Market movers: FTSE 100, Rolls-Royce, easyJet, Heathrow

Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting. 

Global markets

It is a mixed session so far in Europe with the French CAC 40 under pressure, while the Italian FTSE MIB is trading in the green. The FTSE 100 is up almost half a percent.

Earnings are very much front and centre with US results from Alphabet Inc Class A (NASDAQ:GOOGL) and Microsoft Corp (NASDAQ:MSFT) after the bell this evening. The US retail giant and bellwether Walmart Inc (NYSE:WMT) issued a profit warning last night sending shares down 10% along with Amazon.com Inc (NASDAQ:AMZN) and Target Corp (NYSE:TGT) after-hours.

A slew of European earnings comes out this week and according to The Goldman Sachs Group Inc (NYSE:GS), around 34% of European companies have missed consensus by at least 5% in the second quarter so far, the highest percentage since the sovereign debt crisis in 2010.

easyJet

easyJet (LSE:EZJ) has reported a loss of £133 million in the three months to June, despite having flown 22 million passengers and operated at 95% capacity during the quarter. The group’s quarterly headline loss before tax hit £114 million with a £36 million forex loss from balance sheet revaluations. For the current quarter, easyJet it is currently 71% booked with its sold ticket yield 13% higher than the same period in 2019.

Unlike its rival Ryanair which announced a return to profitability this week, easyJet is still struggling to translate the post-pandemic surge in demand into a solid bottom line performance. Staff shortages, inflationary cost pressures and fuel price volatility have caused a perfect storm for easyJet and the broader travel industry, more than offsetting this year’s rebound in demand for holidays. EasyJet has been hampered by a series of flight cancellations, constrained airport capacity, problems with baggage handling and airline staff walkouts which have created a PR crisis for the sector.

2022 was meant to be a solid year for stocks like easyJet, but the onset of war in Ukraine and post pandemic staffing and capacity issues have spoiled that optimism, with the stock shedding around 50% of its value since the peak in February. Until these issues are ironed out with the end of strikes and staff shortages, it looks as though there could be more pain to come.

Heathrow

Heathrow reported a pre-tax loss of £321 million in the first half of the year, despite strong passenger numbers. As a result, the airport said it is not forecasting any dividends in 2022. Heathrow said its cap of 100,000 passengers per day introduced this month has helped to improve the service.

Heathrow is suffering from a shortage of ground handlers, which is constraining the airport’s capacity and resulting in queues, cancellations and baggage delays, which means the airport continues to be loss making despite the pick up in demand for international travel.

Rolls-Royce

Rolls-Royce Holdings (LSE:RR.) has named Tufan Erginbilgic as its new CEO who will begin the role at the start of 2023, taking over from Warren East who departs at year-end. Erginbilgic is a former BP executive who worked for the oil giant for over 20 years and is now a partner at PE house Global Infrastructure Partners.

So far this morning, there has been a lacklustre response to the appointment from the shares. Long-term investors in Rolls Royce have had a tough time with the engine maker, which is down over 25% year-to-date and down more than 70% over five years.

East helped to navigate Rolls-Royce through the challenges of the pandemic but Covid lockdowns in China, inflation costs and concerns about an economic slowdown are weighing on the business.