(Bloomberg) -- Bank of America Corp.'s (NYSE:BAC) 49% jump in fixed-income trading last quarter sets a high bar for Deutsche Bank (NYSE:DB) and other European lenders set to release fourth-quarter earnings in coming weeks, according to Bloomberg Intelligence, after the first Wall Street majors published updates last week.
Covestro AG 's (F:1COV) unexpected warning late on Friday of a net loss for 2022 not only spells gloom for European chemical makers, it also puts a damper on the German company’s dividend prospects, analysts said. The stock fell the most since November in Frankfurt.
While the Stoxx Europe 600 Index extended last week’s gain in early trading on Monday, the good mood prevailing on equity markets since the start of the year may be put to the test this week as the flow of quarterly results gathers pace.
This time it’s the turn of Cartier-owner Cie Financiere Richemont SA (EPA:IFDE) and trenchcoat maker Burberry Group (LON:BRBY), alongside embattled telecom equipment maker Ericsson (BS:ERICAs) and food-delivery firms Just Eat Takeaway (AS:TKWY) and Deliveroo Plc (LON:ROO), to reveal how they’re faring as a potential economic downturn looms.
UK grocers Tesco (OTC:TSCDY) and Marks & Spencer Group (LON:MKS) gave a foretaste on Thursday, keeping a lid on profit guidance even after strong sales updates showed shoppers splashing out over Christmas.
Just Eat and Deliveroo have been battling a cost-surge and changing consumer behavior ever since widespread lockdowns on the continent ended last year. Buyers of luxury goods have proven more accepting of price increases, and the likes of Richemont and Burberry may also benefit from China’s reopening this month.
Meanwhile, Ericsson — attempting to put a scandalous past behind it — will have to navigate US communications service providers pulling down their radio access network inventories, as it angles for a greater share of growing 5G demand in India.
Highlights to look for this week:
Monday: No major earnings of note
Tuesday: Ocado Group Plc (LON:OCDO will give a fourth-quarter trading update for its retail joint venture with M&S at 7:00 a.m. GMT. Although M&S didn’t divulge Ocado Retail sales in its report, it did say sales volumes from the partnership represented about 30% of the average basket on Ocado.com over the Christmas peak. Data from Nielsen last week showed Ocado’s online market share gaining in Britain. Analysts expect the company to report adjusted Ebitda of £64 million ($78 million) this year, with estimates for 2022 averaging a negative £43 million after return to office policies meant fewer home orders last year. Investors will also keep a close eye on Ocado’s progress in adding more modules to recently-completed customer fulfillment centers after two planned CFCs in the northwest and southeastern England were postponed. The delay means its centers are concentrated in the greater London area, keeping marketing spending at a relatively high level of 3% of sales, said BI’s Charles Allen.
Wednesday: Richemont’s third-quarter sales update will likely show sales growth tempering. On average, analysts expect the luxury goods maker to post constant-currency sales growth of 8%, according to estimates compiled by Bloomberg, slower than the 16% logged over the first six months. Still, growth — albeit at a more tepid pace — should continue into the fourth quarter, with high-end luxury customers expected to be “undeterred” by recent price increases in Richemont’s Cartier line or persistent high inflation, said BI analyst Deborah Aitken. China’s gradual reopening should spur demand further and be a key growth driver throughout the rest of the year, according to Braclays Bank Plc analysts.
Burberry is due to report third-quarter sales at 7:00 a.m. GMT. The company is grappling with shifting tides in the luxury industry while advancing with an internal transformation. The company has an opportunity to turn itself into a British LVMH by focusing on its heritage, according to Bloomberg Opinion’s Andrea Felsted. While third-quarter sales growth will probably slow compared to the 5% delivered in the first six months, China’s reopening “raises recovery prospects,” BI’s Aitken said. “The Americas could stay tricky.”
EQT (NYSE:EQT), reporting at 7:00 a.m. CET, offers investors an early view of how the private equity sector is coping in the post-cheap money era. Nordea’s analysts predict carried interest of €126 million ($136 million) in the second half of 2022, likely supported by EQT’s flagship funds exhibiting “relatively strong” exit momentum in December. Although the majority of these deals have yet to close, EQT could increase the valuations of the companies in accordance to the agreed sales prices, they said.
Just Eat Takeaway’s fourth-quarter update at 7:00 a.m. CET will show whether the company has seen orders improve after reporting a decline in previous quarters. Sagging under the weight of rising living costs and changing consumer habits after lockdowns lifted, it may look to form more partnerships to ensure balanced spending for growth, according to BI’s Diana Gomes. Just Eat, among the top performers on the Stoxx Europe 600 Index this year, may report “quite significant profit already in 2023,” according to ING analyst Marc Hesselink. That will depend in part on the cancellation of New York fee-caps, which he anticipates in the second half.
Thursday: Deliveroo’s fourth-quarter update at 7:00 a.m. GMT will be closely watched for further progress toward its goal of reaching adjusted Ebitda breakeven as soon as the second half of this year. Just Eat’s rival may need to cut costs to make this happen, although trimming marketing spend could also hamper customer growth, according to BI’s Diana Gomes. While gross transaction volume in the UK and Ireland rose 11% in the third quarter, the international segment dipped 2%, adjusted for currency effects. Deliveroo recently announced exits from Australia and the Netherlands amid strong local competition. Any plans for further retreats would be of interest.
Friday: Ericsson’s fourth-quarter report is due about 7:00 a.m. CET, although the company isn’t expected to close out what’s been a troubled 2022 with a bang. Analysts are forecasting a 3.7% decline year-on-year in adjusted operating income, according to estimates compiled by Bloomberg. Shares dropped almost 40% last year, which Handelsbanken analysts Daniel Djurberg and Fredrik Lithell attributed in part to a “lack of proper governance” at the company. The stock rallied on Thursday after it disclosed a smaller-than-expected provision for a potential financial penalty in the US. It also announced plans to switch its chairman last week as it tries to clean up its culture following a series of scandals. The impact on Ericsson’s gross margin from US communications service providers pulling down their radio access network inventories will be one focal point of this week’s report, Handelsbanken said. Bloomberg consensus shows an adjusted gross margin of 43.2% in the fourth quarter.
