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What do you do after you’ve shown your best hand, and find out no one was that impressed? After being rebuked and scorned over a failed £50bn stab at taking over GSK’s consumer unit, Alan Jope’s answer is to chuck some money down on the table and pass the shoe.


Results from Unilever (ULVR) are decent but the announcement of a €3bn share buyback is not lifting the spirits of investors: shares have dropped 3% in early trading. Nor has the commitment to rule out making any large transformational acquisitions in the near term. You worry that buybacks are just a screen for a lack of strategy. Investors want to see more of a deliberate attempt to unlock value. 


Unilever delivered its fastest underlying sales growth for nine years at 4.5% for the full year, with 1.6% from volume, 2.9% from price. This was ahead of the 3.8% anticipated. Underlying profits rose to €9.6bn from €9.4bn, which was also a bit better than expected. Guidance wise, looking promising too: underlying sales growth in 2022 to be in the range of 4.5% to 6.5%, although again strong pricing will impact volumed.  


However underlying operating margins were down 10bps and management are warning they face significant input cost headwinds this year. 2022 underlying operating margin is expected to be down by between 140bps and 240bps at between 16-17%, against consensus above 18%. There is a definite theme emerging from earnings season on both sides of the Atlantic: those with pricing power and ability to defend margins will be rewarded in this inflationary business cycle – a theme we explored at the end of last year. Unilever say they currently expect “very high input cost inflation in the first half of over €2 billion”. And while this may moderate in the second half to around €1.5 billion, there is currently “a wide range for this that reflects market uncertainty on the outlook for commodity, freight and packaging costs”. They may boast about ‘strong pricing power’.


Hellman’s grew at double digits for a second straight year – who needs a purpose when you have growth? Investors will also be encouraged by the growth in ecommerce sales of 44%, which now account for 13% of group sales. This strategy is paying off, but it’s hard to escape the margin pressures. 


AstraZeneca (AZN) shares rose over 3% after the drugmaker said its Covid vaccine drove record sales last year. Q4 sales jumped 63% to $12bn vs $11bn anticipated. Amid all the good news and back-slapping management have announced the first dividend in ten years. Total revenues in 2022 are expected to grow in the high-teens.


Meanwhile, Relx (REL) shares declined close to 4% as it warned there is no clear outlook for the events industry in 2022. The company reported underlying revenue growth of 7%, and adjusted underlying operating profit of 13%. Management expect 2022 full year underlying growth rates in revenue and adjusted operating profit, as well as constant currency growth in adjusted earnings per share, to remain above historical trends. It’s also deploying £500m for buybacks and raised the dividend by 6%.  


Stocks in Europe are broadly higher again on Thursday, with the FTSE 100 again making a new pandemic high as it edges closer to 7,700. US markets ended higher on Wednesday, led by a strong rally for tech and communications. The Nasdaq jumped over 2% and the S&P 500 gained 1.5%, powered in part by good earnings from Disney and Uber. 


The Fed’s Mester said that while “each meeting is going to be in play” this year, she doesn’t see any “compelling case” to start with 50bps. Today’s US CPI inflation report could go a long way to telling us whether the FOMC goes with 50bps in March or just the 25bps. Core inflation is expected to rise by 0.4%, or 7.2% year-over-year. US 10yr yields are static around 1.94%, 2s at 1.36% in anticipation of a bunch of rate hikes this year and next. 


These comments from HSBC’s Steven Major: “We cannot rule out higher yields near-term but have not changed our lower-for-longer bond yield forecasts… Today our end-2022 forecast is 1.5% and for end-2023 it is 1.0%.” In other words, the Fed can hike but it’s only going to have to reverse at some stage on long-term growth implications. 

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