Bracing for the worst from US earnings in a pandemic

Investors are desperate for clarity on US corporate profits as the coronavirus pandemic has forced them to lower expectations ahead of the first-quarter reporting period starting in mid-April. US companies increasingly are withdrawing guidance while warning of the outbreak's steep toll on operations.
Twitter Inc last week pulled its first-quarter revenue outlook and forecast an operating loss, while Marriott International Inc and FedEx Corp have backed away from 2020 forecasts.
The profit picture is worsening even as Congress approved a $2 trillion funding package and stocks began to rebound from weeks of selling that ended the longest US bull market.
US cases have surpassed 100,000, and the United States now tops China and Italy as the country with the most coronavirus cases.
"Nothing is normal right now, and even looking for opportunities is kind of like throwing darts in the dark," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.
Any glimpses of guidance from companies as they report will be key this earnings season.
"It's hard to believe we'll find out a lot more in April, but at least earnings season pushes the door open a crack into learning how companies view things," JJ Kinahan, chief market strategist at TD Ameritrade in Chicago, wrote in a note on Friday.
"One possibility is some companies presenting separate guidance paths that account for best-case, middle-case, and worst-case pandemic scenarios."
Earnings forecasts have fallen, with analysts now projecting a year-over-year decline of 2.9% for the first quarter, 7.1% in the second quarter and 0.5% in full-year 2020, according to IBES data from Refinitiv. They still estimate slight growth in the third and fourth quarters, based on Refinitiv data.
Consensus estimates like Refinitiv's have not come down nearly as much as forecasts from some market strategists. One reason is that analysts reviewing individual companies tend to use corporate outlooks to derive their own estimates.
"Largely companies are saying, listen, 'I don't know what's going on. We're pulling our guidance. You're on your own,'" Jonathan Golub, chief US equity strategist at Credit Suisse Securities in New York, said on a call on Friday.
As a result, analysts' forecasts are understating the earnings contraction, he said, estimating a 24.1% drop in aggregate 2020 operating earnings for the S&P 500 index.
Last week, David Kostin, Goldman Sachs' chief US equity strategist, cut his 2020 earnings per share view for the S&P 500 to suggest a 33% decline from 2019. It was Goldman's third cut to its EPS view in a month.
This is a complete turnaround from the start of the year, when many investors were hoping for an earnings rebound after 2019's lackluster growth.
Fears of a US recession have mounted for weeks as strict measures to contain the coronavirus have led to temporary business shutdowns and a wave on layoffs. Data released on Thursday showed a record of more than 3 million Americans filed claims for unemployment benefits last week.
US multinationals including Apple Inc warned of problems early in the outbreak, which was first detected in China and spread rapidly to countries such as South Korea, Italy and Iran.
Without guidance, the number of companies that beat Wall Street analysts' estimates is likely to be well below the 70-80% of recent years, said Nick Raich, chief executive of The Earnings Scout, an independent research firm.
"We're going to get like 35% beating the Street if we don't get preannouncements."
Profit estimates are being cut for industries in which the impact is more obvious: airlines, energy, casinos, hotels and resort-type businesses, he said, but for many others, the damage is less clear.
Retailers could be hit hard. Lululemon Athletica Inc late Thursday said business slowed in the second week of March, but did not provide a full-year forecast.
Strategists also noted that the uncertain profit outlook combined with the recent sharp sell-off in stocks made it harder to assess price-to-earnings ratios. "It is silly to look at valuations right now," said Robert Phipps, a director at Per Stirling Capital Management in Austin, Texas.