Barclays posts profit before tax of £1.8bn for third quarter

  • Oct 26, 2019
  • Gulf Times

Britain’s Barclays said a worsening global economic outlook means it may be hard to meet its profit targets, despite reporting better-than-expected results at its under-pressure investment bank in the third quarter. The bank said it is on track to meet its 9% return on equity goal for 2019, but that the economic environment means achieving its 10% target next year will be tougher.

“We acknowledge that the outlook for next year is unquestionably more challenging now than it appeared a year ago, in particular given the uncertainty around the UK economy and the interest rate environment,” chief executive Jes Staley said.

Barclays reported profit before tax of £1.8bn ($2.31bn) for the July-September quarter, above analyst forecasts of £1.5bn, though those figures excluded a previously announced provision against insurance mis-selling.

The lender also said it had agreed with regulators to account its risk-weighted assets more in line with British peers, resulting in an increase in its target core capital ratio to 13.5%. The figure stood at 13.4% at the end of the quarter, below the new target, but Barclays stuck with its earlier guidance that it would triple its 3 pence interim dividend for the year-end payout.

The bank’s overall profits were marred by a £1.4bn provision to compensate customers mis-sold payment protection insurance (PPI), in the middle of the £1.2bn-£1.6bn range the bank had forecast. Staley told reporters that the hit had constrained the bank’s plans to return even more cash to investors, such as through buybacks. The bank said it was still wading through more than two million claims or requests for PPI information at the end of the third quarter and could not be certain the provision it had taken would be final, saying it would have a better idea at the end of the year.

John Cronin, banking analyst at Goodbody, said the raised capital target would further limit Barclays’ ability to increase payouts to shareholders. 

Profits at its investment bank rose 67% in the third quarter compared to a year earlier, boosted by a 19% increase in fixed income, currencies and commodities trading and an impressive 5% increase in equities revenue where peers have struggled recently.

Verizon Communications

Verizon Communications Inc beat Wall Street estimates for third-quarter profit and revenue yesterday, as the largest US wireless carrier cut prices of its unlimited plans to pull in more subscribers who pay monthly bills.

The results underscore the company’s focus on strengthening its core wireless business in a highly competitive US market by also adding free streaming content to its unlimited plans.

Verizon said earlier this week that it would offer a free one-year subscription to Walt Disney Co’s soon-to-be-launched Disney+ streaming service, taking aim at rival AT&T Inc that is set to launch streaming service HBO Max later this month.

“We added Apple Music and will now have Disney+. As we make it easier for people to step up into unlimited, that brings value for us as well,” Verizon chief financial officer Matt Ellis told Reuters.

Verizon introduced four new pricing plans for its unlimited packages in the third quarter, starting at $35, and expanded its 5G services to four new cities, taking the total to 15. That helped add 615,000 postpaid customers in the latest quarter, well above analysts’ estimates of 527,000, according to research firm FactSet. Postpaid subscribers, or those who pay monthly bills, are valuable to telecom companies as they provide a steady stream of revenue and tend to stick longer than prepaid users.

Vijay Jayant at Evercore ISI said while price cuts helped the company add subscribers, the cost per upgrade was likely higher, given the launch of Apple Inc’s iPhone this year. Meanwhile, revenue in Verizon’s media unit slipped 2% to $1.8bn from a year earlier. Net income rose to $5.34bn, or $1.25 per share, in the three months ended September 30 from $5.06bn, or $1.19 per share, a year earlier. Excluding items, Verizon earned $1.25 per share, edging past analysts’ average estimate of $1.24, according to IBES data from Refinitiv. Total operating revenue rose nearly 1% to $32.89bn, beating the estimate of $32.75bn.

Phillips 66

Phillips 66 beat analysts’ estimates for quarterly profit yesterday, as the refiner benefited from higher retail fuel margins, sending its shares up 4.4% to their highest in more than a year.

The Houston, Texas-based company, which retails fuel under brand names such as Conoco, 76 and JET, buys refined products from the market and resells them across its about 9,000 outlets spread across the United States and Europe.

