Company earnings guidance taking huge hit during COVID-19

By Jerome Doraisamy|19 May 2020

An overwhelming majority of S&P 500 companies have had to revise or completely withdraw their earnings guidance as a result of coronavirus.

New research from Gartner of S&P 500 companies has discovered that 70 per cent of companies had been forced to amend or withdraw their earnings guidance due to the global coronavirus pandemic.

Of the 416 companies that made earnings announcements through to 12 May 2020, only 44 (11 per cent) maintained their guidance and a further 80 (19 per cent) either did not offer guidance or did not clarify guidance during the earnings call.

Of the remaining 292 firms, 77 (21 per cent) revised their guidance and the other 205 (49 per cent) withdrew it altogether.

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According to Gartner Finance practice director Steve Adams, the findings offer a “quantitative look at the depth of uncertainty” that company leaders are grappling with as the pandemic continues to unfold.

“Even in cases where companies maintained their guidance, this was met by scepticism from investors who felt that unchanged guidance was unrealistic in the current environment,” he explained.

Elsewhere, company leaders broadly identified an inability to forecast business performance beyond the very short-term, as a consequence of the economic impacts of the pandemic.

“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,” Gartner noted.

“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,” Mr Adams outlined.

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

This all said, some companies are taking the opportunity to move to quarterly guidance, rather than annual, so as to better respond to “highly uncertain and volatile [macro-economic]” factors.

“If an organisation has the capability to offer more frequent guidance, it makes sense to keep investors up to speed with the rapidly evolving situation,” said Mr Adams.

“Some firms might bounce back quickly as lockdowns are eased, and regular guidance on this may ease investor concerns.”

Company earnings guidance taking huge hit during COVID-19
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