Company / Analytics

Analytics, 23 July 2020

Analysis of Q2 2020 earnings for major companies

Earnings for what’s expected to be one of the most dismal quarters in a while are underway, and so far, it’s not necessarily all doom and gloom: investors are seeing mixed reports, and what can be said to be a true reflection of the economy, and the strength of the recovery after emergence from shutdowns.

We provide a brief look into some of the companies that have released their earnings: Coca Cola, United Airlines, Lockheed Martin, and Tesla. But a big lineup this week could further give investors a peek into the progress of the recovery and strength of big trends emerging from the shutdowns.

Lockheed Martin

Lockheed Martin posted stronger-than-expected second-quarter earnings Tuesday, and boosted its full-year profit forecast, even as it cautioned on the economic uncertainty surrounding the global coronavirus pandemic.

Earnings for the three months ending in June rose 15.8% from last year to $5.76 per share, just ahead of the Street consensus forecast of $5.72 per share. Group revenues rose 12.3% to $16.2 billion, again beating analysts’ estimates of $15.3. billion.

Looking into the second half of the year, Lockheed said it sees diluted earnings per share in the region of $23.75 to $24.05 per share on net sales of between $63.5 billion and $65 billion.

The June quarter has seen Lockheed Martin’s peers grapple with the effects of the coronavirus pandemic. But being a defense contractor, Lockheed Martin is relatively a safe haven from any economic upheaval caused by the spread of the virus. Economic recession and record unemployment levels have had no material impact on its business.

How the stock moved?

Lockheed shares were marked 3.35% higher in early trading following the earnings release to change hands at $374.80 each, a move that would trim the stock’s year-to-date decline to around 3.75%. The stock has since risen and was trading at $ 394,08 at the time of writing on Thursday.

Tesla

Tesla reported its fourth quarterly profit in a row Wednesday, positioning the electric-car maker as a leader in an auto sector that has struggled during the pandemic, and clearing the way for the stock to join the S&P 500.

For the second quarter of 2020, Tesla made $104 million in net income on more than $6 billion in revenues. That forecasts by analysts who had anticipated a loss of nearly $250 million and revenues of $5.4 billion.

Despite analysts’ caution, bullish investors had held out hope for a profitable quarter, bidding up Tesla stock 49% so far in July alone. Year to date, Tesla has nearly quadrupled in value, giving the company a current market capitalization of nearly $300 billion.

How the stock moved?

Tesla stock soared more than 5% after the earnings report and were trading at $ 1592,33 at the time of writing on Thursday. The shares have gained nearly 300% this year, comparing with gains around 1% for the S&P 500 index and contrasting with a loss of around 6% for the Dow Jones Industrial Average.

Coca-Cola

Coca-Cola released relatively upbeat second-quarter earnings on Tuesday that showed that the impact of the coronavirus pandemic is easing. Earnings fell by 33%, but the company sees improving demand as lockdowns ease.

The company earned 41 cents a share on revenue of $1.78 billion. On an adjusted basis, earnings were 42 cents a share on revenue of $7.2 billion. Analysts were looking for earnings per share of 40 cents on revenue of $7.21 billion.

Unit case volume declined by 16% globally. However, that metric did improve throughout the quarter, shrinking from a 25% decline in April to just 10% in June. Operating margins slipped to 27.7% from 29.9%. The company lost share in total nonalcoholic ready-to-drink beverages which declined due to the closure of restaurants, bars, sporting events, and movie theaters due to Covid-19.

Coca-Cola declined to provide guidance, citing uncertainty regarding the coronavirus pandemic. However, it warned that currency would be 3% to 4% headwind for revenues in the coming quarter.

The revenue was only slightly below consensus estimates, and the two-penny bottom-line beat was welcome, but investors may have been most heartened to hear that global volumes improved sequentially from April. This is a welcome contrast to the initial April earnings report which warned that volumes were plunging due to Covid-19 related closures and said investors should brace for more pain.

How the stock moved?

The earnings report pushed the stock higher in early Tuesday trading, with shares rising 2.2% to $47.15. The stock was trading at $48,48 at the time of writing on Tuesday.

Coca-Cola has fallen 16.7% year to date through Monday’s close, lagging both the S&P 500, which has risen 0.7%, and the Dow Jones Industrial Average, which has declined 6.5%.

Moreover, Coca-Cola CEO James Quincey said the company believes that the second quarter will likely be the most challenging of the year, a hopeful sign that Coke sees the picture continues to improve from here.

United Airlines

United reported a pre-tax loss of $2 billion in the quarter, beating consensus estimates for a loss of $3.1 billion as revenue plunged 87% to $1.5 billion. United also beat on earnings per share, reporting a loss of $5.79 versus consensus estimates for a $7.39 loss. Analysts expected the company to report an adjusted loss of $8.96 a share on sales of $1.3 billion.

The airline said its liquidity is improving—thanks partly to aggressive cost-cutting—increasing from $15.2 billion to an estimated $18 billion at the end of the third quarter. And United forecast a lower daily cash burn rate, expecting it to decline from $40 million a day to $25 million in the third quarter—the lowest burn rate of any large network carrier, the airline said.

The revenue wasn’t as bad as expected in a period the airline called “the most difficult financial quarter in its 94-year history.” The company noted that the slump in demand would extend through most of next year.

Like other airlines, United has been gradually adding back capacity, and doubled its schedule from June to July and is expecting to add flights in August.

Capacity will be down 65% in the third quarter versus 2019 levels. That would be a big improvement over the second quarter when capacity was down 88%.

Granted, United still has a long way to go to achieve profitability, but one of the challenges facing United and other airlines is matching flight capacity with a demand that appears to be rising and falling, depending on the pandemic’s scope and state quarantine rules.

How the stock moved?

United shares have lost 63% this year, compared with losses of 6% for the Dow Jones Industrial Average DJIA, and contrasting with gains of 0.7% for the S&P 500 index in the same period. The shares were trading at $31,67 at the time of writing (premarket), on Thursday.

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