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FTSE 350 Look Ahead: McDonald’s, Meta, GSK And More

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Look ahead to FTSE 350, other companies reporting & economic events from 30 January-3 February 2023

  • What will job cuts at McDonald’s Corp (NYSE:MCD) mean for the bottom line?
  • Can Severn Trent Plc (LON:SVT)’s fortunes remain buoyant?
  • Markets expect a hefty drop in profits at Meta Platforms Inc (NASDAQ:META)
  • Will earnings momentum continue for GSK plc (LON:GSK)?
  • Amazon.com, Inc. (NASDAQ:AMZN) retail margins will be front of mind
  • Apple Inc (NASDAQ:AAPL) battles disruption in China
  • Sparse profits on the horizon for Shell PLC (LON:SHEL)
  • Alphabet Inc (NASDAQ:GOOGL) are keen to rein in costs
  • Cranswick plc (LON:CWK) faces a number of upcoming challenges

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Q4 2022 hedge fund letters, conferences and more

 

McDonald's, Q4 Results, Tuesday 31 January

Derren Nathan, head of equity research, Hargreaves Lansdown:

"We will soon find out if the near double-digit like-for-like sales growth seen in McDonalds’ Q3 results will repeat in the final quarter of the year. The burger giant has been able to push through price rises in its major markets, despite the ongoing cost of living crisis. And analyst earnings expectations have been creeping up marginally since McDonald’s last reported numbers.

Whilst this is impressive, inflation has been weighing on profits.

This may well have been the cue for CEO Chris Kempczinski’s recent letter to employees, signalling a programme of corporate job cuts. We’ll be looking out for more detail on this and what the effect will be on the bottom line.

Given its global reach, McDonald’s can’t escape wider geopolitical forces. It’s missing a chunk of revenue following restaurant closures in Russia and Ukraine, and the conflict has caused disruption to other operations in the region, notably leading to recent closures of restaurants in Kazakhstan.

The relaxation of Covid restrictions in China will be more welcome news to investors, and we will wait to see if this acts as a catalyst to refresh its openings programme."

Severn Trent, Q3 Trading Statement, Wednesday 1 February

Derren Nathan, head of equity research, Hargreaves Lansdown:

"Next week, Severn Trent’s trading statement is unlikely to reveal any major spanners in the works. The UK-based water utility company saw revenues rise 10.8% in the first half of the year and is expecting full year revenues to come in at around £2bn. Its strong market position, coupled with a regulatory pricing framework, provides a level of stability to revenues - a great quality to possess when times get tough.

But these robust revenues come with a caveat. The prices Severn Trent can charge for its services are restricted by the current regulatory regime, which runs to 2025. This limits financial returns and sets challenging performance targets for earning additional rewards.

While current investments could pave the way to make more profit in the future, they’re likely to put pressure on near-term margins. That’s why we’re keen to hear how well costs are being controlled, and next week’s update should shed some light on that situation."

Meta Platforms, Q4 Results, Wednesday 1 February

Matt Britzman, equity analyst, Hargreaves Lansdown:

"Meta finds itself in somewhat of a downward spiral. Costs are rising, advertising spend is falling and markets are expecting to see another profit decline in next week’s fourth quarter results. These aren’t small declines either, with operating profit expected to come in around $7.7bn – that’d be down 39% year on year.

Steps are being taken to reign in some damage, and Meta joins the list of mega cap stocks to start major layoffs – to the tune of 11,000 jobs in November.

For investors, though, the real issue seems to be the stubborn approach to investment in Reality Labs. The business unit responsible for bringing the Metaverse to life. Here in the real world, operating losses from the division are mammoth - to the tune of $4bn a quarter.

It’s certainly possible Meta gives the market what it wants, a rein in on spending. But until that happens, or Reality Labs conjures up some magic, we don’t see sentiment changing too much."

