April 6, 2020 BARRON’S 15
operate over the next several quarters,”
says Edson “Ted” Bridges, chief executive
officer of Bridges Investment Management.
Ramona Persaud, manager of the Fidel-
ity Global Equity Income fund (FGILX),
plans to use her international holdings as a
guide to where U.S. companies may find
themselves several weeks down the road.
“What you can do is look at countries
that are ahead, that went into lockdown or
quarantined earlier,” Persaud says. “Listen
to the commentary about March and April
from Italy and some other European coun-
tries, and then that can give you a mental
map of what [U.S. business conditions]
could look like.”
Italian oil-and-gas supermajor Eni (E)
reports on April 24. UniCredit (UNCFF),
Italy’s largest bank, reports on May 6.
Moberg will be listening to what U.S.-
based companies have learned from their
operations in regions further along the
coronavirus curve and how they can ap-
ply that to their European or North Amer-
ican businesses. Some companies are al-
ready sharing their lessons. Last month,
Uber Technologies (UBER) CEO Dara
Khosrowshahi told investors, “Hong Kong
was one of our earliest cities that was af-
fected, and it’s the earliest one that is re-
covering.”
Finally, any commentary about liquidity
is sure to get significant attention and could
move stocks soon after companies report.
Many analysts probably are waiting for
real data before adjusting their estimates,
but some have gotten a head start, and the
trend isn’t pretty. Those analysts that have
adjusted their estimates in the past week
and a half now expect S&P 500 per-share
earnings to fall 12% in the first quarter,
according to Jonathan Golub, Credit
Suisse’s chief U.S. equity strategist. Across
the analyst community, the current forecast
is for an overall drop of just 6%.
The divide for the second quarter is even
starker: Overall estimates point to an 11%
year-over-year decline in EPS, while newer
revisions imply a 25% tumble.B
EarningsSeasonIsAlmost
Here.WhyAdjectivesWill
MatterMoreThanNumbers.
First-quarter earnings are about to kick off. For now, analysts expect a 6% drop
in S&P 500 earnings. The real numbers are likely to look much worse.
U
ntil now, the impact of Covid-19 on
corporate profits has been a largely
theoretical matter.
That’s about to change, with a
parade of first-quarter earnings reports
about to kick off, starting with those from
JPMorgan Chase (ticker: JPM) and Wells
Fargo (WFC) on April 14.
The novel coronavirus outbreak mean-
ingfully hit the U.S. in late February, about
midway through the quarter. By mid-
March, nonessential businesses were
closed in much of the country, travel and
events had been canceled, and millions of
employees were either working from home
or potentially without jobs.
That means that companies’ first-quar-
ter numbers will be messy, with a strong
start to the period and a brutal second half.
Many companies have already withdrawn
their forecasts for the quarter. Apple
(AAPL) was one of the first to take that
step in mid-February. Its stock has outper-
formed the market since then, falling 25%,
versus 27% for the S&P 500.
“It’ll be interesting to hear which man-
agement teams are still able to forecast their
business and which aren’t,” says Matthew
Moberg, who co-manages the growth-fo-
cused Franklin DynaTech fund (FKDNX),
with over $10 billion in assets.
“I don’t think pulling guidance is neces-
sarily a negative thing right now, because
anybody who says they have a really clear
view on how this virus is going to impact
the economy is probably overconfident,”
Moberg says.
Some management teams might com-
pare conditions in late March to those in
the rest of the first quarter or give some
additional figures about how the second
quarter is unfolding. But investors should
be ready to use their qualitative skills this
earnings season even more than usual.
“It’ll be a lot of listening for adverbs and
adjectives and tone that describe a mindset
around how those companies are going to
By NICHOLAS JASINSKI
Data as of 12/31/19.^1 Represents PFI’s asset management expertise through PGIM and its affiliates and its predeces-
sors. For additional information related to market cycles visit: http://www.nber.org/cycles.
© 2020 Prudential Financial, Inc. (PFI) and its related entities. PGIM, Inc., is the principal asset management busi-
ness of PFI and is a registered investment advisor with the US Securities and Exchange Commission. PGIM is a
trading name of PGIM, Inc. and its global subsidiaries. The PGIM logo and the Rock symbol are service marks of PFI
and its related entities, registered in many jurisdictions worldwide.FIXED INCOME | EQUITIES | REAL ESTATE | ALTERNATIVES | PRIVATE CREDIT | QUANT SOLUTIONS
OUTLAST.
THEVALUEOFALONG-TERMPERSPECTIVE.RIGHTNOW.
INVESTMENTEXPERIENCETHROUGH30MARKETCYCLES
1PORTFOLIOMANAGERSWHOAVERAGE23YEARS’TENURE
200INSTITUTIONALCLIENTSFOR20+YEARS