As Q1 earnings season draws to a close, Opto takes a look at how high-profile companies like Boeing [BA], BP [BP] and Microsoft [MSFT] have performed, and how their respective share prices are being affected.
It has been an earnings season like no other. The coronavirus made the first quarter of 2020 a game of two halves, hovering ominously in the background of calm markets until mid-February when it pulled every major economy to a virtual halt – by way of example; BP’s share price has fallen over 30% since this point, and airlines such as Boeing have fared even worse.
Markets crashed as share prices slumped and businesses that had ignored, downplayed or underestimated its potential havoc floundered. But those in the right place at the right time, or that quickly adapted to be, scored spectacular success. In terms of that latter category, Microsoft’s cloud offering has seen its shares prove a hit with investors; the firm’s share price is up 37% since a year-to-date low at the end of March.
As of the 15 May, of the 90% of S&P companies to so far have announced first quarter nearly two-thirds reported above-estimate earnings per share, according to data by FactSet. The big sector winners unsurprisingly included healthcare, materials and consumer staples. These sectors had the highest number of companies reporting earnings above estimates of 82%, 79% and 78% respectively. Conversely, the financial sector saw just 51% of companies beat EPS estimates. So, how have top stocks seen their post-earnings share price performance trend?
82%
of healthcare S&P stocks reported earnings above estimates
As well as Microsoft, BP and Boeing, we identify the top winners and losers.
The underperformers
The oil giant reported first-quarter underlying replacement cost profit of £800m, which was below the $987m expected by analysts, according to data by Refinitiv. Its share price is down 34% YTD and trades at the 319p as of 21 May.
COVID-19, the grounding of airlines, decimation of overland travel and negative oil prices have all prompted BP to admit the company’s trajectory is particularly hard to forecast.
CEO Bernard Looney said during the earnings call: “There is the risk of more sustained consequences depending on efforts of governments and the public and private sectors to manage the health, economic and financial stability effects of the pandemic.”
34%
BP's YTD share price decline
The aircraft manufacturer posted an earnings loss of $1.11 per share for the first quarter, a 129.6% year-on-year decline. A $641m Q1 loss (compared with a $2.14bn profit a year ago) meant its $16.91bn revenue missed the estimated $17.3bn set by Refinitiv, according to CNBC. As a result, Boeing’s ailing share price is down 60% year-to-date.
The company plans to axe 10% of its staff, which CEO Dave Calhoun hopes will steady the ship and, eventually, spark growth. He stressed that the company had sufficient balance sheet strength and capital to withstand both a pandemic and recession, but told CNBC: “I’m not sure how the world will look in nine months. But we’ve factored in everything we can think of. Our models show it’s roughly three-to-five years before we get back to the environment that existed pre-COVID-19. Getting back on the growth track may take a couple of years after that.”
60%
Boeing's YTD share price decline
United Airlines Holdings [UAL] share price
United Airlines reported a loss of $1.7bn for the three months ended March, which marked a $6.86 loss per share. Its $7.9bn in total revenue was slightly below estimates, according to CNBC.
UAL’s share price has fallen 72% since the start of the year to $25 as of 20 May, the lowest it has been since 2011. While it has not yet reached its $3.26 nadir of 7 July 2009, with little prospects of a sector bounce-back anytime soon, it probably hasn’t bottomed out yet.
72%
United Airline's YTD share price decline
McDonald’s Corporation [MCD] share price
The fast-food giant’s earnings fell 17% in Q1, with its $1.47 EPS $0.10 shy of the Refinitiv estimate, according to CNBC. Revenue was down 6% to $4.71bn. These figures don’t seem catastrophic, but almost all restaurants around the world were still open at the start of February, giving the impression that the decline took place in the six short weeks to the end of March. McDonald’s share price is proving relatively resilient, however, down just 8% for the year.
McDonald’s uncertain outlook is compounded by the varying speeds that lockdowns are being eased in different countries, whether they enable restaurant, take-out or drive-thru service, and whether further infection spikes lead to more lockdowns.
“It’s really a country-by-country situation,” said CEO Chris Kempczinski during the conference call. He has withdrawn the 2020 outlook he issued in February, which had predicted high single-digit EPS. “The exact trajectory of our recovery, however, is highly uncertain and dependent on many factors outside our control, such as government mandates, the risk of a second wave of infection to the availability of testing and the overall economic backdrop.”
“The exact trajectory of our recovery, however, is highly uncertain and dependent on many factors outside our control, such as government mandates, the risk of a second wave of infection to the availability of testing and the overall economic backdrop” - CEO Chris Kempczinski
JP Morgan Chase & Co [JPM] share price
The bank’s $0.78 EPS for the first quarter massively missed its estimate of $1.84, according to Investopedia. Revenue stayed relatively steady, down just 3% to $29.07bn, but its $2.87bnn profit plunged 69% from last year. JP Morgan’s share price is down over 4% since the announcement last month.
However, the main deficit factor is the bank’s $6.8bn addition to its credit reserves — a strong sign it is expecting a huge surge on loan defaults.
CEO Jamie Dimon called the Q1 underlying results “extremely good”, but added: “Given the likelihood of a fairly severe recession, it was necessary to build credit reserves, resulting in total credit costs of $8.3bn for the quarter.”
“Given the likelihood of a fairly severe recession, it was necessary to build credit reserves, resulting in total credit costs of $8.3bn for the quarter” - CEO Jamie Dimon
The outperformers
As lockdowns led to even more reliance on technology, many such firms are thriving. Microsoft outperformed predictions in the third quarter to post $35bn in revenue and earnings of $1.40 per share, nearly 9.99% higher than the forecast $1.26 by Business Insider. Share price performance has matched these impressive figures, up a significant 16% year-to-date.
“We’ve seen two years’ worth of digital transformation in two months,” CEO Satya Nadella said. “From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security.”
A planet of remote workers meant Microsoft’s cloud services led the way, generating $13.3bn — up 39% year on year. Its share price rose 0.27% in Q1.
16%
Microsoft's YTD share price gains
The payment giant’s share price surged 14% to a record high of $146.29 on 7 May after it posted revenue of $4.6bn for the first quarter and $0.66 EPS.
This record high represented 71% uptick from its March low of $85.26. The company also said it added 7.4 million new accounts in April, double the previous month.
“Digital payments have evolved from a nice-to-have capability to an essential service,” CEO Daniel Schulman said. “There’s always been a distinct secular trend towards digital payments, but the current environment has accelerated that. Our products and services have never been more needed and relevant.”
“There’s always been a distinct secular trend towards digital payments, but the current environment has accelerated that. Our products and services have never been more needed and relevant” - CEO Daniel Schulman
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