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It’s turning out to be a bad day for my FTSE 100 holdings, as I own shares in HSBC (LSE: HSBA), JD Sports Fashion, and BAE Systems (LSE: BA.). As I write today (30 July), all three stocks had fallen by 3% or more.
This is a motley collection of businesses — a bank, sportswear retailer, and defence contractor, respectively. So what gives?
HSBC
In one way or another, the common denominator here is earnings results. HSBC’s Q2 pre-tax profit slumped 29% year on year to $6.3bn, which was well short of the $7bn expected by analysts.
The lender took a $2.1bn impairment charge on its stake in China’s state-run Bank of Communications, while also booking high global restructuring costs. The property crisis in Hong Kong and China remains a risk here, as further write-downs are possible.
For the first six months, pre-tax profit fell 26% to $15.8bn (also lower than anticipated).
However, it wasn’t all negative, as revenue at its wealth division grew 22% on a constant currency basis. This was in line with HSBC’s medium-term goal of double-digit annual growth.
Meanwhile, the bank made progress towards achieving $1.5bn of annualised savings by 2027. And it announced a new share buyback programme worth up to $3bn.
Overall, I don’t see anything particularly worrying here as a shareholder. The stock is still up 20% year to date, despite today’s pullback.
BAE
Turning to BAE, which likewise just reported first-half results, I also don’t really see any problems.
Indeed, the firm reported better-than-expected numbers, unlike HSBC. Sales grew 11% to £14.6bn while underlying earnings before interest and tax (EBIT) rose 13% to £1.55bn.
Sadly, the reasons for this growth relate to the state of geopolitics. The terrible war in Ukraine rages on, forcing Europe to re-arm at a frenetic pace. And the US and China are vying in various ways for global supremacy. This is a backdrop for high defence spending.
Looking ahead, BAE upgraded its guidance for the full year. It now anticipates sales growing 8% to 10% (up from 7% to 9%) and underlying EBIT increasing 9% to 11% (8% to 10%).
CEO Charles Woodburn commented: “The breadth and depth of our geographic and product portfolio, together with our trusted track record of delivery, strengthen our confidence in the positive momentum of our business.”
The BAE share price is up 53% year to date.
JD
As for JD Sports, the company didn’t report Q2 earnings (these are due in August). The reason for today’s decline relates to Adidas, which just warned that Trump’s tariffs will cost it up to €200m in the second half.
This is bad for JD Sports because it could weaken consumer demand if the price of trainers rises even higher.
Final thoughts
Long term, I still rate the prospects for all three stocks. HSBC is likely to benefit as the Asia’s middle classes mushroom, while JD Sports’ global presence and multi-brand strategy — Nike, Adidas, On, Hoka, etc — add resilience.
The main risk for the UK’s BAE is if it misses out on some of the largest European defence projects. Also, the shares are trading at a premium 23 times forward earnings.
However, given the upgraded growth forecast and rising military spend, I think BAE, in particular, is worth considering.
