Tesco PLC & Glencore PLC: Turnaround Titans Or Battered Basket Cases?

Today I’m looking at the bounceback potential of two battered FTSE 100 giants.

Retailer on the rack

The steady collapse of supermarket colossus Tesco (LSE: TSCO) has arguably been the British stock market story of recent times.

From shaping the British retail landscape as recently as the turn of the decade — it was once estimated that £1 out of every £8 found itself landing in Tesco’s tills — the company’s inability to fight back against the ‘new breed’ of supermarkets is nothing short of astonishing.

The horsemeat scandal in the summer of 2013 did nothing to help the firm’s appeal to British shoppers, but it did underline the extent to which Tesco had taken its eye off the ball in the UK market as it sought out global domination. And the less said about the Cheshunt’s firm failure in the US, Japan and South Korea the better.

The arrival of Aldi and Lidl has been the major seismic event in Tesco’s downturn, the low-cost chains greedily grabbing market share by aggressively undercutting the UK’s established players in the price stakes. Indeed, their combined take of the grocery segment now stands at a record 10%.

One would think Tesco’s multi-decade dominance of the grocery sector would have furnished the firm with the expertise, not to mention the financial clout, to see off the plucky minnows. But instead the business has been dragged into a bloody — and subsequently earnings-crushing — price war to rebuild its battered customer base.

Even the appointment of Unilever veteran Dave Lewis back in 2014 has failed to throw up any fresh ideas with which to reinvigorate Tesco’s revenues outlook.

Tesco is undoubtedly facing a crisis of identity as price-conscious shoppers flock to the budget outlets, while those seeking better quality head to Waitrose, Marks & Spencer and even mid-tier rival Sainsbury’s. Indeed, a disappointing Christmas saw Tesco’s market share fall a further 0.8% in the three months to 3 January, to 28.3%, according to Kantar Worldpanel.

And with both discount and premium chains embarking on ambitious store-building and online grocery initiatives, I reckon Tesco’s troubles are likely to get far worse before they get better.

Digger in dire straits

Likewise, I reckon diversified mining giant Glencore’s (LSE: GLEN) revenues performance is set for further heavy weather, this time as global commodity markets continue to struggle.

The post-2015 washout of raw material prices has been prompted by fresh waves of disappointing macroeconomic data from commodities glutton China. But this phenomenon is nothing new of course. Indeed, wave after wave of fresh stimulus from the People’s Bank of China in recent years has fallen woefully short, leading many to question when the Asian powerhouse will begin to turn higher again.

At the same time, producers across Glencore’s main commodity markets remain committed to increasing output in a bid to offset falling prices with higher volumes. The Swiss business attempted to take the lead by cutting copper, coal and zinc production last year, but so far the wider industry has failed to follow suit and soothe the worsening supply/demand imbalances.

Glencore has worked hard to ride out the storm enveloping the commodities space, disposing of the dividend, cutting capital expenditure and raising cash to protect the balance sheet.

But while material prices continue to languish — global bellwethers oil and copper both sank to fresh multi-year lows this month — such measures will prove nothing more than a temporary sticking plaster, in my opinion. I believe Glencore can expect further earnings pain well into the future.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.