Supply crisis expected to hit earnings and stock markets
Fashion retail giant H&M is just one of many companies that have warned about supply problems in the run-up to the key Christmas trading season.
Cost pressures, supply-chain chaos and a reopening letdown are set to plague Europe’s third-quarter earnings season, setting investors up for more disappointment than elation.
While strong numbers from behemoths like LVMH and SAP reassured European stock investors last week, further good news may be needed to keep the rally alive. Rising inflation and a stalling global recovery pose a challenge to further market gains.
“We expect fewer positive earnings surprises, more cautious corporate guidance and less earnings upgrades by analysts,” said Robert Greil, chief strategist at German private bank Merck Finck.
Pandemic-related chaos, post-Brexit customs checks and a shortage of truck drivers have wreaked havoc on supply chains.
Clothing companies have been sounding the alarm ahead of the all-important holiday season, with online retailer Asos warning that supply-chain problems are set to hit profit, while H&M and Boohoo have flagged delivery delays. Asos and Boohoo shares plunged after the announcements.
“We expect companies to struggle with supply constraints and rising input prices,” said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International.
Stocks to watch with upcoming earnings announcements include Puma, Adidas, online retailer Zalando, shipping firm AP Moller-Maersk and industrial group Siemens.
Costs have been climbing for companies, a product of supply bottlenecks, surging commodity prices and a shortage of workers. Investors will be watching closely which firms have to swallow rising prices and which are able to pass them on to customers.
“Special attention must be paid to the impact that logistical problems in supply chains, rising energy costs and upward pressure on labour costs may have on results,” said Jose Antonio Montero de Espinosa, head of European equities at Santander Asset Management.
Energy producers could be natural beneficiaries. The Stoxx-600 energy index is up 19% over the past three months and is the top-performing sector in Europe. Earnings growth estimates for the sector have accelerated over the past few weeks as oil and gas prices have soared.
Stocks to watch include Danone, Anheuser-Busch, Shell, BP, Total and Reckitt Benckiser.
The lockdowns forced many people to conduct their lives in the digital realm, which boosted demand for gadgets. Consequently, demand for the chips that power these devices rocketed, hitting carmakers to smartphone giants like Apple.
The chip situation doesn’t look set to ease any time soon, judging by the early warning signs from the motor sector. Parts supplier Faurecia and truck manufacturer Traton cut forecasts last month, while Volkswagen said that it faces a large order backlog due to a lack of chips.
However, the chipmakers themselves could benefit. A recent update from Taiwan Semiconductor Manufacturing showed that demand remains robust, with the Asian bellwether’s projections for the fourth quarter beating some analysts’ estimates.
It’s been reality check time for companies that got a boost during the lockdowns, now that restrictions have eased. Remote software maker TeamViewer plunged 25% in the space of one day after cutting forecasts due to weaker demand from business customers. Online food delivery company Just Eat Takeaway.com was another casualty, dropping after posting a slowdown in order growth.
“The market will be more demanding with those sectors that have performed very positively this year,” said Cristina Benito, head of equities for discretionary portfolios at Mapfre Asset Management.
“We think the rebound in Stoxx 600 EPS has largely run its course, with our macro projections consistent with only marginal further upside by early next year,” Bank of America strategist Milla Savova said.
- Bloomberg
CONNECT WITH US TODAY
Be the first to know the latest news and updates
