Vivendi Music Offsets Ads, Philips Orders Bounce: Earnings Wrap
(Bloomberg) -- Europe’s first-quarter earnings season got under way in the shadow of the coronavirus pandemic with some reassuring news.
French media company Vivendi SA said strength in its music unit is offsetting pressure on its advertising and publishing arms from the outbreak. Dutch medical-equipment maker Royal Philips NV reported a jump in orders in the quarter, buoyed by demand for its ventilators.
But you don’t need to look far for the gloom. Strategists at Goldman Sachs Group Inc. said the European earnings season is likely to disappoint investors even against tempered expectations, and Sanford C. Bernstein Ltd. said a pullback for the market is highly likely given that stocks aren’t cheap.
- European stocks gave up earlier gains, with the Stoxx Europe 600 Index falling about 0.4%; energy and basic-resources shares led the decline, with health care the best-performing sector.
- Northern Trust Corp.’s chief investment officer says be bullish on U.S. stocks and Fundstrat says it’s unlikely the S&P 500 will retest its mid-March lows.
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- On Tuesday, we’ll get updates from Gucci owner Kering SA, German software giant SAP SE, consumer-goods group Danone SA, Primark owner Associated British Foods Plc and London Stock Exchange Group Plc.
- Singapore Cases Surge; Spain, Germany Stabilize: Virus Update
Here’s the top virus-related earnings news for today by sector.
- Dutch medical-equipment maker Philips’s first-quarter order intake bounced 23%, primarily for diagnostic imaging, patient monitors and ventilators. Sales in the quarter slipped 2.3% and the company withdrew its 2020 guidance. Should Philips convert its order book as planned and end-markets start getting back to normal, it expects it will return to growth in the second half of the year. Philips said it’s selling ventilators below list prices, and it isn’t raising prices on them. The shares rose 4.8%.
- Bernstein says Philips remains well-positioned for when the virus outbreak abates.
- Novartis AG will fund and run a U.S. study on using malaria drug hydroxychloroquine to treat Covid-19. It is the latest move to rigorously test the medicine that has been hyped as a potential treatment for the novel coronavirus by U.S. President Donald Trump.
- Health-care stocks rose 0.6%, topping all other sub-gauges of the Stoxx 600. In addition to Philips, Sweden’s Getinge AB and Italy’s DiaSorin SpA advanced. Both have gained due to exposure to helping treat or diagnose the virus. Molecular Partners AG surged as much as 29% after it initiated a novel antiviral program to treat Covid-19.
- Vivendi shares rose 3.6% after the group said revenue increased by 4.4% on an organic basis in the first quarter and the virus had a “limited impact” on its performance. Universal Music Group posted a revenue increase of 13%, driven by sales of albums from the likes of Justin Bieber. Vivendi anticipates that its Havas advertising arm and its Editis publishing unit will take a hit from Covid-19 effects. Goldman Sachs said the results showed the resilience of Vivendi’s key assets.
- Publisher Future Plc, one of the hottest U.K. stocks in the past two years having risen almost 200%, is lowering the supply of its magazines to retailers and will close some “marginal” titles as part of a series of cost-saving measures. It anticipates a “significant reduction” in sales in coming months due to high street retailers being closed amid the lockdown. The shares rose 1% with Peel Hunt saying the update is encouraging and noting the company’s revenue skew has shifted away from newsstands and events towards online.
- Dutch specialty-chemicals distributor IMCD NV said it’s been able to remain open for business amid virus lockdowns and sees potentially interesting opportunities to increase its market share both organically and through acquisitions. Shares were up 1.8% in Amsterdam.
- ING said the results were stronger than expected, particularly in the U.S. and Asia-Pacific.
Travel & Leisure
- State aid for the airline industry remains in focus. Spanish Tourism and Industry Minister Reyes Maroto said the country is working with the European Commission on a plan to create a fund to ensure that airlines don’t go bankrupt. And French carrier Corsair is in talks for a state-backed loan to weather the crisis.
- European travel and leisure stocks reversed earlier gains, though most airlines are higher, led by EasyJet Plc.
