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Earnings Underwhelm As Europe Drifts

Published 06/03/2019, 09:30
Updated 03/08/2021, 16:15

The recent rebound in stock markets appears to be becoming a little bit stuck in the mud, with US markets in particular starting to look as if they have run out of steam after last week’s S&P500 close above the 2,800 level, with another negative finish.

While we got an initial push higher in the wake of the news that a US, China trade deal was within reach, the fact is markets have been rallying for most of this year in anticipation of just such an outcome, begging the question as to how much more is there in this particular tank.

Chinese markets on the other hand have continued to push higher, helped by extra stimulus but also down to the fact that they are rebounding off four year lows, as opposed to the Nikkei 225 which is at more elevated levels.

As a result of last night’s weaker US close, markets here in Europe have also opened mixed, though they still remain within touching distance of their recent highs.

On the companies front concerns about the auto sector have been laid bare once again with a profits warning from German auto parts and drive chain maker Schaeffler (DE:SHA_p) who have adjusted their targets for 2020 while also announcing the loss of 900 positions, including 700 positions in Germany. Full year revenues also came in lower than expected at €14.24bn, below expectations of €14.35bn.

In the UK, Legal & General (LON:LGEN) announced its full year results for 2018, which has seen assets under management in its investment management division rise above the £1trn level, while operating profits rose 10% to £1.9bn, though this excludes a one off US tax and a mortality reserve release item which brought this number down to £1.47bn. Nonetheless profits still came in above estimates with the company boosting the dividend for the 9th year in a row, to 16.4p per share. Nonetheless the shares have slid back from three year highs in early trading, no doubt due to some profit taking, after a 24% rise from the lows we saw in December.

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Paddy Power Betfair (LON:PPB) also announced its latest annual report, reporting an increase in revenues of 9% to £1.87bn, helped by the opening of the US online sports betting division, however increased investment in this area did weigh on overall profits growth which saw a decline of 11%. The company went on to announce a full year dividend of 200p, while also announcing that they intended to rename the group to “Flutter Entertainment PLC” in May subject to shareholder approval. I wonder which marketing whiz came up with that one? It will certainly give rise to all manner of puns around having a flutter, I can’t wait!

Just Eat (LON:JE) Group also announced its full year results for 2018 and for now it appears to be holding off the challenge from Deliveroo and Uber Eats, maintaining its full year outlook for 2019 for revenues and profits, as it beat on revenues for 2018, coming in at £779.5m, above expectations of £778.6m.

Its brand did take a knock earlier this year when it became known that it allowed restaurants with zero hygiene ratings on its online app. The company announced that it would take steps to remove these restaurants by 1st May, however the bigger question is how they got on there in the first place. While the new scheme will ensure that all new restaurants will have to comply with a minimum standard of 3 under the Food Hygiene Rating Scheme it doesn’t say elaborate on how this will be enforced and remain current, on an ongoing basis.

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The online delivery industry needs to be more hands on in how it ensures the restaurants it uses maintain proper food safety and hygiene standards, or it could find that what is currently a lucrative and competitive business, starts to go south on it.

The pound is languishing down near one week lows against the US dollar as scepticism grows that we might see another delay to any vote on changes to Prime Minister May’s deal, as MPs continue to steer away in coming out in support of it, and lean more to the possibility of an article 50 extension.

There appears to have been little reaction to reports that the UK government is considering dropping a range of tariffs in the event of a “no deal” Brexit, probably down to the fact that markets still consider it a remote possibility at this stage

The US dollar is finding support, helped by yesterday’s better than expected US economic data, while data elsewhere continues to look soft, reinforcing the divergence between the central bank policy of the US central bank, and central banks elsewhere.

While no one is arguing that the Federal Reserve will be raising rates again this year, that hasn’t stopped speculation about further easing from the likes of the Chinese central bank, the ECB and Bank of Japan.

Ahead of the US open we have the latest Q3 numbers from Jack Daniels maker Brown Forman (NYSE:BFb) with revenues expected to come in $913m and profits expected to come in at $0.45c a share, with the risk that we might see a miss due to higher tariffs, imposed as a result of the US trade spat with Europe.

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Dow Jones is expected to open 7 points lower at 25,799

S&P500 is expected to open 1 point lower at 2,788

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No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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