The business, marketing & specialities, was helped by an 18% drop in crude prices in the third quarter that reduced the cost of the refined products like gasoline and aviation fuel.

“The beat was driven by stronger-than-expected results across all segments, but marketing & specialities particularly exceeded our expectations,” Morgan Stanley analysts wrote in a note.

Marketing fuel margins of $2.11 per barrel in the United States and $6.37 per barrel internationally was about 30-60% higher than the brokerage’s estimates. Adjusted earnings in the unit rose nearly 30% to $498mn in the third quarter. Profit in its midstream segment, which transports and stores crude, natural gas liquids (NGL) and exports liquefied petroleum gas, jumped more than 40% on the back of higher pipeline volumes and hydrocarbon trading. Houston-based Phillips 66 has been beefing up its midstream assets, expanding its US Gulf Coast NGL market hub, as well as adding storage capacity at Texas-based Clemens Caverns facility and Beaumont Terminal. Net earnings more than halved to $712mn, or $1.58 per share, in the three months to September 30.

Tata Motors

Indian automaker Tata Motors reported yesterday narrowed losses as growing demand in China for Jaguar Land Rover offset dire conditions in its home market, beating analyst predictions.

The company which owns Jaguar Land Rover (JLR) lost Rs2.17bn ($30.6mn) in the three months to September, down from a loss of Rs10.49bn in the year-earlier quarter. Revenues dipped by 9%. The heavily indebted company has now suffered losses in five of the last six quarters. In the June-ended quarter, it had lost Rs36.99bn.

“Jaguar Land Rover has improved its performance this quarter and delivered a well-rounded performance.

In particular, the improvement in China on the back of better operational metrics is reassuring,” Tata Motors said.

Tata said its British arm JLR reported a pre-tax profit of £156mn ($200mn) and sold 134,489 units, up by 2.9%. Tata shares had spiked almost 15% last week on hopes of an orderly British exit from the European Union.

Britain, the EU and China are JLR’s key markets. But with India’s automobile sales down for the 11th-straight month in September, chief executive Guenter Butschek said the entire domestic industry was suffering. “Growth continues to be impacted by subdued growth, higher capacity from the new axle load norms, liquidity stress, low freight availability, weak consumer sentiment and general economic slowdown,” Butschek said.

Charter Communications

Charter Communications Inc edged past analysts’ estimates for third-quarter revenue and profit yesterday, as the cable operator attracted more customers for its broadband services, offsetting a drop in pay TV subscribers.

The second-largest broadband provider in the United States added 282,000 residential customers in the third quarter ended September 30.

The growing popularity of streaming services offered by Netflix Inc, Hulu, and Amazon.com’s Prime video has encouraged a trend of “cord cutting”, hurting cable companies.

Netflix added slightly more paying subscribers than Wall Street expected in the third quarter, just as Disney and Apple prepare to launch rival services, heating up streaming video wars.

The change in consumer behaviour has driven companies including Charter and Comcast Corp to focus on their broadband businesses and high-speed internet upgrades as they look to stay ahead of the curve in the rapidly changing media landscape.

Comcast beat Wall Street profit and revenue estimates on Thursday, as the company added high-speed internet customers.

Charter reported a loss of 75,000 residential video customers in the quarter.

Third-quarter total operating costs and expenses increased by $423mn, or 6.1%, from a year earlier. Net income attributable to shareholders fell to $387mn, or $1.74 per share, in the reported quarter from $493mn, or $2.11 per share, a year earlier.

Wartsila

Finland’s Wartsila warned yesterday of a tough outlook for 2020 due to weaker demand for its ship technology and power plants and took a surprise multi-million euros charge on project cost overruns.

Shares in the engineering group plummeted to their lowest level in seven years. “We are going to have, for the next year, a very challenging year,” chief executive Pekka Vauramo told a conference call.

The downbeat statement came only weeks after Wartsila on September 18 issued a profit warning on a weaker-than-expected order intake, saying its comparable operating profit would fall by €100mn ($111mn) from the year before.

