On Wednesday, Reckitt Benckiser, a company known for its products such as Vannish, Air Wick, Dettol, and Strespsils, released the Q3 report, highlighting significant revenue growth difficulties, especially in Hygiene. 

The net revenue witnessed a positive like-for-like revenue growth of 3.4%, driven by a robust and widespread expansion of 6.7% across the hygiene and health segments combined.

However, the impact of adverse currency swings meant that reported revenue fell 3.6%. Group volumes slipped 4.1% in the third quarter.

Reckitt Benckiser shares were down 5% at the time of writing.

Within the nutrition sector, there was a revenue drop of 11.9%.

Hygiene achieved a noteworthy net revenue growth of 8.1% on a like-for-like basis. This substantial expansion was driven by across-the-board growth in all primary categories, propelled by double-digit increases in both Finish and Vanish.

While Reckitt’s Nutrition Products continues to maintain its leadership position in the US market, it also successfully navigated past a supply issue experienced by a competitor in the previous year.

Health experienced a like-for-like net revenue growth of 5.4%. The growth was primarily fueled by the OTC (over-the-counter) and intimate wellness portfolios, while Dettol and VMS (vitamins, minerals, and supplements) remained generally stable.

Danni Hewson, the head of financial analysis at AJ Bell, said in a comment to UK Investor Magazine that “to be fair, nutrition is suffering in comparison with the same period last year when a US competitor faced temporary supply issues with its infant formula, but the specialist in health and hygiene branded goods saw a pretty significant drop in volumes across the board, compensated for by rising prices.”

Danni Hewson added that “There may be concern in the market that this reflects a shift in consumer behavior with people switching out of the likes of Nurofen and Finish dishwasher tablets into own-brand alternatives. While for drinks, snacks, and other food items people might be willing to push the boat out and still buy their favourite brands, can the same hold true for cleaning products and over-the-counter medicine? If not, then Reckitt risks losing any reputation for pricing power.”

On Tuesday, Microsoft Corp. released Q1 data, which shows that revenue was up 13% (up 12% in constant currency). Microsoft shares rose 4.4% in after-hours trading.

Operating income reached $26.9 billion, reflecting a 25% increase (or 24% in constant currency). Net income amounted to $22.3 billion, a 27% rise (or 26% in constant currency).

According to Amy Hood, executive vice president and chief financial officer at Microsoft, “consistent execution by our sales teams and partners drove a strong start to the fiscal year with Microsoft Cloud revenue of $31.8 billion, up 24% (up 23% in constant currency) year-over-year”.

In the last quarter, Microsoft’s Intelligent Cloud division, home to the Azure cloud computing platform, generated $24.3 billion in revenue, surpassing analysts’ expected $23.49 billion, according to LSEG data.

Azure’s revenue increased by 29%, surpassing the 26.2% Visible Alpha estimate.

According to Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, “Microsoft’s come out the gate swinging this quarter. A resilient set of numbers highlights how well it’s placed to capitalise on the world’s growing need for cloud solutions. So few companies can afford a seat at this table that Microsoft’s able to dig in. With that said, growth is expected to moderate, despite being resilient in the scheme of things.”

“End customers are likely going to trim spending while they ride out the economic storm, meaning blockbuster tech budgets are on the chopping block. The potential for Microsoft to do exceptionally well with generative AI remains, but the exact moment in time that this technology will be adopted at large will depend on when corporate spending picks up pace, and confidence needs to improve before that can happen,” Sophie Lund-Yates concluded.

Lloyds shares were down in early trade on Wednesday after the UK bank said net interest margin – a key measure of operational profitability – fell in the last quarter.

Lloyds shares were down 2.4% in early trade, breaking through the significant 40p mark, before rebounding.

Net interest margin (NIM) fell to 3.08% in the third quarter, a drop of 6 basis points compared to the previous quarter. The drop in NIM was a result of challenges in mortgage pricing and competitive influences on deposit interest rates.

However, unlike Barclays yesterday, Lloyds maintained their full-year net interest margin guidance at ‘greater than 310 basis points.’

Customer deposits were steady in the period as increased savings and wealth deposits offset a reduction in current account balances.

“Lloyds’ retail deposit base has put in a steady performance over the quarter as it managed to keep hold of savers looking for better rates. As we’ve seen over recent quarters consumers are conscious of the rates they’re receiving on current account deposits and are off in search of higher yields. Lloyds did see a 3% dip in current account values and has seen over £9bn in outflows year to date, but was able to make up for the loss this quarter with inflows into its savings products. These are less profitable products, and net interest margin was a touch lower than expected,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

There were bright spots in Lloyds’ update. Lloyds were relatively upbeat on the macro outlook to the extent they set aside less than expected for bad debts. Lloyds only recorded £187m in impairment charges in the third quarter compared with £668m in the prior quarter.

Lower than expected impairment charges saw Lloyds’ profit rise to £2bn in the third quarter.

“Impairments came in less than expected, as Lloyds continues to see macroeconomic conditions improving. Consumers facing higher living costs may not be feeling any release of pressure, but they’re managing finances well and remain remarkably resilient, with arrears levels stable,” Britzman said.

Although Lloyds has yet to see any major deterioration in the health of its loan book, there were undertones of caution in the decision to hold off bringing forward any share buybacks.