- Eyewear giant EssilorLuxottica SA joined the ranks of companies that have scrapped their dividend, a move it says is designed to protect its balance sheet and finance a fund for employees hit by the virus lockdown. However, a special payout before the end of 2020 may be proposed should the recovery prove solid enough, EssilorLuxottica said. The shares fell 0.3%.
- Fnac Darty SA shares jumped as much as 12% after the French electricals retailer reported first-quarter sales that were much better than feared, according to Bryan Garnier. But German consumer-electronics retailer Ceconomy AG fell after its results released late on Friday, with Commerzbank analysts saying there is a high probability of asset impairments and an equity capital increase.
- Premier Foods Plc shares jumped after it forecast earnings at the top end of market views. The company, whose products include noodles, curry pastes and custards, is benefiting from increased sales as consumers cook more meals at home, Peel Hunt said in a note that raised its price target on the stock.
- French car-parts manufacturer Faurecia SE said first-quarter sales fell 14% and that it’s not in a position to provide guidance for the year. Its chairman and CEO will both take 20% pay cuts for at least the second quarter. Oddo says the results show Faurecia is already facing a significant impact from the virus and anticipates an “even worse” second quarter and the shares jumped 2.4%.
- Chief Financial Officer Michel Favre said the company’s ramp-up in China has been surprisingly quick, with all plants in the country restarted with protective measures in place.
- Executives from Daimler AG, BMW AG and Volkswagen AG will be among those attending a telephone conference with German ministers on May 5 to discuss state aid for the car industry, according to Handelsblatt.
- The Stoxx 600 Automobiles & Parts Index is down 1.8%.
- Mining equipment maker Sandvik turned positive after its first-quarter earnings topped expectations and it said it will cut costs. CEO Stefan Widing said the second-quarter will be “very tough” but said the Chinese market came back strongly in March.
- Bloomberg Intelligence said the first quarter will be a “calm-before-the-storm” moment for European industrials.
- Holding company Bollore said the impact of the virus on its businesses has been “limited” though it said it’s impossible to determine with any certainty how long the effects will last. The shares rose 0.7%, outperforming the 1.1% decline for the Stoxx 600 Industrial Goods & Services index.
- Analysts at Jefferies say the first-quarter earnings season will be “almost irrelevant” for big oil companies as it slashed estimates across its coverage. The focus will be on how the companies cope in the next three months and beyond.
- Oil prices are dropping again on Monday morning to hit a 21-year low as production cuts prove insufficient to offset the huge hit to demand virus shutdowns have caused.
- Energy stocks fell the most in the Stoxx 600, led by oilfield-services companies John Wood Group Plc and TechnipFMC Plc.
Metals and Mining
- Russian gold producer Polymetal International Plc confirmed its production guidance for 2020 and maintained its dividend payment for 2019. Revenue rose 8.8% in the first quarter as gold-equivalent production climbed 5.4%. A 7% decrease in sales volumes was offset by higher gold prices, the miner said. The shares dropped 0.9% in London. Polymetal secured funding for six to nine months to establish a cash cushion and mitigate any liquidity risk.
- The Stoxx Europe 600 Basic Resources Index dropped 2.4%, the second-biggest decline in the broader index, after iron ore producer Vale SA cut its production guidance for the year.
- During the first quarter, earnings growth forecasts for the year were slashed by about 25% in Europe, the worst start of the year in terms of profit downgrades since 2000, according to Goldman strategists. But despite the cuts in estimates, earnings are still likely to disappoint, they say, citing the pace of growth that slowed through the quarter, the fact that analysts’ estimates tend to lag, and that some companies have suspended their guidance.
- Goldman expects European profits to drop 45% in 2020, more than the current bottom-up consensus seeing earnings falling 17%. During the season, investors are likely to focus on balance sheet strength, news on dividend policy, signals for the second quarter and beyond, and maybe signs of China trading for businesses with exposure there, the strategists write.
- JPMorgan Chase & Co. strategists say first-quarter earnings may not see companies beating expectations as the hurdle to get over has not come down enough. GDP cuts also imply much greater reductions to earnings growth than currently priced in.
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