By Tomi Kilgore, MarketWatch , Emily Bary
Earnings Watch: After a hectic two-week stretch, S&P500 earnings are expected to decline 13.6% from last year, and worst may be yet to come
While the tone of first-quarter earnings isn't particularly encouraging, the pace of reports will finally relax in the week ahead, which is reason enough to breathe a sigh of relief.
More than 85% of S&P 500 index companies have reported earnings this quarter -- most of them in the past two weeks -- and just 18 components are set to report in the week ahead, along with only one Dow Jones Industrial Average company: Cisco Systems Inc. (CSCO) .
It hasn't been a pretty stretch thus far as companies detailed the early impacts of the COVID-19 pandemic on their financial performance. Aggregate earnings for the first quarter are expected to be down about 13.6% from a year ago, the worst performance since the third quarter of 2009, according to FactSet Senior Earnings Analyst John Butters. That is way down from expectations for 4.5% growth at the start of the first quarter.
Of the companies that have reported results, 66% beat earnings-per-share expectations, according to Butters, coming in below the 5-year average of 73%. This quarter's beat rate is on track to be the lowest since the fourth-quarter of 2016.
Business in the Age of COVID-19: More on how the largest companies are being affected by the pandemic ()
The worst performing sector thus far is consumer discretionary, which has seen earnings nearly cut in half as COVID-19 related lockdowns keep restaurants and retailers shuttered. The financial sector has also struggled, with profits off 43.5%. The dismal trends in retail and banking make energy results almost look good by comparison. Earnings are down 27.9%, as crude oil futures have plunged 61% over the past 12 months.
The best-performing sectors are utilities, sporting 6.8% earnings growth, and health care, which saw profits climb 6.6%.
Earnings are expected to be far worse for the second quarter, with analysts calling for a 41% plunge, according to FactSet. That would mark the biggest drop since the first quarter of 2009, with 10 of 11 sectors showing declines. As of Dec. 31, analysts were projecting a 6% earnings increase for the second quarter and growth in all sectors but financial.
The more muted earnings slate in the week ahead features Cisco, with a read on corporate technology spending, along with a basket of retailers and pot companies. Here are some of the highlights.
We're about to get a look at how retail companies fared during the early weeks of the COVID-19 epidemic. Under Armour Inc. (UAA) is the biggest name to watch for, and while the company may not have been hurt too much in the first quarter, Pivotal Research Group's Mitch Kummetz is worried that retail partners have "cautiously reined in their fall prebooks." He'll also be looking for a quantifiable impact from the company's cost-cutting initiatives when the apparel company reports Monday morning.
Joining Under Armour Monday is Coty Inc. (COTY) , which will show how makeup sales are holding up now that people aren't leaving their homes. VF Corp. (VFC) closes out the week with its Friday morning report. The company's Vans brand doesn't benefit from stay-at-home fitness trends, Wedbush analyst Christopher Svezia said, but he expects it to "see growth rapidly resume" once consumer-buying habits return to normal.
Cisco will discuss the corporate spending landscape Wednesday afternoon and while the company may have seen strength in its enterprise segment for the April quarter, Raymond James analyst Simon Leopold is worried about what's to come. "We worry about a potential spending pause stemming from large enterprises and service providers," he wrote, and some of April's sales might have reflected "hoarding driven by fear of supply shortages related to COVID-19."
Where there's smoke ...
The struggling cannabis industry will be prevalent, starting with results Monday afternoon from former IPO darling Tilray Inc. (TLRY) and GW Pharmaceuticals PLC. (GWPH) . Tilray managed to find financing in a tough funding environment earlier this quarter, but the terms were not so friendly (), while GW Pharma's marijuna-based epilepsy-drug sales are not expected to be affected too much from the pandemic.
On Thursday afternoon, Aurora Cannabis Inc. (ACB.T) (ACB.T) will report after the company's 12-to-1 reverse stock split takes place () ahead of next week's first trading session. Beyond bundling stock, there have been many changes at Aurora in recent months, including the departure of CEO Terry Booth ( ) -- the company could have some news on a permanent replacement, or just detail the plans for continuing with interim leader Michael Singer. The company's market share dropped in the last quarter and executives launched cheaper pot in response -- Canadians want inexpensive weed, as it turns out ( ) -- so investors should expect to see early indications of how that effort fares.
A glimpse at China
JD.com Inc. (JD) offers a look Friday morning at how Chinese e-commerce companies weathered the crisis. UBS analyst Jerry Liu is enthusiastic about the company's March rebound but will be looking for commentary on two key risks ahead: "secondary impacts from the global outbreak on China consumption, and [a] potential second wave or asymptomatic cases in China." These threaten to hamper the company's recovery, he said.
-Emily Bary; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
May 10, 2020 18:33 ET (22:33 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.