Europe’s Lockdowns Threaten to Squash Fragile Profit Rebound

Just as European companies are finally starting to see a recovery in earnings, tough new measures to curb a resurgent coronavirus threaten to throw that hard-won progress into reverse.

Plans to shutter bars, restaurants and non-essential services for a month in Germany and France -- while keeping most businesses operating -- are tempering the optimism generated by better-than-expected results from the likes of Anheuser-Busch InBev NV, Volkswagen AG and Airbus SE.

So far this earnings season, almost two-thirds of companies in the MSCI Europe Index that have reported results have surpassed analysts’ estimates, according to Bloomberg Intelligence strategist Laurent Douillet.

“The decisions in the major economies of Europe to introduce stricter lockdowns are rendering this earnings season obsolete,” Jasper Lawler, head of research at London Capital Group, wrote in a note. “Companies have beaten estimates by the widest margin in history. But those record beats can just be thrown in the rubbish if new lockdown restrictions mean the results cannot be extrapolated” into the fourth quarter and 2021.

Budweiser-brewer AB InBev topped profit expectations last quarter, helped by robust demand in the U.S. and Brazil. Yet the company suspended its interim dividend payment and Chief Executive Officer Carlos Brito cautioned Thursday that the situation remains “volatile and uncertain” as governments renew restrictions.

Rival Carlsberg A/S raised its earnings forecast earlier this week, even as CEO Cees ‘t Hart told Bloomberg that the rest of the year “will remain very difficult given all the closures and the impact of measures by different countries.”

The moves by Germany and France are part of a series of tighter measures being imposed by governments across Europe, where more than 210,000 people have died from the disease and nearly 6.5 million have been infected. Chancellor Angela Merkel defended her decision to again limit movement in Germany, saying the country is in a “dramatic situation” as the rapid spread of the virus stretches health-care services to the limit.

Airbus, hammered by a plunge in air travel, generated 600 million euros ($704 million) in adjusted free cash flow during the quarter and said it’s on track to meet a target of “at least” break-even in the final three months of the year. The update adds to evidence the plane maker has fended off the worst impact of the aviation crisis, even as virus cases surge in the U.S. and Europe.

“We have learned to adapt to this new environment in the first phase of the pandemic,” Airbus CEO Guillaume Faury said in a Bloomberg Television interview. Speaking of the new lockdowns, he added: “We think we are prepared. The governments have as well shown that they pay a lot of attention to make sure that industries can keep working.”

Volkswagen returned to profit in the quarter, mirroring upbeat results from peers including Daimler AG and Tesla Inc. as the auto industry navigates the fallout from the pandemic better than some had feared.

VW, the world’s bestselling automaker, benefited from its large footprint in China, where sales have bounced back to pre-crisis levels. But the second wave of surging infections across North America and Europe risks choking a wider recovery.

Several competitors have pointed out that the coming months are difficult to predict after the coronavirus shuttered factories and showrooms in the second quarter, triggering billions of euros in losses.

©2020 Bloomberg L.P.

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