Planes, cars and advertising slammed by Covid-19: Earnings wrap

Two weeks into Europe’s first-quarter earnings season, more companies are cutting jobs and throwing up their hands over future guidance.

Volkswagen AG forecast a severe drop in earnings this year and IAG SA will slash the workforce at British Airways by almost 30% as the corporate fallout from the coronavirus pandemic worsens. Airbus SE burned through 8 billion euros ($8.7 billion) of cash last quarter, while advertiser WPP Plc said revenue fell as much as 30% in some regions.

Not all industries are suffering the same fate. Drugmakers AstraZeneca Plc and GlaxoSmithKline Plc both beat earnings estimates while supermarket giant Carrefour SA benefited from customers stockpiling food and ordering online during lockdowns.

Barclays Plc and Standard Chartered Plc set aside piles of cash for troubled loans, but were boosted by a boom in trading fueled by volatile markets.

Based on results through Tuesday, earnings for European companies are headed for a 30% drop in the quarter, according to Morgan Stanley, which said expectations are similar for the second and third quarters as well. Financial, commodity and industrial companies are showing the biggest decline in profit, while health care is holding up the best.

That outlook seems to already be reflected in the stock market, with the Stoxx Europe 600 Index down 18% this year after plunging from mid-February through mid-March, then recovering almost half the losses.

Key Developments:

• European stocks were little changed, with gains for oil, autos and bank shares offset by declines for health care.
• Airbus Burns Through $8.7 Billion, Warns of ‘Gravest’ Crisis
• Deutsche Bank’s Provisions Take Spotlight as Trading Rally Fades
• For more on dividends, click here. For the latest company guidance, click here.
• Trump Touts Better Testing; Musk Slams Lockdowns: Virus Update

Here’s the top virus-related earnings news for today by sector.

Industrials

• Airbus CEO Guillaume Faury said the plane maker is navigating through the “gravest crisis the aerospace industry has ever known” as the group said it burned through $8.7 billion in cash in the first quarter. It swung to a net loss in the first three months and said it’s still grappling with the implications of the pandemic and so can’t provide a full-year outlook. Citi said the results were “somewhat of a relief” and the shares bounced as much as 5%.
• Lock manufacturer Assa Abloy AB said sales and operating margins in coming months will be lower than in the first quarter assuming demand in its core markets continues to face the negative impact from Covid-19 already seen. The shares fell as much as 5.3% and Handelsbanken said its outlook is weak.
• Krones AG revenue fell 4.2% in the first quarter, with order intake down 19% year-on-year. Economic uncertainties have significantly affected customers’ investment confidence regarding new projects, especially since March, the maker of packaging robots said. The shares bounced as trading progressed, rising as much as 3.8%.

Travel & Leisure

• IAG said it will cut almost 30% of its workforce at British Airways amid a downturn in the airline industry that could last for years. The group lost money in the first quarter and said its results are likely to be “significantly worse” in the near-term owing to the huge hit to passenger demand the pandemic has delivered. The results missed expectations but its liquidity is reassuring, Bernstein said. The shares dropped as much as 8.1%.
• Spanish airport operator Aena SME SA’s first-quarter earnings fell by 75% as lockdown restrictions severely curtailed the use of airports worldwide. It’s very difficult to provide any outlook on earnings or on potential passenger traffic, the company said. Shares initially rose but turned negative, falling as much as 3.1%.
• Shares of Pandox AB slumped as much as 8.2% as the Swedish hotel operator forecast a “significantly greater” negative impact on earnings in the second quarter, after first-quarter Ebitda dropped 16%. Morgan Stanley said that Pandox remains a financially and operationally geared play on RevPAR volatility, but with a management that has a good reputation as well as a strong track record.

Banks

• Deutsche Bank AG’s traders posted their second straight quarter of double-digit gains as they benefited from frenetic buying and selling across Wall Street amid the onset of the coronavirus pandemic. Revenue rose 13%, beating estimates but falling short of the 31% average gain for the largest U.S. banks. Germany’s biggest lender had published some of its results on Sunday, reporting better-than-expected profit and revenue while setting aside 506 million euros to deal with souring loans. Shares rose as much as 5.2% though JPMorgan said loan loss provisions could rise.
  • You can catch up with the live blog for Deutsche Bank’s earnings here.
• A blockbuster quarter for Barclays traders was overshadowed by a 2.1 billion pound ($2.6 billion) bad-loan charge stemming from the coronavirus pandemic. The securities division reported a 77% jump in first-quarter trading revenue to 2.4 billion pounds as the virus whipsawed markets, beating the average 30% gain at U.S. peers. However, the lender set aside funds to cover defaults across the economy and joined its peers in warning of tough times ahead. Citi said it anticipates consensus will fall after the results. Shares jumped as much as 8.1%, as the bank sub-index in Europe also bounced.
• Standard Chartered joined other lenders in setting aside money to cover potential losses from problem loans as it reported a 12% fall in underlying first-quarter earnings. The $956 million provision is the biggest for the bank since 2015. Morgan Stanley said the update looks “solid.” Shares surged as much as 7.1%.
  • You can catch up with the live blog for Standard Chartered and Barclays earnings here.
• Nordea Bank Abp posted a jump in credit impairments that was less than analysts predicted and maintained its long-term plans. First-quarter net interest income rose by 5%. Peer SEB AB reported credit losses for the first three months higher than estimates and said the full-year outlook for credit losses is highly uncertain. Nordea shares rose as much as 5.3%, with SEB up as much as 5.9%.

