Money rolls in for Europe Inc. as companies banish pandemic blues
LONDON — Carmaker Volkswagen, plane maker Airbus, and energy major Royal Dutch Shell all posted bumper financial earnings on Thursday reflecting a generally buoyant mood among European companies emerging from the coronavirus pandemic.
European stocks hit record highs, taking their cue from the positive outlook and increased investor payouts offered by many companies reporting on one of the busiest days on the financial calendar.
There were some clouds on the horizon — strong sales figures from Swiss foods group Nestle and brewer Anheuser Busch InBev were offset by concerns about the impact of higher costs on their businesses.
Volkswagen trimmed its estimate for an increase in car deliveries to customers because of a shortage of computer chips, and Finnish telecoms equipment maker Nokia also warned that the same issue was putting the brakes on its healthy growth.
But business is clearly picking up from the lows of 2020 when efforts to contain the coronavirus forced consumers to stay home and businesses to cut output.
Analysts at investment house Pictet said equities in developed markets were enjoying “a positive feedback loop in 2021, with stronger economic recovery increasing sales growth, improving margins and earnings set to rebound by 40% in 2021 in the US and Europe.”
Airbus, now the world’s largest plane maker, led the way by doubling its full-year profit forecast and raising the outlook for jet deliveries.
Shell boosted its dividend and launched a $2 billion share buyback program after a sharp rise in oil and gas prices drove second-quarter profits to their highest in more than two years.
It joined peers TotalEnergies and Norway’s Equinor in announcing share buybacks as companies throw off more cash than they can reinvest.
Figures earlier in the week showed the luxury goods industry had rebounded strongly since the start of the year, fueled by robust demand in Asia and the United States for European brands such as Louis Vuitton and Gucci.
“In Europe, having more industry than tech is good for index profits, which I expect to be revised upwards,” said Angelo Meda, head of equities at Banor SIM in Milan.
NOT OVER YET
Both US and European equities have been hitting record highs but some see better prospects in Europe.
Daniel Grosvenor, director of equity strategy at Oxford Economics, said in a research note on Wednesday that the Eurozone recovery was “continuing to pick up speed at a time when growth momentum looks to have peaked in the US.”
The “relative growth gap between the two economies will continue to close as we go into 2022, and this is an environment in which European equities have typically outperformed”, Mr. Grosvenor wrote.
In Britain, Lloyds Banking Group swung to a first-half profit and announced an interim dividend, boosted by a house-buying frenzy and improved economic outlook.
The positive update from the bellwether mortgage lender came after rival Barclays also posted upbeat earnings on Wednesday, and showed how banks’ profits are recovering as fears of pandemic-related bad loans ebb.
Quarterly revenue at AB InBev, whose brands include Budweiser and Stella Artois, rose above pre-pandemic levels as bars reopened around the world and drinkers emerged to toast the end of lockdown.
Increased costs of cans and distribution weighed on profits in its two biggest markets, the United States and Brazil, amplifying inflation warnings from consumer goods giants Unilever and Reckitt Benckiser this month.
Monetary policy experts around the world are pondering how to respond to higher costs and debating whether the trend is temporary or more deeply rooted.
“Inflation has been virtually absent for a number of years and then pointed up very sharply. It hit us directly,” said Nestle Chief Executive Officer (CEO) Mark Schneider, adding he believed the problem was transitory.
Smurfit Kappa, one of the world’s biggest packaging groups, warned on Wednesday that prices would keep climbing.
“It’s very hard to see that inflation is not here to stay. Since the end of last year I’ve been saying we’re seeing very significant increases and it’s hard to see that they’re temporary because there is still so much demand out there,” CEO Tony Smurfit told Reuters.
There are also concerns that coronavirus could once again upset the best laid business plans, given the risk posed by the Delta variant.
“COVID-19 is not over,” Airbus CEO Guillaume Faury told reporters on Thursday.
“Levels of vaccinations are very diverse around the world and we cannot exclude that after the Delta variant there will be another one, so we believe we have to remain very prudent,” he said.
“It is going to a bumpy road in terms of recovery.” — Keith Weir/Reuters