Companies that have released first quarter results in the past few weeks have detailed how the coronavirus pandemic is weighing on their business, and many have even stopped offering forecasts for the rest of the year The future is just too uncertain.
However, this did not prevent some companies from pointing out glimmers of hope. Some executives said business was somewhat better in April than in the dark days of March as the virus spread quickly and resulted in death of thousands of people in the United States. Others tentatively outlined what a recovery after the pandemic could look like by pointing out how it went in Chinawhere the pandemic started and has since subsided.
These bits of optimism may have been an exercise for companies to reassure shareholders – or to tell them something that many investors already seem to believe in. The stock market has recovered 27 percent from the March low as investors are confident that the Federal Reserve and the Treasury will prevent the economy from shaking.
Although the recent earnings reports have been pretty horrible, stocks don’t crater, also because Wall Street expects earnings to recover quickly. While Goldman Sachs analysts expect the combined earnings of S&P 500 companies to decrease by a third this year, they expect them to rise to levels above the value of the companies next year the year 2019.
Government statistics and independent analysts paint a worse picture. Economists expect the unemployment rate in April 16 percent, one of the highest in existence, and 4.4 percent in March. Most importantly, the chances of an economic resurgence largely depend on whether the coronavirus pandemic is contained since the locks are loosened and do not flare up again.
It’s important to remember that through hiring and investing, play a big role in the economy. Once big companies like Google, Ford Motor and Apple are convinced of a recovery, their spending could do so.
“The overriding issue is uncertainty,” said David Lefkowitz, equity strategist at UBS Wealth Management. “However, most companies assume that the economy will gradually open up again regionally.”
For example, Starbucks suspended its company-wide earnings forecast, but made an optimistic outlook for its business in China, where pandemics are unlocked and almost all stores reopened. The company says China could offer lessons on what could happen in the United States.
The coffee chain that has long paid off as a hub for social interactionsexpects sales in China with comparable branches in the three months to the end of September – the fourth quarter of the financial year – which corresponds to approximately the same period in 2019. In the three months to the end of March, sales in comparable branches were down by half compared to the same period in the previous year. “We are using our experience in China to report our actions in other markets, including the United States,” said Starbucks in a statement.
Other executives also see signs that customers want to revert to old habits. McDonald’s general manager, Christopher J. Kempczinski, said the wait was three hours before reopening at one of his restaurants in France. Overall, however, he sounded cautious about last week’s earnings call. “However, the exact course of our recovery is highly uncertain and depends on many factors that are beyond our control, such as government mandates, the risk of a second wave of infection for test availability, and the overall economic background,” said Kempczinski.
He is hardly the only company leader who cannot or cannot predict when business will pick up.
Savita Subramanian, a stock strategist at Bank of America Merrill Lynch, said that 114 of the roughly 300 companies in the S&P 500 stock index that regularly report earnings forecasts have not submitted any for future earnings. “Many companies use this as an opportunity to essentially remain silent,” she said. “Nobody knows when we will go online again.”
Even Apple, one of the most profitable companies in the world, declined to make a forecast.
For companies in the hardest hit industries, such as airlines and logistics, the downturn could of course take a while and sales won’t go down as quickly. “Historically, it has taken years, typically five or more, for business travel to recover,” said Southwest Airlines CEO Gary C. Kelly last week. Southwest was one of the companies that did not provide a profit forecast. Stock analysts expect the company to lose $ 3.86 per share this year, a significant increase from $ 4.27 per share last year.
According to analysts who deal with the parcel delivery giant, FedEx may not report profits until 2024 that correspond to its 2019 sales. This would not be without precedent. After the financial crisis, it took seven years for Fedex earnings to return to pre-2008 levels. Not surprisingly, FedEx is no longer making a profit forecast.
In difficult times, hoping to save money and support profit margins, companies have cut spending in ways that can weigh on the economy. Ford did the same in China Fired thousands of workers. “The dire reality of a protracted global shutdown of our sector and our industry has forced a laser focus on costs and liquidity,” said James D. Farley, Ford’s chief operating officer, last week. “And just like in China, we have cut fixed and variable spending across the board.”
Even Google, which did relatively well during the pandemic, said it slowed the pace of its hiring.
Spending on new equipment, buildings, and technology that can boost other parts of the economy is another budget item that is being cut – even for technology companies that are profitable and have tens of billions of dollars in their bank. Facebook said last week that it expects to invest $ 14 to $ 16 billion this year, compared to an earlier forecast of $ 17 to $ 19 billion.
However, a promising sign highlighted by some executives is that the economy may have bottomed out quickly, or may already have. In other words, things are bad, but they don’t seem to be getting worse.
For example, Mastercard said U.S. transaction volume in the week of April 21st was 15 percent lower than the same period in 2019. Typically, this would be considered catastrophic, but it is an improvement over the 26 percent decline the previous week.
“We believe that we are currently in the stabilization phase in most markets,” said Ajay S. Banga, CEO of Mastercard, last week.
Even companies in the health sector, which plays a central role in the pandemic, hope that conditions will return to normal in the coming weeks.
The pandemic has impacted HCA, which operates over 300 hospitals and surgery centers. Many of them are in Texas and Florida that have started to open up. The company has stated that election operations, which are generally more profitable than other types of care, have been suspended. HCA CEO Samuel N. Hazen told investors last month that the “restart phase” will be completed in most businesses by the end of June. The company is taking steps to ensure that patients feel safe in hospitals. Clinics and other health facilities.
When asked by an analyst during a conference call, Mr. Hazen was optimistic about the lock loosening. “We are very excited about the reopening in Texas,” he said. “We are very excited about Tennessee and expect other states to start relaxing some of these procedures and guidelines.”