EasyJet, L’Oréal face inflation test: EMEA earnings week ahead

A smattering of reports this week — some of them unscheduled — gave a foretaste of the opportunities and risks that lie in store for European companies as the first-quarter earnings season gets underway.

Soaring sales at LVMH, benefiting from a comeback of Chinese shoppers, sparked a stampede for consumer stocks, while less ebullient results from BASF SE highlighted the struggle industrial heavyweights continue to face in passing on costs to customers.

Even as optimism grows that central banks are almost done raising interest rates, stubbornly high inflation remains a bane for companies and consumers alike. Profit growth forecasts for 2023 are 8% off their peak, according to strategists at Bernstein. Turmoil in the banking sector is also expected to weigh on results, adding to margin and revenue pressures and fueling recession concerns.

LVMH’s strong start to the year sets a high bar for consumer-focused companies, including French-Italian eyewear company EssilorLuxottica SA and cosmetics group L’Oréal SA, which are due to report next week.

Investors seeking clues on how the airline industry is faring heading into the crucial summer season got some mixed signals from American Airlines Group Inc. and Delta Air Lines Inc., with American warning on Wednesday that first-quarter profit would likely fall short of expectations and Delta predicting on Thursday that its earnings would top estimates. Eyes are now turning to discount carrier EasyJet Plc, which is set to give a trading update on Tuesday.

Tech companies will also come to the fore in the week ahead, with Dutch chipmaking equipment supplier ASML Holding NV and German business software giant SAP SE also due to report.

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Highlights to look for next week:

• Tuesday: EasyJet’s (EZJ LN) first-half update is due at 7 a.m. UK time. The airline, which serves beach and city destinations across Europe, should benefit from travelers trading down during the cost-of-living squeeze, according to Bloomberg Intelligence’s Conroy Gaynor. At the same time, EasyJet needs to do more to bring down its own costs, which are higher than those of low-budget peers Ryanair Holdings Plc and Wizz Air Holdings Plc. Softer jet fuel prices are a “relief” and should bring EasyJet closer to reaching its medium-term mid-teen Ebitdar margin goal, Gaynor said. Barclays analysts recently upgraded the stock to overweight, saying they expect European airlines to have performed well through the quarter and to remain “very confident about trading into summer 2023.”
• Wednesday: ASML (ASML NA) is set to release first-quarter results at 7 a.m. CEST. The company is expected to report stable sales growth on the back of robust demand for its chip-making machinery. Investors will also be watching for any commentary on geopolitical tensions and the impact of restrictions on exports of chipmaking technology to China. ASML has already provided some reassurances, saying the measures will not have a material effect on its financial outlook for 2023, or in the long term. First-quarter order bookings may be as important as sales and earnings, said BI’s Masahiro Wakasugi. If orders show “significant deceleration, that might be viewed as disappointing,” he said. Second-quarter revenue guidance will also be keenly watched. Analysts are factoring 18% growth to €6.42 billion, data compiled by Bloomberg show.
  • L’Oréal (OR FP) is expected to report first-quarter sales around 6 p.m. CEST. Its premium beauty units could see higher revenue and adjusted operating margin after Covid-19 restrictions in China were lifted, although growth in North America might be slower, according to BI’s Deborah Aitken. L’Oréal is adding luxury brand Aesop to its portfolio in a $2.5 billion deal, underscoring the company’s bet that demand for high-end products will outpace mass-market brands. While the currency benefits the company saw in 2022 are set to fade, cost savings and pricing could keep the advertising and promotional spending-to-sales ratio high.
• Thursday: EssilorLuxottica (EL FP) is scheduled to issue its first-quarter revenue update on Thursday, probably after market close. For RBC analysts, the strength of the wholesale business in March will be key. Revenue is estimated to have climbed 5.9% to €5.94 billion, according to data compiled by Bloomberg. Savings from the integration of GrandVision and rising sales in Asia and Latin America should alleviate inflation pressure on margins. The global rollout of its premium Stellest lenses should also help it counter an inflation squeeze, as demand from the company’s more affluent clients remains resilient, BI’s Diana Gomes and Aitken said.
• Friday: SAP (SAP GY) is due to report first-quarter results at 7 a.m. CEST. Profitability should get a boost from cost cuts and share buybacks may also be in the offing from the sale of SAP’s stake in Qualtrics, according to BI’s Anurag Rana and Andrew Girard. Management could embark on yet more cost cuts to offset a potential slowdown in new orders in the second quarter. While the Qualtrics sale would strip about €1.6 billion off sales, margins would jump roughly 100 basis points, they estimate.