The company yesterday cut the 12-month demand outlook for its energy business to “weak” from “soft” after the unit fell to an operating loss of €9mn and sales declined 47%.

“If the downward trend of (energy equipment orders) continues and they keep being postponed, then we will be in a challenging situation,” Vauramo told Reuters, attributing the decline to the transition to cleaner energy as well as to political and financial uncertainty in developing markets.

Wartsila’s exhaust gas cleaning business volumes have been growing as owners install sulphur scrubbers on new ships to comply with stricter rules coming into force on January 1. But Vauramo said clients had begun to postpone scrubber investment decisions to see how marine fuel prices react to the new rules. “The outlook for sulphur scrubbers has not weakened,” he said. For the third quarter to September 30 Wartsila’s comparable operating profit fell to €39mn from 141mn a year earlier.

It made a loss per share of €0.01 versus a profit of €0.17. Analysts had expected a profit of €0.09 per share, a Refinitiv poll showed.

Nordzucker

Germany’s second-largest sugar refiner Nordzucker yesterday posted a first-half pretax loss of €12mn ($13.3mn), citing continued low sugar prices.

Unlisted Nordzucker had posted a €36mn loss for the 2018/19 full year and said in May it that it expected a loss in its 2019/20 financial year. Europe’s sugar producers continue to suffer from the double blow of low sugar prices and European Union market liberalisation that has exposed them to depressed world markets.

Germany’s Suedzucker, Europe’s largest sugar refiner, also posted a fall in earnings this month on depressed sugar prices.

Nordzucker acknowledged its “business situation remains challenging” and that its first-half losses had been expected because declining volumes and sugar prices that doe not cover costs.

Global sugar prices ended 2018 at their lowest in 10 years amid heavy oversupply and hit 11-month lows in early September. Comprehensive cost cuts by Nordzucker, especially in administration, reduced its losses but did not fully offset them, the company said.

Eni

Energy group Eni achieved its highest ever oil and gas production rate for a third quarter, softening the blow of lower quarterly earnings because of weak oil and gas prices.

The Italian company generates around 90% of its operating profit from its upstream oil and gas business. Major gas discoveries in Mozambique and Egypt have given the company the strongest discovery record in the industry, boosting its credentials with oil-producing nations.

Eni said yesterday production jumped 6% to 1.89mn barrels of oil equivalent per day (boed) in the three months to September, boosted by its giant Zohr field in Egypt and new acreage in Mexico.

The company expects production to increase further in the final quarter and said it would now add 700mn boed of output this year from a previous estimate of 600mn boed.

Third-quarter adjusted net profit fell 44% to €776mn ($862mn), impacted by lower commodity prices and the loss of earnings from its former Eni Norge business. The result was just above an analyst consensus provided by the company of €0.77bn.

CEO Claudio Descalzi said despite the 50% drop in gas prices in the third quarter and the fall in crude by $13 per barrel cash flow remained solid.

The group, which reported a 23% drop in cash flow in the quarter, confirmed a 2019 target for cash flow from operations before working capital at replacement cost of €12.8bn.

Electrolux

Swedish appliance maker Electrolux reported quarterly profit that narrowly topped forecasts and reassured investors it could shrug off the pinch from currency swings, higher costs and tariffs, sending its shares sharply higher.

Electrolux and US rival Whirlpool Corp have spent the year pushing price hikes and greater efficiency as they seek to cushion the blow from higher raw material costs and tariffs on goods such as steel and aluminium.

The Swedish company said it expected a hit of 1.6bn crowns — the top end of its previous forecast — from higher raw material costs, trade tariffs and currency swings this year, but that pricing would fully offset that.

“The net increase is driven by a more unfavourable currency impact, while raw materials and trade tariffs combined are expected to have a less negative impact compared to our view a quarter ago,” CEO Jonas Samuelson said.

“For the first nine months of 2019, price has fully offset this headwind and we expect that to also be the case for the full year.”

