News & Insight • Weekly Newsletters

07 February 2025 | Charlie Todd | William Buckhurst

That Was The Week That Was

MACRO

• US Non-Farm Payrolls data suggested US hiring slowed by more than anticipated at the start of 2025, growing by 143,000 during the month of January. However, December data was upwardly revised with a gain of 307,000 (from 257,000). The rate of unemployment remained unchanged at 4%
• Separately, the US ISM Services Index came in at 52.8 vs 54.0 expected and down on the prior month. The report noted that “like last month, many panellists also mentioned preparations related to potential US government tariff actions; however, there was little mention of current business impacts as a result”
• The Bank of England lowered interest rates by 25bps, taking the bank rate to 4.5%. The Bank halved its growth forecast to 0.75% while now expecting inflation to peak at 3.7% this year
• Markets fell sharply on the news that the US was set to impose 25% tariffs on Mexico and Canada and 10% tariffs on China, but then recovered somewhat as tariffs on Mexico and Canada were subsequently delayed after they agreed to reinforce the border with the US to clamp down on migration and the illegal trafficking of fentanyl
• French Prime Minister Francois Bayrou has forced the adoption of a 2025 budget bill by bypassing the lower house of Parliament and then survived a no-confidence vote. France remains without a full annual budget and is still reliant on emergency legislation to avoid a state shutdown

COMPANY NEWS

• Diageo fell after reporting first half results. Organic net sales grew by 1% (positive price/mix partially offset by a 0.2% volume decline); but uncertainty around industry trends and tariffs prompted CEO Debra Crew to abandon a 5-7% organic sales growth target set in 2021. In the same sector, Pernod Ricard results were less-worse as operating income declined 7.4% to €1.99bn vs €1.97bn expected. It lowered its outlook and guided to sales declines
• Shares in Disney finished lower after first quarter results. Earnings and revenue (up 4.8% to $24.69bn) were above consensus estimates but Disney+ subscribers fell to 124.6million and guided to a decline
• Toyota reported results which slightly beat revenue expectations but missed on operating income. It left its annual guidance for revenue and car sales unchanged, while increasing operating income forecasts by around 10% and its dividend forecast of 90 yen (from 75)
• Estee Lauder finished 16% lower even with earnings beating expectations and organic sales declining 6%, not as bad as forecast. However, the company guided to earnings of $0.20-$0.30 vs $0.63 expected with organic sales forecast to decline 8-10%, worse than forecast as management cited weak retail sales trends in the Asian travel retail business
• Shares in Ralph Lauren finished 9.7% higher after earnings and sales were better than forecast performance. The company guided to revenue growth of 6-7% vs 4.4% expected with margin expansion
• Fast Retailing, the owner of the Uniqlo brand reported sales growth of 8.8% for January. Sales were helped by colder winter weather in the first half of the month
• Uber were bumped down 7.5% after reporting fourth quarter results even with revenue rising 20% to $11.96bn, above consensus estimates. Monthly active platforms customers rose 14% to 171million, above expectations. The company guided to Q1 gross bookings growth of 17-21%. It was then revealed that Bill Ackman of Pershing Square had invested in the shares
• UBS finished 7.1% lower even with net income of $770m vs $485.7m expected with total revenue rising 7.2% to $11.64billion, slightly above consensus estimates. Wealth Management profits were below expectations but fortunately Investment Banking is bouncing back. Similarly, BNP Paribas investment banking revenue rose 20% with other divisions all better than forecast

GOOD PHARMA

Considering RFK Jr was voted out of the committee and will now face a full Senate vote for his nomination, shares in the healthcare sector were muted. AstraZeneca rose 5.9% after reporting fourth quarter results as earnings and future guidance were above consensus estimates. Bristol Myers Squibb shares fell 3.8% after reporting fourth quarter results. Earnings per share were $1.67 vs $1.47 expected with revenue rising 7.5% to $12.34bn, above consensus estimates but guidance was a little light. Novo Nordisk is trying to recover. It closed up 4.5% after reporting full year results better than forecast. The company guided to full year sales growth of 16-24% vs 19.3% expected and operating profit growth of 19-27%, above consensus. GSK shares jumped 7.6% after reporting fourth quarter results that beat across the board and expected 2031 sales of £40bn (v £38bn) reflecting late-stage pipeline progress. Merck fell 9% as earnings and sales beat mainly due to their Keytruda drug but guided to below consensus estimates. Pfizer results were rather muted

2 OF THE MAG 7……

…reported results:

• Alphabet shares declined 7% - which we think was harsh - after releasing results that fractionally missed expectations for revenue, while earnings modestly beat consensus forecasts. Fourth quarter revenues increased 12% and margins increased strongly, helped by the continued increase in profitability in cloud, where revenues are now $12bn up 30% year over year. Google Cloud Platform grew at a much higher rate and strong demand is being held back by a lack of available capacity – hence the continued expenditure – operating income is $2.1bn moving margins up to 17.5% from 9.4%. Like the hyper-scalers last week, all eyes were on the capital expenditure figures which for 2025 will reach $75bn, the majority of which is for servers and AI datacentres
• Shares in Amazon also finished lower (4%) which again we thought was slightly unfair. Quarterly operating income increased 61% year on year to $21.20bn vs $18.84bn expected with net sales rising 10%. Amazon Web Services (their cloud division) net sales growth of 19% was in line with consensus as subscription services growth of 10% was also broadly in line with forecasts. Margins in North America were 8% vs 6.5% expected due to the continued efficiency gains of having eight sorting hubs. On the other hand International margins of 3% were slightly below estimates but there is an opportunity for those to catch up. The company guided below consensus and analysts noted the slowing growth of cloud – it is still 30% (!)

Not a Mag7 share but a good read across to the semiconductor sector, Advanced Micro Devices shares fell nearly 9% after the company announced it would no longer give quarterly forecasts for AI chip revenues. Quarterly revenues for total data centre business came in at $3.9bn below expectations of $4.1bn, albeit up 69% year over year

THE WEEK IN HISTORY

1935: The Parker Brothers launch the boardgame Monopoly. Originally developed by Lizzie Magie in 1903 to educate players about the negative effects of business monopolies and unequal wealth,  a corner of the first board featured Lizzie’s political hero, the economist Henry George, whose ideas about the putting the burden of taxation on wealthy landowners inspired the game.

1996: Open Text, one of the early search engine companies, IPO’s