Graeme Wearden 

Profits warnings from British Airways, Pearson, and Imperial Brands – business live

Rolling coverage of the latest economic and financial news, as IAG, Pearson and Imperial Brands all warn on profits
  
  

A British Airways plane at Heathrow Airport
A British Airways plane at Heathrow Airport Photograph: Gareth Fuller/PA

Here’s my colleague Gwyn Topham on BA’s troubled relations with its pilots.

British Airways pilots have warned the airline that it risks prompting more strikes after BA blamed industrial action for falling profits and took a €137m hit from the walkouts.

International Airlines Group warned of a 6% drop in annual profits after revealing the high cost of strikes this month that led to more than 2,000 flight cancellations.

Balpa, the pilots’ union, said its BA members believed the carrier’s management was “treating them with contempt”, and had asked Balpa to consider more strike dates.

The FTSE 100 is on track to finish at an eight-week high - even though today’s financial results are mostly bad.

President Trump’s trade war optimism is helping - even though it’s light on detail, and perhaps aimed at distracting the markets from this week’s whistle-blower revelations.

Connor Campbell of SpreadEx says:

Putting them all to shame was the FTSE, which let rip with a 100 point surge, leaving it at 7380 and near an 8-week peak. This despite some serious casualties amongst its ranks: Pearson fell 14% on problems in its US higher education courseware business; Imperial Brands shed 11% thanks to fears surrounding the crackdown on vaping in America; and IAG lost 3.5% as it took a heavy hit from the month’s pilot strike.

Keeping the FTSE buzzing was its commodity sector, obviously influenced by Trump’s trade deal rumours, alongside the continued misery of sterling. The pound failed to make any in roads regarding a recovery of yesterday’s losses; instead the currency spent much of the day flat, paralysed by all the recent talk of a general election.

Cruise operator Carnival warns on profits

We have ANOTHER profits warning - our fourth of the day.

Cruise operator Carnival Corp has cut its full-year profit forecast (for the third time), and warned that higher fuel prices will hurt earnings.

The company said it now expects adjusted earnings of $4.23 to $4.27 per share in 2019, down from its earlier forecast of $4.25 to $4.35 per share.

It cites recent geopolitical events (such as the attack on Saudi Aramco’s massive oil production facilities) for pushed crude prices up.

Shares in Carnival have dropped by 8% in London,

MPs to investigate Thomas Cook collapse

Just in: Thomas Cook’s CEOs, directors and auditors are to be investigated by MPs keen to discover who is to blame for its collapse.

The House of Commons Business, Energy and Industrial Strateg Committee has just announced it will hold an inquiry into Thomas Cook, starting in mid-October.

Rachel Reeves MP, chair of the committee, says the “sorry tale of corporate greed” needs to be exposed (Thomas Cook’s three CEOs were paid over £35m in the last 12 years, before the firm collapsed owing £1.7bn on Monday).

“Amid the frustration of holidaymakers and the misery of thousands of staff losing their jobs, the collapse of Thomas Cook has uncovered what appears to be a sorry tale of corporate greed, raising serious questions about the actions of Thomas Cook’s bosses and their stewardship of the business. This latest corporate failure has shone a light once again on the use of aggressive accounting methods to aid bumper pay-outs to company executives and the apparent inability of auditors and regulators to curb these practices in the wider interests of shareholders, investors, and the public.

“The BEIS Committee has a long-standing interest in corporate governance, executive pay, and audit reform which we are keen to follow up in this inquiry. The main players in the sad demise of Britain’s oldest travel firm should face public scrutiny and be held to account for their actions before the company collapsed.”

Updated

Bad news for British Airways. Balpa, the pilots union, says its members are asking for more strike dates to be considered.

Balpa says BA hasn’t responded for calls for meaningful negotiation, following the cancellation of tomorrow’s industrial action.

Reminder: IAG warned this morning that any additional strikes would have a further impact on profitability.

Updated

The latest US GDP data confirms that America’s economy slowed in the last quarter.

