May 4, 2020 - Economy

Earnings expectations improve, but coronavirus trouble is brewing later this year

Reproduced from FactSet; Chart: Axios Visuals
Reproduced from FactSet; Chart: Axios Visuals

Thanks to solid reports from tech giants like Amazon and Microsoft, expected first-quarter earnings are now on pace to decline by less than they were last week — the first week in which expectations improved since Q1 earnings season began.

By the numbers: With 55% of S&P 500 companies having posted first-quarter results, earnings are projected to fall 13.7% year over year, compared to an estimated 16.1% decline last week. Disney, General Motors, Tyson Foods and CVS among the big names expected to report this week, according to FactSet.

  • Revenue growth expectations have been less negative than earnings overall and rose to 0.7% from 0.2% last week, led by positive revenue surprises from tech, health care and energy.

Between the lines: Dispersion — the difference between the highest analyst estimates and the lowest — has never been higher, which makes estimates particularly difficult to interpret, analysts note.

  • “You have a lot of analysts who have just given up, who have not revised their estimates,” Refinitiv’s corporate earnings tracker David Aurelio told CNBC.
  • “Some of them cannot keep up with the bad news.”

Yes, but: Even though it's on pace to be the worst earnings quarter since Q2 2009, the first quarter may turn out to be the best earnings look this year.

  • “Because the COVID-19 pandemic wasn’t taken seriously until early March, less than a third of the quarter was impacted by various lockdown orders across the globe,” Stephen Hoedt, managing director of equity and fixed income research at Key Private Bank, wrote in a note to clients late last month.
  • Analysts predict a year-over-year decline in earnings in the second quarter (-36.7%), third quarter (-20.1%), and fourth quarter (-9.4%) of 2020, FactSet notes.
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