Interest rates were the focus for US markets this week after the Federal Reserve delivered its third consecutive three-quarter point increase on Wednesday (21 September) as widely expected.
US markets were weak going into the interest rate decision and extended their losses after chairman Jerome Powell doubled down on his hawkish stance, promising to ‘keep at it’ until the job of bringing inflation down was done.
Former Fed vice-chair Richard Clarida said in a Bloomberg interview Powell's comments reminded him of the famous Mario Draghi speech in 2012 when he said he would do ‘whatever it takes’ to save the euro.
The Fed's target policy rate is projected to be between 4.25% and 4.5% by the end of 2022 inflicting further pain on investors and the economy.
The central bank's latest projections see the economy skirting with recession this year with growth of 0.2% before rebounding to 1.2% in 2023.
FORD
The Detroit automaker suffered its worst day on the stock market in more than a decade after revealing that it is facing about $1 billion of extra inflation-related supplier costs. Ford (F:NYSE) lost roughly $7 billion off its market value as the share price plunged more than 12% in a day.
Supply problems have resulted in parts shortages that will prevent the company selling roughly 40,000 to 45,000 vehicles, primarily high-margin trucks and SUVs that haven't been able to reach dealers.
Despite the problems and extra costs, Ford affirmed its guidance for the year but set expectations for third-quarter adjusted earnings before interest and tax to be in the range of $1.4 billion to $1.7 billion. That would be significantly below the forecasts of some analysts, who had been projecting quarterly profit closer to $3 billion.
GENERAL MILLS
Shares in Cheerios and Lucky Charms maker General Mills (GIS:NYSE) hit an all-time high this week after the firm posted forecast-beating first quarter earnings and raised its full year outlook.
Net sales for the three months to August rose 10% on a like-for-like basis to $4.7 billion driven by higher retail prices and an improved product mix, while earnings per share rose 32% to $1.35, ahead of market estimates despite higher input costs.
Chief executive Jeff Harmening put the jump in sales down to rising demand for home cooking: ‘Significant inflation and reduced consumer spending power has led to an increase in at-home eating and other value-seeking behaviors.’
Given the strength of the first quarter and the firm's ‘ability to adapt to continued volatility’, Harmening raised his full year like-for-like sales growth guidance from 4% to 5% to between 6% and 7% and nudged up his earnings per share guidance, sending the shares up 6% to just shy of $80, surpassing their 2016 highs.
SALESFORCE
The market responded positively to a plan from CRM (customer relationship management) software specialist Salesforce (CRM:NYSE) to boost profitability over the medium term.
New finance chief Amy Weaver unveiled a fresh target for the 2026 financial year to hit an operating margin of 25%. This follows on from the 20% margin target announced for 2023 12 months ago and an adjusted operating margin for the most recent quarterly period of 19.9%.
A key lever in achieving this goal is reducing the level of sales and marketing spend from 44% at the last count to less than 35%.
Achieving this will mean productivity improvements, alliances with partners and self-service software offerings as well as using in-house marketing channels. There are also plans to reduce administrative costs - with language suggesting Salesforce will trim its real estate footprint to adapt to the world of hybrid working.
The company is sticking with a $50 billion revenue target for 2026 despite a $2 billion currency-related headwind from the stronger dollar.
