Corona crisis dampens expectations for business figures

Corona crisis dampens expectations for business figures
Corona crisis dampens expectations for business figures
(c) unsplash
Share post:

The first earnings season of 2020 is dominated by the corona crisis. While, barring China, the lung disease caused by the virus did not turn into a massive problem in most countries until March, the last month of Q1, the economic restrictions imposed by the pandemic are already having a considerable impact. Not only have already-published results been significantly weakened; investors and analysts also expect lower profits medium-term due to the consequences of the global fight against the virus.

Lowered expectations

Shortly before the first presentation of figures in the USA, signs of a sharp decline in profits were already becoming apparent. Data from Refinitiv from mid-April shows that companies in the US leading index S&P 500 were expected to post an average of almost 13 per cent lower profits in the first quarter of the year compared to the same period last year. Particularly large drops in profit were expected in the energy sector (-55 per cent), while industrial, consumer goods and financial groups were estimated to post around one-third less profit.

Precautionary measures affecting the figures

In the USA, the big banks traditionally open the quarterly earnings season with their figures: Goldman Sachs, Bank of America and Citigroup faced a 50-per-cent decline in profits in Q1. Industry leader JPMorgan saw its profits drop by more than two thirds, Wells Fargo by almost 90 per cent. Morgan Stanley shows the best performance in the industry with a mere 30-per-cent drop in profits to USD 1.7bn. At first glance, this makes the first round of annual reports even more devastating than expected. However, the lower profits are still mainly due to precautionary measures taken by the banks, who set aside reserves to be prepared for possible loan defaults triggered by the economic consequences of the Corona crisis.

Even in this gloomy environment, winners exist

In addition to companies, rough waters also loom ahead for private households in particular. In the US, more than 26 million Americans lost their jobs in the first five weeks of the pandemic. This in turn will have a negative impact on the sales of consumer-dependent corporations. However, despite the bleak outlook, other companies have so far even benefited from the current situation. Curfews and contact restrictions, for example, have favored communications service providers’ businesses, one shining example being video streaming provider Netflix. The company reported 15.8 million new paying customers in the previous week, almost twice as many new customers as analysts had expected. Quarterly revenues rose from USD 4.5bn in Q1 2019 to USD 5.8bn. Net income was 709 million, more than twice as high as in the previous quarter.

In view of the challenges caused by the corona crisis, attention is also very much focused on pharmaceutical companies and healthcare groups: stockpiling by consumers benefitted pharmaceutical manufacturer Eli Lilly, whose sales increased by over 15 per cent to USD 5.86bn. In the case of French competitor in the sector, Sanofi, sales at the turn of the year rose by around 7 per cent to almost EUR 9bn, the group announced before the weekend. Adjusted earnings per share excluding exchange rate effects increased by almost 16 per cent to 1.63 euros. Net profit increased by 48 per cent to EUR 1.7bn. About half of this growth was attributable to the inventory increase in the wake of the Covid 19 crisis.

While governments around the world are attempting to contain the economic consequences of the Corona crisis as quickly as possible with aid packages and economic stimulus packages, further prominent stock corporations on both sides of the Atlantic will be publishing their quarterly reports in the coming days, among which might well be one or two positive surprises. According to the Refinitiv data, these might be found not only in the communications and healthcare sectors, but also among utilities and technology stocks.


Legal note:
Prognoses are no reliable indicator for future performance.


Legal disclaimer

This document is an advertisement. Unless indicated otherwise, source: Erste Asset Management GmbH. Our languages of communication are German and English.

The prospectus for UCITS (including any amendments) is published in accordance with the provisions of the InvFG 2011 in the currently amended version. Information for Investors pursuant to § 21 AIFMG is prepared for the alternative investment funds (AIF) administered by Erste Asset Management GmbH pursuant to the provisions of the AIFMG in connection with the InvFG 2011. The fund prospectus, Information for Investors pursuant to § 21 AIFMG, and the Key Information Document can be viewed in their latest versions at the web site within the section mandatory publications or obtained in their latest versions free of charge from the domicile of the management company and the domicile of the custodian bank. The exact date of the most recent publication of the fund prospectus, the languages in which the Key Information Document is available, and any additional locations where the documents can be obtained can be viewed on the web site A summary of investor rights is available in German and English on the website as well as at the domicile of the management company.

The management company can decide to revoke the arrangements it has made for the distribution of unit certificates abroad, taking into account the regulatory requirements.

Detailed information on the risks potentially associated with the investment can be found in the fund prospectus or Information for investors pursuant to § 21 AIFMG of the respective fund. If the fund currency is a currency other than the investor's home currency, changes in the corresponding exchange rate may have a positive or negative impact on the value of his investment and the amount of the costs incurred in the fund - converted into his home currency.

This document serves as additional information for our investors and is based on the knowledge of the staff responsible for preparing it at the time of preparation. Our analyses and conclusions are general in nature and do not take into account the individual needs of our investors in terms of earnings, taxation, and risk appetite. Past performance is not a reliable indicator of the future performance of a fund.

Leave a comment Required fields are marked with *

Your email address will not be published. Required fields are marked *