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Company earnings guidance taking huge hit during COVID-19
An overwhelming majority of S&P 500 companies have had to revise or completely withdraw their earnings guidance as a result of coronavirus.
Jerome Doraisamy
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 remaining 292 firms, 77 (21 per cent) revised their guidance and the other 205 (49 per cent) withdrew it altogether.
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.
“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.”
Jerome Doraisamy
Jerome Doraisamy is the editor of Lawyers Weekly. A former lawyer, he has worked at Momentum Media as a journalist on Lawyers Weekly since February 2018, and has served as editor since March 2022. He is also the host of all five shows under The Lawyers Weekly Podcast Network, and has overseen the brand's audio medium growth from 4,000 downloads per month to over 60,000 downloads per month, making The Lawyers Weekly Show the most popular industry-specific podcast in Australia. Jerome is also the author of The Wellness Doctrines book series, an admitted solicitor in NSW, and a board director of Minds Count.
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