Operating earnings at the maker of appliances under brands such as Electrolux, Frigidaire and AEG fell to 1.19bn crowns ($123mn) from 1.76bn crowns a year ago, just topping a Refinitiv mean analysts’ forecast of 1.12bn. Earnings included a hit from non-recurring items of 412mn crowns, an impact previously flagged by the company that was also largely reflected in analysts’ estimates.

“Despite higher headwinds (on currency), Electrolux comments that it can continue to offset headwinds on price,” Citi said in a research note.”Combined with the operating income beat in Q3’19, this should be seen as positive.”

Essity

Swedish hygiene products maker Essity reported an unexpectedly big jump in core third-quarter profit yesterday, helped by easing raw material costs, higher sales volumes and price hikes, sending its shares up 4%. After its 2017 listing, tough markets and a sharp rise in prices for raw materials such as pulp put pressure on Essity, the world’s biggest maker of hygiene products for businesses and incontinence products under the Tork and TENA brands.

But pulp prices have started to drop, and Essity’s shares had already climbed 32% this year on the back of cost cutting, higher product prices and hopes it would start benefiting from the drop in pulp prices. Essity, also the second-largest maker of consumer tissue such as toilet paper and handkerchiefs, said profit before amortisation and restructuring costs rose 38% to 4.2bn crowns ($433mn) from a year ago.

Analysts polled by Refinitiv had predicted a 3.8bn crown profit.

“With raw material prices having eased, Essity is now reaping the benefits of a disciplined approach to pricing during times of high input prices as well as proactive efforts to structurally improve margins,” analysts at Liberum commented.

The only division to still see raw material costs rise in the quarter was Personal Care, which uses oil-based products as well as pulp.

CEO Magnus Groth told analysts and journalists in a conference call raw material costs for the consumer tissue business, which uses mainly virgin fibre, would be substantially lower in the fourth quarter than in the third.

He said the professional products unit, which also uses recycled fibre, would see stable raw material costs, as would Personal Care.

Problems with new production capacity pushed up production and distribution costs in the third quarter, and Essity said it therefore now sees ongoing savings outside the cost-cutting scheme at 600mn-700mn crowns this year, down from initially planned savings of 1bn.

Banco Sabadell

Spain’s Banco Sabadell almost doubled its third-quarter net profit as provisions related to IT failings at its British bank TSB fell, lifting its shares close to 1% yesterday.

Spanish banks have gone abroad in search of higher revenues, but Sabadell’s 2015 purchase of TSB has been marred by major technology glitches, which last year led to losses of €240mn at the British bank. For the first nine months of 2019 TSB lost €5mn, after booking a restructuring charge of €15mn in the third quarter. Sabadell’s chief financial officer Tomas Varela told analysts in a call that TSB could book some additional charges in the last quarter of the year.

TSB will present its strategic plan on November 25, which is expected to focus on costs and growing small business lending.

Sabadell said its overall net profit for the quarter was €251mn ($279mn), compared to €127mn a year before and higher than the €231mn forecast in a Reuters poll of analysts. In the same quarter last year Sabadell had one-off costs of €88mn related to the TSB IT outage. Although third quarter net profit was down 8% against the previous quarter, Sabadell said it was on target to meet its return on equity target of more than 6.5% by the end of 2019 after it finished September at 6.9%. “A sound set of numbers...that should support the stock, also in the context of management confirming most points of this year’s guidance, which should reassure consensus and provide further support to our forecasts,” UBS said in a client note.

Ultra low interest rates squeezed Sabadell’s net interest income (NII), a measure of earnings on loans minus deposit costs, which fell by 2.9% in the third quarter to €906mn from a year earlier, but was slightly better than forecast.

Like other European banks, Spanish lenders are struggling to increase earnings from lending because of ultra-loose monetary policy. Sabadell lowered its NII guidance to between 0 and -1% in 2019 in July, before the ECB cut rates deeper into negative territory in September.

It had previously forecast NII growth of 1%-2% for 2019.

