Are S&P 500 Companies Lowering Guidance Due to the Coronavirus?

During each corporate earnings season, it is not unusual for companies to comment on subjects that had an impact on their earnings and revenues in a given quarter or may have an impact on earnings and revenues in future quarters. Given the concerns in the financial markets about the impact of the coronavirus, have companies in the S&P 500 commented on the coronavirus during their earnings conference calls for the fourth quarter?

To answer this question, FactSet searched for the term “coronavirus” in the conference call transcripts of the 364 S&P 500 companies that conducted fourth quarter earnings conference calls from January 1 through February 13. Of these 364 companies, 138 (38%) cited the term “coronavirus” during the call. At the sector level, the Industrials (26), Information Technology (26), and Health Care (24) sectors have seen the highest number of companies discussing “coronavirus” on earnings calls of all 11 sectors.

For the 138 companies that discussed the coronavirus on their earnings calls for Q4, the average revenue exposure to China is 7.2%.  For all S&P 500 companies, the average revenue exposure to China is 4.8%.

While many of these 138 companies discussed the current negative impact or the potential future negative impact of the coronavirus on their businesses, 47 companies (34%) stated during their earnings call that it was too early (or difficult) to quantify the financial impact or were not including any impact from the coronavirus in their guidance. On the other hand, 34 companies (25%) included some impact from the coronavirus in their guidance or modified guidance in some capacity due to the virus.

Given the large number of companies that did not update or modify guidance due to the impact of coronavirus, it is possible that there will be an increase in the number companies issuing negative guidance later in the first quarter as these companies gain clarity on the impact of the coronavirus on their businesses.

For example, Ralph Lauren stated on February 4 during the company’s earnings call, “At this early stage, our guidance does not include potential impact from the coronavirus outbreak, given the dynamic nature of the situation.” Thus, the company is included in the count of 47 companies that did not include any impact from coronavirus in their guidance issued during their Q4 earnings call. However, the company later stated in a press release on February 13 regarding the impact of the coronavirus, “The Company’s fourth quarter Fiscal 2020 guidance is now estimated to be negatively impacted by $55 million to $70 million in sales and $35 million to $45 million in operating income in Asia, driven by current trends in China, Japan, and Korea.”

A number of the companies that did include some impact of the coronavirus in their guidance also stated that there was uncertainty about the overall or long-term impact on their businesses.  For example, Under Armour stated in their earnings call on February 11, “As Patrik detailed, this outlook includes an anticipated first quarter negative impact in the APAC region stemming from the very unfortunate coronavirus situation, which we currently estimate challenging global revenue growth by little more than a 1 point in 2020. To reiterate, this outlook does not contemplate any additional impact beyond the first quarter, and these impacts could be material depending on how the situation develops.” Thus, some of these 34 companies may also revise guidance for future quarters or the full year at a later time when they have more insight on the potential long-term impact of the virus on their businesses.

To date, guidance issued by S&P 500 companies for Q1 2019 has been less negative than average. In terms of EPS guidance for Q1 2019, 51 S&P 500 companies have issued negative EPS guidance and 25 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 67% (51 out of 76), which is below the five-year average of 70%. In terms of revenue guidance for Q1 2019, 33 S&P 500 companies have issued negative revenue guidance and 27 have issued positive revenue guidance. The percentage of companies issuing negative revenue guidance is 55% (33 out of 60), which is below the five-year average of 57%.

Comments from companies that discussed "coronavirus" on their Q4 earnings calls can be found in the full FactSet Earnings Insight report, which can be downloaded at the link below.