As the first quarter earnings season reached a peak on Thursday, a string of UK companies warned that rampant inflation will hurt profit margins and force them to raise prices to consumers.
Consumer goods firm Unilever said ‘unprecedented inflation’ means it will need to take ‘pricing action’, which will hurt sales volume.
Supermarket chain J Sainsbury warned: ‘The year ahead will be impacted by significant external pressures and uncertainties, including higher operating cost inflation and cost of living pressures impacting customers’ disposable incomes.’
Unilever shares were marginally higher early Thursday, while Sainsbury’s was down 5.5%.
Here is what you need to know at the London market open:
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MARKETS
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FTSE 100: up 0.6% at 7,470.92
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Hang Seng: up 1.5% at 20,244.25
Nikkei 225: closed up 1.8% at 26,847.90
S&P/ASX 200: closed up 1.3% at 7,356.90
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DJIA: closed up 61.75 points, or 0.2%, at 33,301.93
S&P 500: closed up 8.76 points, or 0.2%, at 4,183.96
Nasdaq Composite: closed down 1.81 point at 12,488.93
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EUR: unchanged at $1.0524 ($1.0525)
GBP: up at $1.2539 ($1.2509)
USD: up at JP¥130.48 (JP¥128.45)
Gold: down at $1,882.32 per ounce ($1,885.50)
Oil (Brent): down at $104.21 a barrel ($105.34)
(changes since previous London equities close)
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ECONOMICS AND GENERAL
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Thursday’s key economic events still to come
1100 CEST EU business & consumer surveys
1400 CEST Germany consumer price index
1100 BST Ireland retail sales
0830 EDT US jobless claims
0830 EDT US gross domestic product
1030 EDT US EIA weekly natural gas storage report
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The EU has warned Russia it will not bend to ‘blackmail’ over its support for Kyiv after the Kremlin cut off gas supplies to Bulgaria and Poland. The warning on Wednesday came ahead of UN chief Antonio Guterres arriving in Kyiv to meet Ukrainian leader Volodymyr Zelensky following talks with Russian President Vladimir Putin in Moscow. Putin issued his own warning the same day, saying that if Western forces intervene in Ukraine, they will face a ‘lightning-fast’ military response. ‘We have all the tools for this, that no one else can boast of having,’ the Russian leader told lawmakers, implicitly referring to Moscow’s ballistic missiles and nuclear arsenal. The dire threats came as Moscow claimed to have carried out a missile strike in southern Ukraine to destroy a ‘large batch’ of Western-supplied weapons. As the war, which has already claimed thousands of lives, entered its third month, Kyiv conceded that Russian forces had made gains in the east.
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Car production in the UK has continued to fall, with almost 100,000 fewer vehicles built in the first three months of 2022 compared with a year ago, new figures show. The Society of Motor Manufacturers & Traders said manufacturing declined by almost a third, with the industry still affected by the global shortage of semiconductors and other components. A total of 207,347 new cars were built during the first quarter, down from 306,558 in the pandemic-affected same three months in 2021. Output in the last month of the quarter fell by more than a third, down from 115,498 last year to 76,900 – making it the weakest March since the financial crisis in 2009. Exports to the US saw the greatest decrease during March, dropping by 64%, while exports to the EU declined by a quarter.
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BROKER RATING CHANGES
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Bank of America raises Lloyds Banking to ’buy’ (neutral) - price target 57 (46) pence
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Deutsche Bank raises Lloyds Banking price target to 67 (63) pence - ’buy’
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DZ Bank raises fair value for GlaxoSmithKline to 1,800 (1,700) pence - ’hold’
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COMPANIES - FTSE 100
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Lender Barclays reported a first-quarter profit fall amid chunkier impairment costs as well as ‘conduct’ charges. Barclays posted pretax profit of £2.23 billion for the first quarter of 2022, down 6.9% annually from £2.40 billion. Credit impairment charges increased to £141 million from £55 million. Profit also was hurt by ‘litigation and conduct charges’. These amounted to £500 million. The costs relate to ‘customer remediation costs’ from a legacy loan portfolio, as well as a previously announced £450 million hit after Barclays sold more financial products to investors in the US than it was allowed to. The bank’s total income increased 10% year-on-year to $6.50 billion from £5.90 billion. Barclays said it remains ‘committed’ to a share buyback of £1 billion. The programme was delayed back in March, after it announced it had over-issued structured notes and exchange traded notes to US investors.
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Banking peer Standard Chartered upped its annual income growth outlook. In the three months to March 31, Asia-focused StanChart recorded pretax profit of $1.49 billion, up 6% from $1.41 billion reported in the same period a year prior. Operating income rose 9% to $4.29 billion from $3.94 billion. Net interest income rose 8% to $1.79 billion from $1.66 billion, while ’other’ income was 10% higher at $2.50 billion from $2.28 billion. StanChart now expects income growth ‘slightly’ ahead of its previously guided 5% to 7% range.
