Morning Note: Market News and an Update from Sodexo.

Market News

The EU is willing to accept Donald Trump’s 10% universal tariff but wants lower rates for key sectors like drugs and chips, people familiar said. The bloc has until 9 July to reach a deal before levies on nearly all its US exports jump to 50%. The Fed’s Raphael Bostic says tariff pass-through may be slow and persistent.

Senators will vote overnight on amendments to Trump’s $3.3 trillion tax bill, with divisions over social safety-net cuts and clean energy tax credits. Ray Dalio called for a bipartisan solution to address the US “debt bomb” through a mix of tax increases and spending cuts.

Gold climbed to $3,335 an ounce, extending gains from the previous session, underpinned by a weaker US dollar which retreated amid concerns over the ballooning US government deficit. The dollar index fell by 10.8% in the last six months, the biggest first-half loss since 1973. Treasuries were firmer – the 10-year currently yields 4.22%. Oil slipped to $66.75 a barrel amid worries of excess supply as OPEC+ plans to ramp up production.

US equities continued to power ahead last night – S&P 500 (+0.5%); Nasdaq (+0.5%) – setting new record closes, as expectations grow that the US economy will withstand uncertainties from President Donald Trump’s tariff agenda. Banks performed well on the back of the stress-test results. In Asia this morning, markets were mixed: Nikkei 225 (-1.4%, after Trump threatened fresh penalties on Japan for not accepting American rice); Hang Seng (-0.9%); Shanghai Composite (+0.4%). Chinese automakers expanded their European foothold in May, capturing the highest share ever of hybrid sales, according to Dataforce.

The FTSE 100 is little changed at 8,775, while Sterling trades at $1.3755 and €1.1675. UK food prices have pushed up shop price inflation for first time in nearly a year (+3.7%), while Nationwide house prices fell -0.8% m/m in June. Chancellor Rachel Reeves is expected to announce plans to cut the annual tax-free cash Isa allowance in her Mansion House speech this month, in an effort to shift some of the £300bn cash pile into British companies.

Source: Bloomberg

Company News

Sodexo has announced results for the third quarter of its financial year to end August 2025 (FY25). Performance was in line with management expectations and reflects a continuation of recent dynamics. The group has maintained its guidance for the full year, albeit the result is expected to be at the lower end of the range. In response, the shares are little changed in early trading.

Sodexo is a global supplier of food services and associated facilities management support functions, with a strong position in benefits and rewards services. The company generates annual sales of around €24bn and is listed on the French CAC 40.

Under its current strategic plan, Sodexo aims to generate sustainable, profitable growth and create value for its shareholders. Following the spin-off of its Benefits & Rewards Services division, the group has refocused on food services and selective facilities management contracts. This leaves the company well placed to take better advantage of the emerging trends in the post-Covid environment such as increased outsourcing, accelerated services integration, and further market consolidation to the benefit of larger players.

However, back in April Sodexo reported a slowdown in organic growth in North America and lowered its guidance for the full year. In response to the shortfall, the company is strengthening execution on identified areas where improvement is required, with a particular focus on North America towards commercial discipline and operational execution, as well as global organisational efficiency and strict overhead cost control.

In the three months to end May 2025, revenue grew by 0.8% to €6.1bn. Stripping out the impact of currency (-2.1%) and M&A (-0.2%), organic growth was 3.0%. This was slightly slower than the group’s first half (+3.5%) but an acceleration versus the previous quarter (+2.4%). The statement highlights the group is making steady progress on key contract ramp-ups and benefiting from sustained pricing discipline and business momentum across its core markets.

In North America, organic growth was 1.2%, slightly above the prior quarter, reflecting continued pricing momentum just below 3% and contributions from new business. These were offset by impacts from contract exits linked to prior-period losses, including a major global facilities management contract and some Education sites.

Europe was up 3.3% organically, with good performance in Healthcare & Seniors but continued softer trends in Corporate Services and Education. In Rest of the World, organic growth was 7.5%, fuelled by continued strong performance in India, Brazil, and Australia.

As this was a revenue update, there was no commentary on profitability. As a reminder, however, the group’s business model allows Sodexo to pass cost inflation on to clients progressively. Cost plus contracts, negotiations with clients, and mitigation action plans are also helping to compensate inflation, such as product substitution.

Apart from the seasonal changes in working capital, there were no material changes in the group's financial position as of 31 May 2025. At the last balance sheet date (February 2025), net debt was €3.4bn, with the net debt ratio of 2.3x EBITDA.

Guidance for the full year has been reiterated, albeit the result is expected to be at the lower end of the range. Organic revenue growth is expected to be between 3% and 4% (this was downgraded from 5.5%-6.5% back in March) and the underlying operating profit margin is expected to increase by 10-20 basis points at constant exchanges rates (versus previous guidance for a 30-40bps rise).

Source: Bloomberg