Wednesday 30 September 2020

S&P 500 firms revise earnings guidance over Covid

DUBAI, May 17, 2020

Earnings announcements of S&P 500 companies through May 12 revealed that 70 per cent of companies have revised or completely withdrawn their earnings guidance due to the Covid-19 pandemic, said leading research and advisory company Gartner.

From the 416 companies that made earnings announcements through May 12, just 44 (11 per cent) maintained their guidance and a further 80 (19 per cent) either do not offer guidance or did not clarify guidance during the earnings call. Of the remaining 292 firms, 77 (21 per cent) revised their guidance, a further 205 (49 per cent) withdrew it altogether

Seventy-three firms (18 per cent) made their guidance announcements by press release prior to the earnings call. Among these 73 companies, 63 (86 per cent) withdrew guidance and 10 (14 per cent) revised their guidance.

“This provides a quantitative look at the depth of uncertainty company leaders are coping with at present,” said Steve Adams, director for the Gartner Finance practice. “Even in cases where companies maintained their guidance, this was met by skepticism from investors who felt that unchanged guidance was unrealistic in the current environment.”

Company leaders overwhelmingly pointed to an inability to forecast business performance beyond the very short term due to the uncertainty stemming from Covid-19. Yet even looking at the very short term, most companies are not offering Q2 guidance either. Analysts have been understanding in general. In some cases, they explicitly state in the Q&A section of the earnings call transcripts that withdrawal or revision is a prudent decision given the current circumstances.

In total, 205 companies (49 per cent) withdrew guidance completely. From this number the largest proportion was from the industrials sector, with 40 firms making up 20 per cent of withdrawals. This was followed by 27 firms from the consumer discretionary sector (19 per cent) and 27 companies from the IT and financials sector (13 per cent).

“It’s not surprising that the consumer discretionary sector accounts for a significant portion of the guidance withdrawals, as this sector includes hotels, restaurants and retail stores. What may surprise some, however, is that industrials companies lead all other sectors in terms of withdrawals,” Adams added.

“This is partly because the industrials sector accounts for a significant portion of the S&P 500, it also includes airlines, construction companies, and manufacturing companies—all of which are deeply struggling to forecast consumer demand across 2020.”

While most companies have withdrawn guidance altogether some are taking the opportunity to move to quarterly, rather than annual, guidance that is more able to respond to the highly uncertain and volatile macroeconomic picture.

“If an organization has the capability to offer more frequent guidance, it makes sense to keep investors up to speed with the rapidly evolving situation,” said Adams. “Some firms might bounce back quickly as lockdowns are eased, and regular guidance on this may ease investor concerns.” – TradeArabia News Service


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