US GDP expanded by an annual rate of 2.0% in April-June, the Bureau of Economic Analysis says, down from 3.1% in January-March.

That matches earlier estimates. However, there’s two notable changes:

  • Business investment shrank by 1.4%, not the 1.1% first estimated.
  • Government spending increased by4.8% pace, up from 4.5% first reported.

The FTSE 100 continues to shake off this morning’s profit warnings, with the blue-chip index now up 82 points or 1.1% at 7372.

Kerstin Braun, president of trade finance group Stenn Group, an international provider of trade finance, says traders are clinging onto Donald Trump’s claim that a trade deal with China could some sooner than expected.

We’ve heard optimism from the White House before, of course, but still....

“The jitters generated by the ongoing, and seemingly never-ending, US-China trade war are felt in all corners of the globe, and the UK is no exception. Uncertainty is bad for business as companies are unable to plan for the future, while critical investments and market development activities are put on hold.

Governments, investors and businesses are all crying out for some calm in the global economy, and today’s rise in the FTSE 100 reflects that.”

Brexit news: Jaguar Land Rover, has decided to halt production at its British factories for a week in November.

The move will give Britain’s biggest carmaker some breathing space in case Britain crashed out of the UK without a deal on 31 October. More here.

The car industry has already been disrupted once by Brexit this year - moving the usual August shutdowns to April, to coincide with the first Brexit deadline.

Updated

Beyond Meat boosted by McDonald's trial

Beyond Meat has done it again.

Shares in the plant-based burger market are surging 14% in pre-market trading, after it signed a deal with fast food giant McDonalds in Canada.

McDonalds will sell the “PLT” burger -- standing for Plant. Lettuce. Tomato -- in 28 restaurants in Southwestern Ontario, in a 12 week trial.

Ann Wahlgren, McDonald’s Vice President of Global Menu Strategy, saysL

“McDonald’s has a proud legacy of fun, delicious and craveable food—and now, we’re extending that to a test of a juicy, plant-based burger.

“We’ve been working on our recipe, and now we’re ready to hear feedback from our customers.”

However, it appears the PLT won’t be cooked on a separate grill than McDonald’s meaty burgers, so it won’t be properly vegetarian.

Beyond Meat’s shares have been pretty craveable this year. The company floated at $25 per share in May, and surged to $234 by late July as investors tried to cash in on the boom in vegetarian and vegan food.

They then fell back, to $138 last night, but are set to sizzle again today.

Euro hits 28-month low after ECB hawk departs

Newsflash: The euro has sunk to its lowest level since May 2017, following a shock resignation from the European Central Bank last night.

The euro sagged to €1.0923, a 28-month low, as traders digest Sabine Lautenschläger’s resignation.

Lautenschläger is (soon to be was) Germany’s representative on the European Central Bank’s executive board.

She’s not revealed why she’s quit, but analysts have concluded she is unhappy with the ECB’s increasingly loose monetary policy. It slashed one of its key interest rates to a new record low two weeks ago, and incoming president Christine Lagarde is expected to maintain this approach.

Lautenschläger is the fourth German policymaker to quit the ECB since it was created two decades ago. Chief economist Jürgen Stark and Bundesbank President Axel Weber both resigned in 2011, followed by board member Jörg Asmussen.

German Conservative MEP Markus Ferber says Lautenschläger will be a loss:

“The resignation of Sabine Lautenschläger is a setback for the ECB board. Sabine Lautenschläger has always been a central banker with backbone, who has never been shy of expressing inconvenient truths.

Today, such voices are needed more than ever in the ECB Board.

Over in Amsterdam, Dutch bank ABN Amro has revealed it’s being investigated for possible breaches of the Netherlands’ money laundering and terrorism financing legislation.

In a short statement, ABN Amro revealed that Dutch prosecutors are probing its conduct, adding:

“ABN Amro will cooperate fully with the probe”

Shareholders aren’t impressed; shares in ABN Amro have slumped almost 10%

Dutch finance minister Wopke Hoekstra is also concerned, saying:

“It’s extremely worrying that ABN Amro is under investigation by prosecutors.”