Autos

• Daimler said its first-quarter earnings dropped by 78% and that unit sales, revenue and profit for 2020 will all decline year-on-year. It has started to ramp up production again but said Western Europe demand has slumped following a 45% decline in Chinese demand in the first three months. Analysts said the Mercedes-Benz unit outperformed. Shares were up as much as 2.8%.
• Volkswagen expects profit to drop “severely” this year after the coronavirus pandemic forced factory stoppages and hit demand in key sales markets from China to the U.S. The carmaker still expects to report an operating profit and has taken steps to cut spending. The shares rose as much as 3.7%.
  • The pair helped European auto stocks to outperform on Wednesday.

Health Care

• GlaxoSmithKline joined drugmakers benefitting from patients stockpiling ahead of coronavirus lockdowns. The company’s sales in the latest quarter rose 19% to 9.1 billion pounds and profit surged. Despite the company’s measures to respond to the pandemic “there are significant risks to business performance for the remainder of the year, and particularly over the next few months,” it said.
• AstraZeneca maintained its earnings outlook for the year as sales of key drugs advanced and manufacturing in China returned to full capacity. Profit will increase at a mid- to high-teens percentage this year, in spite of the business environment caused by the pandemic. Demand for three cancer medicines helped it report better-than-expected results for the first quarter. Two of the company’s drugs are being tested against Covid-19 as part of a U.K. government effort to fast-track therapies. Goldman Sachs said the numbers will likely please investors and shares rose as much as 2.6% to touch a record high.
• Hearing aid maker GN Store Nord A/S posted a rise in first-quarter revenue amid a mixed performance in its units. Its hearing aids divisions was hit by Covid-19 but its audio division saw a big increase in sales on demand for home office products. Bernstein said the second-quarter will be “very difficult” for the hearing aids unit. Shares fell by as much as 10%.
  • Health care stocks lagged in Europe as GN Store also pulled down peer Demant.

Consumer

• Remy Cointreau SA’s sales fell 25% in the three months through March, slightly better than analysts expected for the cognac maker’s fiscal fourth quarter. The company said full-year profit dropped about 25% on an organic basis, which is the better end of its forecasted range. Sales may fall as much as 55% in the current quarter, and the company said it opened two production sites in France in the past two weeks, anticipating a very gradual recovery in the second quarter, which starts in July. Jefferies said the update is “fine” but destocking may be a risk. Shares fell by as much as 1.2%.

Retail

• U.K. clothing retailer Next Plc suspended its dividend and secured extra financing after its full-price sales fell 41% in the first quarter. It said the retail sector and wider economy had “slowed faster and more steeply than we expected in March.” However, it said the measures taken to conserve cash meant that even if full-price sales dropped by 40% for the full year the company “can operate comfortably within its cash resources.” The revised stress tests for the company “paint a very bleak profit picture,” Morgan Stanley said. Shares dropped by as much as 6.5%.
• Carrefour SA’s first-quarter sales were slightly above consensus expectations as the pandemic boosted sales of groceries in European countries such as France and Spain, as well as in Latin America. The retailer said clients have been favoring supermarkets, convenience stores and e-commerce over hypermarkets since the beginning of lockdown, a trend similar to that reported by domestic peer Casino Guichard-Perrachon SA last week. Sales were strong but offset by higher costs, while Carrefour’s reliance on hypermarkets is a “drawback,” Bernstein said. Shares rose by as much as 5%.
• French household appliances retailer SEB SA said first-quarter like-for-like sales fell by 17%, and the second quarter will face a considerable impact from the lockdown. The firm is in good shape to recover in the second-half but the first-half will be tough, Citi said. Shares fell by as much as 4.8%. U.K. electricals retailer Dixons Carphone Plc jumped as much as 22% as its sales beat estimates.

