and that’s where dining out frequency is the highest, has always been the highest. Slower growth in household income overall; increased competition, not only within full service dining, but also with the emergence of attractive new segments, new dining segments like fast casual and elevated innovation within traditional quick service.”

Sonic Corp. [SONC] Earnings Call 6/23/14: “We did encounter some unexpected commodity cost pressures during the quarter. In particular, lime prices hit a record high during the quarter more than four times their normal price...Beef, cheese and ice cream mix continue to experience significant cost pressures. We have contracted for our ice creams needs at the end of the quarter but continue to pay market prices for cheese in roughly one-half of our ground beef formula, so some uncertainty remains.”

Kroger [KR] Earnings Call 6/19/14: “From an economy and customer shopping behavior, we are seeing strong positive indicators in shopping behavior. Our customers have exhibited less cautious spending behavior, for example. Consistent with the rise in consumer confidence index in May, our own customer research tells us that more customers perceive the economy to be in recovery. While it is obviously welcome news, the recovery remains fragile, especially for customers on a budget.”

Pier 1 Imports [PIR] Earnings Call 6/19/14: “Although our online sales for the quarter were outstanding, overall, the quarter did not unfold as we planned. Store sales and profitability were disappointing, impacted by soft traffic and a higher level of promotional activity than we anticipated. Whether or not this softness in store traffic is representative of a permanent sea change in customer behavior or a temporary phenomenon is hard to tell at this stage.”