Earnings Roundup: Will Coronavirus Lead to Downward Revisions in 20Q1 Earnings?

The final earnings season of the decade has been anything but dull. Half of the S&P 500’s companies have reported 19Q4 earnings, with 69.5% beating analyst expectations. As a result, Y/Y earnings growth expectations for the quarter have turned positive (1.6%) from an expected decline of 0.3% on January 1, 2020. However, much of the good news has been upstaged by a coronavirus outbreak in China and fears that the virus may impact multi-national earnings next quarter.

Exhibit 1: S&P 500 % of Revenue from China & Hong Kong by Industry Group

In aggregate S&P 500 companies generate 60.5% of their revenue from the United States and roughly 6.2% from China and Hong Kong. The semiconductors & semiconductor equipment industry group (29.9%) has the greatest exposure to China and Hong Kong, while the utilities industry group (0.2%) has the least exposure.

Exhibit 2: WTI Crude Oil, Copper, and Soybeans

Exhibit 3: S&P 500 Changes to 20Q1 Earnings Estimates from Jan. 17 to Feb. 4

Oil and commodities such as copper and soy have fallen sharply on coronavirus fears. The drops in commodity prices correspond to some of the larger declines in S&P 500 20Q1 earnings expectations, which have fallen 0.9% since Jan. 17. The materials (-9.8%), capital goods (-9.7%), energy (-7.2%), and automobiles & components (-6.6%) industry groups saw the largest downward revisions to first quarter earnings estimates. This points to a potential slowdown in industrial growth, which could also be vulnerable to supply chain disruptions if the coronavirus continues to persist.

Exhibit 4: Apple Inc (AAPL.O) Value Chain Suppliers Map

Multinationals with global supply chains that have exposure to China and nearby areas, such as Apple Inc. (AAPL.O), which has 82 suppliers across China, Hong Kong, and Taiwan, may be at risk of value chain disruptions. So far, analysts have not incorporated these risks into their 20Q1 earnings estimates, which means that they could see some downward revisions.

Exhibit 5: Las Vegas Sands Corp (LVS.N) Revenue and Earnings Revisions

Sources: Eikon, StarMine, I/B/E/S data from Refinitiv

One of the other areas expected to be heavily impacted by the coronavirus outbreak is the casinos & gaming sub-industry, which has heavy exposure to Macau and roughly 68.3% of revenue generated in China and Hong Kong. As a result, analysts have reduced 20Q1 revenue estimates by 3.7% and earnings estimates by 13.1%. Analysts expect Las Vegas Sands Corp (LVS) to be one of the casinos to be hit particularly hard, due to their heavy exposure to Macau (roughly 64% of 2018 revenue). Refinitiv’s Analyst Revisions Model (ARM) measures analyst sentiment on a scale of 1 to 100, with 1 being most bearish. LVS’s ARM score of 2 shows that analysts are pessimistic on Las Vegas Sands, which can be seen by the recent downward revisions to 20Q1 and 20Q2 revenue and EPS estimates. For more on how gaming names that are impacted by the coronavirus see “Gaming Stocks Threatened in Coronavirus Outbreak” here.

As the coronavirus continues to disrupt supply chains and business operations investors should look for further downward revisions to earnings to follow.

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