Britzman added “there was chatter that Lloyds may lean on its strong balance sheet to push forward full-year buyback plans. But prudence is on the cards, and investors will have to wait until full-year results more any indication on the size of planned distributions – given the levels of excess capital floating about, there’s potential for surprise on the upside.”

On Tuesday, Hermes reported a solid 15.6% sales growth in Q3, surpassing analyst expectations.

Hermès shares are up 1.30% and were trading at €1,719 at the time of writing.

Hermès consolidated revenue at the end of September totalled €10,063 million.  Sales were up 22% at constant exchange rates compared to the same time last year. At the constant exchange rates, sales were up 17%.

According to the Executive Chairman of Hermès, Alex Dumas, “The solid performance in the third quarter reflects the desirability of our collections all over the world, with still a sustained momentum in Asia and in the Americas. More than ever, in an uncertain global environment, we are reinforcing our investments and our teams to support growth.”

After Hermès raised prices by 7% this year, sales in Europe were up 20% in Q3 (+22% in France).

According to analysts, this success in the face of an unstable economic and geopolitical climate is largely driven by brand loyalty and the so-far timeless value of the iconic Hermès Birkin bags, the value of which can go up to €200,000.  

According to Steve Clayton, head of equity funds at Hargreaves Lansdown, “it all shows the value of brands positioned at the very top end of their segments. Buyers who want a Birkin handbag have to join waiting lists, making Hermes’ revenues highly predictable. It also helps that Hermes has been less reliant on Asian and Chinese demand. Their growth this quarter has come from customers in the US and Europe, suggesting that right now, at least, old money is more dependable than new.”

FTSE 100 distribution company Bunzl said in a trading statement on Tuesday that their Q3 revenue was down 4.8% at a constant exchange rate.

Bunzl said the reduction of COVID-19 related sales hit revenue. Additionally, the current rate of inflation and “wider post-pandemic-related normalisation trends drove expected volume weakness consistent with the prior quarter,” Bunzl stated.

The reduced number of trading days had a negative 0.8% impact on revenue. Acquisitions contributed to 2.0% growth at constant exchange rates, but the disposal of the UK healthcare business lowered revenue by 1.3%.

Despite a decline of 8.8% in group revenue over the quarter at actual exchange rates, the operating margin remained very strong.

According to the statement, while announced acquisitions of enterprises, such as CT Group, a surgical and medical device distributor, will provide a boost, a decline, influenced by prior strong growth and the UK healthcare disposal, is expected.

The operating margin for 2023 is forecast to achieve a record level similar to recent years.

According to Frank van Zanten, Chief Executive Officer at Bunzl, “Our performance continues to highlight the strength and resilience of the Group’s business model, with revenue over the quarter 29% higher and operating margin substantially higher than the comparable period in 2019 at constant exchange rates.”

He added that “I remain confident in our ability to sustain a higher operating margin compared to pre-pandemic levels, supported by the acquisitions we have made over the period. Furthermore, today we announce our 13th and 14th acquisitions of 2023, with a total year-to-date committed spend of more than £425 million. I remain excited by the Group’s medium-term opportunities, which continue to be driven by our proven compounding growth strategy and active acquisition pipeline, supported by a strong balance sheet.”

The FTSE 100 was marginally lower on Tuesday as London’s leading index broke down and touched the lowest level since August.

However, the declines were more benign than recent selling in UK stocks and trading down 4 points at 7,370, the FTSE 100 was well off the lowest levels of the session at the time of writing on Tuesday.

There was a tentative improvement in sentiment as expectations of a Bank of England rate hike receded after news the UK jobs market was showing signs of cooling.

That said, good news for financial markets may not necessarily translate to good news for the UK economy in the medium term.

“This isn’t the agony of a collapsing jobs market: it’s the chronic malaise of an economy growing gradually weaker. With employment falling slightly, unemployment rising, economic inactivity up and vacancies dropping again, optimism is ebbing slowly away. We need to prepare for more difficult times ahead,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.

“There’s no need to panic. Vacancies are still well ahead of pre-pandemic levels, and while there was a bump in redundancies in August, there’s no clear overall shift in job losses just yet.”

Interest rate hopes

A weaker jobs market will provide the Bank of England the ammunition it needs to hold off hiking rates at the next meeting. The prospect of rates remaining on hold is undoubtedly a positive for stocks, and the UK’s jobs news helped offset weakness in UK banks on Tuesday.

“The FTSE 100 was steady on Tuesday morning as UK jobs numbers suggested further loosening in the labour market,” said AJ Bell head of financial analysis Danni Hewson. 

“With banks on the back foot thanks to Barclays’ mixed quarterly results, the miners were doing the heavy lifting for the UK’s flagship index as they moved higher on positive analyst commentary.”

Barclays shares were down around 5% at the time of writing after lowering their guidance for net interest margins as completion heats up for the UK’s retail banking customers. Investment banking activity also missed expectations.

Housebuilders provided minor support for the index on the prospect of steady interest rates for the rest of this year. Taylor Wimpey gained 0.4% and Barratt Developments added 0.2%.

As alluded to by Danni Hewson, miners rebounded from a sell-off yesterday and were among the top gainers. Rio Tinto gained 2% and Anglo American added 1%.

Bunzl was 4% lower after revenue declined in the third quarter.