GSK, Q4 Results, Wednesday 1 February

Derren Nathan, head of equity research, Hargreaves Lansdown:

"In next week’s fourth quarter results we’ll be looking to see if GSK can continue its recent run of beating analyst estimates. As a whole, underlying profit for the year is expected to outpace the group’s own goal of 10% annual growth out to 2026.  We’ll be looking out to see how confident GSK is of making that same target in 2023.

In the clinic, the final quarter of 2022 was a mixed bag for GSK’s pipeline. Following disappointing trial results, GSK pulled its multiple myeloma therapy Blenrep from the US market, but it’s too early to write the drug off just yet, with two differently designed trials still ongoing. Elsewhere, progress towards regulatory approval for momelotinib, for the treatment of the rare blood cancer myelofibrosis continues. Decisions from both the US and European authorities are expected this year.

Vaccines, in particularly the Shingrix vaccine for Shingles, have been a strong growth driver of late and we hope to see that momentum continue. The Board have high hopes for its respiratory syncytial virus (RSV) older adult vaccine, which is pending regulatory approval. But GSK is not the only contender here, with Moderna the latest to release compelling data for its candidate.

The market responded favourably to a December ruling in GSK’s favour in the Zantac litigation and we will be looking out for any assurance the company can give on other claims."

Amazon, Q4 Results, Thursday 2 February

Sophie Lund-Yates, equity analyst, Hargreaves Lansdown:

"Amazon is dealing with plenty of unhelpful headwinds. High inflation and a shaky economic outlook mean retail sales were lower than we’d hoped for last quarter. Slowing retail sales are a problem because Amazon’s costs are too high, after gargantuan expansion efforts after the pandemic accelerated demand.

While volumes are dropping, the net effect is poor profit performance. Despite double digit rises in revenue last quarter, profits almost halved to $2.5bn. It will be important to keep an eye on the outlook statement where demand is concerned. With inklings that interest rate hikes could start to slow, there’s a chance of some positivity coming through.

News of UK strikes can’t be ignored. This isn’t the first time Amazon’s been under the spotlight where labour is concerned, but it may be forced to factor in new pay rises, which could spell further trouble for margins.

As ever, it will be equally crucial to see how the cloud business, AWS, is holding up. Microsoft has reported a beat in its cloud division, as companies look for ways to unlock long-term efficiencies. This should have a positive read-across for Amazon, which should help to stem losses elsewhere, thanks to the cash generative nature of running a cloud business."

Apple, Q1 Results, Thursday 2 February

Matt Britzman, equity analyst, Hargreaves Lansdown:

"Apple is expected to see revenue drop for the first time in 15 quarters when it reports first quarter earnings. Having held up relatively well over the last earnings season, we’re cautiously optimistic about the coming results.

A weaker US dollar and price hikes pushed through toward the end of last year should both act as tailwinds. But significant production disruptions in China due to Covid restrictions, riots and walkouts were a challenge. The main concern is that short term disruptions may be compounded by weakening hardware demand, iPhone sales were already a little weaker than expected back in October.

The Christmas period will be a crucial barometer for the health of the consumer.
There’s also a concern that upward pressure on costs is likely to be a lingering bugbear, especially as Apple looks to accelerate production diversification away from China. It’s thought to be the right move for long term production stability and investors will look out for updates on this."

Shell, Q4 Results, Thursday 2 February

Susannah Streeter, senior investments & markets analyst, Hargreaves Lansdown:

"Oil prices are hovering around $86 a barrel, well down from the spikes to above $120 dollars last summer, Shell’s profits won’t be pouring in at quite the same bumper rate. However, energy prices are still elevated by historical standards and so these are still buoyant times for the energy giant.

Operational hiccups have also been eradicated in the integrated gas division so, although wholesale prices have retreated to October 2021 lows, profits here are expected to be significantly higher quarter on quarter. 

