Roughly a quarter of S&P 500 companies have reported first-quarter results by now. But investors looking forward want to know how companies will do, not how they've done.
And some companies already warned business looks weaker for 2020 than they thought before. Ten S&P 500 companies, including real estate company SL Green, health care Johnson & Johnson and industrial Emerson Electric, issued profit guidance for 2020 that's below their previous view, says FactSet.
"The market will certainly continue to focus on any forward EPS guidance issued by S&P 500 companies for the remainder of the earnings season to gain as much clarity as possible on the financial impact of Covid-19," said John Butters, earnings analyst at FactSet.
S&P 500 Warnings: A Look So Far
Given that the economy is shut down, investors knew the first-quarter would be bad — even godawful in some cases. But it's important to see which S&P 500 companies are already warning they will miss their targets.
It's still early in the first-quarter earnings reporting season, with just 122 S&P 500 companies reporting so far. Many big technology companies like Microsoft are still due to report. But so far, S&P 500 companies are on track to report 15.8% lower profit during the first quarter.
That's the biggest S&P 500 profit drop since it fell 26.9% in the second-quarter of 2009. It's also markedly worse than the 6.8% profit decline expected on March 31. Earnings misses and downgrades mean nine of the 11 S&P 500 sectors are projected to post lower profit than predicted on March 31.
Most S&P 500 companies are being guarded about the future — as even Bill Gates think the recovery will take years. Only about 40% of the S&P 500 companies that reported would comment on 2020 profits, Butters says.
And of those 50 companies, 60% said they would not give 2020 profit guidance or withdraw previous guidance. Most of the companies withholding guidance are in the industrials and consumer staples sectors, he says.
Still, 20 S&P 500 companies did give guidance. And most troubling, 10 lowered their views for 2020 profit. Six companies maintained their forecast and just four increased it.
S&P 500 Warnings To Investors
SL Green's drop-off in business didn't seem to surprise anyone. Shares of the New York-based real estate firm are down 51% this year. Investors are bracing for a difficult year. The company's profit is seen plunging in half in 2020. That explains the low 50 IBD Composite Rating, of a best-possible 99.
On April 22, the company told investors what they feared. "The Company is revising its earnings guidance ranges for the year ending December 31, 2020 to net income per share of $1.83 to $2.33 and FFO per share of $6.60 to $7.10 per share as we expect that the global Covid-19 pandemic will have an impact on our business, and our industry as a whole."
All told, four of the 10 S&P 500 companies warning on 2020 carry Composite Ratings of 70 or lower. That shows their stock prices and fundamentals are lagging the top 30% of all others stocks.
Emerson Electric is another example. The S&P 500 stock is down 29% this year and has a low 45 Composite Rating.
On April 21, it said, "Management has updated the fiscal year 2020 outlook to reflect the changing demand environment associated with COVID-19 and the concurrent unfolding energy market dynamics. GAAP earnings per share guidance is $2.62 to $2.82. Adjusted earnings per share guidance, which excludes restructuring actions and related costs, is $3 to $3.20, compared to prior guidance of $3.55 to $3.80."
Analysts expect Emerson's profit to fall 17% this year.
Not All S&P 500 Warnings Are Doom
Many of the S&P 500 companies that warned on 2020 still sport high Composite Ratings. And that's a reminder of why investors should know how to read charts and financials, not just listen to management.
Johnson & Johnson warned about 2020 profit on April 14. Analysts now think the pharmaceutical giant's profits will fall 11% this year. But it's also in the sweet spot of a sector well positioned for the post-coronavirus world. Shares are up 6.1% and carry a 94 Composite Rating.
Time will tell if investors start to worry as more warnings pile up from S&P 500 companies. But seeing the warnings pile up is also another reminder of why investors should focus on only the leading growth stocks.
S&P 500 Companies Issued 2020 Profit Warnings
| Company | Symbol | YTD % ch. | Sector | Composite Rating |
|---|---|---|---|---|
| SL Green Realty | -51.3% | Real Estate | 50 | |
| Emerson Electric | -29.4% | Industrials | 45 | |
| Globe Life | -27.7% | Financials | 61 | |
| Paychex | -19.9% | Information Technology | 70 | |
| Accenture | -16.6% | Information Technology | 86 | |
| IHS Markit | -13.0% | Industrials | 87 | |
| Verizon Communications | -5.7% | Communication Services | 85 | |
| Edwards Lifesciences | -4.2% | Health Care | 99 | |
| Prologis | -0.1% | Real Estate | 89 | |
| Johnson & Johnson | 6.1% | Health Care | 94 | |
| S&P 500 | -12.1% |
Sources: FactSet, IBD, S&P Global Market Intelligence, data as of April 24
Follow Matt Krantz on Twitter @mattkrantz
