Earning trimming unabated

On March 23, we provided a sector review of earnings revisions pinpointing 2020 earnings down 32% on 2019 after a fast-forward 39% correction. The 2020 earnings expectations then were downgraded from €690bn to €402bn for the 460 stocks comprising the AlphaValue coverage universe.

At the time, the correction was essentially driven by a strong negative view on banks with c. €-44bn losses in lieu of €104bn 2020 profits. This very dark view may have been too extreme as trading losses have been avoided in Q1. But we stick to it.

Fast forward six weeks and 2020 earnings are seen at €344bn or another €60bn loss. While Banks are ‘stabilised’, all other sectors contribute to these sharpened downgrades, including such defensives as Households or Food & Beverages. Insurance, long on an earnings island, has capitulated too and sheds earnings fast.

Obviously, Q1 earnings are a litany of similar songs: ‘weak China in February, collapse in western business from mid-March, disastrous outlook for Q2 ex China, guidance dropped’. So that the hammering is now seriously taking place.  

The picture below is from 06/05/2020. It is changing fast but gives a good sense of the extent of the disaster. To provide a degree of stability in those snapshots we look at downgrades over six months. 2020 earnings expectations are down a monumental €355bn over the 6-month period. Even by leaving banks aside, this amounts to a €192bn drop in earnings or a 33% downgrade in six months. In earnings growth terms (2020 vs. 2019 ex Banks) that is a 22% drop with more to come.

The following table shows that earnings downgrades are across the board (but for a technicality on the Real Estate sector) and can be pretty significant for sectors still showing nominal yoy growth (Telcos, Consumer Durables).

Earnings revisions: spot vs. 6 months ago