Shell has already warned that it’s going to shoulder a big windfall tax burden of $2 billion in the quarter due to UK and EU levies. It would appear to be the first time in five years that Shell has paid tax on its UK operations given that it’s been able to benefit from decommissioning incentives and off-set investments in the North Sea.

There will be interest in whether the arrival of Wael Sawan as the new CEO, who was previously head of renewables, will see Shell start to make more inroads into cleaner greener energy. Investors will also be keen to see the renewables arm of the business taking on more muscle, but it’s still a puny part of the revenues and profits have been non-existent in the last quarter.

A bright spot for its cleaner energy credentials has been the group’s retail network which saw a 4% rise in underlying cash profits due to the increased use of the group’s EV charging stations. There is untapped demand here as while EV sales have surged, some motorists still show some signs of holding back from joining the e-car revolution due to worries about charging infrastructure.

It’s still only a tiny part of the plan though and Shell needs to concentrate on reducing the group’s overall emissions. as well as focusing on new low- carbon products sold to hit net zero targets and that will keep requiring big pools of new investment."

Alphabet, Q4 Results, Thursday 2 February

Susannah Streeter, senior investments & markets analyst, Hargreaves Lansdown:

"Alphabet has been far from immune from the tough economic backdrop, with worries about a US recession growing. As with other tech giants, costs have grown as the company expanded to meet demand during the pandemic, but revenue has slowed. 

Re-sizing the business is clearly a priority and reducing headcount by 6% is a big step in the right direction, but it’s clear some investors’ concerns still aren’t satisfied and they will be keen for more detail on how costs can be reined in.

Already, CEO Sundar Pichai has said top executive bonuses will be cut this year, and there is an argument to say that overall salaries should be brought down, given that the wave of tech lay-offs will increase the available talent in a wide pool.

There will still be a fight for specialist skills, particularly in advanced AI, so ring-fencing bigger remuneration packages may be considered vital in some areas. Regulatory issues are still a big headache, with the company now hit with another lawsuit, this time from the US Justice Department alleging that that Google violated anti-trust laws by abusing its monopoly in ad technology.

However, Alphabet has a lot of wriggle room with one of the best balance sheets in the sector to deal with the current ups and downs of regulatory and economic uncertainty."

Cranswick, Q3 Trading Statement, Thursday 2 February

Steve Clayton, head of equity funds, Hargreaves Lansdown:

"In the near term, Cranswick faces many of the challenges facing other UK consumer facing businesses, including labour shortages, exacerbated by a “busy flu season” ahead of Christmas last year which saw staff absences soar in many businesses.

Cost pressures are an everyday challenge in the post-pandemic economy. Cranswick recently gained permission to hire a large team of butchery staff from the Philippines, suggesting that they have innovated to deliver solutions to staffing shortages in the years ahead, but that does not mean the last quarter will have been easy.

 

Cranswick, though, is a long-term business, investing along the food chain from farm to fork. They are almost uniquely well positioned to supply into both retail and catering end markets with an increasingly value-added product range."

Among those currently scheduled to release results next week:

30-Jan

Computacenter Pre-Close Trading Statement

31-Jan

McDonalds* Q4 Results
Spotify* Q4 Results
Standard Life Private Equity Trust Full Year Results

01-Feb

Entain* Full Year Trading Statement
Glencore Full Year Production Report
GSK* Q4 Results
Meta Platforms* Q4 Results
Novo Nordisk* Q4 Results
Severn Trent* Q3 Trading Statement
UK Commercial Property REIT Q4 Net Asset Value Update
Virgin Money Q1 Trading Statement
Vodafone* Q3 Trading Statement

02-Feb

Airtel Africa Q3 Results
Alphabet* Q4 Results
Amazon* Q4 Results
Anglo American Q4 Production Report
Apple* Q1 Results
BT Group* Q3 Trading Statement
Cranswick Q3 Trading Statement
Renishaw Half Year Results
Shell* Q4 Results

03-Feb

No FTSE 350 reporters

*Events on which HL will be updating investors