The latest earnings season data confirm that, after three consecutive quarters of contraction, S&P 500 companies have returned to sales and earnings growth much sooner than analysts had forecast.
Only two months ago, US company analysts were predicting fourth-quarter revenues to decline. Instead, the figures show that corporate America has turned the corner.
thanks to epic levels of US government stimulus and super-low interest rates, by Tuesday (2nd March), when 98% of S&P 500 companies had reported fourth quarter earnings, 69% had beaten sales forecasts and 79% had beaten expectations for earnings per share (EPS).
Europe on Course
Earnings for European companies also look robust. By Tuesday (2 Mar), 76% of the STOXX Europe 600 had reported earnings for the fourth quarter with 43% delivering positive sales surprises and 45% beating analysts’ earnings forecasts.
In aggregate, weighted European earnings were 20% ahead of forecast at this stage and on course to beat expectations by the most for at least 14 years.
Despite the strong numbers coming from European companies, stock prices generally eased suggesting that much of the good news was already priced into the market.
In the UK, where 25 FTSE 100 companies had published earnings reports, 28% had delivered both positive sales and earnings surprises. In Japan, the Nikkei 225 constituents delivered 61% positive sales surprises and 55% positive earnings surprises.
As Quilter Investors senior dealer Jonathan Perrin observes, “This is a very strong set of earnings numbers especially in the US where blended EPS growth hit 3.9% after analysts had been expecting an almost double-digit drop at the end of 2020.
“We could well see a 25% rise in EPS for S&P 500 companies this year, after it fell 12% in 2020, with total sales for S&P companies now expected to jump 16% to more than $12trn in 2021.Sectors such as industrials, consumer discretionary and materials will all benefit from economic recovery,” he says, “while the vaccine rollout likely holds the key for the airlines, energy companies and the hospitality sector.”
Shares in Zoom, the video communications platform that was one of the major winners of lockdown, confounded expectations on Monday (1 March) when they surged close to 10% during the day and gained a similar amount in after-hours trading.
With workers returning to offices and children returning to schools in the coming months, analysts were expecting a slump in business for the company, which enjoyed a stellar 2020 as one of the biggest beneficiaries of the lucrative ‘work from home trade’. However, Zoom benefited greatly from the US holiday spike in coronavirus cases and the subsequent extension of social distancing.
Zoom’s fourth quarter 2020 sales surged 369% on the previous year from $188.3m to $882.5m, eclipsing forecasts, while earnings per share came in at $1.22, up from 15 cents a share the year before.
Guidance for the current quarter and full fiscal year also sailed past expectations with Zoom stating it expected first-quarter revenue of around $900m and full-year revenues of $3.8bn.
On Monday (1 March), the EU banking regulator, the European Banking Authority (EBA), put out a formal public consultation on requiring banks in the region to start publishing details of their “green asset ratio” (GAR) from next year.
The new metric would track the level of climate-friendly loans, advances and debt securities on each bank’s balance sheet as a percentage of total assets. As climate change creates ever more extreme weather events, the regulators want more reliable information on bank exposures. Banks would also have to publish GARs for their advisory service fees, trading operations and off-balance sheet activities.
Re-insurer Munich Re estimates that extreme weather incurred $210bn in global damage last year. The US suffered $95bn of weather-related losses thanks to record numbers of Atlantic hurricanes and epic wildfires during the second-hottest year on record. Disaster losses in Asia hit $67bn, including $17bn due to monsoon floods in China and $14bn due to cyclone damage in India and Bangladesh, little of which was insured.
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