Another 17,000 Thomas Cook customers due back today

The operation to repatriate Thomas Cook passengers, and crew, continues -- amid anger over the rescue of its German airline.

The Civil Aviation Authority has reported that the majority of Thomas Cook air crew members who were abroad when the company collapsed have been returned home.

The CAA is also flying another 17,000 passengers home today, on 71 flights organised through Operation Matterhorn.

Some 46,000 people have already been returned home since Monday - the day Thomas Cook collapsed.

While Thomas Cook is now in the hands of the Insolvency Service, it’s German airline, Condor, is still operating thanks to a €380m loan from the German government.

Condor is profitable (unlike Thomas Cook itself, which lost £1.5bn earlier this year). But staff who have lost their jobs are understandably unhappy, especially after Thomas Cook executives were filmed being applauded by Condor staff, and grinning broadly.

Christoph Debus, Thomas Cook’s chief airlines officer, has apologised....

Despite this morning’s triple-profit warning drama, the FTSE 100 has actually risen by almost 1% this morning.

IAG, Pearson and Imperial are all dragging it down, of course, but that’s been countered by other stocks rallying.

Once again, traders are grasping hopes of a breakthrough in the US-Chine trade war.

President Trump fanned optimism last night, telling reporters that Beijing was desperate to reach an agreement.

“They want to make a deal very badly... It could happen sooner than you think.”

This has lifted markets across Europe:

Multinational companies listed in London are also benefitting from the weaker pound, as it makes their overseas earnings more valuable.

Sterling has dropped to $1.2326 this morning, nearly a two-week low, as Britain’s Brexit-induced political crisis plumbs new, dank, depths.

Around £2bn has been wiped off the value of Imperial Brands this morning, after it warned that America’s e-cigarettes market has turned sour.

Russ Mould, investment director at AJ Bell, explains why Imperial’s shares have slumped 10%:

“It is not a good time to be a vaping company. Political and regulatory pressures are coming down hard on the sector and resulting in fewer US retailers and wholesalers ordering or promoting vaping products. Competition is also fierce, particularly in places like Australia.

“Tobacco companies like Imperial Brands have bet everything on vaping and other smokeless alternatives being the future of their business. While the public has been slowly switching from cigarettes to smoke-free products, there is a growing negative backlash in other circles caused by concerns over the large number of younger people vaping and the potential health threats.

Here’s our news story about IAG’s warning on profits.

IAG’s gloom about passenger growth, and falling demand at its budget airlines, have hurt the wider airline sector.

Neil Wilson of Markets.com explains:

IAG has warned profits will be significantly lower as a result of pilot strikes. BA pilot strikes left 2,325 flights cancelled at a cost of €137 million, while threatened strikes by Heathrow staff cost €33m. IAG also flagged ‘adverse booking trends’ in its low-cost divisions (which we assume is code for, not enough bums on seats), which will hit the bottom line to the tune of €45m. Capacity growth for the fourth quarter is now expected to be about 2% which is 1.2 points below previous guidance, and full year capacity growth is expected to be about 4%, down from previous guidance for 5% growth.

Shares fell over 3% to 463.8p. The extent of the IAG warning has had an impact on the rest of the sector, with shares in EasyJet and Ryanair also down around 2%.

IAG, Pearson and Imperial Brands have all slumped to the bottom of the FTSE 100 leaderboard after this morning’s profit warnings.

Imperial hit by vaping backlash

Shares in British tobacco company Imperial Brands are also being hammered in early trading, after it issued a profits warning.

Imperial has been hit by the regulatory backlash against vaping in the United States, dashing hopes that e-cigarettes would deliver growth.

Imperial told shareholders that US trading “has deteriorated considerably”, as US states target vaping.

