Earnings Watch: S&P 500 profits have plunged 47% so far this reporting season, and it isn’t expected to get much better
This earnings reporting season is so far living up to expectations that it will be the worst since the depths of the 2008 financial crisis, but a number of big names could offer some better news in the week ahead.
and Intel Corp.
highlight a busy slate of earnings reports as the pace picks up. Eight Dow Jones Industrial Average
components are set to deliver numbers in the coming week, along with 80 members of the S&P 500 index
So far, the results have been dismal. S&P 500 components have posted a 47.4% decline in second-quarter profits with nearly 9% of reports issued. Analysts model a 44% earnings decline for the index as a whole, taking into account already-reported results and estimates for the rest. That would mark the sharpest year-over-year dip in earnings since the fourth quarter of 2008, when profits plunged 70%.
Tech giants Intel and Microsoft are on a better trajectory as both likely benefited from stay-home trends during the coronavirus pandemic that drove greater demand for remote-work services and equipment and are expected to eke out per-share earnings growth while posting slight dips in net income. Positive surprises could help the S&P 500’s aggregate performance, since larger companies are more heavily weighed in the index. Microsoft reports results Wednesday afternoon and Intel follows a day later.
Tesla is expected to show red ink for the second quarter, according to FactSet estimates, though analysts predict a narrower loss than a year ago. Some are still holding out hope that the company can post a surprise GAAP profit and help land Tesla in the S&P 500, which requires four straight quarters of profitability for entry; Tesla has been profitable the past three quarters.
Other key names in the week to come include battered airlines United Airlines Holdings Inc.
and Southwest Airlines Co.
social-media players Twitter Inc.
and Snap Inc.
as well as Chipotle Mexican Grill Inc.
Here are some themes to watch.
Tesla’s next test
Tesla crushed second-quarter delivery expectations, providing more ammunition to the stock’s strong 2020 rally, and now the company faces another test as it reveals the financial impact of COVID-19 on its business.
The upbeat delivery numbers suggest that consensus financial forecasts might be too conservative, Barclays analyst Brian Johnson wrote. He was already predicting a $4.2 million GAAP profit before the delivery announcement and brought his estimate up to $42 million since. The FactSet consensus currently calls for a $53 million loss.
and Verizon Communications Inc.
are set to show how smartphone-buying trends have evolved during the pandemic. Both companies saw equipment revenue tank toward the end of the March quarter as stores closed due to COVID-19, but analysts are optimistic that things are picking back up now that social-distancing restrictions have eased.
Even with these challenges, the wireless business should remain a bright spot for AT&T, which is dealing with film production halts for its Warner Bros. business, advertising weakness for its media channels, and an avalanche of cord-cutting at DirecTV. AT&T’s numbers are due up Thursday morning, followed by Verizon the next day.
After Delta Air Lines Inc.
delivered a $5.72 billion loss for the June quarter and warned that a “sustainable recovery” seems to be more than two years away, United and Southwest are on deck.
United’s comments will be especially worth watching for as Cowen & Co.’s Helane Becker said that the company has been “the most forthcoming with information regarding the reality of the pandemic” and “more right than wrong” during the crisis. She’ll be looking for information on planned staff reductions and capacity changes. “United has been the most somber about the situation and their capacity plans have mimicked that,” Becker said. Earnings are due out Tuesday afternoon with a call the following morning.
For Southwest on Thursday morning, Becker is interested to see whether the company will use the downturn as an opportunity to gain share as it has in the past.
Twitter is set to face investors Thursday morning, just more than a week after the company suffered a troubling security breach that allowed hackers access to numerous prominent Twitter accounts for what seemed to be a bitcoin scam. The company is still investigating the incident and management is sure to face tough questions about Twitter’s privacy and security mechanisms. Stifel’s John Egbert expects Twitter to dial up its security spending even more.
Twitter and Snap should shed light on the state of the ad market during the pandemic. Egbert predicts that Snap’s revenue growth decelerated from the first quarter to the second quarter, but he’s still looking for double-digit ad growth relative to a year ago given the “growing appetite” for Snap’s direct-response ads. Snap reports Tuesday afternoon, followed by Twitter on Thursday morning.
Food for thought
As some states take a tougher stance on indoor dining, Chipotle will look to emphasize its digital prowess Wednesday afternoon. Third-party data on app downloads and loyalty sign-ups suggest a “longer-term uptick in share,” wrote Bank of America’s Gregory Francfort. He said the company seems to be “managing through COVID better than we expected” though he still worries about the economics of delivery.
A whole week of the Dow
There’s at least one Dow component on the schedule every day in the week ahead, starting with International Business Machines Corp.
Monday afternoon, Coca-Cola Co.
Tuesday morning, and Microsoft on Wednesday afternoon. Travelers Cos. Inc.
and Dow Inc.
follow Thursday morning, with Intel that afternoon, and American Express Co.
and Verizon round out the week Friday morning.