Market news and updates from LVMH and PepsiCo.

Market News

US equity markets rose last night – S&P 500 (+0.5%); Nasdaq (+0.6%) – as traders scaled back their rate hike expectations. Mary Daly said rates won’t stay as high as they are now indefinitely and reiterated that the recent jump in Treasury yields may mean the Fed “doesn’t need to do as much.” Higher yields “could be equivalent to another rate hike,” she said. Neel Kashkari isn’t so sure, saying the impact on the rate outlook is unclear. Daly also said the neutral rate may be higher now than before the pandemic but won’t be as much as 5%. She sees it at “anywhere between 2.5 and 3.”

This morning in Asia, markets were followed Wall Street higher: Nikkei 225 (+0.6%); Hang Seng (+1.5%); Shanghai Composite (+0.1%). The FTSE 100 is currently little changed at 7,619. The 10-year US Treasury currently yields 4.6%, while gold is $1,867 an ounce.

UK starting salaries and pay for temporary workers rose at their slowest pace in two and a half years in September, a survey by KPMG and the REC found. That adds to signs that the labour market is cooling as higher interest rates weigh on the economy. The IMF says that the UK may need to hike rates to 5.5% and hold there. Sterling trades at $1.2295 and €1.1576.

Brent Crude held steady at $87.50 a barrel. Exxon Mobil is expected to announce an all-stock bid for Pioneer today worth more than $250 a share, people familiar said. The deal would value Pioneer at $58bn.

Hong Kong mortgage loans that exceed the property’s value may reach their highest since 2005 next year, Bloomberg Intelligence said. On the mainland, more than 80% of households remain unwilling or unsure about property purchases, according to Morgan Stanley. Some 42% expect lower prices over the next 12 months.

Source: Bloomberg

Company News

Last night, luxury goods bellwether LVMH released a revenue update, which highlighted a deceleration in the rate of growth as inflation and economic turbulence dented shoppers’ appetites for high-end products. In response, the shares have been marked down by 6%.

LVHM is the world’s leading luxury products group, which owns around 75 prestigious brands and a global retail network of over 5,500 stores.  In Fashion & Leather goods (50% of revenue), iconic brands include Loewe, Louis Vuitton, and Christian Dior. In Perfumes & Cosmetics (10%), the group owns Givenchy and Guerlain, while in Watches & Jewellery (13%), brands include Tag Heuer, Bulgari, and Tiffany & Co. In Wine & Spirits (8%), the group owns Moët & Chandon, Krug, Veuve Clicquot, Hennessy, Château Cheval Blanc, and Château d’Yquem. In Selective Retailing (20%), the group operates in two spheres: retail designed for the international traveller and selective retailing concepts such as Sephora and Le Bon Marche.

The company is a family-run group that seeks to build on the heritage of its ‘Houses’. A vertically integrated operating model controls every link in the value chain, from sourcing and production facilities to selective retailing. In 2022, the company generated revenue more than €79bn. Gross margins are high, in the mid-60s, while the operating margin is in the mid-20s.

In the first nine months of 2023, revenue grew by 10% to €62.2bn, and by 14% on an organic basis. However, in the third quarter, organic growth slowed to 9%, slightly below the market expectation of 11%.

By geography, Europe (+7%), Japan (+30%), and Asia (including Japan, +11%) all generated good growth. The US (2%) experienced a lower level of growth, albeit better than the 1% decline seen in the previous quarter.

By division, Fashion & Leather Goods generated organic growth of 9% in the third quarter, driven by Louis Vuitton. Perfumes & Cosmetics grew by 9% as the group maintained its highly selective distribution strategy and continued to innovate. Watches & Jewellery grew by 3%, while Selective Retailing was up 26% driven by Sephora. Wine & Spirits recorded a 14% decline in organic terms as the business faced moderating demand and tough year-on-year comparatives. In particular, Hennessy cognac was affected in the US by the economic environment, the post-Covid normalisation of demand, and the continued high inventory levels of its retailers.

The group hasn’t provided specific guidance but highlights that in uncertain geopolitical and economic backdrop, management is confident in the continuation of its growth and will maintain a strategy focused on continuously enhancing the desirability of its brands, excellence in distribution, and an agile organisation.

Source: Bloomberg

Yesterday lunchtime, PepsiCo released strong Q3 results and raised its full-year guidance. In response, the shares were up 2% during US trading hours.

PepsiCo is a global food and beverage company with annual sales of more than $86bn. The portfolio includes more than 20 brands that each generate more than $1bn of annual retail sales, including Frito-Lay, Doritos, Walkers, Quakers, Pepsi, Gatorade, and Tropicana. The group’s products are consumed more than one billion times a day in more than 200 countries and territories around the world. The long-term targets are organic revenue growth of 4%-6% and core constant currency EPS growth in the high-single-digits.

During the 12 weeks to 9 September, the business enjoyed continued strong business momentum, with net revenue up 6.7% to $23.45bn, in line with the market forecast. In organic terms (i.e., excluding currency and M&A), revenue growth was 8.8%, leaving the growth rate at 11.8% year to date. This is the tenth consecutive quarter in which the group has delivered at least high-single-digit organic revenue growth.

Net pricing accounted for 11 percentage points of the growth, with volume down 2.5%. The performance highlights the resilience of the group’s categories and consumer demand trends, with the global beverages and convenient foods businesses delivering 8% and 9% organic revenue growth, respectively. Growth was broad based across geographies, with the North America and International businesses delivering organic revenue growth of 7% and 12%, respectively. Consumer preferences have continued to evolve towards smaller packages that offer the benefits of convenience, variety, and portion control.

The core gross margin rose by 104 basis points, while the core operating margin grew by 82 basis points, reflecting ongoing cost management initiatives. Core constant currency EPS grew by 16% to $2.25, well above the market expectation of $2.15. Net debt ended the quarter at $34.5bn. For the full year, the group still expects total cash returns to shareholders of $7.7bn, comprised of dividends ($6.7bn) and share repurchases ($1.0bn).

While demand elasticity trends have remained favourable, the group is monitoring consumer spending patterns and behaviours in this dynamic and volatile macroeconomic environment and expect the global beverage and convenient foods businesses to remain resilient and perform well for the balance of this year. Full-year organic revenue is still expected to increase by 10% but core constant currency EPS is now expected to grow by 13% (vs. 12% previously and 9% at the start of the year). Looking further ahead, as category growth normalises, the group expects its full-year 2024 organic revenue and core constant currency EPS growth to be towards the upper end of its long-term targets.

Source: Bloomberg