Supply chain chaos, surging costs set to plague Europe’s Q3 profits

Bloomberg

Cost pressures, supply-chain chaos and a reopening letdown are set to plague Europe’s third-quarter earnings season, setting investors up for more disappointment than elation.
While strong numbers from behemoths like LVMH and SAP SE reassured European stock investors last week, further good news may be needed to keep the rally alive. Rising inflation and a stalling global recovery pose a challenge to further market gains.
“We expect fewer positive earnings surprises, more cautious corporate guidance and less earnings upgrades by analysts,” said Robert Greil, chief strategist at German private bank Merck Finck. Pandemic-related chaos, post-Brexit customs checks and a shortage of truck drivers have wreaked havoc on supply chains.
Clothing companies have been sounding the alarm ahead of the all-important holiday season, with online retailer Asos Plc warning that supply-chain problems are set to hit profit, while Hennes & Mauritz AB and Boohoo Group Plc have flagged delivery delays. Asos and Boohoo shares plunged after the announcements. “We expect companies to struggle with supply constraints and rising input prices,” said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International.
Costs have been climbing for companies, a product of supply bottlenecks, surging commodity prices and a shortage of workers. Investors will be watching closely which firms have to swallow rising prices and which are able to pass them on to customers. “Special attention must be paid to the impact that logistical problems in supply chains, rising energy costs and upward pressure on labour costs may have on results,” said Jose Antonio Montero de Espinosa, head of European equities at Santander Asset Management.