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Glencore became the latest miner to report a hit from Covid-19-related absenteeism, particularly in Australia. The company said its first quarter went as planned, ‘for the most part’. It lowered guidance for copper, cobalt and zinc output but lifted expectations for nickel and ferrochrome after a mixed start to 2022.
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Grocer J Sainsbury posted annual profit in line with market consensus. Sainsbury’s reported underlying pretax profit of £730 million for the financial year that ended March 5, more than doubled from £357 million in financial 2021 and up 25% from £586 million in financial 2020. Profit in financial 2021 was hurt by £485 million in incremental costs related to Covid-19. The underlying profit figure topped company-compiled consensus of £727 million, as well as the company’s own guidance of £720 million. Sainsbury’s swung to a statutory pretax profit of £854 million from a £164 million loss. Revenue, excluding VAT but including fuel, was 2.9% higher at £29.90 billion from £29.05 billion. The supermarket change hiked its dividend by 24% to 13.1 pence per share from 10.6p. Sainsbury’s expects underlying pretax profit to fall as much as 14% in the new financial year. It forecasts underlying pretax profit of between £630 million and £690 million. ‘The year ahead will be impacted by significant external pressures and uncertainties,’ Sainsbury’s cautioned.
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Unilever lifted its cost forecast for the second half of 2022 and said ‘unprecedented inflation’ means it will need to take ‘pricing action’. Unilever said second-half costs will be higher than initially expected, at around €2.7 billion. The consumer goods firm explained: ‘We continue to expect input cost inflation of around €2.1 billion in the first half, but the outbreak of war in Ukraine and the related increase in raw material inflation have raised our cost forecast for the second half of 2022.’ For the first-quarter of 2022, revenue increased 12% year-on-year to €13.78 billion from €12.33 billion. Underlying sales growth was 7.3%, with prices rising 8.3% but volumes falling 1.0%.
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COMPANIES - FTSE 250
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Automotive retailer and distributor Inchcape said revenue climbed 13% organically year-on-year in the first quarter of 2022. It expects pretax profit of £300 million for 2022, up 25% from £240 million in 2021, on a Russia-adjusted basis. The forecast treats Russia as a discontinued operation. In its annual results in February, Inchcape reported £194.8 million in pretax profit for 2021. ‘Following our decision to exit the market we have now agreed to sell the Russian business to local management,’ the company said on Thursday.
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COMPANIES - SMALL CAP
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Womenswear brand In The Style said it achieved ‘strong year-on-year revenue growth’ in its first full year as a listed company. Revenue in the year ended March 31 rose 28% to £57.3 million. Compared to financial 2020, revenue climbed almost three-fold. Margins came under pressure, however. ‘Industry-wide challenges in the global supply chain are well documented and, as previously indicated by the group, resulted in pressure on gross margin through FY22,’ In The Style said. ‘Whilst macroeconomic pressures are expected to persist over the coming months, the group’s strong brand proposition and resulting pricing power has partially mitigated the impact of cost inflation on gross margin. Management was also encouraged that for a period in January and February 2022, prior to Russia’s invasion of Ukraine, freight costs somewhat normalised.’
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COMPANIES - GLOBAL
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Mitsubishi Electric reported strong growth in financial 2022, backed up by its Industrial Automation Systems, Home Appliances and Electronic Device units, and has guided for further growth next year. In the year ended March 31, the Tokyo-based electronics and electrical equipment maker recorded pretax profit of JP¥279.6 billion, about $2.15 billion, rising 7.7% from JP¥259.7 billion the year before. Net attributable profit rose 5.3% to JP¥203.4 billion from JP¥193.1 billion. Earnings per share increased to JP¥95.41 from JP¥90.03. Revenue advanced 6.8% to JP¥4.477 trillion from JP¥4.191 trillion.
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Thursday’s shareholder meetings
Admiral Group PLC - AGM
Aptitude Software Group PLC - AGM
AQRU PLC - AGM
Arden Partners PLC - AGM
Breedon Group PLC - AGM
British American Tobacco PLC - AGM
CLS Holdings PLC - AGM
CRH PLC - AGM
Dalata Hotel Group PLC - AGM
Devro PLC - AGM
Flutter Entertainment PLC - AGM
Glencore PLC - AGM
Glenveagh Properties PLC - AGM
Grafton Group PLC - AGM
Greencoat UK Wind PLC - AGM
Hammerson PLC - AGM
Helios Towers PLC - AGM
HICL Infrastructure PLC - AGM
Honye Financial Services Ltd - AGM
Internatinal Personal Finance PLC - AGM
Investec PLC - AGM
ITV PLC - AGM
Kerry Group PLC - AGM
Marshalls PLC - AGM
Natwest Group PLC - AGM
Premier Miton Global Renewables Trust PLC - AGM
Robert Walters PLC - AGM
Schroders PLC - AGM
Serco Group PLC - AGM
Synthomer PLC - AGM
Weir Group PLC - AGM
Yamana Gold Inc - AGM
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