There's plenty of action on the corporate front as large and popular companies post results. Our head of investment covers the big events.
After closing lower on Wednesday, the FTSE 100 has opened in the green along with broader European indices. Diageo (LSE:DGE) has slumped to the bottom of the UK index after its earnings update, while private equity group 3I GROUP (LSE:BR88) tops the leader board after its Q3 update.
US futures are pointing to a higher open after Tesla (NASDAQ:TSLA) topped analysts’ expectations in its quarterly earnings report after the bell. Focus shifts to the latest US Q4 GDP figures for clues into the strength of the US economy. The dollar continues to come under pressure hitting the lowest level since May 2022, while the euro reaches the highest since April 2022. A weakening greenback has boosted demand for gold which has hit a nine-month high.
Diageo (LSE:DGE) reported first half net sales up 9.4%, surpassing expectations for a gain of 7.9%. Operating profit during the period rose by 15.2% to £3.2 billion. The drinks conglomerate is targeting organic net sales growth of between 5 and 7% in the medium-term and organic operating profit of between 6 and 9%. Diageo is returning more cash to shareholders by upping its dividend and share buyback programme. However it flagged weakness in the US outlook, putting the stock on track for its worst one-day drop since May 2022.
Amid the cost-of-living crisis with a weakening consumer backdrop, the drinks giant is defying the macroeconomic headwinds, proving that demand remains largely robust. This is partly thanks to the diversification across its drinks portfolio, which continues to expand after the recent acquisition of Don Papa Rum. Price increases have also supported revenue, however these have been putting pressure on the hospitality sector, which is already struggling with inflationary pressures from rising energy, labour, drinks and food prices.
Diageo has been strategically shifting towards premiumisation in recent years, with a focus on quality over quantity, as consumers substitute to higher priced brands, a trend that took flight during the pandemic. Plus it has been growing in the low and no-alcohol segment of the market, appealing to increasingly health conscious younger consumers who still want to enjoy the ritual of a drink without the hangover. China’s long overdue economic reopening post covid is also expected to provide a boost to Diageo with the release of pent-up demand from the world’s second largest economy. However its US outlook is weighing on shares, as a slowing economy stateside looks set to dampen demand, sending the stock to the bottom of the FTSE 100.
Shares in Fevertree Drinks (LSE:FEVR) have plunged double digits after it warned about inflation cost pressures this year. Investors are shrugging on an improvement to its revenue outlook with 2023 sales expected to come between £390-405 million versus £344.3 million last year.
Following its IPO in 2014, Fevertree was the darling of the stock market, staging a supercharged rally to the peak in 2018. Investors and consumers were extremely excited about the prospect of a premium tonic brand to rival the rather dull Schweppes mixer which long held the monopoly as only notable accompaniment to gin. However since the highs, shares have shed more than 70% weighed down by increasing competition in the upmarket tonic segment and as cost inflation pressures endure. Glass bottling costs have shot up with the price of gas and hospitality has slowed as a softening consumer and recent industrial action weighs on demand in pubs, bars and restaurants. There is a cautious view from the analyst community with a majority of hold recommendations on the stock.
Wizz Air (LSE:WIZZ) reported revenues which more than doubled to 911.7 million euros in the final quarter of 2022 while passenger numbers jumped by 59% to 12.39 million. However it continues to expect an overall net loss in full-year 2023, putting pressure on the shares.
Wizz Air has benefited from the post-pandemic removal of travel restrictions thanks to the release of pent-up demand for holidays abroad. Fares have also been rising, helping the airline to offset the rising cost of aviation fuel. A strengthening euro also helped to reduce its fuel and maintenance costs and its diversified network helped support demand.
Shares in Wizz Air have taken to the skies so far in 2023, surging almost 50% since the start of January, even after today’s drop, partly thanks to strong passenger figures announced at the start of the month, some analyst price target upgrades and a broader pick-up in market sentiment. However the stock is trading lower today as profitability remains a challenge in the near-term.
- 2023 Investment Outlook: stock tips, forecasts, predictions and tax changes
- Stockwatch: the yield curve and what it tells us about the stock market
Shares in Tesla (NASDAQ:TSLA) jumped 5.5% in the post-market session after reporting record fourth quarter revenues of $24.32 billion and earning per share of $1.19 which surpassed analysts’ expectations. CEO Elon Musk provided a bullish outlook on deliveries, forecasting that Tesla may produce 2 million cars this year.
Tesla ended 2022 down 65%, its worst annual share price performance on record, retracing some of its meteoric surge during the pandemic. Shares struggled with production problems in Shanghai, post-covid supply chain issues, the global chip shortage and the macroeconomic backdrop of rising inflation and interest rates, driving a wider sell-off across big tech. On top of that, there were concerns that Musk took his eye off the ball, focusing too much on his newly acquired social media platform Twitter, particularly given that he sold around $22.9 billion of Tesla shares last year to help finance his acquisition.
This year Tesla’s shares are storming ahead, rallying by more than 33% even before last night’s after-hours move. To combat the tough economic backdrop, Tesla has been cutting its car prices, a strategy which so far appears to be boosting demand. However, this is adding to the pressure on gross margins, particularly at a time when costs are going up.
Despite easing supply chain woes, looking ahead, a softening consumer and the onslaught of electric vehicle competition means the landscape looks set to continue to post headwinds for Tesla.
Meta Platforms Inc Class A (NASDAQ:META) is reinstating former US President Donald Trump’s Facebook and Instagram accounts in the weeks ahead. He was suspended from the platforms for two years following the attack on the US Capitol in January 2021. Meta said if he posts further violating content, he will be removed again for between a month and two years. It comes after Trump’s Twitter account was reactivated last year following Elon Musk’s takeover but he is yet to post any tweets. After his Twitter ban, Trump launched his own social media site, Truth Social, where he has been posting updates, but the platform has demonstrated little growth, struggling to compete with the big incumbent players.
Trump is making his third run for the White House and is about to embark on the 2024 election campaign trail. He successfully harnessed Twitter to his advantage during his presidency, speaking to voters directly via the social media platform with his short messages frequently making the front pages. Consequently, it is likely he will start tweeting again soon.
Social media sites have a difficult balancing act to strike. On the one hand, they have a democratic responsibility to allow the public to hear from political candidates with social media a key channel of communication. On the other hand, they also have a responsibility to block the spread of hate speech, fake news, and the incitement of violence.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.