Meta beats expectations but US banking fears linger, Unilever shows pricing power, Sainsbury’s profit falls, Barclays beats expectations and Taylor Wimpey sees a ray of hope

“Once again US tech came to the rescue of European markets. After Wall Street endured another difficult session linked to concerns about the stability of US regional banks, Meta Platforms delivered better-than-expected results and this lifted sentiment across the pond, helping the FTSE 100 to a steady start,” says AJ Bell Investment Director Russ Mould.

“The owner of Facebook, Instagram and WhatsApp saw signs of recovery in its advertising business, helping to dispel concerns about the continued relevance of these platforms.

“This, plus the greater efficiency pursued by the business in recent months, is clearly helping to win the market over, although CEO Mark Zuckerburg’s continued insistence on pursuing his metaverse vision will ring in the ears of some investors like tinnitus.

“Meta also notably flagged its own developments on AI as the tech giants compete for their share of real estate in this nascent market.

“First Republic shares continued to crater, laying bare the crisis of confidence in this part of the US banking universe.

“For now, macroeconomic news has been pushed to the background by US earnings season and with some big names like Amazon and Apple still to report that’s likely to remain the case for a while at least, though core inflation data tomorrow could take the spotlight given its influence on Federal Reserve decision making.”

Unilever / Sainsbury's

“Big brand owners are testing the limits of how much they can put up prices before consumers stop buying their products. Unilever has once again charged more for its products and there has been very little volume erosion which means its bold move has paid off. Whether this can continue is another matter.

“We’ve seen mixed success from other big brand owners – Reckitt has just reported a decline in volumes for its latest results after pushing up prices, Coca-Cola charged more for its drinks and grew volumes in most of its territories but Procter & Gamble’s recent price increases have resulted in a decline in sales volumes.

“Certain brands are deemed irreplaceable, with supermarket own-label alternatives just failing to give the same satisfaction. But there will be some items where the customer isn’t that fussed about being loyal to a big brand.

“Sainsbury’s is on the other side of the equation. It wants more customers to buy its own-label products as theoretically margins could be better than selling third party branded items.

“Supermarkets have been fighting on price for a long time, and the current cost-of-living crisis means it is even more important to offer good value items. However, this focus on value has meant that Sainsbury’s has suffered a decline in profit as it has been trying to undercut rivals in certain product lines, exacerbated by having higher operating costs.

“Whereas big brand owners have been happy to push up their prices, Sainsbury’s has been holding back from hiking its prices to try and get ahead of the competition. That’s bad for earnings but positive for winning market share. The trick is to now keep hold of any customers it has won from rivals.”

Barclays

“The UK banks’ reporting season was off to a strong start as Barclays beat first quarter expectations. It is all a far cry from 15 years ago when Britain’s banking system was right in the eye of the storm during the Great Financial Crisis.

“Today, and not allowing for any complacency, UK banks seem to have more robust balance sheets and are more conservatively run. As a result, they have so far steered clear of the kind of turmoil seen in Europe with Credit Suisse and in the US with the collapse of Silicon Valley Bank and difficulties in the regional banking space.

“Barclays is doing what a bank should do by benefiting from a higher interest rate environment, boosting its net interest margin by increasing the amount it charges on loans by more than the amount it pays out on deposits.

“At the same time its investment bank, whose place in the group has been the subject of considerable shareholder debate and pressure, is performing decently given a difficult backdrop for that industry.

“For now, impairments are remaining low and the company is not seeing any signs of a looming increase in bad debts. This remains the ticking time bomb under all the banks though, with the market likely to react negatively to any indications the picture has deteriorated.”

Taylor Wimpey / Howdens Joinery / Ibstock

“Hot on the heels of Persimmon saying things were slowly looking up for home sales, Taylor Wimpey has followed suit by reporting signs of improving customer confidence.

“A decline in mortgage rates will have certainly helped, yet that might not stay the case for long if the Bank of England decides to push up interest rates once again next month.

“It’s clear that first-time buyers are struggling to get on the ladder given the higher cost of borrowing and less choice on home loans, so the property market is by no means bouncing back to rude health.

“Kitchen seller Howdens Joinery has shown that life is tough out there, having reported a weaker than expected start to 2023. Brick maker Ibstock has also reported a subdued demand environment but managed to achieve better than expected earnings for the first quarter thanks to keeping a keen eye on costs and good business execution.

“For Taylor Wimpey, it means cutting back on land buying, thinking twice about spending on stuff that isn’t essential to the day-to-day business, and staying focused on build quality while accepting the uncertain backdrop could continue for the rest of the year.”

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