Victoria Scholar, interactive investor's head of investment, runs through today's big stories and how financial markets are reacting.
European markets have opened higher with most sectors in the green apart from basic resources. The financial sector is leading the gains amid a series of earnings updates from Credit Suisse Group AG ADR (NYSE:CS), Deutsche Bank AG (XETRA:DBK) and UniCredit SpA (XETRA:CRIN). It is an extremely busy couple of days for the market with a slew of earnings, the Federal Reserve’s rate decision and key economic data stateside.
Wizz Air Holdings (LSE:WIZZ) reported an operating loss of €285 million on revenues which rose by 306% to €808.8 million in the fiscal first quarter of 2023.
In terms of guidance, the airline said one of its key metrics, revenue per available seat kilometre (RASK), is expected to improve in the second quarter by 10% versus 2020. However it said unit costs increased by 40% versus pre-pandemic, driven mostly by commodity inflation.
Despite reporting a quarterly loss, Wizz Air delivered impressive triple-digit revenue growth and issued upbeat guidance for the current quarter. The airline struck an optimistic tone on the recent operational disruption, saying that it is starting to normalise.
Like many businesses, Wizz Air is grappling with 40-year high inflation that is sharply increasing costs and squeezing margins. On top of that, labour shortages and strikes have caused chaos at European airports, offsetting the gains that airlines were expected to enjoy this summer thanks to supercharged post-pandemic demand. Shares in Wizz Air have plunged since the March highs, reflecting the travel industry’s woes and the surge in fuel prices, with the stock down around 65%.
Rio Tinto (LSE:RIO) reported a 29% decline in first-half underlying profit which hit $8.63 billion versus a record $12.17 billion in the same period last year, but still beat expectations for $8.37 billion. It declared a total interim dividend of $2.67 per share, down from $5.61 year-on-year.
Rio Tinto has been struggling with a sharp slowdown in iron ore prices brought about by China’s slowing economy, as Beijing insists on its zero-tolerance to Covid approach despite the detrimental impact on growth for the world’s second-largest economy. On top of that, Rio has been grappling with cost inflation and labour shortages creating further pressure on margins.
As a result, analysts have downgraded their expectations for the miner, which is how Rio managed to modestly beat a lowered bar. Shares have oscillated between gains and losses since October 2020 but have been under pressure since April of this year.
GSK (LSE:GSK) raised its full-year guidance thanks to its Shingrix vaccine, forecasting 2022 sales growth of between 6% and 8%, up from between 5% and 7%, and projects adjusted operating profit growth of between 13% and 15%, increased from between 12% and 14%. However, it warned that sales of Covid-19 solutions will be ‘substantially lower’ in the second half.
The pharma giant reported an adjusted earnings per share (EPS) gain of 23% to 34.7p on revenues of £6.93 billion, and said it expects no change to its dividend of 61.25p a share for the full-year 2022. The gain on the demerger of GSK’s consumer healthcare business Haleon (LSE:HLN) is expected to be reflected in its next quarterly results for the current period.
Despite the cost inflationary backdrop, GSK struck an upbeat tone by raising its full-year outlook. The business has been through drastic structural changes lately with the spin-off of Haleon that should result in a significant gain in the third quarter. But even before that gain is realised, GSK managed to achieve an impressive top and bottom-line performance in the latest quarter, with 19% revenue growth and 23% adjusted EPS growth.
Reckitt Benckiser Group (LSE:RKT) reported half-year revenue growth of 11.9%, ahead of expectations for 6.8% and raised its full-year 2022 sales guidance to between 5% and 8%.
In a similar story to Unilever (LSE:ULVR), the consumer goods giant behind brands including Dettol, Strepsils and Durex is managing to successfully offset the painful inflationary environment with soaring fuel and raw material costs by lifting it prices. During the quarter, Reckitt increased prices by 9.7% without having a detrimental impact on sales.
Consumer staples businesses like Reckitt and Unilever look well positioned to navigate the unfavourable macro environment and the threat of recession. That's because of their ability to pass on extra costs to consumers and the essential rather than discretionary nature of their product offering.
BRC Shop Price Index
UK shop prices increased by 4.4% in July year-on-year, the greatest increase since at least 2005. Fresh food inflation jumped to 8%, the highest figure since March 2009, up from 6.2% in the previous month.
The post-pandemic imbalance between supply and demand, exacerbated by problems with the global supply chain and the war in Ukraine, have led to a huge surge in the price of essential goods. Poorest households are being hit hardest by inflation, with spiralling costs of energy, food and rent. Supermarkets are having to be more price competitive than ever, with Tesco (LSE:TSCO) offering free meals for kids in a bid to get shoppers through the door and to help with the cost of living.
Google’s parent company Alphabet Inc Class A (NASDAQ:GOOGL) reported quarterly earnings of $1.21 per share, below expectations for $1.28 on revenues of $69.69 billion also shy of forecasts. YouTube advertising revenue sharply decelerated to 5% in Q2, down from 84% in the same quarter last year. However, Google search ads managed to beat expectations, lifting shares in Alphabet after-hours US trade.
Despite a top and bottom-line beat, the bullish after-hours share price movement demonstrates that expectations have been sharply reduced, with investors relieved that the performance wasn’t worse.
Nonetheless, there are notable headwinds from a potential economic slowdown as well as the strong US dollar which already hit quarterly revenue. YouTube, which flourished thanks to a surge in eyeballs during the pandemic, has struggled ever since Covid restrictions were lifted. Shares in Alphabet have had no let up since November, with the stock shedding around 30%.
Microsoft Corp (NASDAQ:MSFT) reported fiscal fourth quarter adjusted earnings of $2.23 per share, missing expectations for $2.29 for the first time since 2016, while revenues hit $51.87 billion, short of forecasts and the slowest growth since 2020.
Its Intelligent Cloud segment reported revenue of $20.91 billion, below estimates but still up 20%. Despite this, the stock swung from a loss to a gain in after-hours trade thanks to upbeat guidance which projected that revenue will grow by double digits this fiscal year.
As signposted in June, Microsoft took a hit from the greenback’s appreciation which weighed on its quarterly performance. The challenging macro environment that is denting demand for advertising and consumer discretionary goods led to lower percentage growth figures in all its divisions, with its Windows OEM and Xbox content + services divisions both shrinking. While its cloud division managed to grow by an impressive 40%, this is a notable slowdown from the previous period’s 46% growth and signals a challenging trajectory ahead.
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