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WEEKLY MARKET ROUND-UP – 13/08/20

Second quarter earnings season better than expected

With the second quarter earnings season nearing completion, results have been better than expected across the board given the period witnessed most of the world in some form of coronavirus lockdown.

As of 11 August, 91% of companies in the S&P 500 Index had reported their results, of which 80% recorded positive earnings surprise, and 63% reported positive sales surprise, meaning the actual figures were better than analysts had been forecasting.

Approximately 90% of the S&P 500 companies that have already reported their second quarter results, have beaten their earning per share (EPS) estimates, with the average S&P 500 company having beaten estimates by around 22%.

Jonathan Callow, head of dealing at Quilter Investors, says: “If you consider that historically these two figures for US equities have come in at 72% and 2.5% respectively, this is a huge leap between what was expected and what has been delivered. This in turn has helped boost US equity markets.”

However, the positive earnings surprise has not been restricted to the US, the earnings season is three-quarters complete in Japan and halfway through in Europe with both regions showing trends of company results outperforming analyst expectations.

In Japan, 83% of companies in the TOPIX Index have delivered their second quarter results, with 24% recording a positive sales surprise and 14% of the companies reporting a positive earnings surprise, with Nikkei 225 companies faring slightly better. Of the 90% of companies that have reported, 45% have beat analyst expectations on sales, and 42% have beaten earnings expectations.

The upbeat trend is equally visible in Europe, where 78% of the companies in the STOXX Europe 600 have now reported, with more than half (56%) reporting positive sales surprise and 40% delivering positive earnings surprise.

In the UK, earnings season is slightly behind other regions, with just 66% of companies in the FTSE 100 Index having reported, but there remains evidence of a positive trend with 52% of those who have reported delivering a positive sales surprise and 19% reporting a positive earnings surprise.

HelloFresh raises sales guidance as lockdown benefits continue

Meal-kit company HelloFresh recorded a 122.6% year-on-year increase in second quarter revenue, as it witnessed increased customer demand driven by the coronavirus crisis.

The German company, which delivers fresh food meal kits to your door, reported €972.1m in revenue for the second quarter of 2020, compared with €436.7m in the same period in 2019. The number of active customers also rose by 73.6% year-on-year over the period, increasing from 2.4 million to 4.2 million by the end of June. Following the strong performance HelloFresh has increased its full year 2020 revenue growth guidance from between 55% and 70% to between 75% and 95%.

Dominik Richter, co-founder and chief executive, said: “The growth we’ve been seeing in the last months has been exceptional. We see clear indicators how customers have started to form new habits and expanded their share of weekly HelloFresh meals as they are spending more time at home.”

Kodak shares tumble over loan investigation

Shares in Eastman Kodak fell almost 30% on Monday (10 Aug) after a deal for a $765m government loan was paused amid “recent allegations of wrongdoing”.

The company, best known for its photography business, signed a letter of intent on 28 July with the US International Development Finance Corporation (DFC) to receive a $765m loan to help switch its business towards pharmaceutical  production, making it the first deal under the new Defence Production Act aimed at reducing US reliance on China.

The day before the deal was announced Kodak’s share price rose around 25%, and it moved even higher following confirmation of the deal, at one point rising 600%.

However, last week US Senator Elizabeth Warren questioned the pre-deal share price rally, referring the matter to the  Securities and Exchange Commission (SEC), and on Friday (7 Aug) the DFC confirmed on Twitter that the deal would not go ahead until “these allegations are cleared”.