The most active week of the earnings season is on and the rush of quarterly reports Tuesday, 39 in all, captured the maneuvering of companies from almost every sector as they feel their way through an unprecedented economic shockwave.
Companies are being affected in different ways but if there’s a common theme, it’s that the situation was bad in the first quarter, and it’s going to get worse.
When the coronavirus emerged, the energy sector was already in the midst of a price war ignited by a supply glut as global economic growth slowed.
Today, there is almost no place to store oil. Some oil contract holders were forced to pay people to take crude off their hands last week. The price of U.S. crude has plunged 80% this year.
On Tuesday, BP PLC reported a quarterly net income equivalent of $628 million. Last year, it was $2.1 billion in the same stretch. Debt reached $51.4 billion in the first quarter, pushing debt-to-capital ratio to an uneasy 36%. Exxon and Chevron report later this week.
Those tumbling energy prices are essentially free money for airlines. But only if they’re flying.
On Tuesday, Southwest posted its first quarterly loss in almost a decade. Delta, the biggest and most profitable U.S. airline, posted its its first quarterly loss in five years last week. Few expect a profitable year. More anticipate a smaller industry, and soon, with furloughs already underway.
Air traffic has been reduced to levels last seen in the pre-jet age and Southwest Airlines CEO Gary Kelly said Tuesday there is no sign of easing.
“Trip cancellations remain at unprecedented levels,” Kelly said.
Companies that would theoretically thrive in a self-isolated world are suffering as well. The plunge in business activity and rising costs has offset a surge in home deliveries by UPS.
UPS’ profit slid 13% in the most recent quarter and it said Tuesday that the pandemic has created “significant headwinds.” UPS withdrew all forecasts about profit and revenue and plans to cut spending this year by $1 billion.
The one element affecting all companies is the unprecedented nature of the pandemic. PepsiCo, 3M, Xerox, and a host of other companies pulled financial guidance Tuesday, uncertain what to base those projections on any more.
Those that did see an uptick in sales during the first quarter, namely any company that sells something you can overstuff your pantry with, expect things to deteriorate in the current quarter.
PepsiCo, which sells Doritos and Lay’s chips in addition to drinks, said that organic sales grew 7.9% in the first quarter.
But theaters, stadiums and concert venues are closed, perhaps for the summer. Hugh Johnston, PepsiCo’s chief financial officer, said Tuesday that he expects sales to decline this quarter.
Last week, Coca-Cola broke out the volume of the bottled drinks and syrups it had sold for April to-date. They had plunged 25%.
Health care is another sector that, on the surface, would be as profitable as it is needed right now. Yet even as major drug companies push aggressively to find a vaccine for COVID-19, other parts of their businesses have atrophied.
On Tuesday, Pfizer said the pandemic is disrupting its patient testing of experimental drugs and that will reduce revenue significantly this quarter.
The outbreak increased sales of Merck medicines during the first quarter as households around the world stocked up, but the drugmaker expects a significant hit in the second quarter as the full force of the outbreak lands. Merck & Co. said Tuesday that it anticipates 2020 prescription drug sales will fall by $1.7 billion because the outbreak is keeping many patients with chronic conditions away from their doctors.
Earnings will continue to roll out this week from all corners of the economy.
Late Tuesday, Google’s parent company reported the search giant’s weakest revenue growth in nearly five years. Ford posted a $2 billion quarterly loss, while Starbucks saw a sharp drop in sales as the outbreak shuttered its stores across the globe.
Boeing, Facebook and Tesla post results Wednesday. Later this week, McDonald’s, Twitter, Amazon.com and Apple reveal quarterly numbers.