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Deep COVID-19 hit expected in Q2 earnings season

Deep COVID-19 hit expected in Q2 earnings season

AFP
New York
Saddled with the hit from widespread lockdowns, the second-quarter corporate reporting season is expected to be severely impacted by restrictions to contain the coronavirus.
The reporting period, which begins in earnest this week, will feature many ugly results -- but a smaller group of winners may emerge from the upheaval.
Companies in the S&P 500 are projected to report a 44-percent drop in earnings compared with the year-ago period, which would be the biggest decline since 2008, according to Factset.
But those figures, Wall Street analysts say, are something of a stab in the dark because many companies withdrew financial forecasts due to the fog of the coronavirus.
The most affected sectors include energy, which has been slammed by a steep drop in oil prices.
Companies linked to discretionary goods -- such as clothing, travel or autos -- also suffered during a period when consumers were homebound.
Department store J.C. Penney, car-rental giant Hertz and oil company Chesapeake Energy were among those filing for bankruptcy protection.
By contrast, firms in relatively unscathed sectors such as technology and health care may only see a drop of 10 percent or less in earnings, said Nate Thooft, senior portfolio manager at Manulife Asset Management. Companies have been pivoting fast to try to limit the losses from the COVID-19 shutdowns. For example, Nike won a 75-percent increase in online sales for the quarter ending May 31, which helped to offset the impact from store closures.
While there is little question that the results will be weak on the whole, there are some unknowns about the particulars.
In periods of massive upheaval, “it’s somewhat common for companies to throw the baby out with the bathwater by writing off things and making things look even worse,” said Thooft.
Activity fluctuated considerably during the period, between the broad lockdowns of April and part of May through the gradual ramping up later in the quarter.
The first half of 2020 was a “wild ride” for consumer spending, said Earnest Research.

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