This has prompted a marked slowdown in the growth of the vapour category in recent weeks, with an increasing number of wholesalers and retailers not ordering or not allowing promotion of vaping products.

Imperial’s shares have crashed by over 9%, dragging rival BAT down by over 3%.

Updated

Pearson profits warning sends shares sliding

Educational publisher Pearson’s shares have slumped by almost 15% at the start of trading, after it also warned on profits.

Pearson told investors that full-year earnings would be at the bottom of its guided range (£590m to £640m). It blaming weaker than expected trading in its U.S. higher education courseware business in the key selling season.

Pearson blamed “a significant industry wide acceleration of print attrition” - in other words, students are abandoning paper textbooks at a rollicking rate.

Pearson has been shifting towards new digital and online products, but clearly it’s a struggle to get right.

CEO John Fallon says:

“The third quarter has been significantly weaker than we expected in US Higher Education Courseware.

Whilst difficult in the short term this places more importance on our work to remake this part of Pearson and we are exploring new ways of deploying our new technology platform so that we can offer students highly affordable, convenient, adaptive, digital courseware.

Updated

Shares in IAG have fallen by over 3% at the start of trading. A poor start, but not the worst......

IAG has also warned shareholder that there have not been any further talks between British Airways and BALPA over the pilots pay row.

That means we could see further strikes, which would take another large bite out of profits (on top of the €137m hit reported today).

IAG says:

The airline’s offer of a 11.5 per cent pay increase over three years still stands and has been accepted by British Airways’ other unions, representing 90 per cent of the airline’s employees. Clearly any further industrial action will additionally impact IAG’s full year 2019 operating profit.

IAG and BALPA spent most of 2019 negotiating, before an offer worth 11.9% over three years was rejected. Pilots argued they should get a profit share scheme, as IAG’s directors do, plus an above-inflation pay guarantee.

Introduction: IAG profit warning as BA pilot strikes bite

Good morning, and welcome to the rolling coverage of the world economy, the financial markets, the eurozone and business.

A hat-trick of profits warnings have hit the City this morning, led by IAG, the parent company of British Airways.

IAG brought shareholders down to earth with a bump this morning - by revealing a €215m hit to its earnings.

Much of the damage was caused by pilot strikes on the 9th and 10th of September, plus another strike scheduled for tomorrow which was called off.

This forced BA to cancel thousands of flights. It also relaxed its rebooking rules to help customers. In all, the pilot strikes have cost €137m (£121m) of lost profits.

It told shareholders:

During September, BALPA’s (British Airways main pilots’ union) industrial action initially scheduled for the 9, 10 and 27 led to an initial cancellation of 4,521 flights over a period of seven days. Subsequently, 2,196 flights were reinstated leaving 2,325 cancellations. British Airways also introduced flexible commercial policies on 4,070 flights not directly affected by the industrial action. These policies enabled customers to re-book flights or receive a refund.

The net financial impact of the industrial action is estimated to be €137 million.

The threat of separate strikes by Heathrow Airport employees also hit earnings, IAG adds, costing the company €33m.

But that’s not all.... It also warns that “the latest booking trends” at its budget airlines, including Spanish operator Vueling Airlines, have deteriorated.

This will have “an adverse financial impact of €45 million”, it says, taking the total hit to €215m.

That’s quite a headache for IAG, especially as it still hasn’t resolved the pay row with its pilots.

But IAG isn’t alone. Tobacco firm Imperial Brands and publisher Pearson have also just warned that earnings are weaker than expected - a worrying sign for the markets.

More to follow....

Also coming up today:

New US trade figures, and updated GDP data, will show how America’s economy is faring. Plus we’ll hear from central bankers at an ECB conference in Frankfurt, led by outgoing president Mario Draghi.

The agenda

  • 9am BST: European Central Bank publishes Economic Bulletin
  • 1.30pm BST: Third estimate of US GDP for April-June
  • 1.30pm BST: US trade data for August
  • 2.30pm BST: ECB president Mario Draghi speaks in Frankfurt
 

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