Ericsson's European Earnings Next Week Show Testing Times

The positive mood on European stock markets since the beginning of the year may be challenged next week as a wave of quarterly results comes in.

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Now it's the turn of Cartier-owner Cie Financiere Richemont SA and trenchcoat maker Burberry Group Plc to reveal how they're faring as a potential economic downturn looms. This comes alongside embattled telecom equipment maker Ericsson AB and food-delivery firms Just Eat Takeaway.com NV and Deliveroo Plc.

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UK grocers Tesco Plc and Marks & Spencer Group Plc gave a foretaste on Thursday, keeping a lid on profit guidance even after strong sales updates showed shoppers splashing out over Christmas. Both companies reported strong sales growth for the holiday period, but cautioned that profits would be under pressure due to ongoing investment in their businesses. This cautious approach to guidance is in line with recent comments from other UK retailers, who have warned that the consumer environment remains challenging.

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Just Eat and Deliveroo have been struggling to keep up with rising costs and changing consumer behavior since lockdowns ended last year. Luxury goods buyers have been more accepting of price increases, and brands like Richemont and Burberry may benefit from China's reopening this month.
Meanwhile, Ericsson is attempting to put a scandalous past behind it and navigate US communications service providers pulling down their radio access network inventories. The company is angling for a greater share of growing 5G demand in India.
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Ocado Group Plc will give a fourth-quarter trading update for its retail joint venture with M&S at 7:00 a.m. GMT. Although M&S didn’t divulge Ocado Retail sales in its report, it did say sales volumes from the partnership represented about 30% of the average basket on Ocado.com over the Christmas peak. Data from Nielsen this week showed Ocado’s online market share gaining in Britain. Analysts expect the company to report adjusted Ebitda of £58 million ($71 million) this year, with estimates for 2022 averaging a negative £46 million after return to office policies meant fewer home orders last year. Investors will also keep a close eye on Ocado’s progress in adding more modules to recently-completed customer fulfillment centers after two planned CFCs in the northwest and southeastern England were postponed. The delay means its centers are concentrated in the greater London area, keeping marketing spending at a relatively high level of 3% of sales, said BI’s Charles Allen.

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Richemont's third-quarter sales update is expected to show sales growth slowing down. Analysts on average expect the luxury goods maker to post constant-currency sales growth of 8%, according to estimates compiled by Bloomberg. This is slower than the 16% growth logged over the first six months. However, growth is still expected to continue into the fourth quarter, with high-end luxury customers remaining "undeterred" by recent price increases in Richemont's Cartier line or persistent high inflation, said BI analyst Deborah Aitken. China's gradual reopening is expected to spur demand further and be a key growth driver throughout the rest of the year, according to Barclays Bank Plc analysts.

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Deliveroo's fourth-quarter update on Thursday will be closely watched for further progress toward its goal of reaching adjusted Ebitda breakeven in the second half of this year. The company may need to cut costs to make this happen, although trimming marketing spend could also hamper customer growth, according to BI's Diana Gomes. While gross transaction volume in the UK and Ireland rose 11% in the third quarter, the international segment dipped 2%, adjusted for currency effects. Deliveroo recently announced exits from Australia and the Netherlands amid strong local competition. Any plans for further retreats would be of interest.

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Ericsson's fourth-quarter report is due on Friday, but the company is not expected to close out its troubled 2022 with a bang. Analysts are forecasting a 5.9% decline in adjusted operating income, according to estimates compiled by Bloomberg. Shares of the company dropped almost 40% last year, which Handelsbanken analysts Daniel Djurberg and Fredrik Lithell attributed in part to a "lack of proper governance." The stock rallied on Thursday after the company disclosed a smaller-than-expected provision for a potential financial penalty in the US. It also announced plans to switch its chairman this week as it tries to clean up its culture following a series of scandals. The impact on Ericsson's gross margin from US communications service providers pulling down their radio access network inventories will be one focal point of next week's report, Handelsbanken said. Bloomberg consensus shows a gross margin of 43.2% in the fourth quarter.