US ISM Manufacturing PMI drops to 48.7 in May

The business activity in the US manufacturing sector contracted at an accelerating pace in May, with the ISM Manufacturing PMI dropping to 48.7 from 49.2 in April, below the market expectation of 49.6. After seven months of contraction, the employment index entered expansion territory with a reading of 51.1, 2.5 points higher than April. Despite being 1.1 points lower than the previous month, the production index continued to register growth in May with a figure of 50.2. The new orders index indicated contraction at a faster rate, losing 3.7 points for a May reading of 45.4. The Prices Index, the inflation component, retreated to 57 from 60.9 in April.

The Backlog of Orders Index registered at 42.4, down 3 points compared to the 45.4 recorded in April. The Supplier Deliveries Index figure of 48.9 equaled the reading recorded in April. The New Export Orders Index reading of 50.6 was 1.9 points higher than the 48.7 registered in April. The Imports Index continued in expansion territory, registering 51.1, though 0.8 point lower than the 51.9 reported in April. The Inventories Index registered a 47.9, down 0.3 point compared to April’s reading of 48.2. Overall, Demand was soft again, output was stable, and inputs stayed accommodative. Inputs continued to accommodate future demand growth. The Supplier Deliveries Index was stable, and the Inventories Index was marginally lower compared to April. The Prices Index eased but remained in strong expansion territory. In terms of the US stock market, the S&P 500 index maintains a stable upward trend, and we expect the S&P 500 index to fluctuate between 5,200-5,500 points.

In terms of industries, US consumption remained resilient and investors can pay attention to the related companies with impressive performance.

Walmart (WMT.US)’s total net sales in Q1 increased 5.7%, above Walmart’s expectation of 4% to 5% growth. International market led the business with 10.7% sales growth, reflecting strong performance in Walmart Mexico, China and Flipkart. Walmart were encouraged by early improvements in general merchandise sales. International e-commerce sales increased 19% as Walmart continued to expand its capabilities. In Canada, the majority of the market growth came from merchandise available through Walmart Delivery. In India, Flipkart same-day delivery expanded to 20 cities and was also available to millions of customers. Walmart U.S. also delivered better-than-expected growth with same-store sales up 3.8%, led by strong e commerce growth of 22%, driven by in-store pickup and delivery marketplaces and advertising.

Sam’s U.S. same-store sales also grew strongly by 4.4%. The Sam’s team continued to make progress on quality and value with the private label, Member’s Mark. Member’s Mark grew at high single digits in the first quarter and, along with digital solutions like Scan & Go and curbside pickup, was an increasingly important reason for members to join and renew.It is recommended to buy at US$65.00, target at US$73.50, and stop loss at US$60.50.

Coca-Cola(KO.US)’s net revenues in 1Q24 grew by 3% YoY to US$11.3 billion. GPM was up approximately 130 basis points, driven by underlying expansion and a benefit from bottler refranchising. Net Profit was up 2% YoY to US$3.18 billion.

Unit case volume grew 1%. Developed markets were even, while developing and emerging markets grew at low single digits, driven by growth in Brazil, the Philippines and Nigeria. Unit case volume of sparkling soft drinks grew 2%, led by strong performance in Latin America. Unit case volume of juice, value-added dairy and plant-based beverages grew 2%, led by North America.

Coke’s overall prices increased 13% YoY, but about half of that came from hyperinflation in certain markets, like Argentina. Looking forward to FY24, Coke expected revenue growth of 8% to 9%, up from its prior range of 6% to 7%, mainly due to price hikes in certain markets experiencing “intense inflation.” It is recommended to buy at US$61.50, target at US$70.00, and stop loss at US$57.50