Morning Note: Market news and an update from Proctor & Gamble.

Market News

US equity markets suffered a pull-back at the end of last week driven by a sell-off in the world’s largest technology companies. The Nasdaq fell by 2%, with two of the AI ‘darlings’, Nvidia and Super Micro Computer, down by at least 10%. Wall Street traders are gearing up for a deluge of results this week from the industry that has powered the bull market. Releases are due from Tesla, Meta, Microsoft, Alphabet, and Visa.

This morning, markets are generally trading on a on a firmer footing as fears of a wider Middle East conflict ease, with Iran saying it had no plans to retaliate following an apparent Israeli drone attack. In Asia: Nikkei 225 (+1.0%); Hang Seng (+2.0%); Shanghai Composite (-0.4%). The S&P 500 is currently expected to open 0.5% higher this afternoon. The FTSE 100 is currently trading 1.0% higher at 7,976, while Sterling trades at $1.2380 and €1.1610.

Gold slipped by 1% to $2,355 an ounce. However, China’s gold demand surged to record levels, making it the world’s top buyer. Jewellery consumption rose 10% last year, while bar and coin investments surged 28%.

The oil price continued its recent slide, with Brent currently trading at $85.60 a barrel. China’s imports of Russian oil jumped about 19% in March to 10.81m tons, the highest in at least 20 years. Purchases from Saudi Arabia dipped to 6.3m, while those from Venezuela remained flat. The oil price uncertainty won’t stop the ECB from moving in June, Francois Villeroy de Galhau said. Policymakers shouldn’t rush into further reductions after the first interest rate cut, Madis Muller said.

Asking prices for UK homes rose 1.7% year on year in April, the fastest pace in 12 months, according to Rightmove. The average is now about £372,000, approaching the record set in May 2023. Much of the boost is coming from an increase in sellers of large homes.

Tesla slashed prices by $2,000 on its models across China, the US, and Europe, while also lowering the price of its Full Self-Driving software by a third in the US. China’s Li Auto immediately responded with discounts and cash rebates on new models. There are fears of a significant electric car glut developing.

Source: Bloomberg

Company News

On Friday lunchtime, Proctor & Gamble released results for the three months to 31 March 2024, the third quarter of its financial year to 30 June 2024. The figures were below the market expectation for sales but ahead on earnings. In response, the group raised its full-year earnings guidance on easing commodity costs. The shares were up 1% in response.

P&G is a global consumer goods company with annual sales of $82bn across a broad range of iconic brands including Gillette, Crest, Ariel, Head & Shoulders, and Pampers. The focus is on daily use categories. The group generates around half of its sales in North America, a fifth in Europe, and the remainder in emerging markets.

Net sales grew by 1% to $20.2bn, versus the market forecast of $20.4bn. Organic growth, which excludes the impact of acquisitions, disposals, and negative currency movements, was up 3%. Growth was driven by a 3% increase in pricing, while volume was flat. Mix had a neutral impact on sales for the quarter.

The rate of growth was slower than in recent quarters as the group faced multiple headwinds. However, growth was broad-based, with 8 of 10 product categories holding or growing organic sales. Global aggregate value share was up on the prior year, with 28 of the group’s top 50 category/country combinations holding or growing share so far in this financial year.

The group operates across five divisions:

·       Fabric & Home Care (34% of sales) grew by 3% in organic terms in the quarter, driven by all categories.

·       Baby, Feminine & Family Care (25% of sales) was flat, held back by a decline in baby care products.

·       Beauty (18% of sales) grew 3%, with high single-digit growth in hair care offset by a decline in skin and personal care.

·       Health Care (15% of sales) grew by 2%, driven by oral care products.

·       Grooming (8% of sales) grew by 10% as a result of higher pricing.

On a currency-neutral basis, the gross margin grew by 400 basis points to 52.2%, driven by higher pricing, favourable commodity costs, and gross productivity savings, offset partly by product mix and product reinvestments. The operating margin grew by 220bps to 23.4%. Core EPS grew by 18% at constant currency $1.52, compared to the market forecast of $1.41.

During the quarter, adjusted free cash flow was $3.3bn and adjusted free cash flow productivity was 87%. The group ended the period with net debt of $25.2bn and returned $3.3bn of cash to shareholders through dividends ($2.3bn) and share repurchases ($1.0bn). The group has increased its dividend for 68 years in a row.

The company has maintained its guidance for organic revenue growth for the financial year to June 2024 at 4%-5%. However, guidance for EPS growth has been raised again from 8%-9% to 10%-11% as the headwind from higher commodity costs continues to ease. The company continues to expect adjusted free cash flow productivity of 90% and expects to pay more than $9bn in dividends and to repurchase $5bn-$6bn of shares in the year.

Source: Bloomberg