Tesla profit falls after price cuts, Haleon not suffering from trading down effect and Jet2 lifts guidance

“The decline in miners, packaging groups and retailers on the UK stock market would suggest investors are once again worried about the outlook for the global economy. Markets have stalled over the past few days, with the latest corporate updates failing to move the dial,” says Russ Mould, investment director at AJ Bell.

“A lot of companies are keeping their heads above water but there remain plenty of headwinds to cloud the outlook. The prospect of another round of interest rate hikes in the US and Europe will further increase the cost of borrowing, coinciding with fears that banks are going to have stricter lending policies following the recent Silicon Valley Crisis. Tighter lending could feasibly lead to weaker economic activity.

“Later today we’ll get an update on US jobless claims, manufacturing activity and US home sales, helping to give a more up-to-date picture of the state of the country.

“Among the UK stocks reporting, WH Smith slipped 2.5% despite reporting better than expected first-half results and a good start to its second half. Dunelm’s shares barely moved – while it continues to grow sales, the retailer has guided for a lower gross margin in the second half of its financial year due to planned sale events.”

Tesla

“Market share or margins, that seems to be the conundrum facing electric vehicle powerhouse Tesla.

“Right now, it looks like the company’s competitive position is being prioritised over protecting profitability and only time will tell if that is the right move.

“With profit falling for the first time since 2019, Tesla is facing a race to reduce the costs of building its vehicles to support the mass-market appeal of its brand while also delivering the sort of returns expected by investors.

“The company is also taking the view that by building out an effective installed base of Tesla vehicles it is creating a larger pool from which to draw revenue from subscription services, parts and maintenance.

“While Tesla’s price cuts are raising eyebrows, it is a natural progression for the EV industry if it is truly to supplant combustion engines for price points to reach levels which are affordable for the average family.”

Haleon

“Companies like Haleon have faced a customer loyalty test over the past year as the cost-of-living crisis has forced many people to reconsider their spending habits, often trading down from well-known brands to cheaper alternatives offered by supermarkets.

“Haleon’s empire was built around its headache and toothpaste brands and in normal economic conditions one could expect it to clean up as consumers flock to ‘big brand’ names. Yet we’re not living in normal economic times and so consumer brand giants have not been able to sit back and wait for the cash to roll in.

“For some products like food and cleaning items, trading down from big brands to supermarket own-label items is an easy decision. However, working in Haleon’s favour is that fact a lot of consumers seeking relief from pain will stick with the brands they trust, believing they offer a superior product. That might explain why Haleon has done well over the past quarter.

“Across the business price hikes don’t appear to be having a negative impact on demand, given that sales volumes went up in the three-month period.”

Jet2

“The bleaker it gets at home the more desperate people seem to be to jet away. Perhaps it’s no surprise people will do everything they can to afford a week in the sun to escape the literal and metaphorical clouds at home.

“And with Britons racing to book holidays it is a natural progression to see Jet2 upgrade its profit outlook.

“As evidenced by its market share gains in recent times, Jet2 is being rewarded for good customer service and for treating travellers with a measure of respect which was conspicuous by its absence at some other operators during the pandemic.

“It took rapid action to cancel flights and refund customers rather than leaving people in limbo and inevitably this has helped build trust in the brand.

“It is good to see that being upfront with people is something which pays off. While Jet2 still faces turbulence as household budgets remain under pressure and fuel costs remain elevated, its management team’s careful stewardship of the company should put it in a good place for the longer term.”

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