Lloyds completes miserable earnings season for banks and Reckitt caught cold by weak flu season

“The FTSE 100 traded lower on Thursday morning, taking its cue from a weak showing on Wall Street overnight," says AJ Bell Investment Director Russ Mould.

“The catalyst was commentary from the US Federal Reserve chief Jerome Powell. This suggested that while the Fed was happy to keep rates on hold for now, it would not be taking up President Trump’s suggestion of delivering a rate cut.”

Lloyds Banking

“With today’s update from Lloyds Banking now out, we can safely call the banks reporting season a bust.

“Royal Bank of Scotland disappointed and lost its chief executive, Barclays provided further ammunition for critics of its investment banking exposure and now Lloyds, which had been on a strong run, has been stung by that old favourite PPI.

“Its one of those situations where the statutory profit is worse than expected and the adjusted number a little better, perhaps unsurprisingly the market reaction reflects the former rather than the latter.

“Ahead of this release, more relaxed guidance from the regulator on capital buffers opened the door for a return of funds to shareholders, further bolstering Lloyds’ credentials as an income stock.

“However, investors need to keep a close eye on the company’s bad debt situation with impairments ticking up. Lloyds, with its substantial footprints in the credit card and mortgage markets, is heavily exposed to the UK economy and a chaotic Brexit could see impairments rise more sharply.

“And while the company’s net interest margin, a key measure of profitability, is steady for now, this really only reflects cost cutting.”

Reckitt Benckiser

“Life just doesn’t seem to get any easier for consumer goods firm Reckitt Benckiser. Chief executive Rakesh Kapoor, architect of the transformational acquisition of US baby formula maker Mead Johnson, is retiring and more recently Reckitt has struggled on concerns it could be caught up in a US probe involving drug company Indivior which it used to own.

“Indivior, which was demerged from Reckitt in 2014, has been accused of opioid treatment-related fraud.

“Reckitt’s first quarter results look sickly, ironically because not enough of us having been getting ill. Sales of over the counter products hit in part by a weak cold and flu season.

“The company’s stated priority is to get its health products back on track but whether the patient can make a full recovery in the remainder of the year remains to be seen.

“Guidance is being maintained for now but scepticism over this 3% to 4% like-for-like sales growth target is likely to increase unless there is a significant improvement in the second quarter.

“And the US Department of Justice investigation into Indivior is a significant uncertainty for investors to weigh, despite the company already having made a $400m provision.”

These articles are for information purposes only and are not a personal recommendation or advice.