In an attempt to offset increasing competition, Spanish banks are focused on cost-cutting and shifting to more profitable consumer and enterprise business, while also building up their capital positions. At the end of September, Sabadell increased its core tier-1 capital ratio by 21 basis points to 11.4%. Taking into account real estate asset disposals, Sabadell said its pro-forma core-tier 1 capital ratio was 11.8%, which its CFO said would be its reported target for the end of the year.

Epiroc

Sweden’s Epiroc reported a smaller-than-expected third-quarter operating profit rise and a fall in organic order intake, sending shares in the mining equipment maker down 9%yesterday.

“Equipment orders from infrastructure customers were particularly soft,” CEO Per Lindberg said in a statement.

“Our mining customers are cautious and investment decisions are being postponed.”

The company, spun off from Atlas Copco in 2018, said organic order intake fell 6% and warned it expected demand in the final months of 2019 to remain at about the same level as in the third quarter. “The economic environment continues to be uncertain,” Lindberg said.

In contrast, rival Sandvik beat earnings forecasts last week and posted a 5% rise in organic order intake at its mining unit.

“Overall we view this as a soft set of results and particularly in the context of the strong run in the share price into results,” Credit Suisse said in a research note on Epiroc.

“The demand outlook guide does not support Q4 orders and we expect the shares to be weak today.” JP Morgan analysts said.

Epiroc said it had cut staffing in recent months, mainly in manufacturing, and had identified further efficiency action which would be carried out in the coming quarters.

Restructuring accounted for much of the 233mn crowns in non-recurring costs recorded in the quarter, a hit missed by most analysts.

As a result, operating profit edged up to 1.93bn Swedish crowns ($199.7mn) from 1.90bn, short of the 2.24bn expected by analysts, according to Refinitiv data.

KPN

Dutch telecom company KPN yesterday beat analysts’ expectations with a nearly 3% rise in its third-quarter core earnings to €599mn ($665.1mn), as cost cuts compensated for lower revenue.

KPN in recent years sold its international activities and now mainly sells telephone, internet and TV services in the Dutch market.

Company’s third-quarter revenue dropped 1.8% to €1.37bn, dented by fierce competition in the telecom market and declining sales of handsets.

Analysts polled by the company on average predicted adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) in the third quarter to come in at €589mn.

KPN had posted an EBITDA of €582mn last year.

“Our quarterly performance continues to reflect a mix of an ongoing competitive environment and the impact of our strategic actions”, Chief Executive Joost Farwerck said.

Insider Farwerck was appointed as KPN’s CEO earlier this month amid a wider management revamp, a day after the company dropped its plan to name Belgian executive Dominique Leroy to the job — after she became embroiled in an insider trading investigation in Belgium.

In his first results presentation, Farwerck increased the outlook for the company’s 2019 free cash flow to at least €700mn from an earlier indication of an incidental decline.

Renault

Renault is on the hunt for new partners to buy its cars and components as it reported a fall in quarterly revenue and pushed ahead on a strategic review with “nothing off the table”.

The review is expected to be completed within a few months and investors are hoping that will allow Renault to turn a page on months of uncertainty after the arrest last year of Renault-Nissan alliance boss Carlos Ghosn.

All aspects of the business – including Renault’s longtime, high-profile participation in Formula One motor racing – are being examined, interim CEO Clotilde Delbos told analysts.

Group revenue fell 1.6% to €11.3bn in the third quarter, weighed down by a drop in production at partners Nissan and Daimler and declining demand for diesel engines which compounded the effects of a slowing global market.

Sales by volume in the quarter were down 4.4%. Shares in Renault, which owns 43.4% of Japanese manufacturer Nissan, were largely unchanged after publication of the company’s quarterly results.

Investors had already digested the news about weaker revenue since the company issued a profit warning last week, which Delbos said was partly due to a decline in sales to partners.

Besides selling Renault-branded vehicles, the company also uses its plants to manufacture vehicles for its partner, Nissan, and for Daimler, and it is a specialist in making diesel engines for other automakers.

Sales of the vehicles it makes for partners have slowed, with a knock-on effect on Renault’s revenues, while demand for diesel engines in Europe has declined.