TMT

• WPP said revenue fell by as much as 30% in some regions in the first quarter and it anticipates the impact on its business will worsen in the short-term. The advertising giant said like-for-like revenue less pass-through costs fell by 7.9% in March and senior staff will take pay cuts to protect the bottom line. CEO Mark Read said the group is using the drop it saw in China as a proxy for other markets. Goldman Sachs said the update is better than expected, with a solid performance in the U.S., and the shares rose as much as 6.5%.
• AMS AG, which makes laser components for the iPhone’s facial recognition system, forecast a limited impact due to the coronavirus, as the smartphone manufacturer won contracts for new camera features. The Austrian tech group still expects the takeover of German lighting group Osram Licht AG to close in the second quarter. Analysts said the outlook for the firm looks surprisingly strong and shares surged as much as 21%.
• Broadcaster Metropole Television SA said activity in the French advertising market remained at a standstill in April amid lockdown measures and it anticipates advertising trends will be greatly disrupted through to the end of the restrictions. It has suspended its dividend and intends to make cost cuts to offset the revenue decline it faces. Shares fell by as much as 3.2%.

Financials

• DWS Group, the asset manager majority-owned by Deutsche Bank, suffered 2.5 billion euros of outflows in the three months through March, the first quarterly withdrawals in more than a year. Still, that was lower than the 6.4 billion euros predicted by analysts. Coupled with poor investment performance as the coronavirus upended markets, the exodus helped drag assets under management down to 700 billion euros. The firm also said adjusted revenues and costs for 2020 would fall below this year’s figures. Shares rose as much as 8.8% and Jefferies said the results look better below the surface.

Chemicals

• Industrial enzymes maker Novozymes A/S said its full-year sales outlook remains “largely intact,” albeit with higher volatility, as it reported flat first-quarter revenue. It said it has been able to meet customer demand despite disruptions caused by Covid-19. The shares rose as much as 4.1%.
• Polymers and plastics maker Covestro AG maintained its full-year forecast despite earnings falling by 75% in the first quarter on a decline in sales. It is cutting its investment plans and raising its cost-cutting effort to cope with the turmoil. The firm thinks some of its smaller rivals could buckle under the virus. The shares rose by as much as 2.7%.

Utilities

• Orsted A/S, the world’s biggest developer of offshore wind farms, gave a sign that green power generators will emerge from the crisis relatively unscathed. The Danish firm maintained its earnings guidance for the year in its first-quarter update to the market and said it still plans to invest as much as 32 billion Danish kroner ($4.7 billion) this year. Shares rose as much as 3.7%.
• Iberdrola SA, Spain’s largest power company, reaffirmed its guidance for high-single-digit profit growth in 2020, shrugging off concerns over the economic impact of the coronavirus pandemic. The company said it benefited from strong performances at its liberalized and renewable units, which compensated for weakness at the regulated business unit. Shares reversed earlier declines to rise by as much as 2.7%.
• Rival Spanish utility Naturgy Energy Group SA is seeking to cut the cost of its gas supplies by activating price reviews of its “procurement contracts in view of the current environment,” after recording a 42% drop in net income in the first quarter. The company reiterated that it’s unable to offer guidance for 2020, but maintained its dividend. The shares fell by as much as 1.5%.

Metals & Mining

• Precious metals miner Fresnillo Plc reported lower silver and gold production for the first quarter, down 4% and 16%, respectively, against the previous quarter, mostly due to lower volumes of ore processed. The miner said it will keep its full-year guidance under constant review but is well funded with sufficient cash balance to withstand any temporary disruption. Shares rose by as much as 3.6%.
• Aluminum supplier Norsk Hydro ASA reported first-quarter earnings that topped expectations. Citi said the beat was driven by a better production performance, lower costs and currency effects and that the second quarter looks uncertain. The stock bounced as much as 8.3%.

Real Estate

• Mall landlord Klepierre SA withdrew its guidance and said gross rental income fell by 4.5% in the first quarter. It said its liquidity position remains strong and that it is continuing talks on the sale of some non-core assets. Shares fell as much as 3.8%.
• U.K. homebuilder Persimmon Plc has a current forward sales position of 2.4 billion pounds for 2020 to date versus 2019’s 2.7 billion pounds, while selling prices remain firm. The company has 600 million pounds of cash and has no plans to seek government funds or furlough staff. The shares reversed earlier declines to rise as much as 1.9%

Business Services

• Cleaning firm Elis SA said it anticipates a “sharp” decline in activity in the second quarter, forecasting organic revenue will decline by 40% in April. It said the hospitality business has virtually stopped, got a waiver on its bank covenants and has scrapped its dividend. Shares jumped as much as 19%.
• Call center operator Teleperformance SA also expects a fall in business activity in the second quarter and has launched a cost cutting program. First-quarter revenue grew 6.2% on a like-for-like basis. Shares rose as much as 10%.

Market Strategy

• Goldman Sachs strategists said the companies that can outperform in the next market cycle have strong balance sheets, low volatility growth and good dividend yields. It has called them GRANOLAS.
• Investors were cautiously taking part in the recent rally in stocks and the “pain trade” may come for a risk-on style rotation, Barclays strategists said.
• The majority of the world’s richest investors are waiting for stocks to drop further before they start buying again amid concerns about the impact the virus will have on the global economy, according to a UBS Global Wealth Management poll.