3 things to watch in the stock market this week

Stocks soared last week as Dow Jones Industrial Average (^ DJI 2.68%) and the S&P500 (^GSPC 3.06%) bounced off their lows to gain around 6%. Investors turned a little less pessimistic ahead of the next wave of second-quarter earnings reports.

Several consumer-facing companies are expected to make these announcements over the next few trading days. Let’s look at a few metrics that should stand out in reports on the way to Nike (NKE 4.55%), McCormick (MKC 2.74%)and Constellation Brands (STZ 2.57%).

1. Nike inventory

Investors have big questions ahead of Nike’s fiscal fourth quarter earnings release on Monday. The footwear giant disappointed Wall Street in its latest outing, with revenue up just 5%. But this slow increase was driven by mixed results in its various sales geographies. The US market rose at a solid 9% clip while China fell 5%. We’ll learn this week if Nike gets a more balanced performance as COVID-19 lockdowns are lifted in China.

Investors fear Nike will continue to lose ground to Lululemon Athletica (LULU 2.46%), which recently announced another big sales spike. Both companies also face potential inventory risks due to changing consumer habits.

Nike’s risk could be greater as more of its products have a seasonal orientation. It’s a key reason investors will be watching the footwear giant’s inventory levels on Monday for signs that price cuts will be needed to keep goods moving through its supply chain.

2. McCormick’s Profit Margin

McCormick steps up to the earnings plate on Wednesday, and there’s no shortage of worries in this report. The spice and flavoring giant has seen solid growth even compared to earlier phases of the pandemic, when most consumers were cooking at home. The return to catering has not dampened sales, which rose 4% in the last quarter on top of a 20% increase a year earlier.

This week’s report is expected to show a deceleration in growth, with revenue reaching around $1.62 billion, from $1.57 billion last year. Beyond this overall near-term result, investors should watch for continued market share gains and a better balance between McCormick’s consumer division, which caters to home chefs, and its business segment. which serves restaurants and cafeterias.

As for the outlook, keep an eye out for any changes in the food company’s earnings forecast. This forecast predicts that operating profit will increase by as much as 10% in 2022, but it could face a downward revision this week if consumers balk at higher prices.

3. Constellation Brands beer sales

Constellation Brands shares have performed well over the past year, in part because investors are excited to improve results along the way. Those expectations will be put to the test when the alcoholic beverage giant releases its fiscal first quarter results on Thursday.

The beer division is expected to impress again, as it has for several years thanks to strong demand from premium imported brands like Corona and Modelo. These gains will however be tempered by the wine and spirits division which is still under pressure from a pivotal restructuring.

Zooming out, see Constellation Brands’ cash flow trends. Free cash flow reached $1.7 billion last year, helping persuade management to invest aggressively in areas such as the brewery network. This spending spree could hurt earnings in 2022, but it lays the foundation for market-beating growth and profit margins over the next few years.

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